Fines, bribes not tax expenses
‘To avoid delays, you offer a couple of dollars to the officer who lets you proceed.’
By Bradley Post
THE breakfast meeting went longer than you anticipated, and you’re in a hurry to meet up new client who might have potential business for you.
You then jet out of the local restaurant and as you speed to your destination, you drive by the stop sign and a police officer leaps into the road, waving you to stop.
He tells you that you have just driven past a stop sign at the intersection without actually stopping your car.
For that, you’re charged a good amount as a fine for the traffic offence.
After a couple of days, your proposal for supplying your products in the neighbouring country has been accepted and you are invited for further discussion.
The opportunity is a life changing one and you book a bus to the country.
On this first visit outside the country, all the rumours about delays on the border are confirmed in graphic detail.
To twist the knife in the wound, the products you are going to showcase are attracting too much questions from Customs.
To avoid delays, you offer a couple of dollars to the officer who lets you proceed.
Back home, you’ve been so busy that you forgot about your income tax return, which is now overdue.
Being aware that ZIMRA does not tolerate delays, you hire a tax accountant to do your taxes.
Among the pile of your supporting documents, you include the traffic fine, a note on the payoff to the customs official and the penalty by ZIMRA for late submission of the previous year’s return.
However, the tax accountant does not include any of these as deductions in your tax return. Exasperated, you get on the phone and demand an explanation from your tax accountant.
Well, as a matter of fact, these so called expenses from which you are demanding an explanation for their exclusion are not allowable deductions for taxation purposes.
Section 16 (2) (Income Tax Act) does not allow the deduction of any expenditure incurred through corrupt activities or a fine imposed as result of a delictual claim.
Tax analysts and taxpayers have since argued that any penalties and fines paid in the course of the business should be deducted under Section 15 2 (a) if the payment had a link to the production of income.
For example, it may be considered reasonable for a transport company to expect that their bus drivers incur traffic fines from time to time, if not every day.
The above matter is resolved by referencing a South African tax case, ITC1490 (1990) 53 SATC 108(T).
The taxpayer had sought to claim or deduction for traffic fines. The court held that to allow the fines as a deduction would be contrary to public policy, and also the court added that the fines did not play any part in the earning of the income and were not an inevitable concomitant of the taxpayer’s business.
Besides, Section 16 (2) clearly outlaws bribes and similar payments as legitimate costs.
It should be noted that Section 15 deals only with expenditure, and is not concerned with the possibility that the income against which a deduction is sought has been derived from illegal activities; such income will still remain taxable, but the expenses incurred in breaching the law is not deductible.
Bradley is an intern at Tax Matrix and is currently studying ACCA