“You don’t pay taxes — they take taxes.” — Chris Rock
In most developed nations, tax evasion is a very serious crime. The law does not even spare celebrities. People like former Fugees singer and eight-time Grammy Award winner Lauryn Hill served three months in jail for failing to pay taxes on her income between 2005 and 2007. Ja Rule served 28 months in prison. Others have faced heavy fines.
sme’s chat with Phillip Chichoni
I have not yet heard of a case of anyone being jailed for tax evasion in Zimbabwe. However, the Zimbabwe Revenue Authority has taken some measures to recover taxes, including attaching property and garnishing bank accounts. Beverage manufacturing giant, Delta Corporation was in the news in the past few months after Zimra had garnished its bank account to recover over $26 million. They went to court to stop the garnish order but lost. The tax law clearly states that not even the Supreme Court has the power to stop Zimra recovery actions, just the Zimra Commissioner General himself.
Chicken Slice owners also tried the court route, were refused and decided to approach the Constitutional court to have the section of the tax law which says “pay first, argue later” removed as it is unconstitutional. Well, until the day this comes, it is to every business person’s best interest to ensure they are compliant and avoid unnecessary penalties, interest charges, legal costs, bank garnishes as well as time wasted.
Compliance requires that you keep complete records of your transactions. You need to record all sales and expenses of the business. Record-keeping for a small business may consist of a simple manual system, such as writing items in a cash book. This could simply be a hard cover book in which you write down the sales, purchases and all expenses. At the end of the month or quarter, you can take this book to a bookkeeper or small business accountant, who will prepare management accounts for you. If Zimra officials request for financial records, these accounts together with the cash book will suffice. Remember, though, to keep original invoices and receipts for all items you purchase, in case they may ask for proof of the expenses. The law says financial records must be kept for up to six years.
Not only will the financial records save you when Zimra comes, but they will also provide vital management information for you as the business owner. The information from the management accounts will show how the business is performing; whether it is making profits or losses. They will also show the growth patterns, enabling you to see where your business is going.
In one of his audio recordings, Rich Dad, Poor Dad author, Robert Kiyosaki talks about the importance of knowing how your business is performing financially. He says financial statements are like school examination reports. Students are given tests regularly in order to judge how they are performing academically. The school report shows if one is doing well and making progress, or whether they are not doing so well so that they can get remedial help. Without examinations and school reports, students could waste a precious eleven years of their lives without gaining essential knowledge needed to build their lives, because no-one took stock of whether they were really learning anything.
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Kiyosaki learned the hard way that one of his businesses was not performing well at all. He never looked at the financial statements before and the business made losses and accumulated debts without him knowing. By the time he discovered the losses and how much debt had accumulated, the business was beyond salvage and he let it go.
As a business leader, you do not want to discover that your business is failing after it is too late. You need to take time to analyse the finances so you know exactly how it stands financially at any given time. The information that Zimra requires you to keep is the same information that helps you stay in control of your business. It warns you of danger before it happens so you can manoeuvre and take corrective action accordingly.
Now for SMEs, being tax compliant is indispensable if you want to grow the business. For starters, you cannot get funding from formal financial institutions without tax compliance. Apart from asking for a tax clearance certificate, lenders will also ask for the same financial statements that Zimra requires you to keep.
Further, tax compliance is required if you want to obtain a vendor number and State Procurement Board registration. You therefore miss out on supplying the lucrative public sector, which is the biggest segment of customers in any economy. Many small enterprises have shot to great fortune after winning big tenders from state institutions.
Similarly, if you do not have a tax clearance certificate, any registered customer you supply will be obliged to deduct 10% percent of the invoice value when paying you. In most instances, this will significantly reduce your profit margins. The best thing to do in order to survive and grow in this environment is to be tax compliant. Visit Zimra offices or talk to a professional accountant for advice.
Until next time, keep on accelerating your growth.
Phillip Chichoni is a business development consultant who works with SMEs and entrepreneurs. His new book Business Survival and Growth Amidst Turbulence is now available. You may contact him by email, [email protected]. You can also visit his blog http://chichonip.wordpress.com
