High Court approves urgent hearing in Pacific Cigarette tax dispute

Source: High Court approves urgent hearing in Pacific Cigarette tax dispute | The Sunday Mail

Fidelis Munyoro

PACIFIC Cigarette Company (PCC), which entered voluntary business rescue following a US$19 million tax demand issued by the Zimbabwe Revenue Authority (Zimra), secured approval from the High Court for an urgent hearing of its case.

The tax collector’s demand, comprising US$19 315 233.82 and ZWL79 845 954.36, rendered PCC insolvent, threatening the operations of Zimbabwe’s second-largest indigenous tobacco processor. Central to the dispute is PCC’s request for a tax clearance certificate (TCC) from Zimra.

The authority, through its Tax and Revenue Management System, established conditions for TCC applications, formalised in Public Notice 91/2023 on December 19, 2023.

PCC asserts compliance with these conditions yet faces contested liabilities following Zimra’s revised taxation approach for toll manufacturers.

This change allegedly saddled PCC with the disputed tax obligations, compounded by Zimra’s garnishee orders for its bank accounts.

The application, filed under a certificate of urgency, met resistance from Zimra, which raised procedural objections.

Justice Gibson Mandaza recently rejected Zimra’s preliminary points, affirming the urgency of PCC’s application and directing the case to proceed.  In his ruling, Justice Mandaza emphasised that the draft order under challenge required adjudication on its merits, specifically concerning whether a company under corporate rescue is exempt from tax obligations.

The court acknowledged that corporate rescue, a process governed by insolvency laws, aims to enable companies to reorganise their affairs without undue liabilities.

Justice Mandaza noted that exemptions granted during corporate rescue must be assessed on a case-by-case basis and cannot be presumed at an interlocutory stage.

The determination of PCC’s eligibility for such exemptions, the judge ruled, could only occur during substantive proceedings. PCC is represented in the corporate rescue process by Mr Reuben Mukavhi of Rubaya-Chinuwo Law Chambers, appointed as the business rescue practitioner on October 4, 2023.

PCC, founded in 2005 by Mr Adam Molai and formerly known as Savanna Tobacco, produces the Pacific, Pegasus and Branson brands.

Its survival has relied on toll manufacturing agreements, wherein it produces cigarettes for other companies. PCC contends that Zimra’s shift in taxation policy for toll manufacturers precipitated the liabilities in question.  The case continues to centre on whether the tax obligations imposed on PCC during its corporate rescue contravene established insolvency protections or represent enforceable liabilities under Zimbabwean law.