“Forewarned, forearmed; to be prepared is half the victory.” —Miguel de Cervantes
At the beginning of this year, the Zimbabwe Revenue Authority (Zimra) announced that it would no longer be issuing tax clearance certificates manually as in the past. Taxpayers are now applying for tax clearance certificates online. Although the e-filing system started with some glitches, just like with every new thing, it is now working almost smoothly and many business owners have managed to migrate to the system.
What does this mean for owners of small and medium businesses?
The e-filing system has transferred the labour of capturing tax returns from Zimra officers to taxpayers themselves. This has freed up the officers so that they can spend their time on the ground, visiting companies at their places of business. Now you can expect more and regular visits from Zimra officials wanting to look at your books. Those who are not complying fully with tax laws are now more likely to be caught and punished.
Further, the e-filing system enables anyone to check the validity of a tax clearance certificate right from his or her computer or smart phone. Customers can now easily pick out fake tax clearances, of which I hear they flooded the country in the past few years.
Zimra has gone even one step further in trying to collect as much revenue as possible by introducing fiscal cash registers (FCR) machines. These machines capture real-time transactional data from all registered traders and they are being installed inside the traders’ premises and at points of sale.
The system is set to help Zimra identify firms that under-declare their transactions for purposes of tax evasion and is being used for both formal and informal businesses.
I do not know how effective these new systems will work, but I doubt they will make an impact on informal traders. The informal market — where, it is believed, the bulk of the cash in Zimbabwe circulates — consist of hardened people who, through years of suffering in a difficult economy, have and will always find ways of dodging and by-passing the system. Most of them sell smuggled second-hand clothes and shoes and, just as they have ways of dodging Customs at the border, they will find ways around the new Zimra measures.
Besides, some of the informal traders are merely fronting for the real owners, mostly from Asia and some African countries who do not want to pay any taxes in Zimbabwe.
If Zimra wants to get more money from informal traders, the only viable method is to increase consumption tax, otherwise known as VAT. This will push up prices and clients will definitely protest. Therefore, the only alternative is for Zimra to pin down and squeeze more revenue from SMEs, the majority of whom are already struggling and operating on the brink.
Business owners who are operating above board and complying with tax laws have nothing to fear. Zimra will not bother them if they are paying taxes religiously.
However, some, due to a depressed business environment, have not been complying fully. If you are in such a situation, the first thing you need to do is to make sure you are registered as a taxpayer and that your status with Zimra is up to date. If you owe any taxes, make an installment plan to pay up. If you have any outstanding returns from the past, submit them to Zimra online immediately.
Once you have regularised your tax situation, you will be able to apply for the new tax clearance certificate, which you can do online and print it right in your office.
Remember, if you do not have the tax clearance certificate, your customers will have to deduct 10% from your invoice and pay it to Zimra. This 10% could be the margin that you are making on your sale and could make the difference between a profit and a loss.
The second thing you must do to avoid problems with Zimra is to purchase your materials and services only from tax-paying suppliers. This means you only deal with companies and individuals who are registered with Zimra and have current tax clearances. This is important because if you deal with non-tax compliant suppliers, Zimra will demand from you a 10% withholding tax from all the invoices you pay to them. If you cannot deduct this 10% from the payment you are making to the supplier, then you will have to fork it out from your own pocket and that is an unnecessary loss for you.
If you are VAT-registered, you will benefit from buying from tax-compliant and VAT-registered suppliers because you will be able to claim input VAT and offset it against whatever you have to pay to Zimra.
Now with Zimra officials visiting businesses from door to door, be prepared for them by abiding with tax laws. That way, you will have nothing to fear and you will not be lashed when their whip falls on SMEs in your area.
Until next time, keep on accelerating your growth.
Phillip Chichoni is a consultant who helps SMEs and entrepreneurs build sustainable businesses. You may contact him by email, email@example.com. You can also visit www.admiralbiz.wordpress.com, or phone +263-4-70812.