The Zimbabwe Revenue Authority (Zimra) has lost a High Court case in which it was seeking to compel the Law Society of Zimbabwe (LSZ) to pay value added tax (VAT) on income earned from fees and subscriptions levied on lawyers.
LSZ argued it was exempt from paying VAT on subscriptions, practicing certificate fees and professional development fees in terms of Section 11B of the VAT Act, an arrangement also approved by the Ministry of Justice, Legal and Parliamentary Affairs.
This follows a dispute (HC 6324/16) (HH409/18) that had arisen between the tax collector and LSZ, with Zimra arguing the lawyers representative body was liable for VAT on income it realised from charging its members for services in terms of the VAT Act.
High Court ruling
But High Court Judge Lavender Makoni, ruled early his month that the LSZ was indeed exempt from paying VAT on subscriptions, practicing certificate fees and professional development fees.
“The applicant enjoys an exemption in terms, in terms of section 11b of the Value Added Tax Chapter 23:12 from Value Added Tax obligations in respect of subscriptions, practicing certificate and professional development fees it charges its members,” she said.
Law Society argument
In its argument, the LSZ said the services in respect of which subscriptions and practicing certificate fees were paid were meant for regulation and control of the profession.
However, Justice Makoni agreed with applicant (LSZ)’s view that it was not liable to paying VAT on income from subscriptions and fees it charges its members, as this was not for profit, but control and regulation of the profession.
“The councillors regulate and control the profession for the benefit of the public, they do not get paid. What they do is the service that the applicant (LSZ) provides to its members. In other words they donate their services to the members,” Justice Makoni said.
Zimra says LSZ not a donor
Justice Makoni indicated that the respondent, Zimra, that the relationship between the law society and legal practitioners was not that of donor and recipient.
“The applicant (argued that) (LSZ) does not donate membership or practicing certificate without a payment and a legal practitioner makes a subscription and or pays a practicing certificate fee as quid pro quo of becoming a member of the applicant and being granted practicing certificate for a year,” she said.
Justice Makoni further pointed out that looking at three essential elements of the case, it was clear that the LSZ was a non-profit making organization. He then went on to determine what constituted donated goods.
Justice Makoni defined donated goods, in terms of the case that was before her, as services provided by the law society to the legal practitioners, a conception he said Zimra did not dispute.
LSZ, lawyers relationship defined
However, after looking at the relationship between LSZ and its members who pay subscriptions, she said, Zimra conceded that there was no donor and recipient relationship.
“It appears the respondent is missing the point. The (LSZ lawyers) councillors are the donors and the applicant (LSZ) is the recipient. The applicant is distributing donated services in that councillors deliberate and consider every case submitted to the applicant, they do not get paid,” the judge said.
“It is that service, which is exempt from VAT and not the payment being made by the members of the applicant. The applicant is involved in an activity for which goods and services are provided to any other person for consideration not for profit. This fits well with the definition of donated goods referred to earlier,” she said.