C. Tachiona.Wilmot and Bennett Legal Practitioners
From the onset it should be noted that taxation is one of the most important tools to maintain a viable economy for each and every state. It is from this background that there emanate a duty for tax payers to be compliant in paying revenue due to the state. The principal purpose of taxation is to raise revenue for the state and this remains the most viable option for raising public funds. It should therefore be noted that for taxation to accomplish its principal purpose, that is to raise revenue collection, strict enforcement measures should be put in place to curb loses of revenue that is likely to be caused by tax evasion by some tax payers. In Zimbabwe we have the Zimbabwe Revenue Authority (herein after to be referred to as ZIMRA) which is the Administrative board established by the Revenue Authority Act1 and tasked with the collection of revenue using different enforcement methods. The Revenue collection authority is given varying powers to enable it to accomplish its mandate which is to collect revenue due to the state for proper functioning of the economy. In the present paper, the writer intents to deal with power to garnishee tax payers’ accounts that ZIMRA is empowered to do by the Income tax Act2 and the Value Added Tax Act3. The writer will mainly focus on the justifications of the power of ZIMRA to garnishee tax payers’ accounts. The writer will also move on to briefly highlight the existence of the powers to garnishee tax payers’ accounts in other jurisdictions so as to bring home the point that a garnishee is an accepted and effective method of tax enforcement in other jurisdictions. Lastly, there will be recommendations on how our law can be crafted to suit administrative, constitutional and international standards.
Those who challenge the right of ZIMRA to garnishee tax payers’ accounts do it under the veil of alleged Constitutional infringement of the right to property and administrative justice. It appears to the writer that what the tax payers forget is what that same Constitution provides for under Section 86(2). Section 86(2) provides for limitations of rights and I quote,
(2)The fundamental rights and freedoms set out in this Chapter may be limited only in terms of a law of general application and to the extent that the limitation is fair, reasonable, necessary and justifiable in a democratic society based on openness, justice, human dignity, equality and freedom, taking into account all the relevant factors, including-
After having a closer look at the above provisions, the important point that one has to note is that the rights which are being alleged to be infringed by the use of a garnishee in tax matters are not absolute ones thus they can be limited in some circumstances. It is not in dispute that use of a garnishee is sanctioned by the law of general application which is the VAT and the Income Tax Act and as such its application may justifiably limit the tax payers’ rights enshrined in the Constitution.
Furthermore, section 86(2) of the Constitution allows the limitation of rights if such limitation is fair, reasonable and justified in a democratic society. It is submitted that execution of a garnishee on a defaulting tax payer’s account is fair, reasonable and justified in a democratic
society to limit other defaulting tax payer’s rights which are not absolute in their operation. It should be noted that, although there are other ways of collecting revenue for the state, tax collection is the most vital method of doing so. The imposition of a garnishee on a defaulting tax payer’s account is fair, reasonable and justified in a democratic society as long as the process is in compliance with administrative justice principles. This point was also supported by Tapera and Majachani who stated that, “…as recovery of tax from non- compliant taxpayers is not unreasonable in a democratic society, one could justify a garnishee of an account in circumstances where it has complied with the requirements of administrative justice.”4
Furthermore, as put by section 86(2)(b) of the Constitution, the right to property can be limited if the limitation is in the public interest. It is therefore the writer’s submission that, the imposition of a garnishee is justified as an effective in tax debt collection since the collected revenue is used for the public good or interest.
Furthermore, if effective tax collection tools such as garnishees are not imposed, the state will not be able to collect the required revenue to sustain the economy and to provide essential services. The obvious thing that will consequently happen is that, the enjoyment of rights by other persons such as right to water and education will be prejudiced since all these essential services and rights need the support base of revenue collection. This is what section 86(2)(d) of the Constitution, which provides that, “the enjoyment of
rights and freedoms by any person does not prejudice the rights and freedoms of others” seeks to avoid.
It is also submitted that the use of a garnishee as a tax enforcement tool is justified in circumstances where administrative law principles such as the audi alterm partem rule will have been followed. It should be noted that, when a tax payer has a tax debt, the Commissioner tries in as much as possible to reach a settlement by allowing the tax payer to do an acceptable payment plan. However it is unfortunate that in most circumstances the tax payer will not be willing to cooperate. This unwelcome behaviour by some tax payers was highlighted in Hindry v Nedcor Bank Limited and Another5 wherein the court stated that, “There can be no valid complaint of unfairness or non-application of the audi alteram partem principle if the claim was the subject of considerable correspondence and the Commissioner had explained how his claim was arrived at and its basis and gave the applicant opportunity to pay it.”
To cement the above submission it is important to have a look into the sentiments which were echoed by the Honourable court in Fairdrop Trading (Private) Limited HH- 68-14 , wherein Mafusire J had this to say. “I find nothing in the circumstances of the applicant (tax payer) to warrant treatment that is different from the rest of other tax payers that may find themselves with objectionable tax assessments against which they will have appealed. The garnishee may worsen the applicant’s bad situation. But, regrettably those are some of the natural consequences of the application of the law. I have found nothing outrageous or grossly unreasonable in the respondent’s conduct. The applicant was offered a chance to avert the garnishees by offering acceptable payment plan. Before it filed the urgent chamber application none had been submitted. The one submitted after the launch of the application was rejected by the respondent. The respondent made a counter offer. The applicant said the counter offer was way beyond its means. But that does not make the conduct of the respondent, grossly unreasonable in any sense. Furthermore, the applicant had defaulted on a previous payment plan. Admittedly, there would have been reasons for such default. But in the circumstances, I am unable to find fault with the respondent’s conduct, let alone anything that would amount to conduct so grossly outrageous in its defiance of logic or accepted moral standards as to be liable to impeachment by the court.”
It is important to note that ZIMRA executes a garnishee as a last resort after having employed all other possible means but to no avail. The tax payer will have been given an opportunity to liase with the tax authority for an acceptable payment plan or for lodgement of any justified objections.
In this regard it is the writer’s submission that the imposition of a garnishee is a necessity as it is intended to stop continuous prejudice to the fiscus. This position was also highlighted in the case of Medix Pharmacies (Pvt) Ltd & Ors v Commisioner General, ZRA & Anor wherein the CG was prompted to invoke s 58 of the Act, appoint Barclays Bank as its agent and uplift the amounts from the applicants’ bank accounts on the grounds that the applicants had neglected, failed or refused to withhold the correct amount of PAYE. In broad terms the Commissioner- general was of the view that the IRS which was a scheme by the Applicant was a tax evasion scheme by means of which the applicants sought to reduce the amount of PAYE payable by their employees to the prejudice of the fiscus.6
Under such circumstances as those highlighted above wherein the tax payer will be seeking to evade tax to the effect of prejudicing the fiscus, it is the writer’s submission that employment of a garnishee to curb fiscus prejudice becomes a justified method of tax enforcement.
In dealing with the justifications of the use of a garnishee by ZIMRA it is also important to take note of the sentiments by the Honourable court in Zimbabwe Revenue Authority v Packers International (Private) Limited7 which is a judgment by the Supreme Court and happens to be one of the leading cases on the subject under discussion. The issues raised by on appeal may be summarised as follows:
6 Medix Pharmacies (pvt) ltd, Tanganda Limited & Meikless Africa Limited v Zimbabwe Revenue Authority & Barclays Bank Limited hh- 102-03
7 Zimbabwe Revenue Authority v Packers International (Private) Limited Judgment No. SC 28/2016 page 5
The present paper is mainly concerned with issue number (1). In determining issue number (1) that is whether ZIMRA is legally entitled to issue garnishee orders for the payment of taxes assessed as being due and owing, the Honourable court had this to say,
“The Act as a whole and, in particular, its provisions relating to assessments and the payment recovery and refund of tax provisions found in Part VII of the VAT Act are indispensable tools for the prompt collection of tax due. From an economic point of view, the provisions of the VAT Act are meant to ensure a steady, accurate and predictable stream of revenue for the fiscus. These provisions are an embodiment of the principle “Pay Now Argue Later”, suggesting that an appeal would not have the effect of suspending payment. The principle is aimed at discouraging frivolous or spurious objections and ensures that the whole system of tax collection in the country maintains its efficacy. This serves the fundamental public purpose of ensuring that the fiscus is not prejudiced by delay in obtaining finality in any dispute.”
The Court went on further to state that, “Thus the sharp end of the VAT system is s 48 of the Act which allows the appointment of an agent. In a proper and logical construction of the provision, payment by the agent is by means of a garnishee against any account to the taxpayer’s credit held with the agent. In any event, tax under the VAT Act consists of monies that have been taxed on goods and services paid by consumers for onward transmission to the Commissioner. All that is required of an operator is to calculate the amount so paid, submit a return and make payment. A refusal to pay or failure to do so on the part of the operator would result in the imposition of a garnishee. Therefore, once the tax assessment was made, the imposition of the garnishee was a possibility. In my view, no other conclusion is possible.”8
After having a perusal and understanding of the above quoted sentiments by the Honourable Court, the writer is of the view that, every reasonable person will definitely appreciate the justification of use of garnishees. When one is having an analytical approach to the justification of the use of a garnishee by Zimra, one should always take note of the economic importance of revenue collection for the proper functioning of the state. At the end of the day one will definitely understand and appreciate the use of a garnishee as an indispensable tool in ensuring effective revenue collection.
The issue here is that we all survive on revenue raised by ZIMRA. Any court is sensitive to the issue relating to revenue and you will not just get that here, you get it everywhere else in the world, the courts are alive to that issue. The second factor is that people do not want to pay taxes, it is known and they will do everything in their power to avoid paying taxes. The issue is about fundamental issues that cover the state and one of those fundamental issues is taxation.
In South Africa the relevant legislation on the use of garnishee orders in tax enforcement matters is the Tax Administration Act9. Section 179 of the said Act provides that,
“(1) A senior SARS official may by notice to a person who holds or owes or will hold or owe any money, including a pension, salary, wage, or other remuneration, for or to a taxpayer, require the person to pay the money to SARS in satisfaction of the taxpayer’s tax debt.
It is also important to have a look at section 172(1) of the Tax Administration Act which provides for the procedure for enforcement of a garnishee in tax matters which provides that,
SARS may file the statement irrespective of whether or not the amount of tax is subject to an objection or appeal under Chapter 9, unless the obligation to pay the amount has been suspended under section 164.
After a closer analysis of the South African Tax legislation, it can be submitted that South African legislation is almost the same as Zimbabwean legislation. The notable difference is that in SA they give a 10 day notice before filing a statement with the clerk of court or the registrar. In Zimbabwe, there is no provision of a notice which is the main basis on which the provision is challenged by tax payers. Tax payers believe our legislation does not respect the right of the tax payer to be heard before attachment of its monies. The other difference is simply that, in SA, a garnishee order is given by the Court and not by the Commissioner of the SAR. In Zimbabwe, the authority to issue a garnishee order in respect of tax disputes rests with the Commissioner and is effected simply by directing the agent to transfer the funds to ZIMRA.
In Australia, one of the Acts used in the collection of taxes is the Taxation Administration Act, 1953.11 In relation to garnishees, sections 260-5 of schedule 1 of the said Act apply and empowers the Commissioner of Taxation to issue a written notice to a third party who owes or will owe money to the tax payer requiring
11 Van der Walt, J. 2013. Third party appointments
that third party to pay to the Commissioner the amount owed up to the amount of the relevant tax debt. It should be noted that the aforementioned notice is basically a garnishee order.
It is interesting to note that under Australian law, precepts of fairness are taken into consideration. In terms of Australian law, in any decision to issue a garnishee, the notice is issued based on the available information. Some of the considerations that are taken into account to ensure fairness when executing a garnishee order in tax collection matters are,
where the issue of a writ has proven to be unsuccessful, but information obtained indicates that “garnishee” action may be appropriate in relation to the debtor’s employment, bank and/or building society deposits and the like;
As can be noted in Australian Taxation law, they emphasise on observing precepts of fairness and justice and in a way consider the prejudice that may be suffered by a tax payer if a garnishee is executed on the whole amount. It is further submitted that the courts in Australia upholds the well established principle that was originally spelt since Magna Carta12 that a citizen’s property should not be subject to arbitrary seizure.
It can also be said that, Australian courts besides considering fairness, they also consider the economic impact that a garnishee may have on one’s social and business life. They do an inquiry before employing a garnishee. This position is however different with that of Zimbabwe, the law does not spell out provisions for such an inquiry to be taken prior to executing a garnishee.
With respect to India, there is section 226 of the Income Tax Act13 with regards to use of garnishee orders in tax enforcement. Section 226(3)(i) of the India Income Tax Act, empowers the assessing officer to send a notice in writing, demanding that any person from whom money is due or may become due to the person assessed, or to any person who holds or may subsequently hold money for or on account to pay to the assessing officer. What is interesting to note under section 226 of the India Income Tax Act is that, a tax payer is given an opportunity to admit or deny liability before the money is attached which can be said that, Indian law in this regard observes the administrative law principle of audi alteram partem rule.
The aforementioned concept was also discussed in the case of Surinder Nath Kapoor v Union of India and Ors14 wherein an Income Tax Officer made an order for payment of a fictitious sum, without notice as required by section 226(3) of the Indian Income Tax Act. The court in this case held that there can be no doubt that when an order is made for the payment of a fictitious sum without giving any opportunity to a person, against whom the order is made, to show cause against the passing of such an order for the said sum, the order is a nullity15. It is therefore submitted that in terms of Indian Law, execution of garnishee is deemed null and void if it is made without prior notice to the affected party. It appears that the agreeing to the debt. This will therefore boost confidence in the revenue collection system.
However even though a notice is a very important procedural aspect which promotes adherence to the Constitution, it is submitted that sometimes the issuance of a notice should be ignored especially where the collection of tax is in jeopardy as is the case in United States of America. This is very important so as not to frustrate the collection of taxes which is very essential for the proper functioning of the economy. It thus follows that there be a provision which requires a notice to be issued before attachment is executed and an exception to that provision where collection of tax can be frustrated by the issuance of a notice. It is submitted that tax legislation should be amended to include provisions which seek to balance the interests of both parties that are, interests of tax payers and of the revenue collection authority.
Furthermore it is suggested that where it is suspected that tax collection can be put in jeopardy by the issuance of a notice prior to the execution of a garnishee, the court can employ on an Ex-parte application (without notice to the other party) the common law remedy known as the Maraeva Injunction17 or anti-dissipatory interdict. The Maraeva injunction will assist by freezing the assets of the tax payer so that in the event that he, she or it has lost in the dispute and intents to dispose its property to avoid execution of the judgment, the property can then be easily identified and executed upon.
It is also recommended that when one is objecting the amount of the tax debt, he or she should be given an opportunity to be heard instead of being forced to pay in such circumstances. It is submitted that we should just follow suit the procedure that is adopted under common law that once an appeal to a decision has been noted, the decision which in this case of the Commissioner should be suspended pending finalisation of the case. If the Commissioner feels that the suspension will be prejudicial and frustrate collection of revenue, he must make an application to the court for a fair determination. This will improve confidence in the Revenue system.
Furthermore, it is recommended that before a garnishee order is imposed, there should be an inquiry first into whether or not the tax payer will be able to survive if the a garnishee is effected. This is important so as to allow the continuous operation of the business to which revenue can always be collected in the long run that garnishing all that the tax payer has and leaving the business to collapse. This is important especially at this time when the Country is inviting investors to come into the country to invest as it amounts to good tax policying.
In conclusion it is submitted that employment of effective tax enforcement measures such as use of garnishee orders is justified in a democratic society to enable effective tax collection. As has been highlighted by the examples cited above, what is of interest to note is the fact that, a garnishee order is a tool that is also used in other jurisdictions as an effective tool in tax enforcement. However even if effective tax collection regime is important to sustain the state, it should be realised that this should be done in line with the Constitution, balancing interest of both parties that is on one hand ensuring that there is effective tax collection but at the same time ensuring that such collection respects the rights of tax payers.
The writer therefore accordingly sums up by submitting that, if use of a garnishee in tax enforcement matters is an evil, then it is a necessary evil which we always need to employ at the end.
We must realise the social, economic and political value of effective tax collection, everything lies in it.