Chinese-owned Zhong Mei Engineering Group, which has already been awarded several lucrative projects in Namibia, has won another major road-building contract — while it’s involved in a serious dispute with the Namibia Revenue Agency (Namra) over unpaid taxes.
Last week, the high court of Namibia had to decide whether N$33m (R33m) in tax, deducted from Zhong Mei’s Standard Bank account on the instruction of Namra, should be returned, pending the company’s further litigation against the revenue authority. Judge Eileen Rakow, however, ruled that the funds should remain with Namra “for now”.
Zhong Mei will be back in court, on a date yet to decided, for broader argument on whether Namra correctly handled the appointment of Standard Bank as its agent to make deductions from Zhong Mei’s account. The company will also argue that the section of the tax laws under which Namra acted is unconstitutional.
When the case was argued in court in July, however, the only question for Rakow to decide was whether, at this stage, Namra should return the funds the bank deducted from Zhong Mei’s account.
Rakow heard that Namra’s manager for audit and compliance, Mahnaem Haidula, had sent a “notification letter” to the company in June asking for certain documents and informing it that Namra would be carrying out a comprehensive audit. She said that while the company had filed income tax returns from 2013 to 2018, they were all zero returns.
However, according to Haidula, information from the treasury for that period showed the company was “actively and meaningfully” engaged in a number of business projects. These included construction of the Omdel-Swakopmund pipeline replacement and ancillary work for the central Namib area water supply scheme and other major works.
When Zhong Mei met with Namra in June, company representatives said that the financial statements, including returns and payments of taxes for the period in dispute, had been prepared by MMG Global Chartered Accountants and that the company’s accountant had “disappeared with their financial records”.
The company said it didn’t have the money claimed by Namra in its bank account and offered to pay in instalments. This, however, was rejected by the revenue authority on the grounds that the company “still had a pending assessment on employees’ tax”. Further, while the MD indicated that the company had made profits from the 2019 tax year, no taxes had been paid to Namra between 2019 and 2022 either. Namra also pointed out that the revenue received by the company from government projects was close to N$1bn between 2013 and 2018.
The revenue authority stressed that the outstanding tax now claimed was the capital amount only and didn’t include interest and penalties. Following the meeting, Standard Bank, appointed as Namra’s payment agent, deducted just over N$33m, the full capital amount claimed.
While the MD indicated that the company had made profits from the 2019 tax year, no taxes had been paid to the NRA between 2019 and 2022 either
Tax is no ‘optional contribution’
Rakow accepted that the matter was urgent, as Zhong Mei had been left with less than N$4m in its account. It owed N$4m following a supreme court case it had lost and it had monthly expenses of about N$28m. It would thus suffer “irreparable harm” if the deducted funds were not made available for the company to use.
Still, quoting from South African and Namibian court decisions, Rakow said the law entrenches the concept of “pay now, argue later” and that tax is “compulsory and not an optional contribution”, providing revenue that has to be used for the public benefit.
She said there was no reason the “pay now, argue later” principle shouldn’t apply, and that the funds should “remain with [Namra] for now as it is in [the] public interest”.
The company, which told the court its biggest fear was that its business “will collapse if it doesn’t obtain the orders sought”, hasn’t commented on the impact of this outcome. But earlier this month Zhong Mei, along with four local contractors, was awarded a N$340m contract to upgrade part of the Trans-Kalahari highway.
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