RETAIL giant, OK Zimbabwe yesterday said increased tax-related costs are threatening its profitability.
OK said inflation adjusted profit after tax for the year ended March 31, 2022 grew by 48,9% to $2,8 billion, from $1,9 billion in the comparative period last year.
In the 2021 national budget statement, released in November 2020, government announced that businesses would pay corporate tax in proportion to the gross income that is earned in either currency, excluding retention or liquidation thresholds.
Also, local businesses were told that 20% of locally-generated foreign currency receipts would be liquidated at the prevailing auction forex rate.
Further, the tax-free threshold under the intermediated money transfer tax (IMTT) was raised from $300 to $500.
The maximum tax payable per transaction by corporates was increased from the current $25 000 to $800 000 on transactions with values exceeding $40 million.
“The group continued to endure excessive IMTT during the year,” OK Zimbabwe chairman Herbert Nkala said.
“The increase in the transaction thresholds had a dramatic impact on the competitiveness of the formal retail sector, drives inflation and undermines profitability and attractiveness of Zimbabwe as an investment destination.”
“The group continues to appeal to the authorities to reduce these transaction thresholds to create an even playing field for the retail trade which will benefit customers.
“An effective corporate tax rate of 34,3% is unsustainable.”
During the period under review, income tax grew to $2,02 billion from a 2021 comparative of $1,59 billion.
Nkala said overheads grew by 37% over prior year owing to some of these tax charges.
“Staff costs, electricity charges, rentals, bank charges and depreciation are the cost lines that contributed most significantly to overheads growth,” he added.
He said the operating environment remained challenging with high inflation levels and exchange rate volatility.
“Post the end of the financial year, inflationary pressures increased markedly driven by the sharp depreciation of the local currency,” Nkala said.
“The less than anticipated rains for the 2021/22 agricultural season will affect yields and impact consumer real disposable incomes.
“The Russia–Ukraine conflict will continue to impact the global economy through increases in energy costs and potential shortages of raw materials in the short term should hostilities persist.”
Nkala said despite these challenges, the group would continue with its expansion plans, with a number of refurbishments and new stores scheduled for the current financial year.
“Capital expenditure for the year was $3,1 billion up from $2,1 billion in prior year.
“Most of the capital expenditure was channeled towards store refurbishments and new stores opening,” he said.
He said the group was also upgrading its ICT platforms to improve operational efficiencies and support its innovation thrust.
Nkala said COVID-19 remained an ongoing threat to the business.
During the period under review, sales volume grew by 22,7% over prior year leading to revenues growing by 34,7% to $79,9 billion from $59,3 billion in the 2021 comparative period.
Total assets grew 42,1% to $30,78 billion in the period under review from a 2021 comparative of $21,66 billion.
This was driven by a revaluation of property and equipment owing the local currency depreciating as well as increases of nearly 34% in merchandise.