W C of Zimbabwe (Pvt) Ltd v Zimbabwe Revenue Authority and V F S L H (Pvt) Ltd v Zimbabwe Revenue Authority

The appellants are Zimbabwe-based companies offering tourist activities to foreign tourists. Foreign tourists book through non-resident intermediaries (tour operators/travel agents) based outside Zimbabwe. The appellants charge foreign tourists at a lower "net rate" compared to the "rack rate" charged to walk-in customers. The non-resident intermediaries receive full payment (rack rate) from tourists outside Zimbabwe and remit only the net rate to the appellants, retaining the difference (10-30% of the rack rate) as their commission/fee. ZIMRA conducted a tax audit for years 2010-2015 and assessed that the appellants should have withheld Non-Resident Tax on Fees (NRTF) on the amounts retained by the intermediaries. ZIMRA estimated the tax using section 45 of the Income Tax Act and imposed assessments totaling ZWL307,776.16 plus a penalty initially at 100%, later reduced to 20%.

• Whether the non-resident tour operators provided services to the appellants in return for remuneration payable by the appellants
• Whether the amounts retained by non-resident tour operators constitute 'fees' as defined in the Seventeenth Schedule to the Income Tax Act
• Whether the source of the alleged fees was Zimbabwe
• Whether ZIMRA was competent to invoke section 45 of the Act to estimate the fees on which NRTF was charged
• When the due date for payment of NRTF should be reckoned
• Whether the imposition of a 20% penalty was justified

Both appeals dismissed with costs. The appellants were found liable to pay the assessed NRTF plus the 20% penalty.

Amounts retained by non-resident tour operators/intermediaries from payments made by foreign tourists for tourist facilities provided in Zimbabwe constitute 'fees' from a source within Zimbabwe for purposes of section 30 of the Income Tax Act and the Seventeenth Schedule, regardless of where the payment transaction occurs. The 'source' of such fees is Zimbabwe because the 'originating cause' of the income is the tourist facilities and services provided in Zimbabwe by the resident service provider. The term 'fees' in paragraph 1(1) of the Seventeenth Schedule, defined as 'any amount from a source within Zimbabwe', is broad enough to include commissions, discounts, or any diminution of the rack rate retained by intermediaries. The deeming provisions in paragraph 1(2)(c) apply where fees are 'so dealt with that the conditions under which the payee is entitled to them are fulfilled', even if never physically received by the resident payer. ZIMRA may invoke section 45 to estimate fees where the taxpayer fails to provide returns or where information is available (such as rack rates and net rates received). The resident service provider is obliged to withhold and remit NRTF on such fees within 10 days of invoicing the intermediary.

The court noted that in tax law, the legislature uses various devices to cast the tax net wider, including deeming provisions. When the legislature deems something to be what it is not, courts must give effect to that deeming regardless of the actual characteristics of the transaction. The court observed that the purpose of section 30 is evidently to extend the tax net to non-residents who derive income from activities associated with Zimbabwe. The court commented that the exercise of discretion in imposing penalties cannot be measured by 'fine intellectual callipers' and ultimately involves a value judgment. The court expressed concern that the appellants' arguments suggested this court could overrule the Supreme Court, noting this was inappropriate given the doctrine of stare decisis. The court observed that law, unlike mathematics, is full of abstract notions that sometimes defy precision.

This case confirms and reinforces the settled position in Zimbabwean tax law regarding NRTF on fees paid to non-resident intermediaries in the tourism industry. It establishes that: (1) amounts retained by offshore tour operators/agents constitute 'fees' from a Zimbabwe source regardless of where payment occurs; (2) the 'originating cause' test from Lever Bros applies - the source is the tourist facilities provided in Zimbabwe, not the location of payment; (3) ZIMRA can estimate fees under section 45 where sufficient data exists; (4) payment arrangements that keep fees offshore do not avoid tax liability due to deeming provisions; and (5) the doctrine of stare decisis binds lower courts to follow Supreme Court precedent. The case is important for the tourism industry and confirms the wide reach of Zimbabwe's tax net over non-resident service providers earning income connected to Zimbabwe-based activities.