As you are not probably aware, the government has unleashed it’s latest economic legislation in the form of Statutory Instrument 127 of 2021. The document has led to a flurry of activity as businesses rushed to comply with the new regulations. From what we have observed formal businesses seemed spooked and were largely now complying with the new regulations. Informal businesses have largely scoffed at these new rules.
So what does the new law say and why did the government create it?
The law is aimed at dual pricing principles. There has been complaints from various quarters including the government that those who were benefiting from the foreign currency auction were turning around and selling their goods and services at black market rates. This the accusers claimed, allowed them to make doubt profit. The law appears to be an attempt to stop that but it goes beyond that. It also tries to force even businesses that are not beneficiaries of the auction system to use the official rate when charging prices in USD.
What are the major provisions of the law?
- The law introduces steep fines for those found to be violating it’s provisions. Businesses and individuals found to be in breach of the law.
- Businesses that apply to take part in the official forex auction, be it the SME auction or the main auction have to state what the money will be used for.
- If they use the money for something other than what they stated during the application they will have to pay a fine of $1 million ZWL or the value of the foreign currency they received. The fine they pay will be the higher of the two amounts.
- Businesses are no longer allowed to charge exclusively in foreign currency unless they are expressed authorised to do so by the law. This means for example ZIMRA will continue to demand duty in forex but you can no longer legally do this as a business, you are obliged to accept ZWL be it RTGS or Notes as well.
- If you violate this provision and charge/demand forex only you will have to pay a fine of $50 000 ZWL or an amount of foreign currency that is equivalent to what you were charging. The fine you pay will be the higher of these two.
- Most companies that take part in the foreign currency auction do so through their banks. Banks can be fined if clients who apply through them for foreign currency violate this law by misusing foreign currency. Banks are supposed to verify that their client is not misusing foreign currency. Banks will be fined $5 million ZWL under this provision.
- It is not allowed to penalise those who want to pay in ZWL by asking them to pay a premium i.e. a rate that is above the official rate. It is also not allowed to price goods at a discount when one pays using USD.
- If you do so you will have to pay a fine of $50 000 ZWL or the equivalent of the value of the foreign currency you were demanding whichever of the two is higher.
- You will not be allowed to write a ZWL dollar receipt when you received a USD payment. This is meant to prevent a lot of issues including:
- Prevent people from paying taxes and VAT in ZWL even when they have received USD/foreign currency as payment
- Prevent fraudulent reporting and catch those charging in forex
- Prevent misuse of auction obtained from the forex auctions
- Just like with other violations there is a fine of $50 000 ZWL or the equivalent of the foreign currency amount involved whichever is higher.
- If you are fined you have 48 hours to appeal and show why you think the fine was a mistake.
- If you fail to pay the fine the fine will grow by 5% for 90 days.
- If you fail to pay up in 90 days you can be jailed or be asked to pay a bigger fine.
- If your business is a company it is the officers of the company that will be liable to pay the fine or face imprisonment.
Is SI 127 legal?
I am not a lawyer and therefore cannot comment on that. It’s not clear why this is a Statutory Instrument and not a actual Act of parliament considering the far reaching measures in there. Probably the government wanted an element of surprise. It’s also concerning that businesses were not consulted here. It’s even more concerning that the right to charge discounts is impinged upon.
Will this Statutory Instrument survive an appeal? I genuinely don’t think some of it’s sections would survive but the government is being clever here. By the time you appeal the damage would have been done.