This is an appeal against the whole judgment of the High Court (the court a quo) dated 25 October 2023 in which it dismissed the appellant's application for a declaratur.BACKGROUND FACTSThe appellant is a beverage manufacturing company which manufactures, sells, and distributes alcoholic and non-alcoholic beverages of local and international ...
This is an appeal against the whole judgment of the High Court (the court a quo) dated 25 October 2023 in which it dismissed the appellant's application for a declaratur.
BACKGROUND FACTS
The appellant is a beverage manufacturing company which manufactures, sells, and distributes alcoholic and non-alcoholic beverages of local and international brands. The appellant earns its income in both local and foreign currency and incurs expenses in both local and foreign currency.
The respondent is the collector of revenue on behalf of the Government.
The appellant submitted its value added tax (VAT) returns for the period March 2019 to October 2021 as well as Income Tax returns for the years ended 2019 and 2020 and paid all its taxes in full for these years in Zimbabwe dollars (ZWL).
On 17 November 2021, the respondent gave the appellant notice of its intention to carry out a tax review of its tax affairs covering the period 1 January 2019 to 31 October 2021. The respondent raised issues with the appellant on whether its value added tax (VAT) returns for 1 January 2019 to December 2020, and the income tax payments for the period January 2019 to 30 September 2021 were paid in the currency of trade.
In response, the appellant wrote a letter to the respondent, dated 24 November 2021, stating that section 4A of the Finance Act [Chapter 23:04] requiring the payment of taxes in foreign currency, followed the promulgation of section 23 of the Finance Act No.2 of 2019 which made local currency the sole legal tender.
On 11 June 2022, after a tax audit of the appellant's returns, the respondent informed the appellant about discrepancies which were found in its self-assessments.
The respondent found, that, the appellant failed or neglected to pay income tax and value added tax (VAT) in foreign currency from the income which it received or accrued to it in whole or in part in foreign currency.
The respondent further found, that, the appellant had received foreign currency in respect of local sales during the period between April 2019 and March 2021.
After the audits, the respondent issued additional assessments against the appellant.
The respondent re-computed the appellant's tax liability and issued it with amended tax returns which required it to pay its taxes in foreign currency, in accordance with the revenue it received in foreign currency, and to also pay its taxes in local currency proportionate to the revenue it received in local currency.
On 14 June 2022, the appellant responded arguing, that, the Finance Act No.2 of 2019 should prevail over section 4A of the Finance Act as it was enacted before it.
The appellant further contended, that, the turnover apportionment method was inapplicable in relation to value added tax (VAT), and, therefore, payment of taxes in ZWL was legally correct.
On 5 July 2022, the respondent wrote a letter to the appellant notifying it of the adjustments it made to the USD value added tax (VAT) assessments and tax computation schedules for October 2020 to October 2021. On the same day, the respondent served on the appellant an income tax notice of assessment for the tax period January 2021 to December 2021.
Later, on 3 August 2022, the respondent wrote another letter to the appellant addressing issues raised by the appellant on 14 June 2022.
The respondent explained that the law on value added tax (VAT) and Income Tax required that payment of taxes must be made in the currency of trade and that section 4A of the Finance Act was not amended nor repealed.
The respondent further observed, that, the appellant's value added tax (VAT) returns were incomplete for the reason that the section that separates foreign currency input and output tax from local currency input and output tax was not completed.
On the same day, the respondent issued an additional value added tax (VAT) notice of assessment for the tax period covering the period March 2019 to September 2020 requiring that local currency input and output tax be computed and paid separately from the foreign currency input and output tax.
Aggrieved by the respondent's re-assessments, the appellant applied to the court a quo for a declaration of invalidity;
(i) Firstly, in respect of the additional income tax assessments for the tax years ended 2019 and 2020; and
(ii) Secondly, the additional value added tax assessments issued against it by the respondent for the period March 2019 to October 2021.
It submitted, that, the re-assessment was invalid on account of the fact that it referred to the term 'gross tax' which is foreign to all tax statutes and that the amended tax returns did not compute the appellant's taxable income rendering the re-assessment invalid.
The appellant further submitted, that, it was unlawful for the respondent to reject payment in the form of local currency as it was declared the sole legal tender of Zimbabwe. It argued, that, the enactment of section 4A of the Finance Act, which stipulates that the Zimbabwean currency was to be the sole legal tender, must prevail over all older provisions.
The appellant argued, that, section 4A(1)(c) of the Finance Act and section 38(4) of the Value Added Tax Act both referred to section 41 of the Reserve Bank of Zimbabwe (RBZ) Act, and, therefore, the non-obstante provisions ought to be restricted to the old bond notes and should not be extended to the Real Time Gross Settlement dollar (RTGS) currency.
The appellant further submitted, that, section 4A(1)(C) of the Finance Act predated section 44C of the Reserve Bank of Zimbabwe (RBZ) Act which made the RTGS$ the sole legal tender in Zimbabwe.
It also argued, that, when Statutory Instrument 212 of 2019, SI 212 of 2019 was promulgated, it excluded the payment of taxes in foreign currency as an exception to the use of sole legal tender.
The appellant submitted, that, there were no jurisdictional facts present for the respondent to have issued it with the additional notices of assessment.
The appellant further submitted, that, the respondent violated its rights enshrined in section 15(3) of the Value Added Tax Act, by denying the deduction of the input tax paid by it in local currency from the output tax received by it in foreign currency.
On that note, the appellant submitted that the respondent's Public Notice No.26 of 2019, which set out the manner of computation, was unlawful and an attempt to legislate.
The appellant argued, that, the penalty on its foreign currency tax was not recoverable in foreign currency as there was no legal provision to that effect.
Per contra, the respondent opposed the application on the premise that 'gross tax' is an administrative term applied to denote an amount of the taxable income that will still be subject to further deductions before arriving at the net tax amount due to be paid to the respondent.
The respondent further argued, that, the assessment complied with all the requirements prescribed by law.
It further submitted, that, payment of taxes in foreign currency on income received in foreign currency is exempted from being paid using the nation's sole legal tender as provided by section 23 of the Finance Act.
The respondent contended, that, the legal requirements that warranted the re-assessment were that it found taxable income which was not subjected to tax; in determining an alleged loss, there was some income which ought to have been taken into consideration but was not; and, there was credit which was granted that should not have been granted.
The respondent submitted, that, deductions of input taxes from output taxes should be separated according to currencies and that the law prohibits deductions of input taxes from output taxes across currencies.
The respondent further submitted, that, Public Notice No.26 of 2019 was issued for the purpose of administering advice and information to assist taxpayers whose receipts from trade were specifically in both local and foreign currency.
The respondent argued, that, a penalty was a tax, and, as such, any outstanding foreign currency tax is payable in foreign currency and a penalty on any outstanding local currency tax is payable in local currency.
The court a quo determined, that, if the notices of assessment conformed with section 2 as read with section 51(2) of the Income Tax Act [Chapter 23:06] (ITA), and, as long as the value added tax (VAT) evaluation complied with section 31(5) of the Value Added Tax Act, then, the assessments cannot be rendered invalid on the basis of an alien term.
The court a quo held, that, the respondent's argument that the term 'gross tax' was an administrative reference to a provisional figure obtained during the computation process, which would still be subject to further consideration, is acceptable.
The court a quo held, that, the RTGS currency and bond notes and coins are all legal tender for the reason that the Reserve Bank of Zimbabwe (RBZ) Act does not expressly stipulate otherwise.
The court further held, that, Statutory Instrument 142 of 2019, SI142 of 2019, which introduced the sole legal tender concept did not single out the electronic currency.
The court a quo determined, that, there were exemptions to the introduction and use of the sole legal tender, such as the payment of customs duty and the payment of value added tax (VAT) on imports.
The court a quo further held, that, all relevant legislation should be taken into consideration in determining in which currency tax assessment forms should be submitted, and tax be paid.
Therefore, the court a quo determined that the reference to 'any other law' was with respect to section 4A of the Finance Act and section 38(4) and (9) of the Value Added Tax Act.
The court a quo held, that, the jurisdictional facts which triggered the additional assessments were the appellant's computation of all taxes in the local currency when part of its income had been received in foreign currency, and, there were improper deductions to the taxable income.
Regarding value added tax (VAT), the court a quo determined that the respondent had found that the appellant had not submitted the VAT returns in the prescribed form and had completely avoided completing the section dealing with the calculation of VAT in foreign currency.
The court a quo held, that, section 38(9) of the Value Added Tax Act declares that all provisions of the Act shall apply with such changes as may be necessary to the payment of tax in foreign currency in the same way as they apply to the payment of tax in local currency.
The court a quo further held, that, a reading of section 38(4) and (9) of the Value Added Tax Act makes it apparent that the legislature has not sanctioned a cross-currency deduction of input tax from output tax.
The court a quo held, that, a penalty is a tax in accordance with tax legislation, and, therefore, section 4A(7) of the Finance Act applies given that it states, that, all provisions of the Value Added Tax Act shall apply with such changes as may be necessary to the payment of tax in foreign currency in the same way as they apply to the payment of tax in local currency.
In the result, the court a quo held that the submissions made by the appellant lacked merit and proceeded to dismiss the application.
Dissatisfied with the determination of the court a quo, the appellant noted an appeal to this Court on the following grounds of appeal:
“GROUNDS OF APPEAL
1. The court a quo erred at law and misdirected itself by failing to consider and determine material issues raised by the appellant, thus rendering the proceedings grossly irregular. In particular, the court a quo failed to consider and determine the following issues raised by the appellant:
(a) Whether there is a penalty for payment of taxes purportedly due in foreign currency in the local legal tender, and what that penalty is?
(b) Whether the apportionment formulae used by the respondent exists in the taxing Act, and, if so, in which provisions of the taxing Acts?
(c) Whether the formulae used by the respondent, in computing both income tax and value added tax (VAT), was rational and possible to comply with?
(d) Whether there is a constitutional bar to the respondent utilizing section 4(A)(7) of the Finance Act and section 38(9) of the Value Added Tax Act to amend primary legislation?
(e) The implication of the contra-fiscum rule to uncertain tax legislation.
2. The court a quo erred at law and misdirected itself in finding, that, the assessments issued were valid at law when such assessments referred to a line item described as “gross tax” which 'gross tax' is not included in any taxing statute and is not a necessary component in the computation of taxable income.
3. The court a quo erred at law and misdirected itself in finding, that, the jurisdictional facts to issue additional assessments were present permitting the respondent to issue additional assessments on the appellant.
4. The court a quo erred at law and misdirected itself in finding, that, the appellant was not entitled to deduct its input tax on purchases made in foreign currency and in ZWL from its output in foreign currency.
5. The court a quo erred at law in finding that penalties were chargeable in foreign currency; this, despite neither section 4(A) of the Finance Act nor section 38 of the Value Added Tax Act providing for the charging of penalties in foreign currency.
6. The court a quo erred at law and misdirected itself in applying section 4(A)(7) of the Finance Act and section 38(9) of the Value Added Tax Act through the instrument of public notices in such a manner that they permit the amendment of primary legislation by institutions other than Parliament, which is unconstitutional and therefore unlawful.
RELIEF SOUGHT
1. That, the instant appeal succeeds with costs.
2. That, the order of the court a quo, in case number HC5952/22, be and is hereby set aside and substituted with the following:
“It is hereby ordered that:
1. The application be and hereby (sic) succeeds with costs.
2. The additional VAT assessments issued on the applicant for the tax period March 2019 to October 2021 be and are hereby declared invalid.
3. The additional income tax assessment issued on the applicant for the tax year ended 2020 be and is hereby declared invalid.”
SUBMISSIONS BEFORE THIS COURT
At the hearing of the appeal, counsel for the appellant submitted, that, the six issues mentioned in ground of appeal number one were raised by the appellant and addressed by the respondent before the court a quo; yet, the judgment a quo was silent on the issues listed in the appellant's first ground of appeal.
He further submitted, that, the issues were dispositive of the disputes between the parties.
In that regard, counsel submitted that the decision of the court a quo ought to be set aside on account of the fact that a party is entitled to reasons for a court's decision on all issues raised and argued before it.
Counsel further argued, that, the assessment was invalid as it, in its notice of assessment, referred to an amount it referred to as 'gross tax' which term is foreign to tax legislation.
Counsel relied on the case of Nestle v Zimbabwe Revenue Authority SC148-21 to argue, that, an assessment must only contain information provided for in the Income Tax Act for the reason that an assessment is a statutory document.
He further submitted, that, the court a quo disposed of the matter on the premise that the term did not prejudice the appellant, yet, it did, considering that the appellant was unfamiliar with the term.
Counsel also submitted, that, the assessment by the respondent was intended to be an amendment of its self-assessment, therefore, using an alien term baffles the appellant on what exactly was amended.
Counsel submitted, that, since there was no original foreign currency assessment, the respondent lacked the basis on which to issue an additional assessment.
He further submitted, that, the apportionment formula was irrational and inconsistent with the provisions of the Income Tax Act and Value Added Tax Act.
Counsel further stated, that, in accordance with the case of Breastplate Service (Pvt) Ltd v Cambria Africa PLC SC66-20, once a currency is recognized as the sole legal tender, one cannot refuse it.
He argued that the Zimbabwean dollar is the only currency acknowledged in Zimbabwe.
Per contra, counsel for the respondent submitted, that, the actual material issues dispositive of the matter were all addressed in the judgment a quo and that the issues mentioned in the appellants ground of appeal number one are not dispositive of the issues between the parties.
He further argued, that, the case of Inamo Investments (Pvt) Ltd v Zimbabwe Revenue Authority SC96-23 established that even when the local currency is legal tender, revenue earned in foreign currency shall be remitted in foreign currency.
He submitted, that, section 47 of the Income Tax Act and section 31 of the Value Added Tax Act permit the Commissioner of the respondent to make additional assessments.
Counsel submitted, that, the rationale of the court a quo was not on the notion of prejudice but it found, that, in spite of the term 'gross tax' the assessment met all the obligatory requirements to render it valid.
Counsel submitted, that, the term was explained in its heads of argument and before the court a quo.
He further submitted, that, an assessment should consist of the taxable income to which a tax rate is applied, before arriving at a taxable figure.
Counsel submitted that the appellant cannot seek a relief different from that prayed for in its relief sought.
THE ISSUES
The appeal raises the following issues for determination by this Court:
1. Whether or not the court a quo erred in not determining all issues raised by the appellant.
2. Whether or not the use of the phrase “gross tax” in the notice of assessment renders it invalid.
3. Whether or not the court a quo erred at law and misdirected itself in finding that the jurisdictional facts entitling the respondent to issue additional assessments were present.
4. Whether or not the court a quo erred in holding that tax for revenue earned in foreign currency and value added tax (VAT) paid in foreign currency, and additional tax incurred for not paying tax in foreign currency should be paid in foreign currency.
APPLICATION OF THE LAW TO THE FACTS
Whether or not the use of the phrase “gross tax” in the Notice of Assessment renders it invalid
In respect of ground of appeal number 2, the appellant submitted, that, the assessment issued by the respondent was invalid for the reason that it referred to an amount in the notice as “gross tax” which term is alien to tax legislation.
In response, the respondent averred, that, the assessment is valid since the assessments complied with the provisions of section 2 of the Income Tax Act as read with section 31(5) of the Value Added Tax Act.
The court a quo held, that, if the assessment complied with the requirements of section 2 as read with section 51(2) of the Income Tax Act as well as section 31(5) of the Value Added Tax Act, then, it cannot be set aside merely because it contained some term of description which may not have been provided for in those Acts.
In its determination of this issue, the court a quo said:
“[14] The respondent explains that 'gross tax' was an administrative reference to a provisional amount arrived at in the computation process from which statutory deductions would eventually be made.
This makes sense.
The term 'gross tax' as used by the respondent in its assessments was simply a reference to some provisional figure obtained during the computation process, which would still be subjected to further consideration. The applicant has shown no prejudice as might have been suffered by it, or any violation of its rights as might have been occassioned by the respondent's use of the term 'gross tax'.
This objection is fanciful. It is hereby dismissed.”
A valid assessment must comply with the provisions of section 2 of the Income Tax Act. Section 2 of the Income Tax Act reads as follows:
“'Assessment' means -
(a) The determination of taxable income and of the credits to which a person is entitled in terms of the charging Act; or
(b) The determination of an assessed loss ranking for deduction; and includes a self-assessment in terms of section thirty-seven….,.”
The primary issue is on the interpretation of the above provisions in relation to what a valid assessment is.
In my view, the interpretation of the above provision entails that an assessment is a process of determining the amount of tax which is chargeable, including taxable income and the credits to which the taxpayer is entitled to.
In the case of Barclays Bank of Zimbabwe Limited v ZIMRA 2004 (2) ZLR 151 (H) at 151C-E, the court stated as follows:
“It is clear from the definition section that an assessment should determine and contain -
(i) Income; and
(ii) Credits to which a person is entitled.
This is not disputed by the respondent.
In para 6 of its Heads of Argument, the respondent clearly laid out the requirements of an assessment. In addition, in terms of section 51 of the Act, a notice of assessment should be issued whenever an assessment is carried out. Among other things, section 51 of the Act stipulates the following:
(i) Section 51(2) – a notice of assessment and of the amount of tax payable shall be given to the tax payer.
(ii) Section 51(3) – the Commissioner shall give the taxpayer notice that any objection to the assessment shall be sent to the Commissioner within 30 days after the date of such notice.
On close scrutiny of annexure A, it is apparent that it states the taxable income and credits to which the applicant is entitled. Annexure A contains the sums due to the respondent in the form of taxes, penalties, and interest.”
And concluded, at 152D, that:
“In view of the foregoing, I find that Annexure A falls within the ambit of being an assessment or notice of assessment as envisaged by the Act.”
The aforementioned authority explains what a valid assessment contains.
If a Notice of Assessment complies with the requirements set out above, it is valid.
In the present case, the Notices of Assessment contained the following:
(i) The appellant's taxable income;
(ii) The credits to which the appellant is entitled to;
(iii) Tax payable by the appellant;
(iv) A notice that any objection to the assessment must be lodged within 30 days.
It is therefore apparent, that, the validity of a Notice of Assessment does not depend on the minute details of the internal wording of the notice.
A correct description of a notice, and the inclusion in the notice of the key requirements of a notice, specified in sections 2 and 51(2) of the Income Tax Act, validates the notice.
Sections 2 and 51(2) of the Income Tax Act and section 31(5) of the Value Added Tax Act do not concern themselves with the details which can be found in a notice other than the specified aspects.
It is therefore my considered view, that, the inclusion of the words “gross tax” inside the notices does not invalidate the notices of assessment since all the requirements of a valid assessment have been met.
As a result, the appellant's argument that the notices of assessment are invalid because the respondent used the term “gross tax” in computing details in the notices is not correct.
Whether or not the court a quo erred at law and misdirected itself in finding that the jurisdictional facts entitling the respondent to issue additional assessments were present
In determining this issue, the court a quo held as follows:
“[32] Plainly, and as per the applicant's own explanation, the 'jurisdictional facts' existed before the respondent issued the amended assessments. With regards to income tax, and in terms of section 47 of the Income Tax Act, what triggers the additional assessments is the consideration by the respondent's Commissioner that an amount of taxable income which should have been charged to tax was not charged to tax, or that an amount which should have been taken into account in the determination of an assessed loss was not, or that an amount was incorrectly allowed as a deduction. If the Commissioner comes to such conclusion, the respondent is obliged to adjust the assessment.
[33] The respondent has explained, that, what prompted scrutiny of the applicant's self-assessments, for 2019 and 2020, was the computation of all taxes in the local currency, when, as a matter of fact, part of its income for the tax years in question had been received in foreign currency.
Furthermore, for the year 2020, the applicant had improperly made some deductions to the taxable income. The respondent pointed them out to the applicant. The applicant reacted by correcting its assessments. But these are enough 'jurisdictional facts.'
[34] Regarding VAT, section 31(3) of the VAT Act, in paraphrase, provides, in part, that, where the Commissioner is not satisfied with any return or declaration furnished by a taxpayer, or where he [or she] has reason to believe that any person has become liable for the payment of any amount of tax but has not paid it, the Commissioner may make an assessment of the amount of tax payable by that person who shall have to pay it.
Furthermore, in terms of section 28(1) of the Act, every registered operator is required to submit returns in the prescribed form, reflecting such information as may be required for the purpose of the calculation of tax.
[35] The respondent has explained, that, the applicant did not submit the VAT returns in the prescribed form. The prescribed form has Part I to IV for the calculation of VAT in the local currency, and Part V for the calculation of VAT in foreign currency.
The applicant did not complete Part V.
Thus, the necessary information required for the calculation of VAT in foreign currency was missing.
None of all this has been refuted by the applicant. Yet, these are the relevant 'jurisdictional facts' necessary to trigger the amended assessments by the respondent.
The applicant's objection under this head equally has no merit.”
We agree with the court a quo that jurisdictional facts were present which justified the respondent's issuance of notices of assessments. As correctly pointed out by the court a quo, the appellant admitted the following jurisdictional facts:
1. That, it received payments in foreign currency hence it is seeking a declaratur that it was, in spite of having been paid in foreign currency, entitled by law to pay income tax and value added tax (VAT) for such payments in local currency.
2. That, it was paid value added taxes by its customers in foreign currency which the law requires it to collect and pay it to the respondent, but, it withheld the foreign currency taxes and sought to substitute them with local currency payments to the respondent.
3. That, it had not completed Part (V) of the VAT tax return which it was legally required to complete.
4. That, it had, by re-submitting corrected self- assessment returns, admitted that it had not correctly completed its self-assessment forms.
The court a quo's findings are correct. The appellant's appeal under this ground has no merit.
