Inamo Investments (Private)Limited (672 of 2022) [2022] ZWHHC 714 (5 October 2022)

1 HH 672-22 HC 2872/22 INAMO INVESTMENTS (PRIVATE) LIMITED versus ZIMBABWE REVENUE AUTHORITY HIGH COURT OF ZIMBABWE ZHOU J HARARE, 18 August & 5 October 2022 Opposed Application T E Gumbo, for the applicant S Bhebhe, for the respondent ZHOU J: This is an application for an order declaring the respondent’s alleged position that Zimbabwe dollar input tax cannot be offset against United States dollar denominated output tax at the prevailing interbank rate in computing value added tax in terms of s 15 and s 28, as read together with s 38(4) of the Value Added Tax Act [Chapter 23:12] to be unlawful and for the respondent to be ordered to re-assess the applicant’s value added tax obligations “for the relevant periods” in accordance with s 15, 28 and 38(4) “as declared herein”. The substance of the relief being sought by the applicant is a declaration that it is entitled to offset input tax paid in the Zimbabwe dollar against output tax paid in United States dollars. The application is opposed by the respondent. The factual background to the application is as follows: The applicant is a registered operator for the purposes of value added tax payment. During the course of its business the applicant charges value added tax to its clients, which is referred to in the papers as output tax. Also, in its dealings with its own suppliers and providers of services the applicant is charged value added tax, which is referred to as input tax. By operation of law, because it is a registered operator the applicant is entitled to be reimbursed that value added tax that it would have been charged by its own suppliers and service providers. A mechanism that has been put in place entitles the applicant to set off its input tax against any portion of the output tax which would be due by it to the respondent. In the course of its business the applicant receives payment in United States dollars, hence it is obliged to pay its tax to the respondent in that currency. The applicant’s case HH 672-22 HC 2872/22 herein is that it be entitled to recover in United States dollars, through the set-off system, its input tax which it would have incurred in the local currency. This is the issue in respect of which declaratory relief is being sought. The provisions relating to the recovery and payment of value added tax are found in the Value Added Tax Act [Chapter 23:12]. Applicant has specifically relied on s 15 and s 28 and s 38(4) of that Act to justify the relief being sought. Section 15 provides the following in dealing with calculation of tax payable: “(1) (2) (3) The tax payable by a registered operator shall be calculated by him in accordance with this section in respect of each tax period during which he has carried on trade in respect of which he is registered or is required to be registered in terms of section twenty-three. . . . Subject to subsection (2) of this section and sections fourteen and sixteen, the amount of tax payable in respect of a tax period shall be calculated by deducting from the sum of the amounts of output tax of the registered operator which are attributable to that period, as determined under subsection (4), and the amounts, if any received by the registered operator during that period by way of refunds of tax charged in terms of paragraphs (b) and (c) of subsection (1) and subsection (3) of section six, the following amounts, namely – (a) . . .” the amounts of input tax – Section 28 provides for the obligation of every registered operator to furnish tax returns and calculate and pay their tax based on such returns. Section 38(4) was introduced in 2009 following the advent of the multi-currency regime to oblige registered operators to pay tax in foreign currency where the operators would have received payment in foreign currency. It provides as follows: “Notwithstanding section 41 of the Reserve Bank of Zimbabwe Act [Chapter 22:15] and the Exchange Control Act [Chapter 22:05] where a registered operator – (a) receives payment of any amount of tax in foreign currency in respect of the supply of goods or services, that operator shall pay that amount to the Commissioner in foreign currency; (b) imports or is deemed in terms of section 12(1) to have imported goods into Zimbabwe, that operator shall pay any tax thereon to the Commissioner in foreign currency. In this subsection “foreign currency” means the euro, British pound, United States dollar, South African rand, Botswana pula or any other currency denominated under the Exchange Control (General) Order, 1996, published in Statutory Instrument 110 of 1996, or any other enactment that may be substituted for the same.” The respondent drew attention to s 38(9) which provides as follows: HH 672-22 HC 2872/22 “For the avoidance of doubt it is declared that all the provisions of this Act shall apply, with such changes as may be necessary, to the payment in foreign currency of tax in terms of subsection (4) in the same way as they apply to the payment of tax in Zimbabwean currency. In particular, section 44 (“Refunds”) shall apply so that any part of tax paid in foreign currency that is required to be refunded shall be refunded in foreign currency.” Significantly, there is no provision which entitles a registered operator to convert to foreign currency deductions of input tax denominated in the local currency from output tax which is denominated in foreign currency. In other words, the applicant’s case is that because there is no provision which explicitly prohibits that conversion then it is entitled to offset the input tax paid in the local currency against output tax denominated in the United States dollar. This is a classic case of seeking relief based upon a non-existent cause of action. Value Added Tax and any refunds or reimbursements connected therewith are regulated by statute. If any person is asking for relief they must show that the relief is provided for within the four corners of the tax legislation. The relief that the applicant is seeking in casu is not provided for in any provision of the relevant legislation; it is certainly not provided for in s 15, s 28 and s 38 (4) which are cited in para 1 of the draft order being sought by the applicant. The effect of the relief that is being sought by the applicant is that the applicant would be paying output tax in local currency where it would have received same in foreign currency. This defeats the purpose of s 38 (4) of the Act. In the case of Prosperous Days Investments v Zimbabwe Revenue Authority HH 24-21, the Court said: “It follows from the above – analysed matters that, where any output value added tax is received in foreign currency, the same must be paid in foreign currency. The law which relates to the subject matter of this application is clear and unambiguous. It requires no interpretation at all. Its ordinary grammatical meaning suffices.” The precise issue that is raised in the instant application has been authoritatively answered in the same case of Prosperous Days Investments v Zimbabwe Revenue Authority (supra), as follows: “The challenges which the Applicant’s approach presents onto the issue at hand are not only real. They are also formidable. The respondent enumerated them in a clear and unambiguous manner. It stated, correctly in my view, that: (i) s 15 does not state what would happen where, is in casu, the input tax and the output tax are in different currencies; HH 672-22 HC 2872/22 (ii) (iii) the Act does not provide for conversion of one currency to the other prior to the proposed deduction; and the Act does not state the rate which should be used in the conversion exercise, if such is to be embarked upon. The applicant’s syllogism does not hold. It is not suggesting that the above-observed gaps which exist in the law upon which its application is premised do not exist. It cannot persuade me to gloss over the gaps which the respondent pointed out for its benefit as well as mine. It is not requesting me to read into the relevant law which is clear and undiluted what is not part of it.” The only other perspective that I add to the above reasoning is that I perceive no gap in the law. Instead, the applicant’s case seems to be that because there is no law that gives it a cause of action or prohibits it from innovatively doing that which no law authorises, then it is entitled to relief claimed herein. In other words, the applicant’s position is that the absence of a legislative framework gives it a right to that which no law provides for merely because there is no law prohibiting it. Causes of action and legal rights cannot be founded other than upon a legal framework. A right, particularly one that a party seeks to enforce through a court of law, must have its foundation in a law. The right must be given by a law, not by the absence of a law. In the case of Prosperous Days Investments v Zimbabwe Revenue Authority, (supra), the court expressed the above position as follows: “On the strength of the fact that the applicant does not have any right to the remedy of a set off which it is moving me to consider herein, its application cannot stand. It is devoid of merit. Its consideration falls into the realms of conjecture.” In other words, the absence of a legal framework providing for the right being claimed means that the applicant cannot seek a remedy where no right exists. The current law does not provide for such a right. In the result, the application is dismissed with costs. Chinawa Law Chambers, applicant’s legal practitioners