News / National
Econet, Zimra in $300 million tax scam
05 Feb 2017 at 07:22hrs | Views
TELECOMMUNICATIONS giant Econet Wireless and Zimbabwe Revenue Authority bosses allegedly connived to help the company evade taxes and externalise cash - a scandal involving US$300 million.
The allegations are contained in a Zimra forensic audit report compiled by HLB Zimbabwe Chartered Accountants signed off in October 2016. According to the report, Government could have lost about US$300 million in revenue between 2009 and 2013 after Econet allegedly imported dutiable goods without paying taxes.
To promote ICTs, Government allowed mobile network operators to import base stations duty-free. Econet allegedly took advantage of the exemption to smuggle dutiable goods which the company allegedly marked as "base stations". The company also allegedly externalised foreign currency by over-invoicing through its Mauritius-based sister company, Econet Capital.
Zimra board chair Mrs Willia Bonyongwe confirmed that forensic auditors had raised the red flag and investigations were underway.
"Yes, there were observations to that effect and the forensic auditors recommended that we investigate the issues of over-invoicing, transfer pricing and customs duty evasion, among other things. I can assure you that the board will act on all issues raised by the forensic auditors and we actually have already started doing so. But some cases are more complex than others, requiring more time and more technical advice and investigations. And then the fact that Zimra officials involved are going through disciplinary hearings is another process altogether which affects the speed of implementing the audit findings."
Mrs Bonyongwe said individuals and companies implicated in the report should "get an opportunity to clear their names to the public and to their stakeholders because the allegations are quite serious and Zimra should have followed them up conclusively."
The report states that Econet Wireless hired clearing agent Mr Edward Matambanadzo to process its goods through his Paul Edwards Shipping Company (Private) Limited. Auditors stumbled upon the scandal as Mr Matambanadzo battled to get Zimra to pay him for providing them with information on Econet's alleged shenanigans.
Mr Matambadzo's lawyers, C Nhemwa and Associates, wrote to suspended Zimra Commissioner-General Mr Geshom Pasi on 7 February, 2014 raising the allegations but the matter was not pursued.
The letter reads, "Our client has instructed us to bring to your attention that in the process of carrying out its business of customs and freight forwarding, it came to discover that Econet Wireless Limited was fraudulently prejudicing the revenue authority of huge sums of money through illegal declarations and fraudulent clearances using a number of clearing agencies, including our client's Paul Edwards Shipping Company (Private) Limited.
"On discovering this, our client approached your organisation with the relevant information and provided documentary and audio evidence which we believe has been useful in collecting revenue from Econet Wireless. Apart from
prejudicing the revenue authorities, Econet Wireless was also illegally externalising foreign currency through over-invoicing using a sister company registered in Mauritius and this matter has been reported to the Reserve Bank of Zimbabwe. We are instructed to inquire from yourselves as to what amount has been recovered from Econet Wireless as our client believes the prejudice for the revenue authority is in excess of three hundred million dollars (US$300 000 000.)"
Mr Pasi is directly implicated by auditors.
"
Apparently, the Commissioner-General (Mr Pasi) also acted corruptly (showing favour to a client) by not causing an investigation against Econet to be carried out," reads part of the audit report.
Zimra, through post-clearance conducted in 2013, discovered that it could have been prejudiced of US$15 million by Econet.
On 3 December, 2013, Zimra wrote to Econet saying, "A post-clearance was carried out on some Econet Wireless 'base stations' importations which were cleared through Harare Airfreight Zimra office and Beitbridge Boarder Post.
"The audit revealed gross anomalies in the clearance which resulted in Zimra being prejudiced of USD15 884 943,46 in Customs Duty and VAT."
Quizzed on the alleged tax anomalies by our Harare Bureau, Econet Wireless executive assistant to the group CEO Mr Lovemore Nyatsine said Zimra had advised the company of its intention to garnish US$67,9 million, which the mobile network operator then challenged in court.
"The penalty of US$47 million that Zimra had imposed was set aside by the High Court. We imported base stations in exactly the same manner that our competitors did. Zimra sought to charge duty against Econet alone retrospectively without charging the same duty against our competitors. We have objected to that discriminatory treatment and our case is pending in the courts."
Auditors explained that the anomalies were a result of Econet's misclassifying of single components/units or parts of base stations as complete base stations. HLB Zimbabwe Chartered Accountants said evidence presented by Mr Matambanadzo suggested that Econet imported 59 582 base stations when the actual number of base stations it owned was less than 2 500.
"This points to the fact that the 57 082 which were imported by Econet were classified as base stations when they were not base stations hence the 57 082 were imported duty-free to the detriment of the fiscus," reads part of the audit.
The auditors said the 57 082 items were imported by Paul Edwards Shipping Company. Mr Nyatsine however, dismissed the allegations as false.
"Whoever did the audit for Zimra would have counted each base station component as though it was a complete base station hence the ridiculous quantity of base stations we are alleged to have imported. The number of base stations we own correspond with the number of base stations we imported."
Forensic auditors further unearthed that Econet could have externalised US$6,3 million through a scheme involving transfer pricing within one month in 2009. The matter was reported to the Reserve Bank of Zimbabwe which then conducted investigations as captured in a letter written by the chief inspector of the Exchange Control Inspectorate on 17 June, 2016.
In the externalisation, it is alleged that Econet would overstate the prices of components it was buying from its sister company in Mauritius, thereby allowing it to move millions of US dollars out of Zimbabwe. The audit report shows that on 23 October, 2009, Econet Wireless Zimbabwe bought a PDH Microwave from Econet Capital for US$2 398 425. Auditors said the equipment was actually valued at US$1 343 231 by ZTE, implying potential externalisation of US$1 055 194 via that transaction.
On 27 July, 2009 the company bought "various items" from its sister company for US$9 153 400 when the goods were really valued at US$5 117 472 – a difference of US$4 035 928.
Auditors said, "This potentially resulted in hundreds of millions of United States dollars which could have been externalised by Econet through the modus operandi illustrated above the exact quantum of which can only be determined by carrying out a full-scale audit on imports by Econet Wireless Zimbabwe – a posit that was not taken by Zimra executives. Zimra could have potentially suffered financial prejudice in that by inflating the values of assets imported, the value claimed in respect special initial allowances would also be inflated thereby understating profits and the corporate tax thereon."
Econet's Mr Nyatsine also dismissed these allegations, saying the matter was investigated and the firm had not been censured.
But HLB Zimbabwe Chartered Accountants insisted the matters raised required thorough investigations. Zimra did not carry out a full-scale investigation because – according to a letter by the tax collector's director of legal and corporate services, Mrs Florence Jambwa on 23 July, 2014 – the allegations were not supported by facts "and as such we were not able to take any action on them".
Auditors discorved that Mr Pasi had ordered Ms Jambwa to write the letter, possibly to cover up the scam. Auditors' interviews of Zimra loss control divisional heads showed no investigations into Econet's dealings had ever been conducted.
The auditors said the issues raised by the whistle blower issue, Mr Matambanadzo, should be fully investigated.
They also recommended that appropriate action be taken against Mr Pasi for "acting corruptly"; Ms Jambwa for signing a letter with contents which misrepresented facts; Mr Tichawona Chiradza (commissioner, investigations and international affairs) for facilitating the letter which misrepresented facts; and Mrs Anna Mutombodzi (commissioner customs and excise) for failing to take action after receiving information from the whistle blower. Mr Pasi could not be reached for comment.
The allegations are contained in a Zimra forensic audit report compiled by HLB Zimbabwe Chartered Accountants signed off in October 2016. According to the report, Government could have lost about US$300 million in revenue between 2009 and 2013 after Econet allegedly imported dutiable goods without paying taxes.
To promote ICTs, Government allowed mobile network operators to import base stations duty-free. Econet allegedly took advantage of the exemption to smuggle dutiable goods which the company allegedly marked as "base stations". The company also allegedly externalised foreign currency by over-invoicing through its Mauritius-based sister company, Econet Capital.
Zimra board chair Mrs Willia Bonyongwe confirmed that forensic auditors had raised the red flag and investigations were underway.
"Yes, there were observations to that effect and the forensic auditors recommended that we investigate the issues of over-invoicing, transfer pricing and customs duty evasion, among other things. I can assure you that the board will act on all issues raised by the forensic auditors and we actually have already started doing so. But some cases are more complex than others, requiring more time and more technical advice and investigations. And then the fact that Zimra officials involved are going through disciplinary hearings is another process altogether which affects the speed of implementing the audit findings."
Mrs Bonyongwe said individuals and companies implicated in the report should "get an opportunity to clear their names to the public and to their stakeholders because the allegations are quite serious and Zimra should have followed them up conclusively."
The report states that Econet Wireless hired clearing agent Mr Edward Matambanadzo to process its goods through his Paul Edwards Shipping Company (Private) Limited. Auditors stumbled upon the scandal as Mr Matambanadzo battled to get Zimra to pay him for providing them with information on Econet's alleged shenanigans.
Mr Matambadzo's lawyers, C Nhemwa and Associates, wrote to suspended Zimra Commissioner-General Mr Geshom Pasi on 7 February, 2014 raising the allegations but the matter was not pursued.
The letter reads, "Our client has instructed us to bring to your attention that in the process of carrying out its business of customs and freight forwarding, it came to discover that Econet Wireless Limited was fraudulently prejudicing the revenue authority of huge sums of money through illegal declarations and fraudulent clearances using a number of clearing agencies, including our client's Paul Edwards Shipping Company (Private) Limited.
"On discovering this, our client approached your organisation with the relevant information and provided documentary and audio evidence which we believe has been useful in collecting revenue from Econet Wireless. Apart from
prejudicing the revenue authorities, Econet Wireless was also illegally externalising foreign currency through over-invoicing using a sister company registered in Mauritius and this matter has been reported to the Reserve Bank of Zimbabwe. We are instructed to inquire from yourselves as to what amount has been recovered from Econet Wireless as our client believes the prejudice for the revenue authority is in excess of three hundred million dollars (US$300 000 000.)"
Mr Pasi is directly implicated by auditors.
"
Apparently, the Commissioner-General (Mr Pasi) also acted corruptly (showing favour to a client) by not causing an investigation against Econet to be carried out," reads part of the audit report.
Zimra, through post-clearance conducted in 2013, discovered that it could have been prejudiced of US$15 million by Econet.
On 3 December, 2013, Zimra wrote to Econet saying, "A post-clearance was carried out on some Econet Wireless 'base stations' importations which were cleared through Harare Airfreight Zimra office and Beitbridge Boarder Post.
"The audit revealed gross anomalies in the clearance which resulted in Zimra being prejudiced of USD15 884 943,46 in Customs Duty and VAT."
"The penalty of US$47 million that Zimra had imposed was set aside by the High Court. We imported base stations in exactly the same manner that our competitors did. Zimra sought to charge duty against Econet alone retrospectively without charging the same duty against our competitors. We have objected to that discriminatory treatment and our case is pending in the courts."
Auditors explained that the anomalies were a result of Econet's misclassifying of single components/units or parts of base stations as complete base stations. HLB Zimbabwe Chartered Accountants said evidence presented by Mr Matambanadzo suggested that Econet imported 59 582 base stations when the actual number of base stations it owned was less than 2 500.
"This points to the fact that the 57 082 which were imported by Econet were classified as base stations when they were not base stations hence the 57 082 were imported duty-free to the detriment of the fiscus," reads part of the audit.
The auditors said the 57 082 items were imported by Paul Edwards Shipping Company. Mr Nyatsine however, dismissed the allegations as false.
"Whoever did the audit for Zimra would have counted each base station component as though it was a complete base station hence the ridiculous quantity of base stations we are alleged to have imported. The number of base stations we own correspond with the number of base stations we imported."
Forensic auditors further unearthed that Econet could have externalised US$6,3 million through a scheme involving transfer pricing within one month in 2009. The matter was reported to the Reserve Bank of Zimbabwe which then conducted investigations as captured in a letter written by the chief inspector of the Exchange Control Inspectorate on 17 June, 2016.
In the externalisation, it is alleged that Econet would overstate the prices of components it was buying from its sister company in Mauritius, thereby allowing it to move millions of US dollars out of Zimbabwe. The audit report shows that on 23 October, 2009, Econet Wireless Zimbabwe bought a PDH Microwave from Econet Capital for US$2 398 425. Auditors said the equipment was actually valued at US$1 343 231 by ZTE, implying potential externalisation of US$1 055 194 via that transaction.
On 27 July, 2009 the company bought "various items" from its sister company for US$9 153 400 when the goods were really valued at US$5 117 472 – a difference of US$4 035 928.
Auditors said, "This potentially resulted in hundreds of millions of United States dollars which could have been externalised by Econet through the modus operandi illustrated above the exact quantum of which can only be determined by carrying out a full-scale audit on imports by Econet Wireless Zimbabwe – a posit that was not taken by Zimra executives. Zimra could have potentially suffered financial prejudice in that by inflating the values of assets imported, the value claimed in respect special initial allowances would also be inflated thereby understating profits and the corporate tax thereon."
Econet's Mr Nyatsine also dismissed these allegations, saying the matter was investigated and the firm had not been censured.
But HLB Zimbabwe Chartered Accountants insisted the matters raised required thorough investigations. Zimra did not carry out a full-scale investigation because – according to a letter by the tax collector's director of legal and corporate services, Mrs Florence Jambwa on 23 July, 2014 – the allegations were not supported by facts "and as such we were not able to take any action on them".
Auditors discorved that Mr Pasi had ordered Ms Jambwa to write the letter, possibly to cover up the scam. Auditors' interviews of Zimra loss control divisional heads showed no investigations into Econet's dealings had ever been conducted.
The auditors said the issues raised by the whistle blower issue, Mr Matambanadzo, should be fully investigated.
They also recommended that appropriate action be taken against Mr Pasi for "acting corruptly"; Ms Jambwa for signing a letter with contents which misrepresented facts; Mr Tichawona Chiradza (commissioner, investigations and international affairs) for facilitating the letter which misrepresented facts; and Mrs Anna Mutombodzi (commissioner customs and excise) for failing to take action after receiving information from the whistle blower. Mr Pasi could not be reached for comment.
Source - sundaynews
