THE Zimbabwe Revenue Authority (ZIMRA)’s tax dragnet has swooped on telecommunications giant, Econet Wireless Zimbabwe, which is now embroiled in a tax dispute with the country’s revenue collector over alleged manipulation of invoices to evade tax. The move has disturbed Econet executives who are understood to have already gone to the High Court to seek protection from a potentially devastating claim from the revenue collector.
The dispute, which emerged after tipoff from a whistle blower, identified as Edward Mutambanadzo in documents seen by the Financial Gazette could result in ZIMRA claiming over US$600 million from Econet, majority-owned by Zimbabwe’s billionaire business mogul, Strive Masiyiwa.
Mutambanadzo alleges Econet falsified invoices for imported capital equipment since its inception 16 years ago, prejudicing the country’s tax agency, and consequently government. Mutambanadzo, the whistle blower in the case, is the managing director of Paul Edwards Shipping Company. He reported to ZIMRA that Econet, through its alleged fraudulent scheme, had been showing products on invoices for imported goods, which were totally different from the imported products.
ZIMRA then raised the red flag over irregularities in the import of base stations handled by four other agents. Documents show that ZIMRA discovered that goods imported by Econet, such as computers, binoculars, digital cameras and other dutiable equipment, were invoiced as base station equipment. The potential prejudice, according to correspondence between the authority and Matambanadzo, who has been providing customs clearing and freight services to Econet for more than 10 years, amounts to well over US$300 million. The amount would come to over US$600 million if penalties are factored in.
It appeared Econet was taking advantage of a 1998 waiver of duty on parts for base stations, which were exempted from duty under tariff 8525.2020. The whistle blower claimed that Econet had been allowed to use one tariff since 1998 on all imported goods and base station equipment. This favour was, however, not extended to other telecommunications rivals, Telecel Zimbabwe and NetOne, a situation which left the playing field uneven.
Econet said when contacted for comment that they were aware of the allegations but dismissed them as malicious. “We are aware of these allegations, which are malicious, and the parties who are making the claims. We have written to the authorities to invite them to perform their own investigations and assess the veracity of these claims,” said Econet in response to questions from the Financial Gazette.
ZIMRA’s director of legal and corporate services, Florence Jambwa, could neither confirm nor deny the alleged scandal, citing confidentiality rules. “The Zimbabwe Revenue Authority is precluded by the Revenue Authority Act (Chapter 23:11) from providing specific information concerning its clients to a third party. I am, therefore, unable to comment or provide the requested information because it is protected by the secrecy provisions of the Revenue Authority Act,” she said.
Documents in our possession revealed that the whistle-blower claimed that about 56 500 containers of various items belonging to Econet Wireless were cleared as base stations. The Financial Gazette understands that the whistle blower has been engaging ZIMRA over the issue since last year and has since instructed his lawyers to approach the High Court.
Mutambanadzo declined to comment on the issue, referring all questions to his lawyer, Claudious Nhemwa of C.Nhemwa and Associates But the law firm declined to comment, saying the matter was subjudice. ZIMRA, in a letter to Paul Edwards Shipping Company dated December 5, 2013, expressed disquiet over the manner Econet’s base stations were being cleared between 2009 and 2013.
“Pursuant to our meeting on 4 December 2013, ZIMRA is hereby requesting for an explanation on the 59 582 base stations cleared by Paul Edwards for Econet Wireless when ZIMRA has it on record that Econet has less than 2500 base stations country-wide. Explanation on why components/units/parts of base stations were being classified as base stations instead of in their respective tariff headings,” reads part of ZIMRA’s letter.
The Financial Gazette understands that Mutambanadzo held several meetings with ZIMRA officials who undertook to thoroughly investigate the matter upon an understanding that the whistleblower would share his entitlement with them. The ZIMRA officials, however, were alleged to have made a u-turn, abandoning Mutambanadzo and started negotiating with Econet. When Mutambanadzo got wind of that, he is said to have then approached ZIMRA commissioner for investigations and international affairs, Anna Mutombodzi, with documentary evidence and audio records and she promised to look into the matter. She assisted Mutambanadzo to fill in a whistle blower’s form.
Despite what appeared to be a brave and noble action taken by the whistle-blower, ZIMRA fought hard against his claim as Mutombodzi later revealed that ZIMRA did not use the information provided by Mutambanadzo as the matter was already under investigation by ZIMRA when the whistle blower approached her. She said Mutambanadzo was therefore not entitled to a whistle blower’s commission. Mutambanadzo, according to information obtained by this newspaper, claimed that there had been efforts by ZIMRA officials working with
Econet to sweep the scandal under the carpet and deprive him of his rights as a whistle blower. In a surprise turn of events, Paul Edwards Shipping Company’s ZIMRA bond account was in December 2013 cancelled without notice or written report with ZIMRA advising the whistle blower that his company’s bond would be opened when the Econet case was closed. “Please be advised that Paul Edwards Shipping customs account has been suspended on December 6 and remains suspended pending the outcome of the urgent chamber application brought before the High Court by Econet Wireless Zimbabwe against ZIMRA over classification of goods.”
“The tariff dispute before the High Court arose as a result of misclassification of base station components by a number of clearing agents of which Paul Edwards Shipping was one of them, thereby prejudicing the fiscus of millions of dollars,” reads part of a letter from ZIMRA to Paul Edwards Shipping Company.
Zimbabwe adopted comprehensive whistle-blower laws for tax purposes in 2001, and this is enshrined in the Zimbabwe Revenue Authority Act (Chapter 23:11) under Section 34B. Under subsection 2 of section 34B, the commissioner-general may, with the approval of the Finance Minister, award any person, not being an employee of the authority, or a near relative of an employee of the authority, a monetary reward for information provided or any measure taken which results in detection of smuggling or any illegal and underhand activities, and of the recovery of revenue which would otherwise have been lost.
The Act rewards whistle-blowers who tip-off on graft with 10 percent of the total tax revenue and penalties recovered as a result of whistle blowing information provided. The Financial Gazette reported recently that some ZIMRA officials were giving insider information about their targets to third parties who will then blow the whistle as if they stumbled on the information themselves. Once they have been rewarded for lifting the lid on corruption and other malpractices, they will then share the spoils with the ZIMRA officials.
As per the whistle blower law, the informer should have been awarded a 10 percent but he hasn’t been paid and is thus suing the tax collector for refusing to reward him after he unearthed fraud in the Econet case.