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Adam Molai's Pacific Cigarette Company forced into voluntary corporate rescue

by Staff reporter
09 Oct 2023 at 11:00hrs | Views
Pacific Cigarette Company (PCC), led by local business magnate Adam Molai, has voluntarily initiated corporate rescue proceedings due to a substantial $19 million tax liability. This move comes amid allegations of the government using taxation as a means to target perceived political adversaries.

PCC, formerly known as Savanna Tobacco, stands as Africa's second-largest indigenous tobacco company and Zimbabwe's initial locally-owned cigarette manufacturer.

According to official sources, the Zimbabwe Revenue Authority (Zimra) faced pressure from high-ranking political figures to impose a $19 million tax assessment on PCC. Speculation had circulated that Molai was financially supporting former Zanu-PF political commissar and minister Saviour Kasukuwere in his bid to challenge President Emmerson Mnangagwa during the recent presidential election. Kasukuwere's candidacy was controversially disqualified by the High Court, with Mnangagwa ultimately claiming victory in the disputed election, contested by his main rival, opposition CCC leader Nelson Chamisa.

In the lead-up to the elections, which encompassed parliamentary and municipal polls, intelligence sources revealed suspicions that Molai was supporting Kasukuwere's campaign. While Molai and Kasukuwere are personal friends, the business tycoon has maintained that he did not contribute financially to Kasukuwere's election efforts. However, the government's decision to weaponize taxation against Molai's business suggests a lack of belief in his claims.

Adam Molai, based in Johannesburg, is married to the late former President Robert Mugabe's niece. Following Mugabe's ousting in the November 2017 coup, Molai relocated to South Africa, citing safety concerns.

During the 2018 elections, Molai faced government allegations of funding the National Patriotic Front (NPF), a political party established by leaders of the expelled Zanu-PF G40 faction, which supported Mugabe and his wife Grace. The NPF, led by retired Brigadier-General Ambrose Mutinhiri, had affiliations with key G40 figures and secured one seat, Kwekwe Central, in the 2018 elections.

An intelligence source indicated, "Molai was suspected of funding the NPF in 2018 and now in 2023 Kasukuwere. As we told you before the elections, Mnangagwa's government is taking punitive action against him. They are weaponizing taxation, using Zimra, to close down his business for political reasons. He has been hit with a US$19 million tax bill, and his company will go into business rescue next week. He can't survive the tax issue as if it's business as usual."

Under the Zimbabwean Insolvency Act, shareholders or directors can voluntarily place a financially distressed company under corporate rescue. This process offers the company a chance at recovery without interference from creditors.

Prior to the current Insolvency Act (Chapter 6:03), effective in 2018, Zimbabwean jurisdiction engaged in judicial management proceedings under the old Companies Act. The shift from judicial management to business rescue aimed to eliminate the stigma associated with entities under judicial management and allow for financial relief.

Analysts assert that approximately 90% of Zimbabwean companies under judicial management either failed to recover or remained in that state for extended periods.

The intelligence source reiterated that Molai was facing repercussions for perceived political involvement, despite his previous statements distancing himself from politics. The source emphasized the powerful role taxation can play as a political weapon, drawing parallels with the case of Russian oligarch Mikhail Khodorkovsky, who faced imprisonment on charges of tax evasion, fraud, embezzlement, and more.

Khodorkovsky's case drew international attention and highlighted the potential use of taxation as a tool in political disputes.

Full statement issued by Pacific Cigarette Company this evening

Attn: All Editors
8 October 2023

Pacific Cigarette Company applies for voluntary business rescue
Pacific Cigarette Company (PCC), formerly known as Savanna Tobacco Company, has been at the forefront of transforming and innovating the tobacco industry in Zimbabwe for over 23 years.

Africa's second-largest indigenous tobacco company and Zimbabwe's first locally-owned cigarette company has, from its inception, worked towards the localization of the tobacco industry for the benefit of the Zimbabwean people. PCC was the initiator and driver of contract farming in Zimbabwe, which has empowered +150 000 black farmers and ensured that the tobacco industry reached new heights following its collapse during the land reform programme.

Another innovation the company piloted in 2005 at the height of the foreign currency challenges in Zimbabwe was the introduction, in partnership with the Reserve Bank of Zimbabwe (RBZ), of toll manufacturing to survive the introduction of the 50% foreign currency surrender requirements on exports. The foreign currency surrender policy threatened the survival and viability of many businesses and livelihoods in Zimbabwe. Through toll manufacturing, PCC and other businesses were able to source raw materials from their customers, ensuring their sustainability, while complying with the RBZ's 50% foreign currency surrender requirements.  

The then Reserve Bank Governor promoted toll manufacturing as a durable business model for companies facing similar foreign currency challenges.

Since then, the toll manufacturing model has been our accepted raw material funding model, removing the need for PCC to finance the working capital for export raw materials.

In June this year, without any notice, ZIMRA performed a spectacular u-turn that has undermined the stability of the business and deemed the raw materials funded by our customers as income, subject to VAT.

They also levied an arbitrary mark-up and interest and penalties on PCC for the tax assessment period 2018 to 2020, to which we have objected. The issued tax assessments against the company impose tax liabilities amounting to US$19,315,233.82 and ZWL79,845,954.36.

ZIMRA, also, without any notice, garnished all PCC's bank accounts. Next, ZIMRA took the unprecedented step of instructing our customers to pay ZIMRA any monies owed to PCC, effectively closing off all the company's income streams. In an effort to get the garnish lifted, PCC submitted a payment plan proposal while awaiting the determination of the objection which payment plan was rejected by the Tax Authority.

At law, the company has an obligation to pay the assessed taxes notwithstanding that it is challenging the tax assessments. ZIMRA's unprecedented actions on false tax violations have regrettably placed PCC in an insolvent position, forcing the company's directors to place the business under voluntary business rescue to safeguard the interests of all creditors and stakeholders, whilst the company continues to try and amicably resolve the matter with the tax authority.

PCC applied to be placed under voluntary business rescue on the 2nd of October 2023 and the Master of the High Court has as of the 4th of October 2023 appointed Mr. Reuben Mukavhi of Rubaya-Chinuwo Law Chambers Legal Practitioners as the corporate business rescue practitioner.
PCC welcomes the appointment of Mr. Reuben Mukavhi and we are confident that the business will be able to trade back to solvency while we work to resolve the tax dispute.

Through its world-class manufacturing capability and innovation, PCC, directly and indirectly, supports hundreds and thousands of livelihoods in Zimbabwe. It is a company founded on strong entrepreneurial principles and with an unambiguous commitment to the development of Zimbabwe and its people. As an ethical corporate citizen, we remain steadfast in our dedication to sustaining jobs, serving our customers, delivering to all our stakeholder needs and are committed to working with the tax authority to find an amicable solution to the impasse.

Source - newshawks

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