Thursday, 20 August 2020

TRADERS IN FOREX TAX FRAUD


MOST businesses selling goods and services in US dollars are receipting the money in Zimbabwean dollars, opening themselves to potential charges of tax fraud.

The Government recently authorised the pricing of goods and services in both local currency and the US dollar, but using the ruling auction rate for the conversions.

At the same time, it has been the law for some time that taxes have to be paid in the currency of the revenue, so that a business that receives 13 percent of its revenue in foreign currency and 87 percent in local currency would pay 13 percent of its company taxes in foreign currency and 87 percent in Zimdollars. 

More critically, this rule applies to all taxes, meaning that VAT in particular has to be accounted for separately for each currency used in sales.

The only way of satisfying tax inspectors is having receipts that indicate the currency of the transaction so that the business will pay appropriate taxes in the same currency.

At the same time all cash, local or foreign, is supposed to be banked, with foreign currency obviously banked into an FCA account, usually the same one that receives electronic foreign currency payments.

Business entities, in terms of Statutory Instrument 185/2020, are obliged to display, quote and accept payment in both the local currency and US dollar, using the prevailing foreign currency auction rate.
  
However, most wholesalers, retailers and manufacturers are yet to display prices in both currencies.

Although many now prominently display the conversion figure they use, there has been no ruling yet if this fulfils the requirement but customers now know in advance just what rate is being used and that seems to meet the requirements in spirit if not in detail.

Some, to minimise the complexities of two currencies, have their own bureau de change in-shop where the money is changed first and so all payments are in local currency.

Authorities are able to monitor the money changing under the rules that bureaux de change have to follow.

An investigation by The Herald has found that a number of registered shops in Harare’s city centre, the industrial area as well as high density suburbs are accepting US dollars but issuing the receipts in Zimbabwean dollar equivalent at a rate of their choice.

A tax expert, Mr Sylvester Ruzvidzo of Sylve Accounting Services said any payment done in foreign currency should be receipted in the same currency for taxation purposes. 

Traders issuing receipts in a different currency, according to the expert, are committing potential tax fraud.

“If you pay for goods and services in foreign currency, you must be issued with a foreign currency receipt. Shops that issue cooked-up receipts will only do so with criminal intent. That is fraud which is killing the country’s economy,” said Mr Ruzvidzo.

Zimra head of corporate communications Mr Francis Chimanda said those who are not correctly declaring tax will soon be dealt with in terms of the law.

“We are aware of what is happening in the market and Zimra has a publicity drive through various media channels and our digital platforms.

“Individual companies are also being tracked per sector to identify offenders and current focus includes hardware traders among others. Large clients are being monitored closely as well.

“Any incorrect declaration by a registered operator will result in all income deemed foreign currency income and all tax to be paid in forex and not apportioned.

“The penalty is also very heavy for those falsifying records to 100 percent of tax due. Prosecution of offenders is being intensified. Failure to keep proper books and not banking is also prosecutable,” he said.

Mr Chimanda said Zimra had put in place a raft of measures to minimise tax losses. 

“Government may lose some revenue but this is being minimised by a number of measures. Anyone who fails to declare correct forex income and Zimbabwe dollar income will be deemed to have all income in foreign currency.

“So traders need to know that Zimra has not started audits to balance stocks and income. Voluntary disclosure letters are being distributed to encourage compliance,” he said.

He added: “Zimra has engaged all fiscalisation suppliers to make sure fiscal gadgets are configured to produce a receipt per currency of purchase. A meeting has also been held virtually with operators to issue correct invoices and account for their revenue correctly.

“Zimra has started forex audits by issuing voluntary declaration letters to clients to own up and correct previous mistakes.” But detailed audits will follow.

Retailers Association of Zimbabwe president Mr Denford Mutashu confirmed the development but said some entities were complying with the law.

“We have seen others that have complied, and there is clearer indication of the currency being used, also genuinely remitting in the currency they have used to sell their products. 

“But in the same environment, others are not complying. We have gone on a campaign on that regard. Some are doing it ignorantly and others not. We have realised that the other issue is the problem of change. Some buy in USD and the change comes in local currency and it creates problems in terms of remitting. However, we encourage fair business practices,” said Mr Mutashu.

Confederation of Zimbabwe Industries (CZI) president Mrs Sekai Kuvarika said her organisation had not done a survey on the potential problem. “Personally, I have not encountered any big retailers doing that. Maybe that practice is with small businesses while some of them are not properly registered.

“Actually, we have not done a survey on that to see what is happening in terms of receipting,” she said.

In one of the shops in Harare’s city centre, the reporter bought two pressure files at US$2 each but was issued a receipt bearing the total amount of $398.74, incidentally showing a higher-than-legal exchange rate.

The reporter visited another shop near Charge Office bus terminus where he bought a coffee mug for US$1 and was issued a receipt reflecting the total amount of $80, which unlike the first shop was at least at the correct exchange rate.

Another reporter paid US$3 for lunch at one of the biggest retail shops along Mutare Road in Harare but was given a receipt showing $258 and some change in local currency. 

At boutiques, flea markets and tuckshops in the city, people pay in foreign currency but are not issued receipts. The same sort of little businesses frequently omit all receipts, regardless of currency.

The same is also rampant at shopping centres in the high density areas.

Also in the high density areas, some retail shops are now strictly demanding US dollars and they have erected billboards listing the foreign currency prices of their goods. Since few such shops issue any receipts, it is impossible for the tax inspectors to figure out what taxes are payable, let alone how they should be apportioned.

At Chigowanyika shopping centre in Chitungwiza, a number of shops are strictly taking US dollars. But one shop was offering change in local currency while at other shops the buyers were forced to pick other smaller items in lieu of change.

A visit to hardware shops and brick-making companies around Harare showed that most of them were trading in foreign currency but issuing receipts in local currency. Herald

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