Let us suppose that a Mr. Derrick Mumba goes into the business of selling newspapers in Milenge. Let us call it, The Past Newspaper (no pun intended). Mr. Mumba intends to work in a field he is passionate about and to make some money out of it. This would be a win-win.
The government of Zambia (GRZ) makes its money from people like Mumba using an old fashioned system called taxation. GRZ encourages people like Mr. Mumba to do what they are passionate about, then once they make their money, the government takes a portion of the profits (So unfair, right?). As governments are typically inefficient to collect tax, the legislature creates a firm that would collect taxes on its behalf: Zambia Revenue Authority (Zambia) and Canada Revenue Agency (Canada).
The legislature gives ZRA and CRA extensive powers to search your pockets and determine how much you made last year. It can also search your cash register or do some nasty stuff, as allowed by law, to chase your income.
Let us assume that Mumba sells newspapers for K1,000,000.00 in 2010. Obviously, the legislature will state how much tax rate he should pay out of his profits. Mumba arrives at his profit after he has taken out all the operations, capital and several other expenses (transportation, ZESCO, and rent). After Mumba has taken out all the expenses you can ever think of, and as far as the law would allow, he is required to declare a profit and from that profit pay tax to ZRA. Let us for argument’s sake say Mumba made a profit of K100.00. At the simple rate of 10%, Mr. Mumba is supposed to pay a K10.00 to ZRA.
Ironically, the law gives ZRA powers to make Mumba its agent. Mumba’s workers are supposed to pay taxes from the salary that he pays them. ZRA requires Mumba to withhold an employee’s tax (PAYE). Workers in Zambia pay taxes by law. Parliament determines the rate. Some workers are taxed at 0%, meaning Mr. Mumba cannot deduct any money from their salary. If a worker’s tax rate is 5%, Mumba is expected to act as the agent of ZRA to collect that amount. Suppose Sibeso works for Mr. Mumba and her salary is K50.00, Mr. Mumba is supposed to act as the agent for ZRA and withhold K2.5 from Sibeso for further remittance to ZRA. That K2.5 is not Mr. Mumba’s, it is ZRA’s.
Mumba also interestingly sells adverts in his papers. A Dr. Ng’anga Soweto places an advert in The Past to woo customers to his Traditional Clinic in Kabulonga. Each person who buys space in the Past Newspaper is supposed to pay a tax to ZRA. For some reason ZRA really likes to tax people and finds creative ways to get money from ordinary people like you and me. Dr. Ng’anga’s advert costs K20.00, but ZRA asks Mr. Mumba to be its agent and collect K1.00 tax, on top of the K20.00. That extra K1.00 is supposed to be remitted to ZRA, it does not belong to Mumba.
From our illustration, Mr. Mumba has at least 3 payments he is supposed to make to ZRA: a portion of his profit, withheld PAYE and tax on adverts. Sounds simple, right?
With all these payments however, Mr. Mumba, in this imperfect world, might deduct from his workers and yet fail to take the money to ZRA on time. As for the money from Dr. Ng’anga, Mr. Mumba might conveniently forget. Anything can happen. So to force compliance, the law gives ZRA very strict regulations to ensure that Mr. Mumba pays ZRA its money.
Years may pass by as Mumba neglects to remit ZRA money. ZRA may send its officers, but Mr. Mumba apparently could have a very powerful angel from Independence Avenue. Each time ZRA goes to Mr. Mumba’s Past Newspapers to collect the remittances, they may not succeed because Mr. Mumba has friends in high places guarding his Ubufumu offices.
No one can hide from ZRA forever as angels frequently change addresses from Independence Avenue to Embassy Park. ZRA may finally get through and send Mumba the bill. The law recognises that ZRA might be mistaken in the way it calculates how much Mr. Mumba owes. In those circumstances, parliament has created a tax tribunal. This is a quasi-judicial body arbitrating tax disputes between ZRA and the taxpayers. Mr. Mumba may state his case and say that ZRA is mistaken as Mr. Ng’anga did not pay the whole K20.00. The tribunal will look at the evidence and make its ruling. Mumba may not end there, however, if he is not happy with the ruling of the tribunal he then can go to the High Court. The High Court will hear the matter. If Mumba is not satisfied with the High Court, he can appeal to the Supreme Court. Through all this, and as Mumba goes on doing business, he is still expected to continue collecting money on behalf of ZRA and to remit it. As long as Mr. Mumba is in business he is supposed to act as ZRA’s agent. The agency relationship does not terminate simply because Mumba has taken ZRA to court.
When the Supreme Court finally rules, and it would usually rule in favour of ZRA (Tax Law is not very flexible), Mr. Mumba is supposed to dig deeper and pay up. If he can’t pay, unfortunately, ZRA has wide powers to liquidate Past Newspaper assets in Milenge to pay the debt Mumba owes from unremitted PAYE, Dr. Ng’anga’s tax, and profits of his business.
Sounds familiar, doesn’t it?
E. Munshya, LLM, MBA, MDIV