The government has gazetted Statutory Instrument (SI) 109 of 2019 that seeks to stamp out revenue leakages arising from alleged manipulation of transactions from the sale of goods and services involving two or more related parties.
Transactions involving two or more parties are supposed to be on a willing buyer or willing seller basis, but cases price inflation or under-invoiced have become rampant, hence the concern raised by regulatory authorities.
While the manipulation of pricing models has to some extent resulted in the state losing more in terms of revenue proceeds from taxes charged on transactions, it is the latest regulation that is under the spotlight.
SI 109 of 2019 seeks to provide guidance to the tax-payers on how they can prove that pricing or transactions between their related parties are justified and being done in a transparent manner.
“It is therefore necessary to focus on how the matters related to the parties are justified, otherwise the settling of pricing models is a key cause for concern in terms of ensuring transactions are being dealt in a manner that seeks to facilitate efficiency,” said Mr Dumisani Ngwenya, a business consultant.
According to a local tax study, transfer pricing is the setting of prices of goods and services sold between related entities, and it becomes an issue where the price is either understated or overstated.