The concept of interest on late paid taxes is found in most civilised communities as it reflects the interest which would have accrued to the State had the correct amount of tax been paid at the right time. It compensates the State of the opportunity cost of money and in an inflationary environment, the opportunity cost plus loss of monetary value.
With this in mind, the Minister of Finance and Economic Development Prof Mthuli Ncube has issued several Statutory Instruments whose effect is to increase interest rate on tax due and refunds across most tax heads as fully explained below. The SIs were published in the government gazette of 31st of December 2019 and immediately revoked the old interest rate of 10% per annum.
Customs and Excise Duty
The Customs and Excise Act imposes interest on unpaid duty where goods have been released from customs control or are found to be liable to seizure because they were smuggled. The new rate of interest has been fixed at 25% of the duty for any month or part thereof during which the duty remains unpaid. However, it only becomes payable after the first 30 days of the date of release from customs control of goods on which duty was not paid. In other words the government has granted a grace period of 30 days from the date goods are released from customs control.
The Commissioner General may suspend the payment of interest as a result of an incomplete or defective return whereupon he is satisfied that such incompleteness or defect was not due to any negligence or intent to evade the payment of duty on the part of the person responsible for paying the duty. The taxpayer has 30 days from date of notification to him by the Commissioner General to resubmit correct returns.
Meanwhile refunds from ZIMRA are also subject to interest at the same rate if not made within 30 days of the date duty subject to refund was paid, unless the overpayment was due to an incomplete or defective declaration and taxpayer has been advised of this by the Commissioner within that period.
Capital Gains Tax
Late paid capital gains tax is subject to interest and this has been increased to 25% for any month or part thereof during which tax remains unpaid provided it shall only become payable after the first 30 days of the date the tax became due. This gives a grace period of 30 days from the date capital gains tax becomes due.
The interest is suspended where, as a result of incomplete or defective return submitted, the Commissioner General is satisfied that such incompleteness or defect was not due to any negligence or intent to evade the payment of tax on the part of the taxpayer. A taxpayer has 30 days from the date of notification by ZIMRA of defective or incomplete return to correct and resubmit the return. Interest on delayed capital gains tax refunds has also been fixed at the same rate.
Refunds are delayed if not paid within 30 days of the date capital gains tax was paid, unless the overpayment was due to an incomplete or defective return which has been notified to the taxpayer by the ZIMRA.
Income Tax Act
Similarly late paid employees’ tax, provisional tax (QPDs), 10% withholding tax, non-resident shareholders tax, resident shareholders tax, non-resident tax on fees, non-resident tax on remittances, non-resident tax on royalties, property insurance commission etc attract interest.
The new interest is 25% of tax due for any month or part thereof during which tax remains unpaid. The same interest rate applies on reduced assessments and refunds that are delayed by the Commissioner General.
Refunds are deemed delayed if they are not paid to the taxpayer within 30 days of the date of receipt of return by the Commissioner General (CG) unless this was as a result of submission of incomplete or defective return which has been brought to the attention of the taxpayer. The interest will start to accrue after 30 days from the date fresh returns are submitted.
Value Added Tax
Generally VAT is due on or before the 25th of the month following the end of the tax period. If taxpayer fails to meet the deadline he/she will be charged both interest and penalty. The new law revises upwards the interest to 25% of the VAT due for any month or part thereof.
The same rate shall also apply to VAT refunds. However, the Commissioner General is not liable to pay interest if it emanates from defective or incomplete returns and shall only start to run after 30 days of resubmission of the corrected returns. In conclusion interest will be computed based on old rates up to 31st of December 2019 and new rates thereafter.
For instance a tax debt which accrued prior to 31st of December 2019 but remains outstanding in full or in part after this date will be subject to old rate up to 31 December 2019 and new rate after this date. The fact that the interest rate is per month or any part of a month, therefore signifies a higher annualised interest rate of at least 300%. This is by far more than the current penalty rate of up to 100%. A taxpayer that pays its tax late could therefore be found paying the tax due plus 4 times that tax inclusive of both penalty and interest.
This a serious message from the government against late payment of tax. Taxpayers should take heed and pay their taxes on time in order avoid such cost. Interest is a non-negotiable (are not subject to waiver) debt due to the State. Further, the fact that the Minister has not ring-fenced the new rate to Zimbabwe dollar taxes makes the interest unbearable for persons liable to pay their taxes in foreign currency. We urge the Minister to revisit this and ring fence the new rate to Zimbabwe dollar tax debts.