Business

Harmonising profits: Transfer pricing policies in Zim firms – NewsDay

Zimra should strengthen its oversight and enforcement mechanisms to ensure compliance with transfer pricing regulations.

IN the context of Zimbabwe’s divisionalised companies, transfer pricing presents a unique set of challenges that require careful navigation.

With the goal of aligning divisional objectives, measuring performance accurately, and managing tax liabilities efficiently, transfer pricing policies play a crucial role in driving sustainable growth in these organisations.

Zimbabwe’s divisionalised companies rely on transfer pricing to ensure goal congruence among their divisions. Divisional managers are entrusted with the responsibility of driving their division’s performance, and transfer pricing policies serve as the tool to align their objectives with the company’s overall goals.

By setting fair transfer prices that reflect the true value of goods and services exchanged between divisions, companies can foster a sense of unity and ensure that the success of one division benefits the entire organisation.

Accurate performance measurement is paramount in Zimbabwe’s divisionalised companies.

The transfer pricing system provides divisional managers with a transparent and reliable measure of their performance. By evaluating divisional profits based on fair transfer prices, companies can effectively incentivise managers and reward their contributions.

Striking the right balance between motivating divisional managers and preserving divisional autonomy is crucial, as it allows managers to make independent decisions while ensuring the overall success of the company.

Maintaining divisional autonomy is a fundamental aspect of Zimbabwe’s decentralised business environment.

Divisional managers are empowered to make decisions tailored to their division’s unique circumstances.

Transfer pricing policies should respect this autonomy by avoiding transfer prices that excessively impact divisional profitability.

By finding the equilibrium between autonomy and central control, companies can foster an environment that encourages innovation, accountability, and divisional success.

However, Zimbabwean divisionalised companies must also navigate the intricate landscape of tax liabilities.

While operating within a single tax regime minimises the impact of transfer pricing on corporate tax bills, multinational companies face the challenge of managing tax liabilities across different jurisdictions.

By strategically allocating profits through transfer pricing policies, these organisations can optimise their global tax positions.

Nevertheless, adherence to regulatory compliance and ethical considerations is crucial to ensure transparency and responsible practices.

In addition to aligning goals and managing tax liabilities, the transfer pricing system serves as a vital mechanism for recording the movement of goods and services within Zimbabwean divisionalised companies.

Accurate recording facilitates proper accounting and financial reporting, enabling transparency and compliance with regulatory standards. It enhances the credibility of financial statements and contributes to a robust business environment.

Moreover, the fair allocation of profits between divisions is essential for maintaining motivation and perceived fairness among divisional managers.

While the advantages of divisionalisation extend beyond financial considerations, the impact of transfer pricing on divisional profit must be perceived as fair to sustain the motivational benefits.

Successfully navigating the complex dynamics of transfer pricing in Zimbabwe’s divisionalised companies requires a proactive approach. Staying abreast of regulatory developments, local tax regulations, and industry trends is crucial.

By continuously adapting transfer pricing policies to the changing business landscape, Zimbabwean companies can optimise their potential for sustainable growth and contribute to the overall economic development of the nation.

In conclusion, transfer pricing in Zimbabwe’s divisionalised companies plays a pivotal role in harmonising divisional goals, measuring performance accurately, and managing tax liabilities.

By striking the right balance between these objectives, Zimbabwean companies can foster a conducive environment for growth and success.

As the business landscape evolves, companies must remain adaptable and proactive in their approach to transfer pricing, ensuring compliance, fairness, and sustainable practices for the benefit of their divisions and the nation as a whole.

Recommendations

Enhance transfer pricing guidelines: The Zimbabwean government should consider developing comprehensive transfer pricing guidelines specific to divisionalised companies. These guidelines should provide clear frameworks and methodologies for setting fair transfer prices, ensuring goal congruence, and promoting performance measurement.

Strengthen regulatory oversight: Regulatory bodies, such as the Zimbabwe Revenue Authority (Zimra), should strengthen their oversight and enforcement mechanisms to ensure compliance with transfer pricing regulations. Regular audits and evaluations can help identify any potential non-compliance issues and address them promptly.

Facilitate knowledge sharing: The government, in collaboration with industry associations and professional bodies, should organise workshops, seminars, and training programmes to enhance the understanding of transfer pricing concepts among divisional managers and finance professionals. This will enable them to make informed decisions and implement best practices.

Foster collaboration and dialogue: Encourage open communication and collaboration between divisional managers, finance departments, and tax authorities. Regular meetings and forums can provide a platform for sharing experiences, discussing challenges, and finding common solutions to transfer pricing issues.

Monitor international tax developments: Given the global nature of transfer pricing, it is essential for Zimbabwean companies to stay informed about international tax developments and emerging best practices. This will help them adapt their transfer pricing policies in line with global standards and minimize the risk of non-compliance.

Promote ethical considerations: Emphasise the importance of ethical conduct in transfer pricing practices. Companies should prioritise fair and responsible allocation of profits, considering not only legal compliance but also the ethical implications of their decisions.

Establish a dispute resolution mechanism: In cases where disagreements or disputes arise between divisions or with tax authorities regarding transfer pricing, a dedicated dispute resolution mechanism can offer a fair and timely resolution. This can help maintain harmonious relationships and ensure the smooth functioning of divisionalised companies.

Conduct regular internal audits: Companies should implement regular internal audits of their transfer pricing practices to identify any potential issues, ensure compliance, and improve overall transparency. Internal audit teams should have the necessary expertise and independence to provide unbiased assessments.

Engage external experts: When necessary, companies can seek assistance from external experts, such as transfer pricing consultants or tax advisors, to ensure the accuracy and effectiveness of their transfer pricing policies. These experts can provide valuable insights, guidance, and support in navigating complex transfer pricing challenges.

Monitor and adjust policies: Finally, companies should continuously monitor the effectiveness of their transfer pricing policies and make adjustments as needed. Regular reviews can help identify areas for improvement, address emerging issues, and ensure that the transfer pricing system remains aligned with the company’s evolving goals and objectives.

By implementing these recommendations, Zimbabwean divisionalised companies can enhance their transfer pricing practices, promote fairness and compliance, and contribute to a sustainable and thriving business environment in the country.

Munengami is a public accountant and registered public tax accountant. He is the managing partner at Pertonady Chartered Certified Accountants. These weekly New Perspectives articles, published in the Zimbabwe Independent, are coordinated by Lovemore Kadenge, an independent consultant, managing consultant of Zawale Consultants (Pvt) Ltd, past president of the Zimbabwe Economics Society and past president of the Chartered Governance & Accountancy Institute in Zimbabwe (CGI Zimbabwe). — [email protected] or mobile: +263 772 382 852.

Business

Mthuli squeezes consumers, businesses – NewsDay

In his 2024 national budget presentation in Parliament, Finance minister Mthuli Ncube increased taxes to raise an additional ZWL$10 trillion to meet the new revenue targets.

GOVERNMENT yesterday announced a cocktail of tax increases, pushing up the cost of living and ease of doing business after reviewing its 2024 revenue projection upwards by 22,22% to ZWL$53,9 trillion.

In his 2024 national budget presentation in Parliament, Finance minister Mthuli Ncube increased taxes to raise an additional ZWL$10 trillion to meet the new revenue targets.

Treasury initially projected revenue collections to total ZWL$44,1 trillion for the 2024 fiscal year.

“Mr Speaker Sir, in line with the projected economic growth of 3,5%, total revenue collections in 2024 are estimated at ZWL$53,9 trillion, (18,3% of GDP), broken down as ZWL$51,2 trillion tax revenue and ZWL$2,7 trillion non-tax revenue,” Ncube said.

“Guided by the expected revenue envelope and the desired fiscal path, expenditures in 2024 are projected at ZWL$58,2 trillion (19,8% of GDP).”

Ncube announced an upward review on the Strategic Reserve Levy by US$0,03 and US$0,05 per litre of diesel and petrol, respectively, with effect from January 1, 2024, pushing up the cost of fuel.

Ncube also raised tollgate and passport fees beginning next year.

“I, therefore, propose an upward review of toll fees on premium roads, that is, Harare-Beitbridge and Plumtree-Mutare and other roads, with effect from January 1, 2024. Revenue derived from the increased fees will be remitted to the Consolidated Revenue Fund,” Ncube said.

“I, further, propose that passport and selected fees charged by the Central Vehicle Registry be increased, with effect from January 1, 2024. Additional revenue generated from the above measures will be ring-fenced towards road infrastructure development.”

Ncube also introduced a US$0,02 levy per gramme of sugar contained in beverages, a development that will push up the prices of beverages.

He said the move was in response to growing concerns on the adverse effects of the consumption of sugar contained in beverages. Tax on beverages has also been implemented in a number of countries, including in the Southern African Development Community.

Ncube also introduced a new wealth tax to ensure that high-income earners pay taxes.

“In order to ensure that every person contributes to the fiscus in line with their levels of income. I propose to introduce a wealth tax levied at a rate of 1% of market values of residential properties with a minimum value of US$100 000,” he said.

“Resources derived from the levy will be ring-fenced towards urban infrastructure development, in particular roads, water, sewer and community health centres. Principal private residential properties owned by elderly persons above 70 years will, however, be exempt from the tax.”

While the minister reviewed the tax-free threshold on incomes to ZWL$750 000, from the previous ZWL$500 000, inflation has rendered the move mute because of the rising cost of living.

Ncube also targeted foreign companies by introducing the domestic minimum top-up tax (DMTT).

The tax ensures that qualifying entities located in Zimbabwe with an aggregate effective tax rate below 15% be charged a top-up amount, raising the cost of doing business.

“Under the GloBE Tax Rules, where a tax incentive results in an effective rate of less than 15%, the tax jurisdiction where the multinational is headquartered collects the difference between the effective tax under the tax incentive and the minimum effective rate of 15% (the top-up tax),” Ncube said.

“The DMTT allows the country where the low tax profits arise from the tax incentive to collect the top-up tax rather than ceding taxing rights to the headquarter jurisdiction.”

He said the calculation of the DMTT would be based on the effective tax rate charged on the jurisdictional profits, not the jurisdictions’ statutory corporate income tax.

“I, therefore, propose to enact DMTT rules to guard against ceding taxing rights to foreign jurisdictions on top-up tax arising from tax incentives that are provided to those investments,” Ncube said. The corporate tax rate was also reviewed upwards to 25% from 24%.

Ncube, however, reduced the mandatory value added tax (Vat) registration threshold to US$25 000 from US$40 000, starting next year.

Operators with a minimum annual turnover of US$25 000, or local currency equivalent thereof, are now required to register for Vat.

Failure to register will see applicable penalties invoked, Ncube said.

He said traders registered for Vat purposes and in possession of valid tax clearance certificates would be eligible to procure goods from manufacturers.

“The tax deferred will, however, be fixed at the foreign currency amount payable at the time of importation, albeit, payable in local currency at the prevailing exchange rate at the time of importation, albeit, payable in local currency at the prevailing exchange rate at the time of payment.”

Business

Mthuli squeezes consumers, businesses – NewsDay