The 2019 National Budget presented by the Minister of Finance and Economic Development Honourable Mthuli Ncube on the 22nd November 2018 contains a lot of pertinent issues that require unpacking. Firstly there are alternative views regarding application of intermediated money transfer tax on point of sale transactions (POS), whether the government is correct in demanding payment of tax in foreign currency in light of the law that provides that the bond notes and coins are at par with the United States Dollar, how to prepare and file tax returns when one is trading in multiple currencies, among other issues. This article however is about clause 5 of the Finance Bill 2019: “the taxation of non-resident satellite broadcasting and e-commerce service providers.” It provides that a satellite broadcasting and e-commerce platform service provider domiciled outside Zimbabwe will be subject to income tax in Zimbabwe to the extent that its income is received from persons resident in Zimbabwe for services rendered in Zimbabwe, commencing 1 January 2019. This appears an extra tax burden for resident consumers of such services because non-resident suppliers of satellite broadcasting and e-commerce services are likely to pass on the tax. The article further unpacks the proposal, discusses the VAT rules and international development regarding the same matter.
The new tax measure
Non-resident satellite broadcasting
The law is amended to strengthen the taxation in Zimbabwe of a satellite broadcasting service domiciled outside Zimbabwe providing television or radio services to subscribers in Zimbabwe. A “Satellite broadcasting service” is defined in clause 5 of the draft Finance Bill 2019 as “a service which by means of a satellite (whether or not in combination with cable optical fibre or any other means of delivery) delivers television or radio programmes to persons having equipment appropriate for receiving that service.” This proposal is meantto also impose a compliance burden on the part of the non-resident satellite broadcasting service providers. It must be pointed out that these suppliers are already captured by s 12(4) (b) of the Income Tax Act Chapter 23:06 which deems income to be from a Zimbabwean source if it is receivable “by person by virtue of the use in Zimbabwe of or the grant of permission to use in Zimbabwe, or the imparting of or the undertaking to impart any knowledge directly or indirectly connected with the use in Zimbabwe of—(b) any motion picture film or television film or any sound recording or advertising matter used or intended to be used in connection with such film” , a position the recent High Court case MA Limited vs. ZIMRA HH 316-16 has also confirmed. The court ruled that MA as the agent in Zimbabwe of foreign producer of satellite broadcasting service was certainly the one authorized to use the motion picture films and television films in Zimbabwe by the producers of these items and not the subscribers, and therefore liable to income tax on the subscriptions paid by the Zimbabwean subscribers.
Electronic commerce platform
Foreign suppliers of electronically supplied products (e.g. downloaded music, games, books, and software etc.) are not spared either. The Minister has proposed that amount receivable by or on behalf of an electronic commerce platform domiciled outside Zimbabwe from persons resident in Zimbabwe in respect of the provision or delivery of goods or services to such residents shall also be subject to income tax in Zimbabwe. Clause 5 of the draft Finance Bill 2019 defines “electronic commerce platform” as “a service which by the use of a telecommunications service or electronic means (and whether mediated by computers, mobile telephones or other devices) sells and delivers goods and services to customers”. Broadly this will cover incomes such as roaming fees, international connection, VOIPs (voice over internet protocols), OTTs (over the top services), music and software downloads etc. of a non-resident.
Administration of tax
Administratively a satellite broadcasting service provider or electronic commerce platform with certain sales threshold (not specified yet) will be under an obligation to appoint a public officer in Zimbabwe or an agent responsible for its income tax obligation in Zimbabwe. Such public officer or agent shall on behalf of the non-resident be required to register for income tax and settle its income tax liability on a quarterly basis in advance of year end as follows: 25 March- 10%; 25 June – 25%; 25 September – 30% and 20 December – 35%. Additionally, to file income tax return by the 30th of April following the December year end. For purposes of repatriating the income to the non-resident, a public officer or agent must avail a valid tax clearance to the authorized forex dealer in terms of the Exchange Control Act as evidence of complying with the income tax rules.
VAT rules on the same
Non-resident suppliers of satellite broadcasting and e-commerce platform with no fixed place of business in Zimbabwe are under no obligation to declare and pay VAT in Zimbabwe. This obligation is placed on the Zimbabwean recipient of the imported services. Imported services are defined in s2 (1) of the VAT Act as “…..a supply of services that is made by a supplier who is resident or carries on business outside Zimbabwe to a recipient who is a resident of Zimbabwe to the extent that such services are utilized or consumed in Zimbabwe otherwise than for the purpose of making taxable supplies”.. It implies services supplied by a foreign supplier and used by a resident person to produce exempted or other non-taxable supplies e.g. services imported by Banks, insurance companies, pension funds, schools, private individuals etc. Enforcing compliance amongst private individuals has been one of the biggest challenge of this tax.
The tax challenges of e-commerce is a matter which the world is currently seized with. The matter was identified by the G20 and OCED as one of the causes of Base Erosion and Profit Shifting (BEPS), leading to the 2015 BEPS Action 1 Report. The Finance Ministers of the G20, through the Inclusive Framework on BEPS then tasked OCED to deliver an interim report on the implications of digitalisation for taxation. The report was delivered in April 2018 and endorsed by more than 110 members of the Inclusive Framework. Unfortunately they did not agree on the recommendations made resulting in the committee asked to work on the project with the goal of producing an interim and final reports in 2019 and 2020, respectively. Some countries however have since adopted some of the interim measures in the form of an excise tax and withholding tax on the supply of certain e-services within their jurisdiction.
The new measure seeks to widen the tax base but the Minister must be wary of the potential double taxation of cross border e-services contrary to provision of the Melbourne Treaty of 1988 to which Zimbabwe is a party to. Neverthess non-resident suppliers of the e-services ought to familiarise themselves with the new law in order to avoid high penalties associated with non-compliance with the tax laws particularly with Zimbabwe as it is leading amongst high penalty jurisdictions.