Keep records to discharge tax burden of proof

HARARE - When running a business is it a requirement on the part of the business person to keep certain records that document and explain all the transactions of his/her business. 

Records constitute the basis of financial and tax reporting.

Not only is financial information important to the business percent but also to a bank that may have advanced funds to the business. 

Government needs financial information for tax and statistical purposes. Other stakeholders who have interest in the financial information of the business include employees, customers, creditors, the community, potential investors among others.

The records that should be kept should enable the business person to determine his/her income and expenditure. 

Some of them include receipts for supplies, deposit books, bank statements, invoices books, credit and debits notes, purchase orders, logbooks for car expenses wages records, including worker payment records, employment declarations etc. 

The tax law has prescribed that records must be kept for at least a period of six years from the date of its origination and must be in English language and should easily be accessible. 

The reason for keeping records is for tax purposes. The taxman uses them as proof that financial transactions really occurred and apparently the law imposes the burden of proof on the part of the taxpayer to prove entries in tax returns submitted are correct.  

Burden of proof in civil cases 

The burden of proof refers to the degree of probability that must exist in order for a circumstance to form the basis of a tax assessment decision or a judgment. 

Unlike in criminal cases where the burden of proof is on the accuser, in civil cases the onus is on the accused. 

Tax being a claim on the taxpayer’s property it constitutes a civil claim on the taxpayer’s property and the taxpayer must prove that the claim by the taxman is false. 

Thus in an appeal or objection a taxpayer who wishes to claim a deduction, exemption or rebate may be called upon by the Commissioner to support his/her claim. 

The court has no power to reverse or alter any decision of the Commissioner unless it is shown by the taxpayer that the decision is wrong. 

This position is in terms of s63 of the Income Tax Act (ITA), Chapter 23:06  which reads: “Burden of proof as to exemptions, deductions or abatements In any objection or appeal under this Act, the burden of proof that any amount is exempt from or not liable to the tax or is subject to any deduction in terms of this Act or credit, shall be upon the person claiming such exemption, non-liability, deduction or credit and upon the hearing of any appeal the court shall not reverse or alter any decision of the Commissioner unless it is shown by the appellant that the decision is wrong”. 

Similar provisions are contained in s15 of the Fiscal Appeal Court Act [Chapter 23:05] and s37 of the Value Added Tax Act [Chapter 23:12] for purposes of VAT liabilities. 

These provisions apply to both the courts and the tax authorities. 

Thus any decision should be based on the facts that seem more likely to have occurred. It is primarily the taxpayer who bears the responsibility of providing documentation, and one must base any decision on an entirely free evaluation of evidence. 

He/she must be able to substantiate certain elements of expenses to deduct them, prove entries, deductions and statements made in his/her tax returns.  

If the taxpayer is unable to provide sufficient evidence for a tax matter imposed against him, the Commissioner cannot waive the case. 

The burden is on the taxpayer because it is him/her who is burdened with the responsibility of keeping accounting records. 

Section 37B of the ITA and s57 of the VAT Act, Chapter 23:12 requires him/her to keep records and these have to be kept for a period of six years in English Language.

Discharging the burden of proof 

Taxpayers must discharge the burden of proof by having the information and receipts (where needed). They should keep adequate records and have documentary evidence such as receipts, cancelled checks, or bills to support certain expenses. 

This means that it is the taxpayer who bears the duty to provide relevant information which he/she will use as proof of the actual transactions which took place. 

If the tax authorities find that there is no proper documentation during a tax assessment, it uses its own discretion even if it is above the real transactions that took place. 

The records should be adequate to support entries in the tax returns submitted to the Zimra. 

Estimated assessments

Where records have not been kept or in the absence of documentary proof the Commissioner is entitled in terms of the law to raise an estimated assessment. 

Thus persons upon whom estimated assessments are raised are those that who would failed to submit returns, made false declarations, those about to leave the country without submitting returns as required by the law or those unable from any source to submit returns. 

The Commissioner is not however permitted to revise an assessment if it was made in accordance with the “practice generally prevailing at the date of assessment (Weare v the Commissioner for SARS (2005 (4) 488 SCA)). 

Estimated assessments are very punitive because they are often overstated. 

In addition, they may also carry a 100 percent penalty and more often than not the Commissioner does not accept a revision of an estimated assessment to reduce tax liability.

An estimated assessment does not relieve a taxpayer of his/her duty to settle tax liabilities in accordance with dates stipulated in the Act. 

Therefore interest on estimated tax liabilities is due from the establishment date not from the date an estimated assessment is raised. The establishment date is the date the tax was supposed to be paid.

Conclusion 

As a business person you are advised to keep records of your transactions in order to avoid the wrath of the taxman. 

Estimated assessments which the taxman may raise on you if you have not kept records and paying taxes may destroy your business which you may have toiled for in order to be what it is today. 

The records must be stored in original form even if you keep electronic records. 

You will be committing an offence if you have not kept these records or to wilfully damage or destroy them. 

Whatever records you keep, it makes sense to organise and keep them in an orderly fashion. 

They should be easily accessible in order to answer promptly to the Zimra demands. 

Finally, such records must span a period of six years to prove Zimra allegations. 

If an accounting entry cannot be supported, Zimra will deem it not to have occurred and will seek to attribute tax and also charge penalty on the amount. 

Meanwhile, Matrix Tax School will be hosting its Third Edition of Annual Tax Conference in Victoria Falls Zimbabwe from May 22 to 25, 2019.

* Marvellous Tapera is the Founder of Tax Matrix (Pvt) Ltd and the CEO of Matrix Tax School (Pvt) Ltd. He writes in his personal capacity.

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