Banks Sue ZIMRA Over "Punitive" Tax: US$80M Credit Lines at Risk as Interest Dispute Escalates

HARARE — The Bankers Association of Zimbabwe (BAZ) has launched a high-stakes legal challenge against the Zimbabwe Revenue Authority (ZIMRA), intensifying a bitter dispute over tax treatments that lenders warn could cripple the nation’s financial stability and freeze credit lines. At the heart of the litigation is ZIMRA’s interpretation of the Income Tax Act, which has disallowed interest expenses, the fundamental cost of doing business for banks, as deductible expenses when calculating taxable income. The sector argues this move artificially inflates profits, leading to "punitive" and "phantom" tax obligations.

The crisis has been compounded by ZIMRA’s decision to apply these rules retrospectively for the period between 2019 and 2024. This has blindsided the industry with massive, unforeseen liabilities that threaten to erode capital buffers.

"These tax positions reduce profits and shrink the pool of funds available for lending, which ultimately affects economic activity," warned Luxon Zembe, Chairman of CBZ Holdings Limited.

The financial impact across the sector is staggering:

• FBC Holdings: Facing potential liabilities exceeding US$18 million.

• NMBZ Holdings: Disclosed additional tax charges running into tens of millions.

• Credit at Risk: FBC Chief Executive Trynos Kufazvinei revealed the bank nearly suspended US$80 million in foreign credit lines due to the tax uncertainty.

In a move that appeared to validate the bankers' concerns, Finance Minister Mthuli Ncube enacted a partial policy reversal in the 2026 National Budget. He confirmed that interest expenses would finally be tax-deductible starting January 1, 2026.

However, BAZ argues this "forward-looking" fix does nothing to address the mountain of debt accumulated over the previous five years. Banks are now pushing the courts to strike down the retrospective assessments that remain on their books.

The Zimbabwe National Chamber of Commerce (ZNCC) has weighed in, warning that aggressive revenue collection is beginning to cannibalize the very industries that drive the economy.

"The outcome of this legal battle will be a litmus test for Zimbabwe’s investment climate," said a ZNCC spokesperson. "If banks cannot deduct their primary costs, it sends a signal that the tax environment is unpredictable and hostile to capital."

As the case moves through the courts, the stability of the Zimbabwean banking sector hangs in the balance. A ruling in favor of ZIMRA could force banks to further restrict lending to SMEs and large-scale industrial projects, potentially stalling the country's GDP growth targets for 2026.

Zimbabwe banking sector tax dispute