G (Private) Limited v Zimbabwe Revenue Authority

The appellant, a local Zimbabwean company, implemented and monitored foreign donor-funded projects in Zimbabwe. During 2015-2016, it concluded contracts with foreign entities including the Commonwealth of Australia, Deutsche Welthungerhilfe (a German organization), and the British Council, all through their offices in Harare. In 2017, the respondent (Zimbabwe Revenue Authority) conducted an audit revealing the appellant had income above the $60,000 annual threshold and was not registered for VAT. The respondent retrospectively registered the appellant for VAT from 1 January 2015 and issued assessments totaling US$206,878.08 for 2015-2016, including a 100% penalty and 10% annual interest. The appellant had previously approached the respondent around 2012-2013 for advice and was told it was not liable for VAT registration because the projects were funded by foreign donors. The appellant objected to the assessments on the grounds that services to non-resident organizations should be zero-rated and that the 100% penalty was excessive given the absence of intent to evade tax. The Commissioner General disallowed the objection on 28 December 2017.

• Whether services rendered by the appellant to foreign donor organizations were rendered for the benefit of and contractually to non-residents, thereby qualifying for zero-rating under section 10(2)(l) of the Value Added Tax Act
• Whether the foreign organizations with offices in Zimbabwe were deemed to be residents of Zimbabwe by virtue of section 2 of the Value Added Tax Act
• Whether the 100% penalty imposed by the Commissioner was justifiable and appropriate in the circumstances, particularly where the appellant had acted on advice from the respondent

1. The penalty imposed in this matter is set aside. 2. The appeal is, otherwise, dismissed. 3. There shall be no order as to costs.

Foreign organizations are deemed to be residents of Zimbabwe for the purposes of the Value Added Tax Act where they have a fixed or permanent place in Zimbabwe from which they carry on trade or activities, notwithstanding that they may not be factually resident in Zimbabwe. Services rendered to such deemed residents do not qualify for zero-rating under section 10(2)(l) of the Act because the requirements of that section are cumulative - services must be supplied for the benefit of and contractually to a non-resident who is outside Zimbabwe at the time services are rendered. Where a taxpayer has acted bona fide on advice from the revenue authority and has no intention to evade tax, the Commissioner may (and should) exercise discretion to remit penalties in their entirety under section 39(5) of the Value Added Tax Act.

The court noted, though it was not decisive, that the respondent had advanced a further argument that the services rendered by the appellant were for the benefit of local Zimbabweans (such as rural communities receiving water, sanitation and health services, local farmers receiving agricultural inputs, and young artists in Harare and Bulawayo). The court indicated this argument had merit but did not need to be determined given the finding on deemed residence. The court also observed that the appellant's cooperative approach during the audit and enquiries was a factor supporting the absence of intent to evade tax.

This case clarifies the application of the deemed residence provision in Zimbabwe's Value Added Tax Act, establishing that foreign organizations with fixed or permanent places in Zimbabwe from which they carry on activities are deemed residents for VAT purposes, even if they are not factually resident. The case also demonstrates the court's willingness to exercise discretion in remitting penalties where taxpayers have acted bona fide on advice from the revenue authority itself, balancing revenue collection with fairness. It emphasizes that the requirements for zero-rating of services under section 10(2)(l) are cumulative and must all be satisfied. The judgment provides guidance on when penalties may be remitted under section 39(5), particularly where there is no intent to evade tax and the taxpayer has relied on official advice.