ZIMBABWEAN taxpayers are now obliged to withhold 10% of what is charged by retailers or service providers who fail to prove that they pay tax to the government, according to a new Incom
e Tax Act amendment.
For example, a taxpaying company or individual buying a loaf of bread for $4 000 can ask the supermarket or retailer to produce a tax clearance certificate. If the supermarket does not have one the customer is allowed to withhold $400 which must then be remitted to the taxman.
In short, customers can deduct 10% if the supermarket cannot prove that it has been paying tax to the government.
A Zimra statement issued mid-January allows the customer to act as tax collector on behalf of the government.
The jury is still out on how this plan will work but that’s how Zimra intends to curb tax evasion.
Zimra also wants to use the same law to bring more people into the tax net, especially informal sector traders.
“Please be advised that with effect from 1st January, 2005, section 80 of the Income Tax Act (Chapter 23:06) has been amended such that all persons who enter into contracts with quasi-government institutions and taxpayers who are registered with the Zimbabwe Revenue Authority, are required to submit evidence that they have furnished a return under section 37 of the Income Tax Act,” Zimra said.
“Those who fail to produce evidence that they have furnished such a return will have 10% withholding tax deducted from the amount due to them.”
A tax clearance certificate is proof that a company’s tax payments are up to date. The directive means that Zimra has given companies and even the man on the street the right to collect tax on its behalf.
It is a deal based on the belief that every man is honest enough to remit to Zimra what he will withhold from a supplier or retailer who fails to prove that they have been paying tax consistently.
However, experts say the law cannot be practically applied. Economist and accountancy expert Eric Bloch said the law would have to be further amended to be applicable.
“It’s not practical because that means if you buy a soft drink from a shop that does not have a tax clearance, you have to deduct 10% of the price of the drink. But one has to give that 10% to Zimra and that’s impossible,” Bloch said.
“The law would have to be amended again because it’s just not practical,” he said.
The tax revenue figures have been on an inflation-induced increase over the past few years but their real value has not improved.