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Econet responds to tax evasion & transfer pricing scandal – dismisses allegations, says case is already before the courts

   

Econet Wireless, Zimbabwe’s largest mobile network operator (MNO) has come under some scrutiny regarding a tax evasion and externalisation scandal which alleges that the MNO deprived the country of up to US$300 million.

The issue, which first drew attention in 2014 recently resurfaced after media reports, citing an audit report prepared in 2016, highlighted how Econet and some executives from the local revenue authority, ZIMRA, had connived to externalise cash and evade the MNO’s tax obligations.

It’s alleged that this was achieved through the importation of goods who’s tax wasn’t declared and through a transfer pricing scheme that involved the overstatement of prices on equipment bought from Econet Capital – its sister company based in Mauritius.

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Techzim sought clarification from Econet regarding this issue and the content of the audit report. The operator has dismissed the allegations and it sent through the following responses:

ZIMRA’s chairperson is quoted as having said that the revenue authority has started taking actions aginst Econet. Other than the US$67 million garnish order has there been any other action taken by ZIMRA regarding this matter?

We are not aware of any other action. As you already know, the garnishee order was set aside by an order of the High Court with which ZIMRA consented. The penalty of $47 million that was included in the amount was set aside by the High Court while the capital amount of $15 million is the subject of an appeal that is pending before the Fiscal Appeal Court. Other operators imported base stations in exactly the same manner as we did. No issues have been raised with them. This selective misapplication of the law is being challenged through the Courts.

There have been allegations that Econet overstates prices on imports from its Mauritius company. What is Econet’s stance on this issue?

This is false. The Mauritius procurement arm of the group extended three years credit to the Zimbabwe Company. It accepted payment partly in shares and partly cash. The price to the Zimbabwe Company included finance charges covering the three year period which were equivalent to 18% per annum of the cost of the equipment. The finance charges were quite low compared to the rate of between 24.7% to 44.7% per annum (as per the Monetary Policy Statement issued on 28 July 2010) at which the company would have borrowed locally at the time. It should be mentioned that there was no capacity among local banks to extend credit to the company of that magnitude and for that tenor at the time.

Are any of the contents of the audit report that’s cited available to the public? If so may you please share them?

We have not had sight of this audit report. All we know about it is what has been reported by the Herald, and the questions we have been asked by the authorities that we have answered satisfactorily.


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