Banks take Zimra to court

Zimbabwe's banking sector has launched a legal challenge against the Zimbabwe Revenue Authority, intensifying a long-running dispute over the tax treatment of interest expenses that lenders say is hurting profitability and restricting lending.

The conflict centres on the interpretation of the Income Tax Act, under which interest expenses—considered a core cost of banking—were disallowed in calculating taxable income. Banks argue this artificially inflates profits and results in excessive tax obligations.

The situation has been worsened by the retrospective application of the rule to the period between 2019 and 2024, creating significant tax liabilities across the sector. The case is being pursued through the Bankers Association of Zimbabwe.

CBZ Holdings Limited chairman Luxon Zembe warned that the tax assessments are undermining banks' ability to support economic growth.

"These tax positions reduce profits and shrink the pool of funds available for lending, which ultimately affects economic activity," he said.

Other banks have also reported major financial impacts. NMBZ Holdings Limited disclosed additional tax charges running into tens of millions, while FBC Holdings Limited faces potential liabilities exceeding US$18 million when provisional assessments are included.

FBC chief executive Trynos Kufazvinei said the uncertainty has already affected operations, revealing that the bank nearly suspended about US$80 million in foreign credit lines due to the punitive tax treatment.

In a partial policy reversal, Finance Minister Mthuli Ncube acknowledged the issue in the 2026 National Budget, confirming that interest expenses would now be tax-deductible from January 1, 2026.

However, banks argue the change does not address the substantial liabilities accumulated in previous years, which remain the subject of the legal dispute.

The case highlights growing tension between revenue collection efforts and financial sector stability, with business groups such as the Zimbabwe National Chamber of Commerce warning that aggressive tax enforcement is disrupting operations and discouraging investment.

The outcome of the legal battle is expected to have far-reaching implications for Zimbabwe's investment climate, banking sector stability, and broader economic growth.