Payment of taxes in foreign currency has been part of our law from as far back as February 2009 since the country’s adoption of the multi-currency system. It was never a topical issue until 2018 when the local currency was introduced and bank accounts were separated into RTGS FCA and Nostro FCA.  From 2018 to date, it has been a roller-coaster ride for tax payers. The situation was further complicated in June 2019 by the phasing out of the multi-currency system with the introduction of use of local currency only. Whilst the law did phase out the multi-currency system, in practice entities and individuals continued with the use of multi-currency. This resulted in the ZIMRA issuing public notices to the effect that taxpayers should remit taxes in currency of trade despite illegality of trading in foreign currency. In 2020, we have seen the use of foreign currency being re-introduced partially.

Recently, the ZIMRA and the RBZ issued a statement emphasising that entities should remit taxes in currency of trade, failure of which will result in all taxes being deemed to be in foreign currency. This was triggered by the fact that most businesses have and some are still charging in foreign currency but invoicing in ZWL thus resulting in them remitting less tax. There are VAT practical challenges involved in invoicing where payments are made in two currencies for a single transaction. It appears that operators are required to issue invoices for each currency used in sales. However, the time of supply rules as amended provide that VAT shall be charged on the earlier of invoice or payment. In the case of a supply of a moveable goods, the time of its removal from the place of sale; in the case of a supply of an immoveable goods, the time the recipient takes possession of it and in the case of a supply of a service at the time the service is performed; whichever time is earlier. A possible challenge is where an invoice has been issued, operator pays VAT on an invoice that has not been settled only for the payment to be made in both local and foreign currency. This may create VAT liabilities in foreign currency despite the amount having been received in local currency. The VAT laws place more emphasis on what has been received for purposes of declaration and payment of output VAT. A customer who pays for goods and services in foreign currency may potentially claim input tax in foreign currency. The ZIMRA requires proof showing input tax was incurred in foreign currency. Therefore, an operator that wishes to claim input tax in foreign currency will have to produce an invoice denominated in foreign currency and the proof of payment in foreign currency. Failure to produce the invoice or proof of payment in foreign currency will result in the input tax claim being denied.

The stance taken by the regulatory authority is that incorrect declaration by a registered operators will result in all income being deemed to be foreign currency income and all tax to be paid in forex and not apportioned. Companies will need to be vigilant in declaring their taxes and even more so, there is need to keep all documentation to avoid heavy penalties that come with non-compliance. The ZIMRA has indicated that falsification of records attracts a penalty of 100% of the tax due. There has also been an indication that all cash must be banked. This is probably one of the measures to ensure that taxpayers truthfully declare their taxes. Practically, this may be a challenge given the history of events which saw people’s foreign currency accounts being abruptly changed to ZWL$. The trust relationship between the government, banks and ordinary citizens may have been ruined by the past sequence of events which resulted in citizens losing out value for their moneys they had deposited into bank accounts. We however, anticipate this being addressed by clients insisting on invoices being in currency of trade which invoices they will use to claim VAT.

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