The appellant was an International Air Transport Association travel agent authorized to sell air passenger transport services on behalf of airlines. From 2009 to 2014, the appellant received commission for ticket sales but did not distinguish between resident and non-resident airlines in its books and records. The appellant did not charge VAT on the commission it earned, arguing that no VAT was due on these transactions. After an audit by ZIMRA (the respondent), and following several meetings around September 2016, the appellant finally admitted that some airlines were resident in Zimbabwe and that VAT was due on commissions earned from those airlines. On 22 September 2016, ZIMRA issued an amended assessment and requested a breakdown of commission earned from resident and non-resident airlines. The appellant delayed providing this information for over a year, only furnishing it on 3 November 2017 after an Appeal Pre-trial hearing. The initial assessment was US$135,834.00 with a 100% penalty. After receiving the information, ZIMRA issued amended assessments with the principal liability reduced to US$69,005.50 and a penalty reduced to 10%.
The appeal was dismissed with costs and the penalty of 10% on the revised assessment was confirmed.
The binding legal principles established are: (1) Under section 39 of the VAT Act, the Commissioner must enquire whether the taxpayer had the intention of evading tax when determining penalties; (2) A penalty is by definition punishment determined by the nature of wrongdoing and the taxpayer's blameworthiness, not by the prejudice suffered by ZIMRA or the fiscus; (3) The quantum of penalty expressed as a percentage is applied to the amount of tax concerned based on the level of blameworthiness attributed to the conduct; (4) A penalty must strike a balance between the need to punish the taxpayer for breaching the law and the taxpayer's viability concerns; (5) Lack of cooperation by the taxpayer with the tax authority, including withholding requested information for extended periods, is a factor that increases blameworthiness and justifies a penalty.
The court observed that the 10% penalty imposed by ZIMRA was actually "on the lenient side" for a taxpayer who did not cooperate for over a year. The court noted that the appellant had hired and parted company with legal practitioners on more than two occasions before ultimately representing itself through its managing director. The court also noted that the appellant had abandoned other grounds of its appeal, with only the penalty issue remaining for determination at the hearing.
This case clarifies the application of penalty provisions under section 39 of the Value Added Tax Act in Zimbabwe. It demonstrates the court's approach to assessing the appropriateness of tax penalties, emphasizing that penalties are punitive in nature and determined by the level of blameworthiness rather than prejudice to the fiscus. The case also illustrates the importance of taxpayer cooperation with tax authorities and the consequences of withholding information. It reinforces the principle established in PL Mines (Pvt) Ltd v ZIMRA that penalties must balance the need for punishment with the taxpayer's viability concerns.