It is really a dawn of an era. Is this the first time these lifestyle audits have been done in Zimbabwe or these is a repeat of some old movie scene. Let's find out!
BACKGROUND
According to the Sunday Mail, The Zimbabwe Revenue Authority is monitoring big spenders who make outrageously-priced purchases in and outside Zimbabwe under a new tax compliance enforcement strategy. The surveillance covers bank records, deeds and other title registers that help determine whether targets are paying taxes.
The lifestyle audit was introduced by ZIMRA in 2016, largely focusing on individuals who have publicly declared their properties and wealth. The audit however, now encompasses “everyone, even a person who buys an expensive watch”, and each individual is being asked to explain his/her tax-vs-income position.
Economist Dr Gift Mugano said: “Paying tax is a statutory obligation, and there’s nothing sinister in making sure that individuals are audited. Lifestyle audits are standard practice internationally. It is important for governments to put systems in place to ensure everyone is tax compliant.
Zimra has for some time been failing to meet its revenue targets largely due to tax evasion. The Authority now appears to be on the right path on the back of its massive compliance drive. In the first quarter of 2017, Zimra surpassed a revenue target of US$826, 63 million by six percent to reach US$862,47 million, with “operational efficiency and effectiveness, cargo tracking and an enhanced border control system” accounting for this huge leap.
According to a notice on the ZIMRA website, The Zimbabwe Revenue Authority (ZIMRA) has embarked on lifestyle audits as one of its initiatives to improve tax compliance levels and to assist taxpayers with information on tax matters. The audits are carried out to verify compliance of individual taxpayers in terms of the statutes administered by ZIMRA, which include Income Tax Act [Chapter 23:06]; Capital Gains Act [Chapter 23:01]; Value Added Tax Act [Chapter 23:12] and Customs and Excise Act [Chapter 23:02].
REFLECTIONS
What is a lifestyle audit?This is a type of audit carried out with specific attention on income received by individuals. It involves verification of a person’s personal expenditure patterns to determine if it is consistent with his declared taxable income to ZIMRA. Any variances noted will result in an amendment to the declared income and recovery of any additional tax.
Objectives of Lifestyle Audits
Lifestyle audits are carried out to:
1. Assess and collect additional revenue
2. Educate clients on how to correctly declare their income and make self-assessment of their tax status in terms of the law
3. Promote compliance
4. Update clients tax affairs
Benefits to the client
1. Tax status will be regularised and a tax clearance certificate can be issued
2. Increased knowledge by the client on tax matters
3. Greater understanding of the client of their personal tax status
Focus of the audit
The lifestyle audit focuses on every individual who is in receipt of income. The income may be from employment, pension payments, business operations, dividends, rental income, disposal of shares and or real estate, among others.
What is involved and the intended outcome?
The verifications will involve the following, among others:
1. interviewing clients
2. requests for information to support sources of income and/or expenditure
3. education of clients on tax matters
4. issuing of amended assessments where discrepancies are noted and collection of any tax due
Why clients should cooperate
The following are benefits for cooperating with ZIMRA officers as they carry out lifestyle audits:
1. Reduction in cost of compliance by clients
2. Client’s cooperation is taken into consideration whenever penalty reduction is considered
3. Reduction of time spent by the clients on traditional audits
4. Results in regularisation of the client’s tax affairs
5. The issued tax clearance certificate can enhance clients’ business opportunities and prospects.
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