INCOME TAX SYLLABUS

FINANCE ACT (CHAPTER 23.04)

1. Section 14(1) – Definitions

2. Section 14(3)(a) – Taxable income of a person engaged in new project providing
infrastructure in a growth point area
3. Section 14(3)(b) – Taxable income from manufacturing or processing of company
which exports 50% or more of its output
4. Section 22A – Rate of Tobacco levy
5. Section 22E – Rate of Carbon tax
6. Section 38 – Rates of Capital gains tax
7. Section 39 – Rates of Capital gains withholding tax

INCOME TAX ACT (CHAPTER 23.06)

1. Gross income – Section 8(1)

2. Section 8(1)(d) – Lease Premiums
3. Section 8(1)(e) – Lease Improvements
4. Section 8(1)(h) arw 2nd Schedule – Valuation of Stock
5. Section 8(1)(g) – Portion of proceeds from sale of a farm which relates to timber
and growing crops
6. Section 8(1)(j) – Recoupments where Capital allowances were granted previously
7. Section 8(1)(l) – Recoupments of rent, premiums etc applied against purchase price
8. Section 12(4) – Deemed source for premiums or like consideration for the use of
patent, design, trademark etc.
9. Section 12(5) – Deemed source where an asset on which Capital allowances were
granted is sold outside Zimbabwe
10. Section 15(2)(c) arw 4th Schedule – Capital allowances
11. Section 15(2)(d) – Lease Premiums
12. Section 15(2)(e) – Lease Improvements
13. Section 15(2)(z) arw 7th Schedule – Deductions granted exclusively to farmers
14. Section 15(2)(gg) – Export market development expenditure
15. Section 15(2)(hh) – Tobacco levy paid during the year of assessment
16. Section 15(2)(jj) – Fair value of any stock, shares, debentures, units etc given or
paid to an employee under an approved employee share option scheme or trust
17. Section 15(3) proviso (ii) – Change in shareholding: companies with assessed
losses
18. Section 15(3) proviso (iii) – Transfer of assessed losses from foreign company to
local company
19. Section 15(3) proviso (iv) – Assessed losses other than from mining operations may
not be carried forward
20. Section 15(3) proviso (v) – Treatment of assessed losses where a company with an
assessed loss is converted to a private business corporation or vice versa
21. Section 16(1)(f) – Unproductive interest
th
22. Section 36A arw 24 Schedule – Authority to charge, levy and collect a tobacco levy
23. Section 36E arw 28th Schedule – Authority to charge, levy and collect a Carbon levy
24. Paragraph 11, 3rd Schedule – Interest accruing to a person who at the time the
interest accrues is neither ordinarily resident nor carrying on business in Zimbabwe.
25. Paragraph 16, 3rd Schedule – The receipts and accruals of a licensed investor
during the first five tax years of trading.
rd
26. Paragraph 17, 3 Schedule – The receipts and accruals of an industrial park
developer during the first five tax years of trading.

Page 1 of 68
CAPITAL GAINS ACT (CHAPTER 23.01)

1. Sections 6 – Authority to charge, levy or collect Capital gains tax

2. Sections 7 – Calculation of Capital gains tax
3. Sections 8(2)(f) – Accrual of gross capital amount under a deed of sale
4. Sections 11(3) – Assessed Capital loss
5. Sections 11(5) – Deduction in respect of Lease improvements taxed in the hands of
the lessor under the Income Tax Act
6. Sections 11(6) – Authority to allow the full purchase price even under a deed of sale
arrangement
7. Sections 15 – Transfer of specified assets between companies under the same
control
8. Sections 17 – Transfer of business property by individual to companies under his
control
9. Sections 18 – Provision for sales of immovable property under suspensive
conditions
10. Sections 19 – Provision relating to credit sales where ownership passes
11. Sections 20 – Provision for reduction in costs of specified assets
12. Sections 22 – Substitution of business property
13. Capital Gains Withholding Tax:

Sections 22A – Interpretation of terms

Section 22B – Capital gains withholding tax

Section 22C – Depositaries to withhold tax

Section 22D – Agents to withhold tax not withheld by depositaries

Section 22E – Payee to pay tax not withheld by depositary or agent

Section 22F – Exemptions

Section 22FA – Registration of depositaries

Section 22G – Depositaries to furnish returns

Section 22H – Penalty for non-payment of tax

Section 22I – Refund of overpayments

Section 22J – Credit where tax has been withheld

Section 22K –Application of Part 111A to sales concluded before 1st January
1999

Section 22L – Suspension of provisions of Part 11A to marketable securities
14. Section 23 – Application of provisions of Taxes Act relating to returns and
assessments.
15. Section 32 – Capital gains tax not withheld in terms of Part IIIA to be paid for before
transfer of specified asset.

Module I: TAX CREDITS AND CALCULATION OF TAX

Objectives:
a) To state how income tax is calculated.
b) To distinguish between income from employment and income from trade or
investments and calculate the tax thereon.
c) To determine the credits to which a taxpayer is entitled to.

1. INTRODUCTION:
What is Income Tax?
• It is Tax on Taxable income (Tax chargeable)

2. CALCULATION OF INCOME TAX

In terms of section 7 of the Income Tax Act income tax is calculated by reference to:
• Taxable income of a person in the year of assessment.

Page 2 of 68
 • Appropriate rates of tax as per the charging Act.
• The credits to which a person is entitled to.

3. WHAT IS TAXABLE INCOME

GROSS INCOME
Less EXEMPTIONS
= INCOME
Less ALLOWABLE DEDUCTIONS
= TAXABLE INCOME
A distinction should be drawn between “Taxable income from employment” and “Taxable
income from trade or investments”

Taxable income from employment – means any part of the taxable income of a person
other than a company, trust or a pension fund, which consists of remuneration as defined in
th
the 13 Schedule of the Taxes Act.
Taxable income from trade or investments – means any part of the taxable income of a
person other than a company, trust or pension fund, which is received by or accrues to him
from any trade, investment or other activity, but does not include taxable income from
employment. It is taxed at 30% plus 3% Aids levy (30.9%)

Example 1
Taxable income from employment 1,551,560
Credits 8,750
PAYE 510,000
Calculate tax liability.

Solution
Total taxable income 1,551,560
First 1,500,000 tax thereon 488,000.00
51,560 tax @ 45% 23,202.00
511,202.00
Less: Credits 8,750.00
502,452.00
Add: 3% Aids levy [502,452.00 x 3%] 15,073.56
Tax chargeable 517,525.56
Less: PAYE 510,000.00

Amount payable 7,525.56

Example 2
Rental income 260,000
Calculate tax liability.

Solution
Total taxable income 260,000 tax @ 30% 78,000.00
Less: Credits 0.00
78,000.00
Add: 3% Aids levy [78,000.00 x 3%] 2,340.00
Amount payable 80,340.00

Page 3 of 68
4. RATES OF TAX 2003

Income bands Rate % Tax Acc. Tax

0 - 180,000 0 0 0
180,001 - 260,000 20 16,000 16,000
260,001 - 340,000 25 20,000 36,000
340,001 - 420,000 30 24,000 60,000
420,001 - 500,000 35 28,000 88,000
500,001 - 1,500,000 40 400,000 488,000
1,500,001 - Above 45

3% Aids levy on Income tax

Section Nature of Taxable income Specified

%age
14(2)(b) Taxable income of individual from trade or investment 30

14(2)(c) Taxable income of company or trust 30

14(2)(d) Taxable income of pension fund from trade or investment 15

[but see the proviso to Section 14(2)(d)]
th
14(2)(e) Taxable income of licensed investor (after the 5 year of 15
operation)

14(2)(f) Taxable income of holder of a special mining lease 25

14(2)(f1) Taxable income of company or trust derived from mining 25

operations

14(2)(g) 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
Third five years of the arrangement 20

14(2)(h) Taxable income of industrial park developer (after 5 years 10

of his operation)

14(2)(i) Taxable income of operator of a tourist facility in approved

tourist development zone: -
First five years of the arrangement 0
Second five years of the arrangement 15
Third five years of the arrangement 20

14(3) Taxable income of person engaged in new manufacturing 10

project in growth point area

14(3)(a1 Taxable income of person engaged in new project 15

) providing infrastructure in Growth point area

Page 4 of 68
 14(3)(b) Taxable income from manufacturing or processing of 20
company which exports 60 per centum or more of its output

14(3)(c) Taxable income from operation of tourist facility 60 per 20

centum or more of whose turnover consists in foreign
currency receipts.

14(5) Dividends from company incorporated outside Zimbabwe 20

5. CREDITS

Section 10 Elderly Person’s Credit

A credit of $20,000 shall be deducted from the Income Tax with which a taxpayer is
chargeable, where he had attained the age of 59 years prior to the commencement of the
year of assessment. Provided that if the period of assessment is less than 12 months the
credit shall be reduced proportionately.

Examples of period assessments are:

• 1st January to date of death
st
• 1 January to date of insolvency
• From date of birth to 31st December

Refer to the definition of “Period of assessment”

Section 11 Blind Person’s Credit

A credit of $20,000 shall be deducted from the Income Tax with which a taxpayer who is a
blind person is chargeable. Provided that any portion of such credit, which is not applied in
reduction of the Income Tax with which a blind person who is married is chargeable shall be
allowed as a deduction from the Income Tax with which his or her spouse is chargeable. A
taxpayer shall not be granted blind person’s credit in respect of a blind child.

Refer to the definition of “Blind person”

Section 12 Medical Expenses Credit

A credit calculated at the rate of $1 for every $2 paid by way of “Medical expenses” shall
be deducted from the income tax with which a taxpayer is chargeable in respect of
payments, which the taxpayer made in the period of assessment.

No credit shall be deducted in respect of any payments such as is referred to in paragraph

(a) or (b) of the definition of “Medical expenses” if the taxpayer was not at any time during
the period of assessment ordinarily resident in Zimbabwe.

A payment made from the deceased estate of a taxpayer by way of medical expenses,
which are incurred before the death of the deceased, shall be treated as having been made
immediately before the death of the deceased.

A taxpayer shall not be treated as having made a payment by way of medical expenses to
the extent that the taxpayer or his family is entitled to a refund or payment from any source
whatsoever in connection with the medical expenses to meet which the payment was made.

Refer to the definition of “Invalid appliance or fitting” and “Medical expenses”

Page 5 of 68
Section 13 – Mentally or physically disabled persons
A credit of $20,000 shall be deducted from the Income Tax with which a taxpayer is
chargeable where it is proved that the taxpayer is mentally or physically disabled to a
substantial degree, but not blind.

A credit of $20,000 shall be deducted from the Income Tax with which a taxpayer, other than
a married woman, is chargeable in respect of each child of the taxpayer who is proved to be
mentally or physically disabled to a substantial degree.

Any unused portion is transferable to the other spouse. The disability must be permanent
and not of a temporary or transitional nature.

No credit shall be deductible if the taxpayer was not at any time during the period of
assessment ordinarily resident in Zimbabwe.

Under section 2 of the Income Tax Act see the definition of “Spouse” and “Child”

Note: - The total amount of credits is limited to the total income tax chargeable to a
taxpayer. No refunds are given where credits exceed income tax chargeable.

Module II: GROSS INCOME

Objectives:

a) To establish amounts which do (or do not) constitute gross income.

b) To establish the true / deemed sources of various types of incomes.
c) To distinguish between revenue and capital receipts.

Gross Income: (Sections 8)

The Total amount

Received by or Accrued to or in favour of a person or Deemed to have been received
by or to have accrued to or in favour of a Person.

In any Year of assessment.

From a Source within or deemed to be within Zimbabwe.

Excluding receipts and accruals proved by the taxpayer to be of a Capital Nature.

PHRASES TO CONSIDER:
Total Amount - All receipts and accruals, which are money and non-monetary items.
Amount - Money or any other property corporeal or incorporeal, having an ascertainable
money value.

Received by - Received by the taxpayer on his own behalf for his own benefit.
Therefore rent received by an Estate Agent on behalf of a client landlord is not gross income
in the hands of the estate agent.

Accrued to - due and payable or entitled to:

1. Income accrues when a taxpayer becomes entitled to it.
2. Income also accrues when it is due and payable to the taxpayer.

Page 6 of 68
Person - company, a body of persons corporate or unincorporated, local authority, a
deceased or insolvent estate, the trust, individual.

Note: Deposits received for returnable containers constitute Gross Income. Where Income
accrues in one year and is received by taxpayer in another year the Commissioner has a
right to tax the income in either year. Zimra taxes income on the accruals basis. Where tax
is not collected in the year of accrual it would be collected in the year of receipt.

Year of assessment – means the period of twelve months beginning on the first January in
any year in respect of which tax is to be charged, levied and collected in terms of this Act,
and includes any period within such a year of assessment.

Provided that:
i) For the period before the 1st April 1997, a year of assessment shall be the period of
twelve months beginning on the 1st April in any year.
st st
ii) The nine-month period beginning on the 1 of April 1997, and ending on the 31
December 1997, shall constitute a year of assessment.

Deemed - taken to be or assumed.

Deemed accrual: -
Section 10(1) deems income to have accrued to a person notwithstanding that it has:
• Been invested, accumulated or otherwise capitalised by him or
• Not been actually paid over to him but remains due and payable to him or,
• Been merely credited to an account or invested or accumulated or capitalised or
otherwise dealt with in his name or on his behalf.

Section 10(2) deems income received by or accrued to or in favour of 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.

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 person by whom the donation, settlement
or other disposition was made.

Refer to the definition of “Minor child” in Section 2.

If the minor child receives income in his own right, such as wages for services rendered, he
and not the parent is taxable on such income.

If a minor child genuinely renders services to his parent who pays him appropriate wages,
such wages are taxable in the minor child’s hands.

A question arises whether the section applies to income from the donation and not to
income earned from the use of that income. Income on income continues to be taxable in
the hands of the donor parent i.e. the interest earned. This only applies to investment
income re-invested. But it is submitted that, if the child uses the original investment income
to carry on, for example, business operations, the income from the latter would be taxable in
his hands, since the link with his parents’ donation would have been broken. Donation
includes an ordinary gift.

Section 10(4) This section counteracts tax avoidance schemes by taxpayers. It provides
that if: -

Page 7 of 68
 • 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.

Refer to the definition of “Near relative” and “Parent” in Section 2.

Section 10(5) This section deals with a situation where a person makes a donation etc
(commonly to a trust) for the purpose of divesting himself of the right to the income from the
donated assets but at the same time withholding such income from the beneficiaries until
the happening of some event.

The withheld income is deemed to remain that of the donor if:

• He (or a near relative) has power to control the ultimate devolution of the income or
• Any of the funds/income could devolve on or be lent to the donor (or his spouse or
one of their deceased estates or a company controlled by any of them)

The event referred to may be fixed or contingent. It may be a specified date, a marriage,
death, the attainment of a certain age etc.

Source - means not a legal concept but something, which the practical man would regard
as the real originating cause of the income.

Questions to ask on any inquiry into the source of a receipt or accrual:

a) What is the originating cause of the income and;
b) Is the originating cause in Zimbabwe?

True Sources Of:

Dividends - The source of income from dividends is the shares and the shares are situated
where they are registered. The source of the company’s income is immaterial where the
dividends are from shares registered in a branch - registered in a country other than that in
which the company is incorporated the source remains the country of incorporation in which
the principal register is kept if the branch register is deemed to be part of the principal
register.

Business Operations - Generally profits from business operations such as trading,

manufacturing, mining or farming have their source entirely in or outside Zimbabwe. In the
case of Mufulira Copper Mines Limited v. Commissioner of Taxes a company carried on
copper mining in Zambia and utilising surplus funds from copper sales in England, engaged
in investment dealing in the latter country. The source of profits derived from sales of
investments was held to be entirely England.

A contrary view was taken in “D v. Commissioner of Taxes” where profits on share

dealing with inherited funds in South Africa were held to be taxable and from a source in
Zimbabwe, being an extension of similar share dealings in this country.
On the other hand in Rhodesia Milling Company (Pvt) Ltd v. Commissioner of Taxes, it
was held that where the company manufactured goods here and sold them through its
Zambian Branch, part of the profit on sales was from a source in Zimbabwe and taxable
here. In “United Film Industries (Pvt) Ltd v. Commissioner of Taxes”, it was held that
the originating cause of the income was the performance of a contract to produce a film
rather than the performance of a contract to do certain filming abroad. As the contract was
performed substantially in this country the income was therefore from a local source.

Partnerships - The source of the profits is where the services are being rendered.

Page 8 of 68
Rent of Immovable Property - The source of profits from the sale of immovable property is
the country in which property is situated and rent from such property follows this principle.

Rent on Movables - 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.

Services Rendered - The source of a payment for services rendered is the place where
those services are rendered.

Director’s Remuneration: - The source is the Head Office of the company.

Royalties: - The source of royalties from authorship is the author’s Wits, labour and
intellect, so that if these attributes are exercised in Zimbabwe the source is likewise here.
The source of income from patents, trademarks, copyrights, etc. is the place where they
were created or perfected.

Interest - Source is where the credit was provided and it is immaterial: -

• Where the agreement was concluded
• Where the borrower utilised the capital
• Where the interest is payable
• Where the loan has to be repaid.

Annuities - The source of an annuity is the act or document under which it is created. Thus
an annuity arising out of a trust deed has its source in the trust regardless of the origins of
the trust income.

Where the annuity is a pension from a pension or benefit fund the source is considered to
be situated in the country in which the fund is resident. Thus a window’s pension from a
foreign fund is not taxable here even though her late husband may have rendered services
in this country in the past.

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) – Business operations: Sale of goods

The proceeds of any contract made in Zimbabwe for the sale of goods are deemed to be
from a source in this country. This applies regardless of whether the goods have been or
are to be delivered inside or outside Zimbabwe.

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. Once
a taxpayer is found to have received an amount for services rendered in the carrying on in
Zimbabwe of a trade, it is possible that such amount is from a true source in Zimbabwe.
Note - This paragraph applies to employed and self-employed persons equally e.g. visiting
artists, expatriates etc.

Page 9 of 68
Section 12(1)(c) – Services rendered by an employee during a temporary absence
from Zimbabwe.
Amount shall be deemed to have accrued to any person from a source within Zimbabwe
whenever it has been received by or has accrued to or in favour of such a person for any
service rendered or work or labour done as an employee by such person outside Zimbabwe,
during any temporary absence from Zimbabwe, if such person is ordinarily resident in
Zimbabwe, whether the payment is or is to be made by a resident or non-resident and
wherever payment is or to be made.

“Temporary absence” means an absence for a period not exceeding in the aggregate 183
days in any year of assessment.

“Employee” includes a director of a company.

Section 12(1)(d) – Service rendered to the Zimbabwe Government

For services rendered to the State either within or outside Zimbabwe the remuneration is
deemed to be from a Zimbabwean source. Provided that an amount received by or accrued
to or in favour of a person by virtue of service rendered outside Zimbabwe shall not be
deemed to have accrued from a source within Zimbabwe if the person was not ordinarily
resident outside Zimbabwe solely for the purpose of rendering such service.

Contrast this with the case of a person who normally lives in United Kingdom. In response to
an advertisement in the local newspaper that person applies for a post as a resident
caretaker of the Zimbabwe office in the United Kingdom. Although the Zimbabwean
government employs him his salary is not deemed to be from a Zimbabwean source. He is
ordinarily resident outside Zimbabwe in the normal course of events and not solely for the
purpose of serving the Zimbabwean government. The same rule applies to government
pensions.

Section 12(1)(e) – Services rendered: Pensions and Annuities

This subsection deals with pensions for services rendered, which are granted by:
• Any person wherever resident,
• The government of the former Federation and
• The Zimbabwean government

All these service pensions are first of all deemed to arise from a source within Zimbabwe.
The proviso then proceeds to eliminate all or part of some of those pensions.

i) A pension for services rendered wholly outside Zimbabwe is not taxable, except in the
case 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.
ii) A pension or part of a pension granted by the former Federation is not taxable 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 service and
other factors. This concept forms one of the tests mentioned and, if applicable, it would
be necessary to establish the home territory in terms of the dissolution order.
iii) This does not apply to government pensions. Any pension not being a government
pension for service within and outside Zimbabwe is apportioned in the ratio of service in
Zimbabwe to total service. The proportion applicable to Zimbabwean service is taxable.

Page 10 of 68
Note - This subsection does not apply to a widow’s pension arising in respect of services
rendered by her late husband, she did not render those services. The whole amount will
either be taxable or non-taxable, in full, depending on the situs of the fund.

Section 12(2) – Foreign Interest and Company dividends

Foreign interest and company dividends shall be deemed to be from a source within
Zimbabwe if at the time such income accrues the person is ordinarily resident in Zimbabwe.

Section 12(3) – Annuities

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.

Example
Mr. Tom, who lives and works in Zimbabwe, completed a proposal to purchase an annuity of
$250,000 per annum at a cost of $2,000,000 payable in contributions spread over a period
of time. The proposal is accepted by the insurance company in Canada, which agrees to
pay $250,000 per annum for a period of 10 years from the date on which Mr. Tom becomes
55 years of age.

I = (P x N) – A = (250,000 x 10) – 2,000,000

N 10
= $50,000

The position will be the same if the arrangement was made while Mr. Tom was on a
temporary trip abroad.

Section 12(4) – Income from trademarks, know-how etc

Any receipt for the use in Zimbabwe of any patent, design, trademark, copyright, motion
picture, or television film, etc. is deemed to be from a source within Zimbabwe. This relates
to:
i) A grant or permission to use and
ii) Related “know-how”

However a receipt of a capital nature such as for the permanent surrender of patent rights
or trademarks would not be included in gross income.

Section 12(5) Recoupments

Any amount recovered outside Zimbabwe, which otherwise fall within section 8(1)(j) is
deemed to be from a source within Zimbabwe. Thus a sale outside Zimbabwe of an asset
such as a motor vehicle, on which capital allowances had been granted, could give rise to a
taxable recoupment.

Capital Receipts
Gross Income excludes any amount so received or accrued, which is proved by the taxpayer
to be of a capital nature. A rough guide to determine whether income is of revenue or
capital nature would be as follows: -

1) If the amount flowed from the asset but the asset remained in ownership it should be
considered as revenue.
2) If the amount flowed from the sale of or exchange of asset it should be considered as
capital.

Page 11 of 68
Capital can be referred to as a tree and the fruits as the revenue. Insurance policies and
proceeds from sale of assets in which taxpayer does not trade are also capital receipts.

Disposal of Assets – the real test is to ascertain the intention or motive at the acquisition of
the asset and in dealing with the asset. In the case of stocks and shares the above
considerations still apply.

Mixed Intentions – in this case consider the dominant intention or possible change of
intention.

Damages or Compensation – in the case of damages or compensation it is important to

note where the damage occurred. If it occurred in the income-producing asset then the
compensation is Capital, but if it occurred in the income producing activities the
compensation is revenue.

Section 8(1)(a) - Annuities

An annuity is defined as a repetitive annual payment paid to a particular person for life or for
some period. The source of an Annuity is the act or document under which it is created.
Where the annuity is a pension from a pension or benefit fund, the source is situated in the
country in which the fund is resident. A widow’s pension is not taxable in Zimbabwe if it is
situated outside Zimbabwe even though her late husband may have rendered services in
this country in the past.

The characteristics of an annuity are: -

i) It provides for an annual payment, even if divided into instalments;
ii) It is repetitive, payable from year to year, at any rate, for some period and;
iii) It is chargeable against some person.

An annuity may take any of the following forms:

i) An ordinary annuity purchased from an insurance company.
ii) An annuity by way of a gift or legacy.
iii) An annuity granted as consideration for the sale of a business or an asset or
surrender of a right.
iv) Pension for services rendered

Note: - If a receipt or accrual is an annuity it is taxable in full whether made up partly of

capital or partly of income of exempt nature.

Section 8(1)(b) Income From Services Rendered Or To Be Rendered

i) Received by or accrued to a person in respect of services rendered or to be rendered
whether due and payable under any contract of employment or service or not; (This includes
salary, bonus, director’s fees, salary in lieu of leave not taken and any other form of reward
e.g. benefits which are directly related to the rendering of services even whether the
payment is voluntary or contractual.
Note that the word “amount” means not only money but also any other property, corporeal
or incorporeal, having an ascertainable money value. Thus if a person who has rendered
serves receives his remuneration in the form of shares in a limited company, the value of
those shares at the date of accrual will form part of his gross income. For example a
promoter of a company is allotted 5 000 fully paid up shares for his serves. The shares have
a nominal value of $1 each but the current market value at the time the income accrued was
$1,50 each. This must be included in his gross income at a value of $7,500. Also where an
employer supplies his employee with goods free of cost, such goods must be valued and
included in the employee’s gross income.

Page 12 of 68
 ii) Received or accrued by reason of the cessation of employment or services of a person;
this includes compensation for loss of office and gratuities payable by reason of the
cessation of employment.
iii) Receipt or accrual in commutation of amounts due under a contract of employment
or service;
(This includes a lump sum payment received by an employee for breach of contract of
employment based on the unexpired portion of the service agreement. For example assume
that an employee enters into a contract to serve for three years at a reasonable salary with
the right to receive a gratuity of $100,000 at the end of the period. After two years only the
employer terminates the arrangement but offers the employee $70,000 to compensate him
for the loss of the gratuity which he could have earned if the contract had run its full course.
This payment of $70,000 is in commutation of the gratuity).

Prior to 1 January 2003 special treatment used to be given to certain amounts payable by
an employer to employee:
a) Amounts payable by reason of the cessation of employment or service but not
exceeding $20,000;
b) Commutation of amounts due under a contract of employment or service.
The first instalment was taxable on the date of receipt or accrual of the total amount. If that
total amount is received or accrues over a period, the first instalment is taxed on the date
any part of the total was first received or accrued. The next two instalments are brought to
account on the respective anniversaries of the date on which the first instalment was
taxable.

Proviso ii
Leave pay shall be deemed to accrue proportionately on the last day of each month of the
leave period.
Proviso iii
It preserve the rights of taxpayers, who made elections under the previous Income Tax Act
to spread certain amounts (i.e. cash-in-lieu of leave amounts arising from cessation of
employment, commutation of amounts due under a contract of employment and
remuneration paid in advance when proceeding on leave), to have the outstanding
instalments included in gross income in accordance with the original election.
Proviso iv
it is stipulated that a special rate of tax shall be applied to re-engagement or extended
service gratuities payable to members of the Z.R.P, the Army or the Air Force. The tax
chargeable of such amounts is calculated in the same way as for lump sum payments from
pension or benefit funds.
Section 8(1)(c) arw 1st Schedule- Lump Sum Payments
It brings into Gross Income any amount so received by or accrued to a person by reason of
his withdrawal from or the winding up of a benefit or pension fund or an unapproved fund
or any amount so received by or accrued to a person which is a benefit received or accrued
by reason of contributions to the Consolidated Revenue Fund which is not:
(i) An annuity or amount from services rendered, or
(ii) An amount received or accrued by way of a Lump Sum Payment referred to in the
1st Schedule.
(iii) An amount, which represents a return or repayment of any money in respect of
whose payment, a deduction was not allowable in terms of this Act.
The amount is charged to tax at a special rate.
ST
1 SCHEDULE - L.S.P. Which Shall Not Be Included In Gross Income
Refer to the Act for definitions
Benefit Fund:

Page 13 of 68
(a) If a Lump Sum Payment is made from an old fund (became member before 1 July 1960)
the amount of the Lump Sum Payment shall not be included in the gross income of the
beneficiary.

Example
Taxpayer received a lump sum payment from a fund which he had joined on 1.1.1960 an
amount of $12,000. How much constitute gross income.
Answer: None - LSP from Old Fund.

b) If a Lump Sum Payment is made from a fund with changed rules; -

(i) So much of the amount of the Lump Sum Payment as does not exceed 8,400 or an
amount equal to the Lump Sum Payment the beneficiary would have received had
the rules of the fund remained unchanged, whichever is the greater amount.
(ii) Any balance remaining after excluding (i) and (ii) transferred to another benefit fund
or pension fund as contributions which do not qualify for deduction in terms of
paragraph (h) and (i) of section 15(2), shall not be included in the gross income of
the beneficiary.

Example
Taxpayer received a lump sum payment of $10,400 from a fund with changed rules. Had
the rules of the fund not changed he would have received $3,500. Taxpayer used $600 to
purchase annuity on retirement. Taxpayer transferred $500 to another benefit fund. How
much constitutes gross income?
Solution
Balance 1,400
Less Amount transferred to another benefit fund (500)
Amount included in Gross Income 900

Summary
LSP 10,400
Less $8 400 or $3 000 which ever is greater 8,400
Used to acquired annuity on retirement 600
Transfer to another benefit fund 500 9,500
900

(c) If Lump Sum Payment is made from a new fund.

(i) So much of the Lump Sum Payment which does not exceed $8,400
(ii) So much of the balance remaining after excluding (i), which is used to acquire an
annuity on retirement.
(iii) So much of the balance remaining after excluding (i) and (ii) which is transferred to
another benefit fund or pension fund as contributions which do not qualify for
deduction under section 15 (2) (h) and (i), shall not be included in the gross income
of the beneficiary.

Example
Taxpayer received a lump sum payment of $60,000 from a new benefit fund. He used
$15,000 to acquire an annuity on retirement and transferred $10,000 to another benefit
fund.
Solution
LSP 60,000
Less: Statutory Deduction 8,400
Annuity on retirement 15,000
Transferred amount 10,000 33,400

Page 14 of 68
:. Amt included in gross amount 26,600

New funds - $8,400 is automatic.

Funds with changed rules:

Deduct the greater of $8,400 and the amount the member would have received had the
rules remained unchanged.
Note: Any portion of the Lump Sum Payment, which relates to another fund whose Lump
Sum Payment would not have been taxable on receipt is excluded.

Pension Fund:
a) If a Lump Sum Payment is made from an old fund the amount of the Lump Sum
Payment shall not be included in the gross income of the beneficiary.
b) If a Lump Sum Payment is made from a fund with changed rules: -

In the case of a Lump Sum Payment which does not exceed $2,000 the amount of
the Lump Sum Payment, and

In the case of Lump Sum Payment, which exceeds $2,000, so much of the amount
as is equal to the Lump Sum Payment the beneficiary would have received had the rules
of the fund remained the same and ,

So much of the balance remaining after excluding (ii) which is used to purchase an
annuity on retirement, and,

So much of the balance remaining after excluding (ii) and (iii) which has been
transferred to another pension fund as contributions which do not qualify for deduction in
terms of section 15(2)(h) and (i), shall not be included in the gross income of the
beneficiary.

Example
Taxpayer received LSP from a pension fund, which he had joined in Jan 1960, of $72,000
and the rules of the fund had changed thereafter. Had the rules of the fund had not
changed he would have received $12,000. He used 15,000 to purchase an annuity on
retirement and transferred another 15,000 to a fund. How much constitutes Gross Income?
Solution
LSP 72,000
Less: Amount he would have received had rules not changed 12,000
Amount used to purchase an annuity on retirement 15,000
Amount transferred to another fund 15,000 42,000
Gross Income 30,000
If a Lump Sum Payment is made from a new fund: -
(i) In the case of a Lump Sum Payment which does not exceed $2,000 the amount of
the Lump Sum Payment.
(ii) In the case of a Lump Sum Payment which exceeds $2,000, so much of the Lump
Sum Payment which is used by the beneficiary to purchase an annuity on retirement
and any balance which is transferred to another pension fund as contributions which
do not qualify for deduction under section 15(2)(h) and (i).
Example
Taxpayer received LSP from a new pension fund of $120,000. He transferred $40,000 to a
pension fund of his new employer. How much would constitute gross income?
Solution
LSP 120,000
Less amount transferred to another Pension Fund 40,000
Gross Income 80,000

Page 15 of 68
Note - A Lump Sum Payment from a Benefit Fund transferred to another Benefit Fund or
to a Pension Fund is deductible but not a transfer from a Pension fund into a Benefit Fund.

Unapproved Fund
If a Lump Sum Payment is made from an unapproved fund so much as represents a refund
of own contributions to the fund shall not be included in the gross Income of the beneficiary.
Example
LSP $18,000
Taxpayer’s own contribution $ 6,000.
How much constitutes gross income?
Solution
LSP 18,000
Less: Taxpayer’s own contributions 6,000
Gross Income 12,000
Section 8(1)(f): Benefits In Respect Of Services Rendered
Employers may remunerate their employees for services rendered either in cash or in any
other way, but any advantage or benefit which can be connected with an employee’s
employment forms part of his gross income.
Advantage or Benefit
Means board, the occupation of quarters or of a residence, the use of furniture or of a motor
vehicle, the use or enjoyment of any other property, including a loan or an allowance and
includes a passage benefit.
The bases on which the various benefits are to be valued are laid down as follows:
i) in the case of the occupation of quarters or the use of furniture by reference to the value
to the employee.
ii) in the case of all other benefits by reference to the cost to the employer.
In all instances the benefit is reduced or may be extinguished if either the asset (company
house, car, etc) is occupied or used to some extent for the purpose of the employer’s
business transactions or if the employee pays the employer for the enjoyment of the benefit.
The same principle applies to allowances expended on the employer’s business.
Housing
The question of the “value to the employee” is frequently open to dispute. The
Commissioner’s yardstick tends to be, in the case of rent-free houses in a municipal area,
the open-market rental. This may be contested if relevant factors arise, such as the house
not being of the employee’s choice or being larger than necessary for his domestic
circumstances or if he is required to undertaken entertainment of business – related guests
at the house. Where the house is located outside municipal area the Commissioner
generally accepts a maximum of either 12.5% of salary or 7% of cost of construction but the
amounts are again subject to evaluation.

Motor Vehicle – Valuation of Benefit

1) Deemed cost – value of benefit depends on engine capacity.
DEEMED COST
ENGINE CAPACITY 2002 Tax Year 2003 Tax Year
Up to 1500 cc $ 50,000 $240,000
Over 1500 cc to 2000 cc $150,000 $420,000
2000 cc to 3000 cc $250,000 $540,000
Over 3000 cc $400,000 $900,000

2. From 01.04.97 to 31.12.98 – Valuation was based on actual cost to the employer
Cost of running vehicle x Private kilometres run
Total kilometres run

Page 16 of 68
Cost – includes, not only direct running costs such as fuel and repairs, but also licensing,
insurance and depreciation (as reflected in the books of accounts of the
company/organisation).
3. Automobile Association Rates (AA Rates)
Note - Any deemed cost shall be reduced proportionately where the period of use of the
motor vehicle is less than twelve months.

Loan
Where an employer gives a loan to an employee the deemed benefit is a specific
percentage, depending on the amount of the loan, as follows:
Up to $35,000 12 ½%
Above $35,000 16%
These percentages relate to interest-free loans. Thus the benefit from an interest-free loan
of $100,000 for a full year would be $16,000. Account is, of course taken of any interest
charged by the employer. No benefit would arise if the charge was 12½%, 16% or more, if
the charge was say 5% the benefit would be 7 ½% or 11% respectively.

The benefit arises even if the employer has made the loan out of interest free funds.
Conversely it remains at the statutory percentage despite the possibility of the employer
having incurred a higher rate on his borrowing.
Loans for the purpose of the education or technical training or medical treatment of the
employee, his spouse or child are however, excluded.

Passage Benefit
The cost of any journey undertaken by an employee, his spouse or child as is borne by his
employer, is potentially a “passage benefit” and thus taxable in the employee’s hands.
There are, however, exceptions to this rule. A journey undertaken to take up employment is
excluded if it represents the first such benefit granted by the employer to that employee.
The same applies to a journey in similar circumstances on termination of employment. All
other journeys for the business purpose of the employer would be excluded. For dual-
purpose trip like where the employee, who is required to travel on business, uses the
opportunity for a period of leave are generally apportionable, the employee being taxable in
relation to the period spent on leave.
Passage benefits in respect of employees who are required by their employers to attend eg
courses and at the same time having a period of leave will be taxed on the following basis:
a) if the period spent on business exceeds 10 percent of the total period of absence:
i. the amount applicable to the employee’s spouse and children will be taxed in
full;
ii. the amount of the employee’s passage benefit applicable to the period spent
on business is not taxable and will be determined by the following formula:
A x B in which
C
A represents the number of days spent on business
B represents the amount of the passage money applicable to the employee; and
C represents the number of days of the employee’s absence;
b) if the time spent on business does not exceed 10 percent of the total period of
absence, the whole amount of the passage benefit will be taxed.

Value of Furniture Provided by an Employer

The amount to be assessed as the value of furniture provided by an employer should, in
general be 8 percent of the cost of the furniture.
Allowance

Page 17 of 68
An allowance is gross income in the employee’s hands to the extent that he fails to spend it
for the purposes of the business transactions of the employer. The area in which this
question arises with probably the greatest frequency is that of entertainment allowances,
where the employee remains liable on any unspent amount.
General - Reference to ‘employee’ includes his or her spouse or child and also company
directors. Fringe benefits fall within the definition of ‘remuneration’ for the purpose of
calculating PAYE.

Section 8(1)(h) a.r.w 2nd Schedule

VALUATION OF STOCK OTHER THAN FARM TRADING STOCK

Section Type or Date of Method of 2nd
8(1)(h) Circumstance Valuation Valuation Schedule
Paragra (Taxpayer to elect) paragraph
ph
Last day of tax Cost price
(i) Closing stock year or acc. yr. Cost of 4
Replacement
Market value

Consumed by Date of such use Cost price

(ii) taxpayer or put Market value 5
to other use.
Stock on hand
a) On date of
death Date of such Cost price
(iii) b) Date of happening Cost of 4
insolvency Replacement
c) Date of Market value
donation
Attached by Cost price
(iv) court order End of tax year. Cost of 4
Replacement
Market value
Sold with
(v) a) Business
b) Pursuance of Date sold Selling price 6
court order
What the
Partially Last day of tax Commissioner
produced goods year or acc. yr. considers to be fair 7
& reasonable

Section 8(1)(k) Concession (Compromise) To A Creditor.

If the sale price of any commodity is adjusted downwards such that the purchaser ends up
paying less than the amount previously granted that adjustment is brought into gross
income in the hands of the creditor only if the full purchase price was allowable as a
deduction before such adjustment.

Section 8(1)(m) Grants / Subsidies

Gross Income includes any amount received or accrued by way of grant or subsidy in
respect of any expenditure allowed as a deduction. An example would be any subsidy paid
by Government after say, the construction of a farm dam. The subsidy is subject to tax in

Page 18 of 68
the year in which it accrues, even though the project in respect of which it arises may have
been completed during a previous year.

Section 8(1)(n) Commutation Of A Pension From A Retirement Annuity Fund

Gross income includes the commutation of a pension or annuity from a Retirement Annuity
Fund to the extent that it exceeds the amount which would have been payable had one third
(1/3) only of the total value of the pension or annuity been commuted.
This applies only in the case where contributions were first made to that fund on or after the
st
1 of August 1970. Not more than 1/3 of the value of a pension or annuity can be
commuted for a single payment except where the annual amount of the pension or annuity
does not exceed $600 (see definition of “annuity on retirement” in the 1st schedule). This
gave rise to a situation whereby a taxpayer could escape tax by taking out a number of
schemes for a pension of $600 or less instead of contributing to a major scheme for a
sizeable pension. By commuting a number of small pensions in full such a person is placed
in a more advantageous position than the person who can only commute one third of a large
pension and is liable to tax on the remaining two thirds of that pension. Subsection (n)
counteracts this abuse.
Example
nd
a) Miss V joined a Retirement Annuity Fund on 2 July 1969. Several years later she
becomes entitled to a pension of $600, which she commutes for a single payment of
$6,000. How much of the $6,000 is subject to tax?
Answer
The commutation is not taxable as a lump sum payment in terms of Sect. 8 (1)(c). Neither
does Section 8 (1)(n) apply because the right to the pension of $600 was acquired by virtue
of contributions made before 1st August 1970.
Exercise
Mr A joined two Retirement Annuity Funds. He joined the 1st one on 1st April 1974. After 22
years it matured and was due to receive a pension of $640 per annum with effect from 1st
May 2002. He commutes the whole amount for a single payment of $6 400. The second
one he joined on 1st September 1982 and he was to receive a pension of $1,500 per annum
on maturity. It matured on 31st August 2002. He commutes one third. Both Annuities were
supposed to be received over 10 years.
How much of these amounts constitute gross income?

Section 8(1)(o) Designated Areas Grant Scheme

Any amount accruing in terms of State Scheme is included in gross income.
Section 8(1)(r) Commutation Of A Pension From A Pension Fund Or The Consolidated
Revenue Fund
A retired employee’s pension from a source within or deemed to be within Zimbabwe is
subject to tax – Sect. 8(1)(a). Where the retiree exercises a commutation election the
commuted amount is almost invariably not taxable. This sterms from the fact that:
i. Fund rules do not permit commutations in excess of one third of a pension; and
ii. This section brings into gross income the difference between the Commutation and
$250,000 or a third of the total pension entitlement whichever is the lesser.

Example
Bond opted to go on early retirement when his employer decided to carry out a restructuring
exercise. After negotiations with his employer he was given a $350,000 package. This was
a commutation of pension. How much is taxable?
Solution
Retirement package $350,000
Less: 250,000 or 1/3 of $350,000 whichever is the greater
($250,000 or 116 667) $250,000
Gross Income $100,000

Page 19 of 68
However if Keith of the same company had received $249,000 as a pension commutation,
the amount to be included in Gross Income will be Nil as the commutation is less than
$250,000.

Section 8(2) Exchange Rate Variations

- In the case of foreign transactions the gross income is the amount expressed in
Zimbabwean currency.
- If due to a fluctuation in rates the amount received differs from the amount due, the
amount received, expressed in Zimbabwean currency, constitutes the recipient’s
gross income. If the receipt and the accrual occur in different years of assessment
effect must be given to the increase or decrease in the year in which the amount is
received.
Example
ABC Pvt Ltd exported ladies jacket worth Z$500,000 to Malawi for the year ended 31st
December 2002. For the year ended 31st December 2003 the company received Z$750,000
in respect of the jackets exported. Sales for year ended 31st December 2003 amounted to
$850,000.
Solution
Year ended 31/12/ 2002
Gross Income $500,000
Year ended 31/12/2003
Sales $850,000
Add: Increase in foreign exchange (750,000 – 500,000) $250,000
Gross Income $1,100,000

Section 36E arw 28th Schedule – Authority To Charge, Levy And Collect A Carbon Tax
Levy
Definitions:

Agent

Certifying authority

Person

28TH SCHEDULE
Paragraph 3(1) – Payment of carbon tax should be done not later than 31/03/2003 or within
seven days of registering the motor vehicle and thereafter pay not later than 14 January of
each and subsequent year.
Paragraph 3(2) – A visitor to Zimbabwe who uses within Zimbabwe a foreign registered
vehicle shall upon entry into Zimbabwe and for each month or part of a month during his
visit in Zimbabwe pay the required carbon tax in respect of such motor vehicle in foreign
currency.
Proviso – If he stays for a longer period than the period for which carbon tax has been paid
he shall pay the additional carbon tax in foreign currency before leaving the Zimbabwe.
Paragraph 4 – A penalty equal to 2% of the carbon tax due shall be payable for every week
or part of a week during which the default continues.
Note:
1. An agent who fails to pay carbon tax collected by him shall be liable to pay, in
addition to the tax, a further amount equal to 100% of the carbon tax collected.
2. disks issued for carbon tax paid should be displayed.
3. It is an offence not to display the carbon tax disk/certificate.

Page 20 of 68
Section 22E of the Finance Act – Every person owning a motor vehicle in Zimbabwe shall
pay carbon tax for each motor vehicle he owns at the following rates based on the engine
capacity of such vehicle:

Engine Capacity 2001 – 2003 2004 Tax

Tax Years Years
Up to 1500 cc $ 4,000 $ 20,000
Over 1500 cc to 2000 cc $ 7,000 $ 35,000
2000 cc to 3000 cc $10,000 $ 50,000
Over 3000 cc $20,000 $100,000

Module III: EXEMPTIONS

Objectives:
a) To establish the difference between gross income and income.
b) To establish the amounts, which may constitute taxpayer’s gross income, but is
exempt from tax.
c) To establish certain bodies and persons whose receipts and accruals are exempt from
tax.
Section 14(1)
Gives the authority to exempt from income tax the amounts listed in the 3rd schedule.

Section 14(2)
The exemptions granted to the various organizations listed in paragraph 1 and 2 of the 3rd
schedule do not extend to the salaries, pensions paid to the employees of the organisation.

Section 14(3)
Exemptions provided in respect of dividends and interest by paragraphs 9, 10, 10A and 11
of the 3rd schedule do not apply to annuity paid out of such exempt dividends and interest.

THIRD SCHEDULE
The schedule sets out the receipts and accruals, which are exempt from income.
1. Receipts and accruals of bodies listed below: -
a) The Local Authorities.
b) The Reserve Bank of Zimbabwe.
c) The Zambezi River Authority.
d) The Natural Resources Board.
e) The Post Office Savings Bank.

2. Receipt and accruals of organisations listed in that paragraph.

i) Agricultural, Mining and Commercial Societies not operating for the private
pecuniary profit of the members for example: -
∗ Commercial Farmers Union
∗ Z. N. C. C.
∗ Chamber of Mines.
ii) Approved benefit funds, pension funds, building societies, friendly societies and
medical aid societies.
iii) 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
and,

Page 21 of 68
 ∗ Cannot distribute their profits to their members, except as remuneration of
services rendered.
iv) Religious, Charitable and Educational Institutions of a public character and
Trusts of a public character.
v) Trade Unions.
vi) Employees’ Saving Schemes.
vii) Any Statutory corporation, which is declared by the Minister by notice in the
Gazette to be exempt.

3. Exemption of approved Government agencies and special International and financial

organization.

4. Exempts receipts and accruals of certain persons e.g.

a) 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.
Salary and emoluments of persons or officials of UN organs and its agencies.
b) Allowances granted to Senior Government Officials, Minister, Deputy Minister,
Provincial Governor, the Speaker and Deputy Speaker.
d) Allowances or value of any benefit, which is granted to any person in full time
employment of the State as specified in a Statutory Instrument.
e) Allowances payable to a Chief or Headman.
j) Allowances payable by the State to a person in its service in respect of: -
(i) The expenditure incurred by the person in the discharge of his duties
outside Zimbabwe.
(ii) So much of the expenditure of the person in maintaining himself, his
family or establishment whilst employed on duty outside Zimbabwe as is
in excess of his normal expenditure if he were employed in Zimbabwe.
o) Bonus (to include performance related payments) accruing to an employee in
respect of his employment. Exempt 10% of his remuneration (excluding the bonus)
or $100,000 whichever is the lesser amount.
p) The first $300,000 or 1/3 of up to $1,500,000 (whichever is the greater) of the
amount of any severance pay, gratuity or similar benefits received on cessation of
employment due to retrenchment under a scheme approved by the Minister
responsible for the Public Service and Social Welfare.
q) Value of an advantage or benefit referred to in Section 8(1)(f) in respect of
employment with a licensed investor. Provided that this exemption shall not exceed
50% of the taxable income, derived from such employment, before the application of
this paragraph.

5. Pension or allowance payable in terms of the Presidential Pension and Retirement

Benefits Act (Chapter 2.05).

6. Pensions granted in terms of war pensions and other amounts granted for injuries or
sickness suffered in employment.

7. An amount accruing by way of a benefit in respect of injury, sickness or death of a

person which is paid to the person or his dependants or deceased estate by a Trade
Union or benefit fund or in terms of the policy of insurance covering accident, sickness,
or death or by a medical aid society.

8. Value of medical treatment and Medical Aid Society subscriptions, paid by an employer
on behalf of his employee.

Page 22 of 68
9. Dividends from companies incorporated in Zimbabwe provided that the company paying
the dividend is chargeable to tax.
10. Amount accruing by way of interest paid on any:
∗ Sums deposited in P. O. S. B.
∗ Tax Reserve Certificate.
∗ Class ‘C’ permanent shares.
∗ Foreign currency account held by a person other than a company or trust.

10A. Any amount accruing by way of interest paid by a Zimbabwean financial

institution.

11. (1) Interest accruing to persons who at the time the income accrues are not ordinarily
resident and not carrying on business in Zimbabwe if its in respect of loans to:
a) Certain persons involved in mining and prospecting work in Zimbabwe.
b) The State or companies wholly controlled by the State.
c) Local authorities and statutory corporations.
d) Building societies on condition that the loan was advanced prior to 16th July 1976.
(Note that this only applies to interest, notably on Savings accounts and fixed
deposits only and does not apply to dividends paid on e.g. PUPS)

(3) The provisions of paragraph 11(1) shall not apply to:

a) a person who is taxable in a foreign country on the aforesaid interest if it’s solely
because such interest is exempt in Zimbabwe.
b) a company controlled by a person who is ordinarily resident or carrying on business
in Zimbabwe.
c) a foreign holding company in receipt of interest from a Zimbabwean subsidiary
company if:

the interest is liable to tax and

the Zimbabwean tax (that the foreign company would have been charged had
it not been for the exemption) is allowed as a credit against tax payable in
that foreign country.

12. An amount received by way of alimony.

14. An export bonus paid to an exporter by Government. The bonus is a percentage of the
value of the exports. The export bonus is not the same as import duty drawback (which
arises when a manufacturer imports inputs and pays duty and then exports the finished
products that include the imported product).

15. That portion of entertainment allowance expended on the business of the employer.

16. The receipts and accruals of a licensed investor during the first five tax years of trading.

17. The receipts and accruals of an industrial park developer during the first five tax years of
trading.

18. 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.

19. an amount accruing to an employee participating in an approved employee share

ownership trust from the sale to or redemption by the trust of any stock, shares, debentures,

Page 23 of 68
units or other interest of the employee in the scheme or trust of any stock, shares,
debentures, units or other interest of the employee in the trust.

Module IV: ALLOWABLE DEDUCTIONS

Objectives:
a) To identify expenditure and losses incurred by a taxpayer which is allowable for tax
purposes.
b) To define certain terms and phrases which make up the ‘General deduction formula’
(Section 15(2)(a).
c) To distinguish between revenue and capital expenditure and giving examples.
d) To identify expenses which are ONLY allowable as a deduction when paid.
e) To calculate the taxpayer’s ‘Taxable income’ or ‘Assessed loss’.

Section 15(1)
Owing to a variation in the rate of exchange of currency between Zimbabwe and any other
country, the amount actually paid in Zimbabwean currency differs from the amount of the
liability that had been incurred prior to the variation in the rate of exchange:
a) The amount to be deducted shall be the said amount actually paid in Zimbabwean
currency.
b) If the incurring of the liability and the payment therefore occur in different years of
assessment, effect shall be given to the increase or reduction in the amount in the
year of assessment in which the amount was paid.

The deductions allowed shall be:

Section 15(2)(a): General Deduction Formula
a) Expenditure and losses, to the extent to which, they are incurred for the purposes
of trade or in the production of the income except to the extent to which they are
expenditure or losses of a capital nature.

Expenditure and losses

♦ Does not refer to net loss as reflected in the Profit & Loss Account of the
taxpayer.
♦ Is not limited to cash outlays but would include losses such pilferage (theft),
breakages, destruction etc.

To the extent to which:

♦ Connotes dissection and apportionment. Where expenditure or losses are
incurred for a dual purpose, partly private and partly business, partly capital and
partly revenue, apportionment arises. (The apportionment must be fair and
reasonable).

Incurred:
♦ Legal liability for the payment of an admissible deduction has arisen.
♦ Such expenditure is deductible from income even if payment occurs only at
some later date.

For the purposes of trade:

♦ This has been held to mean for the purposes of enabling a person to carry on
and earn profits in the trade.

Page 24 of 68
 ♦ The ordinary recurrent expenses of business, such as trading license 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.
♦ Fortuitous expenditure is money involuntarily spent because of some mischance
or misfortune, which has overtaken the taxpayer.
Note: Deductibility does not however extend to expenditure, which though arising out of the
manner in which a taxpayer conducts his trade, falls upon him in his capacity as a law-
breaker rather than as a businessman, e.g. Traffic Fines etc.

Capital Nature:
In the same way as accruals of a capital nature are generally not subject to income tax, so
expenditure and losses to the extent that they are of a capital nature are not deductible from
income.

“Money spent in creating or acquiring an income producing concern must be capital

expenditure. It was invested to yield future profit and while the outlay did not recur, the
income did.”

Examples:
♦ The acquisition of fixed assets including travelling to obtain them.
♦ Improvements and alterations to fixed assets.
♦ Company formation and preliminary expenses.
♦ Costs of acquiring, expanding or improving the income earning structure.
Refer to paragraphs 101 and 103 for more detailed examples.

Revenue Expenditure:
♦ Costs of performing the income – earning operations and costs of merely maintaining
the operating income – earning structure.
♦ Expenses which are necessary for the performance of the business operation, or
expenses which are attached to the performance of the business operation by chance
or expenses which are in good faith incurred for the more efficient performance of
such business operations, are all deductible provided they are so closely connected
with the performance of the business operation that it would be proper, natural or
reasonable to regard them as part of the cost of performing the operation.
Examples
♦ Cost of valuation of assets for fire insurance purposes.
♦ Sales tax on turnover.
♦ Connection fees for water, telephone, electricity but not installation costs.
♦ Expenses incurred in the removal of stock.
Refer to paragraph 102 for more detailed examples.

Section 15(2)(b) - Repairs

Provides for the deduction of:
a) Repairs to articles, implements, machinery and utensils used, and to property
occupied for the purpose of trade.
b) 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.

Page 25 of 68
It is not necessary, however that the materials used should be identical with the materials
replaced. Repairs are to be distinguished from improvements.
The test for improvements is whether a new asset has been created resulting in an increase
in the income earning capacity or whether the work undertaken merely represents the cost
of restoring the asset to a state in which it will continue to earn income as before.

Section 15 (2)(g) – Bad and Doubtful Debts:

i) Bad Debts
A deduction can be claimed in respect of debts, which are irrecoverable.
a) The debts must be due and payable to the taxpayer. If he has sold the debts they
are no longer due to him and he cannot claim any allowance. If he repossesses them
he can then claim them as bad.
b) It must be proved to the satisfaction of the Commissioner that the debts are
irrecoverable as at the end of the taxpayer’s financial year.
c) The debts must have been included in the taxpayer’s income either in the current or
any previous year of assessment. Purchased debts are not allowable.
Claims made by the taxpayer, must be supported by a statement showing:
♦ The name of the debtor and the amount of the debt.
♦ The date of each debt
♦ The nature of each debt
♦ The reason why it was considered to have become bad during the period covered
by the accounts.
♦ The year of assessment in which it was included in the taxpayer’s income.

ii) Doubtful Debts

An allowance may be claimed annually in respect of debts which have been included in the
taxpayer’s income and which are legally due to him but the recovery of which is a matter of
doubt.
As is the case with all such provisions the allowance made in one year of assessment is
included in income in the following year of assessment, when a new allowance of a similar
nature may be claimed.

Section 15(2)(h) – Pension, Benefit, Retirement Annuity Fund Contributions

a) Employer’s contributions to benefit funds in respect of members who joined on or
after 1 April 1958, the deduction is restricted to $600 per member. There is no
restriction on the contributions allowable in respect of earlier members.
b) Employer’s contributions to pension funds in the case of any member who joined the
fund on or after 1 July 1960 the deduction is restricted to $90,000 per annum (with
effect from 1 January 2003). The allowable annual deduction is, in respect of
members who joined the fund before 1 July 1960 restricted to the amount, which
would have been allowed under the fund rules as they were prior to that date. If there
is no change the whole amount is deductible.
c) Employer’s lump sum contribution to a pension fund is allowed in full but the
Commissioner may direct that the deduction be spread over such years as he
determines.
d) If a member joined the fund on or after 1 July 1960 his deduction is restricted to
$90,000 per annum (with effect from 1 January 2003). For persons who contribute to
a retirement annuity fund the Commissioner’s approach is that the aggregate
$90,000 limit applies. If the member joined the fund before 1 July 1960 his then
existing rights are continued.
e) A member’s contributions to a retirement annuity fund only are restricted to $90,000
per annum.

Proviso 1

Page 26 of 68
No contributions to a retirement annuity fund shall be allowed as a deduction to a member of
such fund, who was not ordinary resident in Zimbabwe at the time he made the contribution
unless,
♦ He was ordinarily resident in Zimbabwe at the time he first became a member of the
fund, and
♦ He became a member of the fund before the 1 April 1967, and
♦ No amount in respect of the contribution is allowed as a deduction in terms of any law
imposing a tax on income, which is in force in a country other than Zimbabwe.

Section 15(2)(i) – Arrear Pension Fund Contributions

a) Arrear contributions by employees to pension funds i.e. payments in respect of
past service, may be deducted in the year of payment, subject to restrictions reflecting the
ceilings applicable to deductibility in past years. Interest charged thereon is not allowable as
a deduction for tax purposes.

Section 15 (2)(j) –Medical Aid Societies

The amount of any contributions paid to a Medical Aid Society by an employer in respect of
his employees or their dependants.

Section 15(2)(m) – Experiments and Research

A taxpayer may deduct expenditure incurred during the year in carrying out experiments and
research relating to his trade, other than expenditure of a capital nature 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 taxpayer’s 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.Is the amount of the taxpayer’s contributions.
B. is the amount incurred by the other person which would have been allowed as a
deduction in terms of section 15(2)(a) above.
C. is the total amount of the expenditure incurred on experiment and research.

Section 15(2)o) – Experiments and Research

A deduction is also permitted of double the sums which are contributed to approved
scientific or educational bodies with the condition that they be used for industrial research or
scientific experimental work connected with the taxpayer’s trade.

Section 15(2)(p) – Educational Grants, Scholarships and Bursaries

A deduction is allowed of grants, bursaries, or scholarship paid in respect of a person
undergoing technical education, provided that:
♦ The course is related to the taxpayer’s trade,
♦ The person is not the taxpayer’s near relative or either of them.
♦ If the taxpayer is a company, the person should be neither an individual controlling the
company nor his spouse or near relative unless the director works full time for the
company and controls no more than 5% of the share votes.

Page 27 of 68
Section 15(2)(q) – Voluntary Payments To Former Employees And/Or their
Dependants
Any amount paid by way of an annuity, allowance or pension during the year of assessment
by the taxpayer is deductible subject to the following:
♦ The employee must have retired because of ill – health, infirmity or old age.
♦ The amount allowed is restricted to $3,000 per tax year for each employee.
♦ In the case of payments to dependants of the employee or to persons who were
dependant on a retired or deceased former employee the annual restriction is to
$2,000 in respect of all dependants of each such ex – employee.
♦ In the case therefore of each surviving ex – employee who has dependants payments as
above totaling $5,000 are deductible.
♦ 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.
♦ “Employees” for the purpose of this paragraph include in the case of a partnership,
former partner who has retired from a partnership on the grounds of ill – health,
infirmity or old age.
♦ Persons whose employment was of a domestic or private nature are excluded in all
contexts.

Section 15(2)(r) - Donations

A deduction shall be granted for payments made to the:
a) National Scholarship Fund,
b) National Bursary Fund
c) Trusts administered by the Minister responsible for either Social Welfare or Health.

Section 15(2)(r1) - Donations

Any amount paid by a taxpayer during the year of assessment to the State or to a fund
approved by the Minister of Health for:
a) The purchase of medical equipment for a hospital operated by the state, local
authority or religious organization.
b) The construction, extension or maintenance of the said hospital.
c) The procurement of drugs to be used in the said hospital
Provided that deductions allowable shall not exceed 10 million dollars.

Section 15(2)(r2) - Donations

Any amount paid by a taxpayer during the year of assessment without any consideration at
all to a research institution approved by the Minister responsible for higher or tertiary
education.
Provided that deductions allowable shall not exceed 20 million dollars.

Section 15(2)(r2) - Donations

Any amount paid by a taxpayer during the year of assessment, without any consideration at
all, to the State or a fund for any one or more of the following purposes approved by the
Minister responsible for education:
♦ The purchase of educational equipment for a school operated by the State, a local
authority or religious organization.
♦ The construction, extension or maintenance of a school operated by the State, a
local authority or religious organization.
♦ The procurement of books or other educational materials to be used in a school
operated by the State, a local authority or religious organization.
Provided that deductions allowable shall not exceed 20 million dollars.
Section 15(2)(s) – Subscriptions:

Page 28 of 68
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:

The deduction is permitted from business income, in the year in which a business
commences, of expenditure incurred during the 18 months before the business began,
provided that:
♦ It was incurred by the taxpayer in the course of establishing the business, and
♦ It would have been allowed as a deduction had it been incurred after beginning the
business.

Section 15 (2)(u) – Opening stock

Accounting principles are recognized and the taxpayer is allowed to deduct the value of the
trading stock, which was on hand at the end of the preceding year, i.e. opening stock.

Section 15 (2) (v) – Inherited or Donated stock

A deduction shall be allowed from the income derived by the taxpayer during any year of
assessment from the carrying on of trade, an amount equal to the amount which the
Commissioner considers was 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 otherwise than
in the course of trade.
The deduction may not exceed the value available from the person from whom it was
acquired. In the case of inheritance the deduction shall not exceed the valuation in Final
Liquidation and Distribution Account of the deceased.

Section 15(2)(w) – Conventions And Trade Missions

The cost of attending conventions and trade missions is allowed as a deduction subject to
the following:
♦ The deduction is restricted to $100,000 of the amount spent per annum 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 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 amount in proportion to his share of
profits. In such a case the limit of $100,000 is applicable to one visit by each partner.

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

Taxpayers who appeal against any decision by the Commissioner to which they are entitled
to object and whose appeal is allowed in full in the Special Court or the High Court, may
deduct their “taxed costs” (allowed by the registrar of the court as being in accordance with
the proper scale for such costs). The deduction arises in the year of assessment in which
the costs are so “taxed”.
If the appeal is allowed to a substantial degree but not in full, the court may direct that the
costs be deductible.

Section 15 (2)(bb) – Legal Costs On Income Tax Appeals

Should an appeal be taken further (by either party) to the Supreme Court, and the
taxpayer’s case be upheld wholly or partially, again the court may at its discretion permit the
costs to be deducted.

Section 15(2)(cc) – Expenditure Not Yet Incurred

Page 29 of 68
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 in a subsequent year and it is
known that expenditure related to such income will be incurred in subsequent years. An
allowance for such expected costs may be claimed in the year of accrual of the income but
subject to 4 provisions:
a) The amount of the allowances will be at the discretion of the Commissioner (not
subject to objection or appeal).
b) Expenditure of a capital nature is ignored.
c) Current expenditure, which relates directly to future tax years’ income and which would
have been claimable in the current tax year, is set off against the allowance.
d) Any allowance granted must be brought back into income in the following tax year.

Section 15 (2)(gg) – Export Market Development Expenditure

This paragraph provides for the deduction of expenditure incurred by the Client for the purpose
of any export-market development during the year of assessment in addition to one hundred
per cent of such expenditure with effect 1st April 1994. (Not applicable for 2001 tax year)

"export-market development expenditure" is an expenditure, excluding capital expenditure,

proved to the satisfaction of the Commissioner to have been incurred wholly for the purpose of
seeking opportunities for exporting goods from Zimbabwe or increasing demand for such
exports and includes:
i) research into or obtaining information relating to foreign markets;
ii) research into the packaging or presentation of goods for sale outside Zimbabwe;
iii) advertising or promoting goods outside Zimbabwe;
iv) soliciting business outside Zimbabwe or participating in trade fairs;
v) Investigating or preparing information, designs, estimates or other material for the
purpose of submitting tenders for the sale or supply of goods outside Zimbabwe;
vi) bringing prospective buyers to Zimbabwe from outside Zimbabwe;
vii) providing samples of goods to people outside Zimbabwe.
"Goods" refers to anything manufactured, produced, grown, assembled, bottled, canned,
packed, graded and processed in Zimbabwe.

Section 15(2)(jj) Tobacco Levy

The amount of any tobacco levy paid in the year of assessment in terms of Section 36A.

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 or pursuant to an approved employee share ownership scheme or
trust. This section came into effect from 1 January 2002.

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.

Proviso (i)
This proviso denies the carrying forward of a loss in the following situations:
a) Where a taxpayer has been declared insolvent or
b) Where a taxpayer has assigned his estate for the benefit of his creditors.

Page 30 of 68
Where a taxpayer has become insolvent or has assigned his estate for the benefit of his
creditors (but not a company in liquidation) any assessed loss incurred before the date of
insolvency or assignment is eliminated.

Proviso (ii) Change in shareholding

This proviso is essentially designed to avoid trafficking in shares of companies with
assessed losses. Taxpayers would normally engage themselves in such activities so as to
take advantage of the losses. Whenever the exchange of shares of such a company takes
place the onus lies with the taxpayer who acquires the shares to prove that the transaction
was devoid of a motive to take advantage of the loss. If any shares are transferred in a
company with an assessed loss (or in its controlling company) and the Commissioner is
satisfied that the sole or main reason for the transfer was to take advantage of the assessed
loss, the loss will be cancelled.

Proviso (iii)
This proviso outlines the conditions under which a new company formed in Zimbabwe to
take over a foreign company’s business can acquire the assessed loss of that company.
Generally a loss attaches to the taxpayer on whom it was assessed and cannot pass to
another taxpayer. Section 15(3) Proviso (iii) permits the transfer of an assessed loss from
one taxpayer to another in the case of a foreign incorporated company having carried on its
principal business to a Zimbabwe company the members’ shareholding being exchanged for
shares in the new company.

Proviso (iv)
This proviso provides for the method of allowing losses, which have accumulated. The
assessed loss incurred first should be exhausted before losses that occurred later. This is
best illustrated by this example:

Example:
EXAMPLE 1 EXAMPLE 2
Assessed Loss incurred 1996 (2,350,000) (1,000,000)
Assessed Loss (1997) (500,000)
Taxable Income (1997) 650,000
Assessed Loss incurred (12/1997) (700,000) (700,000)
Assessed Loss incurred (12/1998) (550,000) (500,000)
Assessed Loss incurred (1999) (250,000) (250,000)
Taxable income 2000 600,000 150,000
Taxable income 2001 1,350,000 50,000
Taxable income 2002 400,000 400,000

Except in the case of mining, no assessed losses shall be carried forward after the expiry of
6 years from the end of the year of assessment in which it was determined. An assessed
loss is not cancelled by the cessation of trade for a period, a complete change of trade or
any other factor except in circumstances mentioned in the above provisos.

Section 15(4)
Where a deduction is allowable under two or more sections the taxpayer shall elect under
which section he wants the deduction allowed e.g. lease improvements and capital
allowances.

Section 15(8)

Page 31 of 68
No assessed loss attributable to business operations carried on by a taxpayer shall be
allowed as a deduction from income received by or accruing to him under a contract of
employment.

Module V: PROHIBITED DEDUCTIONS

Objectives:
a) To identify certain expenditure and losses incurred by a taxpayer, which should never
be allowed as a deduction in the determination of the taxpayer’s taxable income or
assessed loss.
b) To compute unproductive interest from total interest incurred by the taxpayer in the
carrying on of their business.

Section 16
2. No deduction may be allowed for the following expenditures
a) The cost incurred in the maintenance of the taxpayer, his family or establishment.
b) Domestic expenses, including travel between home and place of business or
between two entirely distinct trades.
♦ A taxpayer, who caries on trade at home and travels to other places where he
carries on the same trade may avoid both of these prohibitions.
♦ Domestic expenses include wages paid to a domestic servant who was recruited
to enable the taxpayer’s wife to take up employment.
c) Any loss or expense, which is recoverable under any contract of insurance or
indemnity.
d) Tax levied on income and interest on overdue tax. There are nevertheless instances
where tax may rank as a credit against other tax payable.
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 two conditions, i.e.
♦ That they are voted by the date of the relevant accounts or annual general
meeting and;
♦ That they accrue for tax purposes in, at the latest, the year of assessment after
that in which they are claimed as a deduction. Deductions in respect of liabilities
for staff leave pay are allowable if they satisfy the test that they have been
“incurred” and despite their being termed “provisions”.
f) Expenditure incurred in respect of any amounts received or accrued which is not
included in the term “income”, as defined. A common example of such disallowable
amounts is that of interest payable on a loan used to purchase Zimbabwean shares
as they yield exempt dividends. Administration expenses may also be affected. It is
accepted, however, that audit and accountancy fees remain fully deductible.
Although there are frequent disallowances of interest, which is directly applicable to
the accrual of dividends, circumstances have arisen of a deduction being permitted
where the accrual of dividends has been incidental, and not real objective.

The disallowable amount of which is commonly termed Unproductive Interest rests in

some instances on the specifically prohibitive terms of this subsection and in other
case on a simple failure to comply with the terms of Section 15(2)(a). The first
category usually involve loans used to purchase shares (yielding or potentially
yielding, exempt amounts) while those in the second category involve loans used for
a purpose capable of yielding any amount, such as a company lending borrowed
interest–bearing money to a family director/shareholder interest free.

Page 32 of 68
 In both categories instances will arise where it is possible to relate the borrowing to
the particular “unproductive” use. Frequently however, the borrowed funds will have
been used for both productive and unproductive purposes; apportionment is
therefore necessary. A straightforward apportionment in cases of taxable and
exempt investments operate as follows.

Example I
Mr Investor’s return reflects the following for the year of assessment.
$ $
Loan to XYZ Zimbabwe P/Ltd 10,000
Shares purchased in ABC Zimbabwe P/Ltd 20,000
30,000
Total amount borrowed from own bankers 30,000

Interest from XYZ Zimbabwe P/Ltd 5,000

Dividends received ABC Zimbabwe P/Ltd 3,000
Total yield 8,000

Interest chargeable by on bankers 2,100

Computation
The interest payable, $2 100 has been incurred in producing interest $5,000 and dividends
$3,000.

Apportionments using the ‘Income Basis’ method

Total yield 8,000.00
Less: Local company dividends – exempt 3,000.00
5,000.00
Less: Expenditure applicable

5,000 x 2,100
1,312.50
8,000
Therefore Taxable Income 3,687.50

Alternatively, apportionment on the ‘Asset basis’ gives the following result.

Total yield 8,000.00
Less: Exempt income 3,000.00
5,000.00
Less: Expenditure applicable
10,000 x 2,100 700.00
30,000
Therefore Taxable Income 4,300.00

The ’asset basis’ is in fact preferred by the Authority as it constitutes a more logical and
reasonable approach in that it:
(i) recognises that interest on borrowed funds relates really to the amounts invested
and not on amounts yielded and
(ii) avoids the distortions which otherwise result from variations in such yields.
Accountants invariably mostly use the asset basis in computations.

Page 33 of 68
Reverting to Mr Investor, if, in the following year, his shares produced no dividends,
everything else remaining the same, the result would be:

$
‘ASSET BASIS’
Total yield 8,000.00
8,000.00
Less: Expenditure applicable
10,000 x 2,100 700.00
30,000
Taxable Income 7,300.00

‘INCOME BASIS’
Total yield 8,000.00
8,000 x 2,100 2,100.00
8,000
Taxable Income 5,900.00

Use the same method where the disallowance arises by reasons of the inherently
unproductive use of part of the borrowed funds, as opposed to the production of exempt
amounts.

Example II
Company A commenced trading on 1 January 2003.
Balance Sheet as 31 December 2003:
$ $
Issued share capital 2 Business premises 20,000
Long term loan 34,000 Loan to Director 10,000
Trade creditors 2,998 Trading stock 5,000
Trade debtors 2,000
37,000 37,000

Profit and Loss Account 31 December 2003:

$ $
Admin expenses 3,450 Gross Profit 8,500
Interest on loan 1,850
Net profit 3,200
8,500 8,500

Computation using the ‘Asset basis’ method:

Net profit per accounts 3,200
Add: Unproductive interest 10,000 x 1,850
37,000 500
Taxable income 3,700
Where it is possible to relate specific funds to specific assets this must be done, i.e. the
calculation must take this into account e.g. by omitting such asset etc.

Example III
Balance Sheet 31 December 2003
$ $
Issued share capital 20,000 Land and Building 20,000
Long term loan 15,000 Loan to Director 12,000

Page 34 of 68
 Trade creditors 5,000 Trade debtors 8,000
40,000 40,000

Profit and Loss Account 31 December 2003

$ $
Admin expenses 4,350 Gross profit 8,600
Interest on loan 1,000
Net Profit 3,250
8,600 8,600

Note:
It is established that land and buildings were financed out of the issued share capital.

Computation:
Since land and buildings were financed out of interest–free funds they must be excluded
from the calculation.
Profit per accounts 3,250
Add: Unproductive interest 12,000 x 1,000 600
(12,000 + 8,000)
Taxable Income 3,850

g) Contributions by employers to pension/annuity/sickness/etc. funds for employees,

except to the extent permitted in the Sixth Schedule. The effect is that only
contributions to funds approved or registered in accordance with laid-down
procedures are deductible, subject then to the limits imposed in that schedule.
h) Notional interest which is lost as a result of investing capital in trade.
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.
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.
k) Amounts, in excess of $1,000,000 paid for leasing a “passenger motor vehicle” as
defined in the Fourth Schedule.
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)
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 associated, despite the
host’s purpose being the furtherance of trade relationships.
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. 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.
o) Expenditure incurred in the production of interest on any loan or deposit with local
financial institution.

Page 35 of 68
 Module VI: LEASE PREMIUMS

Objectives:
a) To describe the circumstances under which a premium arises.
b) To state the characteristics of a ‘lease premium’.
c) To distinguish goodwill from a premium.
d) To state how premiums are treated in the hands of the lessor and the lessee.
e) To identify instances when premiums are deemed to be from a source within
Zimbabwe.

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 premium should therefore:

1. be distinct in nature
2. have an ascertainable money value
3. pass from lessee to lessor or sub-lessee to sub-lessor.
4. be paid in addition to or in lieu of rent.

However it 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 premium between a
sub-lessee and 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 is to 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 of the lessor as long as they are
receivable for the right of use or occupation.

Section 8(1)(d) of the Act brings lease Premiums into gross income. On the other hand they
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
have, in some instances, prompted taxpayers to avoid calling it as such in preference to
defining it as a 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 determined 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 or in the production of income 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. Recoupment can

Page 36 of 68
also be considered in terms of section 8(1)(l) where the allowed amounts have been used to
reduce the selling price on acquisition.
Note: in the hands of the lessor lease premiums are taxable in full in the year of accrual
and not spread over some period.

Section 8(1)(1) – Recoupment Of Rent, Premiums etc.

Where a person who has paid a rent for, for example, a business property, subsequently
purchases it for a price which is diminished as a result of taking into account the rent
already paid, since the rent has been allowed as a deduction previously for tax purposes 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 a lease premium previously paid or expenditure incurred by a tenant in terms of
an agreed obligation to make lease improvements.

Where a 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 year the balance is brought in.

Section 12(4) - Deemed Source

A premium or like consideration for the right of use of a patent, design, trademark,
copyright, model, plan, land or buildings, secret process or formula, motion picture film or
television film in Zimbabwe or the imparting of “know-how’ for the use in Zimbabwe, will be
deemed to be from a source within Zimbabwe.

SUMMARY

Gross Income Section 8(1)(d) Deduction Section 15(2)(d)

Or Consideration in the nature of

For the right of use of
Land or Buildings, patents, trademarks etc
Films, or knowledge.
Must be used / occupied for the
purposes of trade or in the production of
income (apportionment between
business and private)
Tax in full in year of accrual Yearly allowance is amount of premium
divided by period of lease or 10 years
whichever is the lesser.
No stated period of lease then 10 years
used.
Where lease extended only the initial
period used in the calculations
In year in which lease commences /
terminates or cessation of use for the
purposes of trade or in production of
income apportion the allowance.

Page 37 of 68
NOTES:
1. Knowledge-Commissioner `s discretion applied but not less than 1/10th
2. On acquisition of ownership the lessee will cease to qualify for any allowance
in the year of assessment following.
3. Consider recoupment in terms of Section 8(1)(l).

Module VII: LEASE IMPROVEMENTS

Objectives:
a) To state the treatment of ‘lease improvements’ in the hands of the lessor and lessee.
b) To identify the differences in tax treatment of lease premiums and lease improvements
in the hands of the lessor.
c) To establish the relationship between lease improvements and capital allowances.

Sections 8(1)(e) and 15(2)(e)

The owner of a piece vacant 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.

Section 8(1)(e) of the Income Tax Act brings into the gross income of the lessor the value of
improvements effected by the lessee in terms of a 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.
Under Section 8(1)(e) a landlord may enter into a lease agreement for a specified period in
terms of which in addition to the rent it is agreed that the lessee is obliged to erect a
building, which will become the property of the landlord. The value of the erected building
becomes gross income to the landlord.

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 the improvements should be brought into
gross income.

For instance where an agreement states that improvements to the value of $200,000 are to
be erected it is this amount, which is taxed. 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 a 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 accrual
of the value of the 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 agreement. If the period of the lease is indefinite then it is deemed to be 10
years. Where the initial period is renewed only the initial period of the lease is taken into
account.

Page 38 of 68
It has to be 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 into the revised amount being captured by Section 8(1)(e)
in full.

However if the variation of the clause takes place after the completion of the improvements
the additional amount cannot be included in the gross income of the lessor.

Note: If no amount is stipulated in the agreement the Departmental practice is to take the
actual cost unless the lessor proves it to be unreasonable.

CIRCUMSTANCES WHERE ALL FUTURE INSTALMENTS ARE BROUGHT INTO GROSS

INCOME
1. On cancellation of the agreement
2. On cession of the agreement
3. On assignment of the agreement
4. On sale or any other form of disposal of the land or buildings on which the
improvements were effected.
5. On death or insolvency of the lessor.

Deduction of Lease Improvements section 15 2(e)

As mentioned above section 15(2)(e) compliments section 8(1)(e) in that the value of the
improvements is allowed in the hands of the lessee through the former section.
The expenditure on the improvements is allowed in annual 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 value of the said improvements by the period of
the lease or ten years whichever is shorter. In practice this allowance is applied on monthly
instalments. Where the land or buildings occupied are used for both business and private
purposes the allowance is apportioned accordingly.
It should also be noted that for the lessee to be granted the deduction on the value of the
improvements, most of the conditions, which affect the lessor under Section 8(1) (e), also
apply to the former ; for instance:
1. A legal and enforceable obligation should be evident for the improvements in
question.
2. The land or buildings must be used for the purposes of trade or in the production of
income.
3. The expenditure incurred shall not exceed the stated amount in the agreement
except in the special circumstances mentioned.
4. The Commissioner can use his discretion where no specific amount is stated.
5. If the lease is renewable only the initial period is taken into account or where the
period of the lease is indefinite then it is deemed to be 10 years.

Where the taxpayer/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
production of income the allowance is granted only up to the date of cessation. Therefore
an apportionment might have to be applied.

Page 39 of 68
SECTION 8(1)(1) – Recoupment Of Rent, Premiums etc.

Where a person who has paid a rent for, for example, a business property, subsequently
purchases it for a price which is diminished as a result of taking into account the rent
already paid, since the rent has been allowed as a deduction previously for tax purposes 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 a lease premium previously paid or expenditure incurred by a tenant in terms of
an agreed obligation to make lease improvements.

Where a 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 year the balance is brought in.

Special Initial And Wear And Tear Allowances On Ranking Buildings Erected By A
Lessee Paragraph 294 (Assessor’s Handbook)

1. Where the erection is not in terms of an obligation in the lease.

(i) Lessee - Allow special initial and wear and tear allowances.
(ii) 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

(i) Lessee - Special initial and wear and tear allowances allowable if elected as an
alternative to section 15(2)(e).
(ii) 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
(i) 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.
(ii) Lessor - wear and tear allowance on the stipulated amount but not on the excess
until the property is re-let to another tenant.

Module V11I: MANUFACTURING & CAPITAL ALLOWANCES

Objectives:
a) To be able to identify types of assets used by a taxpayer for business and grant
applicable capital allowances.
b) To state the conditions for granting SIA on assets used for trade by the taxpayer.
c) To state the circumstances under which wear & tear is apportioned on movable
assets.
d) To be able to calculate recoupment on assets especially those on which capital
allowances were granted on deemed costs.
e) To state the advantages of constructing a commercial building at a growth point area
and operating a growth point business.

A1. EXPORT PROCESSING ZONES (EPZs)

a) “Licensed investor” means the holder of an investment license.

Page 40 of 68
 b) “Investment license” means an investment license issued in terms of the Export
Processing Zones Act (Chapter 14:07)

The Export Processing Zone Authority is responsible for creating and regulating export
processing zones in Zimbabwe. The main provisions of the Finance Act relating to EPZs
are:

1. Corporate tax at 15% after a 5-year tax holiday.

2. Exemption from liability to pay withholding tax (NRST) on dividends distributed to non-
residents.
3. No liability for withholding tax with regard to dividends (RST) distributed locally by a
company licensed to operate in an EPZ.
4. Exemption from withholding tax on interest, dividends, fees, royalties and remittances,
payable to a non-resident by a licensed operator.
5. Duty free important of raw materials and capitals goods.
6. No liability for tax on any capital gain arising from the sale of property forming part of an
investment in an EPZ.
7. For persons employed by a licensed investor there is exemption from income tax on
fringe benefits, such as housing – refer to paragraph 4(q) of the 3rd Schedule.
8. Refund of sales tax on goods and services.

A2. INDUSTRIAL PARK DEVELOPER

a) “Industrial Park” means any premises or area, other than an export processing zone,
which is approved by the Minister by statutory instrument and in which two or more
persons, independently of the industrial park developer, carry on the business of
manufacturing or processing goods or components of goods for export from Zimbabwe.
b) “Industrial park developer” means a person who owns and maintains an industrial park.

The owner of an industrial park is:

1. Subject to corporate tax at 10% after a 5-year tax holiday.
2. Not liable to withholding tax from dividends paid to residents or non-residents.
3. Exempt from withholding tax on interest and fees payable to a non-resident.

A3. OTHER MANUFACTURING CONCERNS

1. Taxable income of person engaged in new manufacturing project in growth point
area – tax at 10%.
2. Taxable income of person engaged in new project providing infrastructure in growth
point area – tax at 15%
3. Taxable income from manufacturing or processing of company which exports 60 per
centum or more of its output – tax at 20%.
th
B. CAPITAL ALLOWANCES – Section 15 2(c) arw 4 Schedule
Cost of acquiring assets to be used in trade is capital in nature thus not allowable.
Depreciation usually claimed for accounting purposes and this is not allowable as deduction.
Depreciation is replaced by capital allowance viz:
1. Special Initial Allowance
2. Wear & Tear

Page 41 of 68
 3. Scrapping Allowance
4. Growth Point Allowance and;
5. Training Investment Allowances (repealed with effect from 1 January 2001)

The Assets
Immovables Movables
Commercial Buildings Articles
Farm improvement Implements
Industrial Buildings Machinery
Railway lines Utensils
Staff housing
Tobacco barn

Definitions:
1. Commercial Building
IS IS NOT
st
a) A building constructed on/after 1 a) Farm improvements, Industrial Building, Staff
April, 1975 and housing, Tobacco barn etc
b) Used 90% or more for trade b) A building used 10% or more for residential
purposes.
c) Blocks of Flats c) A building owned under Condominium principle.

d) A hotel registered under the

Tourism Act

2. Industrial building
• Buildings used mainly in connection with manufacturing or industrial research,
licensed hotels including fencing surrounding such buildings and certain buildings used in
connection with computer international or data capture operations. Such buildings include
storage buildings used by the taxpayer for storing goods manufactured by him. Note
however that warehouse do not qualify as industrial buildings if they store goods, which
have not been manufactured by the taxpayer. They also include toll bridges and toll roads
e.g. the Lampoon River Bridge.

3. Staff Housing
• Permanent buildings used by taxpayer for housing employees. In order to qualify as
Staff housing each unit should not exceed $500,000 in cost. Where cost is more than
$250,000 but less than $500,000 capital allowances are granted on a deemed cost of
$250,000.

The Allowances
SPECIAL INITIAL ALLOWANCES: Paragraph 2
Immovables Movables
a) It is an election – cannot be granted if a) Also an election
taxpayer does not choose.
b) Only allowed where assets have been b) Allowed where assets have been
constructed or additions made to existing acquired and are used 90% or more
assets. for trade.
Note – Purchased Immovables do not qualify for
this allowance. SIA is not allowed on
Commercial buildings.
c) Cannot be apportioned even if asset is used c) Cannot be apportioned even if asset
for part of year. is used for part of year.
d) The rate is in the first year asset is

Page 42 of 68
 d) The rate in the first year the asset is used in used 50% of cost (SIA was 25% of
50% of cost – (SIA was 25% of cost prior to cost prior to 1 January 2001).
1 January 2001).

WEAR & TEAR: Paragraph 3

Immovables Movable
a) Must be allowed where no SIA has a) Must be allowed where no SIA is granted.
been granted.
b) Allowed on constructed or acquired b) Allowed on assets belonging to taxpayer and
assets. used for trade NB even where asset was
used elsewhere, when used for trade, it
qualifies.
c) Calculated based on cost i.e. c) Calculated based on the Income Tax Value
straight-line method. at the beginning of the 1st year i.e. on a
diminishing balance basis.
d) Cannot be apportioned even if d) Can be apportioned where
immovable is partially used for • Business has commenced
private. • Business has ceased
• There is dual usage only Wear and Tear
relating to business use is allowed.
e) Rates:
e) Rates:
Normal rate 10%

Commercial building – 2½% on
Motor Vehicle 20%
cost
25% on cost in 2 subsequent years where

Industrial - 5% on st
SIA was granted in the 1 year.
cost etc.

25% on cost in 2 subsequent
years where SIA was allowed in
the 1st year.

Note: Special Initial Allowance and Wear and Tear cannot be allowed in the same year on
the same asset. Where Wear and Tear was granted on the asset in the past, the taxpayer
may not suddenly claim SIA in later years. Special care needs to be taken where SIA was
allowed in the 1st year. In subsequent years wear and tear is calculated on cost.

Example
st
Taxpayer who started trading on 1 October 1999 constructed a Commercial building and
staff housing and first used these for purposes of trade as from that date. The Commercial
building cost $300,000 and Staff housing cost $150,000. He also acquired Furniture and
Fittings for $50,000. These were also used for purposes of trade on 1st October 1999.
Calculate capital allowances if:
a) SIA is claimed
b) No claim is made for SIA

Steps
Determine the type of assets used in the business and whether they are qualifying assets.
Then do the Schedule of Capital Allowances.
a) The Commercial Building, though constructed during the year it does not qualify for
SIA. The Staff house is a staff house because it costs less than $200,000 and it qualifies
for SIA having been constructed. Furniture and Fittings qualify for SIA in the 1st year.

Page 43 of 68
a) SIA Granted

Asset Commercial Staff House Furniture & Fittings

Buildings
Cost 1.10.1999 300,000 150,000 50,000
Deemed Cost 100,000
SIA [25% of cost) 25,000 12,500
W&T 7,500
ITV 31.12.1999 292,500 75,000 37,500
W&T 7,500 25,000 12,500
ITV 31.12.2000 285,000 50,000 25,000
W&T 7,500 25,000 12,500
ITV 31.12.2001 277,500 25,000 12,500

Special Initial Allowance has not been apportioned despite the use of the asset for only 3
months.

b) No Claim for SIA

Asset Commercial Staff House Furniture & Fittings
Buildings
Cost 1.10.1999 300,000 150,000 50,000
Deemed Cost 100,000
W&T 7,500 5,000 (3 months) 1,250
ITV 31.12.99 292,500 95,000 48,750
W&T 7,500 5,000 4,875
ITV 31.12.2000 285,000 90,000 43,875
W&T 7,500 5,000 4,388
ITV 31.12.2001 277,500 85,000 39,487
Note: For the Immovables, wear and tear is on straight line while movables are on
diminishing balance.
Part B
Suppose the assets are sold as follows after 3 years:
(a) Commercial Building $290,000
(b) Staff house $90,000 (therefore deemed selling price 90,000 x 100,000 = 60,000
150,000
(c) Furniture and Fittings $70,000
What would be the position if (a) or (b) had been instituted in the first 3 years.

a) If S.I.A was granted.

Commercial Staff Furniture &
Building House Fittings
I.T.V as at 31/12/2001 277,500 25,000 12,500
Selling Price 290,000 60,000 70,000
Potential recoupment 12,500 35,000 57,500
Allowances to date 22,500 75,000 37,500
Recoupment 12,500 35,000 37,500

b) If Wear and Tear was granted

Commercial Staff Furniture &
Building House Fittings

Page 44 of 68
I.T.V as at 31/12/2001 277,500 85,000 39,487
Selling Price 290,000 60,000 70,000
Potential recoupment 12,500 30,513
Scrapping Allowance (25,000)
Allowances to date 22,500 10,513
Recoupment 12,500 10,513

Scrapping Allowance: Para 4

Arises where:
• The asset has been sold at less than the income tax value – scrap the difference
between the selling price and the Income Tax Value or
• They become worn out or are disposed of while the taxpayer’s business continues. The
Income Tax Value will be the scrapping allowance. The scrapping referred to is a
scrapping in the course of trade therefore a scrap on cessation is not allowed.
• No scrapping allowance where taxpayer ceases to trade.
• Where there is both scrapping and recoupment on closure of business, a net
recoupment is taxed but a net scrapping will not be allowed. In the year in which the
asset is scrapped, no Wear & Tear is allowed.
• Where wear and tear allowance has been apportioned in previous year the scrapping
allowance is similarly reduced proportionately.

Recoupment Section. 8(1)(j)

• Recoupment arises where an asset has been sold at above the income tax value.
• The recoupment is the difference between the selling price of the asset and its Income
Tax Value and it is always restricted to allowances previously granted.
• Where the asset has not been granted Wear and Tear or SIA, even if sold the proceeds
are capital in nature and not taxed.
• Where only wear and tear for business has been allowed, the recoupment is similarly
reduced.
• It is necessary to exclude any overall capital surplus, which does not relate to the
recoupment of allowances previously granted.
• It is necessary to have regard to the result of each asset particularly on the cessation of
business. Some assets are sold at a loss; which loss does not qualify for the scrapping
allowance but the sale of other assets creates a taxable recoupment, which is gross
income.
• The practical treatment in such a case is to offset the losses against the aggregate
recoupment. A net recoupment is then taxed but a net loss remains not deductible.

This section shall not apply to cases an asset (on which capital allowances were granted) is
damaged and the taxpayer satisfies the Commissioner that he will purchase or construct an
asset of a like nature within a period of 18 months from date the asset was
damage/destroyed and within 3 years from the date the asset was damaged/destroyed he
will use the new asset for the purposes of his trade. Taxation to be considered if part of the
recoupment is used to buy the asset or where the taxpayer does not meet the above
conditions.

Recoupment Versus / Allowable Deductions

1. Under section 8(1)(j) there is mention of recoupment or recovery of previously allowed
deductions, where the asset is sold.
2. The link is, in the first instance when an asset is purchased or constructed and is used
for trade, capital allowances are granted.
3. When such as asset is eventually sold the Commissioner is permitted to recover the
Capital allowances previously granted on such assets.
4. The recoupment is included as part of the taxable income of the taxpayer.

Page 45 of 68
Remember the examiner usually does not state that you calculate capital allowances or
recoupment. He will give you a list of assets used for trade and some, which were sold, and
it is up to you to calculate the capital allowances.

Assets with restricted costs

1. Staff Housing
∗ Has a qualifying cost of $3,000,000 and then capital allowances are calculated on a
deemed cost of $1,000,000. If the cost of Staff housing exceeds $500,000 then it is no
longer staff housing as defined therefore no capital allowances.
∗ If the cost of Staff housing is $1,000,000 or less then calculate Capital allowances
on the actual cost.

2. Passenger Motor Vehicles: Para 14

∗ Cost of a passenger motor vehicle is restricted to $1,000,000. A passenger vehicle
is the luxury type of cars which excludes:
∗ Lorries, trucks, buses, minibuses, commuters and cars with a seating capacity of
more than 15 people and vehicles meant for leasing as well as taxis.

Example
King (Pvt) Ltd purchased a ‘Mazda 929’ for $1,400,000 for use by its Managing Director.
The Director uses the car 75% for private purposes. What is the maximum deduction to the
company?
Answer
Special Initial Allowance of 50% on $1,000,000 = $500,000. There is nothing private that is
done by a company therefore allowance SIA. You can only tax the MD on the private use of
the car.

Example
Taxpayer purchased the following assets for trade purposes in the 2001 tax year:
Passenger Motor Vehicle 600,000
Staff Housing (1 unit) 250,000
During the 2002 tax year he sold them for $800,000 and 450,000 respectively. Capital
Allowances for the previous year:
P.M.V. Staff Housing
Rate 20% 5%
Cost ($) 600,000 250,000
Deemed cost 300,000 150,000
Wear & Tear 60,000 7,500
ITV 31/12/2001 240,000 142,500
Deemed Sale price (refer to notes below) 400,000 270,000
Potential recoupment 160,000 127,500
Allowances granted to date 60,000 7,500
Actual recoupment 60,000 7,500
Passenger motor vehicle
Deemed selling price = 300,000 x 800,000
600,000 = 400,000
Staff Housing
Deemed selling price 150,000 x 450,000
250,000 = 270,000

Restrictions In Cost – Paragraph 15

Schools, hospitals, clinics 10,000,000

Page 46 of 68
 Staff housing 3,000,000
Passenger Motor Vehicle 1,000,000

Rates of Wear & Tear %

1. Bicycles 25
2. Caravans 20
3. Carpets 25
4. Bulldozers 25
5. Combine harvesters 25
6. Cranes (mobile) 15
7. Electric organ – portable 20
8. Fans 20
9. Library books 33 1/3
10. Motor Cars 20
11. Heavy lorries –rough roads 25
12. TV Sets 20
13. Tractors 20
14. Computers 10
15. Machinery – 1 shift per day 10
- 2 shifts a day 17,5
- 3 shifts per day 25

Growth Point Investment Allowances – Section 15(2)(dd) arw 14th Schedule

To encourage investment in designated Growth Point Areas, a special incentive in the form
of an investment allowance is available.
• The allowance is 15% on the cost of Commercial building, Industrial building and
Staff housing constructed at a growth point and on new/unused articles, implements,
machinery or utensils except for motor vehicles intended for use on roads. Allowed once in
the first year of use.
• A commercial building at a growth point also qualifies for SIA under the usual
th
paragraph 2, 4 Schedule conditions i.e. should have been constructed by the taxpayer.
• The allowance is granted over and above SIA and Wear & Tear i.e. it is an additional
allowance. It does not in any way affect the Income Tax Value of the asset.
• Where the asset is subsequently sold, the allowance is not recoupable. Restriction
on recoupment applies only to Wear & Tear and SIA.
Remember S.I.A in the second and subsequent years is called Wear & Tear at the rate of
25%of cost.

Example
A taxpayer carries on growth point business at a Growth Point. During the 2002 tax year he
made additions to an existing Commercial building at a cost of 500,000 and constructed 3
units of Staff housing at a cost of 420,000 each. He purchased implements worth $300,000,
$5,000 of them were second hand. Taxpayer claims maximum allowances.
Solution
Commercial Staff Housing Implements
Building
Cost 500,000 1,260,000 300,000
Deemed Cost 750,000
15% GPA 75,000 112,500 44,250
SIA (50% of cost) 250,000 375 000 150,000
ITV 31/12/2002 250,000 375,000 150,000
Total allowance:
SIA 775,000
Growth Point Investment Allowance (GPA) 231,750

Page 47 of 68
Total Capital Allowances 1,006,750

Module IX: FARMING

Objectives:
a) To distinguish between income from farming operations and other operations.
b) To state how farm trading stock is valued.
c) To prepare Livestock reconciliation statement.
d) To list the special deductions allowable to farmers.
e) To state the treatment of enforced sales and expenditure incurred in restocking
livestock depleted by drought or epidermic diseases.
f) To state specific exclusions from the definition of Farm Improvement.

A. INTERPRETETION OF TERMS
1. 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.
2. Livestock - acquired or bred by a farmer for farming purposes or in the carrying on
of his farming operations.
3. 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.
4. Epidemic Area - means any area of Zimbabwe, which is affected by an epidemic
disease of livestock and which the Minister declares in a Statutory Instrument shall
be treated as an epidemic area.
5. 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.
6. Livestock - 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.
7. Water Conservation Work - means Reservoir, Weir, Dam or embankment
constructed for the impounding of water.
8. Fencing means
a) Any fencing erected by the taxpayer and used by him in farming operations.
b) 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.
9. Farm Trading Stock means
a) Any livestock acquired or bred by a farmer for the purposes of carrying on
farming operations.
b) Crops and water produce produced or partially produced by a farmer in the
carrying on of farming operations.
10. Farm Improvement 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, structure or work of a permanent nature referred to in
paragraph 2 of the 7th Schedule.
ii) Staff housing or 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

Page 48 of 68
 iii) A tobacco barn.
st
b) Any permanent building the erection of which was commenced on or after the 1
April 1988, used for the purposes of:
i) A school, or
ii) A hospital, nursing home or clinic,
in connection with taxpayer’s farming operations.
11. Tobacco barn means any building used for the curing of tobacco.
12. Cost and maintenance value means the
a) Cost to the farmer or cost of breeding.
b) Cost of maintaining the livestock (cattle feed, dipping costs, herd boy’s wages,
etc)

13. Fixed Standard Value in relation to:

a) A class of ordinary livestock of a farmer means the standard value fixed by the
farmer in terms of paragraph 10(2)(a)
b) A class of stud livestock of a farmer means:
(i) the actual cost to the farmer where the cost price of livestock is less than
$15,000.
(ii) if cost is more than $15,000 either:
A. FSV fixed by the farmer or
B. $15,000
whichever the farmer may elect.
14. Purchase Price Value shall be determined as follows:
a) if cost is less than $15,000, the value shall be the cost of the animal
b) if cost is more than $15,000,
i) the cost price of the animal or
ii) $15,000
whichever the farmer may elect.

B. 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

1. 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:
a) purchase or the cost incurred in breeding the animals, as nearly as it can be
ascertained plus,
b) maintaining them. This second method is rarely chosen in practice and so is
almost absolute.
2. 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;
a) 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.
b) once an election has been made and an F.S.V. for a class has accepted;

Page 49 of 68
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. Part 3 of the 2nd
schedule sets out the rules for determining its value. Livestock is divided into “stud
livestock” and “ordinary livestock.”
VALUATION OF FARM TRADING STOCK
Section Type or Date of Ordinary Stud Crops 2nd
8(1)(h) Circumstance Valuation livestock livestock Schedul
Paragra e
ph paragrap
h

Last day of FSV PPV Fair & 12

I Closing stock tax year or CMV FSV reasonable
acc. yr.
Consumed by Date of Fair & Fair & Fair & 13
I1 taxpayer or put such use reasonabl reasonabl reasonable
to other use. e e
Stock on hand Date of FSV PPV Fair & 12
I11 d) On date of such CMV FSV reasonable
death happening
e) Date of
insolvency
f) Date of
donation
Attached by End of tax FSV PPV Fair & 12
IV court order year. CMV FSV reasonable
Sold with Date sold Selling Selling Selling price 14
V a) Business price price
b) Pursuance of
court order

Note - where there are two valuation methods the taxpayer has to make an election.
Livestock acquired by a person without payment of consideration, for example, by way of
inheritance or donation. If the heir or donee merely sells off the livestock without conducting
farming operations with them the proceeds are of a capital nature. If he commences
farming, or introduces them into existing farming operations, however, 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. In the case of a donee the deduction is restricted to the
amount which 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 19,000
5 Cows 16,000 each
20 Oxen 15,000 each
10 Heifers 8,000 each
15 Tollies 7,500 each
30 Calves 5,000 each

Page 50 of 68
It cost him $155,000 to maintain the herd to the end of the year at which stage the same
number in each category is still on hand. For the purposes of valuation of closing stock he
adopts maximum Purchase Price Value for the bull and Fixed Standard Values as follows:-
Cows 20,000 each
Oxen 19,000 each
Heifers 11,000 each
Tollies 10,000 each
Calves 6,500 each
Prepare a Trading Account.

Solution
LIVESTOCK TRADING ACCOUNT FOR THE YEAR ENDED 31ST DECEMBER 2002
Purchases: Closing stock:
1 Bull 19,000 1 Bull 19,000
5 Cows @ 16,000 80,000 5 Cows @ 20,000 100,000
20 Oxen @ 15,000 300,000 20 Oxen @ 19,000 380,000
10 Heifers @ 8,000 80,000 10 Heifers @ 11,000 110,000
15 Tollies @ 7,500 112,500 15 Tollies @ 10,000 150,000
30 Calves @ 5,000 150,000 30 Calves @ 6,500 195,000
Expenses 155,000
Profit 57,500
954,000 954,000

The $954,000 becomes the Opening stock for 2003 tax year.
Note: Fixed Standard Values are used for the purposes of closing stock only; purchases are
entered at cost, sales at selling price while deaths yield nothing.

Example 2
If during the year Mr X had, instead sold 19 Oxen for $475,000 and the remaining one had
died, the result (other factors remaining unchanged) would have been as follows:

LIVESTOCK TRADING ACCOUNT FOR THE YEAR ENDED 31ST DECEMBER 2002
Purchases: Sales (19 Oxen) 475,000
1 Bull 19,000 Closing stock:
5 Cows @ 16,000 80,000 1 Bull 19,000
20 Oxen @ 15,000 300,000 5 Cows @ 20,000 100,000
10 Heifers @ 8,000 80,000 10 Heifers @ 11,000 110,000
15 Tollies @ 7,500 112,500 15 Tollies @ 10,000 150,000
30 Calves @ 5,000 150,000 30 Calves @ 6,500 195,000
Expenses: 155,000 Deaths (1 Oxen) 00000
Profit: 152,500
1,049,000 1,049,00
0

Note that purchases are allowed as a deduction and sales constitute gross income. Losses
of livestock as a result of death are automatically allowed, since such livestock do not form
part of the stock on hand at the end of the year of assessment. Natural increases in
livestock are automatically taxed, in the period during which the livestock is in the farmer’s
possession, since the value of such increases is taken into account as each animal moves,
that is, is “promoted” from one class to another with higher values at the end of each year of
assessment.

Example 3:

Page 51 of 68
If in Mr X’s herd, 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 head):-

LIVESTOCK RECONCILIATION STATEMENT AS AT 31ST DECEMBER 2002

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 1 9 26 22 17 30 105
Sales 19 19
Death 1 1
Promotions out 6 4 14 24
Sub-Totals - - 20 6 4 14 44
Closing Stock 1 9 6 16 13 16 61
At 19,000 20,000 19,000 10,000 11,000 6,500
Closing Stock 19,000 180,000 114,000 160, 000 143,000 104,000 720,000
value

LIVESTOCK TRADING ACCOUNT FOR THE YEAR ENDED 31ST DECEMBER 2002
Purchases: Sales 475,000
1 Bull 19,000 Closing stock: 720,000
5 Cows @ 16,000 80,000
20 Oxen @ 15,000 300,000
10 Heifers @ 8,000 80,000
15 Tollies @ 7,500 112,500
30 Calves @ 5,000 150,000
Expenses: 155,000
Profit: 298,500
1,195,000 1,195,00
0

C. ALLOWABLE DEDUCTIONS

1. Section 15(2)(hh) arw Section 36A of the Finance Act – Tobacco levy paid during the
year of assessment.

2. Section 15(2)(jj) – This section gives authority to deduct the fair value of any stock,
shares, debentures, units etc given or paid to an employee under an approved employee
share option scheme or trust.

3. 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: -
(a) the stumping and clearing of lands
(b) works for the prevention of soil erosion
(c) the sinking of boreholes and wells
(d) aerial and geophysical surveys

Page 52 of 68
 (e) 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.
(f) Fencing (see definition)
th
4. Para 5, 7 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 at a special rate.
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.

Example:
Drought/epidemic sales income $600,000
Loss from other farming activities -$200,000
Taxable income for the year $400,000
:. Taxpayer can elect to spread $400,000 over 3 years.
An election made by the farmer is irrevocable.
Note: Where a farmer returns grazers to the owner thereof, he shall be deemed to have
disposed of the livestock.
Formula for the determination of Taxable income from Enforced sales.
Enforced sales xxxxxx
Less: 1. X head @ FSV xxxxx
2. Direct cattle expenses x X
Y xxxxx xxxxxx
Taxable income from enforced sales xxxxxx

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 $500,000. His FSV
for oxen, all of which had been on hand at the beginning of the year, was $3,000. The direct
herd expenses were $300,000. Opening stock 160 head and closing stock 140 herd.
Calculate Drought relief on sales.

Solution:
Drought sales 500,000
Less. 25 oxen @ $3,000 75,000
Expenses- 300,000 x 25
½(160 +140) 50,000 125,000
Estimated taxable income from drought sales 375,000

Note: If taxpayer elects, only 1/3 of the amount of $375,000, that is, $125,000 is taxable in
the current year, the remaining 2/3s being taxable in each of the following years. Taxable
sales under this section are at a Special rate.

5. Para 5A, 7th Schedule - Assessment of income due to enforced sales of livestock

Page 53 of 68
This paragraph deals with enforced sales where a farmer has been forced to dispose of his
livestock where his farm has been compulsorily acquired by government for resettlement
purposes under the Land Acquisition Act. The treatment is the same as in the above
paragraph.

6. Para 6, 7th Schedule - Additional allowance in respect of cost of restocking herd

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 services. The formula applied is:-
A x B 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.

Example:
A farmer’s livestock trading account for the year ended 31st December 2002 reflects the
following:

Head Head

350 Opening stock 700,000 100 Sales (April) 1,650,000

70 Purchases September) 350,000 320 Closing stock 640,000
Expenses 400,000
Profit 840,000
2,290,000 2,290,000
The (A. C. C. L) determined is 300.
Calculate Restocking Allowance.

Solution
350,000 x [300 - (350-100)] = 175,000 x 50 = 125,000
2 70 70
Taxable income will be:
Net profit per accounts 840,000
Less: Restocking allowance 125,000
Taxable income for the year 715,000

Module X: CAPITAL GAINS TAX (Chapter 23:01)

Objectives:
a) To state how capital gains tax is calculated and why credits are not granted when
calculating capital gains tax.
b) To interprete the various terms used in the Capital Gains Act.
c) To compare and contrast the effects of exchange rate variations under the Income
Tax and Capital Gains Acts.
d) To list the various types of deemed sales and sales of specified assets which are
exempt from Capital gains tax.
e) To establish situations under which capital gains tax may be rolled over.

Page 54 of 68
 f) List all the deductions, a taxpayer is entitled to, in determining capital gain or assessed
loss.
g) Define a ‘depository’ and outline his obligations under the Capital Gains Act.
h) To state circumstances under which the Commissioner may issue an estimated
Capital gains tax assessment.

Authority To Charge Capital Gains Tax – Section 6 gives the Commissioner authority to
charge, levy and collect CGT in respect of capital gains accruing to any person during any
year of assessment other than a capital gain accruing to a person before 1st August 1981.

Calculation Of Capital Gains Tax – Section 7 states that CGT shall be calculated by:
a) Determining the capital gain of the person for the year of assessment and;
b) Applying the appropriate rates of tax fixed, from time to time, by the Finance Act.
Note: There is no mention of credits.

Definitions:
1. Specified Asset means immovable property or any marketable security.

2. Marketable Security simply refers to any debenture, share or stock or bond whether or
not capable of being sold in a share market or exchange.
3. Gross Capital Amount - refers to the total amount received by or accrued to or in
favour of a person or deemed to have been received by or accrued to or in favour of a
person in any year of assessment from a source within Zimbabwe from the sale on or
after the 1st August 1981 of a specified asset excluding any amounts which constitute
gross income under the Income Tax Act and includes any amount deductible under
section 11 (2) of this Act. Note that there is no deeming of income to be from a
Zimbabwean source. If the true source is not Zimbabwe then that asset is not taxable
here. Remember that the source of proceeds from the sale of immovable property is
where the property is situated.

GROSS CAPITAL AMOUNT

Less: EXEMPTIONS
= CAPITAL AMOUNT
Less: ALLOWABLE DEDUCTIONS
= CAPITAL GAIN / ASSESSED CAPITAL LOSS

4. Person – refer to the definition in the Income Tax Act.

5. Assessed Capital Loss – means the excess of allowable deductions over capital
amount. However, where the assessed capital loss does not exceed $1,000 it shall be
reduced to Nil.

SECTION 8(2) - Gains Through Exchange Rate Variations

- In the case of foreign transactions the Gross Capital Amount is the amount
expressed in Zimbabwean currency.
- If due to a fluctuation in rates of exchange, the amount received differs from the
amount due, the amount received expressed in Zimbabwean currency constitutes
the recipient’s gross capital amount. If the receipt and the accrual occur in different
years of assessment effect must be given to the increase or decrease in the year in
which the amount accrued (not when it was received as is the case under the
Income Tax Act).

Deemed Sales
1. Sale by expropriation - The gross capital amount shall be the compensation so received.

Page 55 of 68
2. Sold in execution of a court order - The gross capital amount shall be the amount
realised from the sale.
3. Maturity or redemption of a specified asset - The sale price shall be the gross capital
amount.
4. Deed of sale - The gross capital amount shall be the whole amount accruing as a result
of the sale including instalments not yet due and payable in terms of their agreement.
5. Other disposals e.g. donations, inheritance etc - The gross capital amount shall be the
market price.

SECTION 10 - Exemptions
a) Receipts and accruals of bodies referred to in paragraphs 1, 2 and 3 of the 3rd Schedule
to the Income Tax Act other than those under sub-paragraphs ((a) institutions and societies
not operating for the private benefit of the members), ((c) building societies) and ((f)
employees saving scheme approved by the Commissioner) of paragraph 2.
b) Distributions by the executor of a deceased estate of a specified asset.
c) Sale of bond or stock in respect of a loan to:
i) The state or a company wholly owned by the state.
ii) A local authority.
iii) A statutory corporation.
d) Sales by persons carrying on life insurance business (subject to certain conditions).
e) Sale of shares in the Zimbabwe Development Bank by an institutional shareholder who is
not ordinarily resident in Zimbabwe.
g) The receipts and accruals of a licensed investor of a specified asset of an investment to
which the investment license relates.
h) The receipts and accruals of an industrial park developer of a specified asset forming
part of the industrial park.
j) Sale of listed security.
k) Amounts 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.

ALLOWABLE DEDUCTIONS:
SECTION 11(1) Losses Through Exchange Rate Variations
In the case of foreign transactions the amount deductible is the amount actually paid
expressed in Zimbabwean currency. If due to a fluctuation in rates of exchange, the amount
paid differs from the amount due, the amount paid expressed in Zimbabwean currency is
the amount allowable as a deduction. If the payment and the incurring of a liability fall in
different years of assessment effect must be given to the increase or decrease in the year in
which the amount was incurred (not when it was paid as is the case under the Income Tax
Act).

Section 11 (2)
a) Cost of acquisition or construction of a specified asset excluding costs deductible under
the Income Tax Act.
Note:
∗ Where an asset was inherited the cost shall be the amount as shown in Final Liquidation
and Distribution Account, of the deceased estate, in respect of that asset.
∗ The cost of donated assets may be determined as follows:
⇒ If the donation was prior to 1st August 1981 (note that this is the date when
Capital Gains Tax came into being) the deemed cost price shall be the fair market
price at the time of acquisition.

Page 56 of 68
 ⇒ If the donation was made on or after 1st August 1981 the deemed sale price shall
be:
♦ The gross capital amount in the hands of the donor if he was taxed under
this Act.
♦ The gross income in the hands of the donor if he was taxed under the
Income Tax Act.
⇒ Initial costs include bond interest, architect fees, interest on loan used to finance
the construction of the building.

b) Additions, alterations or improvements of assets mentioned in (a) above. This also

includes such expenses, which can be capitalised to the cost of such improvements.
Where a taxpayer sells shares in a company, which owns immovable property, any
improvements to the immovable property shall be deemed to be expenditure incurred on
addition to the shares.

c) Inflation allowance on the costs incurred in (a) and (b) above. The inflation rates are:
Tax Year Inflation Rate
81/82 to 89/90 5%
90/91 to 95/96 10%
96/97 to 12/2001 15%
1/2002 to 12/2002 30%
1/2003 to date 50%
and is calculated for each year whether it is a full year or part of the year of
assessment.

d) Selling expenses e.g. Advertising, Agent’s commission etc.

e) Bad debts (set conditions have to be fulfilled – refer to Section 15(2)(g)(i) of the Income
Tax Act).

f) Successful or substantially successful lawsuit, heard before the High Court or the Special
Court, on any claim treated incorrectly in determining the Capital gain or Assessed capital
loss of the taxpayer.

g) Successful or substantially successful lawsuit, heard before the Supreme Court, on any
claim treated incorrectly in determining the Capital gain or Assessed capital loss of the
taxpayer. These are appeal cases.

h) If the Capital gain realised after allowing the above deductions is less than or equal to
$5,000 there shall be allowed a further deduction equal to the Capital gain thereby reducing
the Capital gain to Nil. Only an Assessed Capital Loss of not more than $1,000 is
considered as Nil.

Layout
Computation Of Capital Gain For The Year Ended 31st December 2003
Gross capital amount $$$$$$$
Less: Exemptions $$$$$$$
$$$$$$$
Less: Recoupments under the Income Tax Act $$$$$$$
Capital amount $$$$$$$

Page 57 of 68
Less: Deductions Allowable
1. Cost price $$$$$$$
Less: Deductions under the Income Tax Act $$$$$$$ $$$$
2. Additions, alterations, improvements etc $$$$$$$
Less: Deductions under the Income Tax Act $$$$$$$ $$$$
3. Inflation allowance on (1) and (2) $$$$
4. Selling expenses $$$$
5. Bad debts $$$$
6. Legal costs $$$$ $$$$$$$
Capital Gain $$$$$$$

SECTION 11(3) Assessed Capital Loss

Proviso (i): Change in shareholding
This proviso is essentially designed to avoid trafficking in shares of companies with
assessed capital losses. Taxpayers would normally engage themselves in such activities so
as to take advantage of the losses. Whenever the exchange of shares of such a company
takes place the onus lies with the taxpayer who acquires the shares to prove that the
transaction was devoid of a motive to take advantage of the loss. If any shares are
transferred in a company with an assessed capital loss (or in its controlling company) and
the Commissioner is satisfied that the sole or main reason for the transfer was to take
advantage of the assessed capital loss, the loss will be cancelled.

Proviso (ii)
This proviso denies the carrying forward of an Assessed capital loss in the following
situations:
a) Where a taxpayer has been adjudged or declared or become insolvent or
b) Where a taxpayer has assigned his assets or estate for the benefit of his creditors.
Where a taxpayer has become insolvent or has assigned his estate for the benefit of his
creditors (but not a company in liquidation) any assessed capital loss incurred before the
date of insolvency or assignment is eliminated.

Proviso (iii)
This proviso authorizes the carrying forward of an assessed capital loss where a company is
converted to a private business corporation or vice versa. In all cases there should be no
change in terms of control.

Section 11 (4)
Where a deduction is allowable under two or more sections the taxpayer may elect under
which section he wants the deduction allowed.

Section 11 (5)
Where the lessor sales immovable property where improvements were effected by the
lessee in terms of an obligation in the lease agreement (to effect improvements) the cost of
the lease improvements shall be allowed as a deduction for the purposes of calculating his
capital gain.

SECTION 15 - Transfer Of Assets Between Companies Under The Same Control

Capital gain may be rolled over under the following circumstances:
a) Where a foreign incorporated company having carried on its principal business in
Zimbabwe, intends to wind up voluntarily and members’ shareholding is exchanged for
shares in the new company (formed in Zimbabwe). This is acceptable as long as the
shareholders in the new company formed will retain the same proportionate shareholding
and no new shareholders shall be entertained.

Page 58 of 68
 b) Where there is a transfer of a specified asset between companies under the same
control under a scheme of reconstruction of a group of companies or a merger or some
other arrangement, which the Commissioner considers to be of a similar nature.
c) Where a company is converted to a private business corporation and vice versa. In
all cases there should be no change in terms of control.
Section 16 - Transfer Of Assets Between Spouses
Where a specified asset, which is a ‘Principal private residence’, is transferred between
spouses or a former through a court directive, the transferor and the transferee may elect
that the sale price be deemed to be equal to the deductions allowable such that in the hands
of the transferor nothing will be taxable under this Act.
The section ensures that when the transferee sells the specified asset to a third party the
Capital gain shall be calculated as if he/she owned the property from the time it was first
owned by the first transferor.
Question
Mr. Jones acquired a house on 3 June 1990 for $100,000, which amount includes transfer
fees of $10,000. In July 1996 he constructed a driveway at a cost of $36,000. In October
2000 he transferred the property to his wife and the wife had to pay $82,000 transfer fees.
The value of the property was $800,000 as at October 2000.

After the death of her husband in July she decided to sell the house, which she did on 8
November 2002, for $6,000,000 after repainting the house and advertising it at a cost of
$180,000 and $50,000 respectively.
Calculate the capital gain from the above transaction assuming as election was
• not made
• made
to minimise her tax liability.
Section 17 - Transfer Of Business Property By An Individual To Company Under His
Control
Where a specified asset, which an individual uses for the purposes of trade is transferred to
a company under that individual’s control the individual transferor and the transferee
company may elect that the sale price be deemed to be equal to the deductions allowable
such that in the hands of the individual transferor nothing will be taxable under this Act.
The section ensures that should the transferee company sells the specified asset to a third
party the Capital gain shall be calculated as if the specified asset was owned by the
company from the time it was first owned by the individual.

Section 18 - Suspensive sales

In this case ownership of an asset passes upon payment of the full or a certain portion of
the purchase price. The full purchase price shall constitute Gross
Capital Amount and will accrue on the date on which the agreement is signed. As a
concession the taxpayer will be taxable only on that part of the sale price, which accrues to
him in terms of the agreement and this amount shall be determined by the following formula:
A x (B-C) where:
D

A = Amounts not due and payable, in terms of their agreement, during the year.
B = Capital amount or sale price
C = Deductions allowable under this Act.
D = Sale price.

Note:

Any amount, which escapes tax in one tax year, due to the provisions of this section,
becomes the Capital amount in the following year.

Page 59 of 68

Where there is cancellation of the agreement the difference between the amount
received and taxed over the years is taxable in the year the agreement is cancelled.
Example:
In a Suspensive sale arrangement a taxpayer sold a specified asset during the year ended
December 2000 for $2,000,000 payable as follows:

Tax Year Instalment due

2000 500,000
2001 1,000,000
2002 500,000

Suppose the total deductions allowable amount to $800,000 (inclusive of inflation allowance
& selling expenses) the Capital gain will be calculated as follows:

CAPITAL GAINS COMPUTATION FOR 2000 TAX YEAR

Sales 2,000,000
Less: Deductions allowable 800,000
Capital gain before applying this section 1,200,000
Less: A x (B-C) i.e. (2,000,000–500,000 Due) x (2,000,000–800,000) 900,000
D 2,000,000
Capital gain taxable during the year 300,000

CAPITAL GAINS COMPUTATION FOR 2001 TAX YEAR

Capital Amount 900,000
Less: A x (B-C) i.e.(2,000,000–1,500,000 Due) x (2,000,000–800,000) 300,000
D 2,000,000
Capital gain taxable during the year 600,000

CAPITAL GAINS COMPUTATION FOR 2002 TAX YEAR

Capital Amount 300,000
Less: (2,000,000–2,000,000 Due) x (2,000,000–800,000) 000,000
2,000,000
Capital gain taxable during the year 300,000

You will note that the Capital gain for the 3 tax years is the same as the Capital gain realised
before applying this section i.e. $1,200,000 (= 300,000 + 600,000 + 300,000)

SECTION 19 – Provision Relating To Credit Sales Where Ownership Passes

Treatment is the same as with Suspensive sales

SECTIONS 20 – Provision For Reduction In Costs Of Specified Assets

Liquidation dividends accruing to shareholders in respect of shares in a company, which is
being liquidated or a company, which is making a reduction in its share capital are treated
as follows:
a) If the dividend received exceeds the cost of the shares (and additions thereon) the
asset is deemed to have been sold for an amount equal to the liquidation dividend.
b) If the dividend received is less than the cost of the shares (and additions thereon) the
amount received shall be used to reduce the cost of the shares. From there then the
calculation of the inflation allowance will be based on such reduced cost. When the
final liquidation dividend is received the capital gains tax will be calculated.

SECTION 21 - Sale of Principal private residence (PPR)

Refer to the definition of Principal private residence in the Capital Gains Act.

Page 60 of 68
The taxpayer may elect to roll over Capital gain realised from the sale of a PPR if he uses
the sale proceeds to buy or construct another PPR on land owned by him in Zimbabwe
before the end of the tax year following that of sale. Note that land in the rural areas or
where you cannot get title deeds is owned by the President.
Where only a portion of the sale proceeds are expended on the new PPR only the portion of
the Capital gain, which relates to the amount expended will escape tax at least for the mean
time. Note that the portion, which escapes tax because of this section, will reduce the cost
of the new asset when it is finally sold later. The taxable portion in this case shall be
determined by the following formula:
Ax C where:
B
A = Portion of the Sale price not expended on the new property.
B = Sale price of the old PPR
C = Capital gain on the Sale of the old property.

Example:
Mr. Nason was forced by the nature of his employment to transfer regularly such that he
ended up buying and selling the following houses as he moved from one town to another; he
had no intention to profiteer out of these sale transactions:

Details Date Amount

House 1 Cost 10/1995 500,000

Sales 08/1997 1,800,000

House 2 Cost 11/1998 1,075,000

Sales 12/1999 4,200,000

House 3 Cost 06/2000 4,500,000

Solution:
TAX COMPUTATION FOR THE YEAR ENDED 31 DECEMBER 1997
Sale price 1,800,000
Less: Deductions
Cost of acquisition 500,000
15% Inflation allowance on:
Cost 500,000 x 15% x 3yrs 225,000 725,000
Capital gain before roll over 1,075,000
st
Capital gain taxable during the year ended 31 December 1997:
(1,800,000 – 1,075,000) x 1,075,000 = 432,986 Tax @ 20% = $86,597.20
1,800,000
Capital gain rolled over (1,075,000 – 432,986) = 642,014

TAX COMPUTATION FOR THE YEAR ENDED 31 DECEMBER 1999

Sale price 4,200,000
Less: Deductions
Cost of acquisition 1,075,000
Less: Rollover on previous sale 642,014
432,986
15% Inflation allowance on:
Cost 1,075,000 x 15% x 2yrs 322,500 755,486
Capital gain before roll over 3,444,514

Page 61 of 68
Capital gain taxable during the year ended 31December 1999:
(4,200,000 – 4,200,000) x 3,444,514
4,200,000 00000000
Capital Gain rolled over 3,444,514

Note that the inflation allowance is calculated on the full cost even though the cost would
have been reduced by the Capital gain rolled over from previous sales.

SECTION 22 - Substitution of business

If the taxpayer so elects, which election shall be binding, capital gain may be rolled over
where a taxpayer sells a specified asset, which he was previously using for the purposes of
his trade and purchases another for use in his trade. The treatment is the same an in
Section 21 above.

Note that the portion, which escapes tax because of the provisions of this section, will
reduce the cost of the new asset when it is finally sold. The new business property has to be
purchased or constructed before the end of the tax year following that of sale.

Section 38 Of The Finance Act – Rates Of Capital Gains Tax :

1. Sale of Principal Private Residence by an elderly person (i.e.
taxpayer aged 60 years or over by the end of the tax year) 10%

2. Other sales of specified assets 20%

Note that drought, development and aids levies chargeable under the Income Tax Act are
not chargeable under this Act.

Capital Gains Withholding Tax:

Sections 22A – Interpretation of terms
Depository means:
a) A conveyancer, legal practitioner, estate agent or other person who holds on behalf
of the seller of immovable property any part of the sale proceeds and is required to pay the
sale proceeds to the seller or to some other person as directed by such seller or
b) A stockbroker, financial institution or other person who holds on behalf of the seller
of marketable security any part of the sale proceeds and is required to pay the sale
proceeds to the seller or to some other person as directed by such seller.
Payee means:
a person to whom a depository pays or is required to pay an amount held by him as
depository in respect of the sale of a specified asset.

Note:
1. CGWT withheld by a depository should be paid over to the Commissioner before the
end of the month next following; failure of which a penalty of not more than 15% of the
amount due shall be charged.
2. A taxpayer would qualify for a credit of the CGWT paid when an assessment is raised.
3. CGWT shall not be withheld where a tax clearance certificate is issued under the
following circumstances:
a) Where an assessment is raised and the taxpayer pays the actual tax due per
assessment raised.
b) Where the taxpayer qualifies for roll over of capital gain.
c) Where the amount is exempt.

SECTION 22B – Capital gains withholding tax

Page 62 of 68
Section 39 Of The Finance Act - Rates of Capital Gains Withholding Tax (CGWT)
1. Sale of immovable property 10%
2. Sale of a marketable security not listed on the Zimbabwe Stock 10%
Exchange

SECTION 22C – Depositaries To Withhold Tax

SECTION 22D – Agents To Withhold Tax Not Withheld By Depositaries

SECTION 22E – Payee To Pay Tax Not Withheld By Depositary Or Agent

SECTION 22F – Exemptions

SECTION 22FA – Registration Of Depositaries

SECTION 22G – Depositaries To Furnish Returns

SECTION 22H – Penalty For Non-Payment Of Tax

SECTION 22I – Refund Of Overpayments

SECTION 22J – Credit Where Tax Has Been Withheld

SECTION 22K – Application Of Part 111a To Sales Concluded Before 1st January 1999
SECTION 22L – Suspension Of Provisions Of Part 11a To Marketable Securities

SECTION 23 – Application of provisions of Taxes Act relating to returns and assessments.

SECTION 32 – Capital gains tax not withheld in terms of Part IIIA to be paid for before
transfer of specified asset.

Module XI: ADMINISTRATION SECTIONS

Objectives:
a) To outline the benefits which flow from the approval, by the Commossioner, of benefit
funds.
b) To outline circumstances under which estimated assessments may be raised.
c) To outline the circumstances under which additional tax and / or penalties may be
charged.
d) To outline the circumstances under which additional assessments may or may not be
raised.
e) To outline the circumstances under which reduced assessments may or may not be
raised.
f) To state the conditions to be fulfilled in determining whether or not an objection is
valid.
g) To outline the Objection report format.
h) To state the various types pf offences and the appropriate maximum fines and / or
imprisonment as outlined in the Income Tax Act.

Section 13 Approval Of Funds

The following advantages flow from the approval by the Commissioner of benefit
funds registered in terms of the Pension and Provident Funds Act, 1976-

Page 63 of 68
 a) Exemption from tax, in terms of the Third Schedule, of all revenues in the hands
of the funds themselves;
b) Allowances to employers in respect of their contributions, in terms of the Sixth
Schedule;
c) Allowances to employees of deductions or credits, as may be appropriate, in
respect of their contributions;
d) Favourable treatment of payments derived by employees upon their withdrawal
from funds, in terms of the First Schedule.
Similar advantages to those in (a), (b) and (c) flow from the approval of medical aid
societies.
Subsection (1)
This subsection sets out the conditions with which a benefit fund must comply if it is
to be approved by the Commissioner. “With effect from 1.10.83, the duties, powers
and functions of the Commissioner in terms of this subsection were delegated to the
Registrar of Insurance”.
Subsection (2)
This subsection sets out the criteria for approval of a society or scheme as a medical
aid society as defined.
The Commissioner’s Practice Notes giving detailed rules for the approval of funds
dealt with in this section are reproduced as Appendix IV for information only. It is
stressed that any discussion or correspondence whatsoever on the practice notes
must be referred to Head Office.
Notice by Commissioner requiring returns for assessment.
Section 37 Subsections (1) to 12 deal with the public notice requiring returns to be made and the
manner in which returns should be furnished. In particular note the circumstances in
which interim returns are required and interim assessments are issued. Also see
Section 39. Subsection (14) authorises the issue of an estimated assessment
without penalties pending the submission of a return.
Income of Minor children
Section 38 Every parent is required to include in his return any income accruing to his or her
minor children from capital directly or indirectly given to the children by the parent(s).
It also covers deemed income covered under subsections (3) and (4) of section 10.
Duty to furnish further returns and information
Under this authority the Commissioner is empowered to call for returns of information
Section 39 and any further information, which is required for the administration of the Act.
Commissioner to have access to all public records.
The Commissioner is granted access to all public records.
Estimated Assessments
Section 40 a) When a taxpayer makes a default in furnishing a return or information,
Section 45 b) If the Commissioner is not satisfied with the return or information submitted or
(1) c) Where the Commissioner has reason to believe that such taxpayer is about to
leave the country
He may estimate the taxable income of the taxpayer and raise an assessment. It is
not the purpose of this section to punish and accordingly any estimate must be as
reasonable and as accurate as possible.
In the case of certain classes of defaulters administrative arrangements have been
instituted in order that the figure for outstanding debts due to this Department are not
exaggerated, where there is little hope of recovery.
d) If any person is unable to furnish an accurate return the Commissioner may
estimate his taxable income or assessed loss on an agreed basis. The taxpayer
forfeits his right to objection and appeal. The Commissioner can increase the
(2) estimate where information is withheld.
Additional tax in event of default or omission
Additional tax is chargeable and/or penalties are chargeable when a taxpayer:

Page 64 of 68
 a) Fails to render a return;
Section 46 b) Omits taxable income from his return.
c) Makes an incorrect statement in his return;
(1) d) Fails to disclose facts in his return;
e) Makes a statement, which increases his credits in excess of proper entitlement.
Careful attention must be paid to the basis on which the maximum penalty is
calculated in each case.
Where a return has not been submitted the penalty is the tax chargeable or the
maximum penalty as prescribed in section 81(1). In the other cases the tax must be
calculated on the incorrect basis and again on the correct basis in order to establish
the tax attributable to the omission, incorrect statement, failure to disclose facts or
(2) wrongful credits claimed, the maximum penalty is then that difference.
Note that the penalty is calculated on tax chargeable before allowing double
taxation relief, non-remuneration credits or P.A.Y.E credits.
Penalties can be imposed where all or part of the taxable income has been estimated
in terms of Section 45.
The fact that penalties have been imposed Section 46 does not prevent the
Commissioner from taking other legal remedies. An incorrect claim for a deduction is
treated as the omission of taxable income.
(3) Penalties cannot be charged where there is no tax involved such as in the case
where allowable deductions exceed income-giving rise to an assessed loss which is
(4) carried forward and offset in a subsequent year. However, if the assessed loss is in
excess of the correct figure due to any of the factors mentioned a consequential
penalty could be charged in a future year when tax becomes chargeable.
(5) Under subsection (1) a taxpayer becomes liable to the maximum penalty in each
case. However, if the Commissioner considers that the failure to submit a return was
not due to any intent to defraud the revenue or postpone payment of tax, or that of
the omission etc., was not due to any intent to evade tax, he may reduce the penalty
in whole or in part.
The Commissioner can agree with the taxpayer on the penalty and the agreed
(6) amount is not subject to objection and appeal. In practice this most commonly arises
in cases dealt with by the investigation branch.
Additional assessments
(1) If the Commissioner, having made an assessment on any taxpayer, later
considers that:
(7) a) An amount of taxable income which should have been charged to tax has not
been charged to tax; or
b) In the determination of an assessed loss:
Section 47 i) An amount of income which should have been taken into account has not
been taken into account; or
ii) An amount has been allowed as a deduction from income which should not
have been allowed; or
iii) Any sum granted by way of a credit should not have been granted;
He shall adjust such assessment so as to charge to tax such amount of taxable
income or to reduce such assessed loss or to withdraw or vary such credit, and if any
tax is due either additionally, or alternatively, call upon the taxpayer to pay the correct
amount of tax:
Proviso 1
i) No such adjustments or call upon the taxpayer shall be made if the
assessment was made in accordance with the practice generally
prevailing at the time the assessment was made;
ii) Subject to proviso (I), no such adjustment or call upon the taxpayer shall
be made after six years from the end of the relevant year of assessment,
unless the Commissioner is satisfied that the adjustment or call is

Page 65 of 68
 necessary as a result of fraud, misrepresentation or wilful non-disclosure
of facts, in which case the adjustment or call may be made at any time
thereafter;
iii) The power conferred by this subsection shall not be constructed so as to
permit the Commissioner to vary any decision made by him in terms of
subsection (4) of Section 62.
2. Sections forty-five and forty-six shall apply to any assessment or additional
assessments or to a call for the payment of any additional sum in respect of a
credit made by the Commissioner under the powers conferred by subsection (1)
Note that the prescription period runs from the end of the year of assessment.
Reduced assessments
A reduced assessment can be issued where a person has been overcharged with tax
provided that –
i) The taxpayer has no right of objection or appeal against the reduced
assessment;
ii) The taxpayer cannot claim a reduction if the assessment was made in
accordance with the practice generally prevailing and accepted by him at
the time the assessment was made;
Section 48 iii) A reduced assessment cannot be issued unless the claim is made within
six years after the date of the notice of assessments.
Note that the prescription period runs from the date the assessment was
issued.
Interim Assessments
i) The tax with which a person is chargeable in pursuance of an assessment
which is made in respect of a year or period of assessment before the
date of commencement of the charging Act relating to that year or period
shall be calculated as if the last enacted charging Act were the charging
Act relating to the year or period.
ii) After the date of commencement of the charging Act relating to a year or
period of assessment, the Commissioner shall adjust the tax with which a
Section 50 person is charged or the tax paid by a person in pursuance of an
assessment referred to in subsection (1) if an adjustment is required by
reason of the making of provision in that Act which is different from that
made in the charging Act by reference to the provisions of which the tax
so charged or paid was calculated.
iii) On an adjustment made in terms of subsection (2), any amount over or
short paid shall be refundable to or recoverable from the taxpayer.
iv) Notwithstanding subsection (2), the Commissioner shall not make an
adjustment such as is referred to in that subsection if the Commissioner is
of the opinion that an adjustment would be impracticable or cause undue
delay in winding up the affairs of a trust.
Assessments & recording thereof
Subsection (1) to (4) provide for the issue and recording of assessments.
Copies of assessments
Notices of assessment shall not be open to public inspection, but every taxpayer
shall be entitled to copies certified by or on behalf of the Commissioner of his own
notices of assessment.
Power to appoint agent
The Commissioner is given the power to appoint any person to be the agent of any
other for the purposes of the Act with particular reference to the recovery of
outstanding tax from the taxpayer’s assets.
Time & Manner of Lodging Objections
Any taxpayer who is aggrieved by-
Section 51 a) any “assessment”,

Page 66 of 68
 b) Any decision mentioned in the Eleventh Schedule; or
Section 52 c) The determination of double taxation relief in terms of Section 92 – 96; may,
unless there is a specific provision to the contrary, lodge an objection.
Every objection must be in writing and specify the grounds upon which it is made.
The objection must be lodged within thirty days from the date of the notice of
Section 58 assessment or of the written decision.
A late objection may be accepted where the Commissioner is satisfied that there are
reasonable grounds for the delay. Rejection of the grounds of the objection by the
Commissioner gives a taxpayer the right of appeal to the General Division of the
Section 62 High Court or to the Special Court.
If an objection to an assessment is not lodged within 30 days after the date of notice
of assessment or such extend period as may be authorised by the Commissioner the
assessment becomes final and conclusive. Once an assessment has become final
and conclusive any request to re-open the assessment must be dealt with in terms of
Section 48. Procedure to follow (AHB):
i) Acknowledge the letter of objection, advise the taxpayer that it is being
referred to the Commissioner and, if necessary, remind the taxpayer that
in terms of Section 69, any payment due is not suspended by the lodging
of the objection. (Tax Officers are reminded that a letter of objection is not
to be marked or annotated in any way).
ii) Take up any matters that need explanation or further particulars.
iii) After receipt of any additional information required, refer the original letter
of objection and the taxpayer's file, together with the Head of Station’s
recommendations, to the Commissioner General.
iv) All objections must be dealt with as expeditiously as possible and referred
to the Commissioner with the minimum of delay.
The tax officer or investigation officer dealing with the objection should prepare a
report in the following form - Objection report format:
1. Validity of objection
The report should indicate whether the objection has been Lodged within the period
required by law or such extended Period as may have been authorised by the
Commissioner.
2. Grounds of objection
These should be stated clearly. If of great length a succinct precise must be made.
3. Facts
Attention should be drawn to all facts relevant to the objection.
4. Points of law
Cases that have a bearing on the objection should be quoted.
5. Recommendations
The tax officer must give his opinion as to whether the objection should be allowed or
disallowed, and the reasons therefore.
6. Payment of tax
The position regarding the payment of the tax involved should Stated.
Payment and recovery of tax
These sections deal with the payment and recovery of tax. In particular note that
Section 76 extinguishes the liability where the income tax chargeable is $100 or less.
Also there is no liability if the tax due after crediting PAYE is less than $100.

Page 67 of 68
Sections
71, 73, 74,
76 and 77

OFFENCES AND PENALTIES

Section Nature of Fine (A) Imprisonment A and/or B
Offence Level Amount not exceeding
(B)
81 Offences in 5 20,000 3 months Either/Both
general

82 Wilful failure to 7 80,000 1 year Either/Both

comply with
requirements

83 Increased penalty 1 1,000 1 year Either/Both

upon subsequent
conviction under
Section 81

84 Failure to submit 7 80,000 1 year Either/Both

correct returns;
information.

85 False statements 7 80,000 1 year Either/Both

86 Wilful making of 8 120,000 2 years Either/Both

false accounts.

Page 68 of 68