The Zimbabwean tax system has been impacted by currency changes introduced in February 2019 by Statutory Instrument 33 of 2019. In 2016 when the bond note was introduced as a surrogate currency it carried the same value as the United States Dollar. Indications that the economic was reeling from currency started kicking in November 2018 when the Minister gave a directive to banks to separate the RTGS Accounts from the Nostro Foreign Currency Accounts. This was immediately followed up by a monetary policy statement made on the 22nd of February 2019 in which a new currency known as the RTGS dollars was introduced. In terms of this policy, balances that were previously denominated as United States dollars were now RTGS dollars for as long as the money was not held in the Nostro FCA when the separation was declared. Further to that, the monetary policy declared that all bank balances where to convert to RTGS dollars at 1:1 whilst an interbank market would be introduced after the conversion of those balances. The monetary statement was followed up with more robust legal instruments, Statutory Instruments 32 and 33 of 2019 which cemented the forgoing provisions. In the month of March, an interbank market was opened and it began at an opening exchange rate of US1: RTGS$2.5.
Sometime in July 2019, after the introduction of the interbank rate of exchange and conversion of bank balances of taxpayers, the RBZ then assumed the legacy foreign debts of some corporates in accordance to Circular 8 of 2019. The funds which the RBZ assumed were blocked funds which related to external obligations that could not be remitted between January 2016 and February 2019. The debt was assumed on condition that the corporates would surrender their RTGS balances at 1:1 with their foreign obligations. The assumption of the debt by RBZ occurred months after the promulgation of Statutory Instrument 33 of 2019. The interbank rate of exchange had been introduced which had an opening exchange rate of 1:2.5. Therefore, the result is that the debt was actually assumed by the RBZ at a lower rate than what was prevailing at the time.
In books of accounts gains are realised by virtue of the assumed debt by RBZ in that the liability that would have been paid by the corporate, had the RBZ not assumed the debt, would have been more and would fluctuate with the movements in the interbank rate of exchange. However, it is not clear whether the debt assumption by RBZ amounts to a debt forgiveness contemplated for taxation in terms of section 8(1) (k) of the Income Tax Act. Is the creditor precluded from demanding payment from the debtor simply because the RBZ has assumed that debt?
This question brings to the fore the concepts of transfer of obligations in contract law. Cession, novation and delegation are the common methods in which contractual rights are transferred. The assumption of the RBZ debt may not necessarily be considered to be a cession. The concept of cession is normally associated with the transfer of rights and not the transfer of obligations. In this instance the debtor, that is, the corporate whose debt has been assumed by the RBZ does not hold any rights that can be ceded to RBZ, but actually has an obligation. At best the assumption of foreign debt by RBZ may be considered to be a delegation. It requires the agreement of the all parties concerned that a third party be substituted for the original debtor and the later become discharged from the obligation of the debtor. Therefore, the RBZ, debtor and offshore creditor must have an agreement that absolves the original debtor and delegating the RBZ as the debtor. When the forgoing occurs, the creditor cannot sue the original debtor. However, in this instance, it cannot be said that a delegation has taken place. The agreement between the debtor and the RBZ is independent of the creditor and it appears the creditor may still be able to sue the debtor as he has not been released from the debt. Taking into cogniscence of the forgoing, it then becomes difficult to fully conclude that a benefit has been derived by the taxpayer through a concession made by the creditor. However, creditors may well be amenable to the assumption of the debt by RBZ because a debt held by a state remains enforceable and more secure as compared to being held by the taxpayer. A taxpayer may become liquidated but the state can never be liquidated and the debt does not prescribe. Therefore, creditors may well be agreeable to the arrangement. However, for tax purposes, until and unless it has been proven that the creditor is actually in agreement with the assumption of the debt, then it cannot be said that there is a benefit that has been derived from a concession from the creditor because the creditor has not given the concession. It is actually the RBZ that has given the concession, therefore, to impute tax on the concession given by RBZ on the debt would be overstretching the application of the provision. If the legislature intended to include debt assumption by a third party and not the actual creditor, then it would have been included in the provision. If the debt assumption was structured in consultation with the offshore creditor, then it may be said that a delegation has taken place. Because there is no participation from the creditor in the assumption of the debt by the RBZ, the benefit derived therefrom remains out of scope for ZIMRA and therefore cannot be brought into gross income.