Taking advantage of amnesties

11 Jan, 2019 - 00:01 0 Views
Taking advantage of amnesties

eBusiness Weekly

Gertrude Mawire
Tax amnesties are a tool that fiscal authorities use to encourage tax defaulters to pay up outstanding tax dues, usually by scrapping off any penalties and fines and allowing a longer payment period than the normal for the principal debt.

Some countries have even gone further to scrap part of the principal debt. In a country like Zimbabwe, where tax compliance stands at only around 30 percent, increasing the taxpayer base is also another major impetus for extending amnesties to taxpayers.

If paying taxes “dignifies a nation”, surely these are fair goals and defaulting taxpayers must be encouraged to take up the offers because they stand to gain so much more as the economy owners.

In any case, every time a business activity succeeds, tax authorities stand to gain from the additional revenue; therefore tax amnesties can only best be bona fide offers given to encourage increased economic activity eventually.

So as a business, what do you stand to gain from taking up the offer? And how can you best prepare for the “next” amnesty if it finds you owing again?

First, let us consider the whole business community. Generally speaking, increased revenue to the national fiscus should turn into better national infrastructure development, which in turn improves the operating environment for businesses.

Again, in an event that an amnesty succeeds in increasing revenue and the tax base, the tax burden is lessened on the few previously compliant taxpayers meaning every tax payer contributes according to their abilities fairly.

The author says this despite assertions by anti-amnesty protagonists like those in Indonesia who in 2016, tried to shoot down the programme saying it would hurt existing compliant taxpayers the most, as they would get no benefit whatsoever from it.

They said the offer may even discourage the compliant ones from continuing to comply with their tax obligations. The Indonesian amnesty, which went ahead is considered one of the most successful amnesties of all time by experts.

If all possible taxpayers could voluntarily come within the fiscal net, fewer resources will be spent on tax collection efforts, and this could translate into re-allocation of the saved resources to more productive uses within the economy. Who knows, even a reduced tax rate regime at some point?

In recent years Zimra has been perfecting their audit skills . . . disregarding an amnesty when it comes, may surely be a double edged sword for any business that considers itself a going concern. Zimra will come out in full force and unleash its full wrath against tax dodgers who refuse and do not take advantage of such a laudable initiative.

As Zimra is pressured to collect revenue and having access to global information, there will come a time when they will have full ammunition to go after defaulters. The business landscape is changing and we should see more effective oversight and collaboration between authorities like Zimra, RBZ, Banks and local authorities for example.

You stand to gain peace of mind if you regularise your tax affairs now rather than later.

Other countries are harsher with truant citizens. For example, some celebrities have been shamed for tax default. Nigerian David Adedeji Adeleke popularly known as Davido was reported by a Nigerian paper “the SUNDAY PUNCH” to have been dragged to court for tax evasion recently. AY Ayo Makun a comedian was also charged early this year.

An Irish times newspaper reported that a prominent tax expert Mel Kilkenny lecturer and ACCA textbook author and high profile doctors were in the tax defaulter’s list in 2015.

Popular Americans Wesley Snipes, Mike Sorrentino and brother Marc have repeatedly been in and out of court and prosecuted for tax evasion since 2014, rapper DMX was arrested for tax fraud of $1,7 million, Chris Tucker $2,5 million according to cnn.com. O.J. Simpson served jail time for several tax debts incurred over the years 2007-2013, and many others.

Failure to comply for most businesses is as a result of fear of the unknown and unproven heresies about high potential taxes. Business people have made unverified statements like “oh the customs tax rates are too high”, “no one else is paying, why should I”, “there is too much corruption at Zimra, why should I finance it” etc.

But these are just but excuses. What about those that are paying? They must be doing something right to be able to be faithful and loyal to the fiscus.

Proper planning and preparation will definitely help businesses effectively take up an amnesty offer and put their houses in order. It has been scholarly proven that companies that pay their taxes and submit their returns are usually more successful in the long run than those which default.

Companies that pay taxes find it necessary to keep proper books of accounts because of the need to establish the correct tax obligations. Establishment of the correct and not “heresy” tax obligation is not the only benefit arising from keeping proper accounting records, businesses will also benefit thus:

Accountability within the business — good accounting practice encourages communication, good corporate governance within the business.

It helps to safeguard company funds, assets from theft, embezzlement and abuse.

Availability of records enables better business planning, budgeting, response to client requests.

Need to meet tax obligations further pushes businesses to work hard to raise more income, which is good for the economy.

You may need a tax and customs adviser to run a tax and customs health check on your business affairs. The advisor will generally ask to have a general understanding of your business, access to your books of accounts if any, invoices, statements etc.

They will use this information to identify any tax and customs compliance risks you might be facing. It would be a great saving if you can approach one adviser for both tax and customs health checks.

If you decide to do your own health check, the Zimra website has a bit of information you can get regarding the main tax heads (income tax, VAT, Capital Gains Tax etc.) and some basic guidelines on how to comply with certain tax obligations.

Preparing for an amnesty dispensation might prove a little tricky for those with customs duty obligations as the nature of customs duties requires payment upfront or at the time of importation at most times.

In fact, this author sees all amnesties offered as not really beneficial for importers especially those unfortunate enough to have had their goods seized at the time of importation.

Zimra is currently running a penalty free voluntary disclosure offer running until December 31, 2018, which should be a boon for the importers. The importers may sometimes realise after completing importation formalities, that the wrong invoice or other documentation was used.

This may result in either under or over valuation of the imported goods or an outright false declaration. Under normal circumstances, Zimra is very harsh with the traders if they make a voluntary disclosure.

They require the declaration process to be done with payment of outstanding duties and a penalty of 100 percent up to three times the duty paid value of the goods. This means for example you import a chest of drawers valued at $1 660 from South Africa.

Your supplier errs and invoices you $660. Assuming all costs are included (freight to the border, insurance, packing) your agent makes a declaration of $660 and pays Zimra dues of $577,60.

If you then realise the error after the goods have been released from the border and immediately lodge a voluntary disclosure to Zimra, they will make you pay the extra $861 underpayment plus $861 as a fine if you are served by a reasonable officer, otherwise another will make a literal interpretation of the legislation and charge you a fine of $3 000 which is three times the duty paid value.

The process of trying to obtain a waiver of these penalties is made odious by the administrative set up at Zimra.

Therefore, if you can get an amnesty opportunity it is wise to grab it.

Another way in which owners of bonded warehouses and owners of goods in bonded warehouse can ensure they are not caught on the wrong side of the law is to periodically conduct  inspections before Zimra comes for their inspection.

Failure to adhere to conditions of the operation of a bonded warehouse or private siding results in very harsh penalties including closure of the facility. As I write, business people should be running those bonded warehouse inspections so that they can lodge their voluntary disclosures by December 31, 2018.

Disclaimer: This article is not meant to create a consultant/client Relationship. Readers are advised to consult their Consultants for specific advisory services.

 About the author: Gertrude Mawire is a Fiscal Compliance and Investment Advisor based in Harare. She writes in her personal capacity. Gertrude holds an MSc in Finance & Investments (NUST) Bachelor of Business Studies (UZ), IOBZ Diploma various other Certificates. She can be contacted on [email protected]

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