Nust Tax Module Jan 2018

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NUST Tax Module Jan 2018
APPLIED TAXATION (Midlands State University)
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NATIONAL UNIVERSITY OF SCIENCE AND TECHNOLOGY

[IN COLLABORATION WITH NORTH WEST UNIVERSITY SOUTH AFRICA]
APPLIED ZIMBABWE TAXATION 2018
ZCTA LEVEL 2 [CAZ 2]
TAXATION MODULE
Prepared by:
Maxwell Ngorima

lOMoARcPSD|4169582
CONTENTS
NUST TAXATION MODULE
1. Introduction …………………………………………………………………………. 4
2. ZCTA 2018 Syllabus ………………………………………………………………… 4
3 Course Outline ,……………………………………………………………………. 19

4. Outline of the Tax System………………………………………………………… 23
5. Tutorial 1 / Test 1
Study Unit 1.1 Administration framework………………………………………..24
Study Unit 1.2 Gross Income…………………………………………...................30
Study Unit 1.3 Exemptions ……………………………………………………….39
Study Unit 1.4 General deduction formula ……………………………………….41
Study Unit 1.5 Taxation of Employment Income ………………………………..42
Study Unit 1.6 Taxation of Corporates……………………………………….......56
Study Unit 1.7 Capital allowances, recoupments ………………………………...71
Study Unit 1.8 Lease premiums ……………………………………………….....81
Study Unit 1.9 Suspensive sales ……………………………………………….....87
Study Unit 2.1 Withholding Taxes …………………………………………….....92
Study Unit 2.2 Transfer Pricing ……………………………………………..........95
Study Unit 2.3 International tax, permanent establishment ……………………. 100
Study Unit 2.4 Capital Gains tax …………………………………………..........103
Study Unit 3.1 Value Added Tax ………………………………………………..112
Study Unit 4.1 Taxation of partnerships ………………………………………...158
Study Unit 4.2 Deceased estates and trusts ……………………………………...161
Study Unit 4.3 Farming operations ………………………………………….......165
Study Unit 4.4 Mining ……………………………………………………….......173
NUST 2018 CTA 2 TAX MODULE

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APPLIED ZIMBABWE TAXATION
TUTORIAL 1
1 Introduction
2 ZCTA 2018 Syllabus
3 Course Outline
4 Outline of the Tax System
Tutorial 1 / Test 1
Study Unit 1.1 Administration framework
Study Unit 1.2 Gross Income
Study Unit 1.3 Exemptions
Study Unit 1.4 General deduction formula
Study Unit 1.5 Special deductions
Study Unit 1.6 Taxation of Employment Income
Study Unit 1.7 Taxation of Corporates
Study Unit 1.8 Capital allowances, recoupments
Study Unit 1.9 Lease premiums
Study Unit 1.9 Suspensive sales

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TUTORIAL 1
1. INTRODUCTION AND WELCOME
Candidates who sit for this paper are expected to have acquired comprehensive knowledge of the
main features of the Zimbabwe Taxation Statues which incorporate The Income Tax Act [ Chapter
23 : 06]; together with the current year Finance Act [ Cap 23:04] which sets out the latest rates of
tax and duties.
In addition, candidates should be familiar with legal precedents [decisions from court cases] that
help explain the acceptable interpretations of the tax statutes.
At this level, the paper will test the candidate’s application and analytical skills as well as
evaluation skills for the purposes of providing professional tax advice on proposed current and
past business transactions, and structures.
2. SYLLABUS
CTA 2018 SYLLABUS
TAXATION EXAMINABLE PRONOUNCEMENTS
1. Core legislation under examination and level description
The syllabus is principally concerned with the taxes and duties levied in terms of the following five
statutes:
The Income Tax Act Chapter 23:06
The Value Added Tax Act Chapter 23:12
The Capital Gains Tax Act Chapter 23:01
The Finance Act Chapter 23:04
The Estate Duty Act Chapter 23:03
All other taxes, duties and levies payable in terms of various statutes have been excluded from the
syllabus, unless specifically mentioned in this document. References to the relevant Act have been
inserted in the syllabus where appropriate.
Regulations, interpretation notes and binding general rulings are to be covered on the same level as
the applicable provision in the Act.
Knowledge levels as defined in the Competency Framework are summarised as follows:
Level 1 (Basic)
At this level the candidate is required to acquire a knowledge and understanding of the
core/essence of the subject matter which includes that the subject matter exists, the significance and
relevance thereof, and its defining attributes.
Consequently, the candidate is required to have knowledge and understanding of:
 the purpose and objective of the subject matter;
 the underlying principles/practices/legislation/requirements (hereafter “content”);and
 how the content relates to the discipline as a whole and to other disciplines (how it “fits in”)
at a broad conceptual level.
At this level, knowledge and understanding of detail, including procedural or numerical aspects
specific to the subject matter, are not required.

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APPLIED TAXATION
TAX 402
At this level the candidate should be equipped with the extent and depth of knowledge and
understanding which enable the candidate to recognise issues when encountered and to seek
further depth of knowledge and understanding.
Level 2 (Intermediate)
At this level the candidate is required to acquire a detailed knowledge and understanding of the
central ideas and issues that comprise the substance of the subject matter.
Consequently, the candidate is required to have a knowledge and understanding of:
 those aspects of the content that are central to the subject matter, so as to achieve a sound
conceptual understanding; and
 the detail, including procedural and numerical aspects specific to the subject matter, where
appropriate.
Knowledge and understanding of complexities and unusual/exceptional aspects are, however, not
required.
At this level the candidate should be equipped with a sound knowledge and understanding of the
substance of the subject matter to enable them to deal with issues and solve problems that are central
to the topic. The candidate should have a sound conceptual knowledge which enables them to further
explore and understand complexities, if necessary.
This level includes the level of knowledge and understanding required for level 1 (Basic).
Level 3 (Advanced)
At this level the candidate is required to acquire a thorough knowledge and understanding of the
subject matter. This level of knowledge and understanding extends beyond a sound understanding of
central issues, to include complexities and unusual/exceptional aspects associated with the subject
matter.
Consequently, the candidate is required to have a knowledge and understanding of:
 All content that is required to develop a thorough understanding of the subject matter;
 Complexities; and
 Sufficient depth to clearly locate content in the general field of accountancy and to identify
implications and relationships.
At this level the candidate should be equipped with a level of knowledge and understanding of the
substance of the subject matter that enables them to perform tasks and solve problems with a high
degree of rigour, exercising sound judgement.
This level includes the level of knowledge and understanding required for level 1 (Basic) and level 2
(Intermediate).

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APPLIED TAXATION
TAX 402
2. Tax legislation Reference to the legislation
Topics Knowledge level
Income Tax Act
PART I -PRELIMINARY
S 1 (1) Short title
S 2 (2) Interpretations (Definitions) Excluded Affiliate Petroleum
Petroleum agreements
Petroleum operations
Petroleum operator
Petroleum special grant
Special court
Level 1
Agent Industrial park
Industrial park developer
Insolvency and insolvent
Investment licence Licenced investor
Private Business Corporation
Special court Special mining lease
Special mining lease agreement
Special mining lease area
Special mining lease operation
Level 2
Amount
Approved employee share ownership trust
Assessed loss
Assessment
Beneficiary with a vested right
Benefit fund
Charging Act
Child Commissioner Company
Credit Farmer Holder
Income derived from mining operations
Income derived from trade and investments
Income the subject of a trust to which no beneficiary is entitled

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APPLIED TAXATION
TAX 402
Reference to the legislation
Level 3
Law
Lawful minor child
LIBOR
Local Authority
Marriage
Married woman
Medical aid society
Mineral
Mining location
Mining operations’
Mine Minister
Minor Child
Near relative
Nominee
Parent Pension Fund
Period of assessment
Person
Prescribed
Previous law
Recoupment from capital expenditure
Retirement annuity fund
Return Securities
Self-assessment return
Spouse Statutory Corporation
Tax
Tax clearance certificate
Taxpayer
Trade
Trade mark
Trading stock
Trust instrument
Trustee Year of assessment
Zimbabwe Revenue Authority
S 2A When persons deemed to be associates 1
S 2B When person deemed to control company 3

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APPLIED TAXATION
TAX 402
PART II –
ADMINISTRATION
S 3 & 4 Repealed
S5 Preservation of secrecy Excluded
PART III –
INCOME TAX
S6 Levy of Income Tax 3
S7 Calculation of Income Tax 3
S8 Interpretation of terms relating to income tax 3
S9 Special provisions in connection with income derived from sale of mining
claims -Repealed Excluded
S10 Special circumstances in which income is deemed to have accrued 3
S11 Special provisions in connection with income derived from assets in deceased
and insolvent estates 3
S12 Circumstances in which amounts are deemed to have accrued from sources
within Zimbabwe 3
S13 Commissioner may approve of benefit funds and medical aid societies for the
purpose of this Act 1
S14 Exemptions 3
S15 Deductions allowed in determination of taxable Income 3
S 16 Cases in which no deduction shall be made 3
S 17 Special provisions relating to hire purchase or other agreements providing for
the postponement of passing of ownership of property 3
S 18 Special provisions relating to credit sales 3
S 19 Special provisions relating to persons carrying on business which extends
beyond Zimbabwe 1
S 20 Special provisions relating to insurance business Excluded
S 21 Special provisions relating to petroleum businesses Excluded
S 22 Special provisions relating to special mining lease operations Excluded
S 23 Special provisions relating to determination of taxable income of persons
buying and selling any property at a price in excess of or less than the fair
market price Excluded
S 24 Special provisions relating to determination of taxable income in accordance
with double taxation agreements 3
S 25 Deduction of tax from dividends 3
PART IV –
TAX ON SHAREHOLDERS, INTEREST, FEES, REMMITTANCES &
ROYALTIES
S 26 Non-resident shareholders tax 3
S 27 Branch profit tax – repealed excluded
S 28 Resident shareholders tax 3
S 29 Non-resident’s tax on interest -repealed Excluded
S 30 Non-resident’s tax on fees 3
S 31 Non-resident tax on remittances 3
S 32 Non-resident tax on royalties 3

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APPLIED TAXATION
TAX 402
S 33 Additional profit tax in respect of special mining lease areas Excluded
S 34 Resident tax on interest 3
S 35 Exemption of petroleum operators and affiliates from certain taxes Excluded
S 36 Exemption of holders of special mining leases from certain taxes Excluded
S 36A Tobacco Levy 1
S 36B Automated Financial Transaction Tax 1
S 36C Presumptive Tax 1
S 36D Demutualisation levy Excluded
S 36E Carbon Tax 1
S 36F -J Excluded
PART V –
RETURNS AND ASSESSMENTS
S 37 Notice by commissioner requiring for assessment under this Act and manner of
furnishing returns and interim returns 1
S 38 Income of minor children 3
S 39 Duty to furnish further returns and information 1
S 40 Commissioner to have access to all public records 1
S 41 Returns as to shareholdings 1
S 42 Duties of companies to furnish returns and copy of memorandum and articles
of association. Excluded
S 43 Duty of person submitting accounts in support of return or preparing accounts
of other person Excluded
S 44 Production of documents and evidence on oath Excluded
S 45 Estimated assessments 1
S 46 Additional tax in event of default or omission 1
S 47 Additional assessments 1
S 48 Reduced assessments of loss 1
S 49 Amended assessment of loss 1
S 50 Adjustment of tax Excluded
S 51 Assessments and recording thereof excluded
S 52 Copies of assessments Excluded
PART VI –
REPRESENTATIVE TAXPAYERS S 53 to S61
EXCLUDED
EXCLUDED
PART VII –
OBJECTIONS AND APPEALS S 62 to S 70
EXCLUDED
PART VIII –PAYMENT AND RECOVERY OF TAX
S 71 Appointment of day and place for payment of tax 1
S 72 Payment of provisional tax 2
S 73 Payment of employees tax 2
S 74 Persons by whom the tax is payable 2
S 75 Temporary trade 1
S 76 No tax payable in certain circumstances 1
S 77 Recovery of tax. 1
S 78 Form of proceedings. Excluded

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APPLIED TAXATION
TAX 402
S 79 Evidence as to assessments Excluded
S 80 Withholding of amounts payable under contracts with state or statutory
corporations. Excluded
PART IX –
GENERAL
S 81 Offences – General. 1
S 82 Offences – wilful failure to comply with requirements of commissioner of keep
proper accounts and obstruction. 1
S 83 Offences – increased penalty on subsequent conviction. Excluded
S 84 Offences – Wilful failure to submit correct returns, information etc. 1
S 85 Offences – false statements. 1
S 86 Offences – wilful making of false statements and keeping of false accounts, and
fraud.
1 S 87 Evidence. Excluded
S 88 Proofs of certain facts by affidavit or orally. Excluded
S 89 Forms and authentication and service of documents. Excluded
S 90 Regulations. Excluded
S 91 Relief from double taxation. 3
S 92 Reduction of tax payable as a result of double taxation agreements. 3
S 93 Relief from double taxation in cases where no double taxation agreements have
been made. 3
S 94 Credit where non-residents’ tax on interest is withheld – repealed. Excluded
S 95 Credit where non-residents’ tax on fees has been withheld. 1
S 96 Credit where non-residents’ tax on royalties has been withheld. 1
S 97 Credit where residents’ tax on interest has been withheld. 3
S 97 C Credit where tax on non-executive directors’ fees has been withheld. 3
S 98 Tax Avoidance generally. 2
S 98A Income splitting. 3
S 98B Transactions between associates, employers and employees. 3
S 99 Transitional provisions relating to separate taxation of married woman. Excluded
First Schedule
Amounts received or accrued by way of lump sum payments which shall not be
included in Gross Income.
1 Second Schedule
Valuation of trading stock.
3 Third Schedule
Exemptions from Income tax.

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APPLIED TAXATION
TAX 402
Fourth Schedule
Deductions to be allowed in respect of buildings, improvements,
machinery and equipment used for commercial, industrial and farming
purposes.
Fifth schedule
Allowances and deductions in respect of Income derived from mining
operations and other provisions thereto.
Sixth schedule
Deductions in respect of contributions to benefit and pension funds
and the consolidated revenue fund.
Excluded
Seventh schedule Deductions in respect of income derived from farming operations.
Eighth schedule
Determination of taxable income or assessed loss attributable to the business of Insurance.
Excluded
Ninth schedule Non-resident shareholders tax.
Tenth schedule Branch profit tax – repealed. Excluded
Eleventh schedule Decisions of the commissioner to which any person may object. Excluded
Twelfth schedule Rules for regulating appeals. Excluded

Thirteenth Schedule
Employees’ tax.
Fourteenth Schedule
Deductions in respect of Income derived from business operations in
Growth point areas – repealed.
Excluded
Fifteenth schedule Residents shareholders tax
Sixteenth Schedule Non-resident tax on interest-repealed Excluded
Seventeenth schedule
Non-residents tax on fees.
Eighteenth Schedule
Non-resident tax on remittances.
Nineteenth schedule
Non-residents tax on Royalties.
Twentieth schedule
Determination of gross income and taxable income or assessed loss
from petroleum operations.
Excluded
Twenty-first schedule
Residents’ tax on interest.
Twenty-second schedule
Determination of gross income and taxable income or assessed loss
from special mining lease operations.
Excluded

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Twenty – third schedule

Determination of additional profits tax in respect of special mining
lease area.
Excluded
Twenty-fourth schedule
Tobacco Levy. Excluded
Twenty – Fifth schedule
Automated financial transactions tax Excluded
Twenty-sixth schedule
Presumptive tax Excluded
Twenty – seventh schedule
Demutualisation levy Excluded
Twenty-eighth schedule
Carbon tax Excluded
Thirtieth schedule Intermediated money transfer tax Excluded
Thirty-First schedule
Noczim debt redemption & Strategic reserve levy Excluded
Topics
Knowledge level
Thirty-second schedule
Property or Insurance commission tax Excluded
Thirty-third schedule
Tax on non-executive directors’ fees
Thirty-fourth schedule
Petroleum Importer levy Excluded
Thirty-fifth schedule
Transfer pricing
Topics
Knowledge level

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APPLIED TAXATION
TAX 402
Value added Tax Act

Part I – PRELIMINARY
S 1 Short title and date of commencement 1
S 2 Interpretations (definitions) 3
S 3 Determination of open market value 1
PART II – ADMINISTRATION
S 4 Act to be administered by the commissioner 1
S 5 Delegation of functions by the commissioner 1
PART III – VALUE ADDED TAX
S 6 Value added tax 3
S 7 Certain supplies of goods or services deemed to be made or not made 3
S 8 Time of supply 3
S 9 Value of supply of goods or services 3
S10 Zero rating 3
S 11 Exempt supplies 3
S 12 Collection of tax on importation of goods, determination of value thereof, and
exemptions from tax 3
S 13 Collection of tax on imported services, determination of value thereof, and
exemptions from tax
3 S 14 Accounting basis 3
S 15 Calculation of tax payable 3
S 16 Permissible deductions in respect of input tax 3
S 17 Adjustments 3
S 18 Adjustments in consequence of acquisition of a going concern wholly or partly
for purposes other than making taxable supplies 3
S 19 Goods or services acquired before incorporation 3
S 20 Tax invoices 3
S 21 Credit and debit notes 3
S 22 Irrecoverable debts 3
PART IV – REGISTRATION
S 23 Registrations of persons making supplies in the course of trade 3
S 24 Cancellation of registration 3
S 25 Registered operator to notify change of status 2
S 26 Liabilities not affected by person ceasing to be a registered operator 2
PART V-RETURNS, PAYMENTS AND ASSESSMENTS
S 27 Tax Periods 3
S 28 Returns and payment of tax 3
S 29 Special returns 1
S 30 Other returns 1
S 31 Assessments 3

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APPLIED TAXATION
TAX 402
PART VI – OBJECTIONS AND APPEALS
S 32 Objections to certain assessments and decisions 1
S 33 Appeals to Fiscal appeal court 1
S 34 Appeals against decisions of fiscal appeals court 1
S 35 Members of fiscal appeals court not disqualified from adjudicating Excluded
S 36 Payment of tax pending appeal Excluded
S 37 Burden of proof Excluded
PART VII – PAYMENT, RECOVERY AND REFUND OF TAX
S 38 Manner in which tax shall be paid 1
S 39 Penalty and interest for failure to pay tax when due 3
S 40 Recovery of tax Excluded
S 41 Liabilities for tax for certain past supplies or importations Excluded
S 42 Evidence as to assessments Excluded
S 43 Security for tax Excluded
S 44 Refunds 1
S 45 Interest on delayed refunds Excluded
S 45A Refunds of tax to exempted persons Excluded
S 46 Calculation of interest payable under this Act 1
PART VIII – REPRESENTATIVE REGISTERED OPERATORS
S 47 Persons acting in a representative capacity. Excluded
S 48 Power to appoint agent. Excluded
S 49 Liability of representative registered operators. Excluded
S 50 Remedies of Commissioner against agent or trustee. Excluded
PART IX – SPECIAL PROVISIONS
S 51 Repealed Excluded
S 52 Separate persons carrying on same trade under certain circumstances deemed
to be single person. Excluded
S 53 Bodies of persons, corporate or unincorporated, other than companies. Excluded
S 54 Pooling arrangements. Excluded
S 55 Death or insolvency of registered operator. 1
S 56 Agents and auctioneers. 1

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APPLIED TAXATION
TAX 402
PART IXA SPECIAL
PROVISIONS APPLICABLE TO SALES OF MOTOR VEHICLES (repealed)
PART X – COMPLIANCE
S 57 Records. 1
S 58 General provisions with regard to information, documents or items. 1
S 59 Furnishing of information, documents or items by any person. 1
S 60 Obtaining of information, documents or items at certain premises. 1
S 61 Powers of entry, search, etc. Excluded
S 62 Offences. 1
S 63 Offences and penalties in regard to tax evasion. 1
S 64 Offences: increased penalty on subsequent conviction. Excluded
S 65 Imposition of fine by Commissioner. Excluded
S 66 Additional tax in case of evasion 1
S 67 Recovery of tax from recipient. Excluded
S 68 Reporting of unprofessional conduct. Excluded
PART XA -APPLICATION OF INFORMATION TECHNOLOGY TO ACT
S 68A – S68K EXCLUDED
PART XI -MISCELLANEOUS
S 69 Prices deemed to include tax. Excluded
S 70 Prices advertised or quoted to include tax. Excluded
S 71 Rounding-off tables. Excluded
S 72 Contract price or consideration may be varied according to rate of tax. Excluded
S 73 Application of increased or reduced tax rate Excluded
S 74 Tax relief allowable to certain diplomats and diplomatic and consular missions. Excluded
S 75 Forms and authentication and service of documents. Excluded
S 76 Arrangements and directions to overcome difficulties, anomalies or
incongruities Excluded
S 77 Schemes for obtaining undue tax benefits Excluded
S 78 Regulations. Excluded
PART XII -AGREEMENTS
S 79 Tax agreements. Excluded
S 80 President may suspend tax payable under agreement. Excluded
PART XIII -GENERAL
S 81 Notice of variation of rate of tax. Excluded
S 82 Transitional matters Excluded
S 83 Act binding on State, and effect of certain exemptions from taxes. Excluded
S 84 Repeal of Cap. 23:08 and savings. Excluded
SCHEDULES
First Schedule: [Repealed].
Capital Gains Tax Act
PART I – PRELIMINARY
S 1 Short title
S 2 Interpretations (definitions) 3
PART II – ADMINISTRATION
S 3 Delegation of functions by Commissioner. 1
S 4 & 5 Repealed
PART III -CAPITALGAINS TAX
S 6 Charging of capital gains tax. 3
S 7 Calculation of capital gains tax. 3
S 8 Interpretation of terms relating to capital gains tax. 3
S 9 When capital amount deemed to have accrued. 3
S 10 Exemptions from capital gains tax. 3
S 11 Deductions allowed in determination of capital gain. 3
S 12 Circumstances in which no deductions may be made. 3
S 13 Damage to or destruction of specified asset 3

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S 14 Determination of fair market price of specified assets. 1

S 15 Transfers of specified assets between companies under the same control. 3
S 16 Transfers of specified assets between spouses. 3
S 17 Transfer of business property by individual to company under his control. 3
S 18 Provisions for sales of immovable property under suspensive conditions. 3
S 19 Provisions relating to credit sales where ownership passes. 3
S 20 Provisions for the reductions in costs of specified assets. 1
S 21 Provision for sales of principal private residences. 3
S 22 Substitution of business property. 1
PART IIIA -CAPITAL GAINS WITHHOLDING TAX
S 22A Interpretation in Part IIIA. 1
S 22B Capital gains withholding tax. 3
S 22C Depositaries to withhold tax. 1
S 22D Agents to withhold tax not withheld by depositaries. 1
S 22E Payee to pay tax not withheld by depositary or agent. 1

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APPLIED TAXATION
TAX 402
S 22F Exemptions. 3
S 22FA Registration of depositaries. 1
S 22G Depositaries to furnish returns. 1
S 22H Penalty for non-payment of tax. 1
S 22I Refund of overpayments 1
S 22J Credit where tax has been withheld 3
S 22K Application of Part IIIA to sales concluded before 1.1.1999 Excluded
S 22L Suspension of provisions of Part II A to marketable securities. 1
PART IV -RETURNS AND ASSESSMENTS
S 23 Application of provisions of Taxes Act relating to returns and assessments 1
PART V -REPRESENTATIVE TAXPAYERS
S 24 Application of provisions of Taxes Act relating to representative taxpayer. Excluded
PART VI -OBJECTIONS AND APPEALS
S 25 Objections and appeals 1
PART VII -PAYMENT AND RECOVERY OF TAX
S 26 Day and place for payment of tax. 1
PART VIII – GENERAL
S 27 Application of provisions of Taxes Act relating to offences, evidence, forms and
regulations. Excluded
S 28 Application of provisions of Taxes Act relating to relief from double taxation. 1
S 29 Application of provisions of Taxes Act relating to tax avoidance. Excluded
S 30 Transitional provision re capital gains and losses of married women Excluded
S 30A Capital gains tax not withheld in terms of Part IIIA to be paid before transfer of
specified asset. Excluded
S 31 Returns by Registrar of Deeds, financial institutions and other persons. Excluded
Finance Act
S 1 Short title
S 2 Interpretations l
S 2A Meaning of small or medium enterprises or business Excluded
S 3 Regulations Excluded
CHAPTER I INCOME TAX AND OTHER TAXES LEVIED IN TERMS OF THE INCOME
TAX ACT:
PART I – PRELIMINARY
S 4 Interpretation 1
S 4A Payment of certain taxes in foreign currency 1
PART II – CREDITS TO BE DEDUCTED FROM INCOME TAX
S 7 Credits to which section 7 of the Income tax act relates 3
S 10 Taxpayers over 55 years of age 3
S 11 Blind persons 3
S 12 Invalid appliances and medical expenses 3
S 13 Mentally or physically disabled persons 3

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APPLIED TAXATION
TAX 402
PART III – RATES OF INCOME TAXES AND OTHER TAXES LEVIED IN TERMS OF
THE INCOME TAX ACT
S 14 Income taxes for period of assessment after 01.01.14 3
S 15 Non-resident shareholders tax 3
S 17 Resident shareholders tax 3
S 19 Non-residents’ tax on fees 3
S 20 Non-residents’ tax on remittances 3
S 21 Non-residents’ tax on royalties 3
S 22 Resident tax on interest 3
S 22J Tax on non-executive directors’ fees 3
S 22K Tax on share options granted before 1st February 2009 3
PART IV – EMPLOYEES TAX
S 23 Matters to be regarded by the commissioner in relation to employees tax 3
Schedule to Chapter I : Credits and rates of Income Tax 3
CHAPTER II : STAMP DUTIES
S 24 -25 Stamp duties 2
CHAPTER III : LICENCES TARIFFS
S 26 -27 Licence tariffs Excluded
CHAPTER IV : VALUE ADDED TAX
S 28 Interpretations in chapter IV 3
S 29 Rates of Value added tax 3
S 30 Amendments imposed by section 29 1
S 31 Adjustment of tax 1
Schedule to chapter IV : Rates of Value Added Tax 3
Chapter V : Betting and Gaming tax –
REPEALED
CHAPTER VI : ESTATE DUTY
S 34 Interpretation in chapter VI 3
S 35 Rate of estate duty 3
Schedule to chapter VI : Rates of estate duty
CHAPTER VII: MINING ROYALTIES, DUTY & FEES
S 36 – 37B Mining royalties Excluded
CHAPTER VIII : CAPITAL GAINS TAX
S 37A Interpretation in chapter VIII 3
S 38 Rates of Capital Gains Tax 3
S 39 Rates of Capital Gains Withholding Tax 3
S 39A Payment of capital gains tax in foreign currency in certain circumstances 1
CHAPTER IX – XII Excluded

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3. COURSE OUTLINE
3.1 LEGISLATION CUT OFF FOR EXAM PURPOSES
The questions will be based on legislation in force as at 31 December 2017. For planning type
questions, candidates should also be aware of the legislative changes which have recently been
promulgated, following the parliamentary approval of the National Budget presented by the
Minister of Finance to Parliament in November 2017.
3.2 TESTS (FORMATIVE ASSESSMENT)
Four tests will be written during the year in order to give you the opportunity to have your progress
evaluated. These tests will constitute 20% of the final exam mark.
TIMETABLE
Scope Test Number
Tutorial 1 Test 1
Tutorial 2 Test 2
Tutorial 3 Test 3
Tutorial 4 Test 4

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3.3 TAX RATES YEAR ENDED 31ST DECEMBER 2017
RATES OF TAX: EMPLOYMENT INCOME
2017 ANNUAL PAYE TABLE

1ST JANUARY 2017 – 31ST DECEMBER 2017 (USD)
Band of Taxable Amount Tax Tax Cumulative Tax
Income US$ Rate
US$
US$ % US$
1 – 3 000 3,000 0% Nil Nil
3 001 – 12 000 9,000 20% 1,800 1,800
12 001 – 24 000 12,000 25% 3,000 4,800
24 001 – 60 000 36,000 30% 10,800 15,600
60 001 – 90 000 30,000 35% 10,500 26,100
90 001 - 120 000 30,000 40% 12,000 38,100
120 001 - 240 000 120,000 45% 54,000 92,100
240 001 - and more 50%
Plus 3 % Aids Levy chargeable income tax payable less credits.
TAX FREE BONUS
The tax free threshold is US$1,000 per annum with effect from 1 November 2012.
RETRENCHMENT PACKAGES
With effect from 1st January 2013, the tax-free portion of a retrenchment package is
pegged at the greater of US$10,000 or one third of the retrenchment package provided it
does not exceed US$60,000.
TAX CREDITS $ (p.a.)
Elderly person (55 years and over) 900

Physically disability person 900
Blind person 900
Medical aid and expenses 50% of amount paid in each year
PENSION CONTRIBUTIONS BY EMPLOYEE
Maximum permissible deductions $
Contribution to employer’s pension fund 5,400

Retirement annuity fund/Self-employed pension fund 5,400
National Social Security: 3,5% of the first $700 per year
Aggregate maximum contribution to all above per employee per year: 5,400

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DEEMED ANNUAL MOTORING BENEFITS
Engine capacity
Up to 1 500cc 3,600
1 501 – 2 000cc 4,800
2 001 – 3 000cc 7,200
3 001 and above 9,600
EXEMPTIONS FOR ELDERLY TAXPAYERS (55 years and over)

$
Rental income 3 000
Interest on deposits with financial institutions 3 000
Interest on discounted instruments 3 000
Pensions no limit
Gain on disposal of Principal Private Residence no limit
Gain on disposal of marketable securities 1,800
On acquisition of motor vehicle from employee no limit
FINES FOR GENERAL OFFENCES
Level of offence Fine($US) Level of offences Fine($)
1 5 8 500
2 10 9 600
3 20 10 700
4 100 11 1,000
5 200 12 2,000
6 300 13 3,000
7 400 14 5,000

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TAX RATES
%
14(2)(b) Taxable income of individual from trade or investment 25
14(2)(d) Taxable income of pension fund from trade or investment 15
14(2)(e) Taxable income of licenced investor (taxed at 0% up to the
fifth year of his operations as such) 25
14(2)(f) Taxable income of holder of special mining lease 15
14(2)(g) Taxable income of company or trust derived from mining
Operations 25
14(2)(h) Taxable income of person engaged in approved BOOT or
BOT arrangement: First five years of the arrangement 0
Second five years of the arrangement 15
14(2)(i) Taxable income of industrial park developer (after being taxed
at 0% for the first five years of his operations as such) 25
14(2)(j) Taxable income of operator of a tourist facility in approved
tourist development zone (after being taxed at 0% for the first 25
five years of his operation as such)
Operator of a tourist facility where 60% or more of the 20
turnover from such operations is in foreign currency
14(3) Taxable income of manufacturing company which exports
50% or more of its output 20
The rate of income tax that generally applies to companies is 25% of taxable income and an
AIDS levy of 3% of tax payable, giving an effective rate of 25.75%.
WITHHOLDING TAXES
Residents
Withholding tax on tenders 10%
Resident shareholder’s tax – By a company listed on the ZSE 10%
Resident shareholder’s tax – By any other company 15%
Residents’ tax on interest from financial institution 15%
Residents’ tax on interest from financial institution on fixed term deposits 5%
Non-residents’ tax
Non-residents shareholder’s tax – by a company listed on the ZSE 10%
Non-resident shareholder’s tax – by other company 15%
Non-resident tax on interest Nil
Non-resident tax on certain fees and remittances 15%
Non-resident tax on royalties 15%
NB: Reduced rates may apply to non-residents where a double taxation agreement (DTA) exits

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4. OUTLINE OF THE TAX SYSTEM
LEGAL FRAMEWORK
In terms of section 6 of the Income Tax Act (Cap 23:06) there shall
be charged, levied and collected income tax calculated on taxable
income for the benefit of the Consolidated Revenue Fund.
The calculation of a taxpayer’s tax liability shall be made by reference to:-
- the taxable income of the taxpayer in the year of assessment
- the appropriate rates of tax per the charging act for the year ; and
- the credits* to which taxpayer is entitled to per the charging act for that
year. (section 7)
* Only taxpayers who are natural persons are entitled to tax credits.
The basic model for calculating any taxpayer’s (individuals, trusts and companies)
taxable income is as follows:-
Accruals and total receipts in tax year
Less Amounts proved by taxpayer to be capital in nature
= Gross Income (section 8)
less Exemptions (section 14 and 3rd schedule)
= Income
less Allowable Deductions (section 15 and various schedules)
= Taxable Income
Sections 8, 14 and 15 are cornerstones of Zimbabwe Income Tax

legislation.

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STUDY UNIT 1.1
ADMINISTRATIVE FRAMEWORK
1.1 Administration
The administration of all taxes (Value Added Tax, Capital Gains Tax, Income Tax, etc.)
fall under the responsibility of the Zimbabwe Revenue Authority (ZIMRA), which
Authority came into being with effect from 19 January 2001. The Commissioner-General
of the Zimbabwe Revenue Authority is vested with the power and responsibility of
administering the tax statutes. He does this through regional offices and ports established
across the country.
1.1.1 Returns and Assessments
Every year, three to four months after the end of a tax year the Commissioner publishes a
notice in the most commonly read press inviting taxpayers to obtain tax returns from their
nearest tax office; truthfully complete them and return them to the respective offices for
assessment. The duty to obtain a tax return rests with each individual taxpayer who falls
within the specifications outlined in The Commissioner’s public notice.
Self-assessment legislation was introduced with effect from 1 January 2007. Taxpayers,
so specified by the Commissioner General as being those registered or required to have
registered under Category “C” for Value Added Tax (VAT) in terms of the VAT Act as
at 31st December 2007 and thereafter or registered under the Banking Act or registered
under the Insurance Act, are required to furnish self-assessment returns within four
months from the end of the tax year. Employees paying Pay As You Earn (PAYE) under
the Final Deduction System (FDS) are not liable to furnish self-assessment returns unless
specifically requested to do so. Under the self-assessment legislation, the return will
constitute an assessment on either the due date of furnishing the return or on the date that
it is actually furnished.
Self-assessment returns are due for submission to ZIMRA within 4 months of the end of
the tax year i.e. by 30 April.
Notwithstanding the lodgement of the self-assessment return, the Commissioner General

is still empowered to raise an assessment where he has justifiable reasons for doing so.
All employers have been placed on FDS. Under the FDS, any employee who receives
employment income only (i.e. has no source of income other than remuneration), does not
need to submit a tax return. The employer is responsible for deducting the correct amount
of PAYE for the year, and no further return needs to be made to the employee.
The Commissioner General is empowered to estimate any taxpayer’s taxable income if

one fails to submit a return. In addition to the tax payable, the Commissioner is also
empowered to impose penalties for any default. These penalties are 100% of the basic tax
chargeable. Section 46 outlines some grounds for penalties.
It is a legal requirement for P.A.Y.E. to be deducted from all emoluments payable to

employees on a monthly basis. The P.A.Y.E. withheld has to be remitted to the
Commissioner within 10 days from the end of the month to which such P.A.Y.E. refers.
The penalty for late payment of PAYE is 100% of the tax payable, and interest is also
charged on late payment at a rate of 10%. (See sections 73 and 74 as read together with
schedule 13.)

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The PAYE remittance form [P2 Form] must be completed and submitted with the PAYE
due.
Taxpayers who are not employees, but are in receipt of other income, (e.g. sole traders,
consultants and companies), are required to be on Quarterly Payment Dates (Section 72).
Under this scheme the taxpayers pay their estimated tax liabilities, for the current tax year
in which they are trading, in four instalments on dates allocated throughout the year, as
follows:
25 March 10% of tax payable

25 June 25% of tax payable
25 September 30% of tax payable
20 December 35% of tax payable
Representative Taxpayers
The duties and rights of representative taxpayers are outlined in the Income Tax Act. The
Commissioner of Taxes also has remedies against defaulting representatives. Where a
representative has met an obligation of the principal out of his resources, he is empowered
by the Act to seek restitution from the principal.
The administrative sections of the Act are fairly simple to read. Students should read them
in order to have an understanding of the overall administrative framework.
1.1.2 Income Tax Objections
1.1.3 When Can An Objection be Made?
 When a person is not satisfied with the assessment issued by ZIMRA, they may
object to all or part of the assessment issued.
 Objections may be lodged against decisions made by the Commissioner. Such
objections may be on the liability for registration, the cancellation of a registration,
the refusal by the Commissioner to authorize a refund or a ruling which the registered
operator may have good reason for disagreeing with.
1.1.4 Lodging an Objection – Section 62
A person wishing to make an objection to the Commissioner’s assessment or

decision must:
 Put the objection in writing
  Specify in detail the grounds of the objection
 Submit the objection within 30 days after the date of the decision or assessment. In the
event of a dispute, the date of the assessment or decision will be the date the registered
mail was posted to the person raising the objection.

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If the objection is received by the Commissioner within the stipulated time period, the
Commissioner will either:
 Alter the decision
 Alter or reduce the assessment, or
 Disallow the objection
A written notice must be sent to the person objecting to the Commissioner’s

ruling/assessment etc. informing him of his decision.
1.1.5 Grounds of Objection
The grounds of objection should be stated clearly and it is important to raise all the
grounds at the time of objection. The Commissioner may, on good cause shown, give
leave to the objector to amend or add to the grounds.
1.1.6 Late Objections
If there is a delay in lodging a written objection, the Commissioner may accept it

provided good reasons are given for the delay. If the objection is not lodged, the
assessment/decision becomes final after 30 days.
1.1.7 Appeals – Section 65
An appeal is only lodged if and when a person’s objection was disallowed. A taxpayer
must appeal against the disallowance of the objection within 21 days of the date of the
notice,
Alternatively if the Commissioner has not notified the person who lodged the objection
of his decision on it within 3 months after receiving the objection, then the objection
shall be deemed to have been disallowed.
An appeal can be made to the High Court or to the Special Court depending on the
nature of the dispute.
The appeal must be:-

 Made in writing
 Lodged with the Commissioner within 21 days after the date of the
notice of disallowance of the objection.
If there is a delay in the lodging of a written appeal, the Commissioner may condone
the delay, depending on the reasons.
The appellant is limited to the grounds of objection stated in his original objection
unless, on good cause shown, leave is given to amend the grounds.
1.1.8 12th Schedule
The Special Court shall have all the powers of the High Court.
After providing the notice of appeal within 21 days, the taxpayer must prepare the
“Applicant’s Case” statement with the Commissioner in duplicate within 60 days of the
date of the notice of appeal.
The Commissioner shall within 60 days of receipt of the appeal case prepare the
“Commissioner’s Case”

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1.1.9 Tax Amnesty
In order to encourage taxpayers to voluntarily regularise their tax affairs,

effective from the 1st of October 2014, a Tax Amnesty was granted to
taxpayers who disclosed their tax obligations in respect of any irregularities
arising from any tax or duty administered by the Zimbabwe Revenue
Authority, within a period of six months from the 1st October 2014 to 31st
March 2015.
The amnesty coved all tax irregularities in respect of the period 1 February
2009 to 30 September 2014.
In terms of the Amnesty provisions the Commissioner could absolve

taxpayers from the following:
 Prosecution for false declarations or tax evasions
 Payment of interest and penalties on tax covered
 Prosecution for non-submission of tax returns or payment of tax
 Penalties for fraud, negligence or wilful default with respect to covered tax.
When amnesty has been granted, taxpayers will be required to pay the
outstanding tax by 31st December 2015 or any further period as may be
granted by the Commissioner.
Amnesty granted could be withdrawn where a taxpayer made false declaration in

the application for amnesty to the Commissioner, defaults from the payment plan
agreed, or without reasonable grounds fail to pay the current tax or duty liabilities
in full and by the due dates.
Taxpayers who made an early payment of the assessed tax qualified for a
discount.
Amnesty for interest and penalty
With effect from 1 December 2017, an amnesty for interest and penalties for
outstanding taxes accrued up to 1 December 2017 is applicable to taxpayers
who come forward and settle their tax obligations by 30 June 2018.

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STUDY UNIT 1.2
GROSS INCOME
Gross Income is defined as:-
the total amount ..
received by or accrued to or in favour of a person..
or deemed received or accrued..
in any year of assessment…

from a source within or deemed to be within Zimbabwe… excluding
amounts proved by the taxpayer to be of a capital nature.
1.2 Components of Gross Income
1.2.1 Amount
o Section 2 of the Act defines “amount” as money or any other property corporeal or
incorporeal having an ascertainable money value.
1.2.2 Received By
o The words “received by” means “received by the taxpayer on his own behalf for his
own benefit” (Geldenhuys v C.I.R., 14 S.A.T.A. 419). A person cannot, therefore, be
taxed on amounts received by him for the benefit of another person, e.g., rent
received by an estate agent on behalf of a client landlord is not gross income in the
hands of the estate agent.
o It is important to note that a deposit received by a person who sells commodities in
returnable containers constitutes gross income unless the deposit is received only in
trust and cannot be mixed with the taxpayer’s own funds, or there is an obligation on
the customer to return the container and the deposit is merely security to ensure
performance of the obligation.
o The case of S.I.R v. Silverglen Investments (Pty.) Ltd., 30 S.A.T.C. 199 has thrown
considerable doubts on the proposition that the phrase “received by or accrued to”
bestows on the Commissioner the right to tax income on a receipts or accruals basis,
as he wishes (C.I.R. v. Delfos, 6 S.A.T.C. 92). In practice, ZIMRA does not allow
taxpayers to render returns other than on an accruals basis.
o An important exception to the general rule is the use of this phrase to include payments
received in advance for the supply of goods or services in the future in gross income
at the time of receipt, and not allow the payments to be carried forward until the date
of accrual from an accountancy point of view, but care must be taken
not to tax moneys voluntarily advanced before the date of accrual has arrived.
o Where, for any reason, tax has not been imposed on an amount in the year of accrual
it may be included by the Commissioner in gross income in the year of receipt
(Maguire v. C. of T., 28 S. A. T.C. 146: J.232). There is, of course, a necessary
implication that no amount can be taxed twice –as a receipt and as an accrual.

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1.2.3 Accrued to
o Income accrues when a taxpayer becomes entitled to it or when it is due and payable
to the taxpayer.
o The meaning of the word “accrued” is not settled law. In Lategan v C.I.R., 2 S.A.T.C.
16, the judge concluded that income accrues to a person when one becomes “entitled
to it.” the income. Section 10(7) of the Act affirms the decision in the Lategan
case.The courts, however, both here and in South Africa, appear to be moving towards
the views expressed in Delfos’s case and in Hersov’s Estate v. C.I.R., 21 S.A.T.C. 106,
that “accrued” means, due and payable”.
o Delfos vs CIR in which the learned judge asserted that income accrues when it
becomes “due and payable”.
o ZIMRA follows the latter approach where there is any conflict and has found support
for this view in the cases of Rishworth v. S.I.R., 26 S.A.T.C 275, and I.T.C. 1068. 27
o In the great majority of cases, of course, the application of either test will give the same
result. The essential difference is that, under Lategan’s rule, a right to payment in a
future year gives rise to an accrual which would be taxed at “present value:
Under the other interpretation there is only an accrual when the taxpayer has the right
to claim payment in the year of assessment – i.e., when the money has become due
and payable.
o Partnerships present a particular problem in accrual. Although gross income may
accrue to a partnership, say from dentistry, daily throughout the year, there is no accrual
to the individual dentist partners until the conclusion of the agreed period for the taking
of account of the profits or dissolution of the partnership (Sacks v. C.I.R., 13 S.A.T.C.
343 and I.T.C. 1042, 26 S.A.T.C. 189: Reynolds v. C. of T., J. 187).
1.2.4 Deemed received or deemed accrued:

o The Commissioner will invoke receipt or accrual under the circumstances outlined in
section 10, although the income might not have been physically received. An amount
will be deemed to have accrued to a person if it has been invested on behalf of the
person.
o Section 10(2) provides that partnership business income accrues on the accounting
date. This provision reinforces the decision established in the case Sacks v CIR.
Sections 10(3) to 10(6) provide for the taxation of income that accrue from donated
assets.
o Section 10(3) deems income accruing to a minor child as a result of a donation,
settlement or other disposition, to be income accruing to the parent.
o Section 10(4) counteracts tax avoidance schemes. If a minor child becomes entitled
to income in pursuance of a donation, etc. made by a third party, i.e. a person other
than his parent and the parent or near relative of the minor child has made a donation
to the third party or his near relative, the child’s income will be taxable in the hands
of the parent.
1.2.5 From a source in, or deemed in Zimbabwe:

o Income is not taxable in Zimbabwe unless it is from a Zimbabwean source or has been
deemed to be from a Zimbabwean source (section 12). Source is one of the words
used extensively in tax matters, but is not defined in the Act. Although there is no
definition of “source” in the statutes, many legal precedents have dealt with the word

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at length. Specific circumstances under which income is deemed to be from a

Zimbabwean source are outlined in section 12 of the Act. The most common
examples are interest and dividends from outside Zimbabwe which are deemed to be
from a Zimbabwean source in terms of section 12(2).
o The following quotations are from celebrated tax cases on source of income:-
(a) Lord Atkin, Privy Council, UK: - in Rhodesia Metals (in liquidation) v COT:-
“…. As a hard matter of fact the only proper conclusion appears to be that
the company received the sum in question from a source within the territory
(Rhodesia), viz the claims they had acquired and developed there for the very
purpose of obtaining the particular receipt….”
“…. Source means.. not a legal concept but something which the practical
man would regard as the real originating cause of the income….”
(b) Watermayer CJ in CIR v Lever Bros and Unilever Ltd 1946 AD 441:-
“ …. source of receipts, received as income, is not the quarter whence they come, but the
originating cause of their being received as income …. the quid pro quo which he gives
in return for which he receives them …. “
o The following are some important legal precedents:-

o Directors’ fees - ITC 235 (1932) 6 SATC 262 :- “It is quite clear that the director’s
fees are derived from the fact that the appellant is a director of the company, and
therefore must be assumed to have earned the fees at the headquarters of the
company. It is there only that he can make his voice heard as a director.”
o Interest - “ ….. Provision of credit is the originating cause hence the place where
exercised is the source ….” This was the majority decision in CIR v Lever Bros
and Unilever Ltd 1946, 14 SATC1.
o Sale of mineral rights/immovable property - Some mining claims were bought and
sold in the Territory in a profit making scheme ….. source is the Territory ….
(where the immovable property was situated).
o International Trade - Transvaal Association Hide & Skin Merchants v COT
Botswana Court of Appeal (May 1962 SATC 97). Company bought hides from a
Botswana Abattoir via Botswana subsidiary, treated them with salt and bound them
into bales in Botswana. The company headquarters in Johannesburg marketed the
hides and gave delivery instructions to the Botswana subsidiary to deliver direct to
customers, whether in Botswana or outside Botswana.
o The decision was that there were two activities: - curing and marketing. Curing was
the dominant activity, hence the source was deemed to be Botswana. However, it
appears from ITC 1103 (1967) 29 SATC 35, that it is possible for the source of
income to be found partly in one country and partly in another.

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Components of Gross Income Continued
Gains on Stock Market - CIR v Black 1957 (3) SA 536 (A) 21 SATC 244. Important factors identified
in this case were the employment of capital and the undertaking of business. It was ruled that the dominant
factor was the
o carrying on of transactions hence the source was deemed to be London, where shares were
bought and sold …., though under instruction from South Africa.
Services Rendered - (COT V Shein 1958 14 SATC 12)

“ …. the source of earnings is the work done in return for those earnings …. It now seems settled
law that generally the source of such income is the place where the services for which the salary
is paid have been rendered.”
o Royalties - Millin v CIR 1928 SATC 170 The originating cause of the author’s royalties is the
wit and labour exercised in writing the book in South Africa, therefore the source is South Africa
(not England were the book was published).
o Rental Income - COT v British United Shoe Machinery (SA) (Pty) Ltd 1964 26 SATC 163
o Immovable property: source is the country/place where property is situated.
o Movable property : source is the country where lessor carries out his business.
o Source: means not a legal concept but something, which the practical man would regard as the
real originating cause of the income. The following have been ruled by the courts as the true
sources of the respective incomes:
Nature of Income True source
 Dividends Where the share register is kept
 Income from business operations Where the business is being conducted

 
Rent from immovable property Where the immovable property is situated
 Rent on movable property In the case of long leases (5 years and

above) the source is the place where
the lessee uses the asset. In the case of
short leases the source would be where
the lessor conducts his business
 Income from services rendered Where the services are rendered
 Director fees The head office of the company
 Royalties Where the author exercised his wits,

labour and intellect
 Interest Where the credit was provided
 Annuities The act or document under which it is

created

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1.2.6 Deemed Source – Section 12

The definition of “gross income” modifies the fundamental principle of taxing only income that
has its source in Zimbabwe. Section 12 sets out the circumstances in which certain types of income
are subject to tax in this country although the real source may be elsewhere  or where the
 determination of the actual source presents considerable practical difficulties.

Section 12(1)(a) – Sale of goods by a person conducting business operations – The proceeds
 made in Zimbabwe for the sale of goods are deemed to be from a source in this
of any contract
 country.

Section 12(1)(b) – Income from services rendered – Receipts for any services rendered in the

carrying on in Zimbabwe of any trade irrespective of where or by whom payment is made, are
 deemed to be from a source in Zimbabwe.

 Section 12 (1) (c ) – Income from services rendered by an employee (includes
a company director), who is
ordinarily resident in Zimbabwe, during a period of temporary absence from
Zimbabwe shall be deemed to be from a source within Zimbabwe. “Temporary absence” means

an absence for a period not exceeding in the aggregate 183 days in any year of assessment.


Section 12 (1) (d) – Income from services rendered to the Zimbabwe Government either within or
outside Zimbabwe shall be deemed to be from a Zimbabwe source. However an amount received
by or accrued to or in favour of a person by virtue of services rendered outside Zimbabwe shall
not be deemed to be from a source within Zimbabwe if the person was not ordinarily resident
 outside Zimbabwe solely for the purpose of rendering such service.

Section 12(1) (e) – Pensions or annuities arising from services rendered which are granted by any
person wherever resident, the government of the former Federation or the Zimbabwe government
shall be deemed to be from a source within Zimbabwe. However provisos eliminate all or part of
 some of those pensions arising in the following circumstances:-
 A pension for services rendered wholly outside Zimbabwe is, except where the services were
rendered to the Zimbabwean government and the remuneration for those services was
deemed to be from a Zimbabwean source under the preceding subsection.

 A pension or part of a pension granted by the former Federation if a particular condition is
fulfilled. It is necessary to check the various tests, which are set out and if none of these apply
then the pension will remain taxable. On the dissolution of the former federation, federal
officers were accorded a home territory on the basis of criteria, which covered his place of
birth, in which territory he had the longest services and other factors.


Section 12(2) – Foreign interest and foreign company dividends shall be deemed to be from a
 Zimbabwe if at the time the income accrues the person is ordinarily resident in
source within
 Zimbabwe.

Section 12(3) – An annuity (purchased from an insurance company) from a source outside
Zimbabwe shall be deemed to be from a source within Zimbabwe if the person was ordinarily
resident in Zimbabwe when he first became a member of the fund.

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1.2.6 Capital and Revenue: Accruals and outlays in general

 of gross income specifically excludes amounts proved by the taxpayer to be capital
The definition
in nature.

The onus of proving that an amount is of a capital nature and thus not part of gross income and,
ultimately, not liable to tax rests fairly and squarely on the taxpayer.
1.2.7 Fixed and Floating Capital

The words “of a capital nature” are not defined. It is not a precise term and has led to much
difficulty, as no single infallible test has emerged from the welter of cases. A rough guide is to
look at a receipt or accrual as would an accountant, to determine whether or not it was on revenue
or capital account – if the amount flowed from the asset but the asset remained in ownership
(e.g., rent from a building) it is on revenue account but if it flowed from the sale or exchange of
the asset (e.g., factory no longer required by a manufacturer) it is on capital account. In so doing,
however, it is essential to bear in mind the difference between “fixed” and “floating” capital.
Fixed capital is the factory of a manufacturer, the delivery van of a grocer, the X-ray plant of a
radiologist, etc., whereasfloating capital is that which “is consumed or disappears in the very
process of production”.


(C.I.R. v. George Forest Timber Co. Ltd., 1 S.A.T.C. 20) and which, consequently, gives rise
to income on revenue account. Such floating capital can be money in the hands of moneylenders
(the unreported case of: J. & A. Cowan (Pvt) Ltd, v C. Of R., J.211), or stocks and shares in the
hands of dealers (C. Of T. V. B.S.A. Company Investments Ltd., 28 S.A.T.C. 1: J.221), as well
 items such as raw materials of the manufacturer or packets of soap in the
as the more usual
grocer’s store.


Another useful guide is to apply the metaphor that capital is a tree and income is its fruit e.g. an
investor’s holding in 5 per cent. Stock, as compared with the interest thereon. This is most useful
 win. Certainly, these
when considering fortuitous accretions, such as an inheritance or a lottery
 are not the fruit of any tree and are, accordingly, of a capital nature,


Examples of other amounts which are capital in nature are the proceeds of life insurance policies
and the proceeds of the sale of assets in which the taxpayer does not trade, e.g., the sale of a
house in Harare by an employee transferred to another town.
Unless the beneficiary continues to carry on the appropriate trade or mixes the assets with his
existing trading assets the realisation of inherited assets results in a capital accrual. This is so
even if it has been necessary to expend money, time or energyon, for example, a growing crop to
bring it to fruition or the reduction of a piece of land saleable parcels.


 35 S.A.T.C. 235: Newmarch
Darwendale Estate Ltd., v. C. of T., J.329 and I.T.C. 1196,
Investment and Trust Co. (Pvt) Ltd, v. C. of T., J.331).

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
Regard must be paid to intention antecedent to the date of acquisition (Lace Proprietary Mines
Ltd, v.C.I.R., 9 S.A.T.C. 349), change of intention (C.I.R., v. Lydenburg Platinum, 4 S.A.T.C.
8) and mixed and dominant intentions (S, v. C. of T., 24 S.A.T.C. 744: Smith v. C. of T., J.95,
 v S.I.R., 31S.A.T.C. 163).
C. of T., v. Glass, 24 S.A.T.C 499: J. 110 and African Life Investment Corporation (Pty) Ltd.,

Mixed and dominant intentions and possible change of intention or change in the nature of the

investment (from direct ownership to participation through a company) were all discussed in
Davenport v. C. of T., 34 S.A.T.C. 94: J.316.

 That the intention to earn “capital appreciation” does not result in a capital profit is shown by
 I.T.C. 1236, 37 S.A.T.C. 237: Indprop Investments (Pvt) Ltd., v C. of T., J. 370. Similarly in the
unreported case “D” v. C. of T,: J.415, where profits on share dealing with inherited funds in
South Africa to provide for retirement were held to be taxable and from a source in Zimbabwe,

being an extension of similar transaction in this country.
1.2.7 Damages and compensation

An amount received by way of damages or compensation for the loss, surrender or sterilisation
of a fixed capital asset or of the taxpayer’s income-producing machine is a receipt of a capital
nature (Glenboig Union Fireclay Co. Ltd., v. I.R.C.., 12 T.C. 427). Such an amount
commonly met with is a receipt in terms of an agreement restraining a taxpayer from selling or
using goods other than those supplied by the payer. Care must, however, be used, as certain
similar agreements provide for the payment to be by way of discounts or rebates, and the
receipts 
is, therefore, of a revenue nature in these cases and not to be excluded from gross
income.
Burmah Steamship Co. Ltd., I.R.C. 16 T.C. 67, provides a useful test-whether the damages or
compensation go to fill a hole in the profits of the taxpayer or whether they go to fill a hole in
his fixed capital assets. If the latter, they are of a capital nature.
1.2.8 Restraint of Trade
It is essential to remember, at this stage, that none of these tests for distinguishing income from
capital mentioned in the preceding paragraphs is necessary if the amount received or accrued
(although possibly of a capital nature) falls within the terms of paragraphs (a) to (t) of the
definition. These are dealt with in detail below and, in considering them, it must be borne in
mind that in every case the source must be Zimbabwe.
Legal precedence has recognised the principle that a person’s right to trade freely is an
incorporeal asset and that an amount received for a restriction on that right is
compensation for its sterization. Receipts in respect of restraint of trade are thus
generally of a capital nature.
Capital Receipts – Gross Income excludes any amount so received or accrued, which is proved
by the taxpayer to be of a capital nature. Examples of capital receipts are, insurance proceeds,
goodwill, lottery wins, inheritance and proceeds from sale of assets in which taxpayer does not
trade. A rough guide to determine whether income is of revenue or capital nature would be as
follows:-
 If the amount flowed from the asset but the asset remained in ownership it should be
considered as revenue.
 If the amount flowed from the sale or exchange of an asset it should be considered as capital.
Capital receipts may be referred to as the tree while revenue receipts may be regarded as the fruit.

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1.2.9 Specific Inclusions in Gross Income

Although the definition of gross income outlined in section 8(1) is all embracing, paragraphs
8(1)(a) to 8(1)(t) outline various types of amounts which must be included in gross income
whether or not they may appear like they are capital in nature.
1.2.10 Section 8(1)(a) :
Annuities/pension receipts:-
Definition:-
“…. an annual payment in perpetuity for the life of grantee or for a limited period ….”. ITC 826
(1956) 21 SATC 189.
Characteristics:-
- Claimable from another person or body
- must be a fixed annual amount (which can be divided into monthly or weekly payments)
- must be repetitive for a period ITC 761 (1952) 19 SATC 103
Types:-
Purchased annuity
- only interest content is taxable if there was no tax deduction or credit allowed at or during time of
payment of contributions.
Basic formula for determining taxable portion
I= A–P
N
w P P = annual payments (gross annuity

h = received per year)
e N N = number of annual payments expected g
r = A = purchase price of annuity (excluding r
e A any deductions contributions). a
: n
= t
e
d
Example
Purchase price of annuity $40,000
$ Annual receipts$ $ 5,000
Expected number of years payable 10 years
Annual interest content = 5, 000 – 40,000

10 years
= 1,000
NB: - All amounts received after the expiry of the 10 years are taxable in full.

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Annuity from gift or legacy:

This type of annuity is taxable in full, even if paid out of capital
funds.
Annuity from services rendered:

This annuity is taxable in full except where portions of contributions
were disallowed as a deduction for tax purposes - in such cases the
taxable portion is determined using the formulae in the purchased
annuity section above.
S8 (1) (b) Income for services rendered - e.g. salaries, commission, cash in lieu of leave
etc.
S8 (1) (c) Lump sum receipts of accruals from pension or benefit funds. detailed in the
1st schedule of the Income Tax Act [Chapter 23:06])
S8 (1) (d) and (e) Premiums and lease improvements. [Provisions detailed in later section of this study
Guide].
S8 (1) (f) Advantages or benefits from employment, service, office or gainful

employment.
The value of the benefit is determined by reference to: Value to

employees in the case of occupation of quarters, residence or furniture;
and cost to employer in the case of any other benefit
Some examples:
Soft / loans: -
lf loans are awarded to an employee at an interest rate in excess of 5% plus
LIBOR rate , there is no benefit accruing to employee.
Motoring benefits:-
(As outlined in the rates section of this guide).
Housing: in municipal areas- The benefit is determined by reference to the market value;
outside municipal areas value - The value is determined as a maximum of 12,5% of
salary or 7% of cost of house or any other amount proposed by the entity providing
the benefit, but subject to approval by the Zimbabwe Revenue Authority.

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furniture:- annual benefit is 8% of cost of furniture items
passage:- see definition, apportion if dual purpose.
allowance: - taxable in full except portion utilised on employer's business.
NB:- Some benefits availed by the State to its employees are exempt (para 4(d)
of 3rd schedule.) and specifically transport , housing and representation
allowances are exempt.
The Income Tax Act in section 8, Part II of the definition of advantage or benefit provides that
the grant of an advantage or benefit other than the payment of an allowance, shall be determined:
(a) in the case of occupation of or use of quarters, residence or furniture,
by reference to its value to the employee, and
(b) in the case of any other advantage or benefit, by reference to the cost
to the employer.

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S8(1)(g) Timber and growing crops sold with land

Where land is sold with growing crops or timber which in the opinion of the
Commissioner General has been grown for sale, the market value of such crops or
timber is taxable income, except where such assets have been acquired through
inheritance or donation and the assets do not form part of trade assets.
S8(1) (h) Closing stock, including stock consumed or assigned by trader.
S8(i) mining recoupments
S8 (j) – (k) recoupments re: capital expenditure and concessions
S8 (1)(I) recoupments of rent premium where this arises as a result of acquisition of property
formerly leased. Taxpayer can elect to spread taxation of these recoupments over six
years.
S8 (1)(m) Subsidies-
S8(1)(n) Portion of lump sum commuted in excess of one-third of total pension

entitlement from retirement annuity fund.
S8(1)(r) Portion of commutation from pension fund in excess of one-third of pension entitlement.
S8(2) Where amount accrued differs from amount actually received due to fluctuations in
exchange rates, effect must be given to tax amount actually received.

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STUDY UNIT 1.3

1.3 EXEMPTIONS

 
Paragraph 1 exempts the receipts and accruals of Local Authorities, The Reserve Bank of
 
Zimbabwe, The Zambezi River Authority, The Environment Management Board and The People’s

Own Savings Bank.
Paragraph 2 exempts the receipts and accruals of for example:
 agricultural, mining and commercial societies not operating for the profit of the
members for example Commercial Farmers Union, Z.N.C.C. and Chamber of
Mines
 Approved benefit funds, pension funds, building societies, friendly societies and
medical aid societies
 Clubs, societies, institutes and associations which are organised and operated
solely for social welfare, civic improvement, pleasure, recreation or
advancement or control of any profession or trade which do not
distributetheir profits to their members, except as remuneration of services
 rendered

 Religious, Charitable and Educational Institutions of a public character and

Trusts of a public character
 Trade Unions
 Employees’ Saving Schemes
 Statutory corporations, which are declared by the Minister by notice in the
Gazette to be exempt.
Paragraph 3 exempts receipts and accrual of:-
 International organisations
 Agency of any government approved by Minister.
Paragraph 4 exempts:
 A bonus not exceeding $1,000
 The greater of $10,000 or 1/3 of up to $60,000 of the amount of any severance
pay, gratuity or similar benefit received on cessation of employment due to
retrenchment under a scheme approved by the Minister responsible for the Public
Service, Labour and Social Welfare.
 A reward paid to whistle blowers by the Commissioner General in terms

of section 34B of the Revenue Authority Act (Chapter 23:11).
 Exempts the value of an allowance in respect of accommodation and
transport, or the value of the grant of quarters or a residence to any member
of staff of a mission hospital or rural clinic operated or sponsored by any
religious body.
 An award paid to a person from the Recovered Foreign Currency Fund in
terms of section 10 of the Exchange Control Act (Chapter 22:05).
 The first $3,000 being rental income accruing to a taxpayer who has
attained the age of 55 years in the year of assessment concerned.

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 A pension paid from a pension fund or the Consolidated Revenue Fund to

a taxpayer who attained the age of 55 years before the commencement of
the year of assessment.
 Exempts the value of medical treatment (and transport to obtain the same)
and Medical Aid Society subscriptions, paid by an employer on behalf of
his employee or their dependents.
 Paragraph 9 exempts dividends paid by companies incorporated

in Zimbabwe provided that such a company is chargeable to tax.
 Paragraph 10 generally exempts interest paid on any sums deposited in
P.O.S.B, Tax Reserve Certificate, Class ‘C’ permanent shares.
 Paragraph 10(1)(n) exempts the first $3,000 being interest from any deposit
with a financial institution accruing to a taxpayer who has attained the age
of 55 years in the year of assessment concerned.
 Paragraph 17 exempts the receipts and accruals of an industrial park

developer during the first five tax years of trading.
 Paragraph 18 exempts an amount received from the sale, disposal or transfer

of any duty exemption certificate issued by the Reserve Bank of Zimbabwe
to an exporter qualifying for a rebate of duty on imports in terms of an export
incentive scheme under which the certificate was issued.
 A premium paid by the RBZ as an export incentive or disposes remittances

to individuals.
 ½ of the amount or value of a scheme benefit in respect of a maximum of 3

children of the staff member who is a member of the teaching on teaching
staff of a school.

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STUDY UNIT 1.4
1.4 GENERAL DEDUCTION FORMULA
General Rule!!!!
 Deduction allowable shall be expenditure and losses to the extent to which they are
incurred for the purposes of trade or in the production of income except to the extent
to which they are expenditure or losses of a capital nature.(Sect 15 2 (a))
 in a case where a person earns income from trade and investment and income
from employment, any amounts allowed to be deducted in terms of this section
shall only be claimed in respect of the income to which they relate; Sect 15 1(b).
E.g. –This applies to most small businesses, where the owner will use his motor
vehicle to transport goods for the business and taking his children to school.
Only the expenditure to the extent to which it is incurred on his business is
allowable by the Commissioner.
 Expenditure is deductible at the earlier of payment or accrual
For the purposes of trade means for the purposes of enabling a person to carry on and
earn profits in the trade. The ordinarily recurrent expenses of business, such as
trading licence fees, audit fees, rates, secretarial fees, insurance premiums, business
subscriptions and advertising costs will usually pass the test. Expenditure for the
purposes of trade may be categorised in 2 ways:
 Designed expenditure is money voluntarily and designedly spent by the taxpayer

for the purpose of this trade e.g. salaries
 Fortuitous expenditure is money involuntarily spent because of some
mischance or misfortune, which has overtaken the taxpayer.
NB: A deduction is not allowable where the expenditure, which though arising out of
the manner in which a taxpayer conducts his trade, falls upon him in his capacity as a
lawbreaker rather than as a businessman, e.g. traffic fines, customs fines or parking
fines.

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STUDY UNIT 1.5
TAXATION OF EMPLOYMENT INCOME
KEY CONCEPTS
The following key concepts are underlying to this study unit: -
 Define employment Income (Sect 8 (1) (b)) – The identification and taxation of
employment income

 Understand the concept of PAYE – The calculation and the responsibility for remitting PAYE

 Employment benefits (Sect 8 (1) (f)) – inclusion of employment benefits into gross income

 Tax implications of contributions and proceeds from Pension and Retirement Annuity Funds
(RAF) (Sect 8(1) (n) & Sect 8(1) (r) )

 Tax concessions for the elderly (Tax payer of the age of 55years)

 Exemptions Income (Sect 14 & 3rd Schedule)

 Tax credits (Sect 7c)
1.6.1 Introduction

Once the taxable income of a taxpayer for a year of assessment has been determined in terms of
the Income Tax Act there remain the calculations of income tax and, in the case of individuals,
personal credits as provided in the Finance Act (“FA”). This chapter is largely devoted
 to such
topic through certain additional comments are, for ease of reference, included here.
1.6.2 Individual: General
Features in relation to individual are that:
i) The tax on their taxable income from employment is imposed by reference to employment rates;
ii) The tax on their taxable income from trade or investments is at a fixed rate;
iii) A husband and wife are assessed separately on their respective taxable incomes.
The term “taxable income from employment” is defined (s14 (1) of the FA) as “any part of an
individual’s taxable income which consists of remuneration as defined in the Thirteenth (i.e.
PAYE) Schedule” (to the Income Tax Act).
The term “taxable income from trade or investment” is also defined there and is effectively an
individual’s taxable income other than from employment.
Tax on taxable income from trade or investment is subject to tax at a flat rate of 25% plus 3%
aids levy i.e. 25, 75%.
Therefore from the above definition employment income includes among others :

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o Salaries
o Leave pay
o Bonus
o Gratuity on cessation of employment
o Retrenchment packages
o Commission earned as a result of employment
o Pension
o superannuation allowance
o Commutation of a pension
“Employee” includes a person who is a director of a company, agent or servant or is otherwise

gainfully occupied and “employer”, in relation to such person shall be construed accordingly.
1.6.3 Framework for the taxation of Employment Income
Total employment Income (Sect 8 (1) (b) xxxx

Less Exempt income (Sect 14 & 3rd schedule (xxxx)
Income xxxx
Less Allowable deduction (sect 15) (xxxx)

Taxable Income xxxx
Calculate tax using the tax tables’ xxxx

Less Credits (Sect 7 (c)) (xxxx)
xxxx
Add 3% aids levy xxxx
xxxx
Less PAYE (Remitted over the course of the year) xxxx
Tax liability xxxx
1.6.4 Special points to note on employment income


Bonus (3rd Schedule par 4)
A bonus or performance related award, e.g. profit share, accruing to an employee or agent in an
employment or an agent/principal relationship is taxable as employment, subject to an exemption.

With effect from 1 November 2012, the exemption  is $1,000 of aggregate bonus received or
accruing to an employee in the assessment year.
 
Cash In Lieu of Leave [C.I.LOL]
Cash in lieu of leave is gross income, despite any clause in the contract reserving an employer’s
 right to pay such amounts. It accrues when an employee becomes entitled to the amount.
NB: CILOL is not treated as part of a retrenchment package.


Retrenchment payment (3rd schedule par 4)
A retrenchment package paid under a plan approved by the Minister of Labour & Social Welfare
is subject to an exemption. The exemption is the greater of the person’s first $10,000 of the
retrenchment package and a third of his package (up to a maximum of a third of $60,000). This is
better shown by way of a table, represented by crossed numbers for each possible scenario:

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Example Package Prescribed One-third Maximum Exempt

Amount
1 60,000 10,000 20,000 20,000 20,000
2 30,000 10,000 10,000 20,000 10,000

3 12,000 10,000 4,000 20,000 10,000
4 3,000 10,000 1,000 20,000 3,000
 
Gratuities
A gratuity is exempted where it is part of retrenchment package. Under any other
circumstances, the gratuity is fully taxable


Awards, benefits and compensation (Sect 8 (1) (b) and 3rd Schedule)
Any amounts that is payable as award, compensation or benefit for services rendered is taxable,
unless the amount is paid to the employee, his family or his estate under the following
circumstances:

a) Under any law for sickness, injury disablement or death suffered in
employment.
b) Under War Victims Compensation Act for personal injury, disablement or
death.
c) In respect of injury, sickness or death which is paid by a trade union, benefit fund,
medical society or an insurance company on a policy covering accident, sickness
or death.
d) In terms of Wankie Disaster Relief Fund to you or to your dependants.
e) In terms of any law for employee’s personal injury, even if paid as
compensation for loss of a taxpayer’s ability to earn income in the future.
1.6.5 Employment Benefits – Sec 8 (1)(f)

Also taxable under employment income are benefits accruing from employment. Some of
the benefits are as follows,
  Motoring benefits
  School fees benefit
  Loan benefit
  Housing benefit
  Passage benefit
 Entertainment allowance
1.6.5.1 Passage benefits
“Passage benefit” means so much as is borne of the cost or paid by an employer towards the cost
of—
(a) Any journey made by an employee, his spouse and children or one or more of them—
o in connection with his taking up of employment, service, office or other gainful
occupation;

o on the termination of his employment, service, office or other gainful occupation;

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
(b) Any other journey made by an employee, his spouse and children or one or more of them
in so far as that journey is not made for the purpose of a business transaction of the
employer; (e.g. where an employee goes on holiday and the employer foots the costs
associated with the holiday).
Exceptions to the general rule:
 A journey undertaken to take up employment (or on termination) is excluded

(exempt) if it represents the first time such benefit is granted by the employer to
 that employee.
 For dual purpose trips, where the employee, who is required to travel for business
purposes, uses the opportunity to take a period of leave, the whole amount of the
passage benefit will be taxable except, where period spent on business exceeds 10%
of the total period of absence, the passage benefit is calculated as follows,

A x B/C
Where A: The number of days spent on business
B: The amount of the passage money
C: The total number of days of the employee’s absence
Example
John is in the employment of Z Ltd and during June 2014 he went for a strategic retreat in
Victoria Falls. He took the opportunity to take his wife to Victoria Falls and all the costs of
the trip were paid by Z Ltd. Z Ltd paid a total of $8,000 in respect of John’s trip and it was
determined that John spent 60% of his time attending the strategy meetings and the rest of
the time he spent with his wife touring the various attractions in the Victoria Falls. Calculate
the passage benefit to be included in Gross Income.
Benefit = $8,000 x (100%-60%)

= $3,200
1.6.5.2 Subsistence/ Entertainment allowances

The unexpended portion of any allowance received in terms of a subsistence
allowance, where an employee needs to spend at least a night away from his usual
  of employment, will be included in the taxable
place of residence by a reason
income of such employee.

An entertainment, per diem or transport allowances spent in good faith by an
a director exclusively and wholly for carrying out his/her duties is tax
employee or
exempted.

The use of the employer’s facilities or employer – sponsored
membership in a social club etc., if such membership  is tax exempt
if it is considered to be beneficial to the employer.

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1.6.5.3 Motoring benefit

A motoring benefit is an advantage obtained by a taxpayer for the private use of an
employer’s vehicle. Private usage includes travelling between home and place of
work or between two distinct businesses or use of vehicle over the weekends for
private purposes.


There is no private benefit on pool cars.
The private usage is valued using the following deemed annual costs:
Engine capacity Value Value

2013 2014
1500cc or less US$150p.m US$300p.m
1501cc to 2000cc US$200p.m US$400p.m
2001cc to 3000cc US$300p.m US$600p.m
Above 3001cc US$400p.m US$800p.m

 The deemed benefit should be reduced proportionately where the period of use for the
motor vehicle is less than 12 months.

In the case of a sale or disposal of a motor vehicle to an employee, whether
during or ontermination of employment, the deemed benefit shall be determined
 as follows:
Benefit = A –

B Where –

A: Represents the market value of the motor vehicle
B: Represents the value at which the employee acquired the motor vehicle.

The tax office usually uses the vehicle’s market value of motor valuers or dealers it
 Association of Zimbabwe and Central Mechanical
trusts, e.g. the Automobile
 Equipment Department.

 is being sold to a person who is or over 55 years on the
This benefit is exempted if the vehicle
date of sale of vehicle to him/her.
Example: Melisa is employed by XYZ Ltd and as part of his employment contract has
the free use of an Isuzu KB with an engine capacity of 3,000ccs. During the period
January 2017 to March 2017, Melisa used her personal vehicle as the company vehicle
had been involved in an accident. During the 2017 tax year Melisa also received a fuel
allowance of $5,000. Calculate the deemed benefit arising to be included in gross
income.
Solution
Potential benefit per table = $7,200
Limited to period used = $7,200*9/12
= $5,400

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1.6.5.4 Share award to an employee


Share awarded to an employee in respect of services rendered or to be rendered shall
 in the hands of the employee. The value of the benefit is
constitute gross income
computed as follows:
A–B
A =market value of the shares on date of accrual

B =the purchase price paid by the employee

Where after the date of receipt or accrual the market value of the
shares increases or decrease
that has no effect as far as the employment income is concerned.
1.6.5.5 Shares acquired pursuant to an employee share option scheme – Sec 8(1) (t)

A share option scheme is a plan which gives the holder of the option a right, but not
obligation to buy shares in a company for a certain price called the exercise prices,
subject to meeting certain specification conditions, e.g. completion of a certain period
in service.
 

It is a scheme which is meant to provide an incentive of motivating and retaining
 managerial staff. A share option is therefore an advantage or benefiting in
respect of
employment service, office or other gainful occupation (Barclays Bank of
Zimbabwe v ZIMRA 68 SATC 3


The option must be valued at the date of accrual. There is no accrual unless the
 option is exercisable by the employee.

Where the option cannot be exercised until employee has completed services for a
stipulated period of time, the date of accrual is the date on which the condition is
fulfilled. The taxable benefit is computed as follows:
A – (B + C)
A =market value of shares at the time of exercise

B =exercise price or strike price
C =the inflation allowance on strike price
C = D–ExB
E
D =Consumer price index (inflation rate) on date of share option exercise

E =Consumer price index (inflation rate) on date of share option offers
Where there is no inflation, the benefit is A – B
1.6.5.6 Interest free loans
 Loans means “any form of loan or credit whatsoever granted directly or indirectly to
an employee, his spouse or child by or on behalf of his employer or a person
associated with his employer, but does not include any such loan or credit which is
proved to have been granted for the purpose of the education or technical
training or medical treatment of such employee, spouse or child”.

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
The value of the benefit on a loan granted by an employer or its associate to an
employee or a director is computed as follows:
A–B
A is Libor + 5%
B is the interest rate paid on the loan by the employee

Libor stands for London inter-bank offer rate. There is Libor for one month, 3 months, 6
months and 12 months. It is therefore appropriate to choose Libor rate applicable to the
loan tenure. Libor rates are obtained from RBZ. The fact that the rate is specified for the
period of assessment, a period of 12months, means that the benefit is apportioned where
 the loan tenure is less than a year.

The following types of loans are
exempted: - Loans which are below $100
- Loans used on education of employee spouse or children,
- Loans used on medical treatment of taxpayer, spouse or children, -
Loans with interest rate above Libor + 5%.
1.6.5.7 Scholarship, bursary or educational assistance
A scholarship, a bursary or an educational assistance paid on behalf of a student receiving

instruction at an educational establishment is tax exempt, unless provided as a reward for
services rendered or to be rendered by the person or his/her near relative.
1.6.5.8 School fees


Where an employer pays school fees on behalf of an employee for the education of the
employee, spouse or children that is a taxable benefit to an employee. The mere fact that
the payment of the school fees is not made directly to the employee does not exclude it
from the gross income of the employee.
 See under “Loans”, in respect of loans to
 employees for educational purposes.

from 1 January 2013, the school benefit is specifically included “in gross
With effect
income’.

An exemption is provided for in respect of the waiver of the whole of any portion of
tuition fees, levies and boarding fees that would otherwise be payable by a member of
staff (teaching or non-teaching) for any child which 
is a student of that school or another
school. A school is as defined in the Education Act.

The exemption is valued at half (50%) of the school fees or school benefit. The relief only

applies to a maximum of 3 children; otherwise the whole benefit is taxable for children
exceeding 3.
1.6.5.9 Free or subsidized lunches


Subsidized meals provided by an employer give rise to a taxable benefit. The benefit is
cost to the employer reduced by amounts recovered from each employee.

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
If the food is provided from the employer’s canteen or workplace, which is patronized
 of the employer,
wholly or mainly by his employees or operated on the business premises
 the benefit is exempted. The food must be available to all workers.

Exempted as well are meals or refreshments supplied by an employer during business
hours or extended working hours or special occasions, or when  the employee is
entertaining business clients or someone on behalf of the employer.
1.6.5.10 Clothing benefit


The value of clothing provided by an employee may result in a taxable benefit. This
includes an allowance for clothing which the employer has no control over its use.
However, the cost of distinctive uniforms, protective clothing or footwear required to be
worn during employment (employer uniforms and protective clothing), including related
laundry expenses is exempted from employer’s tax. The uniform must be worn as part of
the employee’s condition while heis on duty, for example uniforms offered to security
guards, nurses and police officers.
1.6.5.11 Mobile phone usage


Expenditure incurred on cell phone and similar devices used primarily for business
purposes would not be taxed in the hands of employees, as long as the business usage can
be proved
 or justified. The CG’s view is that benefit arises on an employer funded cell
phone.
1.6.5.12 Grossing up benefits


A benefit may also arise when an employer grosses up the employees benefits. ZIMRA
accepts grossing up of amounts where the employer wishes to pay tax on behalf of the
 in cases where employees would want to remain receiving a
employee. This applies
certain net salary.
1.6.5.13 Occupation of Residence and Use of Furniture– Sec 8 (1) (f)


A benefit arises where the employer grants the employee free accommodation or pays
subsidised rentals or rental charges which are below the open market rates applicable in
that area.

 The benefit is determined with reference to the value to the employee.

Where the employee does not pay anything towards that accommodation , the whole
amount - determined on the basis of the open market value - is a benefit and subject to
tax.

 Where the open market value of rentals cannot be determined the benefit is calculated as
 12.5% of employee’s gross basic salary.

Where an employee pays rentals less than the open market value of the
house/accommodation, the difference between the amount paid and the market
 value constitutes a benefit.

Furniture provided by Employer: For the purposes of calculating the deemed benefit
the amount to assess as the value of the furniture provided by an employer should be in
general be 8% of the cost of the furniture.

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Example
Peter recently got married and his employer decided to lease him a fully furnished 2 bedroomed
flat in the Avenues area of the Harare CBD. As part of the lease agreement Peter is supposed to
pay a monthly rental of $400, the market related rentals for similar unfurnished flats is
$700/month. The flat being leased to Peter was furnished at a total cost to the employer of
$15,000. During the 2017 tax year, Peter occupied the Flat for the full 12 months.
Calculate the total benefits to be included in gross income from the above scenario.
Solution
Residence benefit: = ($700-$400) x 12

= $3,600
Free use of furniture: = $15,000 x 8%

= $1,200
Total Benefit: = $1,200 + $3,600

= $4,800
1.6.6 Pension accruals and annuities
1.6.6.1 Retirement pension –
 A pension that accrues to a person from a pension fund to a taxpayer aged 55 years and
above ix exempt from tax.
Lump sum payment
 A lump sum payment is the amount of a terminal benefit that remains after excluding the
proportion thereof, if any, that is applicable to employment and membership outside
 Zimbabwe.
  A terminal benefit is amount paid to a member by reason of his/her withdrawal from a
“pension fund”, benefit fund “unapproved fund”. It is normally paid to a member because
he has resigned from his employment before reaching pensionable age. The amount is
usually represented by a refund of the member’s contribution, employer contributions
 paid into the fund on behalf of the member or earned interest from the fund.
  Where the payment does not exceed $1,800, it is exempt
 A portion used to purchase an annuity on retirement or transferred to another pension
 fund is exempt.
 The taxable portion of a lump sum payment is taxed at a special rate.

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1.6.6.2 Retirement pension – Sect 8 (1) (n) and Sect 8 (1) (r)
Pension Commutation
 The section is the authority for commutation of pension from a

retirement annuity fund (RAF).

 This applies where a taxpayer elects to receive a lump sum amount in the
year of retirement and a reduced stream of equal pension until the person
dies.



 The 1/3 of pension entitlement is referred to as a commutation and is
 regarded to be of a capital nature.
  To be availed a commutation it is necessary that a taxpayer should elect;

Pension funds restrict the total amount subject to a commutation to 1/3 of
the pension entitlement .
Example
Mike retired on 30 September 2017, and will be receiving a lump sum payment
of $50,000 from a retirement annuity fund as pension. His pension entitlement is
$150,000. How much is taxable in his hands?
Solution
Lump sum payment 50,000

Less 1/3 of pension entitlement [150,000 x/1/3] (50,000)
Taxable income nil
1.6.7 Exempt income – 3rd Schedules
1.6.7.1 Medical expenses and contributions


 The value of medical treatment or travelling
to obtain such treatment which is provided by
an employer for an employee is tax exempt.

It does not matter whether this benefit is provided in kind or by direct payment or by form
of reimbursements to the employee of cost incurred. It includes an employer-mandated
medical examination required as a condition of employment or medical contributions paid 
by employer to a medical aid society on employee’s behalf or that of his dependants.

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1.6.7.2 Benefits of civil servants


Civil servants are exempted on most of the benefits they receive from employment with
 the State. The benefits thatare exempt include allowances, transport allowance, housing
allowance or benefits etc.

Member of staff of a mission hospital or rural clinic are exempted on accommodation
allowance, transport allowance and the value of quarters or residence. For purpose of the
exemption, a mission hospital or rural clinic means a private hospital  or rural clinic
 owned, operated or sponsored by a religious body or rural district council.

50% of school fees or school benefit[up to a maximum of 3 children] accruing to a member
of school staff is exempt from tax.
1.6.7.3 Pension accruals


A pension paid from a pension fund or the Consolidated Revenue Fund received by a
person who has attained theage of 55 years before the commencement of the year of
assessment is tax exempted.
1.6.7.4 Compensation of injury, sickness or death


 or death of a
An amount accruing by way of a benefit in respect of the injury, sickness
person which is paid to the person or his dependants or deceased estate:

By a trade union, or

From a benefit fund, or

In terms of a policy of insurance covering accident, sickness or death, or

By a medical aid society
1.6.7.5 Individuals exempt from Income tax

 President – salary and emoluments paid in respect of his office and
 a member of staff of
the President if the President pays such salary and emoluments.

 Allowances paid to the spouse of the President or Vice President in respect of duties the
spouse performs for or on behalf of the state.

  emoluments of persons or officials of UN organs and its agencies is also
Salary and
exempt.

 
Allowances granted to Senior Government Officials, Minister, Deputy Minister,
Provincial Governor, the Speaker and Deputy Speaker.

Allowances or value of any benefit, which is granted to any person in full time
 as specified in a Statutory Instrument e.g. housing and
employment of the State
transport allowances.


 Allowances payable to a Chief or Headman.

Allowances payable by the State to a person in its service in respect of the
 expenditureincurred by the person in the discharge of his duties outside
Zimbabwe.

So much of the expenditure of the person in maintaining himself, his family or
 as is in excess of his
establishment whilst employed on duty outside Zimbabwe
normal expenditure if he were employed in Zimbabwe.

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1.6.7.6 Other exemptions
 Subscriptions in respect of an employee’s continued membership of business, trade,

technical or professional i.e. ICAZ, ACCA, CIS etc. paid on behalf of the employee
by the employer are exempted, but not club subscriptions i.e. sports club.

 Contributions paid by an employer to a pension fund or retirement
 annuity fund, RAF e.g. NSSA contributions
 An amount received by or accrued to or in favour of a person by way of a dividend
from a company which is incorporated in Zimbabwe and is charged or chargeable
 to income tax.
  An amount received by way of alimony, howsoever paid.
 An award, benefit or compensation, including a pension, to any person or his
dependants or heirs under any law in respect of injury, disease, disablement
or death suffered in employment.
1.6.8 ALLOWABLE DEDUCTIONS – SEC 15 (h)
1.6.8.1. Contribution to a new pension fund, NSSA and Retirement annuity fund (RAF)
Order of deduction Limitation
1. Pension fund contributions Limited to the LESSER of

Current - $5,400 per annum or
- 7,5% of member’s annual
emoluments or
- Contribution made
2. NSSA Limited to the LESSER of
- $5,400 per annum or
emoluments or
- Contribution made
(NSSA rules limit contribution to $2,400 per
annum)
3. Retirement annuity fund Limited to the LESSER of
Membership of one RAF - $5,400 per annum or
emoluments or
- Contribution made
Membership of more than one Limited to $2,700 per annum
RAF
1.6.8.2 Professional subscriptions

  
Fees paid to a professional association for tax purposes are allowable.

If your employer pays the fees on your behalf you can’t deduct them, but you won’t be
 necessary that you maintain your continued
taxed on this benefit either, as long as it was
membership of a professional association.

An employee is allowed to deduct contributions made to industrial
councils and trade unions.

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1.6.8.3 Trade tools


A taxpayer who is a tradesman shall be allowed to deduct proven cost of trade tools
 the year of assessment. The expenditure needs to be supported by
incurred by him during
invoices or receipt.
1.6.9 TAX CREDITS
SUMMARY ON TAX CREDITS
Elderly Person Blind Person Medical Expenses Mentally or

Physically
Disabled Person
Credit $900 $900 $1 for every $2 $900

paid
Apportionment of Credit Yes No No No
Transfer between spouses No Yes No Yes
Physically disabled child Grant credit
T/p not ordinarily resident Grant credit Grant credit Grant credit only No credit
in Zimbabwe during any in respect of
part of the period of medical aid
assessment contributions
Blind taxpayer Grant credit
Medical expenses for a Grant credit only

child who is no longer a in respect of
minor child invalid appliances
or fittings
Eligibility Aged 55 years
1.6.10 Tax Concessions for the elderly – Over 55 years
For the purposes of these concessions, an elderly person is a person aged 55 years or more in the
current year of assessment.

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Income Tax
• Exemption from Income Tax of the first US$3 000.00 per annum on rental income
• Exemption from Income Tax of the first US$3 000.00 per annum on income earned from
bankers acceptances
• Exemption from Income Tax of the first US$3 000.00 per annum on income earned from
interest on deposits to financial institutions.
• Entitled to an elderly persons’ credit of US$900.00 per annum.
• Pension received from a pension fund or the Consolidated Revenue Fund is exempt
from Income Tax.
• Where an employer disposes of a motor vehicle to an employee whether on termination
of employment or otherwise, the benefit is exempt from tax.
1.6.11 Administration of PAYE
• Any resident or non-resident employer, who employs one or more members of staff whose
gross pay, including benefits and allowances, exceeds USD300 per month or the daily, weekly
or annual equivalent, is required to register with the relevant Regional Manager of the
Zimbabwe Revenue Authority (ZIMRA), withhold PAYE from employees and remit PAYE to
the Commissioner General by the 10th of the month following the deduction.
• Employers are responsible for under deductions as well as late payment of PAYE.
• Interest is charged and penalties of up to100 %of the unpaid tax can be imposed on
the employer.
• Personnel employed by a single employer for the full fiscal period are taxed on the
Final Deduction System.
• PAYE will be a final tax on employment income for the employee who will then not
be required to complete tax returns.
• Personnel employed by more than one employer or employed for part of a fiscal period
and all individuals who receive pensions or annuities or taxable income from trade and
investment are required to complete and submit annual tax returns.

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ZCTA LEVEL 2
TUTORIAL 1
STUDY UNIT 1.7
TAXATION OF CORPORATES

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STUDY UNIT 1.7
TAXATION OF CORPORATES (INCOME FROM TRADE AND INVESTMENTS)
KEY CONCEPTS
The following key concepts underlie this study unit: -

• Recap on the framework for answering questions on company taxation.
• Identify specific inclusions in gross income for companies
• Identification of exempt income
• Apply the general deduction formula
• Identify prohibited deductions in terms of Section 16
• The deduction and calculation of capital allowances
• Recoupments and Scrapping Allowance
• Tax consequences of leasing transactions
• Suspensive sales
• Assessed losses
• Quarterly payment Dates (QPDs)
Framework for the Taxation of Companies

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Special Inclusions in Gross Income – Sec 8
Trading stock Sect 8 1(h).
 This section brings into gross income trading stock on hand at the end of a tax year. (The
 treatment is similar to treatment under IFRS).
 Trading stock which has, during the year of assessment, been taken by the person for
 his domestic or private consumption or use.
 Trading stock which has been donated.
VALUATION OF STOCK OTHER THAN FARM TRADING STOCK
Section 8 (1) Type or Date of Valuation Method of Valuation 2nd Schedule

(h) paragraph Circumstance (Taxpayer to elect) paragraph
(i) Closing stock Last day of tax Cost price 4
year or accounting
year. Cost of Replacement
Market value
(ii) Consumed by Date of such use Cost price 5
taxpayer or put to Market value
other use.
(iii) Stock on hand Date of such Cost price 4
On date of death happening Cost of Replacement
Date of insolvency Market value
Date of donation
(iv) Attached by court End of tax year. Cost price 4
Cost of Replacement
Market value
(v) Sold with Date sold Selling price 6
Business
Pursuance of court
order
What the Commissioner
Partially produced considers to be fair and
goods Last day of tax reasonable 7
year of accounting
year
Concessions grant from creditors [sect 8 (1) (k)]
• Where a taxpayer having incurred a liability in respect of expenditure, which has ranked as a
deduction in terms of s 15 (2), which is subsequently released by the creditor, the benefit
there from is included in gross income.
• However this section does not apply where concessions have been granted as a reason of
a taxpayer being declared insolvent.

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General Deduction Formula – Sec 15
General Rule!!!!

Deduction allowable shall be expenditure and losses to the extent to which they are incurred for
 to the extent to which they are
the purposes of trade or in the production of income except
 expenditure or losses of a capital nature.(Sect 15 2 (a))

in a case where a person earns income from trade and investment and income from
any amounts allowed to be deducted in terms of this section
 employment,
claimed in respect of the income to which they relate; Sect 15 1(b). E.g. –
shall only be

This applies to most small businesses, where the owner will use his motor vehicle to transport

goods for the business and taking his children to school. Only the expenditure to the extent to
 which it is incurred on his business is allowable by the commissioner.

 Expenditure is deductible at the earlier of payment or accrual
For the purposes of trade means for the purposes of enabling a person to carry on and earn profits in the
trade. The ordinarily recurrent expenses of business, such as trading licence fees, audit fees, rates,
secretarial fees, insurance premiums, business subscriptions and advertising costs will usually pass the
test. Expenditure for the purposes of trade may be categorised in 2 ways:

 
Designed expenditure is money voluntarily and designedly spent by the taxpayer for the
purpose of this trade e.g. salaries

Fortuitous expenditure is money involuntarily 
spent because of some mischance or
misfortune, which has overtaken the taxpayer.
NB: A deduction is not allowable where the expenditure, which though arising out of the manner in
which a taxpayer conducts his trade, falls upon him in his capacity as a lawbreaker rather than as a
businessman, e.g. traffic fines, customs fines or parking fines.
Section 15(2)(a) outlines the general deduction formulae. Expenditures and losses to the extent to
which they are incurred for the purposes of trade or in the production of income will be allowed as a
deduction for tax purposes. Apportionment of expenditure is permissible. It is also useful to note that
where the expense incurred is different from the amount actually paid due to fluctuations in exchange
rates, then the amount actually paid will be allowed as a deduction. (S15(1).
One of the main tasks of a tax adviser is to analyse client circumstances in order to take effective
steps that would place the client in a favourable position in relation to minimising tax burdens.
This can be achieved only when the tax adviser is familiar with legislative provisions, particularly
deductions available to taxpayers. The provisions in section 15 are important and every student
should make an attempt to speed read the provisions.
Tax planners should be aware of the Commissioner's treatment of assessed losses as outlined
in 15(3); and the fact that losses attributable to business cannot be set off against employment
income per 15(8) effective from 1/04/96.

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Some specific deductions outlined in the Act are as follows:
S15(2)(b) Repairs
S15(2)(c) Capital allowances for all traders except miners, as read together with the
provisions of Schedule 4th.
S15(2)(d) Lease premiums

S15(2)(e) Lease improvements
I
S15(2)(f) Capital redemption allowances for miners, as read together with the provisions of the
Schedule 5.
S15(2)(g) Bad debts
S15(2)(h) Pension contributions
S15(2)(i) Arrear pension contributions
S15(2)(j) Medical aid contributions made by the employer on behalf of employees
or their dependents.
S15(2)(k) Attributable cost of growing crops /timber sold, where the crops and timber
were acquire as part of land purchased.
S15(2)(l) Cost of growing crops or timber where the timber sold for trade purposes.
Research expenditure (excluding capital expenditure) incurred in relation to one's
trade.
S15(2)(n) Contributions to research expenditure incurred by another trader in the same
trade.
S15(2)(o) Amount of donation made to an approved scientific or educational institution approved
by the Commissioner, where such institution is connected with the trade of the taxpayer.
S15(2)(f) Grant, bursary or scholarship made to enable a person not connected with the
taxpayer to take up a course of technical education connected to the taxpayer's
trade at any educational institution.
S15(2)(f) Pension or annuity to:
(i) A former employee who has retired from taxpayer's employment due
to ill health, infirmity or old age,
(ii) A former partner who has retired from partnership due to ill health,
infirmity or old age,
(iii) Any person who is a dependent of a former employee or partner who
is deceased, and provided that immediately prior to the death
employee or partner was so dependent.

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S15(2)(r1) Contributions to the National Bursary Fund, or Charitable trust

administered under the Ministry of Labour and Social Welfare or
Health.
S15(2)(r1) Up to $100 000 (one hundred million) contributed to the State for:-
(i) purchase of medical equipment for hospital operated by
the State, local authority or religious organization;
(ii) construction of or extension of
(iii) such a hospital; the procurement of drugs
S15(2)(r2) Up to $100 000 of a contribution made to a research

institution approved by the Minister of Higher Education.
S15(2)(r3) Contribution to the State for:

(i) purchase of educational equipment
(i) construction, extension or maintenance of a school
(ii) procurement of books or other educational equipment,
subject to a maximum deduction of $100 000
S15(2)(r4) Contribution to Public Private pastmestic Fund – maximum $50 000
S15(2)(r5) Contributions to Destitute Homeless Persons Rehabilitation Fund –

maximum $50 000
S15(2)(s) Professional subscriptions
S15(2)(t) Expenditure incurred by a business within 18 months prior to the commencement of

trade, if such expenditure would have been allowable if incurred after
commencement of trade, and is claimed in the year of commencement of trade.
S15(2)(u) Opening stock
S15(2)(v) Inherited stock
S15(2)(w) Expenditure incurred in attending a trade mission or convention, up to a maximum
of $2 500

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Capital Nature

In the same way as accruals of a capital nature are generally not subject to income tax,
expenditure and losses to the extent that they are of a
capital nature are not deductible
from income e.g. cost of purchasing an item of PPE.
Section 15(2)(b) Repairs


Expenditure incurred during the year of assessment on repairs to articles, implements,
 machinery and utensils used and property  occupied for the purposes of trade. Repairs
resulting from the letting of property,

Repair is restoration by renewal or replacement of subsidiary parts of the whole i.e.
restoring an asset to its original state at the time it was first owned by the taxpayer. It is not
necessary, however that the materials used should be identical with the materials replaced.
NB: Repairs are to be distinguished from improvements.
Examples
  replacement of a broken window with a shatter proof (repair)
  replacing cement floor with tiles (repair)
 extension of building (capital)
Section 15(2) (g) Bad Debts


 Bad Debts – A deduction can be claimed in respect
 of debts, which are irrecoverable as
long as all the following conditions are met:
i) The debt must be due and payable to the taxpayer,
ii) The debt must be proved, to the satisfaction of the Commissioner, to be
irrecoverable as at the end taxpayer’s financial year
iii) The debt must have been included in the taxpayer’s income either in the
current or any previous year of assessment.
Section 15 (2 (h) – Contributions to a benefit or Pension Fund


An amount to be determined in accordance with the Sixth Schedule in respect
of contributions made in the year
of assessment to a benefit or pension fund or
the Consolidated Revenue Fund.

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
Provided that no contribution to a retirement annuity fund shall be allowed as a
deduction to a member of such fund who was not ordinarily resident in Zimbabwe
at the time he made the contribution
NB: The contribution paid by the employer allowed as a deduction is limited to $5 400 per
employee and contributions paid by an employee allowed as a deduction are limited to $5,400
per annum.
Section 15(2) (j) – Medical Aid Societies

 
The amount of any contributions paid to a Medical Aid Society by an employer in
Section 15(2) (m) Experiments and Research

A taxpayer may deduct expenditure incurred during the year in carrying out
 nature
experiments and research relating to his trade, other than expenditure of a capital
incurred on plant, machinery, land or premises or on the acquisition of rights.
Section 15 (2) (n) – Experiments and Research

The principle is extended to sums, which the taxpayer contributes to other
persons carrying out such experiments and research relating to the taxpayers’
trade or a proportion of
such contributions if the other person’s expenditure is not
wholly of this nature.
 
The amount allowable as a deduction shall be determined by the formula:
AXB
C
Where
A =the amount of the taxpayer ‘s contributions

B =the amount incurred by the other person, which would have
been allowed as a deduction in terms of section 15(2)(m) above
C =is the total amount of the expenditure incurred on experiment and research
Example 2
Company A and B are both in the oil manufacturing industry. A contributed $100 while B
contributed $ 150 to research on a new seed that can produce oil. The research work was
performed by B and a total expenditure of $500 was incurred towards the research. Assume that of
the $500 B was only able to claim 50% of the total costs.
The deduction allowable in A would therefore be

= $100/$500 * $150
= $30

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Section 15(2) (o) Scientific Research and Experimental Work.


Deductible are contributions to approved scientific or educational bodies with the
 research or scientific experimental work
condition that they be used for industrial
connected with the taxpayer’s trade.
Section 15(2) (p) Educational Grant, Bursary or Scholarship


A deduction is allowed of grants, bursaries, scholarship paid for a person
undergoing technical education, provided that: the course is related to the
taxpayer’s trade and that the beneficiary
 is not the taxpayer, his spouse or
 near relative of either spouse.

If the taxpayer is a company, the beneficiary should not be a near relative of the
individual controlling the company, his spouse or near relative of the spouse
 full time for the company and controls not more than
unless the director works
5% of the share votes.
Example 1
Bursary to an individual studying towards a Biology Engineering degree will not be

allowed as a deduction to Econet since the degree is not related to Econet’s
Telecoms business.
Section 15 (2) (q) Voluntary Payments to Former Employees And/or their

Dependants.


Any amount paid during the year of assessment by way of an annuity, allowance or
pension is deductible subject to the following:
o The employee must have retired because of ill– health, infirmity or old age.
 
o The amount allowed is restricted to US$500 per tax year for each former
 
employee.
o In the case of payments to dependants or persons who were dependant on a
retired or deceased former employee the annual restriction is US$200 in
respect of all dependants of each ex-employee.
NB: In all cases the amount allowed is reduced by any obligatory payments (e.g. pension or
annuity) received during the year by the ex-employee or dependant from any fund of the
former employer.

Persons whose employment was of a domestic or private nature are excluded in
all contexts.
Example
Webby worked for ABC ltd for 30 years and retired early this year as a result of ill health.
ABC decided to voluntarily pay Webby $ 2,000 as an appreciation and is also obliged to pay
$300 to Webby relating to the company pension fund benefit.
Amounts deductible to ABC would be a maximum of $500 determined as follows:

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$300 for the pension

$200 maximum for the voluntary payment
$500 total
Section 15(2) (r) Donations


A deduction shall be granted for payments made to the National Scholarship
 administered by the Minister
Fund, National Bursary Fund or a charitable trusts
responsible for either Social Welfare or Health.
Section 15(2) (r1) Donations


Any amount not exceeding US$100,000 paid by a taxpayer during the year of
assessment to the State or to a fund approved by the Minister of Health for, any
of the following operated by the state, local authority or religious organisation:

 the purchase of medical equipment,

 the construction, extension or maintenance of a hospital or

the procurement of hospital drugs (including ARVs)


assessment without any consideration at all to a research institution approved by
the Minister responsible for higher or tertiary education.
Section 15 (2) (r3) Donations


assessment, without any consideration at all, to the state or a fund approved by
the minister responsible for education, for any of the following operated by the
 state, local authority or religious organisation:
  
The purchase of educational equipment
  
The construction, extension or maintenance of a school.
 
The procurement of school books or other educational materials
Section 15 (2) (r4) Donations


Any amount not exceeding US$50,000 paid by a taxpayer during the year of
assessment without any consideration to the Public Private Partnership Fund.


assessment without any consideration to the Destitute Homeless Persons
Rehabilitation Fundestablished by the Ministry of Finance under the Audit
and Exchequer Act.

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Section 15(2) (s) Subscriptions


A deduction is allowed for subscriptions paid by a taxpayer in respect of his

continued membership to any business, trade, technical or professional
association. Entrance fees are not allowable.
Section 15(2) (t) Expenditure Prior To Commencement of Business

  
A deduction is allowed from business income, in respect of expenditure which;

 
was incurred by the taxpayer, 18 months prior to commencement of
business, in the course of establishing the business,


and would have been allowed as a deduction had it been incurred after
beginning the business

and is claimed in the year of assessment in which business commences.
Section 15(2) (u) Opening Stock


Accounting principles are recognised and the taxpayer is allowed to deduct the
was on hand at the end of the preceding year of
value of the trading stock, which
assessment, i.e. opening stock.
Section 15(2) (v) Trading Stock Acquired Other than In the Ordinary Course of Trade

A deduction shall be allowed from the income derived by the taxpayer in a year
of assessment, from the carrying on of a trade, an amount equal to what the
Commissioner considers as, at the date it was brought to hand or at the date it was
acquired, the fair and reasonable value of suchtrading stock of the taxpayer
 acquired otherwise than in the course of trade.

 shall not exceed the value available from the
In the case of donated stock the deduction
person from whom it was acquired.
Section 15(2) (w) Conventions and Trade Missions

 
The cost of attending a convention or trade mission is allowed as a deduction subject to
the following:

The deduction is restricted to US$2,500 of the amount spent in any one tax
year and must relate to not more than one convention, which in the
opinion of the Commissioner was in connection with the trade carried on 
 by the taxpayer or one trade mission, approved by the Minister (not both).

 
If the convention or trade mission commences in one year of assessment and
ends in another the deduction is allowed in the tax year it ends.

If the person attending is a member of a partnership and the
partnership bears the expense, each partner is allowed to deduct an
 a case the limit of
amount in proportion to his share of profits. In such
$2,500 is applicable to one visit by each partner.

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Section 15(2) (aa) Legal Costs On Income Tax Appeals


Taxpayers who appeal against any decision made by the Commissioner and whose appeal
is allowed in full in the Special Court or the High Court, may deduct their legal costs
(allowed by the registrar of the court as being in accordance with the proper scale for such
costs) in the year of assessment in which the costs are so “taxed”.
Section 15(2) (bb) Legal Costs On Income Tax Appeals


Should an appeal be taken further (by either partly) to the Supreme Court, and the
taxpayer’s case be upheld in full
or to a substantial degree the court may, at its discretion,
permit the costs to be deducted.
Section 15(2) (jj) Approved Employee Share Option Scheme.


This section allows for a deduction of the fair value of any stock, shares, debentures, units
or other interest paid or given by the client to an employee of the client or for the benefit of
an employee of the client pursuant to an approved employee share ownership scheme or
trust.
Section 15(2) (kk) Maintenance On Behalf Of Local Government


Expenditure not exceeding US$50,000 approved by the Minister responsible for local

government on the maintenance of buildings, roads, bridges, water works, sanitation
works, public works and any other utility, amenity or item of infrastructure.
Section 15(2) (gg) Export development expenditure


the amount of any export-market development expenditure incurred by the taxpayer
during the year of assessment, together with an amount equal to one hundred per centum
 of such expenditure.( 
The taxpayer gets a double deduction on expenditures incurred on
export development.)

Export development expenditure includes:
 research into, or the obtaining of information relating to, markets
outside Zimbabwe;
 research into the packaging or presentation of goods for sale outside
Zimbabwe;
 advertising goods outside Zimbabwe or otherwise securing publicity outside
Zimbabwe for goods;
 soliciting business outside Zimbabwe or participating in trade fairs;
 investigating or preparing information, designs, estimates or other material for the
purpose of submitting tenders for the sale or supply of goods outside Zimbabwe;
 bringing prospective buyers to Zimbabwe from outside Zimbabwe;
 providing samples of goods to persons outside Zimbabwe;
Section 15(2) (ll) Indigenisation and Empowerment Act


The amount of any contribution or donation paid by a taxpayer in the year of
assessment to a community share ownership trust or scheme established by
the taxpayer in compliance with the 
Indigenisation and Economic
Empowerment Act [Chapter 14:33].

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
The value of the shares of a corporate taxpayer that are lent in the year of
 
assessment to an indigenisation partner of the taxpayer pursuant to a corporate
vendor-financed loan;

Interest payable by an indigenisation partner in the year of assessment on any
loan advanced to him or her topurchase shares in the company of which he or
she is an indigenous partner;
Section 15(3) Assessed Losses


Where a taxpayer has income from one business activity but sustains a loss on
another, the latter is set off and only the balance is taxable.

 If the deduction exceeds the income the excess is defined as the “assessed loss”.

 Assessed loss determined in the previous year of assessment is deductible.

Except in the case of mining no assessed loss shall be carried forward after
the expiry of six (6) years from the end of the year of assessment in which it
 was determined.

No assessed loss attributable to business operations carried on by a taxpayer
shall be allowable as a deduction from income received by or accruing to him
 under a contract of employment.

Assessed losses from the sale or disposal of a business unit cannot be
carried forward
Section 15 (2) (cc) Expenditure Not Yet Incurred
Expenditure may normally be claimed as a deduction only in the year in which it is

incurred. An exception is provided in cases where income accrues in one year of
assessment in respect of services to be rendered or goods to be delivered (deferred
revenue) in a subsequent year. An allowance for such expected costs may be claimed
in the year of accrual of the income but subject to the following;
  
The amount of the allowance will be at the commissioners discretion
  Expenditure of a capital nature is excluded

Current expenditure, which relates directly to future tax year’s income and which
  have been claimable in the current tax year, is set off against the allowance
would
and

Any allowance granted is brought back into income in the following tax year.
Prohibited Deductions – Sec 16
Section 16 of the Act outlines cases in which no deduction is allowable for tax purposes.
Sect 16 (1) (a) - the cost incurred by any taxpayer in the maintenance of himself,
his family or establishment;
Sect 16 (1) (b) - domestic or private expenses of the taxpayer, including expenses
incurred in travelling between his home and the place at which he carries on a trade
and, in the case of a taxpayer who carries on two or more trades which are distinct in
nature, between the places at which such trades are carried on;

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Sect 16 (1) (c) - any loss or expense which is recoverable under any insurance
contract or indemnity
Sect 16 (1) (d) - tax upon the income of the taxpayer or interest payable thereon,
whether charged in terms of this Act or any law of any country whatsoever;
Sect 16 (1) (e) – Income carried to any reserve fund or capitalised in any way. The
Commissioner accepts however, that specific provisions for director’s fees and
staff bonuses are deductible subject to the following conditions:-

 are voted for by the date of the relevant accounts or annual general
That they
meeting

That they accrue for tax purposes in, at
the latest, the year of assessment after that in
which they are claimed as a deduction.
Sect 16 (1) (f) - so much of any expenditure or loss, including the whole or any part of
an assessed loss in a previous year of assessment, as is incurred in the production of
any amount exempt from income tax in terms of this Part or not derived or deemed to
be derived from sources within Zimbabwe;
Sect 16 (1) (h) - interest which might have been earned on any capital employed
in trade;
Sect 16 (1) (i) - The rent of, or cost of repairs to, or expenses incurred on, any premises
not occupied for trade, or of any dwelling or domestic premises except in respect of such
part as may be occupied for the purposes of trade.
Sect 16 (1) (j) - The cost of securing sole selling rights. An example is the cost as
might be incurred by a petrol company in payment to a service station which then sells
only that company’s brand of petrol.
Sect 16 (1) (k) - Amounts, in excess of US$10,000 paid for leasing a “passenger motor
vehicle” (as defined in the Fourth Schedule) where the lease was entered into on or
after 1st January 1999.
Sect 16 (1) (l) - The cost of any shares awarded by the company to an employee or
director. This prohibition would counter any claim for a deduction by a company in
respect of either an issue of its own share or, an award of shares in another company
(for related companies)
Sect 16 (1) (m) - Expenditure incurred on entertainment, whether directly or by the

provision of an allowance to any employee, including a director. “Entertainment” is
defined as including “hospitality in any form”.

A deduction is therefore clearly precluded in respect of the cost of, for example,
a lunch for business associates,
 despite the host’s purpose being the furtherance
of trade relationships.
Sect 16 1(n) - Expenditure incurred in the production of any income arising from stocks
or shares of any company.

Dividends from foreign companies, which are liable to income tax in the hands of

a taxpayer ordinarily resident in Zimbabwe, are taxable (at a flat rate; without any
deduction for related expenditure.)

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
The latter could be a minor matter such as bank charges, or more substantial such
as interest payable on monies borrowed to purchase the shares.
Sect 16 (1) (o) - Expenditure incurred in the production of interest on any loan
or deposit with local financial institution.
Sect 16 (1) (q) – Thin capitalisation


Relates to the funding of a business with a disproportionate degree of debt in
relation to equity so as to provide investors the benefit of having the interest

income derived there from exempt whilst at the same time enjoying the benefit of
tax advantage relating to the deductibility of interest payment of debt.

any expenditure incurred by a local branch or subsidiary of a foreign company, or
by a local company or subsidiary of a local company, in servicing any debt or
debts contracted in connection with the production of income to the extent  that
such debt or debts cause the person to exceed a debt to equity ratio 3:1
Example: Thin Capitalisation
D Ltd is the Zimbabwe subsidiary of A Ltd, a company listed in India. During the year
ended 31st December 2017, D Ltd borrowed $2 million from A Ltd to fund capital
expenditure. Interest of $200 000 was paid on the loan. The statement of financial
position of D Limited reflected that it had equity of $500,000 and long term debt of
$2,5 million.
SOLUTION
Current debt to equity ratio = 5:1

Interest paid D Ltd $200 000
Allowable (3:1) 3/5 of 200 000 ($120 000)
Disallowed interest $80 000
$80 000 deemed to be a dividend subject to 15% withholding tax of $7,500
Other specific exclusions
The following expenditures are not deductible as they are capital in nature
 Payments for restraint of trade
 Goodwill
 Purchase price of an annuity
 Cost of obtaining share capital
 Transfer duty on fixed assets
 Advertising for share offer
 Acquisition of supply water in perpetuity (water rights)
 New business license

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STUDY UNIT 1.8
CAPITAL ALLOWANCES (SECT 15 (2) (C) AND 4TH SCHEDULE


  is an expenditure of a capital nature,
The cost of acquiring assets used in trading
which is not allowable as a deduction.

 Depreciation also is not an expense to the taxman. It is replaced by the following
capital allowances:
o Special initial
o Wear and tear

o Scrapping
  To qualify for allowances an asset must be used for purposes of trade.

It follows therefore that allresidential buildings will never qualify for allowances, but
leased block of flats does. 

Land generally does not qualify for either depreciation or capital allowances.
Definition of Assets (4th Schedule)


Commercial building
Is Is not
A building constructed on or after 1 A farm improvement, industrial building,

April1975 staff housing, tobacco barn etc
A building used 90% or more of its floor A building used 10% or more of its floor area
area for purposes of trade for residential purposes
A hotel without liquor license

 Is a building used mainly in connection with manufacturing or industrial
Industrial building:
research including: 
  Licensed hotels

Fencing , tarmac concrete or sealing surrounding such industrial
building

Buildingused in connection with computer international or data
 capture

Storage
 building used by the taxpayer for storing goods manufactured by
him 
  Toll bridges and roads e. g Limpopo river bridge
 

Staff welfare buildings i.e. canteens, garages, drawing offices etc.

A hotel with a liquor license
 including permanent structures used together with it
 i.e. swimming pool etc.
 

Tennis courts(permanent), golf courses and bowling greens

*NB Warehouse does not qualify as an industrial building if they store goods, which have

not been manufactured by the taxpayer. Showrooms are regarded to be commercial
buildings.


 Staff housing: Means any permanent building used by the taxpayer for the purposes of his trade
wholly or mainly for the housing of his employees.

However for a staff housing to qualify as a staff housing its cost must not
exceed $25,000, but allowances are calculated on a deemed cost of $10,000 if
the cost exceeds $10,000 but below $25,000.

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 It should be noted that if the cost of staff housing exceeds $25,000 then no
allowances are granted.

Passenger Motor vehicle: Means any motor vehicle propelled by mechanical or electrical
power and intended or adapted for use or capable of being used on roads mainly for

conveyance of passengers i.e. luxury type of cars. Estate car, Pajero, Twin cabs, Station wagon,
Mercedes Benz
Excluding:
 Vehicles used to convey passengers for gain i.e. taxis,
commuter buses
 Vehicles used by hotels for conveyance of its guests
 Vehicle carrying 15 or more passengers excluding
the driver o Vehicle purchased by lessor for leasing
purposes
 The deemed cost for passenger motor vehicle is $10,000
For example, if a motor vehicle was purchased for $20,000 capital allowances will

be claimed on $10,000 only.
Farm improvements

 on permanent farm roads, clinic or hospital and school
This refers to expenditure
constructed on the farm.

 cost for purposes of calculating allowances for a hospital/clinic or school
The restricted
is $10,000.
The qualifying requirements are as follows:


For a school more than 50% of the pupils attending must be of the parents working on the farm.

For a hospital/ clinic more than 50% of the patients must be people working on the farm
Special Initial Allowance - SIA
Special Initial Allowance (S.I.A): S.I.A is granted to a taxpayer upon election and is granted on
capital expenditure incurred by the taxpayer during the year on:
 Cost of construction (excludes purchased) of a new immovable asset or
 Cost of improvements, i.e. additions or alteration to existing immovable asset or
 Purchased movable assets and used by the taxpayer for purposes of trade [purchased
whether new or second hand]
Points to note about SIA.

 Is calculated based on cost i.e. straight line method
 Is never apportioned either on time or usage basis

 Is never granted on assets acquired through donation or inheritance
 Is never granted on a commercial building unless it is constructed at a growth point
 Cannot be awarded on purchased buildings/immovable assets
 S.I.A. is granted in the year in which asset is first put into use
 Is granted upon election [in an exam key words are ‘’compute maximum allowances,
or minimum taxable /tax liability ‘’ when required to elect.
 No S.I A is granted to a lessor on a financial lease.

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 The rate for S.I.A. is 25 % on cost in the first year. Once S.I.A is granted an asset will qualify for
accelerated wear & tear in the second, third and fourth years at the rate of 25 % on cost p.a.
 No SIA is granted where the asset is used less than 90% for purposes of trade.
 SIA on Fiscalised electronic register is 50% of the cost (4th schedule Para 2)
Wear and Tear (W&T)
An allowance called wear & tear shall be granted on:

 Immovable assets acquired or constructed

Movable assets belonging to and used by the taxpayer for purposes of trade or in the
production of income
Points to note
 Granted where no S.I .A. has been elected
 Calculated based on cost on immovable assets i.e. straight line method

 Based on reducing balance method on movable assets i.e. on income tax value (I.T.V).
 Wear & tear is never apportioned on immovable assets.
 Apportioned on movable assets on:
• On commencement of business i.e. when business commences during the year
• On ceasing to trade
• When an asset is used for dual purposes i.e. partly private and partly business
 Normal rate for wear and tear on immovable assets is 5% on cost. An exception is a commercial
building with 2.5% on cost.
Example (SIA & W&T)
A taxpayer constructed a commercial building and staff housing in the first year of her trade, and used
these for purposes of her trade on 1 November 2017. The commercial building cost $400,000 and
staff housing cost $22,000. She also acquired furniture & fittings for $10,000 on 1 July 2017.
Required to compute maximum allowances
Solution
Wear & Tear Schedule for the year ended 31 December 2017
Asset Commercial Staff Housing (USD) Furniture & Fittings
building(USD) (USD)
Cost/ITV 400,000 22,000 10,000
Deemed cost - 10,000 -
W&T rate 2.5% 5% 10%
SIA (25%) NIL 2,500 2,500
W&T 10,000 NIL NIL
ITV 390,000 7,500 7,500
Notes for the solution
 Where you are asked to calculate maximum allowances you allow for SIA since it has
more allowances than W&T, subject to conditions stated above.
 A commercial building will never qualify for SIA.

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
 to $25,000, allowances are however
The qualifying cost for a Staff housing is restricted
calculated based on a restricted cost of $10,000
Scrapping allowance – 4th Schedule Para 4

 Scrapping allowances are the equivalent of losses on disposal of fixed assets used for trade.
 It arises when a scrapped asset is disposed of for proceeds which are less than the income
tax value.
 Scrapping allowance is deducted in the determination of the taxpayer’s taxable income.
The question then arises, what is scrapping??


The word scrap is generally taken  to mean used up or discarded and no longer used by
 the taxpayer for purposes of trade.

In a case were the asset has not been sold, the allowance can only be granted were the
commissioner is satisfied that the asset has become useless for business purposes or has
 been discarded with no intention to use it again in the future.

When business organisations windup operations, scrapping allowances will be allowed to the
extent that it does not exceed the recoupment arising from the business closure.
Example: Scrapping allowance
In January 2015 a taxpayer acquired a lorry for $16,000 which was to be used for the purpose of trade.
The taxpayer elected to claim the maximum allowances available in terms of the 4th schedule. In June
2017 the lorry was scrapped as it had been involved in an accident and was damaged beyond repair.
The taxpayer sold the scrap to a local garage for an amount of $2,000.
Required: Calculate the scrapping allowance available to the taxpayer.
Solution: Since the taxpayer claimed the maximum available allowance the ITV on the date of
scrapping is calculated as follows.
$
Cost 16,000
Less: SIA – 2015($16,000*25%) (4,000)
Accumulated W&T 2016($16,000*25%) (4,000)
Income Tax Value on date of scrapping 8,000
Therefore scrapping allowance is calculated as follows:

$
Proceeds 2,000
Less ITV (8,000)
Scrapping Allowance (6,000)
Recoupment – Sect 8 (1) (j)
Recoupment is a tax profit on the sale of an asset for which capital allowances where being claimed
in terms of section 15(2) (c).
 
It is brought into gross income in terms of s 8 (1) (j).

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 
It represents a recovery of capital allowances previously

granted. The following
 framework is used to calculate
recoupments.
$
Proceeds XXX
Less ITV (XXX)
Potential Recoupment XXX
Actual Recoupment (Limited to capital allowances
Previously granted) XXX

Where an asset had its cost restricted for purposes of calculating allowances (e.g. passenger
 price must also be restricted for purposes of calculating
motor vehicle), its selling
recoupment, as follows:
 
Deemed selling price = Deemed Cost x Actual selling price
Actual Cost
Example: Recoupments
A taxpayer purchased the following assets in the 2014 tax year, a passenger motor vehicle for
$15,000, and Machinery $40,000. During 2017-tax year he sold them for $9,000 and $30,000
respectively.
Required: To calculate his recoupment in the current. Assume SIA was claimed.
Solution
Passenger motor Vehicle:
Deemed selling price= $10,000 x $9,000

$15,000
= $6,000
Recoupment
Deemed selling price = 6,000
Less ITV* = (2,500)
Potential recoupment 3,500
Allowances granted* = $7,500
Actual Recoupment = $3,500

*Allowances
2014 SIA ($10,000*25%) 2,500
2015 Accelerated W&T ($10,000*25%) 2,500
2016 Accelerated W&T ($10,000*25%) 2,500
Machinery:
Recoupment
$
Selling Price 45,000
Less ITV* (10,000)
Potential Recoupment 35,000
Allowances granted* 30,000

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Actual Recoupment 30,000

*Allowances
Cost 40,000
Less: 2014 SIA (10,000)
2015 W&T (10,000)
2016 W&T (10,000) (30,000)
Income tax Value 10,000
Recoupment on damaged asset


Where recoupment arises on damage of an asset, and the sale proceeds are receivable through
 an insurance policy,
the whole amount will not be taxable provided the taxpayer satisfies the
Commissioner that:

Within a period of 18 months from the date of damage or  destruction he has
 purchased or constructed a similar asset thereof and that;

Such asset has been or will be brought into use within 
a period of 3 years from
the date the original asset was damaged or destroyed.
Transfer of Assets – 4th Schedule


Where assets are transferred between companies under the same control, or between husband
 and wife or in a scheme of  localization if the taxpayer so elect, there shall be no recoupment in
the hands of the transferor.
 
The assets are deemed to be transferred at their income tax values hence no recoupment accrues.

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STUDY UNIT 1.9
LEASE PREMIUMS & IMPROVEMENTS
LEASE PREMIUMS – Sections 8(1) (d) and 15 (2) (d)
A “Premium or like consideration” means a consideration having an ascertainable money value passing
from a lessee to a lessor whether in cash or otherwise. It is distinct from and is in addition to, or in lieu of
rent (Butcher Brothers case). To summarise this definition, a premium should therefore:
 be distinct in nature
 have an ascertainable money value
 pass from lessee to lessor or sub-lessee to sub-lessor
 be paid in addition to or in lieu of rent
A lease premium does not include a consideration paid by a lessee to a predecessor lessee for the
acquisition of the right to the lease. On the other hand there can be a lease premium between a sub-lessee
and a sub-lessor.
A premium is actually a price for the “right of use” of land or buildings, plant or machinery, patents,
trademarks etc. A landlord and prospective tenant may provide in a lease agreement that, over and above
the normal rent, a lump sum be paid to the lessor for the right to occupy premises or for the use of an asset
so leased. These and similar amounts constitute premiums and thus form gross income in the hands of the
lessor as long as they are receivable for the right of use or occupation.
In the hands of the lessor section 8(1) (d) of the Act considers lease premium as part of his gross income.
On the other hand lease premiums are a deduction in the hands of the lessee in terms of Section 15(2)(d).
A premium is taxable in full in the year of its accrual to the lessor. The fact that a premium is taxable

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have, in some instances, prompted taxpayers to avoid calling it as such in preference to defining it as
capital item which would of course escape the provisions of section 8(1)(d).
As mentioned above, section 15(2)(d) of the Income Tax Act provides for the deduction of an allowance
in respect of a premium or consideration which is paid by a lessee to a lessor for the right of use of an
asset used by the lessee for the purposes of trade or in the production of income. In cases of dual use
apportionment comes in. The deduction may not, in respect of any single year, exceed an amount
determined by dividing the total premiums by the number of years representing the duration of the
agreement. However, if the lease period is longer than 10 years or for an indefinite period the amount of
the annual deduction is determined by dividing the total premium by ten.
If the lessee has an option to renew the lease such option is ignored in determining the amount of the
annual deduction and thus only the initial period is considered.
In the year in which the lease commences or terminates or where there is a cessation of use for the purposes
of trade an apportionment of the allowance is effected as regards the respective periods. On acquisition of
ownership the lessee will cease to qualify for any allowance in the year of assessment following.
Lease premiums/Summary
Gross Income: Section 8(1) (d) Deduction: Section 15(2)(d)

(in hands of lessor) (in hands of lessee)
Definition
A premium
Or like consideration
Or consideration in the nature of a premium
Paid for
The right of use or occupation of land or building; or plant, or machinery ; or patent, design, trade mark,
copyright, model, plan, secret process or formula ; or any similar property, films, sound recording or
advertising matter, imparting of any knowledge etc.,
Used/occupied for the purposes of trade

or in the production of income
(apportion between business and private use)
Taxation (Income) Deduction (Expense)
Tax in full in the year of accrual Yearly allowance:- premium

divided by period of lease,
or 10 years, whichever lesser.

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Where period of lease not stated, use ten years
Where period extended, use initial period only in calculations
In year in which lease commences/ceases or cessation of use for business, apportion as appropriate.
Notes :
(a) For use of knowledge, Commissioner’s discretion applied for period, normally
not less than one tenth (1/10).
(b) On acquisition of ownership the lessee will cease to qualify for any allowance
in the tax year following acquisition.
(c) Any allowances previously claimed which have been applied in reduction of
purchase price are recoupments brought into gross income by Section 8(1)(l).
(d) Lessee can make an election to spread the recoupment mentioned above in (c)
over six years. If property is disposed of by lessee before the expiry of six years
all outstanding instalments not yet taxed immediately become taxable in the year
of disposal of such property.
(e) Leasing of passenger motor vehicles
What is more tax efficient, to lease a passenger motor vehicle, purchase it on

hire purchase or borrow funds and pay for it outright? What are the specific tax
implications of each; and what are the implications in relation to finance lease
versus operating lease?
(i) For Value Added Tax (VAT) purposes a lease is an instalment credit
agreement (defined) whose time of supply is the time the goods are
delivered or when any payment is received by the supplier and will be
subject to VAT on the cash value (excluding finance charges).
(ii) The lessor can claim SIA or wear and tear on the full cost of the assets
purchased for leasing, under both financial and operating leases. The
exception arises where the lessee or other person has an option to purchase
the asset at the end of the lease; in that case only wear and tear can be
claimed. (Paragraph 2(iii) of 4th schedule).
(iii) The lessee can claim deduction of the lease premiums (made up of both
capital and finance charges). In the case of the leasing of a passenger
motor vehicle, the deduction is restricted to a maximum of $10 000.
(Section 16(1)(k) of Income Tax Act).
(iv) Where the lessee or other person exercises the option to purchase the
leased asset at the end of the lease period, recoupment may arise if the
asset is sold at a price which is less than the market value. This
recoupment could be taxed over six years, if taxpayer so elects.

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(v) Under a hire purchase agreement, VAT is payable on the cash value, or
the amount at which the goods would in normal circumstances be sold for
cash (excluding finance charges).
(vi) Cost of leased vehicles to lessor under both operating and financial
leases.
Any vehicle purchased for leasing purposes is not restricted in cost, under
both financial and operating leases. (Paragraph 14(2)(c) of 4th schedule).
Under a financial lease (where lessor is not entitled to the return of the
asset at the end of the lease period - i.e. option exists), the lessor can only
claim wear and tear on actual cost without restriction. SIA is not available
under this option.
Under an operating lease (where lessor entitled to the return of the asset
at the end of lease period), SIA or wear and tear can be claimed, again on
the actual cost.
Please note that while the vehicles are not restricted in cost for the lessor
under both financial and operating leases, the restriction in cost (of
passenger motor vehicles) do apply to lessees as provided for in Section
16(1)(k) of the Income Tax Act.

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STUDY UNIT 1.9
LEASE IMPROVEMENTS – Sections 8(1)(e) and 15(2)(e)


The owner of a vacant piece of land may enter into a lease for say 20 years in terms of
which, in addition to rent, it is agreed thatthe lessee is obliged to erect a building which
 will become the property of the landlord.

Alternatively the trader may find a building, which is near to his requirements but which
needs substantial additions, and again he may undertake an obligation that he will carry
these out at his own expense.In either case the value of the improvements is gross income
in the hands of the landlord.
Gross Income Lease Improvements section 8(1) (e)


Section 8(1) (e) of the Income Tax Act brings into the lessor’s gross income the value of
improvements effected by the lessee in terms  of an obligation in the lease agreement
granting the right of use of land or buildings.
 
 This Section is complementary to Section 15(2)(e) which allows the expenditure as a
deduction to the lessee.

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
However it should be noted that the value to be brought into gross income is that stipulated
in the agreement. If there is no stipulated value, an amount representing, in the opinion of
the Commissioner, a fair and reasonable value of improvements should be brought into

gross income. In practice the Commissioner normally takes the actual cost unless the
 lessor proves it to be unreasonable.

For instance where an agreement states that improvements to the value of $200, 000 are
to be erected it is this amount, which is considered as the value of the lease improvements.
If instead the cost rises to $350, 000 the extra $150,000 is voluntary on the part of the
 lessee and thus does not fall within the provisions of section 8(1)(e).

If the lease requires the erection of specified improvements to a stated minimum value,
the amount on which the lessor will be taxed is the fair and reasonable value e.g. cost and
not merely the minimum amount stated. This is simply because the lessee must meet the
 lessor’s requirements even if the cost exceeds the stated minimum.

The value of the improvements is taxable over a maximum period of ten years. The date
of accrual of the lease improvements is the date such improvements were effected or
completed. The amount is taxable in equal monthly instalments over the unexpired period
of the lease. If the period of the lease is indefinite or silent then it is deemed to be 10 years
which is further reduced by the period of construction to determine the unexpired lease
period. Where the lease period is renewable, only the initial period of the lease is taken
 into account.

It has been noted that before any amount can be taxed in terms of section 8(1)(e) it must
be clear that there is a legal and enforceable obligation on the part of the lessee to effect

improvements. In other instances the legal and enforceable obligation might not be
 specifically expressed but can be implied or inferred.

It is also important to note that an upward variation in the building clause prior to
completion of the improvements would result in the revised amount being captured by
Section 8(1)(e) in full. However if the variation of the building clause takes place after

the completion of the improvements, the additional amount cannot be included in the
gross income of the lessor.
CIRCUMSTANCES WHERE ALL FUTURE INSTALMENTS ARE BROUGHT INTO

GROSS INCOME
 On cancellation of the agreement
 On cession or assignment of the agreement

 On sale or any other form of disposal of the land or buildings on which the
improvements were effected.
 On death or insolvency of the lessor.
Deduction of Lease Improvements section 15(2)(e)


The expenditure on the improvements is allowed in monthly instalments beginning in the

year in which the improvements are first occupied or used for the purposes of trade or in
 production of income.

The allowance is calculated by dividing the cost of the lease improvements by the period of
 are used for
the lease or ten years whichever is lesser. Where the land or buildings occupied
both business and private purposes the allowance is apportioned accordingly.

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
It should also be noted that for the lessee to be granted, the deduction on the cost of the
improvements, most of the conditions, which affect the lessor under section 8(1)(e), also
 apply to the former.

Where the lessee acquires the ownership of the improvements in respect of which an
allowance has been made, the lessee will cease to qualify for any allowance in the year of
assessment following. On cessation of use of property for purposes of trade or in the
 only up to the date of cessation therefore
production of income the allowance is granted
an apportionment might have to be applied.
SUMMARY
Where the lease period is given the Where the lease period is not given the
allowance shall be equal to: allowance shall be equal to:
LEASE IMPROVEMENTS LEASE IMPROVEMENTS
The lesser of the UNEXPIRED LEASE 10YRS – CONSTRUCTION PERIOD
PERIOD AND 10 YRS
Special Initial and Wear and Tear On ranking Buildings Erected By A Lessee
1) Where the erection is not in terms of an obligation in the lease

 Lessee – Allow special initial and wear and tear allowances.
 Lessor – No special initial and wear and tear allowances until property is rented out to
another tenant and rent is thus receivable for the building.
2) Where the erection is in terms of an obligation in the lease

 Lessee – Special initial and wear and tear allowances allowable if elected as an
alternative to section 15(2)(e).
 Lessor – Wear and tear allowances only.
3) Where the erection is in terms of an obligation in the lease and the cost exceeds the
stipulated amount
 Lessee – special initial and wear and tear allowances on the whole or the stipulated part
as an alternative to section 15(2)(e) or on the excess if section 15(2)(e) allowance is taken.
 Lessor – wear and tear allowance on the stipulated amount but not on the excess until
the property is re-let to another tenant.
Section 8(1)(1) – Recoupment – Leases
 Where a person who has paid rent for, e.g. a business property, subsequently purchases
it for a price which is diminished as a result of taking into account the rent already
paid, the amount which is then applied in reduction of the purchase price is treated as
forming part of the gross income of the purchaser.
 The same principle applies if the purchase price is reduced by lease premium
previously paid or expenditure incurred by the tenant in terms of an agreed obligation
to effect lease improvements.

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 Where the purchase price is less than fair market price according to the Commissioner
the difference is deemed to have been applied in reduction of the purchase price and
brought into gross income.
 The taxpayer may elect to spread the taxation of the recoupment over six years but if
the taxpayer sells the property before six years the full balance is brought into gross
income in the year of disposal.
LEASE IMPROVEMENTS SUMMARY
Gross income : Section 8(1)(e) Deduction : Section 15(2)(e)
Definition
An agreement for the right of use

or occupation of land and buildings
For the right to have An obligation to

improvements effected effect improvements
Land or buildings must be used

for the purposes of trade or in the production of
income (apportion for business and private use)
An amount or value per Expenditure actually incurred.

agreement. The expenditure incurred shall not exceed
the amount per the agreement.
If no amount stipulated in the agreement,

the amount should be such sum
as the Commissioner considers fair
and reasonable value of such improvements
The amounts taxable in equal The amount is allowable in equal

monthly instalments from the monthly instalments calculated
date the improvements were from the date the improvements
completed to the end of lease are first brought into use, to the
or 10 years whichever lesser. end of the lease period or 10 years
whichever lesser
If the lease is for an initial period and can be renewed,

only the initial period of the lease is taken into account.
If the period of the lease is indefinite then it is deemed

to be 10 years.

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Notes:
(a) On acquisition of ownership, the lessee will cease to qualify for any allowance
in year of assessment following. On cessation of use of property for purposes of
trade or production of income, allowance to be given only up to date of cessation
- i.e. apportion.
(b) The balance will be taxable in the hands of lessor on date of:
 cancellation or cessation of the agreement
 the sale of the land and buildings
 on the death or insolvency, liquidation of lessee
(c) Recoupment is considered under Section 8(1)(l).
Case Law on Improvements
Lease improvements
For a taxpayer to claim a deduction for lease improvements effected, there must
be an obligation to erect such improvements. An obligation, though not
expressed in certain contracts, may be implied as per Rex Tea Room Cinema
(Pty) Ltd vs CIR (1946) 14 SATC 76.
Variation of the Building Clause
(a) COT vs Ridgeway Hotel Ltd (1961) 24 SATC 616
Under the original 99 year lease agreement a hotel building of not less
than $80 000 was to be constructed. When $60 000 had been spent on
construction, Ridgeway hotel approached the lessor (Government in this
case) to alter the figure of $80 000 to $200 000 and this was agreed. The
contention was to decide which amount to use for calculating allowances
for the lessee. C J Clayden ruled that the variation clause entered into
before completion of construction became part of the contract and
therefore the amount to be used was $200 000.
(b) Professional Suites Ltd (1960) 24 SATC 573
In this case it was ruled that a variation of the building clause entered into
after completion of construction of the building would not validate the
change of amount used for calculating allowances.
Question:
Tourism P/L entered into a lease agreement with the Masvingo Municipality effective from 1 July
2016. The agreement in part stated that the lease was for a piece of land in Masvingo extending to
5 acres. The lease would commence on 1 July 2016 and would be for a period of 99 years. The
lessee was obliged to erect a hotel building to the value of not less than $2 000 000. The lessee was
also obliged to pay a premium of $50 000 up front and monthly rentals of $10 000 until the end of
the lease. On the piece of land let there was a municipal hostel which Tourism used as a boarding
house for its benefit until the completion of construction of the hotel, when the hostel

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building was to be demolished. Construction of the hotel commenced on 15th July 2016. In April
2017 when $1 500 000 had been expended on the construction Tourism approached the Masvingo
municipality with a proposal to change the building clause from $2 000 000 to $5 200 000. The
municipality concurred and the hotel was completed in September 2017 at a total cost of
$5 200 000. The hotel opened for business with effect from 1st October 2017.
Required:
Set out the income tax deductions available to Tourism (Pvt) Ltd for the tax years ended 31st
December 2016 and 31st December 2017.
Suggested solution:
Tourism (Pvt)Ltd
Income Tax Deductions for 2016 and 2017 tax years
US$
2016 tax year:
Lease premium : (50 000 / 120) * 6 months 2 500
Rent : 10 000 * 6 months 60 000
Lease improvements : nil

_____________________________________________________________________
2017 tax year :
Lease premiums : (50 0000 / 120) * 12 months 5 000
Rent : 10 0000 * 12 months 120 000
Lease improvement : (5 200 000 / 120) * 3 months 13 000
____________________________________________________________________
Notes:
Dividing by 120 is simply establishing the monthly allowance over 10 years.
$5 200 000 is accepted by the Commissioner for allowance calculation purposes because the
variation to building clause was entered into before completion of construction.

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STUDY UNIT 1.10
Suspensive Sales and Credit Sales (Sect 17 & 18)
Section 17 and section 18 of the Income Tax Act outline the basis of taxation of amounts
accruing under hire purchase and under credit sales.
 Under these agreements the full amount of sale is receivable in instalments, which
may stretch into years.
 For tax purposes the full sale price is deemed to accrue on the date of signing of the
sale agreement.
 This would mean that taxpayers are “taxable” on amounts not yet received.

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 However, sections 17 and 18 provide deductions which enable taxpayers to be taxable on

profit which relate to amounts which have become due and payable in each tax year.
 A calculation of the profit relating to amounts which are not yet due is made and deducted.
 This amount is added back to gross income in the subsequent year when a fresh calculation
is then made.
In the case of hire purchase sales (section 17) the allowance is calculated in accordance with
the following formula:
Example:
Alpha Electronics (Pvt) Ltd is a retail shop selling televisions on credit to approved customers.
Each television cost Alpha Electronics (Pvt) Ltd $400. The 50 television sets were bought in 2015.
You are given the following information for the year ended 31 December 2017.
20 sets sold in April 2015 at $600 each
16 sets sold in October 2015 at $600 each
14 sets sold in March 2016 at $600 each
The terms of agreement requires the customer to pay a deposit of 25% on date of sale and the
remainder payable over 20 months in equal instalments commencing the month following that
of sale.
Required: Compute the taxpayer’s taxable income for each year during the credit period
Solution
2015 2016 2017

Sales 21,600 8,400 -
Less Cost of sales (14,400) (5,600) -
Opening stock - 2,800 -
Purchases 20,000 - -
Less closing stock (5,600) - -
Gross Profit 7,200 2,800 -
Add s 17(1) Allowance b/f - 3,960 1,875
Less s17 (1) Allowance (w1) (3,960) (1,875) -
Taxable Income 3,240 4,885 1,875

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Workings
Monthly instalments/set: = ($600 – (25% x $600))
20
= $22.5
Allowance = Gross Profit x Debtors not yet due

Sales
Gross Profit ratio = $7,200/$21,600 X 100%

= 33 1/3%
NB Once this is found it is applied throughout the period of credit unless there is a change in
price system
Debtors’ schedule
2015 2016 2017
Balance b/f Nil 11,880 5,625
Sales 21,600 8,400 Nil
Less Receipts (9,720) (14,655) (5625)
Deposit 5,400 2,100
Instalments
20 sets 3,600 5,400 Nil
16 sets 720 4,320 2,160
14 sets Nil 2,835 3,465
Closing balance 11, 880 5,625 Nil
Section 17 Allowance* 3,960 1,875 Nil
*The allowance is calculated by multiplying the closing balance with 33 1/3%.
Construction contracts

For Income tax purposes, income from construction contracts is taxable based on what is due
and payable in the tax year, i.e. based on percentage of completion and progress payments due.
Amounts received in advance are held in trust and would not be taxable. Please refer to the
provisions of section 15 (2) (cc)

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APPLIED ZIMBABWE TAX
CTA 2
TUTORIAL 2

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TUTORIAL 2 / TEST 2
Study Unit 2.1 Withholding taxes
Study Unit 2.2 Transfer Pricing
Study Unit 2.3 International Tax and Permanent Establishment
Study Unit 2.4 Capital Gain Tax

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STUDY UNIT 2.1
WITHHOLDING TAXES:
RESIDENT SHAREHOLDERS’ TAX [R.S.T.]
Dividends from Zimbabwean companies which are distributed to locally resident individuals , trusts and
partnerships are subject to a withholding tax.
The rates of resident shareholders' tax on dividends paid by Zimbabwean resident companies to non-
resident individuals, trusts and partnerships are as follows :-
 Payable by companies listed on the Zimbabwe Stock Exchange, 10%
 Payable by non-listed entities, I5%.
 Payable within 10 days of the date of distribution.
No tax is withheld on dividends distributed from one Zimbabwean resident company to another.
NON-RESIDENT SHAREHOLDERS’ TAX [N.R.S.T.]
Dividends from Zimbabwean companies which are distributed to non residents are subject to a withholding
tax.
The rates of non-resident shareholders ' tax on dividends paid by Zimbabwean resident companies to
non-resident shareholders are as follows:-
 Payable by companies listed on the Zimbabwe Stock Exchange, I0%
 Payable by non-listed entities, 15%.
 Payable within 30 days of the date of distribution.
RESIDENTS' TAX ON INTEREST (R.T.I.)
RTI is payable on interest payable by a local financial institution to a person ordinarily resident in
Zimbabwe . RTI is not payable on interest payable to another financial institutions.
Residents' tax on interest is deducted at a rate of 15%.
A fixed deposit with a tenure of at least 12 months is exempt from RTI.
RTI is payable by the 10th day of the month following date of payment.
NON-RESIDENTS’ TAX ON INTEREST (NRTI)
The 10% NRTI was repealed with effect from 15th August 2009.
WITHHOLDING TAX ON NON-EXECUTIVE DIRECTOR'S FEES
Withholding tax on non-executive directors is deducted at a rate of 20% and is payable

within 10 days of the date of payment of the fees.

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NON-RESIDENTS' TAX ON FEES (NRTF)

NRTF is payable on fees paid to non residents in respect of technical , managerial , administrative or
consultancy services.
Fees for export market development are exempt from NRTF.
The rate of withholding tax on fees is 15%.
This does not includes directors’ fees to non residents .
NRTF is payable within 10 days of the date of payment.
NON-RESIDENTS' TAX ON ROYALTIES (NRTROY)
The rate of withholding tax on royalties is 15%.
The withholding tax is chargeable on royalties paid to non-residents for the use of patents,
trademarks, formulae, equipment, motion picture etc.
NRTROY is payable within 10 days of the date of payment.
WITHHOLDING TAX ON TENDERS
A 10% withholding tax is charged where a supplier of goods and services does not hold a
valid tax clearance.
Withholding tax on contracts shall be payable by the tenth day of the month following that in
which the payment was made.
NON RESIDENTS TAX ON REMITTANCES
A 15%. tax is withheld on amounts remitted outside Zimbabwe in respect of allocable expenditure
of a technical. administrative , technical and administrative nature.
WITHHOLDING TAX ON FOREIGN ARTISTS
A 15% withholding tax is deducted on fees payable to foreign performing artists and is
payable within 10 days of the date of payment of the fees.
PROPERTY AND INSURANCE COMMISSION TAX
A 20% withholding tax is deducted on fees payable to freelance property and insurance
consultants and is payable on the 10 day following the month of payment of the transaction.
AUTOMATED FINANCIAL TRANSACTIONS TAX [AFT]
AFT at 5% applies on transfer or withdrawal from an ATM machine and on transfer of funds
from a financial institution to a mobile platform. and is payable on the 10 day following the
month of the payment of the transaction.

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INTEMEDIATED MONEY TRANSFER TAX [IMFT]
IMFT at 5% applies where a financial institution or a mobile banking service operator transfers
money between 2 persons and is payable on the 10 day following the month of the payment of
the transaction.
ROYALTIES: ROYALTIES RATES
The rates of mineral royalties are listed below -
Diamonds 15
Other precious stones 10
Platinum 10
Gold small scale 1
Gold large scale miner 5
Other precious minerals 4
Base metals 2
Industrial metals 2
Coal bed Methane 2
Coal 1
RESUMPTIVE TAXES
 Restaurants and Bottle Stores

Operators of restaurants or bottle stores not registered for tax purposes will pay a
presumptive tax of US$70 per month.
 Cottage Industry Operators

Operators of cottage industries not registered for tax purposes will pay a
presumptive tax of US$70 per quarter.
The definition of cottage industry includes:-

• Furniture making or upholstery
• Metal fabrication
 Informal traders : 10% of rentals
 Cross border traders : 10% of commercial goods.

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STUDY UNIT 2.2
TRANSFER PRICING
Introduction
Transfer pricing (TP) continues to be a major concern for may tax authorities the world over. Many
have put in place TP policies that would help to address the concerns. Africa is also keen to put in place
policies that would address TP issues. South Africa is the most active country in legislating for transfer
pricing matters. Namibia has also legislated for TP so has Zambia and Tanzania.
Zimbabwe has TP legislation which became effective from 1 January 2016. In terms of section 98B of
the Income Tax Act as read together with the 35th schedule to the Income Tax Act, a person entering
into a transaction with an associated person, must ensure that the price of such transaction is consistent
with the arms’ length principle. Where such price is not consistent with the arms’ length price, the
Commissioner may adjust the price so as to make it consistent with the arms’ length price. The VAT
Act also covers to some extent in section 9(4), the valuation of transactions between connected persons,
where the open market value may be applied on particular transactions.
What is Transfer Pricing?
The price at which divisions of a company transact with each other. TPs are used when individual
entities of a larger multi-entity firm are treated and measured as separately run entities. When
independent parties deal with each other, external market forces, such as supply and demand, ordinarily
determine the conditions of their trading. When associated parties (mainly multinational companies
(MNC) deal with each other, external market forces may not directly determine their conditions of
trade. Their main objective is to increase group profitability while minimising tax.
Most TP issues hover around the objective of lowering taxation. TP concerns itself mainly where profits
are shifted from a high tax jurisdiction to a lower tax jurisdiction.

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Illustration
An MNC has a manufacturing plant in Zimbabwe and sells finished goods to a branch in Botswana.
Assume production cost of one product is $5 and selling price of the finished product in Botswana is
$15. The combined profit for the product is $10. The allocation of the profit will be determined by the
price at which the product will be transferred to Botswana. This price is referred to as the transfer
price. The MNC may set a price which is equal to the cost or vice versa as per tables below.
Zimbabwe Operation Botswana Operation
Transfer Price $5 (SP) Transfer Price $5 (PP)
Sales $5.00 Sales $15.00
Cost ($5.00) Cost (5.00)
Profit (0) Profit $10.00

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The reverse could also happen in illustration below:
Zimbabwe Operation Botswana Operation
Transfer price $15.00 (SP) Transfer Price $15.00 (PP)
Sales $15.00 Sales $15.00
Cost ($5.00) Cost ($15.00)
Profit $10.00 Profit $0.00
The transfer price adopted in the above example determines where the profits are sourced.
Consequently, it also determines whether tax is imposed on the amount of income truly attributable to
each jurisdiction which the MNC operates in. For host taxing authorities, the focus of transfer pricing
rules is to ensure that the proper amount of income is attributed to its jurisdiction. The arm’s length
principle may then be applied.
Arm’s Length Principle
The arm’s length principle is stated in paragraph 1 of Article 9 of the Organisation for Economic Co-
operation and Development (OECD) Model Tax Convention. It essentially entails that the amount
charged by one related party to another for a given product should be the same as if the parties are
not related. Fundamentally it operates on the notion that the operation of market forces results in a
true return to the economic contribution of the participants in a transaction.
Merits of the Arm’s Length Principle
 It is considered to provide most accurate measurement of the fair market value of the
 true economic contribution of members of a MNC.
 Parties transacting at arm’s length would be expected to endeavour to make efficient use of
 their resources
 It results in parity of tax treatment for multinationals and independent entities.
 It avoids the creation of tax advantages and disadvantages
Commonly Used Methods of Determining Arm’s Length Price
The arm’s length price may be determined by using one or more of the following commonly
used methods:
 The comparable uncontrolled price (CUP)
 The resale price method

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 The cost plus method

 The profit split method
 Comparable profits method
Illustration
Manufacturing Co
Sales to Distributor Co $10,000 Transfer Price
Less Manufacturing costs ($5,000)
Gross Profit $5,000
Operating Expenses ($3,000)
Net Profit $2,000
Distributor Co
Sales to third parties $20,000
Less purchases from manufacturing co ($10,000) Transfer Price
Gross Profit $10,000
Operating Expenses ($4,000)
Net profit $6,000
Comparable Uncontrolled Price (CUP)
It focuses directly on the price of goods transferred between transacting parties. The price charged between
independent parties forms the basis for determining the arm’s length price under CUP. The issue to be
determined in illustration above is to determine whether the $10,000 charged is consistent with the price
adopted by the independent firms for a comparable product in comparable circumstances.
Resale Price Method
It focuses on the gross margin obtained by the distributor. This margin represents the amount from
which the reseller would seek to cover its selling and other operating expenses and make a profit. The
margin obtained by independent distributors supplying similar goods and similar conditions is used
as the basis for determining the appropriate margin for the member of the MNC.

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In the illustration above, the gross profit margin obtained by Distributor Co. is 50% (10000/20000). The
issue to be determined is whether this margin is consistent with the gross margin earned by independent
distributors performing similar functions and bearing similar risks to those of the MNC.
Cost Plus Method
It focuses on the gross mark-up obtained by the manufacturer. The arm’s length price is determined
by adding a mark-up to the costs incurred by the member of the MNC to determine an appropriate
profit. This mark-up is determined by reference to the mark-ups earned by comparable independent
manufacturers performing comparable functions.
In the illustration above, gross mark-up by the Manufacturer is 100% ((10000-5000)/5000). The issue
is to determine whether this mark-up is consistent with gross mark-up by independent manufacturers in
similar circumstances with the member MNC.
Profit Split Method
Starts by identifying the combined profit to be split between the related parties in the controlled
transaction. Combined operating profit is commonly used though the gross profit may also be used.
That profit is then split between the parties. The issue again is to determine whether the split is
consistent if done in an arm’s length agreement.
In the e.g. the combined operating profit of the Manufacturing Co and The Distributing Co is
$8000 ($2000 plus $6000).
Another method of determining the profit split might be on the basis of the relative contribution of each
member on that profit.
Comparable profits method
These are ranges of methods that examine the net profit margin realised by a taxpayer from a controlled
transaction relative to an appropriate base. Possible bases include the return on assets, operating income
to sales, and other suitable ratios. The method is globally referred to by the OECD as the “transactional
net margin method” (TNMM)
In the illustration above, the Distributor may apply the net profit to sales, giving a net margin of 30%
($6000/$20000). The issue to be then determined is whether this net margin is consistent with the net
margin earned by independent distributors performing comparable functions to those of the MNC.
Of the methods discussed, none is superior to the other. The use of the pricing methods is dependent
on the quality of data and a taxpayer’s circumstances. The availability of data is very important in
taxpayer’s choice of method.
Conclusion
Transfer pricing (TP) is becoming a topical issue in many tax jurisdictions. Zimbabwe now has TP
legislation.. In Zimbabwe, TP is not only restricted to cross border transactions. Even pricing
arrangements between local companies in the same group receive the same scrutiny as MNCs by
ZIMRA. It is therefore apparent that businesses take a keen interest in TP. When dealing with MNCs it
is important for one to engage ZIMRA and apply for advance pricing agreements (APA)

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STUDY UNIT 2.3

INTERNATIONAL TAX, PERMANENT ESTABLISHMENT
2.3 International Taxation
2.3.1 International taxation is the study or determination of tax on a person or business subject to the tax
laws of different countries or the international aspects of an individual country’s tax laws as the case
may be. Governments usually limit the scope of their income taxation in some manner territorially
or provide for offsets to taxation relating to extraterritorial income. The manner of limitation
generally takes the form of a territorial, residency, or exclusionary system. Some governments have
attempted to mitigate the differing limitations of each of these three broad systems by enacting a
hybrid system which characteristics of two or more.
2.3.2 Taxation of Individuals
Residents and Non – residents
Territoriality
Individuals wherever resident, are subject to income tax in Zimbabwe on Zimbabwe – source
income. In addition, resident individuals are subject to tax on income deemed to be from Zimbabwe
source. The following income is deemed to be income from a Zimbabwean source:
 Foreign interest and dividends;
 Foreign – source purchased annuities;
 Income from the use of any patent or trademark in Zimbabwe;
  Pensions for services rendered in Zimbabwe;
 Remuneration for services rendered as an employee during absences of more than 183
 days during an assessment year;
 Remuneration for services rendered or to be rendered in Zimbabwe in the course of any
trade (including any profession or occupation), regardless of where or by whom payments
 is made; and
 Remuneration for services rendered to the Zimbabwe government.
Certain provisions deeming income to be from a Zimbabwean source apply only to ordinary
residents of Zimbabwe (for the definition of an ordinary resident, see Residents and Ordinary
Residents, below).
Residents and Ordinary Residents
The distinction between residence and ordinary residence is important in applying the provisions of
double tax treaties. The term “resident” and “ordinary resident” are not defined by legislation;
however, in most cases, ordinary residence is obvious. For example, taxpayers are ordinary residents
if their only residential property and places of business or employment are in Zimbabwe. In other
cases, the country of ordinary residence generally is where a person’s most fixed abode is located.
Expatriate employees who receive residence permits for relatively short periods are not regarded as
ordinary residents, but are resident in Zimbabwe for the duration of their contract.
2.3.3 Taxation of Expatriates
Remuneration for services rendered or to be rendered in Zimbabwe is taxable in Zimbabwe,

regardless of where or by whom it is paid. Consequently, expatriates are taxable on their income
from Zimbabwean employment, including acceptance bonuses and bonuses paid after termination
of employment. Tax paid by employers on behalf of employees constitutes a taxable benefit to the
employees.

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Expatriates may be exempt from tax under the terms of applicable double tax treaties if payment is
made by foreign employers and if the employees are present in Zimbabwe for less than 183 days
in a tax year.
2.3.4 Taxation of Non – residents
Non – residents are subject to income tax on Zimbabwe – source income. In addition, withholding
tax is imposed on interest, dividends, royalties and fees of a technical or consultative nature.
2.3.5 Withholding Taxes
Tax is withheld from payments to non – residents of, dividends, fees of a technical, managerial or
consultative nature, royalties and certain remittances. In general, withholding tax may be credited
against income tax liability attributable to the same items. The rate of withholding tax is 15%.
Double tax treaties may provide for the reduction of withholding tax rates.
2.3.6 Foreign Tax Exemption and Credit
Foreign taxes are not deductible from income, but credit is allowed for foreign tax paid on income
taxed both in the source country and in Zimbabwe. The credit allowable is limited to the lesser of
the Zimbabwe tax attributable to the income and the foreign tax paid.
2.3.7 Taxation of a Foreign Branch
Since Zimbabwean income tax is source based, business profits accruing to a foreign branch
situated in Zimbabwe, as a result of business operations in Zimbabwe, will be subject to
Zimbabwean income tax.
Where the country of residence does not have a Double Tax Agreement (DTA) with Zimbabwe, all
profits from Zimbabwean source will be subject to tax in Zimbabwe.
Where the country of residence of the foreign incorporated company has a DTA with Zimbabwe,
and the branch in Zimbabwe operates through a “permanent establishment”, then the profits will
be taxable in Zimbabwe in terms of the DTA and where the branch does not operate through a
permanent establishment; the profits will be payable only in the foreign country.
The remittance of any branch profits does not attract any withholding tax.
2.3.8 Transfer of Branch Profits
The transfer of branch profits is unrestricted if the profits are derived from trading, have been taxed
and relate to the current year. Audited financial statements must be accompanied by an auditor’s
certificate confirming that the portion of the net income out of which the transfer of branch profits
is paid is derived from the sale of non-trading assets.
2.3.9 Double Tax
Zimbabwe has entered into double tax treaties with a number of countries.
Businesses operated in Zimbabwe by non – Zimbabwean enterprises generally are taxable on their
Zimbabwe – source profits. However, most double tax treaties specify the country that has the right
to tax the income of a permanent establishment (as defined in the particular treaty) and the extent of
the income to be taxed.

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Non – resident Companies
Branch of non – resident companies are subject to income tax on their Zimbabwe source
income under the same rules as local companies.
Capital gains derived by branches of foreign companies from the sale or disposal of
Zimbabwean marketable securities or immovable property are subject to capital gains tax.

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STUDY UNIT 2.4
CAPITAL GAINS TAX
Capital Gains Tax
Authority for the levying and collection of capital gains tax is in terms of section 6 of the Capital
Gains Tax Act(Chapter 23:01).
- Capital gains arising from the disposal of immovable property and marketable
securities, acquired after 1st February 2009 are taxed at a flat rate of 20%.
- Capital gains arising from the sale of a principal private residence by an individual
who has attained fifty-five years on or before the date of sale are exempt from tax.
- Capital gains arising from the sale of marketable securities are exempt from tax up
to $1,800 if the seller is fifty-five years or over on the date of sale.
- The disposal of listed marketable securities that were acquired before 1 February
2009 is subject to capital gains tax at 5% of the gross capital proceeds.
- The disposal of marketable securities listed on the Zimbabwe Stock Exchange that
were acquired after 1 February 2009 is exempt from capital gains tax but subject to a
capital gains withholding tax of 1% of the gross capital proceeds.
- The disposal of marketable securities that are not listed and were acquired after 1
February 2009 is subject to capital gains tax at 20% (and capital gains withholding
tax of 10%).
- “Marketable security” is a defined term, which includes shares in private companies.

To be taxable, the proceeds must be from a source within Zimbabwe.
- The disposal of immovable property that was acquired before 1 February 2009 is
subject to capital gains tax at 5% of the gross capital proceeds.
- The disposal of immovable property that was acquired after 1 February 2009 is
subject to capital gains tax at 20% of the gross capital proceeds (and capital gains
withholding tax of 15%).
- The main deductions which are allowed in the determination of a capital gain are the
cost of the asset together with any additions after acquisition and an inflation
allowance of 2½% per annum.

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The framework for establishing capital gain is as follows:-
Total receipts or accruals (deemed or actual) from a Zimbabwean Source (deemed or

actual) from the sale or disposal of a specified asset
Less
amounts of a gross income nature and recoupments of section 11(2) allowances
== Gross Capital Amount
Less
Exemptions (section 10 of CGT Act)
== Capital Amount
Less
Allowable Deductions (section 11 of CGT Act)
== CAPITAL GAIN
If the total computed aggregate gain in a year of assessment is $50 or less no tax is payable.
A computed loss may generally be carried forward against future gains.
Specified assets are:
 immovable property ; and


 any marketable security.
Deemed sales [section 8(2)]
(a) Where amount accrued and amount actually received varies due to exchange
rates, effect shall be given to the amount actually received in Zimbabwe dollars.
(b) Disposal other than by way of sale, Commissioner deems specified asset to have
been sold at market price of such asset.
(c) Expropriations - asset deemed sold at expropriation/compensation price.
(d) Sold in execution of court order - deemed sold for price realised.
(e) Maturity or redemption of specified asset - asset deemed sold for maturity amount
or redemption value.
(f) Transfer under a deed of sale.

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Gross Capital Amount – Sect 8 (1) (a)


means the total amount received by or deemed to have been received by a person in
any year of assessment from a source within Zimbabwe from the sale on or after the
1st August, 1981, of specified assets “excluding” any amount so received or accrued
which is proved by the taxpayer to constitute “gross income” and includes any amount
 allowed to be deducted in terms of subsection (2) of section eleven which has been
recovered or recouped:
 
Deemed sales Sect 8 (2)
 Disposal other than by way of sale, Commissioner deems specified asset

to have been sold at market price of such asset.
 Expropriations - asset deemed sold at expropriation/compensation price.
 Sold in execution of court order - deemed sold for price realised.
 Maturity or redemption of specified asset - asset deemed sold for maturity amount
or Redemption value.
Cession of properties
Cession of property rights are subject to capital gains tax with effect from 1st January 2014.
Membership interest in condominium
With effect from 1 January 2014, capital gains tax will be levied where a person relinquishes a
membership interest in a condominium in favour of another person.
Condominium refers to a company, partnership or other association that owns immovable property
such as flats, apartments or residential units where members have a right to occupy properties for
accommodation or to a time sharing interest in such property.
Exemptions from capital gains tax (section 10)
(1) Disposals by bodies mentioned in paragraph 1,2 and 3 of 3rd schedule to income
tax Act, except disposals by those bodies mentioned in paragraph 2(a), (c) and (f)
of 3rd schedule :- namely
(a) Agricultural, mining and commercial institutions or societies not operating
for the private pecuniary profit or gain of the members
(b) Building societies
(c) Employees’ savings schemes or funds approved by the Commissioner.
(2) Realisation/distribution by executor of specified assets forming part of a

deceased estate.
(3) Sales of marketable security being bond or stock in respect of :-
- Any loan to the state, or any company all the shares of which are owned
by the state,
- Local authority
- A statutory corporation

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(4) Insurance business re factor F or G in paragraph 6 of eighth schedule.
(5) Disposal of shares in the Zimbabwe Development Bank.
(6) Disposal of immovable property by petroleum operator to another petroleum

operator, provided buyer would use property for petroleum purposes.
(7) Receipts and accruals from sale of specified assets by licensed investor.
(8) Receipts and accruals of an industrial park developer.
(9) Amounts received or accrued on disposal of shares withheld by an insurance

company (recoupment by an insurance company in a demutualisation)
(10) Amounts received by or accruing to an employee from the sale or disposal of his
shares or interest in an approved employee share ownership trust where such sale
or disposal is to the trust.
(11) Amounts received by a person on the sale of his or her principal private residence
if such person was, on the date of the sale, of or over the age of fifty-nine years.
(12) Amounts received by or accruing to a person who is of or over the age of fifty-
five years on the sale of any marketable security, other than a marketable security
referred to in paragraph in respect of the $1 800 received by or accruing to him
or her in the year of assessment concerned.
(13) Amounts accruing from listed shares which are subject to the 1% withholding
tax.
(14) Market price of shares sold to an indigenisation partner
With effect from 1 January 2013, disposals of shares under an indigenisation

scheme are exempt from CGT. The exemption is restricted to: -
“the amount by which the fair market price of shares sold to an indigenisation
partner or community share ownership trust or scheme exceeds the actual price
at which those shares were sold”.
DEDUCTIONS
Section 11(1):
Where amount of liability incurred and amount actually paid differ due to exchange rate variation,
then effect shall be made of the amount actually paid in Zimbabwe currency.
Section 11(2)(a) :
Costs of acquisition of specified asset which has been sold, excluding amounts allowable as
deductions for income tax purposes.
NB: - Asset acquired by inheritance - taxpayer deemed to have incurred cost equal to estate
valuation.

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Asset acquired otherwise than by way of purchase of inheritance - if acquired prior to 1st August
1981, taxpayer deemed to have incurred cost equal to market value at time of acquisition, if acquired
after 1st August 1981, cost is the gross capital amount as established in the hands of person from
whom acquired.
Section 11(2)(b) :
Expenditure on additions, alterations or improvement of specified asset, excluding deductions

allowable for income tax purposes.
NB: In the case of capital amount arising from the sale of shares in a company which owns
immovable property, any expenditure incurred by seller on additions or alteration to the
property shall be deemed to be expenditure incurred on addition to shares.
Section 11(2)(c) :
An amount determined by applying the Consumer Price Index at the times of sale and purchase on;
1) Amounts referred to in section 11(2)(a) other than amount relating to

Building Societies, and
2) amounts referred to in section 11(2)(b), and
3) the amount of any expenditure in respect of which a deduction is allowable for

income tax purposes, by way of allowance in terms of the 4th schedule, 5th
schedule, 7th schedule paragraph 2(c), (e) or (f) in respect of each year or part
thereof from the date of construction, acquisition, alteration, addition or
deemed addition or alteration, to date of sale.
NOTE:
Section 39A(9)(b) of the Finance Act which replaces section 11(2)(c) by an
inflation allowance of 2½% per annum with effect from 1st February 2009.
Section 11(2)(d) :
Selling expenses
Section 11(2)(e) :
Bad Debts from previous or current disposal of specified asset.
Section 11(2)(f) :
High Court Costs where appeal was fully or substantially successful.
Section 11(2)(g) :
Supreme Court costs where appeal fully or substantially successful.
Section 11(2)(h) :

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After above deductions, where profit is $50 (the effective amount is nil and the paragraph is merely
academic) or less, an amount equal to such amount shall be allowed as a deduction.
Section 11(3):
Taxpayers shall be allowed to deduct any assessed capital loss brought forward; but not those
declared insolvent or had their property or estate assigned for the benefit of creditors.
A company registered under the Companies Act, which converts into a private business corporation
can carry forward its loss ; and vice versa.
Section 11(4):
A taxpayer shall claim a deduction only under one provision of the Act.
Section 11(5):
Owners of immovable property who have been taxed on value of improvements in terms of section
8(1)(e) of the income tax act, shall be deemed to have incurred a cost equal to such amounts as have
been taxed.
Section 11(6):
Deed of sale deemed an acquisition.
Section 12:
No deduction shall be allowed in connection with exempt disposals.
Section 13: Damage or destruction of specified asset
Any asset damaged or destroyed shall be deemed to have been sold for the amount of compensation
receivable. Where the Commissioner is satisfied that the whole amount of, or part of proceeds shall
be expended within two years on purchase or construction of a further specified asset, or repair of
damaged asset, then such amounts shall not be deemed proceeds of sale.
Section 14: Determination of fair market price
The Commissioner has power to vary selling price or purchase price if he is of the opinion that the
price given is at variance with the fair market price.
Section 15: Elections postponing the payment of Capital Gains Tax
Transfer of specified assets between companies under the same control in the course of group
reconstructions, mergers and other similar business operations.
The following elections must be made by the time the returns for assessment are submitted.
Election available (notwithstanding the terms of the sale) to transfer specified asset at the amount
equal to the deductions established in the hands of the seller. If asset eventually sold to someone
outside the group then recoupment calculated as if the original seller was selling.

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Section16:
Transfer between spouses - election to transfer at amount equal to deductions available.
Section 17:
Transfer of specified asset by individual to company under his control - same election as above
available.
Section 18: Sale of immovable property under suspensive conditions
Capital gain relating to amounts not due at year end allowed as a deduction, but to be added back
the following year, when a fresh calculation is then made, if applicable.
Formulae: A*(B-C)
_______
Where: A = Portion of proceeds not yet due
(B-C) = Capital Gain accrued on sale
D = Total proceeds on sale
Example
In the year ended 31 December 2017 a taxpayer sold a property for $60,000 under a suspensive
sale agreement payable $40,000 in 1st year and $20,000 in second year.
The property had been acquired in December 2016 for $40,000. Calculate CGT as 31 December
2017
Solution
Proceeds 60,000
Less deduction
Cost (40,000)
Inflation allowance ($40,000*2.5%*2) (2,000)
Capital Gain 18,000
Less Section 18 allowance ($20,000/$60,000 * $18,000) (6,000)
Taxable Capital Gain 12,000
Section 21: Provision for sales of principal private residence (PPR)


Where a taxpayer sells a principal private residence and uses the total proceeds to acquire a
 new principal private residence, then capital gains tax shall not be chargeable on such sale.

 If the amount used is less than the actual proceeds thenthe capital gain which relates to the
portion not used shall be subject to capital gains tax.

When the new PPR is sold, the capital gain not subjected to tax previously shall be deducted
from the amount mentioned in section 11(2)(a), i.e. from cost.

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Section 22: Substitution of business property


Where a business property is disposed of and the taxpayer disposing the property satisfies
the Commissioner that the entire proceeds will be utilised to construct or purchase another
business property within two tax years, capital gains tax shall not be chargeable; provided 
that such capital gain will reduce the cost of the new property when it is eventually sold.
Capital Gains Withholding Tax
Withholding tax is computed on the gross proceeds obtained from sale or disposal of a specified
asset. The person responsible for withholding the tax is a depository, a seller or an agent. A
depository is a legal practitioner, a conveyancer, an estate agent, a stockbroker, a financial
institution, a Sheriff or the Master of High Court or any person selling the property on behalf of the
owner of the property.
The following are the applicable withholding tax rates:
 15% on immovable property

 1% on marketable securities listed on ZSE (final tax)
 5% on unlisted marketable securities
Examples
An agent sold Mr B’s house for $100,000. Compute the withholding tax due.
Answer: $15,000 i.e. $100,000 x 15%
The withholding agent must withhold and remit the tax to ZIMRA by the 3rd working day of
receiving the proceeds from the sale of a specified asset. If a depository fails to withhold the tax, an
agent of the seller must withhold it and remit it to ZIMRA by the 3rd working day of receiving by
him of the sale proceeds. Where there are two or more withholding agents, they shall be jointly and
severally liable to deduct and remit the tax. If a withholding agent fails to withhold the tax, the payee
(the owner of the property) must pay the tax by the 3rd working day of receiving the sale proceeds.
The tax shall not be withheld where a tax clearance certificate is held in respect of the sale of the
specified asset.
The withholding tax on marketable securities listed on the ZSE is a final tax, no tax return is
submitted and no further tax is payable.
A tax clearance certificate is issued by ZIMRA once the withholding tax is paid. A tax clearance
certificate is required by the Deeds office to register or effect transfer of the property. It is an offence
to register a specified asset without a tax clearance certificate.
  A copy of marriage certificate for transfer between spouses.

 A CR14 and share register for a transfer from an individual to company controlled by
him.
If the transfer is between companies under the same control, a taxpayer must supply a special board
resolution signed by the Company Secretary or Chairman, an agreement of the proposed mergers
or reconstruction, an organisation chart, a share register of the company and a CR14.

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CAPITAL GAINS TAX
A taxpayer must submit a return for the assessment of capital gains tax. When assessment is done,
the withholding tax deducted at source shall be credited against the capital gain chargeable. The
following is the framework used in the computation of capital gains tax liability:
Gross capital amount xxx

Less amounts taxed under the Main Act xxx
xxx
Less exemptions xxx
Capital amount xxx
Less Deduction xxx
Capital gain / (loss) xxx
Tax thereon @ 20% xxx

Less Withholding tax xxx
Capital gains tax payable / (refundable) xxx

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CTA LEVEL 2
TUTORIAL 3

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Tutorial 3 / Test 3
3. Value Added Tax
3.1 What is VAT
3.2 Definitions
3.3 General operational Aspects of VAT
3.4 Persons Liable for VAT
3.5 Supplies
3.6 Taxable Supplies
3.7 Exempt Supplies
3.8 Importation of Goods and Services
3.9 Accounting and Calculation of VAT
3.10 Input Tax and Documentation
3.11 VAT Registration
3.12 Adjustments
3.13 Payment and Recovering VAT
3.14 Submission of VAT returns
3.15 Assessments
3.16 Penalties and Interest
3.17 Refunds
3.18 Objections and Appeals
3.19 Agents and Principals
3.20 Compliance
3.21 VAT Withholding Tax

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3. TUTORIAL 3 / TEST 3
3.1 BACKGROUND TO VAT
WHAT IS VAT?
Value Added Tax (more commonly known by its abbreviation VAT) is an indirect tax levied on the
supply of goods and/or services.
It is also levied on the importation of goods and, under some circumstances, on the importation of
services.
It is levied and accounted for at the prescribed rates and is borne by the final consumers of the goods
and/or services. For some goods and services, a special rate of 0% is applied, while a limited range of
goods and services are exempt from the tax. Because the tax is borne by the final consumer, it can be
called a consumption tax as the amount of tax one pays is directly related to the purchases made.
The responsibility to administer the VAT rests with the Commissioner General of the Zimbabwe
Revenue Authority.
3.2 DEFINITIONS/ INTERPRETATION-Section 2
CONNECTED PERSON
Means:
 Any natural person and his relatives,
 Any trust in which any natural person’s relatives are beneficiaries.
 Any trust and any beneficiary of the trust
  Any partnership and any member or any person connected to any member
 Any company and any person (other than the company) who, together with his spouse, minor
child or any trust (in which they are beneficiaries are interested in 5% or more of the
 company’s paid up capital or equity or votes).
 Any other company the shareholders of which are substantially the same or which is
 controlled by the same persons.
 Any branch or division of a company which is separately registered.
CONSIDERATION
This term refers to that which is given to the supplier as payment for the supply and includes tax.
Normally the consideration is in money but it also includes barter transactions where other goods
are given or services rendered to the supplier as payment. Any act of forbearance whether voluntary
or not for the inducement of a supply of goods or services will constitute consideration, but it does
not include any donation made as an unconditional gift to an association not for gain. Also excluded
is a “deposit” which is lodged to secure a future supply of goods or services. However, a “deposit”
paid on a returnable container constitutes consideration.

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ENTERTAINMENT
Means the provision of any food, beverages, accommodation, entertainment, amusement, recreation or

hospitality of any kind by a registered operator whether directly or indirectly to anyone in connection
with a trade carried on by him.
FINANCIAL SERVICES
Financial services means:

 any service provided by or on behalf of a banking or other institution that is a
participant in a payment system registered in terms of the National Payment Systems
Act [Chapter 24:23]; or
 any service provided by a building society registered or required to be registered in
terms of the Building Societies Act [Chapter 24:02]; or
 the exchange of banknotes or other currency of any country, except where they are to
be used as collectors’ items; or
 the provision of any deposit, loan or credit, including the provision of any guarantee,
indemnity, security or bond in respect of the performance of obligations related to a
deposit, loan or credit; or
 the issue or transfer of ownership of any share in a company or interest in a private
business corporation; or
 services rendered by an insurer registered in terms of the Insurance Act [Chapter
24:07]; or
 the services of an actuary, insurance agent, insurance broker as defined in the Insurance
Act [Chapter 24:07] or fund administrator as defined in the Pension and Provident
Funds Act [Chapter 24:09 ], to the extent that those services are rendered to or on
behalf of an insurer registered in terms of the Insurance Act [Chapter 24:07] or to or on
behalf of a pension fund registered in terms of the Pension and Provident Funds Act
[Chapter 24:09].
FIXED PROPERTY
Means land, together with improvements affixed thereto, any share in a company, which confers a
right to, or an interest in the use of immovable property. It does not include farmland.
GOODS
The term “goods “includes

 Corporeal (tangible) movable things, goods in the ordinary sense
 Any real right in those corporeal movable things
 Fixed property, land & buildings
 Any real right in such fixed property e.g. servitudes, mineral rights, notarial leases etc.
 Sectional title units (including timeshare)- get title deeds to a share of flats
 Shares in a share block company- no title deeds but you own shares
 Postage stamps
It excludes: -
 Money i.e. notes, coins, cheques, bills of exchange etc. (except when sold as collectors’
 item)

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 Value cards, revenue stamps etc. which are used to pay taxes (except when sold as a
 collectors’ item)
 Any right under a mortgage bond
 Farm land 

IMPORTED SERVICE
Means a supply of services that is made by a supplier who is resident or carries on business outside
 such services are utilized or
Zimbabwe to a recipient who is a resident of Zimbabwe to the extent that
consumed in Zimbabwe for purposes of making non -taxable supplies.
INPUT TAX

This is the tax paid by the recipient of the supply of any goods or services to the supplier. Input
tax may be deducted by the recipient where the supply of such goods and/or services is acquired
by a registered operator for the purposes of making taxable supplies in the following
circumstances: -


Where the supplier (being a registered operator) has charged tax on the supply and has provided
the recipient with a tax invoice as required.

Where the importer (being a registered operator) has paid VAT on the importation of goods or
services and is in possession of a bill of entry as required.

Where second-hand goods have been purchased from a non-registered operator, and the recipient
has paid for the supply and has kept the necessary details of the supplier and the transaction in
terms of the prescribed documentary requirements. This is sometimes called a
“notional input” and is calculated by multiplying the tax fraction (15/115) by the amount paid.
There are special rules where the second-hand goods constitute fixed property. In this case the input
tax is limited to the stamp duty. If, for example, 6% stamp has been paid on the fixed property
acquired from a non-registered operator, notional input tax is limited to the 6% stamp duty paid.


Where goods are repossessed from a debtor (non-registered operator) by the supplier of goods
under an instalment credit agreement (e.g. a bank). This is calculated by multiplying the tax fraction
at the time the supply was originally made by the balance of the cash value still owing to the
supplier.


Where goods or services were acquired only partly for taxable supplies and partly for some other
purpose, a fair and reasonable portion may be claimed. Furthermore, the amount of input tax
 depend on whether the registered operator is registered on the
claimable in any tax period will
invoice or the payments basis.
INSTALMENT CREDIT AGREEMENT
This is an agreement for the supply of goods under an instalment sale or financial lease, which is
normally subject to some suspensive condition as to the passing of ownership. These may be referred
to as “hire purchase” agreements. The agreement will normally provide for the payment of the
purchase price including finance charges at a fixed or determinable instalment and the recipient
accepts the risks attached to those goods insofar as loss or damage are concerned. In the case of a
financial lease the term of the agreement must be at least 12 months. This type of agreement must
 a rental agreement where the recipient does not become the owner of the
be distinguished from
goods at any stage.

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OPEN MARKET VALUE
 fetch if supplied in
Is the consideration in money which the supply of goods or services would generally
similar circumstances in Zimbabwe to persons who are not connected (Sec 3).
OUTPUT TAX
 In relation to a registered operator means the tax charged under paragraph (a) of subsection (1) 
of section 6 in respect of supply of goods and services by the registered operator.
PERSON
The term “person” includes: -

  Sole proprietor, i.e. an individual carrying on business in his own name or under a trade name
 A company
 A partnership or joint venture
 A deceased estate or insolvent estate
  Trusts
  Incorporated body of persons e.g. an entity established under its own enabling act of parliament
 Unincorporated body of persons, e.g. club, society or association with its own constitution.
 Local and public authorities
REGISTERED OPERATOR
A Registered operator is a person who is registered or is required to be registered for VAT in terms of
section 23.
SECOND –HAND GOODS
These are goods, which have been previously owned and used (excludes animals and certain gold coins)
SERVICES 
 Services means anything done or to be done.

The term “services” includes: -
 Granting, assignment, cession, surrender of any right
 Making available of any facility or advantage
 Certain acts which are deemed to be services in terms of Section 7 of the Act
It “excludes
 A supply of “goods”
 Money
 Any stamp, form or card which falls into the definition of goods

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SUPPLY
The definition is very wide and includes all forms of supply irrespective of where the supply is effected,
(even including things that happen by law e.g. expropriation) and any derivative of supply shall be
construed accordingly.
TAXABLE SUPPLY
A supply (including a zero rated supply), which is chargeable with tax under the VAT Act.
TRADE
Trade is a business in the broadest sense. It includes any activity carried on: -
 Continuously or regularly
 By any person
  In or partly in Zimbabwe
 In the course of which goods or services are supplied to any other person for a
 consideration, i.e. some form of payment.
 Whether or not for profit.
It therefore includes
 Business transactions to start or close down business

 Ordinary businesses such as: manufacturers, traders, auctioneers, lessors, construction, etc;
 Trades and professions – builders, electricians, plumbers, doctors, lawyers, accountants, etc;
 Nonprofit organizations- sporting/ social clubs, charitable organizations
As well as the following special inclusions: -
 Public authorities – government departments, provincial authorities

 Local authorities
 Charitable organizations
A number of activities are excluded from the definition of “trade”, namely: -
 Services rendered by an employee (who earns remuneration) to his employer or by the holder
of any office in performing the duties of office, e.g. salary/wage earners or a company director.
 A private independent contractor does not fall within this exclusion.
 The supply of goods or services by a concern from a branch or main business which is
permanently located at premises outside Zimbabwe if the branch or main business can be
separately identified and maintains its own system of accounting.
  Private or recreational pursuits or hobbies (unless structured like a business)
 Private occasional transactions, e.g. occasional sale of domestic/household goods, personal
 effects or private motor vehicle
 Any activities to the extent that they are of exempt supplies.

The definition of trade is one of the most important definitions in the VAT Act and every person who is
required to register or who applies for voluntary registration must meet the criteria in the definition.

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3.3 GENERAL OPERATIONAL ASPECTS OF VAT - SECTION 6
Value Added Tax is levied under the Value Added Tax Act (Ch 23:12). The tax is levied and
accounted for at prescribed rates on the following:
 The supply of any goods and/or services in Zimbabwe on or after the commencement date by a
registered operator in the course of furtherance of a trade, except second hand motor vehicles
which are subject to a special excise duty which is levied at various rates depending on the
 vehicle’s engine capacity and year of manufacture.
 Goods imported into Zimbabwe in certain circumstances, and
  Services imported into Zimbabwe in certain circumstances.
 Goods and services, except second hand vehicles which are subject to a special excise duty, sold
 by an auctioneer acting on behalf of unregistered operators.
 Goods manufactured in Zimbabwe which are subject to excise duty (section 6(3)). In the case of
excisable goods, VAT is levied on value for excise purposes plus excise duty.
It is borne by the final consumers of goods and services. Because the tax is borne by the final consumer,
it can be called a consumption tax as the amount of tax one pays is directly related to the purchases made.
3.4 PERSONS LIABLE TO PAY VAT (SECTION 6(2))
In terms of section 6(2) of the VAT Act the following are liable to pay the VAT:
  Persons registered in terms of section 23 of the Act.
 An importer of goods. In the case of imported goods VAT is levied on the value for tax
 purposes, i.e. initial cost plus freight, insurance, etc. plus duty
 Recipient of imported services.

3.5 SUPPLIES
Introduction of Supplies
 The VAT Act requires that tax must be levied on the supply of goods and services by any
 registered operator.
 The definition of supply in section 2 of the VAT Act includes performance in terms of a sale,
rental or instalment credit agreement and all other forms of supply. This applies irrespective
 of whether the supply is made voluntarily, compulsorily or by operation of law.
 It includes any derivative of “supply”
 This definition of supply is stated widely, as is indicated by the words “includes all forms of
supply and irrespective of where the supply is affected”.
 The Oxford English Dictionary defines “to supply” to mean “to furnish or to
 provide”.
Therefore, where anything is made available to another person, the action
constitutes a supply.

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
 The supply of goods or services can take many forms, including (without limiting)
transactions involving sale, transfer, hiring, letting, credit agreement, donation, acceptance of
 compensation, etc.
 In a supply, at least two persons, namely the “supplier” and the “recipient” have to be
involved.
Supply of Goods
 VAT is charged on goods or services as well as on the importation of goods and certain services.
The term goods is defined in section 2 to include among other things corporeal movable things,
fixed property and any real right in such things or fixed property. Corporeal things are also referred
to as tangibles.

 Specifically included in the definition of goods is any real right in any such thing or in fixed
property. A real right is an exclusive interest or benefit enjoyed by a person in a thing. That is, the
right in the thing is binding on all other persons, and it cannot legally be contested or nullified by
 any other person.
Specifically excluded from the definition of goods are:

(i) Money i.e. notes, coins, cheques, bills of exchange etc. (except when sold as
collectors’ item)
(ii) Value cards, revenue stamps etc. which are used to pay taxes (except when sold as
a collectors’ item)
(iii) Any right under a mortgage bond
(iv) Farm land
Supply of Services
 The term “services” is defined in section 2 to mean anything done or to be done. The definition
specifically includes the granting, assignment, cession or surrender of any right or the making of
 any facility or advantage.
 The definition specifically excludes the supply of goods, money or any stamp or card
 contemplated in the definition of goods.
 The term essentially includes anything that does not qualify as goods as defined. This means that
a registered operator cannot avoid the liability for VAT on the basis that a supply constitutes
neither goods nor services as defined unless it consists of the supply of money. The exclusion of
money from the definition of goods or services means that no output tax liability arises from the
supply of money. This is important as it means that when an item is purchased from a registered
operator, the initial supply of the item will attract VAT whereas the subsequent payment will fall
outside the scope of the VAT Act.

 The distinction between goods or services is not critical for the purposes of determining whether a
particular transaction is subject to VAT or not. This distinction is however important for the
determination of the time and value of supply, as well as the documentary proof required for such
supply. It is therefore important that the relevant goods or services are identified accurately.

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Deemed supplies
These are supplies that by their nature appear not to be actual supplies but are deemed by the VAT
Act to be supplies made in the furtherance of a trade. The most important deemed supplies at this level
are as follows:
 Section 7(1) Sale in execution of a debt: Where goods which have been acquired or produced
by a person (debtor), are sold in execution of a debt owing by him, unless the debtor has given
the person selling the goods, i.e. the Deputy Sheriff or Messenger of the Court, written notice
that the supply of those goods would not be a taxable supply had they been sold by him, VAT
is levied on the sale of such goods.

 Section 7(2) Cessation of trade by the registered operator: A person who ceases to be a
registered operator is deemed to have made a taxable supply of assets held at the time he
ceases to be a registered operator. Accordingly, he must account for output tax on the value
of those assets on hand at the time he ceases to be a registered operator. The term, assets,
includes goods or rights capable of assignment, cession or surrender, which in either case form
part of his trade. Where rights are supplied there is deemed to be the supply of a service.

However, he need not to account for output tax on the assets in respect of which a deduction
of input tax was denied in terms of section 16(2) or would have been denied if the VAT Act
had been in operation at the time the goods were acquired by him.

 Section 7(6) Disposal of a business as a going concern: (see zero rating, section 10(1)(e)
below)

 Section 7(7) Indemnity payments received from an insurance company: Where a registered
operator receives indemnity under a contract of insurance as a result of a loss suffered by him, the
amount received is deemed to be received for a service rendered by him and accordingly, he must
account for output tax.

However, where the registered operator receives an indemnity payment under a contract of
insurance and the payment relates to expenditure in terms of which the registered operator was or
would have been denied an input tax deduction under section 16(2), he is not required to account
for output tax on the amount received. N.B this provision is no longer applicable, but was not
repealed.

 Section 7(8) Transfers to independent branches in an export country: (see zero rating,
section 10(1) (i) below).

 Section 7(9) Repossessions from debtors who are registered operators: Where a creditor
recovers goods, previously supplied in terms of a suspensive sale or a financial lease from a
defaulting debtor, a supply of goods is deemed to be made by the debtor to the creditor. Where
the debtor is a registered operator and the goods were assets of his trade, he must account for
output tax on the deemed supply. Where both the debtor and creditor are registered operators, the
creditor must issue the debtor with a tax invoice. The creditor may claim input tax in respect of
the deemed supply.

However, if the repossessed asset is one for which the debtor was denied input tax, no output tax
will be accounted for by the debtor.

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 Section 7(17) Importations by agents acting on behalf of foreign principals: In certain

circumstances, where a local agent imports goods on behalf of a foreign principal, the local agent
and not the principal is entitled to claim input tax in respect of the VAT paid on importation of the
goods. In such a case, the agent, in turn, is deemed to make a supply of goods to the person who
is the recipient of the supply by the foreign principal and accordingly should account for output
tax on the supply.

 Section 17(1): Where goods are acquired for the purpose of making taxable supplies and are
subsequently applied to make non- taxable supplies, e.g. applied for own use, the registered
operator is deemed to have made a supply of the goods and is required to account for output tax
based on the open market value of the goods so applied.

 Section 17(2): Where capital goods have been acquired to make taxable supplies and the taxable
use is subsequently reduced by more than 10%, a supply is deemed to take place. Output tax is
payable on the portion of use which is no longer for use in the making of taxable supplies.

 Section 17(3): The granting of certain fringe benefits to employees is deemed to be a supply of
goods or services by the employer to the employee. The employer pays output tax on the fringe
benefits.
Other Deemed Supplies:
 Section 22(3): Recovery of a bad debt previously written off (see irrecoverable debts)

 Receipt of a credit note: Where a registered operator receives a credit note, he will generally
have to make an adjustment. The receipt of the credit note effectively reduces the original cost to
him of the goods or services from the supplier. If input tax had been previously claimed, an
adjustment to input tax has to be made. The adjustment is effected by increasing his output tax in
the period in which the supplier issues him with the credit note.

 Section 22(4): Non-payment by a debtor (see irrecoverable debts)
Time of Supply (section 8)
Generally, time of supply is the earlier of invoice or payment. Note: payment means when any
part of the payment in respect of the supply is made.
Special time of supply rules apply in certain circumstances the more important of which are:
 Connected persons: Time is the earlier of invoice, payment or delivery of the goods or
when the goods become available for use by the purchaser.

 Section 8(3)(a): Goods supplied under rental agreements: Where goods are supplied
under any rental agreement or where services are supplied under any agreement which
provides for periodic payment, the supply shall be deemed to be made for successive parts
of the period of the agreement and each of the successive supply shall be deemed to take
place when a payment becomes due or is received whichever is earlier.

 Section 8(3)(c): Instalment credit agreements: Time of supply is deemed to take place
when the goods are delivered or when the supplier receives any payment. Value of supply
is the cash value of the supply.

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 Section 8(4): Undetermined contract price: The supply is deemed to take place when any
 payment is due or received or an invoice is issued whichever is the earliest. e.g. the cases of
GMB, COTTCO

 Section 8(5): Cessation of trade: The supply is deemed to take place a day prior to
deregistration.

 Section 8(8): Repossessions: The supply is deemed to take place at the time of
repossession.

 Section 17(3): Fringe benefits: are deemed to be supplied when they are accounted for
PAYE purposes.
Value of supply (sections 9)
The value of supply is the amount of the consideration less tax. Where the consideration is in
money, the value of supply is the amount of money less VAT. Where the consideration is not in
money, the value of supply is the open market value (OMV) (sections 9(2, 3).
Special rules apply to, for example:
 Connected persons: If recipient cannot claim input tax, the value of supply is the open
market value but when the recipient can claim input tax, the value of supply will be the
amount paid.

 Example:
Subco, a registered operator sells a machine with an open market value of $57 000 to its
holding company, Holdco which is not a registered operator, for $11 400.
Subco is deemed to have supplied the machine for a consideration of $57 000.
The journal in Subco is
DR Bank $11 400

CR VAT 7 434.78
Proceeds 3 965.22
Note: The supply is deemed to be made at open market value ($57 000) because Holdco
cannot claim an input tax deduction. The output tax for Subco is $7 434.78 ($57 000 *
15/115).
 Instalment Credit Agreement: The value of supply is deemed to be the cash value, i.e. value
that excludes additional charges such as insurance, finance charges etc.

 Fringe Benefits: The value of supply is the cash equivalent of the benefit for PAYE purposes.

 Repossessions: The value of supply is the outstanding cash value on the date of repossession.

 Cessation of trade: The value of supply is the lesser of cost or open market value.

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 Section 9(7): Goods applied to own use: The value of supply is the open market value of the
goods.
3.6 TAXABLE SUPPLIES
Introduction of Taxable Supplies
Taxable supplies are defined in section 2 of the VAT Act as goods that are levied VAT at the
standard rate of 15% or zero rate (0%)
Zero Rated Supplies
Zero rated supplies are taxable supplies made by a registered operator which are taxed at the rate of
0%. There is no output tax actually collected in respect of the supply.

Since a zero-rated supply is a taxable supply, registered operators making zero rated supplies may claim
full input tax in respect of goods or services acquired to make the zero rated supplies. Traders who
supply exclusively zero rated supplies are required to register for VAT in terms of section 23 provided
their aggregate annual turnover is $60,000 and above or is likely to be $60, 000 and above.

Zero rating applies primarily to exports and to certain other types of transactions mainly for social
and economic reasons.
Zero rated Goods (section 10(1)
a) Goods exported to an address in an export country. To qualify for zero rating, the operator must
have consigned the goods to an export country or must have delivered the goods to a foreign
going courier for onward delivery to an export country. There must be documentary evidence
to prove that the goods have actually been exported. Such proof could be in the form of bills
of entry –export or customs export documents CD1s. Zero rating will not apply where the goods
are purchased in the country by a non-resident who will in turn export the goods on his own to
his home country.
b) Goods (including consumables) supplied to repair goods temporarily admitted into Zimbabwe.
Zero rating applies if the goods are essentially fixed to or incorporated into the admitted goods
or are consumed as a direct result of the repair, modification or treatment process for the
admitted goods.
c) Goods supplied under a rental agreement if used exclusively in an export country.
d) Goods supplied under a rental agreement if used in or paid for from an export country. Only
applies to foreign registered businesses.
e) The disposal of a business as a going concern. Where any part of a business capable of separate
operation is disposed of as a going concern to another registered operator, the disposal of that
part of the business may also be zero rated. However, zero rating will be granted upon meeting
the following requirements:
  Both seller and buyer must be registered operators
 The parties must agree in writing that the business is being disposed as a going
concern.

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 The assets necessary for carrying on the business must be disposed of by the seller to
 the buyer
f) Gold supplied to the Reserve Bank or any other registered banks.
g) Regular agricultural inputs supplied to farmers e.g. animal feeds, animal remedy, fertilizer,
pesticides and seed.
h) Goods for disabled persons.
i) The supply by a registered operator of goods to an independent branch in an export country is
zero rated if that branch is separately identifiable and an independent system of accounting is
maintained for it.
j) Supply of gold coins issued by the Reserve Bank
k) Drugs as defined in the Medicines & Allied Substances control Act.
l) Building bricks
m) Basic food stuff, such as plain bread, plain buns, milk, cooking oil etc.
Zero Rated Services (section 10 (2)
(a) Transportation of PASSENGERS or GOODS to, from and outside Zimbabwe.

(b) Transportation of PASSENGERS from one place to another place in Zimbabwe by aircraft to
the extent that the travel constitutes “international carriage”
(c) Transport and ancillary transport services supplied within Zimbabwe in respect of imports and
exports of GOODS, if supplied by the same supplier responsible for the international transport of
those goods.
(e) Transportation services for the movement of goods through Zimbabwe from one export country
to another, when provided to a non-resident (non-registered operator), who does not carry on a
business in Zimbabwe (includes an “ancillary transport services” as defined).
(f) Services rendered in connection with land or improvements OUTSIDE Zimbabwe
(g) Services rendered in connection with movables situated in an export country: goods
temporarily admitted into Zimbabwe which are exempted from import duties, and certain services
relating to foreign going aircraft
(h) Services comprising handling, pilotage salvage, towage and operation or management of any
foreign going aircraft: where the services are supplied to a non-resident and a non-registered
operator.
(i) Services of arranging the supply of goods, services or transport of goods for a person who is
non-resident and a non-registered operator.
(j) Services rendered in connection with the repair of a train operated by non-residents, not
carrying on business in Zimbabwe
(k) Services rendered whilst physically outside Zimbabwe (other than telecommunication services
utilized in Zimbabwe).
(l) Services supplied to a non-resident who is outside Zimbabwe at the time the services are
rendered, except where related to land and improvements thereto, or movable property situated
inside Zimbabwe. (There are some exceptions to this rule)
(m) Patents and other intellectual property for use outside Zimbabwe.
(n) Deemed Services in terms of section 7 (5) supplied by a charitable organisation to a public or
local authority.
(o) The supply of services by a registered operator to his branch situated in an export country
(p) “Transfer payments” received from Government Departments

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Documentation (section 10 (3)
The goods and services stated in 4.2 and 4.3 above can only be zero rated if the
registered operator obtains and retains the necessary documentary proof acceptable to
the Commissioner, or as prescribed in the circumstances
Standard Rated Supplies
These are supplies of goods and/or services that attract a VAT rate of 15%. Goods/services
that are not specifically exempt or zero rated are standard rated.
3.7 EXEMPT SUPPLIES
Introduction of Exempt supplies (section 11)
 An exempt supply is not subject to VAT and, unlike a zero-rated supply, is not a taxable supply
and as a result input tax incurred in the making of exempt supplies cannot be claimed. The making
of exempt supplies does not constitute the carrying on of a trade. Persons who make exclusively
exempt supplies cannot register for VAT.

 A person making both taxable supplies and exempt supplies (mixed supplies) is only entitled to
claim input tax which is incurred in the making of taxable supplies. As such he is required to
apportion any input tax incurred in making mixed supplies. Care must be taken to ensure that the
correct method of apportionment is used.
Example
A person buys goods for $570 from a registered operator for the purpose of making
exempt supplies of $1 000. Although $74.35 of VAT is paid on the purchase, no input tax
can be claimed.
The journals are as follows:
(i) DR Purchases $570

CR Bank/creditors $570
(ii) DR Bank/debtor $1 000

CR Sales $1 000
Types of Exempt Supplies
a) Supply of Financial Services

b) The supply by an association not for gain of any donated goods or services or where the
association manufactures goods, if at least 80% of the value of the materials used consist of
donated goods.
c) The supply of residential accommodation in a dwelling under a lease or hire agreement or,
where an employer permits his employee to occupy the accommodation as a fringe benefit for
the duration of the employment.

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d) The supply of leasehold land used to erect dwellings and for existing dwellings
e) Sale or letting of land outside Zimbabwe. Note that any SERVICES relating to such land is
zero-rated. S10(2) (f)
f) The supply of public road and railway transport to fare paying passengers and their luggage.
Note that the transport of passengers to an export country is zero-rated and this will override
the exemption.
g) Any educational services for pre-school, primary, secondary, tertiary and technical education
and the education or training of physically/ mentally handicapped persons at any institution,
which meets the requirements of the Ministry responsible for education or higher education.
h) Medical services supplied by any person. This includes incidental and subordinate services in
respect thereof.
i) The supply of goods and services by an employee organisation to any of its members to the
extent that the consideration for the supply consists of membership contributions.
j) The supply of piped water, rates charged by a local authority and domestic electricity
k) Supply of fuel and fuel products.
3.8 IMPORTATION OF GOODS SECTION 12
VAT is levied and paid on the importation of any goods into Zimbabwe by any person. The importer
of goods is liable to pay the VAT levied on importation.
All goods imported into Zimbabwe will be levied VAT except:

 Those that are exempt as prescribed and
 Those that are destined for consignees in countries other than Zimbabwe.
Goods are deemed to be imported on the date they are entered for home consumption, (cleared through
customs). This date is reflected on the customs bill of entry. The VAT on importation must be paid at
the same time as the customs duty.
The value to be placed on the importation is the value of the goods for Customs Duty purposes (VDP),
i.e. cost plus freight, insurance etc. plus Customs Duty.
This is calculated as follows: -
1. The value of the imported goods 10 000

2. Freight, insurance and other costs 5 000
= Total value for Duty purposes 15 000
Duty at 25% (assumed duty rate) 3 750
Value for Tax Purposes 18 750
Total VAT payable = $18 750 * 15% = $2 812.50
Deferment of payment of VAT on imported capital goods, section 12A
 The Commissioner may allow a registered operator who imports capital goods for use in the
production of taxable supplies to spread payment of import VAT over a prescribed period not exceeding 180
days. The plant, equipment or machinery should be exclusively used for manufacturing, mining on a registered
mining location, agricultural purposes or for the aviation industry.
Importers of medical equipment are also allowed to spread payment of

import VAT over a prescribed period not exceeding 180 days.

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 However this is subject to the importer having proved to the satisfaction of the Commissioner
that the imported goods are of a capital nature and upon having fulfilled conditions that may
be set by the Commissioner.

 Where the importer disposes of the imported goods during the period of deferment, the whole
VAT becomes due and the Commissioner may impose 100% penalty plus interest (section
12A (2). However, if the importer proves to the satisfaction of the Commissioner that the sale
was not motivated by the desire to evade payment of VAT, the Commissioner may waive in
full or in part the penalty but interest remains payable.
Imported services section 13
Definition: means a supply of services that is made by a supplier who is a non -resident of
Zimbabwe or a resident of Zimbabwe who carries on business outside Zimbabwe to a recipient
who is a resident of Zimbabwe to the extent that such services are utilised or consumed in
Zimbabwe for making exempt supplies.
  Time of supply is the general rule of time of supply.

 Value of supply is the consideration of such supply or the open market value
whichever is greater.
Example 1: The National University of Science and Technology was sued by its lecturers that they had
fired following an illegal industrial action. The university hired Advocate De Beers from South Africa
to represent it. He charged them R14 500 for the service. The open market value of the services rendered
was R16 000. He raised his invoice for the service on 1 August 2014 but payment was made on 31
December 2014.
Required:
(a) Calculate VAT due if any.
(b) When is the VAT due?
(c) Who will account for the VAT?
Solution:
(a) VAT payable =15% *R16 000 (greater of open market value or
consideration). = R2 400
(b) The VAT was due on 1 August 2010, the general time of supply rule applies, i.e. the earlier
of an invoice being issued or any payment being made.
(c) The university is required to account for the VAT.
Example 2: Mambo Life Assurance Company hires an IT consultant from South Africa to work
on new software. The software is used mainly in the Life Assurance business of the company. He
issued an invoice of R8, 200 on 31 October 2017. If similar services were sourced locally, the
company could have paid R7, 500.
Required: What are the VAT implications of the transaction?
Solution: Mambo Life Assurance deals in services that are exempt from VAT,
see definition of financial services hence it should account for VAT on the
imported service. The VAT will be R1, 230 (15% * 8, 200).
N/B: The use to which the services are going to be put is very important in
qualifying a service to be an imported service. The service in other words should
be used for exempt purposes.

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3.9 ACCOUNTING AND CALCULATION OF VAT
Accounting Basis section 14
Invoice Basis
VAT is generally accounted for on the invoice basis. The invoice (or accrual) basis of accounting
is that registered operators account for both cash and credit sales and cash and credit purchases in
the month in which transactions are made. This means that VAT has to be accounted for when
due irrespective of whether payment has been made or received.
The general time of supply rule is that registered operators will account for VAT at the earlier of:
-
 The time an invoice is issued, or

 The time any payment is received by the supplier
Example:
Kumusha (Pvt) Ltd purchased a fridge for resale on 20 October 2017 and received a tax invoice
for $3,450 (incl. VAT @15%). It paid the supplier $2,300 on 31 October 2017 and the balance on
30 November 2017.
It then sold the fridge for $ 5,750 (incl. VAT @ 15%) on 31 October 2017 and issued a tax invoice
for the whole amount the same day. It received 70% deposit on the date of invoice. The balance
was paid on 15 December 2017.
What is the VAT treatment of the transaction?
Solution
Kumusha (Pvt) ltd is entitled to an input tax claim of (15/115 * $3,450) $450 and should account
for output tax of (15/115 * $5,750) $750 in the tax period ending 31 October 2017.
Payment/cash basis
 The payments basis (or cash basis) uses the same time of supply rule mentioned above, but
the registered operator only accounts for VAT on actual payments made and received in
 respect of taxable supplies made during the period.
 The payments/cash basis is currently available to local authorities, public authorities and
associations not for gain. Note: these will only use this basis upon being authorized by the
Commissioner to do so.

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Example:
In the example above if Kumusha (Pvt) Ltd was authorized by the Commissioner to be on cash basis
will claim input tax of (15/115 * $2,300) $300 and account for output tax of (15/115 * ($5,750 * 70%))
$525 in the tax period ending 31 October 2017. However this will only be applied if Kumusha (Pvt)
Ltd is authorized by the Commissioner to use the payment basis.
Calculation of VAT payable section 15
The tax payable shall, in terms of section 15(1), be in respect of each tax period during which the
registered operator has carried on a trade.
15(2) Documents required for claiming input tax:

 Tax invoice,
 Debit note or credit note,
 sufficient records in the case of second hand goods or repossessions,
 Bill of entry for imported goods.
15(3) Calculation of tax payable or refundable: The amount of tax payable by the registered operator
in respect of a tax period shall be calculated by deducting from the total amount of output tax any sum
of input tax incurred during the tax period. This is often referred to as the mechanics of VAT. i.e.
Output Tax ***

Less
Input Tax (***)
VAT Payable / Refundable ***
 15(3)(f) where a registered operator has previously been denied to claim input tax as a result
of not having a valid tax invoice and the Registered Operator has obtained it during any tax
 period, he is entitled to claim input tax during that period in which he has obtained it.
 15(3)(g) In the case of change of use from wholly or partly taxable to wholly exempt, the
operator is required to account for output tax on the open market value of the goods in the tax
period in which the change occurs.
Example: An asset was used 75% for making taxable supplies. It was purchased for $15, 000.00 and
input tax was claimed accordingly. The asset was later used 100% for making non-taxable supplies. Its
current open market value was $17,000.00. The operator will thus be required to account for output tax
of $1,663.04 ($17, 000 * 75% * 15/115).
15(4) Input tax can be claimed in any later tax period provided that it had not been claimed before.
15(6) Where the refund due to the registered operator is less than $60.00, it will be credited to the
account.

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3.10 INPUT TAX AND DOCUMENTATION
Definition of Input Tax
Input tax is defined in section 2 of the VAT Act. In simple terms, it refers to the VAT that a registered
operator is charged on the purchase of goods and/or services to be utilized in the making  of taxable
supplies. Students are expected to master the definition of input tax in unit 1 of this module.
Permissible Input Tax Deductions (section 16(1)
16(1) allows for apportionment of input tax where goods are acquired and used for both taxable
and non-taxable supplies. Input tax is allowed to the extent to which the goods or services are
used for purposes of making taxable supplies.
Provisos:
 Where the intended use of goods or services in the course of making taxable supplies is
equal to or not less than ninety per centum (90%) of the total intended use of such goods or
services, the goods or services shall be deemed to have been acquired wholly for the purpose
of making taxable supplies. (deminimus rule). This therefore means that full input tax is
 allowed.
 Where goods or services are successively supplied and the calculation of input tax cannot
be made accurately until the completion of the supply of the goods and/or services, such
input tax may be estimated subject to an adjustment on completion of the supply.
N/B: The apportionment in this case shall be based on turnover. Any other basis shall be subject to
approval by the Commissioner.
Prohibited Input Tax Deductions (Section 16(2)
16(2) (a) registered operators are not allowed to claim input tax in respect of goods or services
acquired for the purpose of entertainment. However, this section shall not apply where:
 The goods or services are acquired by such registered operator to the extent that such goods
or services are acquired for the purposes of entertainment which is continuously or regularly
supplied to clients or customers for a consideration to the extent that such taxable supplies of
entertainment are made for a charge which covers all the direct and indirect costs of such
entertainment or is equal to the open market value.

 Bona fide promotional activities not charged by the registered operator in respect of the supply
to recipients who are clients or customers in the ordinary course of trade of entertainment
continuously or regularly supplied to clients or customers for a consideration.

 Food left over which had initially been acquired for making taxable supplies of entertainment
and is subsequently given to any employee of the registered operator or to any private
voluntary organization.

 Entertainment supplied to any employee or office holder of the registered operator or any
connected person, to the extent that such taxable supplies of entertainment are made for a
charge which covers all direct and indirect costs of such entertainment.

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 Expenditure in respect of personal subsistence incurred by a registered operator in respect of

any night that such person or member is by reason of the registered operator’s trade or in the
case of such employee or office holder, he is by reason of the duties of his employment or
office, obliged to spend away from his usual place of residence.
N/B: This shall not however extend to expenditure for amusement or recreation.
 Goods or services consist of a meal or refreshments supplied by a registered operator to a

passenger during a journey, if such meal or refreshment is supplied as part of or in conjunction
with the transport service supplied by the registered operator and the supply of such service
is a taxable supply.

 Goods or services consist of a meal or refreshment supplied by the registered operator as
organizer of a seminar to participants to that seminar and a charge which covers the cost of
such meal or refreshments is made by the registered operator to the recipient.

 Goods or services are acquired by a local authority for the purposes of providing sporting or
recreational facilities or public amenities through the payment of a subsidy.

 Goods or services are acquired by a private voluntary organization for the purposes of
making supplies in fulfilment of its object.
16(2) (b) Fees or subscriptions paid by the Registered Operator in respect of membership of any
club, association or society of a sporting or recreational nature.
16(2) (c) Goods or services acquired by a Superannuation scheme for the purposes of the supply
by such scheme of any medical or dental services.
16(2) (d) Passenger motor vehicle supplied to or imported by the registered operator
Tax Invoice section 20
Definitions
  Invoice: a document notifying an obligation to make payment.

 Tax invoice: a document provided as required by the Act to enable the registered
operator to claim input tax.
Requirements for Tax Invoice

 
In practice, a registered operator is normally required to issue a tax invoice which satisfies
the requirements of the Commissioner and the requirements of the contracting parties.

A registered operator is required to issue a tax invoice within 30 days from the date of
supply, but it may not be necessary to issue a tax invoice where the consideration in money

does not exceed $10. However, in such cases, some type of source document is required
in order to claim input tax e.g. till slip, petty cash slip, etc.

A tax invoice is a special tax document and certain details about the taxable supply to which
it relates must be stated on the tax invoice. (See below for details).

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Requirements: tax invoice {Section 20 (4)}

 The words “TAX INVOICE” or “FISCAL TAX INVOICE” in a prominent place
 Name, address and VAT registration number of the supplier
 Name, address and VAT registration number of recipient
 Individual serialised number and date of issue
 Description of goods and /or services
 Quantity or volume of goods or services supplied
 Price & VAT **
** There are 3 methods allowed for reflecting the price & VAT as follows: -
Method 1 Method 2 Method 3

The amount excluding VAT, Where VAT is included in the Where VAT is included in the
plus the VAT charged and the final price, the consideration, final price, the amount
amount including VAT together with a statement that charged including VAT and
VAT is included and the rate the amount of VAT charged
of tax.
Tax Invoices Prepared by the Recipient

In some instances the Commissioner may allow the recipient of a supply to issue tax invoices for
the supplies received. The invoice issued by the recipient will be deemed to be a tax invoice for
VAT purposes. These invoices are normally issued in situations where the contract price can only

be determined by the recipient after fulfilment of some conditions, e.g. supplies to GMB  where
price of the goods supplied can only be determined after the goods have been graded.

The Commissioner may allow the issuance of such invoices upon the parties having fulfilled the
 following conditions which are set out in section 20(2) of the Act
  Both the recipient and supplier must be registered operators

 The Commissioner must have granted prior approval for the issue of the tax invoice by
 the recipient
 The supplier and the recipient must agree that the supplier will not also issue a tax
 invoice; and
  The tax invoice must be provided to the supplier and a copy retained by the recipient

In the case of goods being repossessed from a registered operator as contemplated in terms
of Section 7 (9) and section 20(3), the person repossessing the goods (a registered 
operator) is required to create and furnish the defaulting debtor with a tax invoice.
Special Cases

Although the general rule is that a registered operator must have a tax invoice before he is allowed to
claim any input tax in relation to the supply, there are a few exceptions to the rule which are:
Second hand goods as defined (section 20(7))
A registered operator who purchases second hand goods from a non-registered operator is required
to record the following in order for him to support his input tax claim:

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 Name address and I.D. no. of the supplier (I.D. no. of the representative person if it is a
 company)
 Date of acquisition
 Quantity or volume of goods
 Consideration for the supply
  Recipient must verify the person’s I.D. no. or passport number
 Where the amount of the supply is $10.00 or more, the recipient must obtain and retain a copy
of the person’s I.D., and, in the case of a company, a business letterhead or similar document
is also required which shows the name and registration number allocated by the relevant
authority.
Where the goods concerned have been repossessed from a non-registered operator, the person
(registered operator) exercising his right of repossession is required to keep details as mentioned
above.
Other cases
 Where the purchase price is less than $10.00 and the total consideration is in money, no tax
 invoice is required.
 Where the Commissioner is satisfied that there will be sufficient records and that it will be
 impractical for a tax invoice to be issued, he may grant permission for tax invoices not to be issued.
  No tax invoice need be issued where a supply is exempted from VAT.
 Where a tax invoice is issued which includes zero rated, exempt and standard rated supplies, the
document must clearly distinguish between the various supplies. The relevant values of each
supply must be indicated separately.
Copies of Tax Invoices
A registered operator is not allowed to issue more than one tax invoice for a single supply. If the need
arises for him to issue another tax invoice for same supply, he is only allowed to issue a copy invoice
clearly marked “copy”. A facsimile of a tax invoice or a copy sent by e-mail is not acceptable as a basis
for claiming input tax.
Credit and Debit Notes: Section 21
Definitions

 Credit notes are often issued by a supplier when the consideration for a supply is reduced.

 Debit notes are also issued by the supplier when the consideration is subsequently increased.

The issue of a debit note or credit note when a tax invoice has previously been issued is generally
used to show the increase or decrease in tax (as the case may be) on the supply. This is done
whether or not the supplier accounts for tax on an invoice or payments basis. The issue of a credit
note is not required when a prompt payment (settlement) discount is the reason for the reduction
in the consideration, provided the terms of that discount are clearly shown on the tax invoice.

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Discounts
Trade and bulk discounts present no problem. VAT is merely charged on the discounted price. For
example, a registered operator sells goods to another registered operator for $10,000 (excl. VAT) less a
10% trade discount. The discounted price is $9,000 and the output VAT (of the seller) is $1,350 ($9,000
x 15%). The purchaser claims an input tax of $1,350.
Settlement discounts are slightly more complex. When the sale is made VAT is accounted for on the full
selling price. A VAT input tax is then claimed when the discount is taken.
Example
A dealer (a registered operator) sells goods to a customer for $575 subject to a 5% discount if
paid within 30 days. The customer pays within 30 days.
(i) The journal at the time of sale is

DR Debtors $575
CR VAT $ 75
Sales $500
(ii) When payment is received the transaction is accounted for as follows:

DR Bank $546.25
Discount allowed $25.00
VAT $3.75
CR Debtors R575.00
Requirements for Credit and Debit Notes
Credit and debit notes are required to be issued in one or more of the following circumstances: -
 The cancellation of a supply of goods or services

  The nature of that supply of goods or services has been fundamentally varied or altered
 The previously agreed consideration for the supply of the goods or services has been altered by
 agreement with the recipient (including a discount)
 Part of or all the goods or services are returned to the supplier. This does not apply on returnable
containers, unless such containers form part of the goods supplied on which a tax invoice was
 issued by the supplier to the recipient and the supplier has:
 Issued a tax invoice and the tax charged is incorrect as a result of the above mentioned
 circumstance(s) or
 Furnished a VAT return in which he accounted for the incorrect amount of output tax as a result
of the above mentioned circumstance (s)
Details to be reflected on Debit/Credit Notes
The details are almost exactly the same as the details for a tax invoice, however the amount of the
adjustment (consideration and VAT) must also be reflected and it must refer to the original tax invoice
which is going to be affected by the adjustment i.e. invoice date and number.

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3.11 VAT REGISTRATION
Introduction
Any person who on or after the “fixed date” (effective date of the VAT Act) carries on or intends to carry
on any trade (s) and whose taxable value of supplies exceed or is likely to exceed 60,000.00 or the

prescribed amount is required to register for VAT in terms of section 23 of the Act.
Compulsory Registration - Liability for Registration
A person is liable to register if: -

 At the end of any month, the total value of supplies of goods or services (turnover) has
 exceeded $60,000.00 or the prescribed amount in the preceding period of 12 months, or
 There are reasonable grounds for believing that the total value of supplies of goods and
services, which will be made in the following 12 months, will exceed the prescribed
amount.
Unless it can be shown that the prescribed amount was exceeded as a consequence of: -
 The sale of stock or other assets due to any cessation of or substantial and permanent
 reduction in the size or scale of any trade.
 The replacement of plant and machinery or other capital assets used in the trade
 Abnormal circumstances of a temporary nature
Voluntary Registration
A person can apply for voluntary registration even if the total value of taxable supplies is less than the
prescribed amount per annum. As a general rule of thumb, it will be advantageous for a person to
register if they supply goods or services mainly to
other registered operators. The person must satisfy
the Commissioner that they are carrying on trade.
Registration Procedure
Application for compulsory and voluntary registration must be made on the prescribed registration form
together with any other documents, which the Commissioner may require from time to time (i.e..
Company registration particulars, bank details, etc.) For compulsory registration, this must be

completed no later than 30 days from the date on which the registration threshold has been reached or
the date it is established that the threshold is likely to be reached.
Refusal to Register a Person Voluntarily
The Commissioner may refuse to register a person for voluntary registration if any of the following
criteria is not met: -
 The person has no fixed place of abode or business

 The person does not keep proper accounting records
  The person has not opened a banking account
 The person has previously been registered as a registered operator under VAT or in
terms of the repealed Act (Sales Tax) and failed to perform his duties under either Act.
Such refusal must be communicated to the applicant in writing.

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Cancellation of Registration- Section 24
A registered operator may be deregistered if: -
  If the value of his taxable supplies falls below the registration

 He ceases to carry on any trade and will not carry on any trade within 12 months after
 that date
 Where he has applied for registration in anticipation of commencing a trade and has not
 commenced that trade.
 A registered operator has successfully applied for voluntary registration and it
subsequently appears that he has not complied with the requirements. 
Cancellation of registration, with the approval of the Commissioner will take effect from the last day
of the tax period on which the application is made.
A person who ceases to be registered remains responsible for any duties or obligations under the Act
while he was registered.
3.12 ADJUSTMENTS
Change of Use from Taxable to Wholly Non Taxable use (section 17(1) :
 In terms of section 17(1), an adjustment will arise where goods or services have been supplied to
or acquired, manufactured, imported or produced by a registered operator for the purpose of
making taxable supplies and such goods are subsequently applied or used wholly or partly for
making non-taxable supplies.

 Conversion of use: In this case goods would have been bought for the purpose of making a taxable
supply and are subsequently used for making non-taxable supplies. The conversion of use is
deemed to be a supply in the ordinary course of trade and output tax should be accounted for, e.g.
a registered operator applying goods intended for resale to own use.

 Such change of use is deemed to be a supply of goods and therefore the registered operator should
account for VAT. However where input tax had been previously denied, the goods are not deemed
to have been supplied in the course of furtherance of a trade and as such the operator is not required
to account for output tax.


 The time of supply is deemed to be the time the goods are applied for non-taxable use or the
change of use has been made in terms of section 8(6).


 The value of supply shall be deemed to be the consideration in money which is equal to the open
market value of such supply in terms of section 9(7).
Decreased Taxable Use (section 17(2) :
 Where a registered operator acquired, manufactured, assembled, constructed or imported capital goods
for making of taxable supplies has subsequently reduced the percentage use of the goods to make
taxable supplies, an adjustment is required. A deemed supply of the amount of the increased non-
 taxable use arises.

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 An adjustment is necessary if registered operator at the time of acquisition of such goods or

services had been entitled to input tax deduction.

 No such adjustment is necessary where the cost of such goods excluding VAT is less than
$60.00
The value of adjustment is determined by using the formula, A*(B-C) in terms of section 9(8),
Where:
A: represents the lesser of cost or open market value,
B: represents the percentage taxable usage before reduction,
C: represents the current percentage taxable usage of the goods.
Thus (B-C) is the extent of reduction.
Question: Tidy P/L is a registered operator. In January 2017 it purchased a computer valued at $700
including VAT. It calculated that the computer would be used 60% taxable supplies and 40% non-taxable
supplies and claimed input tax. By the end of December revenue in respect of taxable supplies went down
by 40% and the computer was used 80% for non-taxable purposes. The open market value of the computer
was now $900.
Required: Calculate the adjustment that needs to be done.
Solution: A = 700
B = 60%
C = 20%
The adjustment to the made will be 700 * (60% –
20%) =$280.00 Output tax thereon will be 36.52 ($280
* 15/115)

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Fringe Benefits (section 17(3)
Any registered operator who grants a benefit or advantage to an employee or office holder which is taxable in
terms of section 8(1) (f) of the Income Tax Act and such benefit or advantage consists of a supply of goods or
services, shall be deemed to have supplied goods or services in the course of his trade and should therefore
account
 for output tax.
 This subsection shall not apply in respect of any supply of goods or services which are exempt in
terms of section 11.eg housing

 Value of supply is deemed to be the consideration in money which is equivalent to the cash benefit in
terms of the Income Tax Act.

 Time of supply: Where the benefit is considered on a monthly basis in terms of the income tax act,
then the time of supply is at the end of every month.
Example of benefits and VAT treatment thereof
Benefit/ Advantage Taxable Not Taxable
Occupation of quarters 
Use of furniture 
Use of Motor Vehicle 
Loan 
Cell phone 
Entertainment 
The benefits that therefore remain taxable in respect of the above example are the motoring benefit and the
cell phone benefit.
Examples
In all examples the employer is Zeb (Pvt) Ltd
Example one
Zeb buys an asset for $5,700 and gives it to an employee.
● Employee
Fringe benefit = $5,000 (cost to Zeb net of VAT).
● Zeb
Zeb claims an input when it buys the asset and the journal is as follows:
DR Salaries and wages $5,000

VAT $700
CR Bank/ creditor $5,700
The output on the fringe benefit is calculated as follows:

$5,000 (value of fringe benefit) x 15/115 = $652.17

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Because the output is not recoverable from the employee it is a cost to Zeb. The journal to record
that VAT is:
DR Salaries and wages $652.17

CR VAT $652.17
Note that the $652.17 qualifies as a section 15(2) (a) (Income Tax Act) deduction in the
determination of Zeb’s income tax liability.
Example two
Zeb purchased a Mazda 3 for $23,000 and gives an employee the use of the vehicle. The motor
vehicle has an engine capacity of 1500cc.
● Employee
Fringe benefit = $300
● Zeb
Zeb cannot claim an input when it buys the motor car.
The journal is:
DR: Motor vehicle $23,000

CR: Bank $23,000
Zeb must account for an output (monthly) of $300 * 15/115 = $39.13
The journal is:
DR: Salaries/Wages $39.13

CR: VAT $39.13
Example three
Zeb gives an employee a cellphone for personal use and pays for airtime valued at $100/month
● Employee
Fringe benefit: $100
● Zeb
Zeb’s output tax on the fringe benefit is:
$100 * 15/115 = $13.04
Example four
Zeb lends an employee $100,000 x 2%. (Assume official rate is 6%)
● Employee
Fringe benefit (per annum) $100,000 x 4% = $4 000.
● Zeb
Zeb has no output because the fringe benefit is a financial service.

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Fringe Benefits (section 17(3) – (continued)
Example five
Zeb gives an employee an eight roomed furnished house with water and electricity in Mt Pleasant.
Zeb owns the house. Average market rentals for houses around the area are $500/month inclusive.
● Employee
Fringe benefit = $500/month
● Zeb
No output VAT (the supply of residential accommodation is an exempt supply).
Wholly Non Taxable to Taxable
Second hand goods acquired on or after the fixed date (section 17(4) (c) :
A registered operator is allowed under this provision to claim input tax on second hand goods. In the
case of fixed property, it should be situated in Zimbabwe. The second hand goods should be used
wholly or partly for the purpose of making taxable supplies. The goods shall be deemed to be supplied
in the tax period during which the goods are used to make taxable supplies. This adjustment shall be
made using the formula A*B*C*D
Where:
A: represents the tax fraction.
B: represents the lesser of cost or open market value,
C: represents the percentage usage of the goods in the process of making taxable supplies,
D: Represents the percentage of the payment made to the total consideration in the case of second
hand goods which are fixed property.
Question; Destiny Investments acquired a commercial building in August 2017 for $200,000 and
registered for VAT in September 2017. The building was used 70% for making taxable supplies while the
balance was used as a college registered with the Ministry of education. It made a down payment in
September of $100, 000. The market value of the property was now $250,000
Required: Calculate the adjustment, if any
Solution:
A = 15/115
B = $200,000
C = 70%
D = 100,000/ 200,000 = 50%
Input tax claimable will thus be 15/115 * 200,000 * 70% * 50% = $9,130.43
Fixed Property Transactions:
 Fixed property is included in the definition of goods. Wherever a registered operator sells fixed
property in the course or furtherance of his trade, output tax arises.

 The seller accounts for output tax as and when payment for the property is received.

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Note: If the property is supplied to a connected person, who cannot claim an input tax, VAT must be accounted
for by the seller at the time of supply and not when payment is received.
 The purchaser claims input tax when payment is made and not at the time of supply.
Example
A registered operator (A) sells fixed property to a registered operator (B) for $1m (incl.
VAT). $500,000 is payable in June year 1 and $500,000 is payable in June year 2.
A has an output of $65,217.39 ($500 000 x 15/115) in June year 1 and a second output of the same
amount in June year 2.
B claims an input of $65,217.39 in June year 1 and again in June year 2.
 All fixed property sold by registered operators who are property dealers or who used the property
in their trade is subject to VAT. This includes residential property.

 If the sale of fixed property is subject to VAT, it is not subject to transfer duty.

 If a registered operator purchases second-hand property from a non-registered operator transfer duty
is payable. The purchaser can claim notional input tax which is limited to the transfer duty paid. The
input may be claimed when the transfer duty has been paid.

 The renting of commercial property by a registered operator is subject to VAT.

 The renting of residential accommodation to natural persons is exempt from VAT (see
exemptions).

 Hotel accommodation is subject to VAT
Increased Taxable Use (section 17(5) :
Section 17(5) is the opposite of 17(2).

Where a registered operator acquired capital goods in order to make taxable supplies and the actual
taxable use of the goods tends to be greater than the initial expected usage, an adjustment
to grant additional input tax must be made in the tax period during which such increase is deemed to take
place in terms of subsection 6 (i.e. at the end of the financial year).
The input tax is determined by applying the formula A*B*(C-D)
Where:
A: represents the tax fraction,
B: represents the lesser of cost and open market value,
C: represents the current taxable usage of the goods
D: represents the taxable percentage prior to increase.
Question: Muto (Pvt) Ltd purchased a computer on 20 May 2017 for use in its business. It operates a life
assurance business and owns commercial buildings around town which it lets out. The computer is used
30% in the letting business and the rest in the life assurance business. During the period ended 31
November 2017, its letting business grew resulting in it using the computer 65% for the letting business.
The computer was purchased for $1,500 and its market value at the time of change of use was $1,100.
Required: Calculate input tax claimable in the December tax period.

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Solution:
A = 15/115
B = $1, 100 (the lesser of cost or open market value)
C = 65%
D = 30%
Input tax claimable will thus be 15/115 * 1, 100 * (0.65 – 0.30) = $50, 22.
The time of supply is deemed to be the last day of the year of assessment and where the registered operator
is not an income tax payer, the last day of December or where such person draws financial statements
before the last day of December, on the day he draws his financial statement.
Section 17(7) the twelve month period in respect of reduction or increase in the taxable use of capital
goods shall be determined during the twelve month period ending on the day any reduction or increase in
application takes place and where the period is less than 12 months, it shall be deemed to be twelve months.
17(8) where a deduction had been claimed for second hand goods and subsequently the sale is cancelled,
the sale is altered, the previous consideration has been reduced, the second hand goods have been returned
to the supplier, the excess amount of input tax as a result of one of the above happening is deemed to be
tax charged and therefore the registered operator should account for output tax.
Acquisition of a going concern (section18):
 The sale of a business or part thereof which is capable of separate operation as a going concern
by any registered operator to another registered operator is zero rated in terms of sec 10(1)(e).

 If any goods or services which have been acquired by such registered operator are used wholly
or partly for a purpose other than making taxable supplies , such goods or services shall be
deemed to have been supplied by him , therefore the registered operator should account for
output tax.

 Where the goods are used for not less than 90% for making taxable supplies, the business shall
be deemed to have been acquired wholly for the purpose of consumption.
Criteria for identifying a going concern:

 There must be an agreement in writing and it should be stated that the business is being
 sold as a going concern.
 It must be stated or be apparent from the documentation that the business is going to
 operate as an income earning activity at the date of transfer or transaction.
 The business or part thereof must be capable of independent, continuous operations without
further action on the part of the purchaser.
N/B: Although not all assets need to be transferred, the essentials must be transferred together
with the business.
 18(2) where a registered operator acquires a trade as a going concern and the transaction is zero rated,
if there is a change of use from making taxable supplies to making wholly or partly non-taxable
supplies, an output tax adjustment must be made. The purchaser must account for VAT on the full

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cost of the purchase price by reducing it with assets which do not qualify for input tax deduction and
then further by the portion which represents taxable supplies and then apply the rate prevailing.

 Where the two parties are connected persons and no charge was made for the supply or the price
charged was below the open market value, the open market value shall be used as the purchase price.

 The time of supply in respect of a going concern is deemed to be the tax period in which the supply
of the going concern is made in terms of section 18(3).

 The value of supply shall be deemed to be an amount equal to the aggregate of the fair amount which
represents the full cost to the registered operator of that trade or part of that trade in respect of those
goods which are deemed to have been supplied by him and apply the rate of tax applicable at the time
of supply section 18(4)

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Acquisition of a going concern (section18):
Question:
Desire (Pvt) Ltd acquired a business in the central business district of Harare for $200, 000. The two parties
agreed that the business would continue to be an income earning activity. All the assets for the business
were transferred to the recipient as well as the employees of the supplier. The purchase price was allocated
as follows:

 $150, 000 for stocks of material.

 $ 10, 000 for the buildings.

 $20, 000 related to equipment on which no input tax deduction had been allowed.

$20, 000 relating to equipment in the canteen. The canteen provides food to employees.
Due to economic hardships envisaged and the desire to register and operate a college registered with the
Ministry of Higher and Tertiary Education, the extent of the business use was reduced to 55%.
Required:
Outline the VAT provisions governing such a transaction.
Calculate the adjustment, if any that may need to be done by Desire (Pvt) Ltd.
Solution:
Desire (Pvt) ltd is required in terms of section 18(2) to account for output tax on the supply. The output
tax will be determined by applying tax on the full purchase price, reduced by value of assets that did not
qualify for input tax deduction and further by the percentage of taxable use which will be:
$200,000 less $20,000 (equipment that did not qualify for input tax deduction) less $20,000 (canteen
equipment) less 55% (taxable use).
= 200,000 – (20,000 + 20, 000) – (200,000*55%)
= 160, 000 - 110, 000 = $50,000
Output tax will thus be: $50,000 * 15% = 7,500
Adjustments in respect of Debit/Credit Notes
The VAT Act makes provision for debit and credit notes to be issued in respect of a single supply. It must
be remembered that the consideration for a supply can only be altered by means of a debit or credit note.
It is not correct practice to merely issue another tax invoice in the same way that it is an offence to issue
more than one tax invoice for a supply.
The rule for reflecting the VAT in respect of debit and credit notes is as follows:-
  Credit notes issued and debit notes received are to be reflected as input tax on the VAT return
 Debit notes issued and credit notes received are to be reflected as output tax on the VAT return

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Credit notes issued may not be offset against the sales made or debit notes set off against purchases.
However, when a debit/credit note is issued in the same tax period in which the supply has taken place,
then the amount of such debit/credit note may be set off against the consideration. This concession is to
allow for the computerized accounting packages of certain industries, which would automatically offset
the amounts.
Irrecoverable debts section 22
Where a registered operator makes a credit supply and the amount becomes irrecoverable, the registered
operator can claim input tax on the irrecoverable debt provided that all of the following conditions are
met:
  The supply was a taxable supply.
 A return was furnished or submitted and VAT was properly accounted for in respect of
 such supply.
 The debt has been written off from the books of accounts.
In the case of an instalment credit agreement, the deduction is restricted to the VAT on the cash value that
has become irrecoverable.
The tax fraction is applied to the outstanding balance of the cash value after removing the finance charges
and interest.
Where a registered operator transfers an account receivable on a non-recourse basis to another person, no
deduction is allowable. The factoring of debt by a registered operator discounting his debts on a non-
recourse basis does not give rise to an input tax deduction.
On the other hand, where account receivables are transferred at face value on a recourse basis, an input
tax deduction may be made but only when the account receivable is transferred back to the owner.
Where the registered operator has repossessed the goods, or accounts for VAT on payment basis, no input
tax deduction will be allowed.
Section 22(3), if the registered operator subsequently recovers some or the entire amount previously
written off, output tax should be accounted for.
Section 22(4), where a registered operator who is on an invoice basis has claimed input tax but at the
expiry of 12 months has not paid the full consideration in respect of that supply, output tax should be
accounted for, but contracts in respect of payment terms should be respected.

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3.13 PAYMENTS AND RECOVERY OF TAX
Tax Periods (section 27)
(i) Introduction
All registered operators are required to submit returns and account for VAT to the Commissioner at
regular intervals. These intervals are called tax periods.
A registered operator`s first tax period will commence on:
  The commencement date of VAT, or

 The date on which he becomes a registered operator, if he was not liable or carrying on any trade
at the commencement date of VAT.
The month in which a registered operator`s tax period ends will be determined by the Commissioner.
Tax periods do not all end at the same time for all registered operators.
These are as follows: -
 Category A & B =2 months (i.e. Every 2 months)

 Category C=1 month (i.e. Monthly)
 Category D= Any other tax period
The VAT return form is completed to show the taxable supplies made and received as well as any tax
adjustments for the period. The form (whether there is an amount payable or a refund claimed) is to be
completed and returned to the Zimbabwe Revenue Authority within the period allowed.
A special return for sales in execution (in terms of Section 7 (1)) should be made within 10 days from
date of sale. Such sales should be excluded from ordinary returns.
(ii) Two – month Tax Period (Category A or B)
Most registered operators will be allocated a “standard tax period” of 2 months unless otherwise
requested, but such persons can elect to be on Category C (monthly). Registered operators may choose
between the 2 categories, but if no choice is made the Commissioner will allocate them either category
A or B automatically. The tax periods end as follows: -
Category A: The last day of: - January, March, May, July, September and November
Category B: The last day of: - February, April, June, August, October and December
(iii) One – Month Tax Period (Category C)
Larger enterprises whose taxable supplies exceed $240, 000.00 or the amount prescribed will be
required to submit returns on a monthly basis.
Other trades such as those who expect regular refunds of VAT (e.g. exporters and charitable
organisations) may also, on application, be allowed to adopt a one-month tax period.
Where a person operates more than one trade or a trade in branches or divisions, it is necessary that all
the taxable supplies be aggregated to ascertain the total turnover. This applies whether or not the
separate trades/divisions/branches are registered as separate registered operators.

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The Commissioner may allocate a one-month tax period to a registered operator who repeatedly
defaults in performing his duties as a registered operator.
Any other registered operator may on application in writing also be allocated Category C. The one-
month period will be effective from a date determined by the Commissioner.
(iv) Any Other Tax Period (Category D)
Registered operators will qualify for any other tax period if: -
  The registered operator’s trade consists solely of farming activities; or

 The registered operator whose separately registered trade, branch or division consists solely of
farming activities, provided any other trades, branches or division carried on by that registered
 operator do not consist of farming activities; and
 The total turnover from all farming activities must not exceed $120,000.00 or the prescribed
amount.
This tax period is not available to any registered operator who has been allocated a Category C tax
period
(v) Change of Tax Periods
The Commissioner may, on application by the registered operator, approve a change of tax period
from either one of the two-month tax period to the other (that is from Category A to B, or vice versa)
or from Category D to Category A, B, or C. The first return after the change should not include any
period for which a return has previously been made. The effect of this is that an irregular period for
the return is made for the changeover period.
NOTE:
Under certain circumstances registered operator does not cease to qualify for a tax period
merely because the value of taxable supplies has temporarily increased beyond a threshold point.
3.14 SUBMISSION OF VAT RETURNS
Every registered operator is required to submit returns and payments to ZIMRA on the 25 th of the
month after the end of his respective tax period. Returns should be submitted by the due date even
where there is no VAT payable or there is no trade during the respective tax period.
3.15 ASSESSMENTS
Registered operators are required to calculate and pay VAT on a self-assessment basis. However, in
certain circumstances it will be necessary to raise an assessment, for example when:
 Any person fails to submit any return

  The Commissioner is not satisfied with any return or declaration furnished
 The Commissioner believes that a person has become liable for the payment of tax and has
 not paid such amount
 A non-registered person charges VAT on supplies and has not paid the tax over to the
 Commissioner (issue a temporary number)
 A registered operator charges VAT on a supply, where the supply is zero rated or exempt and
has not paid the tax to the Commissioner.
The assessment must be a written notice and must state the following: -

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 Amount upon which tax is payable

 Amount of tax payable
 Amount of additional tax payable
 The tax period to which the assessment relates
 Date by which the tax must be paid
3.16 PENALTIES AND INTEREST
(i) Penalties
There are three different ways of penalizing a registered operator, namely:
 Penalty and interest for failure to pay tax when due;

 Civil penalty for late submission of a return; and
 Additional tax in the case of evasion or causing a refund in excess of that properly refundable
(i)(a) Ordinary Penalty
 Payments in terms of Section 28 (Normal VAT return)
If the tax is not paid within the prescribed period, an amount equal to the unpaid tax is charged
as penalty for that month in which it was required to be paid (i.e. 100%). The penalty is a once
off amount and is not recurring.
 Payments in terms of sections 13 and 29 (imported services and sales in execution)
If the tax is not paid within the prescribed period of 30 days, an amount up to the amount of
the unpaid tax is charged as penalty for that month in which it was required to be paid. (i.e.
maximum of 100%). The penalty is a once off amount and is not recurring.
(i) (b) Civil penalty for late returns
A registered operator who fails to submit a VAT returned is penalized $30 per day for each day the
return remains outstanding subject to a maximum of 181days. Such penalty is levied on any outstanding
return whether VAT is payable or not.
(i) (c) Additional Tax
Additional tax is an amount not exceeding 100% of the tax evaded, refunded in excess, or chargeable. This
amount is usually levied in the case of fraud being identified. It is not subject to the penalty of 100% (as
contemplated above), but is subject to interest at the prescribed rate.
Additional tax may be charged where the Commissioner is satisfied that a registered operator has: -
 Failed to perform duties imposed under the VAT Act, or
 Omits to do anything, and
 With intent to evade the payment of VAT payable by him, or
 To cause a refund to him in excess of the amount properly refundable to him,
(ii) Interest
For any month(s) while it remains unpaid an additional percentage interest at the prescribed rate (10%
per annum previously LIBOR plus 5% per month or part thereof) will become payable. This interest is
only levied from the first day of the month following the month in which the return is due. It is therefore
clear that the penalty and interest are two separate “penalties” and may not be imposed for the same
reason.

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(iii) Payment of Penalty and Interest
Where a registered operator defaults in paying VAT or has paid VAT late and has paid an amount equal
the VAT due, the amount paid is applied to penalty then interest and finally the VAT due (section
40(7)). N.B interest will continue to accrue as long as the principal amount remains unpaid.
3.17 REFUNDS
(i) When is VAT Refundable?
The following are the circumstances under which VAT may be refunded:
Routine refunds
A registered operator will be entitled to a refund of VAT when the aggregate of input tax and
adjustments, in a particular tax period to input tax exceeds the aggregate of his output tax and
adjustments to output tax.
The following requirements must, however, be met before such refund will be made:
 The claim must be made within 6 years after the end of the relevant tax period (the claim will
 usually be made by submitting a VAT return for that tax period) and
 The amount of the refund must exceed $60. If the amount refundable is less than $60, it will be
carried forward to the immediately following tax period where it will be set off against any VAT
arising in that tax period. NB the operator is only allowed to offset such amounts upon receipt of
confirmation of such refund from the Commissioner.
Special circumstances
A registered operator may also claim a VAT refund when:
 Any amount of VAT, additional tax, penalty or interest previously paid by him to the
 Commissioner was in excess of the amount which should have been properly paid by him: or
 Any amount of a routine refund to him was less than the amount, which should have been
properly refunded to him.
Refunds of this nature will normally arise as a result of errors made by a registered operator on
previous VAT returns. A registered operator must apply in writing to the Commissioner for refunds
of this nature.
The following requirements must be met before such a refund will be made:
 The claim must be made within 6 years after the date upon which payment of the account
 claimed to be refundable was made
 In those circumstances where payment of the amount claimed was made in accordance with the
practice generally prevailing at the date of payment, the claim must be made within 6 months of
the date of payment
  The amount to be refunded is more than $60
 Where any amount of output tax claimed to be refundable to a registered operator has been borne
by any other person, the Commissioner must be satisfied that such amount will be refunded to that
other person.
As with routine refunds, if the amount refundable is $60 or less, the amount will not be refunded but
will be carried forward to the immediately succeeding tax period.

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(ii) Refunds Offset against Other Unpaid Tax
Any refund may be set off against other taxes, penalties and interest where a registered operator:
 Has failed to pay any tax, additional tax, penalty or interest under the VAT Act within the period
 prescribed; or
 Owes any amount of tax, interest or penalty levied under any Act of Parliament administered by
the Commissioner.
(iii) Refunds Withheld or Denied
Refunds may be withheld if the registered operator has failed to furnish a VAT return for any tax period
until such time as the return has been submitted. Any decision by the Commissioner to deny any refund
must be communicated, in writing, to the registered operator.
This may also be applied where the Commissioner is unable to gain access to the required records or
the records are incomplete (or if the return itself is incomplete or incorrect to a material extent)
(iv) Interest on Delayed Refunds – Section 45
A routine refund must be paid to the registered operator within the prescribed period (set by Regulation
by the Minister) after the date on which the VAT return is received by the Commissioner. Where the
refund is not paid out within this period, interest is paid to the registered operator at a rate fixed by the
Minister from time to time (10% per annum).
NOTE: Interest will not be paid if: -
 The relevant VAT return is incomplete or is defective in any material respect: or
  The registered operator is in default with any of his obligations to submit a VAT return: or
 During any period during which the Commissioner is unable to gain access to the records of the
 operator for audit purposes: or
 If the registered operator is a non-resident and has not furnished the Commissioner with the
details of his appointed agent and bank account details in Zimbabwe.

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3.18 OBJECTIONS AND APPEALS
Objections
(i) When Can Objections be Made?
 When a person is not satisfied with an assessment. Such person may object to all or part of
 the assessment.
 Objections may be lodged against decisions made by the Commissioner. Such objections may
be on the liability for registration, the cancellation of a registration, the refusal by the
Commissioner to authorize a refund or a ruling which the registered operator may have good
reason for disagreeing with.
(ii) Lodging an Objection– Section 32
A person wishing to make an objection to the Commissioner’s assessment or decision must:

 Put the objection in writing
  Specify in detail the grounds of the objection
 Be made within 30 days after the date of the decision or assessment. In the event of a dispute,
the date of the assessment or decision will be the date the registered mail was posted to the
person raising the objection.
If the objection is received by the Commissioner within the stipulated time period, the
Commissioner will either:
 Alter the decision
 Alter or reduce the assessment, or
 Disallow the objection
A written notice must be sent to the person objecting to the Commissioner’s ruling/assessment etc
informing him of his decision.
(iii) Grounds of Objection
The grounds of objection should be stated clearly and it is important to raise all the grounds at the time
of objection. The Commissioner may, on good cause shown, give leave to the objector to amend or add
to the grounds.
(iv) Late Objections
If there is a delay in lodging a written objection, the Commissioner may accept it provided good reasons
are given for the delay. If an objection is not lodged, the assessment/decision becomes final after 30
days.
(v) Appeals –Section 33
An appeal is only lodged if and when a person’s objection was disallowed. A registered operator must
appeal against the disallowance of the objection within 30 days of the date of the notice.

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An appeal can be made to the Fiscal Appeal Court or to the Supreme Court depending on the nature
of the dispute.
The appeal must be:-

 Made in writing
 Lodged with the Commissioner within 30 days after the date of the notice of disallowance of the
objection.
If there is a delay in the lodging of a written appeal, the Commissioner may condone the delay,
depending on the reasons.
The appellant is limited to the grounds of objection stated in his original objection unless, on good
cause shown, leave is given to amend the grounds. The appellant or the Commissioner may appeal to
the Supreme Court against any decision of the Fiscal Appeal Court.
3.19 AGENTS AND PRINCIPALS
Agents and Auctioneers (section 56):
In cases where an agent makes a supply of goods or services on behalf of another person who is his
principal, that supply shall be deemed to have been made by the principal, section 56(1).
Where the agent is a registered operator, the agent may issue and receive tax invoices, debit notes or
credit notes. This though does not relieve the principal of the obligation to account for output tax, deduct
input tax and submit returns, section 56(2).
Where goods are imported into Zimbabwe by an agent who is acting on behalf of another person (a
resident of Zimbabwe), the importation shall be deemed to have been made by the principal regardless
of the fact that the documents are held by the agent, section 56(3)
Where goods are imported by an agent on behalf of a foreign principal who is not a registered operator
and the agent has paid tax on importation and there is an agreement in writing that the principal will
not reimburse such agent, then that importation shall be deemed to have been made by the agent and
not the principal. The agent will claim input tax, section 56(4).
Where agents issue or receive tax invoices, credit notes and debit notes, they are required to maintain
sufficient records, section 56(5).
Special provisions have been made in respect of auction sales where transactions will not ordinarily be
a taxable supply. In such situations, the auctioneer is deemed to have supplied the goods in the course
of furtherance of his trade, section 56(7).
3.20 COMPLIANCE
Offences and Penalties – Section 62
There are two broad categories of offences. The first category relates to offences against the VAT Act
generally, while the second relates to offences in regard to tax evasion specifically.
Offences against the VAT Act
Any person found guilty of an offence mentioned below will be liable, on conviction, to a fine of up to
level seven, or to imprisonment for a period not exceeding 12 months, or both.

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  Holding yourself out as an officer engaged in carrying out the provisions of the VAT Act
 Holding yourself out as an officer authorised by the Commissioner for the purposes of entry and
 search of premises.
 Failing to apply for registration when required
 Failing to furnish required returns or declarations
 Failing to advertise or quote prices inclusive of VAT
 Failing to keep proper record for a minimum period of 6 years
  Failing to comply with a written notice by the Commissioner to furnish information
 Obstructing, hindering or assaulting any officer engaged in carrying out the provision of the VAT
Act or wilfully failing to comply with any lawful demand made by such office in the performance
 of his duties.
 Failing to notify the Commissioner within the stipulated time of any change of status, or failing
 to notify the Authority within the specified time of becoming a representative registered operator
 Knowingly including or adding on VAT where no VAT is payable on a supply, or which is in
 excess of the VAT properly leviable on a supply.
 Declaring to any person to whom goods or services are supplied that VAT has been included or
will be added to the price of the goods or services where in fact VAT is not chargeable in respect
 of the supply.
 Knowingly issuing more than one tax invoice, credit note or debit note in respect of a taxable
 supply
 Failing, as a registered operator, to provide another registered operator, with a tax invoice, credit
 note or debit note as required by the VAT Act.
 As an agent or auctioneer acting on behalf of a registered operator, failing to keep proper records
of transactions and failure to report regularly on same to the registered operator as required.
Offences in regard to Tax Evasion – Section 63
Any person found guilty of an offence mentioned below will be liable, on conviction, to a fine of up
to level twelve, or to imprisonment for a period not exceeding 24 months, or both.
The offences are:

 Making, causing or allowing any false statement or entry in a return to be made, or signing such
 a statement or return, without reasonable grounds for believing that statement or entry to be true
 Giving false answers (verbally or in writing) to any request for information by the
 Commissioner or any persons duly authorised by him to request such information
 Preparing, maintaining or authorising the preparation or maintenance of any false books of
 accounts or other records or authorising the falsifying of any books of account or other records.
 Making use of, or authorising the use of any fraud, art or contrivance whatsoever
  Making a false statement for the purpose of obtaining a refund or exemption
 Receiving or dealing with any goods or accepting a supply of services knowing or having reason
 to believe that VAT on the supply of the goods or services has been, or will be, evaded
  Knowingly issuing any materially erroneous or incomplete tax invoice, credit note or debit note
 Knowingly issuing any tax invoice showing an amount charged for VAT where the supply to
which the VAT relates will in fact not take place
With the intent to evade the payment of VAT, or to obtain any refund of VAT without entitlement
thereto, or, with the intent to assist any other person to evade the payment of VAT or to obtain any
refund of VAT without entitlement thereto.

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Anti-avoidance provisions
The VAT Act has anti-avoidance provisions in section 77 which provide that whenever the
Commissioner is satisfied that any scheme:
 Has been entered into which has the effect of granting a tax benefit to any person.
Was entered into in an abnormal manner which would not normally be employed for bona fide
business purposes, or has created rights and obligations not normally created between people
dealing at arms’ length.
 Was entered into solely or mainly for the purpose of obtaining a tax benefit: He
may ignore the legal effects of the scheme and levy VAT in any way he deems
 fit.
In this case scheme includes any transaction, scheme or understanding and tax benefit includes:
 Any reduction in the liability to pay VAT
 Any increase in entitlement to claim input tax
 Any reduction in the consideration payable in respect of a supply
 Any other avoidance or postponement of liability for VAT.
3.21 VAT WITHHOLDING TAX

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CTA LEVEL 2
TUTORIAL 4

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TUTORIAL 4/ TEST 4
4.1 Taxation of Partnerships

4.2 Deceased Estates and Trust
4.3 Farming Operations
2.4 Mining Operations

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STUDY UNIT 4.1
TAXATION OF PARTNERSHIPS
Members of a partnership are taxable in their individual capacities on their share of profit as determined on the
accounting date. In terms of section 37(15) of the Income Tax Act, partners are required to submit a joint return
with supporting accounts each year. For the establishment of the individual share of taxable income from
partnership business operation, the accounts submitted will first be assessed as if they represented a legal
persona. The taxable income established there from is then shared in the profit sharing ratio per the Partnership
Deed.
Some important points to note when establishing taxable income of a partnership business are as follows:-
- expenses paid on behalf of partners by the partnership are allowable to the partnership but should
be included in the computation of the individual partner’s taxable income.
Such expenses include school fees, groceries, medical expenses, subscriptions and insurance
premiums where partner’s estate is the beneficiary.
- insurance premiums on joint life policies and life policies on partner’s lives with the partnership
as beneficiary, are not allowable deductions and are not added to partners’ individual computation.
(By disallowing their deduction in the partnership, partners are already being taxed).
- partnership profits accrue on the accounting date, or desolation date of partnership, on

admission of new members, or resignation of new members ; or on the death of a partner. Where
the partnership business is continuing after a change in membership, the Commissioner does not
normally require accounts to be drawn up. He will accept whatever method used to determine
profit share of the outgoing member. The partnership would then be expected to draw up accounts
at the usual time.
The actual taxation of an individual is simply to apply the rates of tax to the taxable income established, after
which the credits applicable to the individual are calculated and subtracted. An AIDS levy of 3% of the
remaining tax after credits is added, after which P.A.Y.E. is applied in reduction of the tax liability established.
Relevant sections of the Act include: Section 37(15): Joint returns
Section 51(5): Separate assessments
Accrual of partnership profits - on accounting date (Legal precedent Sacks v CIR)
Accrual of partnership salaries - monthly as established in COT v Newfie

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4.1.2 GENERAL
Under the present legislation partnerships are not taxed as such: the members are, of course, liable as
separate individuals in respect of their appropriate share of profits. In practice however the taxable
income of the partnership is first determined on the basis that it is a separate taxable person and the
profits apportioned among the partners according to their rights to share in the partnership profits.
The essential conditions for a partnership are:

i. Each partner brings or binds himself to bring something into it, whether it be money or
labour or skill
ii. The business should be carried on for joint benefit of all the partners,
iii. The object should be to make profit,
iv. The contract between the partners should be legitimate contract.
4.1.3 ACCRUAL OF PARTNERSHIP PROFITS


Section 10(2) of the Income Tax Act deems income accruing to a partnership to have accrued to
the respective partners, on the accounting year end or date of dissolution of the partnership, in
proportion to the partners’ profit sharing ratio.
4.1.4 DEATH OF A PARTNER


In legal opinion Number 8 it as stated ‘Nearly all the books say, and in this they are supported by
cases cited, that a partnership is not dissolved by the death of a partner – when the partnership
estate of the deceased, and
agreement clearly provides for its continuance for the benefit of the
 the deceased partner by his will has authorized such a continuance’

In these circumstances though a new partnership comes into existence, the death of a partner
cannot lead to any recovery or recoupment of earlier Special Initial or Wear and Tear Allowances.
Where however, these conditions do not apply the partnership is dissolved and recoupments will
be considered. In both cases the deceased partner will be taxed on profits, which have accrued to
him from the 1st January to date of death. The  remaining partner’s position is covered by the
proviso to section 37(15) of the Income Tax Act.
4.1.5 TREATMENT OF EXPENDITURES
It is important to show how expenditure incurred by the partnership is treated in the hands of the
respective partners where the partners are the ones charging the partnership.
Expenditure Incurred By The Treatment In The Hands Of The

Partnership
Partnership Respective Partner
Partner’s salary Allowable Taxable

Joint life policies Not allowable Not taxable
Partner’s life policy – partnership is the Not allowable Not taxable
beneficiary.
Partner’s life policy – partner is the Allowable Taxable
beneficiary

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Partner’s life policy – ceded to the Not allowable Not taxable

partnership.
Interest on Capital Allowable Taxable
Drawings Not allowable Not taxable
Rents payable to a partner Allowable Taxable
Sports subscriptions Allowable Taxable
Other Club subscriptions Allowable Not taxable if
substantially patronized
by business and
professional persons
Medical aid contributions Allowable Taxable as the exemption
only applies to
employees. Grant credit
Attendance at trade mission or convention Allowable to a Not taxable
(Section 15(2)(w) maximum of $2,500 per
partner.
Voluntary payments to former partner or Allowable to a Tax the full amount
dependent thereof who has resigned from the maximum of $200 per
partnership because of ill-health, infirmity or former partner and $200
old age, (Section 15(2)(q) per dependent(s) of one
former partner
Partner’s private use of a motor vehicle. Allowable Taxable
Passage benefits-partner’s business trip where Allowable Not taxable
he uses the opportunity to take a holiday after
the business.
Passage benefits-partnership bears the cost of a Allowable Taxable
holiday for a partner.
Retirement annuity fund contributions Allowable Taxable
Allow deduction in terms
of section 15(2)(h)

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STUDY UNIT 4.2
DECEASED ESTATES AND TRUSTS
Key Learning Points


Taxation of income generated by assets (property) in a deceased estate.

Explain the implications of the Income Tax Act in relation to deceased estates.

The treatment of wills of a deceased person

Identify what constitutes an estate of a deceased person.
Introduction

As in the case of individuals and companies it is possible for a deceased estate or trust to
constitute a taxpayer and to be liable to tax on his taxable income.

So how does an estate come into being:

An estate is a legal persona, which come into being by operation of law as follows;
 A deceased estate commences its existence with the death of an individual. It consists of the whole of
the deceased’s property. It is administered under the
Estate Duty Act by the executor and terminates when any necessary realization of assets has been
effected, the master of High Court has effected final liquidation and distribution account.
 An insolvent or assigned estate is created by the order of the court on presentation of petition for
surrender sequestration or statutory assignment of the debtor’s estate.

A trust on the other hand is not generally a person though it may be regarded as a person for tax
purposes especially when it has income the subject to which no beneficiary is entitled to. It comes
into existence through the will of a deceased person or can be created by an existing person as
shall be seen later.
Application of the Income Tax Act in relation to deceased estates


Section 11 to the Income tax Act deals with the taxation of income derived from assets in
deceased estates?

Key definitions in section (Sect 11 (1))
 Ascertained beneficiaries – means a person named or identified in the will of a
deceased person who by reason of the will acquires on death of the deceased person any immediate
certain right to claim the present or future enjoyment of the income so received or accrued.
 Asset in deceased estate - does not include a right to claim an amount which becomes due and
payable before the death of the deceased person

General Principle
 Period up to death - On the death of a taxpayer an assessment is raised on deceased taxable
income accruing to the date of death.
 Period after death - A new taxpayer a deceased estate then comes into being and there arise the
question of determining in which part’s hands the income accruing in the post death period should
be taxed.

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Income accruing during the post death period – Sect 11


The terms of the will are crucial as they form the basis as to who is taxable on the income
subsequently derived from the asset of the estate as follows;

Sect 11(2) - Specific asset to a specific person
o Where a specific asset is left to a specific individual e.g. my house to my son Arnold; the
son is taxable on the income derived from the asset from the day after the death of the
deceased. The son is in this case an ascertained beneficiary.
 
Sect 11(3) – Residue
o Where the will provides for a residue in the estate, the estate is taxable on the income
derived from the asset or residue from the day after death until the date of distribution by the executor
Note!!! Income accruing during the period where the beneficiary is entitled to transfer
and ending immediately before the transfer from the deceased estate is taxable in the
hands of the beneficiary.
Pre and Post Death Income – Sect 11(4)


Sect 11 (4) (a) - an amount received or accruing by virtue of a right forming part of the assets in
a deceased estate which did not become due and payable before the death of the deceased person
(subject to par b) shall be income for the purposes of the Income Tax Act, if the amount would
 have been income of the deceased person had it been received in his lifetime.

e.g. contractual commission falling due after death, leave pay, rental income from
 properties.

The income is therefore taxable in the hands of either the deceased estate or
ascertained beneficiary.


Sect 11(4) (b) - an amount received in a deceased estate(received in the post death period) which
would have been income of a deceased person had it been received in his lifetime shall not be
 income for the purposes of the Income tax Act if—

 the deceased person had no right to claim the amount in his lifetime; and

the amount is received ex gratia or in pursuance of a gratuitous promise made after
 the death of the deceased person;

e.g. bonus voted for after death.

 

Expenditure against post death income
If the expenditure is allowable under the general deduction formula it will also be allowed be it to
the estate or to the beneficiary but inadmissible, expenditure is disallowed in the determination of
taxable income of part concerned.

 Ordinary resident
An estate is regarded to be ordinarily resident in Zimbabwe if the deceased was ordinarily
resident in Zimbabwe at the time of his death.

Medical expenses
Medical expenses of the deceased paid after death is claimed as a credit in the pre-death period.
Applicable taxation rates


General Principle – The source of the income determines the rate of tax to be applied



Pre death period:
 Employment Income – Apply PAYE rates
 Trade and Investments – 25% + Aids Levy

Post death period(Deceased Estate/beneficiary)
 Employment Income – Apply PAYE rates
 Trade and Investments – 25% + Aids Levy

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Taxation of Income Accruing to Trust
Types of Trusts
Will Trust

The deceased person will nominate certain people in his will who will take charge of his
 assets upon his death (Trustees)

Such people will administer the assets of the trust and make distributions to the
 beneficiaries as directed by the will.

Sometimes the will may state the time or at what age the assets of the trust shall be
distributed or handed over to the beneficiaries. The trust will then be wound up when all
the distributions have been made.
Inter Vivos Trust


The person will by a written trust deed name certain person(s) as trustees and hand over
 various assets to them as initial capital of trust.

The trustees will then administer this capital and receive any income accruing there from
in accordance with the conditions set out in the trust deed.
Taxation of Income Accruing to the trusts


 NB!!! a trust is not taxable unless it has income to which no beneficiary is entitled.

 In most cases the Commissioner will tax the beneficiaries of the trust

Where a beneficiary has vested right he is taxable on the trust income whether distributed
or not.
Types of Vested rights
There are three types of vested rights as follows:

  
A clear vested right

This is where income has to be paid to a beneficiary and the trustees having no say on the
  beneficiary is taxable on income for his distribution and income
matter. By its nature the
remaining in the trust.
  The property in the trust is, in other words deemed to be property of the beneficiary not
withstanding that it has
 been capitalized or invested by him.

Again a vested right
o The trustees have discretion over the amount to be distributed nevertheless any
amount remaining in the trust is accumulated for the benefit of the beneficiary.
o As such he is again as in above taxable on income for his distribution and any
income remaining in the trust.
  Delay in the vesting right
o Under the vesting right the distribution of income and its enjoyment is entirely at
the discretion of the trustees.
o In other words the trustees have the right to distribute the income of the trust to
somebody else other than the beneficiary.
o The trust is taxable on all undistributed income.
o The beneficiary is only taxable on income for his distribution.
o Distribution is assumed once the trustees exercise their discretion by making an
award to him such as by crediting an account despite distribution in such being
delayed.
Identity of trust income


The general rule is that trust income will retain its identity in the hands of the beneficiary. In other
  it to the beneficiary, the income will still
words if the trust receive a bank interest and distribute
be called bank interest in the hands of a beneficiary.

An annuity however forms an exception to the general rule, thus the exemptions granted in respect
 of dividends and certain interest in terms of paragraph9, 10 and 11 of the third schedule do not
apply to any annuity paid out of such exempt income.

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
In other words the source of income is the creating instrument, not the asset from which the
 income is derived.

As long as an amount is received as an annuity by beneficiary it will be taxable indiscriminately,
no matter whether the trust income is from an exempted source.
Trust expenditure

If the expenditure is allowed under the general deductions formula it will also be allowable
against trust income, and prohibited expenditure is disallowed.
Residence of Trusts
A trust is assumed to be ordinarily resident of Zimbabwe if:
 Part of its income is from a source in Zimbabwe.
 The executors or trustees are ordinarily residence in Zimbabwe.
 The person who created the trust was ordinarily residence in Zimbabwe at the time of creating
the trust.
Expenditure on exempt income


It has to be reinforced once again that no expenditure is allowable in respect of exempt income.
 This scenario is usually more often in trust cases.

For instance the trustees may be paid commission based on the income created by them, of
 which part of the income will be from an exempt source.

Where such a circumstance applies, the allowable part of the commission will be reduced by: 
AXB
C
Where:
A is the exempt income,
B is direct expenditure applicable on creation of trust income,
C is total gross income created by the trustees.
Example
Mhere trust was created on 31/07/09 and is administered by Tendai and Tatenda. During the current year
of assessment the trust earned a total income amounting to $80,000.00, included in this income is dividend
from a company incorporated in Zimbabwe amounting to $20,000.00. The trustees were paid commission
amounting to $12,000.00. How much is allowable against trust income?
Solution
$
Total omission paid 12 000
Less ($12 000 x $20 000 / $80 000) (3 000)
Allowable Commission 9 000

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STUDY UNIT 4.3

4.3 TAXATION OF FARMERS
4.3.1 Interpretation of Terms
Farmer – means any person who derives income from pastoral, agricultural or other farming
activities, including any person who derives income from the letting of a farm used for such
purposes and “farming operations” and farming purposes” shall be construed accordingly.
Defined in section 2
Livestock – acquired or bred by a farmer for farming purposes or in the carrying on of his farming
operations. This includes cattle, sheep, goats, pigs, crocodiles, ostriches, fowls and any other
animals or birds that are raised by a farmer as livestock in the course of his farming operations.
Defined in 7th schedule
Drought Stricken Area- means any area of Zimbabwe which is seriously affected by drought
and which the Minister declares in a statutory Instrument to be drought stricken. Defined in 7 th
schedule.
Grazer – means livestock, which a farmer in terms of a contract with the owner of the livestock
has in his possession and for which he has assumed responsibility for the grazing and management
thereof. Defined in 7th schedule
Water conservation work – means Reservoir, Weir, dam or embankment constructed for the
impounding of water. Defined in 7th schedule
Fencing means

 Any fencing erected by the taxpayer and used by him in farming operations.

Any fencing erected by any other person and for which a farmer becomes liable in terms of
the Fencing Act, which is used for farming operations. Defined in 7th Schedule 
Farm Trading Stock means


Any livestock acquired or bred by a farmer for the purposes of carrying on farming
 operations.

Crops and other produce produced or partially produced by a farmer in the carrying on of
farming operations.Defined in the 2nd Schedule
Farm Improvements means

a) Any building or structure or work of a permanent nature, including any water furrow,
which is used in the carrying on of farming operations, but does not include:-
i. Any building or structure or work of a permanent nature referred to in paragraph 2
of the 7th Schedule.
ii. Staff housing of any dwelling –
A. Used by the taxpayer as the homestead of himself and his family; or
B. Purchased or constructed after the year of assessment beginning on the 1st
April 1979 or
iii. A tobacco barn.

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b) Any permanent building the erection of which was commenced on or after the 1 st April
1988, used for the purposes of a school, hospital, nursing home or clinic, in connection with
taxpayer’s farming operations. Defined in the 4th Schedule
Tobacco barn means any building used for the curing of tobacco. Defined in 4th Schedule
Cost and maintenance value in relation to ordinary livestock means the

 Cost to the farmer or cost of breeding
  Cost of maintaining the livestock (cattle feed, dipping costs, herd boy’s wages, etc.)
Defined in 2nd Schedule
Fixed standard value in relation to:

 A class of ordinary livestock of a farmer means the standard value fixed by the farmer in
terms of paragraph 10(2)(a)
 A class stud livestock of a farmer means the actual cost to the farmer where the cost price
of livestock is less than $15 whichever the farmer may elect.
Defined in the 2nd Schedule
4.3.2 DETERMINATION OF TAXABLE INCOME FROM FARMING OPERATIONS
Section 8(1)(g) – Sale of Timber and Growing Crops
This paragraph provides that if timber or crops which have been grown for sale are sold or
disposed of, whether or not for valuable consideration, with the land, the market value of such
timber or crops at the time of sale or disposal of the land is to be included in gross income. An
exception is provided in the case where the land is acquired by way of inheritance or donation and
the timber or crops did not become part of the business assets of the recipient.
VALUATION OF FARM TRADING STOCK
Ordinary Livestock – A farmer must make an election in his first return between Fixed Standard
Values of the livestock (fixed by the farmer with the approval of the Commissioner) and the Cost
and Maintenance value of the livestock. The latter includes the cost of:

Purchase or the cost incurred in breeding the animals, as nearly as it can be ascertained plus,
maintaining them. This second method is rarely chosen in practice and so is almost obsolete.
Stud Livestock –A farmer may elect to adopt either the Purchase Price value of each animal or
the Fixed Standard Value of the livestock.
Whether the livestock is stud or ordinary, two basic rules apply;


The election as to method and the determination of the values are both related to “classes of
 livestock”, chosen by thefarmer and approved by the Commissioner. The classes might be
bulls, cows, heifers, etc.

Once an election has been made and a fived standard value “F.S.V.” for a class has accepted,
the Commissioner has no unilateral powers to alter the taxpayer’s method of valuation and
while the farmer may alter it he may do so only with the Commissioner’s approval.
Section 8(1)(h) of the Act brings the value of trading stock into gross income. Section 15(2)(u)
then permits the deduction of opening stock in the following year. Livestock is divided into

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“stud livestock’ and ‘ordinary livestock”. Where there are two valuation methods the taxpayer
has to make an election.
4.3.3 VALUATION OF FARM TRADING STOCK
Section Type or Date of Ordinary Stud Crops 2nd

8(1)(h) Circumstance Valuation livestock livestock Schedule
Paragraph (T/p to elect) (T/p to Paragraph
elect)
Closing stock Last day FSV PPV Fair & 12
of tax year CMV FSV reasonable
or
accounting
year
Consumed by Date of Fair & Fair & Fair & 13

taxpayer or put such use reasonable reasonable reasonable
to other use.
Stock on hand Date of FSV PPV Fair & 12

On date of such CMV FSV reasonable
death, happening
insolvency or
donation
Attached by End of tax FSV PPV Fair & 12
court order year CMV FSV reasonable
Sold with Date sold Selling Price Selling Selling 14
Business Price price
Pursuance of
court order
Livestock may be acquired by a person without payment of consideration, for example, by way of
inheritance or donation. If heir or donee merely sells the livestock without conducting farming operations
with them the proceeds are of a capital nature. If he commences farming, or introduces the livestock into
existing farming operations, a deduction is allowable of, in the case of
 an heir: the fair market value, for which the valuation in the estate concerned would be used
 a done: an amount not exceeding what would have been deductible in the donor’s hands had he
sold the livestock.
Example 1
In his first year of farming, Mr. X purchases the following herd:-

1 Bull $1,900
5 Cows $1,600 each
20 Oxen $1,500 each
10 Heifers $ 800 each
15 Tollies $ 750 each
30 Calves $ 500 each

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For the purposes of valuation of closing stock he adopts the following Fixed Standard Values which have
been approved by ZIMRA.
Bull $ 2,000 each
Cows $ 1,500 each
Oxen $ 800 each
Heifers $ 700 each
Tollies $ 500 each
Calves $ 200 each
NOTE 1
During the year Mr. X had, sold 19 Oxen for $475,000 and the remaining one had died.
NOTE 2
In addition to the 19 Oxen sold and 1 death, 4 Heifers had become Cows, 6 Tollies had become Oxen and
of the 14 Calves, half had become Heifers and half Tollies, the result would be as follows (in number of
herd):-
LIVESTOCK RECONCILIATION STATEMENT AS AT 31st DECEMBER 2017

Bulls Cows Oxen Tollies Heifers Calves Total
Opening Stock - - - - - - -
Purchases 1 5 20 15 10 30 81
Births - - - - - -
Promotions-in 4 6 7 7 - 24
Sub- Totals [A] 1 9 26 22 17 30 105
Sales (19) 19
Death (1) 1
Promotions out (6) (4) (14) 24
Sub-Totals[B] - - (20) (6) (4) (14) 44
Closing Stock [A-B] 1 9 6 16 13 16 61
At 2,000 1,500 800 500 700 200
Closing Stock Value 2,000 13,500 4,800 8,000 6,500 3,200 38,000

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LIVESTOCK TRADING ACCOUNT FOR THE ENDED 31 ST DECEMBER 2017

Purchases Sales 475,000
1 Bull 1,900 Closing Stock: 38,000
5 Cows @1,600 8,000
20 Oxen 30,000
10 Heifers 8,000
15 Tollies 11,250
30 Calves 15,000
Expenses: 155,000
Profit: 283,850
513,000 513,000
4.3.4 PARA 2, 7TH SCHEDULE SPECIAL DEDUCTIONS APPLICABLE TO FARMERS
A farmer shall be entitled to deduct any expenditure incurred by him during the year of assessment on:-
 the stumping and clearing of lands
 works for the prevention of soil erosion
 the sinking of boreholes and wells
 aerial and geophysical surveys
 any water conservation work and any amounts paid by him towards the cost of any water
conservation work done by any other person for which such farmer has become liable.
 Fencing (see definition)
4.3.5 PARA 5, 7TH SCHEDULE – ASSESSMENT OF INCOME DUE TO ENFORCED SALES OF

LIVESTOCK
The Act recognises the hardship arising where a farmer is forced, through stress of drought or epidemic
diseases to sell his livestock including the return of grazers. If the farmer so elects, the amount of taxable
income derived from the disposal of the livestock which would otherwise be included in his return for
the year of assessment in which the livestock are so disposed of shall be allocated equally between the
year of assessment and each of the next two following years of assessment and be assessed to tax in
terms of section 14 (4) of the Finance Act.
If a farmer makes a loss on his other farming operations his actual taxable income for the year will be
less than the estimated taxable income from drought sales. In these circumstances he may elect instead
that his actual taxable income be spread over three years. Where a farmer returns grazers to the owner
thereof, he shall be deemed to have disposed of the livestock.
Example:
Drought/epidemic sales income $6,000,000
Loss from other farming activities ($1,500,000)
Taxable income for the year $4,500,000
:. Taxpayer can elect to spread $4,500,000 over 3
years. An election made by the farmer is irrevocable.

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Formula for the determination of Taxable income from Enforced sales.
Enforced sales xxxxxxxxx

Less: 1. X herd @ FSV xxxxxxxxxx
2. Direct cattle expenses x X
Y xxxxxxxxx xxxxxxxxx
Taxable income from enforced sales xxxxxxxxx
X = Number of Enforced sales
Y = Number of (Opening stock + Closing stock) i.e. Average stock

2
Example
A taxpayer sold, in a drought proclaimed period 25 oxen, which realised $15,000. His FSV for oxen,
all of which had been on hand at the beginning of the year, was $300. The direct heard expenses were
$3,000. Opening stock 160 herd and closing stock 140 herd. Calculate Drought relief on sales.
Solution:
Drought sales 15,000
Less: 25 oxen @ $300 7,500
Expenses - 3,000 x 25
½(160 + 140) 500 (8,000)
Estimated taxable income from drought sales 7,000
Note: If taxpayer elects, only 1/3 of the amount of $7,000, that is, $2,333 is taxable in the current
year, the remaining 2/3 being taxable in each of the following years.
4.3.6 PARA 6, 7TH SCHEDULE – ADDITIONAL ALLOWANCE IN RESPECT OF COST OF

RESTOCKING HEARD DEPLETED BY DROUGHT OR EPIDEMIC DISEASES
This paragraph provides for an outright allowance of 50% of the cost of livestock purchased by a farmer
in a drought-stricken area in order to re-stock a herd depleted by drought or epidemic diseases during
a period of drought or epidemic diseases.
The allowance is, of course over and above the cost of the livestock, which is automatically deducted
in terms of Section 15(2)(a). Such additional allowance is subject to restriction recognising the
Assessed Carrying Capacity of the Land (ACCL) as determined by the Department of Agricultural,
Technical and Extension [AGRITEX] services. The formula applied is:
AxB where:
2 C
A =The Cost of the livestock purchased
B =The difference between the A.C.C.L. and the livestock on hand before restocking,
C =Represents the number of livestock purchased for restocking purposes.

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Example 1:
A farmer’s livestock trading account for the year ended 31st December 2017 reflects the following:-
Herd Herd
350 Opening stock 70,000 100 Sales (April 2014 65,000

70 Purchases (September 2014) 35,000 320 Closing stock 64,000
Expenses 4,000
Profit 20,000
129,000 129,000
The (A.C.C.L.) determined is 300.
Calculate Restocking Allowance.
Solution
35,000 x [300-(350-100] = 17,500 x 50 = 12,500

2 70 70
Taxable income will be:

Net profit per accounts 20,000
Less: Restocking allowance (12,500)
Taxable income for the year 7,500
Example 2
Longhorn Ranches (Pvt) Limited was incorporated on the 1st January 2017 to acquire in the
Belingwe district from that date the farm “Cowhaven” together with improvements thereon, for the
sum of $1,810,000. According to the agreement of sale, the terms of which are acceptable to the
Commissioner of Taxes, the purchase price was made up as follows:
$
Land 970 000
Fencing 101 000
Farm dwelling 200 000 (erected 01/05/2005)
Staff housing 90 000 (3 units of $30 000 each all erected on
01/06/2017)
Plant and equipment 205 000
________
1 810 000

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lOMoARcPSD|4169582
During the year ended 31st December 2017 the company expanded and incurred the following capital
expenditure:
$
Erection of fencing 60 000
Sinking of boreholes 24 000
Purchase of 2 new tractors on 31st October 2017 48 000
Purchase of 2 cattle transportation Lorries on
30th November 2017 240 000
Addition to farm dwelling 200 000
REQUIRED:
To calculate the maximum amount of deductions to which the company is entitled for the year
ended 31st December 2017.
Suggested Solution
Longhorn Ranches (Pvt) Ltd
Para 2 Ranking Cost Total

7th Schedule Wear & tear SIA Allowance
$ $ $ $
__________ _____________________ ________
Maximum deductions allowed:
Fencing
Purchased -
Erected 60 000 60 000
Staff Housing
Farm dwelling
Staff housing
Plant and equipment 205 000 51 250
2 new tractors 48 000 12 000
2 cattle Lorries 240 000 60 000
Sinking of boreholes 24 000 24 000
________
207 250
** NOTES
1. SIA is 25%
2. Purchased fencing does not rank for 7th schedules
3. Farm dwelling and staff housing exceed $25,000

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STUDY UNIT 4.4
TAXATION OF MINERS
4.4.1 INTRODUCTION
The computation of taxable income for miners is basically the same as any other class of
taxpayer. The determination of allowances on capital expenditure for miners are outlined in
the 5th schedule.
A miner is assessed in a manner similar to that of a trader. However allowances on capital

expenditure are claimed in the form of capital redemption allowance (CRA) which replaces:
 Special Initial allowance,
 Wear and Tear allowance,
 Scrapping allowance,
 Lease premiums,
 Lease improvements,
 The 18-months prior to commencement of business expenses
The six-year limit on the assessed loss carried forward, does not apply to mining operations.
In cases where an asset is disposed of, recoupment is calculated differently.
Terms
 Income derived from mining operations – section 2
 Capital expenditure – 5th Schedule
 Mining location – 5th Schedule
 Miner – section 15(2)(f)(ii)
 Mineral – section 2
 Mining Operations – section 2
 Recoupment from capital expenditure – section 2
 Approved estimated life – 5th schedule
 Estimate of the life of mine – 5th Schedule
 Associated company – 5th Schedule
Section 15(1)(c) – Where a person earns income from mining operations and income from
trade and investment, any amounts allowed to be deducted shall only be claimed in respect
of the income to which they relate.
4.4.2 RELEVANT SECTIONS:-
- Sale of mining claims held as stock - section 9
- Definitions - section 2
- Mining recoupments - section 8(1)(j)
- Allowable deductions :-
prospecting expenses - section 15(2)(f)(ii)
capital redemption - section 15(2)(f)(i) and 5th schedule

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4.4.3 PROSPECTING EXPENSES
Section 15(2)(f)(ii) provides for the deduction of expenditure incurred during the tax year on
surveys, boreholes, trenches, pits and other prospecting and exploratory works undertaken for
the purpose of acquiring rights to minerals in Zimbabwe.
A binding election is available to claim such expenditure from current income from any
source or carry forward the expenditure to be allowed against income from mining operations
in any subsequent year.
The section applies to expenditure incurred by a miner (other than that which is allowable
under the general deduction formula) on operations either in search of mining claims or for
minerals after a mining claim has been pegged. Such expenditure is allowable in the year of
assessment in which it is incurred and, in the absence of income from such operation, such
expenditure may be set off against other income from trade or investment.
A prospector who at a later date intends to eventually carry on mining operations may elect
that prospecting expenditure incurred be carried forward and be allowed only against income
from mining operations. If mining operations were to fail to materialise, deductibility of the
prospecting expenditure would have been lost. The election is binding for any year of
assessment for which it is made but not for any subsequent year.
The expenditure allowable under this section may take the form of survey, sinking of
boreholes, digging of trenches and pits, and other prospecting and exploratory works
undertaken for the purposes of acquiring rights to mine minerals or incurred on a mining
location in Zimbabwe. This section excludes expenditure allowable as a deduction under
Section 15(2)(f)(i).
4.4.4 PAYMENT OF ROYALTIES – SECTION 15(2) (f) (iii)
Repealed with effect from 1st January 2004, royalties paid by a miner during the year of
assessment are no longer deductible.
4.4.5 CAPITAL REDEMPTION ALLOWANCES - (5th SCHEDULE)
Capital expenditure for mining purposes is defined as:-
Expenditure on buildings, works or equipment, lease premiums, shaft sinking

(including sumps, pump chambers, stations and ore bins accessory to a shaft) ;
expenditure incurred prior to commencement of trade on preliminary surveys,
boreholes, development, general administration and management, interest on loans ;
and, after 1/04/88 : includes expenditure on mine schools, nursing homes and clinics.
Methods of calculating capital redemption allowances:-
The redemption allowance can be calculated using either of three methods commonly
referred to as:-
 Life of mine

 Mixed method

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 New mine method


The taxpayer has to make an election of the method preferred.

Life of Mine (paragraph 2)

The life of the mine is outlined in paragraph 2 of the 5th schedule. Under this
method the current year’s capital expenditure is added to the balance of
unredeemed capital expenditure brought forward at the commencement of the
current year of assessment. The total capital expenditure is then divided by the
approved estimate life of the mine (in years), counting from the beginning of the
current year of assessment.

Where a taxpayer adopts this method he submits to the Commissioner an
estimate of the number of years for which operations are expected to continue,
based on certified estimates of ore reserves. The Capital Expenditure ranking for
C.R.A (less any recoupments) is divided by the life of the mine calculated from
the commencement of year of assessment concerned. This calculation is used
even if the mine was in production for only a portion of the year. A new estimate
of the life of the mine is required for each year of assessment. A taxpayer who
adopts the life of mine basis in respect of a particular mine is permitted to change
subsequently to the “mixed basis”.

The above provisions relate to mine owning companies. In most other instances
the position is (i) in the case of a company working a mine which it does not
own, the Commissioner usually grants the allowance on the basis of the shorter
of either the life of the mine or the period of tribute. (ii) in the case of an
individual who is the owner there is a right to claim on the life of mine basis;
where he is not the owner, as in the case of most small-workers, the
Commissioner recognises accumulated shaft sinking and development costs in
the first productive year and thereafter grants an allowance either over the period
of tribute or on a % “wear and tear” basis.

The estimated life of mine is subject to the following limitations: -
Types of mines Maximum estimate
Lead and/or zinc mine 10 years
Iron 5 years
Any other mine 20 years
Example
A company has an unredeemed balance of capital expenditure “URBCE” of

$200,000 as at 1 Jan 2013.
Current capital expenditure “CCE” is $120,000;
During the year the company sold machinery for $40,000.

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lOMoARcPSD|4169582
The mine estimates its life of mine to be four years from the end of the year of
assessment.
Solution
USD$
URBCE 200,000
Recoupment (40,000)
160,000
CCE 120,000
280,000
Capital redemption allowance
“CRA” 280,000/5 = 56,000
Companies not owning mines and other individuals
The capital redemption allowance will be based on Commissioner’s assessment

of what is fair and reasonable. Any person who is the owner of a mine can use
the life of the mine basis if she can submit the estimate of the life of mine. In
other cases the redemption is based on the shorter of tribute period or life of
mine.
With regard to individuals leasing mines, the Commissioner may allow

accumulated expenditure (shaft sinking and development) in the first year of
production. Thereafter the allowance is spread over remaining period and wear
and tear allowed at 20%.
Mixed Method (paragraph 4(2))
Under this method the taxpayer can make an election to claim a portion of
unredeemed capital expenditure brought forward at the beginning of the year,
by applying the life of the mine method to it. In addition to that portion, the
whole of the capital expenditure incurred in the current year is allowed in full.
New Mine Method (paragraph 4(4))
This method is only available to those carrying on operations in a new mine as

defined. The election of this method allows the taxpayer to deduct all capital
expenditure brought forward and current in the first year of production.
Thereafter, capital expenditure is allowed in the year in which it is incurred.
A new mine is defined as an undertaking which commenced regular production

on or after 1/04/1968, or recommencement of a mine which has changed
ownership and has been reorganised with substantially new development and
new plant.
A person who conducts mining operations in a new mine may elect to deduct in
the year of assessment in which production commences both (i) the accumulated
capital expenditure incurred prior to commencement and (ii) that incurred
subsequent to commencement, in that year. Capital expenditure in

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lOMoARcPSD|4169582
subsequent years is deductible as and when it is incurred (see definition of new

mine).
The basis is available both to individuals and companies and applies regardless
of whether the taxpayer owns or tributes the mine.
4.4.6 RING – FENCING
a) With effect from the year of assessment beginning on 1 January 2001 the computed
taxable income or loss for the year from each mine location of a particular operator
must be separately calculated. Thus a loss on operations in one mine would not be
available for set off against taxable income from another but would be carried forward.
b) With effect from the year of assessment beginning on 1 January 2001 deductions
allowed per section 15 can only be claimed in respect of income to which they relate.
c) Capital allowances can only be claimed in respect of expenditure or losses attributable

to a particular mining location and shall not be claimed in respect of any other mining
location.
d) Assessed Losses – No assessed loss carried forward will be allowed as a deduction

unless a breakdown showing the extent to which such loss is attributable to each
location must be submitted to the commissioner for approval. An assessed loss from
mining operations cannot be offset against other income.
4.4.7 GENERAL ADMINISTRATION AND MANAGEMENT FEES SECTION 16 (1) r


To be prohibited as a deduction is general administration and management fees paid by
the subsidiary or holding company or a local branch (where the parent is a foreign
company engaging in local mining operations). In respect of such expenditure as is paid
 before commencement of production to the extent that it exceeds 0.75% of:
 
A – (B + C)

Where,
o A – Represents the total expenditure qualifying for deduction in terms of
s15.
o B – Represents general administration and management fees paid outside
Zimbabwe.
o C – Capital redemption allowance

In the case of such expenditure as is paid after commencement of production to the
extent that it exceeds 1% of the above formula.

Example

The following expenses were incurred by A Ltd during the year ended 31
December 2017.
Administration fees paid outside Zimbabwe $120,000
Depreciation $ 60,000

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lOMoARcPSD|4169582
Other tax deductible expenses 420,000

Total 600,000
Capital redemption allowances = $50,000
Solution
Allowable fees = 1% [ A – (B +C)

= 1%[650,000 – 60,000] - [120,000 – 50,000]
=$4,200
Disallowable s 16(1)r =120,000 – 4,200

=115,800
4.4.8 INCOME TAX RATE
The income tax rate for mining companies is 25% effective from 1 January
2010 (was 15%).
4.4.9 REPLACEMENTS ELECTION (PARA 6)
Regardless of which of the above bases he has chosen, a taxpayer with a producing mine
may elect further to deduct in full the cost of replacing any capital asset, provided that
such costs does not exceed $10,000.
Non-Contiguous Mine (Para 5) – Section repealed with effect from 1st January 2001
4.4.10 CHANGE OF OWNERSHIPS (PARA 8)
When a mine is sold the parties are required to furnish the Commissioner with a jointly-signed
statement as to the proportion of the price relating to “capital expenditure”. The Commissioner
has powers to determine the proportion, if he is dissatisfied with the statement or if no
statement is submitted.
The amount so determined constitutes a recoupment from Capital expenditure in the hands of
the transferor and ranks for redemption in the hands of transferee.
Where the ownership of a mine is transferred for no consideration such as in the case of a
donation the transferor’s unredeemed balance of capital expenditure if any is effectively
eliminated in his hands and recognised for redemption in the hands of the transferee and may
be allowed to take over the assessed loss, if any, of the foreign company.
Where a foreign incorporated company which has carried on its principal business in
Zimbabwe and, is being voluntarily wound up, and, is transferring all its business to a
Zimbabwean company with the members’ shareholding being exchanged for shares in
the new company.
Any unredeemed balance of capital expenditure effectively passes to the new company.

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lOMoARcPSD|4169582
Income
a) Recoupment
b) Sale of Minerals
c) Sale of Mining Claim
4.4.11 SECTION 8 (1) (I) RECOUPMENT FROM CAPITAL EXPENDITURE
As in the case of other traders there are usually income tax consequences when a miner
disposes of or otherwise effects a recovery in respect of any asset or expenditure on which he
has obtained allowances.
A miner’s recoupment is in full no restriction to amount previously allowed is done. The

recoupment is brought into income in the case of any miner whose expenditure has been
allowed on the new mines but would first be set off against unredeemed balance of capital
expenditure in the case of a miner on either the life of a mine or mixed basis, with only the
excess recoupment, after exhaustion of such balance being brought into income.
Where the recoupment comes on the sale of an asset which has been the subject of a
replacement election and a recovery, usually by way of insurance proceeds in respect of
damage to or destruction of an assets, the recoupment is restricted to the allowance granted to
the taxpayer.
Note: Where the asset, which is sold, has been subject to a restriction of its cost the
Commissioner accepts an apportionment of proceeds for recoupment purposes.
4.4.12 CESSATION OF MINING OPERATIONS
If the cessation is due to the life of the mine having come to an end, or in the case of a mine
worked under concession, the concession having expired, the balance of the unredeemed
capital expenditure is allowable as a deduction in the year of cessation. If however, the
taxpayer has abandoned the mine that is by forfeiture of the claim, before its life has come to
an end, the unredeemed balance of capital expenditure is not deductible unless he can show
that there has been a material change of circumstances necessitating a revision of the life of
the mine.

PAGE 179

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NUST Tax Module Jan 2018

APPLIED TAXATION (Midlands State University)

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NATIONAL UNIVERSITY OF SCIENCE AND TECHNOLOGY

APPLIED ZIMBABWE TAXATION 2018

ZCTA LEVEL 2 [CAZ 2]

Downloaded by Phebieon Mukwenha (pmukwena3@gmail.com)

NUST TAXATION MODULE

3 Course Outline ,……………………………………………………………………. 19

NUST 2018 CTA 2 TAX MODULE

APPLIED ZIMBABWE TAXATION

NUST 2018 CTA 2 TAX MODULE

1. INTRODUCTION AND WELCOME

NUST 2018 CTA 2 TAX MODULE

Consequently, the candidate is required to have a knowledge and understanding of:

NUST 2018 CTA 2 TAX MODULE

NUST 2018 CTA 2 TAX MODULE

NUST 2018 CTA 2 TAX MODULE

NUST 2018 CTA 2 TAX MODULE

NUST 2018 CTA 2 TAX MODULE

NUST 2018 CTA 2 TAX MODULE

Twelfth schedule Rules for regulating appeals. Excluded

NUST 2018 CTA 2 TAX MODULE

Twenty – third schedule

NUST 2018 CTA 2 TAX MODULE

Value added Tax Act

NUST 2018 CTA 2 TAX MODULE

NUST 2018 CTA 2 TAX MODULE

NUST 2018 CTA 2 TAX MODULE

S 14 Determination of fair market price of specified assets. 1

NUST 2018 CTA 2 TAX MODULE

NUST 2018 CTA 2 TAX MODULE

NUST 2018 CTA 2 TAX MODULE

3.1 LEGISLATION CUT OFF FOR EXAM PURPOSES

3.2 TESTS (FORMATIVE ASSESSMENT)

Scope Test Number

NUST 2018 CTA 2 TAX MODULE

3.3 TAX RATES YEAR ENDED 31ST DECEMBER 2017

RATES OF TAX: EMPLOYMENT INCOME

2017 ANNUAL PAYE TABLE

Plus 3 % Aids Levy chargeable income tax payable less credits.

TAX FREE BONUS

TAX CREDITS $ (p.a.)

Elderly person (55 years and over) 900

PENSION CONTRIBUTIONS BY EMPLOYEE

Maximum permissible deductions $

Contribution to employer’s pension fund 5,400

NUST 2018 CTA 2 TAX MODULE

DEEMED ANNUAL MOTORING BENEFITS

EXEMPTIONS FOR ELDERLY TAXPAYERS (55 years and over)

FINES FOR GENERAL OFFENCES

Level of offence Fine($US) Level of offences Fine($)

NUST 2018 CTA 2 TAX MODULE

NUST 2018 CTA 2 TAX MODULE

4. OUTLINE OF THE TAX SYSTEM

The calculation of a taxpayer’s tax liability shall be made by reference to:-

- the taxable income of the taxpayer in the year of assessment

Accruals and total receipts in tax year

Less Amounts proved by taxpayer to be capital in nature

= Gross Income (section 8)

less Exemptions (section 14 and 3rd schedule)

less Allowable Deductions (section 15 and various schedules)

Sections 8, 14 and 15 are cornerstones of Zimbabwe Income Tax