Professional Documents
Culture Documents
A
GUIDE
TO
ZIMBABWE
TAXATION
Study Text
2016 EDITION
Third Edition
By
© P. Nyatanga, 2016
All rights reserved. No part of this publication may be produced, stored in retrieval
system, or transmitted in any form or by any means, electronic, mechanical,
photocopying, recording or otherwise, without the prior permission of the copyright
owner.
Disclaimer
Whilst every effort has been made to ensure that the information published in this
work is accurate, the author and publisher take no responsibility for any loss or
damage suffered by any person as a result of reliance upon the information
contained therein. If professional advice or other expert assistance
is required, the services of a competent professional person should be sought.
The book incorporates all tax amendments as promulgated in the FA 2015, and can be used
as a handbook of reference when preparing tax returns or when preparing for exams for
2015 Tax Year. The textbook includes practical examples and practice questions with
answers which will make studying trouble-free. Reference has been made to local and
foreign tax cases to illustrate certain concepts and principles.
The comprehensive study text specifically embraces the curricula of the following examining
boards:
Over the years I have been teaching taxation I noticed that the subject is a challenge to
many students. This seems to substantiate an assertion by the famous physicist, Albert
Einstein who claimed that “the hardest thing to understand is income tax.” Very few
students appreciate the technical terms of the subjects and also the way principles are
brought about in the legal jargon.
It has thus been the passion of the author to come up with a concise yet comprehensive
study text that will go a long way in ensuring higher pass rates. The book has been written in
a clear-cut style to ensure that users will easily grasp the tax concepts. The author adopted
a unique approach in which chapters are tailored into a general framework for computation
of tax liability. The contents of this book are principally based on Zimbabwe tax statues (as
amended) relevant to the 2015 Tax Year.
All names of individuals and organisations stated are fictitious and not real names. If any of
the names used match that of existent individual/s or organisation/s, it is merely by
coincidence.
Direct quotations from the statutes and examples are written in italics. Tax cases are written
in bold ink. Where the word Act is mentioned in topics other than, Estate duty, Capital Gains
Tax, VAT, it refers to the Income Tax Act.
PARTSON NYATANGA
DEDICATION
This book is dedicated to my mother Molyne, who instilled in me the importance of
hard work.
“People often say death and taxes are the same, but this is wrong.
Death is a taxable event, but taxes never die”
Author- Unknown.
o First and foremost, the Almighty God for giving me potency, vision and aptitude to put
together this book.
o My family for bearing with me when I was committed to this project.
o The Institute of Chartered Secretaries & Administrators in Zimbabwe (ICSAZ) for
permission to reproduce past exam papers.
o The Southern Africa Association of Accountants (SAAA) for permission to reproduce
past exam papers.
1. Introduction to Taxation…………………….…….…...…………..…………………….1
2. The Finance Act…......…………………...............……….……………………….…..30
3. Individuals - Employment Income………………………..…………………….….….37
4. Pensions and Benefit Funds………………………………..……………………...…59
5. Capital allowances….............................................................................................63
6. Corporates - Business and Investment Income…………......................................77
7. Individuals - Business and Investment Income….............…..…………………..….97
8. Partnerships……………………………………………………...………………….…103
9. Farmers…………………………………………………,………...…………………...108
10. Miners………………………………………………………………………………....121
11. Leasing……………………………………………………………………………….133
12. Deceased Estates and Trusts………………………………………...………….…141
13. Hire Purchase and Suspensive sales…………………………………………..…148
14. Withholding Taxes and Presumptive Taxes………………………..……………..151
15. Double Taxation Agreements………………………………….....……………..….169
16. Estate Duty……………………………………………………….............................183
17. Capital Gains Tax……………………………………………………………….…...192
18. Value added tax…………………………………………………..……………….…210
19. Tax avoidance and Tax Evasion……………………………………….……….….234
20. Fiscal Incentives………………………………………………………………..…….240
21. Administration of Tax Law……………………………………....…………………..248
22. Answers to practice questions……………………………………………………...263
Chapter Outline
Tax is an involuntary amount paid by a person to the government to which the person is
under its governance. Tax is collected from every able- bodied person for the benefit of the
government fund, which in Zimbabwe is called the Consolidated Revenue Fund.
A country can adopt either a source based (territorial) or a residence based tax approach.
Zimbabwe uses a source based tax system.
A country that adopts source based tax system levy taxes only on income, capital, property
etc. that emanates within the boundaries of its borders or that is deemed to be from within its
boundaries.
A residence based tax approach is adopted by a country that seeks to levy tax on income,
capital; property etc. accruing to it‘s the residents regardless of its source.
Indirect tax is borne by someone other than the person responsible for paying it to the tax
authority. The tax is often included in the price of a commodity. Indirect tax simply means
that the taxpayer indirectly pays tax to the authority when they pay for a commodity; an
example of indirect tax is VAT.
Progressive tax on the other hand is a tax in which the tax rate increases as the income
increases. In Zimbabwe progressive taxes are applied in levying employment income. The
tax rate increases from zero to marginal tax rate (i.e. the highest tax rate) as income
increases in bands.
ZIMRA is responsible for assessing, collecting and accounting for revenue on behalf of the
state thorough the Ministry of Finance. The following are the revenue heads which are
administered by ZIMRA:
Customs Duty- levied on imported goods in terms of the Customs and Excise Act
(Chapter 23: 02)
ZIMRA is headed by the Commissioner General who has the responsibility of interpreting
and administering the ITA and other tax statutes.
Various Acts of parliament in respect to tax were enacted as basis for the collection of such
tax. Besides Acts of Parliament, Statutory Instruments are passed which work in the same
way as Acts of Parliament. The following acts will particularly be covered in this text:
No one is immune to tax. The FA is referred to as the charging act, in other tax legislation.
Rates of tax and revision thereto are gazetted by the Honourable Finance Minister and
stipulated in the FA. At the end of every year the Honourable Finance Minister pronounces
the national budget in which new amendments to the acts are made. All amendments to the
Acts are compiled in the FA. Amendments can involve repealing of some existing provisions
or additions of new provisions to the statutes.
Government may seek to protect local industries by introducing tariffs so as to make the
foreign goods expensive compared to local goods.
Besides the codified Acts of parliament which are basis for the determination of tax liability of
a taxpayer; decided tax cases set a judicial precedent and are as law in their respect.
Various cases will be referred to in this text to expound certain tax principles. Readers
should realise the importance of precedents. Legislation alone can never cover a wide
variety of circumstances which arise; hence the courts rely significantly on decided court
cases, some of which were adjudicated in foreign lands. Zimbabwean law have its roots in
common law which is law adopted generally from other countries. Although the rulings of
foreign courts are not binding on Zimbabwean courts, the ancestry of the acts encourages
our courts to accord considerable persuasive value to judgements given on similar cases in
those countries.
Section 2 of the ITA specifically includes the following in the definition of a person:
- A company;
- A local or like authority;
- A deceased or insolvent estate; and
- In relation to income the subject of trust to which no beneficiary is entitled, the trust.
This is in addition to the ordinary meaning of an individual (i.e. a natural person.) Students
should note that there is no residential qualification for a person in this definition. Every
Section 7 of the ITA provides a basis for the calculation of tax liability of a taxpayer.
Appropriate rates of taxes as fixed by the charging act, i.e. the Finance should be used.
Before applying the rates, one should compute what is termed as the taxable income. The
provisions of the tax statutes give guidance in arriving at the taxable income.
The subsequent topics will be structured in line with the above framework. The components
of the above framework will be explained in the subsections which follow.
The term gross income is very crucial in tax law. It is the starting point in the determination of
tax liability of a taxpayer. The above definition given in the act provides a basis for the
determination of what should, and what should not, be included in a person‘s taxable
income. From the definition of gross income given in the ITA, the following terms are the
pillars of the principle ‗gross income‘:
- total amount
- received by
- accrued to or in favour of a person
- in any year of assessment
- from a source within or deemed to be within Zimbabwe
- receipts or accrual should not be of capital nature,
Section 2 of the ITA, defines an amount as money or any other property corporeal or
incorporeal, having an ascertainable monetary value.
The calculation of gross income must begin with a review of the total amount which includes
non-monetary items having an ascertainable monetary value. Not only did the sections of the
Act referred to, gives a conclusive meaning of the term, decided court cases provides
persuasive authority as to the meaning of the term ‗amount‘. For instance the views
expressed by GREGOROWSKI, J., in the case of De Beers Consolidated Mines v
Commissioner for Inland Revenue (1922, W.L.D. 184). … the taxpayer‟s income for
taxation purposes included not only the cash which he had received or which had accrued to
him, but the value of every other form of property which he had received or which had
accrued to him, including debts and rights of action.
An amount received by a taxpayer in any year of assessment forms part of his taxable
income.
a) In addition to the ordinary meaning of ‗received‘ a taxpayer can be said to have received
an amount even if it is not paid to him personally but to his agent, or if it is banked on his
behalf. The amount must, however, be one to which the taxpayer has a legal claim. A
person does not ‗receive‘ money which, for example, has been stolen: COT v G (1981)
43. Nor does he ‗receive‘ in the sense used in the Act, money which has been lent to
him, as held in CIR v Genn & Co (Pvt) Ltd (1955)
b) In ITC 675 (1949), the court held that, since deposits received from purchasers of day-
old chicks to be delivered in future were not refundable at the instance of the depositor
represented income in the hands of the seller.
In the above case, the word accrued was held to mean ―to which he has become entitled‖. In
other words amounts that are due but remain unpaid are assessable. For a person to be
entitled to an amount, he must acquire the legal right to receive payment. In other words, the
person must be in a position to enforce payment in the courts of law if the payment remains
outstanding.
Income may accrue in one year and be received in another, this will likely pose a challenge
as to which year of assessment the income should be taxed? The phrases: …the total
amount received by or accrued to…in any year of assessment… from the definition of gross
income in the Act suggest that income is taxed on the earlier of date of receipt or accrual.
The principle above gives the Commissioner the right to levy tax in any year. This was
recognised in the principle of CIR v Delfos (1933). It should be noted, however, that the
Commissioner does not have an unrestricted power to choose the year of assessment. On
the basis of the views expressed in Silverglen v SIR (1968), it is submitted that where
accruals are disclosed he is bound to use the accruals basis, in which event the receipts
basis will be applied only in cases of earlier non-disclosure of accrual, as in the case of
Maguire v COT.
Means a period of 12 months beginning on the 1st of January in any year and includes any
period within such a year of assessment. For the periods before 1st April 1997 a year of
assessment is a period of twelve months beginning on the 1st of April of any year.
The Act itself contains no definition of ‗source‘. The courts apply a two pronged test to
determine source of income, namely;
a) The originating cause of income - That is to say the activities of the taxpayer which has
resulted in him earning income. If the place where the activities leading to accrual of
income can be identified then the source of such income can be determined.
b) The geographic cause of income – the quarter whence income comes from can be
explained as the place where operations resulting in income are carried out.
Source of income can be difficult to interpret yet it is a key concept in Zimbabwe taxation. It
is imperative to understand income first before we endeavour to understand the source of
such income.
― the source of receipts , received as income, is not the quarter whence they come but the
originating cause of their being received as income and that this originating cause is the
work the taxpayer does to earn them, the quid pro quo, which he gives in return for which he
receives them. The work which he does may be a business which he carries on, or an
enterprise which he undertakes, or an activity which he engages in and it may take the form
of personal exertion, mental or physical, or it may take the form of employment of capital
either by using it to earn income or by letting its use to someone else.‟‟
It will be unfair and still dangerous to apply a blanket principle for the determination of the
source of income. It is probably an impossible task to formulate a definition which would
furnish a universal test for determining when an amount ‗is received from a source within
Zimbabwe‘. The Legislation, which was probably aware of the difficulty in defining the term
‗source‘, gave no definition for it. Consequently, it is for the courts to decide on the particular
facts of each case whether ‗gross income‘ has or has not been received or accrued from a
source within Zimbabwe.
From the inference drawn from the judgment of the case of CIR v Lever brothers,
Watermeyer, CJ, attempted to distinguish various dynamics which cause income to be
earned these include:
o Personal exertion-mental; or
o Personal exertion – physical (equivalent to rendering of services); or
o Employment of capital (own use); or
o Letting use of capital to someone else; or
o A business which a taxpayer carries on
1.8.1 Royalties
The source of income is the place where the intellectual property was created. As held in the
case of Millin v CIR (1928), the facts were that Mrs. Millin wrote books in South Africa which
were published in England under contracts negotiated there. The court held that, since the
exercise of her wit and labor had produced the royalties, and since these had been
exercised in South Africa, the source of the royalties was South Africa. The contention that
the source was London, were her copyright had been employed, was rejected.
The same principle applies to income from patent rights, and other similar accruals from
intellectual property of a taxpayer.
The true source is the country where the recipient carries on the activity, or employs the
asset, giving rise to such income. Trademarks are an exception to all other forms of
intellectual property as in the case of ITC 1491 (1991). The principle derived from the case is
that there is no difference between the letting of movable assets and the grant of the right to
use a trademark and secret formula. The source of income is hence, the activity of the one
who employs the use of the trademark or secret formula.
Where services are rendered in an employment contract, the source of income is the place
where such services are rendered. This has been held in the case of COT v Shein (1958)
FC, and other long line of special court cases.
The courts have set a precedent that the source of income for directors‘ fees is where the
head office of the company to which the director renders his services is located. Thus, if the
head office is located in Zimbabwe then the directors‘ fee is from a Zimbabwean source. See
the case of ITC 106 (1927).
If however, the director renders his services in the capacity of an employee, i.e. earning a
salary then the source of such income is determined by the place where the services are
rendered.
The principle for rendering of service stands that the place where the services are rendered
is the source of income.
During the tax year in question Black made a net profit of £1,694 on the share dealings in
London and during the same time made a net profit of £2,808 by speculation on the
Johannesburg market.
In assessing Black for income tax and super tax the Commissioner included the sum of
£1,694 in Black‟s income. To this assessment Black objected and, upon his objection being
overruled, appealed on the grounds:
Thus, it was held by the courts that the basic and real reason, or originating cause, for
the receipt of the income was the buying and selling of the shares, which took place
in London, and that, therefore, the income consisting of the profit on such sales was
derived from a source located in London.
There are two tests that can be applied to determine the source of income from trade,
namely, the place where the contract is concluded and the situs of control. The place where
the contract has been made does not provide a universal and decisive test, See Smith &
Co. v Greenwood, 8 T.C. at 203-4. Another test applied in the English courts for
determining the same question is the situs of control that is, the place where trade is
controlled. See San Paulo (Brazilian) Rly Co. Ltd v Carter, [1896] A.C. 31 and Ogilvie v
Kitton, 5 T.C. 338.
These decisions are applicable in determining the source of income derived from trade. For
the foregoing reasons, the originating causes of income are the dominant factors of the
trade, namely, the selling of commodities and the control of the trade and these factors are
located at the place at which they occur.
The source of profits from business operations is the place where the operations are being
carried out if the business operations extend beyond one country, then the source of profits
is the country of dominant activities.
Where the business profits arise from trading activities which extend beyond one country the
source of profits is taken to be the country in which the goods are sold. The principal case of
reference is probably an Australian case that of, Commissioner of Taxation of Western
Australia v Murray Limited, 42 C.L.R. 332. The taxpayer was a company buying soft
goods in London and selling them in Western Australia, tax being payable on ‗all profits
made in Western Australia‘. In deciding that certain sums were included in such profits the
High Court of Australia said, ‗In our opinion the place where the whole profit of such a
business is made is where the goods are sold‘
1.8.9 Dividends
The source of income for dividends as held in the case of Boyd v CIR (1951) is the country
in which the company from which dividends are paid is incorporated.
In an Australian case, Nathan v F.C. of Taxes (25, C.L.R. 183), the Court decided that the
source of dividends received by a shareholder in a company was the business carried on by
the company which earned the money out of which dividends were paid. Thus, the Court
seems to have brushed aside the legal idea of a company being a separate persona distinct
from its shareholders and to have dealt with the shareholder as if he were a partner in the
1.8.10 Annuities
The source of an annuity, in the case of contractual annuity, is the place where the contract
was concluded: Boyd v CIR (1951).
In the case of a will trust, the source of an annuity is the place where the will is executed,
regardless of the source of the trust income from which the annuity is paid: ITC 826 (1956).
1.8.11 Interest
Interest income is derived from the letting of use of capital to another person. The principle
which was laid down in the case of Dunn & Co. and Overseas Trust Corp Ltd. v C.I.R,
1926 A.D is that: in determining the source of income based on capital, regard must be
made to the place where the capital which produced the profits is employed.
The source of interest is the place where the credit was granted or the place where the
capital producing the interest was employed. As held in the case of CIR v Lever bros and
another (1946), the source of income is what the lender does to earn interest, which is the
provision of credit and where this act is done is the source of interest.
The source of interest which is not earned from a loan or credit granted is the place where
the capital was employed.
1.8.12 Rentals
The source of rental income from immovable property, such as building, is the place in which
the property is located. An important principle applied here is that, the source of income of
‗an ordinary business based upon capital‘ is the place where the capital which produced the
profits is employed. Thus, the country in which the property is situated is the place in which
the owner of such property has employed his capital.
In the case of movables, the general rule may vary according to circumstances. In most
instances, the source of rentals will be the country in which the owner of the hired assets
carries on business.
There are other instances where the country where the asset is used by the customer may
constitute the source of rentals as held in the case of, COT v British United Shoe
Machinery (Pty) Ltd (1964) 26 SATC 163. It should, however, be imperative to note that,
the nature of property and the existence of long leases, e.g. from five to ten years, is crucial
for the purpose of determining source.
The source of partnership profits is the place where the partner renders his services to earn
the partnership income, CIR v EPSTEIN, 1954.
Under the terms of the arrangement concluded, the partnership in Argentina found
purchasers of asbestos in that country and then notified Epstein the quantity and quality of
asbestos required the price which could be paid for it, and the producer who should be
approached to supply it.
Then Epstein would approach the producer designated and ascertained from him the
quantity of the required quality available and its price f.o.b. This information was cabled to
the partnership, which then concluded a sale in its own name to the prospective purchaser,
on terms based upon this information. On the conclusion of this sale by the partnership, its
particulars were advised by cable to Epstein who was instructed to conclude a purchase
from the producer in his own name on the terms and conditions quoted.
The Commissioner for Inland Revenue having included in Epstein‟s taxable income the
amounts received by him from these transactions during the years of assessment ended
30th June, 1946, and 30th June, 1947, Epstein appealed against the assessments made
upon him. It was held, that as the amounts received by Epstein constituted the return
to him for the work and services rendered by him within South Africa, they had been
received by him from a source within South Africa and had rightly been included in
his assessments.
Any income earned by a person during the year of assessment as a result of services
rendered by him in Zimbabwe is deemed to be from Zimbabwean source. A person can
render services in the course of employment or in carrying on of a trade. Trade is defined in
section 2 of the Act as including any profession, trade, business, activity, calling, occupation
or venture, including the letting of any property, carried on, engaged in or followed for the
purposes of producing income.
It does not matter where the funds or recompense for the services rendered comes from,
what is important is the fact that the services producing the income have been performed in
Zimbabwe.
A period of temporary absence is a period not exceeding 183 days in aggregate during a
year of assessment. In literal sense, it is a period less than six months. This section
specifically includes a director in the definition of an employee.
An amount received by a person in the form of a pension or an annuity for services rendered
in Zimbabwe from wherever source, is deemed to be from a source within Zimbabwe
An annuity received from outside Zimbabwe is deemed to be from a source within Zimbabwe
if the right to the annuity was acquired by the annuitant at the time he was an ordinary
resident of Zimbabwe. The right to the annuity should have been acquired by payment of a
sum of money or have been acquired by way of a disposal of an asset by the annuitant or by
both means.
Income derived from the use of such property, granting the permission of use of such
property or the imparting of knowledge in Zimbabwe, is deemed to be from a source within
Zimbabwe, regardless of where exactly the payment is coming from,
Income is deemed to have accrued to a taxpayer even though it has; been invested,
accumulated or otherwise capitalized by him; or not been actually paid to him, but remaining
due and payable to him; or has been credited to an account or reinvested or accumulated or
capitalized or otherwise dealt with in his name or on his behalf.
Income accruing to a minor child from a donation, settlement or other disposition made by
one of his parents is taxable in that parent‘s hands. A minor child is a child under the age of
18 years and unmarried. However, if a minor child receives income in his own right, such as
wages for services rendered, he, and not his parent, is taxable on such income.
If a parent makes a donation to a child of another parent, and if the parent of the child to
whom a donation is made; or his spouse or near relative makes a reciprocal donation to the
child of the first parent the donations are taxable in the hands of the parents.
To curb tax avoidance, this section is meant to restraint an attempt by a taxpayer, who
makes a donation (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
donated assets from the beneficiaries until the happening of some event. The withheld
income is deemed to remain that of the donor if:
- The donor (or near relative) has power to control the ultimate devolution of the income;
or
1.10.6 Income accruing by the rights and power retained by maker of donation or
other disposition [S 10 (6]
If a donor reserves to himself the right to confer the income from a donation, settlement or
disposition on some other person, he is taxable on income arising from the donation, for so
long he retains that power.
1.10.7 Amounts accruing in the year of assessment and which are payable after the
last day of the end of year of assessment.[ S 10 (7)]
Where a taxpayer becomes entitled to any amount which is payable after the last day of the
year of assessment, the amount shall be deemed to have accrued to him in the year of
assessment. This section provides the basis for taxing income that is receivable by way of
installments such as hire purchase agreements and credit sales which will be covered in
latter chapters.
The definition of gross income specifically excludes amounts proved by the taxpayer to be
capital in nature. Also expenditures and losses to the extent to which they are capital in
nature are not allowable as deductions.
Legislation did not give the meaning of ‗capital nature‘. Reliance can thus be placed on
decided court cases so as to decipher the meaning of the term. The basic principle of
determining whether an item is of capital or revenue in nature, is to examine the intention
underlying the transaction. Where there are more than one intention, then the dominant
intention will determine the nature. Any transaction undertaken for a profit motive is of
revenue nature and is taxable, despite the fact that it might be an isolated transaction; see
(Overseas Trust Corporation v CIR (1926) 2 SATC 71).
As a general rule, capital is wealth used to generate more wealth, income is the fruits of
capital productively employed. The sale of fixed capital represents a realization which should
not be included in gross income.‖
To be deducted from gross income, are amounts that otherwise meet the definition of gross
income but which are specifically stated in the revenue statutes to be exempt from tax.
Section 14 of the ITA as read with the Third Schedule, stipulates such amounts. The FA
specifies some absolute amounts which are exempt as pronounced by Honorable Finance
- Agricultural, mining and commercial institutions or societies not operating for the
private pecuniary profit or gain of the members; benefit funds;
- Building societies;
- Income from Mortgage Finance- With effect from 1 January 2015, in addition to
building societies, receipts by financial institutions attributable to mortgage finance for
residential accommodation are exempt from income tax.
- Insurance and Pension housing fund- With effect from 1 January 2015, receipts and
accruals of the fund are exempt from tax.
- Investor Protection Fund- With effect from 1 January 2015 , receipts and accruals of
the fund are exempt from tax.
- Clubs, societies, institutes and associations organized and operated solely for social
welfare, civic improvement, pleasure, recreation or the advancement or control of any
profession or trade or other similar purposes if such receipts or accruals, whether
current or accumulated, may not be divided amongst or credited to or enure to the
benefit of any member or shareholder other than by way of remuneration for services
rendered;
- Ecclesiastical, charitable and educational institutions of a public character;
- Employees saving schemes or funds approved by the Commissioner;
- Friendly, benefit or medical aid societies;
- Funds established by the Treasury in terms of section 30 of the Audit and Exchequer
Act [Chapter22:03];
- Pension funds, until such date as the Minister may specify by notice in the Gazette;
- Any statutory corporation which is declared by the Minister, by notice in the Gazette,
to be exempt from income tax; Provided that the Minister may limit any such
declaration to such of the statutory corporation
- Receipts and accruals as he may specify in the notice;
The following specified international and financial organizations and approved government
agencies are exempt from tax on their receipts and accruals.
c) Civil servants- any person who is a full time employee of the Government is not
taxable on allowances paid to him in the course of his employment.
a) A bonus or a performance related award accruing to a person to the extent that the
amount does not exceed one thousand United States Dollars.
b) The first ten thousand United States dollars or one-third, whichever is the greater, of
the amount of any severance pay, gratuity or similar benefit, other than a pension or
cash in lieu of leave, which is paid to an employee on the cessation of his or her
employment, where his or her employment has ceased due to retrenchment under a
scheme approved by the Minister responsible labour or Public Service.
- Any tax reserve certificate issued in terms of the Tax Reserve Certificates
Act
- A loan raised by the State subject to the condition that interest on the loan
shall be exempt from income tax;
l) Alimony, (maintenance)
k) An amount accruing by way of sale of traditional beer.
k) Amounts paid by the state to an exporter of goods in a scheme of export
development.
k) The receipts and accruals of an industrial park developer, to the extent that they
accrue directly from the operation of his industrial park for the first five years of
his operation.
k) An amount received by or accrued to or in favour of an employee participating in
an approved employee share ownership trust from the sale to or redemption by
the trust of any stock, shares, debentures, 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.
k) Interest earned on approved loans to Statutory Corporations is exempt from
income tax retrospectively, from 1 February 2009.
k) With effect from 1 November 2014, the 15th Schedule to the Income Tax Act is
amended to exempt from Shareholders‘ Tax, deemed dividends arising as a
result of exceeding the debt to equity ratio of 3:1.
These are amounts that the Commissioner would allow to be deducted from the gross
income so as to arrive at the taxable income. Section 15 of the ITA provides the basis for the
deductibility of certain amounts. The act gives a general deduction formula in respect of any
amounts that relates to income earned; and also specific deduction formula in respect of
specific amounts, as guidance to the deductions to be applied.
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;
The following terms from the definition provides the basis for the determination of the
deductibility of certain amounts:
- Expenditure and losses
- For the purpose of trade, or
- Production of income
- Except that they are expenditure or losses of capital nature
Trade has been defined in section 2 as, “includes any profession, trade, business,
activity, calling, occupation or venture, including the letting of any property, carried on,
engaged in or followed for the purposes of producing income as defined in subsection (1)
of section eight and anything done for the purpose of producing such income.”
Decided court cases also confer persuasive authority as to the meaning of the phrase as
in the case of Forth Conservancy Board v I.R.C., [1931] A.C. at 545. A trade is carried
on where a person habitually and as a matter of contract supplies money‘s worth for full
money payment. Another case of reference is that of Brighton College v Marriott,
[1925] 1 K.B. 312.
Reliance can be placed on decided court cases as to the definition of capital, in respect
to expenditure or losses. The basic principle of determining whether an item is of capital
or revenue nature, is to examine the intention underlying the transaction. Where there
exists more than one intention then the dominant intention will determine the nature of
the item. Any transaction undertaken for a profit motive is taxable, despite the fact that it
might be an isolated transaction, see Overseas Trust Corporation v CIR (1926) 2
SATC 71.
a) Elderly persons
b) Disabled persons
A credit of USD 75 per month or USD 900 per annum is applicable to a taxpayer who is
either mentally or physically disabled to the satisfaction of the Commissioner that he or
she is disabled to a substantial degree. A blind person is not regarded as disabled for the
purpose under this credit. The credit is NOT apportioned if the period of assessment is
less than a year. If the taxpayer who is not a married woman has a child, who is mentally
or physically disabled to the satisfaction of the Commissioner he or she can claim the
same credit against his or her tax liability. To be eligible for a credit, the disability should
be of permanent nature, i.e. certified by a competent doctor to be permanent.
c) Blind persons
A credit of USD 75 per month or USD 900 per annum is awarded to a taxpayer who is
blind or whose spouse is blind. Any portion that is not utilised by a married blind person
is allowed as deduction against the tax liability of his or her spouse. The credit is NOT
apportioned nor does it apply to a taxpayer‘s blind child.
Contributions made by the taxpayer for himself, or for the benefit of his spouse or
minor child, are allowed as a credit against his tax liability to the tune of fifty per
centum of the amounts contributed.
A person who has attained the age of 55 years prior to the beginning of the year of
assessment enjoys the following exemption on amounts accruing or received by
them by way of:
- Rental income, in respect of the first $3000 accruing to the taxpayer in the year of
assessment concerned.
- Interest received on banker‘s acceptances and other discounted instruments
traded by financial institutions, in respect of the first US 3000 accruing to the
taxpayer in the year of assessment concerned.
- The first US 3000 of interest accruing to an elderly person in respect of a deposit
with a financial institution.
- Sale of marketable security, in respect of the first US $1 800, accruing to a
person in the year of assessment concerned. (Exempted from Capital Gains
Tax).
- Disposal of a motor vehicle to an elderly who is over 55 years of age at the date
of disposal.
- A pension receipt from the Consolidated Revenue Fund or an approved pension
fund.
1. During the year ended 31 December 2014, Ron contributed a total of US$5 000 to a
medical aid society in Zimbabwe and his employer reimbursed him US$2 000 of this
amount. In addition, during the year, he incurred US$6 000 of costs in respect of his son
who was hospitalised. US$4 800 of these costs were paid by the medical aid society.
What is the amount of Ron‘s total tax credit for 2014 in respect of medical expenses?
A US$5 500
B US$1 500
C US$2 100
D US$4 200
A (i) only
B (i) and (ii) only
C (i) and (iii) only
D (iii) only
3. Section 2 of the Income Tax Act defines a person as including a company, a local
authority, deceased and insolvent estate but excluding a partnership. Which of the
following is the implication of the definition in relation to partnerships?
4. Mr Jones is an accountant with a local company. During the year ended 31 December
2014 he earned the following amounts:
What is his total taxable income for the year ended 31 December 2014?
A $2 600
B $5 100
C $3 600
D $4 100
A Maintenance (Alimony)
B Dividend from local companies
C Interest from financial institution
D Salary paid to a civil servant
9. James and John are in partnership in which James as a managing partner has 70% of
the controlling shares. The wives of the two both work for the partnership. The
partnership owns a company, J& J transporters (Pvt) Ltd. Which of the following is NOT
deemed to be an associate of John, according to Income Tax Act?
A James
B The partnership
C J&J Transporters (Pvt) Ltd
D James wife
A Elderly person
B Disability
C Medical aid contribution
D Medical expenses
A PAYE
12. Magogo and Munetsi are in partnership sharing profits and losses in the ratio 2:1
respectively. During the year of assessment ended 31 December 2015 the partnership
made a profit $150 000 after deducting the following:
- A salary to Magogo $5000
- Interest on Capital to Magogo $10 000, Munetsi $8 000
A $15000
B $100 000
C $84 667
D $115 000
A Pension contribution
B Insurance contributions
C Medical Aid contribution
D Contribution to an accident benefit fund.
Question 1
a) Describe the main purpose of taxation in a modern economy and outline three basic
principles that a good tax system should be guided by. (5 marks)
b) Explain the difference between direct and indirect taxation, giving one example of each
(2 marks)
c) Using case law were possible explain the meaning of the following:
i. Source
ii. Accrued to
iii. Total amount
iv. Received by
v. Person [10]
Chapter Outline
2.1 Introduction
2.2 Income tax
2.3 Capital Gains Tax
2.4 Value Added Tax
2.5 Estate Duty
2.6 Presumptive taxes
2.7 Licence tariffs
2.8 Stamp duties
2.9 Mining royalties, Duty and fees
2.10 Chapter Summary
2.1 Introduction
The FA is the revenue statute responsible for setting rates and amounts of tax each
year. It is commonly known as the Charging Act. The contents of this Act are revised
each year through debates in parliament. All other tax statutes refer to the FA for rate on
which an amount should be charged. Amendments to the FA are issued out each year,
which also contains amendments of other statues.
Exemption from Income Tax of the first US$3 000.00 per annum on rental
income
Exemption from Income Tax of the first US$3 000.00 per annum on income
earned from bankers acceptances
The benefit is applied proportionally if the period of use is less than a year.
The deemed costs in respect of assets for 2015 Tax Year are as follows: (See chapter 5)
In all the above cases the rate of withholding tax is applied to the gross proceeds
realised on disposal of the specified asset.
Diamonds 15
Other precious stones 10
Gold 4.5
Platinum 5
Other precious metals 4
Base metals 2
Industrial metals 2
Coal bed methane 2
Coal 1
Chapter Outline
3.1 Introduction
3.2 Gross income
3.3 Exempt income
3.4 Allowable deductions
3.5 Prohibited deductions
3.6 Tax credits
3.7 Calculation of tax liability under FDS
3.8 Chapter Summary
3.9 Practice Questions
3.1 Introduction
Paragraph 3 of the Thirteenth Schedule to the ITA reads:
The 13th Schedule to the ITA, gives the basis for taxing employment income. Thus, every
employer is required to withhold part of the remuneration payable to his or her employee as
is equivalent to the tax liability of such employee. The employee tax as referred to in the
above paragraph is known as PAYE.
Employers are required under the same paragraph of the 13th Schedule to register with
Zimra within 14 days of becoming an employer. On the same token, employers are required
to notify the Commissioner of any changes of his or her business address or on ceasing to
be an employer within the same period. On registration, employers are given a Business
Partner Number which should be quoted on all returns submitted to Zimra.
It is the employer who has the responsibility of calculating, the tax liability of his employees
and remitting such amounts to Zimra on or before the tenth day of the month following the
The term employee excludes a director except where the Act specifically cites to the
contrary. An employee has one of these characteristics;
- Has no independence in execution of his or her work, i.e. is subject to supervision
by the employer.
- Receives a fixed remuneration which is payable monthly, fortnightly, weekly or
daily.
- Is entitled to a leave, etc.
c) Remuneration means any amount of income which is paid or payable to any person
by way of any salary, leave pay, allowance, wage, overtime pay, bonus, gratuity,
commission, fee, emolument, pension, superannuation allowance, retiring allowance,
stipend or commutation of a pension or an annuity, whether in cash or otherwise and
whether or not in respect of services rendered
Pay As You Earn (PAYE) is a system that was introduced in 1966. Under the PAYE system,
all employers administered the collection of employee tax, but at the end of the tax year, the
tax department would assess the same PAYE to account for income tax variance. The
system resulted in the duplication of similar processes and a lot of resources were therefore
tied up in assessing the final tax liabilities.
The Final Deduction System (FDS) was introduced with effect from 1 January 2000 to
overcome the problems associated with the PAYE system.
The Commissioner – General of Zimra may direct any employer who pays out remuneration
to employees to be on FDS. Thus, FDS did not come as a replacement of the old PAYE
system, but both systems are working at the same time, some employers using FDS and
others, PAYE. FDS is most appropriate to employers with computerised payroll system,
though that cannot be the basis of the Commissioner for directing an employer to be on
FDS.
FDS aims at ensuring that PAYE to be withheld in any year of assessment is the same as
the final Income Tax Liability for the employee concerned. In addition, under this system, the
employee whose income consists solely of employment income will not submit returns after
the end of the year if employed by one employer during the year.
Employees whose employer is on FDS need not submit returns to Zimra, provided that they
have been in continuous employment with the same employer for the whole year.
Employees who should submit returns to Zimra are those who have;
- Terminated employment during the year of assessment.
- Changed employment during the year.
- Worked part-time at the same time being fully employed by another employer.
- Started employment during the course of the year.
- Received pension.
- Received income which is not subject to PAYE.
- Are executors of deceased estates,
In all the above stated cases, the employer should issue employee tax certificates (P6
Forms), to such employees to enable them to complete income tax returns.
Gifts and voluntary payments made by an employer to an employee are items of capital
nature.
Gabling receipts are of capital nature, unless such receipts are won by a professional
gambler. A prize generally is a receipt of capital nature, an exception is a prize won as a
result of employment which is however, taxed, for instance, employee of the year award.
e) Restraint of trade
Amounts paid to a person to restrain such person from carrying out his or her trade,
profession or imparting of knowledge is of capital nature. It is not taxable in the hands of
recipient nor is it deductible in the hands of the payer.
b) Gratuity
This is a payment made in honour of an employee‘s loyalty to the employer. Gratuity is
usually paid to long serving employees. Gratuity is taxable in full, unless it is paid together
with a retrenchment package to which it is part, in such circumstance an exemption applies.
d) Retrenchment Pay
When an employer seeks to make redundant his employees, such employer should draft a
proposed retrenchment package which is submitted to the Minister responsible for Labour or
Retrenchment package includes Severance pay, Gratuity and any other payments
associated with redundancy, but specifically excludes Cash In lieu of Leave and Pension
receipts.
One third of the retrenchment package is exempt subject to a minimum of USD 10 000, and
to a maximum of a retrenchment package of USD 60 000 (i.e. maximum exemption of USD
20 000) for 2015 tax year.
Example
Chipo, Sarah and Chinedu were retrenched during the year and they received $9 000, $24
800 and $61 000 respectively. Calculate the exemptions attributable to each of them.
Solution
Chipo Sarah Chinedu
Note $ $ $
Retrenchment package 9 000 24 800 61 000
Less: exemption 1 (9 000) (10 000) (20 000)
Taxable amount - 14 800 41 000
Notes
3.2.2 Chipo received an amount already below the minimum exemption of $10 000, thus
the whole amount is not taxable. On the same note, Sarah‟s exemption of (1/3 *24 800)
$ 8267 is below the minimum, thus an exemption of $10 000, is applicable. Chinedu‟s
one third of package is above limit hence a maximum exemption is applicable.
a) Passage benefit
Passage benefit is journey undertaken by an employee, his spouse or child or one or more
of them the cost of which is borne by the employer. The journey undertaken should be in
connection with taking up or termination of employment or any other journey made by an
employee, his spouse and children or one or more of them in so far as that journey is not
made for the purpose of a business transaction of the employer.
Passage benefit is apportioned on time or usage basis if the journey is undertaken for dual
purposes.
Example
Mr Sadombo, who works for Alisto Engineering as a production manager, went to a business
trip to Brazil in May 2015. He was accompanied by his wife and son. He incurred the
following expenses:
Mr Sadombo spends 3/5 of his time in Brazil doing the business of his employer.
Solution
$
Hotel bookings and meals $2 500*2/5 1 000
Wife‟s touring 500
Son‟s jumping castles 120
Taxable benefit 1620
b) Housing benefit
If an employer grants to an employee free use of a house, the benefit is taxable in the hands
of the employee. The benefit shall be valued according to open market rentals for a house
that is located within a municipal area, if the house is not within the municipal area the
benefit is measured as 12.5% of the employee‘s salary or 7% of the cost of construction.
c) Furniture benefit
In the case where an employee is granted free use of furniture, the value of the benefit is
deemed to be 8% of the cost of furniture. Usually, the benefit is granted together with the
housing benefit.
The following are the deemed cost in respect of the year of assessment
Where the period of use of the vehicle is less than a year, the deemed cost is reduced
proportionately.
A – B, where,
If the motor vehicle was acquired before the 1st of January 2009, the cost represented by B
in the formula shall be the final balance shown on the balances of the employer‘s books.
Take note that no benefit arises if the motor vehicle is disposed to an employee who is
above 55 years of age.
g) Interest benefit
An interest benefit arises if an employee is granted an interest free loan or a loan on which
interest is charged below the prevailing market rates.
LIBOR + 5% - A
Where,
LIBOR means London Inter -Bank Offered Rates; and
A is the rate of interest being paid to the employer.
No benefit arises if the loan extended to the employee does not exceed USD 100. A Loan
extended to an employee for educational or technical training or medical expenses for the
employee, spouse or children is however, exempt from tax.
Solution
Interest benefit (5+2.5-3) %*10 000*9/12 = $337.50
h) Share options
An amount received by an employee on sale of shares offered to an employee pursuant to a
share option scheme by his or her employer is gross income. The income is calculated by
the following formula:
A-(B+C)
Where—
A represents the value of shares at the time of exercise of the share option scheme;
B represents the value of shares offered to the employee pursuant to the share option
scheme;
C represents the figure B to which the inflation allowance is applied, to which allowance is to
be determined by the following formula:
(D - E) x B
E
Where—
D is the figure for the All-items Consumer Price Index issued by the Central Statistics Office
at the time the employee exercises the share option;
E is the figure for the All-items Consumer Price Index issued by the Central Statistics Office
at the time when the shares were offered to the employees pursuant to a share option
scheme.
i) Entertainment allowance
Any amount received by way of entertainment allowance which is paid to a person by his or
her employer is taxable in the hands of the employee to the extent that such amounts are
not expended on the business of the employer.
Example
John Garufu works for Havena P/L a local company operating in agriculture sector and is
a licensed investor. During the year ended 31 December 2015 he received the following
amounts:
$
Salary 42 000
School fees paid by his employer for his son 5 000
Airtime 2 000
Solution
$
Total benefits:
School fees 5 000
Airtime allowance 2 000
Motoring benefits 9 600
Housing benefits (800*12) 9 600
Total 26 200
Salary 42 000
Total benefits 26 200
Total taxable income before exemption 68 200
Less exemption the lessor of (50%*68 200) & 26200 (26 200)
Taxable income 42 000
k) Other benefits
All other benefits which accrue to an employee, with the exception of medical aid and
medical expenses paid on behalf of the employee by the employer, are taxable.
These include:-
- Use of telephone and cell phone.
- The provision of domestic workers including gardeners.
- The provision of security services
- The provision of clothing with the exception of protective clothing
- Fuel coupons - Taxable in the hands of employees if given to employees who are not
enjoying a taxable motoring benefit.
Where a lump sum is paid on retirement, 1/3 the pension entitlement is exempt, the
exempt part is known as pension commutation. A pension commutation is a receipt of
capital nature.
Example
Mushonga retired on 30 September 2015 at the age of 65 years and received the following:
Mushonga‟s estimated life expectancy is 10 years; during his tenure a total of $4 000 of his
pension contributions was not allowed as deduction.
Solution
A person is said to have withdrawn from a pension or benefit fund or any other fund if the
person dies, resigns from employment, or if the employee is made redundant or if the
employer closes down his business. On withdrawal a person will be entitled to a refund of his
Example
Mr Makumbe who had served his employer for 5 years resigned with effect from 30 June
2015. He received a lump sum pension of $15 000, he used $5 000 to purchase an annuity
on retirement. You are informed that during his last three years of employment, $5 000 of his
pension contributions was not allowed as a deduction. Calculate his tax liability [5]
Solution
# Note: The disallowed portion of contributions of $5000 is deducted in full since the
pension is paid once-off.
3.3 Exemptions
The following exemptions are applicable to individuals for amounts received from either as
employment income or not.
- Generally amounts accruing to or received by an individual, which does not meet the
definition of gross income is exempt. For instance income received from a source outside
Zimbabwe.
- Salary or allowances paid to the President of Zimbabwe and to domestic workers of the
president to the extent that the salary is paid by him from his salary.
- Allowances paid to a member of parliament and the minister.
- Allowances paid to civil servants.
- Allowances paid to the chief or village headman.
- Receipt of a scholarship or bursary.
- Allowance paid to the councillor.
- Bonus or any performance related award, in respect of the first US $1000.
- Retrenchment package, in respect of a third of such package to a minimum of US$10 000
and a maximum of US $20 000. (i.e. the ceiling of retrenchment package is US $60 000)
- A scholarship paid to a student, as long as it is not payment for services rendered.
- The value of medical treatment or of travelling to obtain such treatment which is provided
by an employer for an employee or the dependant of an employee, whether provided in
kind, by direct payment, by refund or in any other manner whatsoever.
- The amount of any contributions paid to a medical aid society by an employer on behalf of
his employee.
- Compensation for injury at work paid by an employer.
- An amount accruing by way of a benefit in respect of the injury, sickness or death of a
person which is paid to the person or his dependants or deceased estate by a trade South
The maximum contributions allowable for 2015 Tax Year are $5400 and $2700 for
contribution to pension and retirement annuity funds respectively.
Arrears contributions are contributions made by an employee in respect of past service with
his or her employer to a pension fund established by the employer.
The maximum allowable contribution is 8% of the person‘s annual salary or $1800,
whichever is greater.
3.4.3 NSSA
Public service employees however contribute 3% as NSSA with a maximum salary of $200
per month.
3.4.4 Subscriptions
Any subscription paid during the year of assessment by the taxpayer in respect of his
continued membership in any period to any business, trade, technical or professional
To calculate an employee‘s tax liability under FDS an employer should group an employee‘s
earnings in three categories, namely:
B - Annual or irregular earnings such as holiday allowance or Cash In Lieu of Leave (CIL)
The main distinguishing feature of FDS is that it bases on accumulated earnings when
calculating tax.
Example 1
Mr Magondo had the following earnings after deductions in 2015: $1500 in the first three
months, $1800 for the next two months and $1900 for the next two months. Calculate his
PAYE for the month of July, if his accumulated tax up to June is $1 700.
Solution
b) Forecasting method
Example 2
Using the same facts as in example 1, except that Mr Magondo received $5 000 CIL in July.
Calculate his tax liability for the month of July.
Example 3
Mr Mandangu resigned from employment on 31 August 2015. The following accumulated
figures are provided:
He was paid CIL and bonus of 10 000 and 7000 respectively on leaving.
Solution
Salary 80 000
Less: Pension contribution 3 500
Professional subs 450 (3 950)
Taxable income 76 050
Tax on accumulated income (note 1) 23 820
Projected income (12/8*76050) 114 075
Tax projected income (annual tax tables) 35 730(a)
Add: Bonus (7 000- 1000) 6 000
: CIL 10 000
Total annual income 130 075
Tax on annual income (annual tax tables) 42 634(b)
Tax on bonus and CIL (b) – (a) 6904
Total tax due to date 30 724
Less medical aid credit 1200*50% (600)
30 124
Aids Levy (3%*42 034) 904
Tax to date of leaving 31 028
Less: Accumulated tax (21 050)
PAYE payable in August 9 978
Note 1
Taxable Income accumulated to August 76 050
Average monthly income (76 050/8) 9 506.25
Monthly tax (monthly tax tables) 2 977.5
Tax for 8 months (2 977.5*8) 23 820
Exam tips
1. Examiners usually set questions on individual income which includes employment and
non-employment income. You should be able to separate employment and business
income and compute tax liability separately, unless, a question requires you to compute
taxable income.
2. Certain incomes are taxed at their own rates like lump sum pension receipt which is
taxed at marginal rate (i.e. the highest rate in the tax brackets), such incomes should be
separated and tax liability be computed separately.
2. Mrs Lingu was given a company house in Marlborough in the beginning of the year by
her employer; she paid monthly rentals of $200. The market rentals for the similar
houses are $600 per month. The cost to the employer of maintaining the house is $250
per month. What is the taxable housing benefit to the Mrs Lingu?
A $2 400
3. Mr John received a loan of $5000 from his employer on 1 March 2015. He used 40% of
the amount to purchase drugs for medicating his son, the other amount he used to
purchase building materials for his house. He was also given a car on the same date,
engine capacity 3300cc. What is the total taxable benefit to Mr John? Libor is 1.5%.
A $8 195
B $9 795
C $11 000
D $8 162.5
4. Mapuranga was retrenched during the year ending 31 December 2015. He received the
following amounts:
Severance pay $15 000
Long service award $4 000
Pension lump sum $10 000
Cash in lieu of leave $1 200
A $9000
B $12667
C $20200
D $19000
5. Mango, Ralph and Joyce were retrenched during the year ended 31 December 2015
receiving $9000, $54000 and $72000 respectively as retrenchment packages. What is
their total exemption?
A $30 000
B $47 000
C $35 000
D $60 000
6. The following details relate to Mrs Mutamba for the year ended 31 December 2015.
Taxable employment income $32 000
PAYE withheld $4 000
A $7800
B $8034
C $2571.4
D $4000
8. The following expenses were suffered by an employee during the tax year ended 31
December 2015.
$
NSSA 350
Pension Fund 6000
Medical Aid contribution 240
Subscription to professional association 300
A $5400
B $5700
C $5940
D $6290
A (i) only
B (ii) only
C (iii) only
D (iv) only
10. Which of the following benefits are valued on the basis of cost to the employer?
i. Housing
ii. Motoring
iii. Passage
iv. Furniture
A (ii) only
B All of them
C (ii) and (iii) only
D (i) and (iv) only
A (i) only
B (iii) only
C (i) and (ii) only
D None
12. Stephen James went on a business trip to Germany the cost of the trip was paid by his
employer. He was doing business for 10 days but he extended his stay by a further 5
days. He was accompanied by his wife and son and they incurred the following:
$
Air fare (Wife & son 1 200) 3 200
Hotel and meals 1 800
Wife‘s touring 600
Jumping castles for the son 400
6 000
What is the amount for passage benefit taxable to Stephen James?
A $6000
B $2 600
C $2667
D $4000
Section B
Question 1
a) State the legislative provision in respect of payment of Pay As You Earn according to the
13th Schedule to the ITA. [5]
b) List the tax concession enjoyed by elderly persons on income accruing to them. [6]
c) What is a P6 Form, explain the purpose of a P6 Form and illustrate persons who should
complete the form. [5]
d) Explain how a person, who has been employed by several employers in one tax year, is
taxed? [4]
Question 2
a) What is ‗Final Deduction System‘ (FDS) [2]
b) Compare and contrast FDS and PAYE system [4]
$
Basic salary 23 000
Pension contribution 3 000
NSSA 100
Subscription to a local football club 25
Subscription to PAAB (annual) 250
Medical aid contributions 120
Cumulative tax plus Aids Levy 4 476.30
He is entitled to free use of a motor vehicle, engine capacity 2100 cc
Calculate Mr Gonyora‘s tax liability for the month of January assuming an FDS is
employed. [16]
Question 3
Salary 24 000
Bonus 5 200
Cost of living allowance 1 600
Refund from medical aid society 600
Cell phone allowance 800
Cash in lieu of leave 4000
Expenses
Doctor‘s consultation fees 1800
Contribution to Old Mutual RAF 3 000
Contribution to CIMAS 3 600
Contribution to First Mutual Pension Fund 3 900
Requirements
Calculate Stephen Margolis‘ tax liability from employment for the year ended 31
December 2015. (20 marks)
Chapter outline
4.1 Introduction
4.2 Definition of terms
4.3 Pension on retirement
4.4 Lump sum payment from a Benefit Fund
4.5 Lump sum payment from a Pension Fund
4.6 Lump sum payment from an Unapproved Fund
4.7 Pension contributions
4.8 Chapter summary
4.1 Introduction
Usually people who work contribute part of their earnings to a pension fund so as to secure
an income for themselves or their beneficiaries on retirement. Generally a pension
contribution is based on 7.5% of a person‘s salary though some contributes even more. On
retirement an annuity will begin to be paid to the member of a pension fund. In certain
circumstances, a lump sum is paid first, and then followed with a series of pension annuity.
However, not all people receive their pension on retirement; some may get back the fruits of
their contribution because of their withdrawal from a pension fund or the winding up of a
pension fund.
Pension receipts are taxable in the hands of the beneficiary. To determine the taxability of
such receipts, the source of the pension should be identified as either one of these funds:
Benefit Fund, Pension Fund and Unapproved Fund. Receipts from a Retirement Annuity
Fund are not taxable since contribution to a retirement fund is not allowable as a deduction.
1 July, 1960 is an important date with regard to pensions. This is the date when pension
laws were amended. As such pension or benefit funds are classified into three:
- Old Fund – pension or benefit funds established before 1 July, 1960 whose rules have
not changed.
- Semi- old Fund - pension or benefit fund established prior to 1 July, 1960 whose rules
have changed.
- New Fund – pension or benefit fund established on or after 1 July, 1960.
A benefit should be approved by the Commissioner on his satisfaction that such fund is a
permanent fund that is established for the purpose of providing sickness, accident or
unemployment benefits for its members; or benefits for the widows, children, dependants
or nominees of deceased members.
- Unapproved fund means a fund or scheme established by an employer for the purpose
of providing pensions, annuities, terminal benefits or similar benefits for his employees or
the widows, children, dependants or nominees of deceased employees or for all or any
of these purposes, which is not a pension fund or a benefit fund.
a) Old Fund
If a payment is made from an old fund, (a fund established before 1 July, 1960) the
whole amount is not taxable.
b) Semi-old fund
The taxable amount for lump sum payment received by a taxpayer from a fund which
was established before 1 July, 1960, is calculated as follows:
If a payment is made from an old fund, (a fund established before 1 July, 1960) the
whole amount is not taxable.
b) Semi-old fund
The taxable amount for lump sum payment received by a taxpayer from a pension
fund which was established before 1 July, 1960, or which the member joined before
that date the rules of which has changed, is calculated as follows:
c) New fund
If a lump sum payment is made from a new fund to a Part II beneficiary or from a fund
with changed or unchanged rules to a Part II beneficiary who became a member of the
fund on or after the 1st July, 1960, or from the Consolidated Revenue Fund to a Part II
beneficiary to whom a pensions law of Zimbabwe did not apply before the 1st July, 1960
the taxable amount is calculated as follows:
1. Nursery (Private) Ltd commenced business operations on 1 July 2014 and employs five
full-time employees. The monthly payroll is as follows:
US$
Employee 1 (aged 67) 1 000
Employee 2 (aged 72) 850
Employee 3 750
Employee 4 600
Employee 5 500
Gross 3 700
What is the total amount of National Social Security Authority (NSSA) contributions
payable by Nursery (Private) Ltd for the year ended 31 December 2014?
A US$777
B US$1 554
C US$672
D US$378
2. Peter is employed and earns a gross monthly salary of US$6 000 during the year ended
31 December 2014. He contributed 5% of his monthly salary towards a registered
retirement annuity fund. On 1 June 2014, Peter became a member of a pension fund into
which he contributed 7·5% of his monthly salary in addition to his payments to the
registered retirement annuity fund. This pension fund had not yet registered with the
Commissioner of Insurance, Pension and Provident Funds as at 31 December 2014.
What is the amount of Peter‘s allowable deductions in respect of his contributions to the
pension funds for the year ended 31 December 2014?
A US $5 400
B US $3 600
C US $2 700
D US $6 750
A $90.00
B $146.25
C $183.75
D $127.50
5. Miss Mega resigned from her employment with Peach & tree (Pvt) Ltd and received a
lump sum refund of $24 000. She had been working for her employer for the past 10
years. During her time with Peach & Tree a total of $4 200 of her contribution was
disallowed as deduction. She transferred $10 000 to Old Mutual Retirement Annuity
Fund. What is her taxable income?
A $9800
B $8000
C $19800
D $14000
6. M ltd contributed to pension on behalf of its five employees. The amount of contribution
was calculated as 7.5% of an employee‘s gross salary. The following were annual gross
salaries for the five employees.
A $17 250
B $16 275
C $27 000
D $15 000
Chapter outline
5.1 Introduction
5.2 Capital expenditure – specific assets
5.3 The Taxman versus the Accountant
5.4 Allowances
5.5 Recoupment
5.6 Summary
5.7 Practice questions
5.1 Introduction
Capital expenditure gives rise to an asset (whether tangible or intangible), which is – in true
sense - an entity capable of generating income. Generally, capital expenditure is not
allowable as a deduction, but however, section 15(2)(c), authorises the deduction of the cost
of various assets. Capital allowance represents the loss of value of an asset due to use,
wear and tear, etc. capital allowances replaces depreciation that is applied by an accountant
in arriving at net profit. The taxman disregards depreciation and applies capital allowances
for the determination of taxable income.
This paragraph details the criteria for qualification of expenditure on specific assets.
- 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—
a) any building, structure or work of a permanent nature which qualifies for special
deductions of farmers i.e. 7th Schedule allowances (see the chapter on farming),
b) staff housing or any dwelling used by the taxpayer as the homestead of himself
and his family; or purchased or constructed after the year of assessment
beginning on the 1st April,1979; or
c) a tobacco barn;
- Any permanent building the erection of which was commenced on or after the 1st April,
1988, used for the purposes of a school; or a hospital, nursing home or clinic, in
connection with taxpayer‘s farming operations.
- Any building in use mainly for the purposes of a trade which consists in the distribution of
hydro-carbon oils by pipeline;
- Staff welfare buildings, e.g. canteens but excluding any building used mainly as a
dwelling-house, retail shop or showroom or for the storage of goods or materials;
b) Includes any fencing surrounding the buildings or permanent sealing of the ground area
surrounding such building like car parks, courtyards and driveways.
Is any motor vehicle propelled by mechanical or electrical power and intended or adapted for
use or capable of being used on roads mainly for the conveyance of passengers, including
an estate car, station wagon, van or similar vehicle but excluding any vehicle—
- Which is used wholly or almost wholly for the conveyance of passengers for gain; or by a
person operating a hotel for the conveyance of guests; or
- Which has seating accommodation for fifteen or more passengers, excluding the driver
of the vehicle; or
- Which was purchased by the taxpayer for the purpose of being leased to a particular
person and has been so leased under a finance lease.
The cost of a passenger motor vehicle is restricted to US $10 000 for 2015 Tax Year.
Is any permanent building used by the taxpayer for the purposes of his trade wholly or
mainly for the housing of his employees. A staff housing does not include ,in the case of any
such building the erection of which was commenced on or after the 1st January, 2009, any
building comprising or incorporating any residential unit the cost of which exceeds US$25
000.
Computer software means any set of machine-readable instructions that directs a computer
processor to perform specific operations.
Taxman Accountant
Capital Allowance e.g. SIA, W&T Depreciation e.g. Straight line or Reducing
Balance.
Income Tax Value (ITV) Net Book Value (NBV)
Scrapping Allowance Loss on disposal
Recoupment Profit on disposal
Beginning 1 January, 2010, SIA is calculated at rate of 25% of capital expenditure incurred
by the taxpayer in any year of assessment, on construction, addition, alteration or purchase
of the assets discussed above, as the case may be.
Special Initial Allowance is granted to a taxpayer upon election, the election of which is
binding. If SIA is elected, it should be applied to an asset throughout the asset‘s useful life.
S.I.A is granted at a rate of 25% of cost in the year of first use. The subsequent three years,
an allowance known as accelerated wear and tear is charged at a rate of 25% on cost.
Small and Medium Enterprises (SME) are an exception were S.I.A is charged at a rate of
50% in the first year and 25% in each of the succeeding two years. Such Special Initial
Allowances is not granted on improvements or additions to assets.
Special initial allowance shall be allowed in respect of half of the capital expenditure incurred
in the purchase of any fiscalised electronic register whose purchase qualifies for relief in
terms of section 15(3)(k) of the VATA .
Notes on S.I.A
Example
Jakaranda (Pvt) Ltd acquired a commercial truck on 10 January 2015 from Mutamba P/ L
which was to be used for delivery of its products. The truck had been acquired by Mutamba
P/L on 1 February 2013 for $140 000, the previous owner had claimed wear and tear.
Calculate capital allowances in respect of the truck for the year ended 31 December 2015.
Solution
It is the amount by which the Income Tax Value of an asset exceeds its sales proceeds.
Scrapping allowance is the equivalence of accountant‘s loss on disposal of an asset.
Scrapping allowance is limited to the cost of an asset. It is in granted only were assets so
scrapped belongs to the taxpayer. The allowance is apportioned if the asset was used for
dual purposes.
The following formula is used were an asset was used for dual purposes:
A *B/ C
Example
AB Insurance Brokers (Pvt) Ltd acquired a Mazda Familiar for its Accountant for $ 9 000 two
years ago. The car was sold during the current year for $1000. The company had elected for
SIA in the year of acquisition. The Accountant, however, used the car 80% for the business
of the employer. Calculate scrapping allowance on disposal of the car.
Solution
5.5 Recoupment
If the cost of an asset was restricted for the purposes of calculating capital allowances, the
sales proceeds should be restricted proportionally as follows:
Example
Masawara Ltd acquired an S Class Mercedes Benz for its Operations Director for $22 000
on 30 September 2014. On 10 July 2015, the company sold the car for $18 000. The
company had elected for S.I.A on purchase of the car. Calculate recoupment to be taxed in
the hands of Masawara Ltd.
Solution
a) Within a period of 18 months from the date of damage or destruction he has purchased
or constructed a similar asset thereof.
b) Such asset has been or will be brought into use within a period of 3 years from the date
the original asset was damaged or disposed.
MTC Communications had its factory building destroyed by fire on 3 March 2015. The
Income Tax Value of the building at the date of destruction was $152 000, the company
received compensation of $230 000 from Eagle Insurance on 5 July 2015.
b) That the building was replaced by February 2015 at a cost of 210 000 and brought into
use in May 2016.
Solution
a) Recoupment: ($230 000 – $152 000) = $78 000, the whole amount of $78 000 is taxed
since the building was not replaced.
c) The whole amount of recoupment, i.e. (230 000 -152 000) = $78 000, will be taxed in full
since the construction exceeded 18 months.
- Capital expenditure is prohibited and does not qualify for deduction, however, capital
allowances are allowed.
- Capital expenditure is classified into the following classes: Commercial building,
Industrial building, Farm improvements, Staff housing, Passenger Motor Vehicles,
machinery and implements, etc.
- Capital expenditure is expenditure on acquisition, construction, addition, alteration to an
asset. Capital allowances are thus claimed against capital expenditure.
- An entity may claim either S.I.A or W& T. Qualifying assets would be charged on S.I.A,
assets that do not qualify for S.I.A will automatically be charged a Wear and Tear
allowance.
Exam tips
It is important to correctly classify an asset, identify any restrictions that may apply to that
asset and to determine the capital allowances that should be claimed on the asset (S.I.A
or W&T).
Most examination questions provide a detail of assets in an entity‘s asset register
showing Cost, date of acquisition & ITV details, at the beginning of the year. It is
important that you test whether the asset has been subject to SIA, by calculating anew
an asset‘s ITV considering the number of years it has been in use. If the ITV you would
have worked assuming SIA does not tally with that at the beginning of the year then
apply W&T at the appropriate rate.
A $4000
B $1818
C $1800
D $818
4. A & B Co. had the following assets in its asset register on 1 January 2015.
Cost Date purchased ITV
Motor vehicle 50 000 Jan 2014 40 000
Manufacturing Building 130 000 Mar 2014 65 000
Shop building 170 000 Jan 2015 N/A
A 44 750
B 23 000
C 87 500
D 83 000
FDE Ltd constructed/ purchased the following assets during 2015 tax year:
$
Factory building 200 000
Plant & Machinery 110 000
Office building 120 000
Furniture & Equipment 60 000
Commercial vehicles 50 000
Three passenger vehicles 80 000
6. Using the same information in question what is the total capital allowances in respect of
motor vehicles.
A $27 500
B $20 000
C $32 500
D $26 000
7. What are total capital allowances chargeable on all of the above assets?
A $155 000
8. Dublin Co. (Pvt) Ltd purchased a payroll system and incurred cost as follows:
$
Purchase price 120 000
Installation cost 40 000
Training of new staff 10 000
A $170 000
B $40 000
C $50 000
D $42 500
9. The fourth schedule to the Income Tax Act classifies certain assets into categories such
as Commercial buildings, Industrial buildings, Staff housing, Passenger Motor Vehicle
etc. During the year Jambwa holdings incurred the following capital expenditure:
How many categories will these assets fall into for tax purposes?
A two
B three
C four
D five
10. The following are some of the characteristics of Special Initial Allowance
i. SIA applies to half of the purchase cost of a fiscalised electronic register.
ii. SIA structure for SMEs is 50% in the first year and then 25% for each of the next
two years.
iii. Is granted on purchased immovable property
iv. Is not granted to an asset used for less than 90% for the purpose of trade.
Question 1
Assets Cost ($) Year acquired Month Income Tax Value (ITV) ($)
Additional information
1. The company disposed the existing machinery for $ 24 000 on 30 June 2015 and
replaced it with a new machinery which was bought for $ 50 000. The cost of bringing the
machinery to its useful state was incurred as follows:
- Import duty (Beitbridge border post) $2 500
- Installation $ 1 500
- Alteration of the factory building so as to fit the new machinery $ 2 000
2. The company bought a Nissan Primera for the finance director on 20 February 2015, for
$14 000.
3. The delivery truck was involved in an accident on 30 October 2015, the insurance
company paid the company $9 000 in compensation. The directors have since found a
similar tuck for replacement.
Required
Calculate the maximum allowances and income to be included in the computation of tax
liability for KLM. [20 marks]
Chapter outline
6.1 Introduction
6.2 Gross income
6.3 Exempt income
6.4 Allowable deductions
6.5 Disallowable deductions
6.6 Provisional tax
6.7 Chapter Summary
6.8 Practice Questions
6.1 Introduction
Corporate is a general term for an entity whether incorporated or not that carries on trade or
investments activities with a purpose of making a profit. Corporates includes companies
incorporated under various statutes; such corporates are taxed on income accruing to them
from their trade or investments activities.
The difference between net profit and taxable income is caused by two items: temporal
difference and permanent differences. Temporal differences are caused by items which are
taken into account by both accountant and taxman but in different periods. Permanent
differences involve items which are taken into account by either one of them and yet
disregarded by another.
a) Temporal differences
The taxman uses receipt or accrual basis, whilst the accountant uses an accrual basis.
Examples include;
- Income included in taxable income in a period later than covered by the income
statement.
- Interest collected in advance may be taxable in the period which it is received but for
accounting purposes credit may be taken only in latter days when it is earned.
- Expenses or losses included in the income statement but not deductible from income for
tax purposes until a later date, e.g. provision for doubtful debts.
- Expenses or losses deducted from income for tax purposes in a period earlier than the
period in which they are charged in the income statement, e.g. research and
development cost can be deducted in full for tax purposes but amortised over a period of
the life of the project for accounting purposes.
b) Permanent differences
These differences arise as a result of one (an accountant or taxman) including an item
and the other not including the item at all. Examples include;
- Exempt income – income that is taken into account by an accountant but excluded by
the tax man. An example of such income is dividends from Zimbabwean source.
- Deductions – some expenses are accounted for by an accountant but are disallowed
by the taxman, e.g. charitable donations and fines.
The Second Schedule to the ITA gives guidance to valuation of trading stock.
However, the taxpayer can elect on one of the following methods:
a) The cost price, (which includes the cost of freight, insurance and duty and other
expenses incurred in bringing the trading stock to hand; or
b) The replacement cost; or
c) The market value.
e) Recoupments of rentals, premium, etc. applied against the purchase price (sect
8(1)(l))
Recoupment may arise where a tenant subsequently acquires ownership of property with
the price of which is reduced by the rentals so paid. The same principle applies if the
purchase price is reduced by premium paid or lease improvements effected by the
taxpayer. If no consideration is paid by the taxpayer, an amount deemed by the
Commissioner as the fair and reasonable value of property.
Interest and dividends from within Zimbabwe are gross income. However, dividends paid
by a company incorporated in Zimbabwe which is itself a taxpayer, is exempt. Interest
which has been subject to withholding tax is also exempt from tax.
b) Property income
Some corporates are in property business realising income in the form of rentals. Such
rentals are gross income, taxed after deducting expenses such as rates and cost of
maintaining the property.
6.3.1 Interest
Interest accruing to a resident company which has been subjected to Resident Tax on
Interest is also exempt.
6.3.2 Dividends
Any dividend paid by a company incorporated in Zimbabwe that pays tax is exempt.
Also, an important principle is that the taxman recognises expenditure on cash basis not on
accrual.
c) Expenditure to acquire a right to use someone else property: Sect 15(2) (d)-(e)
To be allowed as deductions are expenditure incurred by a taxpayer who is a tenant on;
rentals, lease premiums and lease improvement. Lease premium and lease
improvements are spread over the lease period or 10 years, whichever is less. See
chapter 11: leasing.
g) Expenditure in respect of sale of land and / or standing crops or timber: Sect 15(2)(k-l)
See chapter on farming.
If the taxpayer incurs joint research and experiments cost with another, the amount to be
deducted should be proportional to the contribution made by the taxpayer.
The following are the maximum permissible deductions for 2015 Tax Year.
- Former employee – US $500
- Former partner – US $200
- Dependant of former partner - $200
vi. Donation to the state which is approved by the Minister of Health for:
- the purchase of medical equipment for a hospital operated by the State, a
local authority or a religious organisation; or
- the construction, extension or maintenance of a hospital operated by the
State, a local authority or a religious organisation; or
- the procurement of drugs, including anti-retroviral drugs, to be used in a
hospital operated by the State, a local authority or a religious organisation.
The maximum permissible deduction in respect of such donation is US $ 100
000.
Solution
The set-up costs are pre-production costs and are allowed as deduction provided that
they are not of capital nature.
74 600
p) Trading stock acquired or brought to hand otherwise than in the ordinary course of trade:
Sect 15(2)(v)
To be allowed as deduction is the value of trading stock acquired by a taxpayer during
the year of assessment other than in the ordinary course of trade. The value of stock
shall be what the Commissioner deems to be the fair and reasonable value. The value of
such stock, except in the case of inheritance, shall not exceed the amount which would
have been allowed as a deduction to the person from whom the stock was acquired had
it been sold by such person in the ordinary course of trade.
Where stock is inherited from a deceased estate, the value of such stock shall be the
value attached to it for estate duty purposes.
- Any amount distributed during the year of assessment by way of discounts, rebates
or bonuses granted by the company or society to shareholders, members or other
persons in respect of amounts paid or payable by or to them on account of their
transactions with the company or society.
- An amount calculated at the rate of one dollar for each dollar by which the taxable
income of such company or society, before the deduction of any allowance in term of
this subparagraph, is less than five hundred United States dollars.
- If the Commissioner is in the opinion that company or society and one or more other
cooperative agricultural companies or co-operative societies are under the
management or control of the same persons, the deduction allowable shall not
exceed the amount determined by the following formula:
A/( A + B* C)
Where:
A represents the taxable income of the company or society before the deduction of
any allowance in terms of this subparagraph;
B represents the total of the taxable income of such other companies or societies
before the deduction of any allowance in terms of this subparagraph;
C represents the amount that would have been calculated in terms of this
subparagraph if such amount had been calculated on the total of the taxable
incomes, before the deduction of any allowances in terms of this subparagraph, of
the company or society and such other companies or societies;
Note that no deduction is allowed to the extent that it exceeds a taxable income of the
company or society calculated before the deduction of any allowance discussed under this
paragraph.
Such expenditure is allowed to a maximum of US$50 000, for 2015 Tax Year.
6.4.2 Losses
Example
Mano (Pvt) Ltd has the following results reported in its four consecutive financial years:
Solution
For the purpose of calculating provisional tax, a taxpayer should estimate his or her annual
taxable income and then calculate estimated tax. Provisional tax for each quarter is thus a
percentage of the estimated tax as shown in the above table. Estimated annual taxable
income for each quarter is obtained by projecting the actual taxable income for that quarter
to the year end.
On assessment any provisional tax paid will be set off as a credit against any tax liability of
the taxpayer and a refund is made to the taxpayer were provisional tax paid exceeds his tax
liability.
- The accountant and the taxman differ in their approach, and hence their tax figures also
differ. An Accountant applies accounting principles yet the taxman applies legal
provisions.
US$
Stationery 5 000
Repairs and maintenance 40 000
Purchase of 10 motor cycles 20 000
65 000
What is the maximum amount of tax deduction which O Limited can claim in respect of
the above expenses for the year ended 31 December 2015?
A US$50 000
B US$45 000
C US$65 000
D US$49 000
A (i) only
B (i) and (ii)
C All
D (ii) and (iii)
6. ABC Ltd incurred the following expenses in connection with its employees.
A $25 300
B $4 800
C $22 800
D $7 300
7. Matimba (Pvt) Ltd had the following estimated taxable income for the three quarters of
2014. What is provisional tax payable in respect of those three quarters?
A $55 250
B $56 908
C $13 775
D $14 188
9. ABG Ltd had purchased goods for $120 000 and a commercial vehicle for $80 000 from
Magnum Suppliers last year. The commercial vehicle has been subject to W&T since
then. ABG Ltd is facing serious cash flow challenges as result Magnum offered ABG a
concession that it should now pay $ 0.60 for every dollar that ABG owes Magnum. ABG
was happy with the offer and immediately transferred the balance in full settlement.
What amount for gross income should ABG show in its tax accounts in respect of the
concession?
A $40 000
B $96 000
C $48 000
D $76 800
10. MBN Exporters is a company that manufactures and exports clothes to several African
countries. During the year the company incurred the following expenditure.
A $720 000
B $328 000
C $540 000
D $252 000
11. Magogi Building Contractors incurred the following expenses in 2015 year of
assessment:
Question 1
a) Explain the registration requirements for tax purposes of a newly incorporated company
[3 marks]
b) State the return used for the remittance of provisional tax (QPD‘s) [1 mark]
c) What is a timing difference? [3 marks]
Question 2
Ruwani Enterprises P/L is a company in the business of manufacturing domestic and office
furniture for both local and export markets. The following financial statements were
submitted to Zimra for assessment for tax year end 31 December 2015.
Note $
Gross profit 3 000 000
Other income
Export incentive bonus 40 000
Interest from commercial bank (net) 10 000
Dividends: OK Zimbabwe Ltd 15 000
Profit on disposal of Mercedes Benz 2 2 000
Less: expenses
Administration expenses 3 239 500
Distribution expenses 4 420 000
Other expenses 5 132 500
Repairs and maintenance 280 000
Miscellaneous 6 87 000
Bad debts 72 000
Donations 7 100 000
Net profit 1 736 000
Additional information
1. The company had the following assets in its asset register as at 1 January 2015.
The manufacturing building was acquired together with the business stand, the
administration block was however, constructed. The company had a policy of claiming
maximum capital allowances possible on fixed assets.
2. A Mercedes Benz with a book value $6 000 was involved in an accident on 31 October
2015. The company received $8000 as compensation from Zimnat Insurance Company. The
car was bought for $15 000. The Mercedes Benz is one of the passenger motor vehicles,
two of the Passenger Motor Vehicle were bought for $14000 each and the other two cars
were bought for $27 000.
3. Administration expenses
$
Extension of administration building 43 000
Depreciation 72 000
General repairs and maintenance 7 500
General entertainment costs 15 000
Salaries and wages 102 000
239 500
4. Distribution costs
$
Selling and marketing 192 000
VAT 102 000
Cost of sending sample to a potential customer in Botswana 56 000
Other distribution cost 70 000
5. Other expenses
$
Ex-gratia payments (to 10 former employees) 41 000
HR manager trade convention costs 20 000
Interest on loan: the loan was used on extension of Administration block 35 000
Cash stolen by cashier 36 500
132 500
5. Miscellaneous
$
7.1 Introduction
7.2 Gross income & allowable deductions
7.3 Exemptions
7.4 Provisional tax
7.5 Self- assessment
7.6 Tax credits
7.7 Chapter summary
7.8 Practice questions
7.1 Introduction
Income accruing from trade or investment activities to an individual is taxable as if the
individual is a company. Individuals may be working in a professional capacity or as a
consultant or independent contractor, whatever the case may be, will be required to
complete returns and pay provisional tax by the due dates of QPD‘s.
Individuals are taxed at a rate of 25% on business income. Form ITF A is the return
completed by individuals.
a) Net profit
An individual should detail in his return net profit earned by him and allowed
deductions including assessed losses, if any. The taxpayer is supposed to attach
accounts to the returns furnished by him.
b) Rent
Where the taxpayer is a landlord in receipt of rent, such income should be included in
his gross income for assessment. The rent is taxed after deducting from it expenses
incurred in the course of production of the income. Deductible expenses include:
- Rates paid for the property,
- Insurance costs,
- Repairs, and
- Other expenses related to property concerned.
c) Foreign Interest
See chapter 6. A taxpayer will claim a double taxation relief if there exist a Double
Taxation Agreement between the source country and Zimbabwe.
Another instance is where a child had inherited property or some other income
generating assets that warranties a flow of income to the child.
i. Purchased annuity
For a purchased annuity only interest content is taxable if there was no tax
deduction or credit allowed at or during time of payment of contributions. The
following formula is useful in calculation of taxable portion of an annuity:
I= P*N-A
N
Where,
I = interest on an annuity
P = annual payments
N= number of annual payments expected
A= purchase price of annuity (excluding amounts not allowed as deductions)
Example
Mrs Silvia Bhiza became entitled to receive an amount of $700 per annum in 2015 from an
annuity purchased by her husband 8 years ago from Old Mutual Zimbabwe Ltd for $5000.
She is expected to receive the amount for the next 10 years. Calculate the taxable portion of
the annuity.
Solution
A taxpayer can deduct expenses which qualify for deductions from his or her income
which include, the cost of tools renewed or replaced, in the case of tradesmen.
7.3 Exemptions
Exemption apply the same for individuals, see chapter 1 and 5.
Other exemptions:
7.5 Self-assessment
The Commissioner may appoint certain persons who are in receipt of income from trade
and / or investment to be on self-assessment. The Commissioner will specify such
persons or class of persons by way of a public notice. Such specified persons will be
called specified taxpayers. Specified taxpayers are required to:
- Furnish the Commissioner-General with a self-assessment return (ITF 12C) reflecting
such information as may be required for the calculation of tax payable in respect of
that year not later than four months from the end of the tax year concerned i.e. by
30th of April of every year.
- Calculate the amounts of such tax payable and pay the tax to the Commissioner-
General or calculate the amount of any refund due to the taxpayer.
A specified taxpayer who is legally incapacitated shall have his return of income and
declaration as to the accuracy and completeness of the return signed by his legal
representative.
- Individuals in receipt of income from trade and/ or investment activities are taxed at
business rates.
- Business income is taxed at 25%, the same principles of gross income and allowable
deductions apply.
- Certain taxpayers are classified as on self-assessment, such taxpayers are required to
furnish the Commissioner with tax returns together with the tax payable by the fourth
month after tax year end.
- Individuals in receipt of business income are required to pay provisional tax (QPD‘s).
- When calculating tax liability for individuals in receipt investment income, care should be
taken to apply the correct rates, for instance, interest is calculated at 25% while
dividends taxed at 20%.
A $5400
B $10400
C $7400
D $8000
2. Mrs Irvine purchased an annuity from Old Mutual P/L for $10 000 5 years ago. She
received $2000 in 2015 and is to receive the same amount annually for the next 9 years.
What is her taxable income in 2015?
A $2 000
B $1 000
C $20 000
D $10 000
4. Mr Elder is 59 years old. During the year he received the following amounts:
i. Dividends from a Zimbabwean company 10 000
ii. Rentals from properties in Bulawayo 6 000
iii. Lump sum pension 15 000
iv. Interest from Standard Chartered Bank 20 000
A $10 000
B $6 000
C $25 000
Question 1
Income $
Consultation fees 72 400
Gross rental income from a block flat in Mutare 61 300
Interest from Barclays Zimbabwe 22 000
Dividends from OK Zimbabwe Ltd 1 300
Proceeds from Betting in Africa Lotto 1 500
Expenses
Rates paid to Mutare Municipality 13 200
Legal costs of suit by a client 700
Medical expenses 14 000
Tax paid during the year 2 130
Required
a) Advise Mr Mandivamba on the exemptions, if any, that are applicable to his earnings
which he could capitalise on [5]
b) Calculate Mr Mandivamba‘s tax liability for the year ended 31 December 2015 [15]
8.1 Introduction
8.2 Accrual of Partnership income
8.3 Source of Partnership Income
8.4 Returns and assessments
8.5 Allowable deductions
8.6 Chapter summary
8.7 Practice questions
8.1 Introduction
A partnership is an organisation formed by at least two and not more than twenty people
who agree to contribute something to a common business with the object of making a profit.
A partnership is not a legal persona; section 2 of the Act specifically excludes a partnership
from the definition of a person. As such a partnership is not a taxpayer on its own. Partners
are taxed on their share of partnership profits and on income earned from employment with
the partnership.
Business income should be separated from employment income. Business income is taxed
at a rate of 25% whilst employment income is taxed on sliding scales.
Partners‘ share of joint profits of a partnership accrues only on the accounting date, i.e. the
date to which partnership accounts for the year are drawn.
Section 51(5) of the ITA, however, provides for separate assessments to be made on each
partner. Each partner is therefore liable to tax only on his individual capacity in terms of this
section. Each partner is separately and individually liable for the rendering of the joint return,
but the partners shall be liable to tax only in their separate individual capacities.
Where a partnership bears the cost of contribution to a medical aid society in respect of the
partners, such contribution is allowable deduction in the hands of the partnership. The
partners‘ are taxed on the contribution paid by the partnership on their behalf. The partners
can also claim a credit in respect of those amounts, but the amounts do not qualify for
exemption as specified in the 3rd Schedule.
Where partners take separate life policies for their lives and the partnership is the
beneficiary, such premiums are not allowable to the partnership even though the partnership
pays for the premiums.
Ceded partners‘ policies are policies which were originally taken by partners for their benefit
but have been surrendered to the partnership. it then means the polies now benefit the
partnership. Such policies are not allowable in the hands of the partnerships.
1. Which of the following expenses are not deducible against partnership income?
2. John is a partner in the firm John & Jeche Legal Practitioners. During the year ended 31
December 2015, the partnership made a total taxable income of $125 000. John‘s share
is 2/5.
A $50 700
B $56 900
C $43 700
D $51 500
Question 1
a) Explain the statutory requirements for the submission of returns by partners. [3]
b) Explain how partners are assessed for tax on income accruing from their partnership
business? [3]
Question 2
Shorai and Shamiso are in partnership for the past four years sharing profits and losses in
the ratio 2:4 respectively. The main business of the partnership is the manufacture of farm
implements, the following are the activities of the partnership for the 2015 tax year.
Additional information
a) The partnership owned the following assets as at 1 January 2015
2. During the year, the partnership acquired a Ford Ranger single cab for Shamiso for 17
000, the car was used 30% for private purposes.
3. The generator was sold for $3000; it was fully depreciated for tax purposes.
4. The income statement of the partnership reflected a profit of $ 328 800 after debiting
expenses of $ 151 200 for 2015 Tax Year.
Required
a) Calculate the partnership minimum taxable income for the tax year ended 31 December
2015. [16]
b) Calculate the partners‘ taxable income for the year ended 31 December 2015 [4]
Chapter outline
9.1 Introduction
9.2 Valuation of Trading stock
9.3 Gross income for farmers
9.4 Relief from enforced sales
9.5 Allowable deductions
9.6 Livestock reconciliation
9.7 Livestock trading account
9.8 Timber
9.9 Orchards and vineyards
9.10 Tobacco Levy
9.11 Chapter summary
9.12 Practice questions
9.1 Introduction
The assessment of farmers for tax purpose does not differ greatly from other business.
There are, however, special provisions applicable exclusively to farmers with regard to;
valuation of stock, items constituting gross income and certain deductions.
A farmer is defined in section 2(1) of the ITA as 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.
Farming involves rearing of livestock and growing of crops, fruits, timber, and other plants
growing from the soil. The Act specifically provides guidance for the valuation of different
forms of farm trading stock.
9.2.1 Livestock
Livestock is divided into stud livestock and ordinary livestock. Stud livestock is livestock
acquired and kept by a farmer for breeding purposes, whilst ordinary livestock includes all
non-stud livestock born on the farm and any purchased for non-study purposes.
There are three methods of valuation in respect of livestock, which are: Purchase Price
Value (PPV), Fixed Standard Value (FSV) and Cost and Maintenance Value (CMV).
a) Purchase Price Value is the cost at which the animal was acquired by the farmer.
This valuation method is applicable to stud livestock only.
b) Fixed Standard Value is valuation method in which a farmer fix, with the approval of
the Commissioner, the standard values which shall be applicable to animals in each
class of his livestock. Fixed Standard Value is applicable for both ordinary and stud
livestock. If the Commissioner does not approve the values fixed by the farmer, then
the Commissioner shall fix such standard values.
In the case of stud livestock, the cost of an animal shall be the Fixed Standard Value,
for an animal which cost less than US$150.00. The FSV shall be US$150.00 for an
animal which cost UD$150.00 or more; however the farmer may elect the actual cost
as the FSV.
It should be noted that the method and determination of the values are both related
to ‗classes‘ of livestock, chosen by the farmer and approved by the Commissioner.
Secondly, once an election has been made and the fixed standard values have been
accepted:
i) The Commissioner has no power to unilaterally alter it; and
ii) While the farmer may alter it he may do so only with the Commissioner‘s
approval.
c) Cost and Maintenance Value takes into account the cost of acquiring an animal or of
breeding the animal, as the case may be added to the cost of maintaining the animal
up to the end of the year of assessment. Maintenance cost of an animal includes the
cost of labour, feedstuff, dips, etc. This method is, however, rarely used in practice.
Ordinary livestock is valued according to Fixed Standard Value (FSV) or Cost and
Maintenance Value (CMV), whichever the farmer elects in his first return of income.
9.2.2 Crops and other stock valuation (2nd Sch para. 12(b) )
Crops and other farming trading stock, such as unutilised consumables (e.g. fertiliser, fuel,
and chemicals) are valued by an amount determined by the Commissioner to be the fair and
reasonable value.
Where livestock has been acquired by a person without payment of a consideration, for
instance, by way of inheritance or donation, the following treatment should be made.
If the heir or donee merely sells the livestock without conducting farming operations with
them the proceeds are of capital nature. If he however, commences farming, or introduces
them into existing farming operations the livestock will be treated as follows:
- In the case of donation, the value of the livestock is deducted, the deduction of which is
restricted to the amount which would have been deductible in the donor‘s hands, i.e.
donor‘s FSV.
- In the case of inheritance, the value of livestock as attached for estate duty purposes is
deductible.
Where farm land is sold, or donated with crops growing on it; the market value of such crops
is taxable, provided that such crops were grown with the intention of sale. However, no tax is
levied on the market value of crops which were growing on land which has been inherited or
received as a gift by a new owner who eventually disposes the land with standing crops.
The following points are to be noted with regard to drought or epidemic disease relief:
A farmer who retains grazers as a result of compulsory acquisition of land is deemed to have
disposed them for the purpose of calculating the relief.
In the case of inherited livestock, it is deducted at the fair market price for which the
valuation in the estate concerned will be used.
AxB
2C
Where:-
Example
Mr Francis, a farmer in Chegutu area has recently purchased 700 sheep for $28 000 in order
to replenish a herd of sheep he was forced to sell due to an epidemic disease last year. The
number of sheep immediately before the purchase were, 2400 and the carrying capacity of
land is assessed to be 3 000 sheep. Calculate restocking allowance [5 marks].
Solution
Restocking allowance: 28000* (3000 -2400)
2* 700
= $ 12 000
9.5.2.1 General
Farmers are entitled to capital allowances under the fourth schedule in respect of capital
expenditure incurred by them. The assets qualifying for capital allowances under the fourth
schedule include; movables (plant, equipment, motor vehicles etc.); farm staff housing,
permanent roads, water furrows and farm improvements.
Water conservation work means any reservoir, weir, dam or embankment constructed for the
impounding of water.
Capital expenditure which qualifies under the fourth schedule does not qualify under the
seventh schedule. Assets falling under the seventh schedule have the following qualifying
requirements;
- Have to be constructed, erected, etc. by the taxpayer and do not rank for deduction if
they are purchased with an existing farm;
- Rank for deduction in full,
- Do not suffer recoupment on disposal; Fourth schedule allowances are recoupable.
Sample reconciliation
Example
Miss Mandengu is a Bindura livestock farmer. She has provided the following details
concerning her livestock.
On 1 January 2015 she had the following animals at her farm: 2 bulls, 35 cows, 12 calves, 8
tollies, 17 oxen and 23 heifers.
1 bull, 3 cows and 10 heifers were purchased during the year. 20 calves were born during
the year. 7 heifers grew into cows, 4 tollies became oxen, 11 calves became tollies and 7
calves became heifers. 1 bull died due to black leg. 2 oxen were slaughtered during the
year. 3 cows, 9 oxen and 6 heifers were sold during the year. The bull was purchased for
$800.
The company had the following standard values for its stock.
Calculate the value of closing stock of Miss Mandengu‟s livestock at 31 December 2015 .
Solution
Details Bulls Oxen Cows Heifers Tollies Calves Total
Opening balance 2 17 35 23 8 12 97
Purchases 1 - 3 10 - - 14
Births - - - - - 20 20
Promotion- in - 4 7 12 11 -
Subtotal 3 21 45 45 19 22 131
Promotion-out - - - 7 4 18 29
Sales - 9 3 6 - -
Deaths 1 2 - - - - 3
Closing stock 2 10 42 32 15 4 99
PPV/ FSV ($) 800 400 320 250 200 80
Value of closing stock = 2*$800+ 10*$400 + 42* $320 + 32* $250 + 15* $200 +4*$80
= $ 30 360
Example
Mr Madinda is an A1 Farmer in Bindura area. He had the following livestock at the beginning
of 2015 year:
17 animals were sold for $13 600 and 3 bulls were purchased during the year for a total of
$3 200. All other changes were as a result of stock movement with categories.
Show Mr Madinda‟s livestock trading account for the year ended 31 December 2015.
Solution
Workings: Opening stock= 5*1200+65*450+40*400+80*600+50*150 = $106 750
Closing stock = 8*1200 +74*450+30*400+95*600+76*150 = $123 300
$
Sales 13 600
Less: Cost of sales:
Opening stock 106 750
Add: Purchases 3 200 109 950
Less: Closing stock 123 300 (13 350)
Gross profit 29 950
Another method is that the farmer may elect to accumulate working expenditure and carry it
forward until such time as the cutting of timber for sale is commenced, and at the stage to
A further method, is when a farmer elects to carry forward the cost of planting until the timber
reaches maturity (though maintenance cost, and forth and seventh schedule capital
allowances remain deductible on a current basis). Such planting costs are escalated by 5%,
called the ‗fixed percentage‘, and the amount of the fixed percentage is treated as income for
the year. Once timber sales has commenced a proportionate part of the aggregate of the
planting cost and accumulated fixed percentage is deductible.
1. Which of the following methods are most appropriate for the following groups of animals:
Stud livestock Ordinary livestock
A Purchase Price Value Fixed Standard Value
B Fixed Standard Value Cost Maintenance Value
C Purchase Price Value Fixed Standard Value
D Cost Maintenance Value Fixed Standard Value
2. Anderson is a farmer in Chegutu area; during the year ended 31 December 2015 he
received 100 cattle under the will of his late uncle and immediately incorporated the
animals into his business. At what value are the animals accounted for:
A Market value
B Fixed Standard Value
C Fair value
D Value for estate duty purpose
3. Mrs Anesu recently purchased 700 sheep for $28 000 in order to replenish a herd of
sheep she was forced to sale due to epidemic disease last year. The number of sheep
immediately before the purchase was 2400 and the carrying capacity of land is assessed
at 3000. What is restocking allowance?
A $14000
B $12000
C $28000
D $24000
Question 1
a) Using the relevant sections of the ITA, explain the treatment and valuation of the
following:
Question 2
Mr Dawson inherited a farm from his uncle in Marondera area on 1 January 2015. The
following were assets and livestock inherited by him at the valuation for estate duty
purposes:
1. Livestock
Herd $
10 Heifers 4 000
20 Bulls 16 000
40 Calves 10 000
100 Cows 60 000
200 Oxen 120 000
370 210 000
Assets
Land $200 000
Dams $180 000
Farm improvement $120 000
Farm shed $ 25 000
Irrigation equipment $ 30 000
Fencing $10 000
2. The following stock movements occurred on the farm during the year ended 31
December 2015.
2 Tollies and 3 bulls were stolen by cattle rustles
16 calves were born.
40 oxen were sold to Marondera abattoirs for $40 000
8 Heifers became cows.
15 calves became Tollies.
Income
Notes $
Livestock sales 1 40 000
Sale of soya beans 400 000
Sale of tobacco 60 000
Profit from sale of irrigation equipment 2 4000
Subsidy on building a dam 4 500
Expenditure
Notes
1. During the year the Ministry of Mines and Mining Development listed part of the farm for
mining activities. Mr Dawson had to sale part his livestock so as to cope with a reduced
carrying capacity of the land.
2. The irrigation equipment had a book value of 14 000 and an ITV of 10 500.
3. The Commissioner General approved the following values for different classes of
livestock:
Required
b) Calculate Mr Dawson‘s minimum tax liability for the year ended 31 December 2015.
MINERS
Chapter outline
10.1 Introduction
10.2 Gross income for miners
10.3 Capital expenditure
10.4 Life of a mine
10.5 Capital Redemption Allowance
10.6 Methods of calculating Capital Redemption Allowance
10.7 Renewal or replacement of buildings
10.8 Change of ownership of a mine
10.9 Other deduction allowable to miners
10.10 Royalties payable
10.11 Assessed losses
10.12 Depletion fees
10.13 Restriction available to miners
10.14 Chapter summary
10.15 Practise questions
10.1 Introduction
A miner is taxed in the same way as any other business entity. However, a miner differs from
other traders on claiming capital allowances. In the case of Miners, a single allowance
known as Capital Redemption Allowance replaces other allowances such as: S.I.A, W& T,
lease premium, lease improvements and preproduction expenses. Another difference arises
from the treatment of assessed losses. Miners are eligible to carry over assessed losses
indefinitely.
However, the full ‗recoupment rule‘ does not apply in the following circumstances:
a) The sale of an asset which has been subject of a replacement;
b) The recovery (usually by way of insurance proceeds) in respect of damage to or
destruction of an asset.
c) Where an asset which has been sold has been subject to restriction of its cost, the
Commissioner will accept the apportionment of proceeds for recoupment purposes.
The following are the restrictions placed on assets included in the definition of capital
expenditure.
10.6.1 New mine basis (Para. 4(4) & 4(8) , 5th Schedule)
A new mine is defined as any mine that commences operations after the beginning of year of
assessment including a mine that had been previously in production and had closed down
and had subsequently reopened and commenced operations.
A miner who conducts operations in a new mine may elect to deduct, in the year of
assessment in which production commences, both the current capital expenditure and
unredeemed balance of capital expenditure.
UBCE xxx
Less: Recoupment (xxx)
Add: CCE xxx
CRA xxx
Example
Chrome Processors P/L is chrome mine located in Zvishavane area. For 2015 tax year it had
the following details:
Solution
Example
Assuming the same details as in previous example, calculate Capital Redemption
Allowance.
Solution
= 9750 + 70 000
= $79 750
Where a person carrying on mining operations, transfers the ownership of a mine to another,
both the transferor and the transferee shall furnish the Commissioner with a joint statement
as to the proportion of the consideration paid, pertaining to the assets ranking for deduction.
If no consideration is paid, the statement should show the value given for each asset ranking
for deduction.
If the Commissioner is satisfied, he shall allow the value declared as capital redemption in
the hands of the transferee or and the value as recoupment in the hands of the transferor. If
The taxpayer may elect (the election of which becomes binding) that the expenditure be
allowed in the year of assessment or be carried forward to subsequent years against future
income from mining operations.
The exporter of minerals (in most cases, the Minerals Marketing Corporation) is responsible
for collecting the royalty and remitting to Zimra. The due date for remittance is the 10th day of
the month following the month in which the proceeds from which the royalties were deducted
are received. Royalties not remitted timeously attracts an interest.
Gross value of the proceeds of the sale of minerals‖ means the full value of such proceeds
before any deduction by the MMCZ, including any deduction that the MMCZ would have
been entitled to make.
Example
Gregory Zimbabwe Ltd is a mining company operating from Kadoma area, with its head
office located in Brussels, Belgium. During the current year the Zimbabwean subsidiary
received a loan of $ 300 000 at 10% interest per annum. Gregory Zimbabwe showed the
following details in its statement of financial position.
Solution
A-(B + C)
Where,
Example
Where a miner operates his business from two different mining locations, each mine is
assessed separately. No deductions in respect of one mine location are claimable to
another, this can only be done if the Commissioner is satisfied that the mining operations
conducted on the mining locations are inseparable or substantially interdependent.
With effect from 1 January 2015 persons involved in mining operations shall provide
details of debts contracted in respect of mining operations including debt to equity ratio in
connection with mining operations.
A new section 39(2b) is further introduced and provides for the Commissioner to avail
information to the Minister or the Governor of the Reserve Bank regarding compliance by
taxpayers with mining regulations and foreign exchange regulations governing mining
operations.
With effect from 1 January 2015 penalties and fines are extended to cover persons
involved in mining operations who fail to disclose information as provided above.
A (i) only
B (ii) only
C (iv) only
D None
What is the total amount qualifying for capital expenditure for the calculation of
Capital Redemption Allowance.
A $260 000
B $315 000
C $453 000
D $185 000
A $57 000
B $180 000
C $123 000
D $171 000
A $334 000
B $16 700
C $229 500
D $19 000
Question 2
Zhang Zhi is a platinum mining company operating in Lower Gweru. The company is
owned by 3 three directors, one of which, Mr Zhuwei is based in Zimbabwe with full time
responsibility with the company. The other directors are based in China. The company
showed the following details for the year ended 31 December 2015.
Note $
Income
Sales of platinum ore 2 436 000
Sale of mining claims 200 000
Profit from sale of front-end loader 1 15 300
Interest from Tetrad Investment Bank 10 000
Expenses
1. Zhang Zhii (Pvt) Ltd sold a front-end loader on 1 October 2015, the truck had a book
value of $14 700.
2. Zhang Zhii (Pvt) Ltd is a subsidiary of Zhang Zhii Mining China and the Zimbabwean
mining company borrowed an amount of $1500 000 at 10% interest per annum at the
beginning of the year. The loan was meant to expand the mine operations, Zhang Zhii
Zimbabwe also paid $24 000 to the parent company for expertise hired for sinking of
mine shaft.
3. At 31 December 2015 , the company had the following balance sheet extract;
Issued share capital 120 000
Retained profit 60 000
Loan from Zhang Zhii China 1500 000
4. The company incurred the following capital expenditure during the year ended 31
December 2015.
Required
a) Calculate Capital redemption allowance for the year ended 31 December 2015. [5 marks]
b) Calculate the taxable income of Zhang Zhii for the year ended 31 December 2015. [15
marks]
LEASING
Chapter outline
11.1 Introduction
11.2 Types of leases
11.3 Lease Premium
11.4 Lease improvements
11.5 Passenger Motor Vehicle
11.6 Capital Allowances
11.7 Recoupments in leasing
11.8 Chapter Summary
11.9 Practice Questions
11.1 Introduction
A lease is a contract in which a person (lessor) grants the use, or right of use of property to
another person (lessee) for a consideration in the form of rentals. Usually the requirement is
that the lessee pays a deposit on inception of the lease known as lease premium and
thereafter he should pay monthly rentals. Leasing arrangements cover many types of
property such as motor vehicles, office equipment, aeroplanes, buildings and toll roads.
- Under both finance and operating lease the lessee is allowed a deduction of lease
payments (rentals) made.
- The lessor is taxable on the lease rentals and other forms of consideration payable to
him by the lessee.
- The lessee does not qualify for capital allowances, since he does not own the asset.
- The deduction of lease rentals for passenger motor vehicle is restricted to US$10
000.
Example 1
P Ltd entered into a lease agreement with Finance Solutions Ltd for the lease of a factory
building. Under the lease agreement P Ltd was required to pay a once-off payment of $2 400
at the inception of the lease on 1 March 2015. Show the tax effect on Finance Solutions Ltd
for the year ended 31 December 2015.
Solution
The whole amount of $2 400 is gross income in the hands of Finance Solutions Ltd and
therefore taxed in full in 2015.
Lease premium is spread over the lease period or 10 years, whichever is lesser. If there is
no period stated in the lease, the premium is spread over ten years.
If lease premium is paid in respect of the use of an asset, which is used for both private and
business use, the Commissioner only accepts the proportion equivalent to business use.
Example
Assuming the same facts as in example 1 above, show the tax effect on P Ltd for the year
ended 31 December 2015.
$ 2 400 * 10 months
120 months
=$200
The lessor is taxed on the value of improvements as per agreement but is spread over the
lease period or 10 years whichever is shorter, commencing on the date the improvements
were completed.
Such amounts which the lessee has claimed as a deduction, which may be used to reduce
the purchase price of property on subsequent acquisition shall be included in gross income
in the year the property is acquired. The lessee may however, elect to spread the
recoupment over six years.
If the lessee disposes of the property before including all the instalments, the balance of
instalments still outstanding should be claimed in full in the year the asset is disposed.
1. George Matani entered into a lease agreement to rent a commercial property for a period
of 12 years. The lease period could be renewed for another 5 years. George Matani is
required to erect a building which is expected to take 1.5 years to complete.
What is the lease period to which the cost of improvement will be spread?
2. Sepe Ltd entered into a lease agreement with Bob Ltd in which the company is required
to pay a deposit of $10 000 at the commencement of the lease term on 1 January 2015.
Additionally Sepe Ltd started construction immediately and completed after 6 months for
a total cost of $200 000. The building was approved by the landlord. What are the
mounts deductible against Sepe Ltd‘s income for 2015?
3. Using information in question 2. What are the amounts taxable in Bob Ltd books for 2015
tax year?
A 1000 10 000
B 10 000 10 526
C 833 10 000
D 10000 8 696
Question 4 & 5
Munashe P/L entered into a lease agreement at the beginning of 2015 to rent a commercial
property with the City of Harare. The agreement was as follows:
Munashe P/L sublet part of the property to tenants for $4 000 per month beginning
September 2015. Munashe P/L generated total income of $100 000 excluding rentals from
tenants.
4. What is the total amount deductible to Munashe in respect of the lease agreement?
A $110 000
B $82 500
C $12 500
D $86 000
Question 1
Nyasha P/L is a duly incorporated company in Zimbabwe specialising in car rentals and
safaris. On 1 January 2015, the company entered into a lease agreement with Properties Ltd
for a property situated in Harare CBD. In terms of the lease agreement signed, the following
terms were to be implemented by Nyasha P/L:
1. Lump sum payment of $30 000 was payable upon signing the lease agreement.
3. Nyasha P/L was requested to erect a building to the value of $200 000 to specified
plan.
After six month Nyasha P/L completed the building at a cost of $180 000. The building was
approved by the lessor to have met the agreed specification, but an expert advised that the
building was worth $220 000. Nyasha P/L however, occupied the building on 1 September
2015 .
Required
a) Show the amounts that are deductible in the hands of Nyasha P/L in respect of the lease
agreement. [10]
b) Show the amounts that are taxable in the hands of Properties Ltd [8]
c) Assuming that Properties Ltd agree to sell the property being leased to Nyasha P/L on 31
December 2015 for a consideration of $230 000 and that 60% the total expenditure incurred
by Nyasha Ltd with respect to the lease, will be offset part of the consideration.
i. Explain the tax implication of that arrangement on both parties to the lease. [4]
ii. Compute the figure for recoupment ,if any, to be taxed in the hands Nyasha P/L [6]
(1) EPB to construct an industrial building and a security wall on the commercial land at a
cost of not less than US$150 000 for the building and US$50 000 for the wall.
(2) EPB to make use of the property for the duration of the lease agreement subject to
payment of a monthly rent of US$8 000 and a one-off premium of US$60 000.
(4) The industrial building and the security wall were constructed within the agreed cost and
timeframe and brought into use by EPB on 1 May 2015.
EPB obtained a loan of US$100 000 on 1 February 2015 from a bank in order to be able to
complete the construction of the industrial building and the security wall. The interest rate on
the loan is 20% per annum.
EPB paid a total of US$28 000 in provisional tax for the year ended 31 December 2015. The
accountant had calculated the taxable income for the year ended 31 December 2015 at
US$280 000 without taking into account the lease agreement provisions and the bank loan.
Required:
(a) Calculate the adjusted taxable income and tax payable by Evergreen Panel Beaters
(Private) Limited for the year ended 31 December 2015.
Note: You should indicate by the use of zero (0) any amounts for which no adjustment is
required. (8 marks)
(b) Calculate the amounts to be included in the gross income of Z Limited in connection with
the lease agreement for the year ended 31 December 2015. (2 marks)
12.1 Introduction
12.2 Deceased estates – Business & Investment income
12.3 Deceased estates – Employment income
12.4 Trusts in general
12.5 Identity of trust income
12.6 Residence of trusts
12.7 Chapter summary
12.8 Practice questions
12.1 Introduction
Section 2 of the ITA defines a deceased estate as a person (legal persona) and as such
constitutes a taxpayer. When a person dies, another person comes into being – the estate of
‗Mr So and So‘. The death of a person does not end the obligation to be taxed; the taxman
would follow a person even under his or her grave. This is amazing display of ‗lack of morals‘
by the taxman.
A deceased estate commences its existences consisting of the property of the deceased
person, which is administered by an executor. The duty of the executor is to manage the
distribution of the assets of the estate to the heir. The executor would draw up a liquidation
account which has to be approved by the Master of High Court. Where the deceased had left
a will, the distribution to the heir will be easy. Estate duty is levied on the value of property of
the deceased (see chapter 16). Income derived from the assets of the estate is taxed under
the ITA; we are concerned with the taxability of income in this chapter.
The death of a person during a tax year will result in the creation of two tax periods: pre-
death period (from the beginning of the year of assessment to the date of death and the
post-death period (from the date of death to the tax year end).
…a person named or identified in the will of the deceased person who by reason of the will,
acquires on the death of the deceased person an immediate certain right to claim the
present or future enjoyment of the income so received or accruing.
b) Residue income
Where assets have been distributed to an ascertained beneficiary, the remaining assets
which is not distributed forms a ‗residue‘, an income derived from such assets is taxed in the
hands of the deceased estate. ‗Residue‘ sometimes arise where there is no an ascertained
beneficiary, for instance a clause in the will saying; ‗…the residue of my estate to my wife‘. In
that circumstance the wife in question is not an ascertained beneficiary, as such income
deriving from the ‗residue assets‘ is taxed on the deceased estate. The wife will only be
taxable on income produced by such assets after their distribution to her. The same principle
applies when it is difficult to identify beneficiaries to the estate.
d) Usufruct arrangement
A usufruct is a variation to an ordinary will a beneficiary is given a right to income deriving
from an asset but not to inheritance of the asset itself. Thus for instance, a father may leave
a farm to his son but granting a life usufruct to the widow. The usufructuary is generally liable
immediately on the post-death income.
Where the will provides that the estate shall be transferred to a trust, say for the benefit of
minor children, the transfer of which will be made on attaining majority age. The trust created
will be liable to tax immediately after the death of the deceased.
Example
Mr Masocha died on 4 March 2015, his will specifically bequeathed to his mother a sum of
$40 000 and to his son an industrial building in Msasa industrial area. The rest of the estate
was to be shared equally between the testator‟s son and daughter. The executer of the
estate distributed these to the son and the daughter on 1 August 2015. The executor‟s first
Solution
- The son is taxable on rentals from the industrial building from 5 March 2015, being the
day after the death of Mr Masocha.
- The estate is taxable on income accruing in the period 5 March 2015 to 31 July 2015 .
- The son and daughter are taxable on any income accruing from assets transferred to
them from 1 August to 31 December 2015 (year-end).
- The estate is taxable on an income accruing from the assets in „residue‟ from 1 August to
31 December 2015.
- The mother incurs no tax liability on cash bequeathed to her.
- The son and daughter are taxable on income from any further assets transferred to them
from 1 December 2015 to 31 December 2015.
- Any amount which accrues in the pre-death period is taxable in the assessment to date
of death. This includes salary earned, a bonus already voted, and contractual
commissions due at that stage.
- Amounts accruing after death and which are taxable in the assessment for the post-
death period are those to which the deceased had a right to, and which would have been
taxable in his hands had they accrued during his lifetime. These include leave pay under
a contract of employment, and contractual commissions falling due after date of death.
- Amounts accruing after death which are not taxable (in either period) are those to which
the deceased had no right, such as non-contractual leave pay, a bonus voted after death
and directors‘ fees as are not fixed in the company articles of association.
In terms of section 2 of the ITA, a trust is a person, for tax purposes, only ‗in relation to
income to which no beneficiary is entitled‘. It thus means, a trust is not taxed on its own right,
it is seen as merely a conduit pipe. It will only be taxable where it has income which has not
been distributed to any beneficiary.
There are generally two types of trusts, namely testamentary and inter vivos trust. A
testamentary is a trust or estate that is generally created on the day a person dies. All
testamentary trusts are personal trusts. The terms of the trust are established by the will or
by court order in relation to the deceased individual's estate. It is also known as a will trust.
Trust income is taxable either in the hands of the beneficiary or the trust itself. The taxability
of income in the hands of a beneficiary depends on whether he has a vested right to income.
a) Clear vested right – this is where income has to be paid to a beneficiary and the trustee
having no discretion on the matter. Such income accrues to the beneficiary and by
nature, will be taxable in his hands.
b) Again a vested right - This is where a trustee, though having a discretion over the
amount to be distributed, any undistributed amount is nevertheless accumulated for the
beneficiary. The beneficiary is again, taxable on the income.
c) Delay in the vesting of right – this is where the beneficiary‘s enjoyment of the income is
entirely at the discretion of the trustee. In such circumstances, the trust is taxable on the
undistributed income and the beneficiary is taxable only on amounts distributed to him.
Trust income retains its identity in the hands of the beneficiary. This is known as the ‗conduit
pipe‘ principle. Annuities are however, an exception to this general rule. Annuities are
taxable regardless of whether any of the trust income from which they are paid is exempt.
- Part of the income is from a source in Zimbabwe or the trustee is ordinarily resident in
Zimbabwe; and
- The person who created the trust was ordinarily resident in Zimbabwe at the time he
made the trust instrument (i.e. the will or deed of donation).
Example
Mr Takudzwa, a Zimbabwean resident died on 31 March 2015 and was survived by his son
Tendai (13 years) and his wife. He had several investments in properties, shares and
debentures both in and outside Zimbabwe. The residue of his estate was left upon a trust.
The trust created in terms of the will provided that the trust‟ accumulated income and capital
was to be paid to his son when he attains the age of twenty-five years. Beven & Co. Legal
Practitioners were appointed as trustee. The trustee was to take 20% of the net income each
year as consideration of their service. An annuity of $1 000 per month was to be paid to his
widow until the estate is transferred to the son. The son was to receive each year, amounts
sufficient for his education and his maintenance.
Income $
Zimbabwe dividends 16 000
Foreign dividends 10 000
Rentals from Zimbabwe properties 15 000
Debentures in Transvaal Meats (Botswana) 23 000
Expenses
Annuity to the Mrs Takudzwa 9 000
School fees for Tendai 6 000
Maintenance of Tendai 4 000
Net income 45 000
Required
Solution
$
Trust net income 45 000
Less exempt income: Zimbabwe dividends 16 000
29 000
Add: proportion of deductions disallowable (16000/64000 *19 000) 4750
Taxable income of trust 24 250
Notes
The income of the son will be taxed in the hands of Mrs Takudzwa since he is a minor.
If the annuity can be identified with the income from which it is paid from, say interest, the
annuity will be taxable at 25.75 % (i.e. rate for interest, including Aids Levy).
- When a person dies, another person comes into existence, known as the deceased
estate.
- An ascertained beneficiary becomes taxable immediately after the death of the deceased
on whatever income deriving from the assets bequeathed to him.
Question 1
Question 2
Income $
Additional information:-
1) Mr Mangoro was ordinarily resident in Zimbabwe and his will was executed in Zimbabwe.
2) The will provided that:
a) Mr Ngundu be paid $6 000 per annum out of the trust income.
b) The testators‘ son, Zhou, a Zimbabwean resident be paid 40% of the trust
income remaining after the payment of the annuity.
c) After the death of Ngundu and Zhou the sum of, the trust capital and
accumulated income be paid to Mr Mbudzi.
Required
Advise with calculations, who is assessable on the trust income? [12 marks]
Mr Mapuranga, who has been a resident of Zimbabwe throughout his life, died on 20
October 2015 at the age of forty-two years. At the time of his death he was employed by
Wild Goose (Private) Limited.
The following is relevant information for the period 1 January 2015 to 20 October 2015:
The executer of Mr Mapuranga‘s estate received the following amounts between 21 October
2015 and 31 December 2015 .
Required
Calculate the taxable income in relation to the above income of Mr Mapuranga, identifying it
with the respective taxpayer. [15 marks]
Chapter outline
13.1 Introduction
13.2 Movable property
13.3 Immovable property
13.4 Suspensive sales
13.5 Chapter summary
13.6 Practice questions
13.1 Introduction
A hire purchase is a contract of sale in which a buyer settles the purchase price by way of
instalments; ownership is transferred upon payment of the last instalment. Although
ownership is delayed, all risks and rewards incidental to ownership is transferred
immediately upon payment of a deposit.
Hire purchase is a form of suspensive sales. Section 17 of the ITA defines a suspensive sale
as, in the case of movable property the ownership shall pass or, in the case of immovable
property transfer shall be affected from the seller to the buyer upon or after receipt by the
seller of the whole or a certain portion of the purchase price.
The full purchase price is deemed to have accrued in the year of assessment in which the
contract is signed, in terms of Section 10(7) of the ITA. Thus, the full purchase price
excluding interest charges which accrue on a yield basis is deemed to have accrued to the
seller on the date the agreement is signed. A substantial proportion of the purchase price
may not be due and payable in the year of assessment while the full cost would be
deductible mismatching gross income and deductions. The mismatch is corrected by an
allowance, called Hire Purchase Allowance.
The figure for outstanding debtors represents net debtors at year end after allowing for bad
debts and all instalments received. The selling price excludes Value Added Tax and finance
charges.
The debtors allowance will not be allowed when a taxpayer sells his debts on cessation of
trade since there are no amounts outstanding at the end of the current year for which the
allowance may be granted (ITC 748 (1952) 18 SATC 316). Where, debts are not sold but
retained by the taxpayer the allowance will be allowed even though the business would have
been sold.
Example
AB Refrigeration manufactures fridges at a cost of $480 and sells them at a price of $600 on
a hire purchase basis. 20% of the selling price is paid as deposit on signing the agreement
and balance in equal instalments over 24 months. On 1 March 2015 , the company sold 10
such fridges. Calculate the tax effect of the sale on AB Refrigeration for the year ended 31
December 2015 .
Solution
D x [E-(F+G)]
E
Example
Solution
11 250
= $2430
Question 1
Question 2
Coolmix (Pvt) Ltd is a Zimbabwean incorporated company that manufactures and sells a
single type of refrigerators. During the year ended 31 December 2015, the company had the
following details in its books of accounts:
The refrigerators are sold on hire purchase on the following terms: A deposit of 40% of the
purchase price is paid on date of sell and the remainder is paid over 24 equal monthly
instalments.
The refrigerators were sold as follows: 5 were sold on 1March 2015, 10 on 30 June 2015
and the other 5 on 1 September 2015.
Required
Calculate the taxable income for Coolmix (Pvt) Ltd for the year ended;
Chapter outline
14.1 Introduction
14.2 Non-resident Shareholders tax
14.3 Resident Shareholders tax
14.4 Resident tax on interest
14.5 Non-resident tax on fees
14.6 Non-resident tax on remittance
14.7 Non-resident tax on royalties
14.8 Withholding tax on non-executive directors‟ fees
14.9 Withholding tax on contracts
14.10 Other forms of withholding taxes
14.11 Summary of withholding taxes
14.12 Presumptive taxes
14.13 Chapter Summary
14.14 Practice Questions
14.1 Introduction
A withholding tax is tax levied at source. The system goes like this; a person (known as the
paying officer), or his agent who has the obligation to pay someone certain amounts is
required to withhold part of the amount which is the tax liability and remit the amount to the
tax authorities. The recipient of income will receive the net amount and has no tax
responsibility, unless the paying officer or his agent defaults. Certain incomes, whose nature
renders them inherently susceptible to evasion, are subjected to withholding taxes.
Withholding taxes are generally applied to interest, royalties, management fees, non-
executive directors‘ fees, remittances etc.
The NRST is 10% or 15% of gross dividend paid by a listed company or unlisted company
respectively. A lower rate applies to a paying company, provided that there is a double
taxation treaty (DTA) in place between Zimbabwe and the non-resident company‘s country
of resident. (See chapter 15)
Where a company establishes to the satisfaction of the Commissioner that, during the
relevant accounting year, its receipts from sources outside Zimbabwe exceeded fifteen per
centum of its total receipts, the amount of any dividend shall be deemed to be the amount
determined in accordance with the formula:
AxB
Receipts include both capital and revenue receipts, but not borrowings, share or debentures
receipts.
Once NRST is withheld, the payer must give the shareholder a withholding tax certificate
showing:
- the gross amount of the dividend; and
- any reduction of dividend for the purpose of computing NRST
- the amount of the non-resident shareholders‘ tax withheld
A person shall be deemed to be the agent of a shareholder and to have received a dividend
on behalf of that shareholder if—
- that person‘s address appears in the share register of the company as the registered
address of the shareholder; and
- the warrant or cheque in payment of the dividend distributable to the shareholder is
delivered at that person‘s address:
Provided that any person so deemed to be the agent of a shareholder shall, as regards such
shareholder and in respect of any income received by or accruing to or in favour of the
shareholder, have and exercise all the powers, duties and responsibilities of an agent for a
taxpayer absent from Zimbabwe.
An agent shall furnish a shareholder with a certificate as discussed above, failure of which
will render an agent guilt of an offence and liable to a fine not exceeding level five or to
imprisonment for a period not exceeding three months or to both such fine and such
imprisonment. If it is proved that the agent‘s conduct was wilful, he shall be liable to a fine
not exceeding level seven or to imprisonment for a period not exceeding one year or to both
such fine and such imprisonment.
The payment of the NRST tax by a company or agent shall be accompanied by a return.
A company or an agent in Zimbabwe, who fails to withhold or to pay the Commissioner any
amount of non-resident shareholders‘ tax, shall be personally liable for the payment that
should have been made together with a penalty equal to 100% of the tax liability. Interest is
also applicable on the tax liability remaining outstanding at a rate of 35% per annum,
calculated from the due date to the date payment is made.
RST is taxed at a rate of 10% and 15% on listed securities and non-listed securities
respectively. A company is deemed to be ordinarily resident in Zimbabwe if its central
management and control is situated in Zimbabwe. A partnership is deemed ordinarily
resident when at least a partner is a resident of Zimbabwe.
A company or a nominee, who falls to withhold or to pay the Commissioner any amount of
resident shareholders‘ tax, shall be personally liable for the payment that should have been
made together with a penalty equal to 100% of the tax liability. Interest is also applicable on
The refund is reduced proportionally if the period of assessment is less than a year. The
Commissioner shall not authorize refund of RST in unless the claim is made within six years
of the date of payment of the tax.
For the purpose of RTI, the words interest means any amount from a source within
Zimbabwe payable by a financial institution on a loan or deposit. Included on the definition of
interest for RTI is:
- A dividend distributed by a building society in respect of any share other than a share.
- Income from Treasury bills;
- Income from banker‘s acceptances and other discounted instruments traded by financial
instruments.
RTI is levied at a rate of 15% is Interest earned from a local financial institution by a resident
is taxed at 15%. With effect from 1 January 2015 , the rate is reduced to 5% if the interest is
earned on a fixed term deposit. No tax is levied on interest paid to a non-resident. With effect
from 2009 non –resident tax on interest was repealed.
A financial institution or agent which fails to withhold or pay to the Commissioner any amount
of resident tax on interest shall be liable for an amount of resident tax on interest together
with an amount equal to 100% of such amount. Interest is also calculated on late payment of
resident tax on interest from the date the interest should have been paid to the date payment
is made.
The Commissioner would authorise a refund of tax of the amount overpaid if it is proved to
his satisfaction that the taxpayer has been charged tax in excess of what should have been
properly chargeable. The claim for refund should be made within six years from the date
payment is made.
For the purpose of Non-resident tax on fees, fees is defined as any amount from a source
within Zimbabwe payable in respect of any services of a technical, managerial,
administrative or consultative nature. However, amounts received for the following are
specifically excluded from the definition of fees:
Fees shall be deemed to be from a source within Zimbabwe if the payer is a person who or
partnership which is ordinarily resident in Zimbabwe. A partnership shall be deemed to be
ordinarily resident in Zimbabwe if at least one member of such partnership is ordinarily
resident in Zimbabwe. In determining whether or not non-residents‘ tax on fees should be
withheld, the question as to whether or not the payer is a person or partnership ordinarily
resident in Zimbabwe; or the payee is a non-resident person shall be decided by reference
to the date on which the fees are paid by the payer.
Fees shall be deemed to be paid to the payee if they are credited to his account or so dealt
with that the conditions under which he is entitled to them are fulfilled, whichever occurs first.
Where non-resident tax on fees is withheld, the payer shall provide the payee with a
certificate showing:
- The amount of the fee; and
- The amount of non-resident tax on fees withheld.
An agent who fails to provide a payee of fees with a certificate shall be guilty of an offence
and liable to a fine not exceeding level five or to imprisonment for a period not exceeding
three months or to both such fine and such imprisonment.
A person shall be deemed to be an agent of a payee and to have received fees on behalf of
that payee, if:
- that person‘s address appears in the payer‘s records as the address of the payee; and
- the warrant or cheque in payment of the fees is delivered at that person‘s address
A payer or an agent in Zimbabwe who fails to withhold or pay to the Commissioner any
amount of non-residents‘ tax on fees shall be personally liable for the payment to the
Commissioner, not later than the date on which payment should have been made the
Royalties however does not include any amounts payable by way of:
- any project which is specified for the purposes of this subparagraph by the Minister of
notice in a statutory instrument; or
- any project which is the subject of any agreement entered into by the Government of
Zimbabwe with any other government or international organization in terms of which any
person is entitled to exemption from tax in respect of such amount.
Royalties shall be deemed to be from a source within Zimbabwe if: the payer is a person
who or a partnership which is ordinarily resident in Zimbabwe; or they are payable by virtue
of the use in Zimbabwe or the grant of permission to use in Zimbabwe of any property.
An agent who receives royalties on behalf of a payee from which non-resident tax on
royalties has not been deducted shall withhold the tax and remit to the Commissioner within
10 days of the date of payment of royalties.
An agent who withholds non-resident tax on royalties shall furnish the payee with a
certificate showing:
A person is deemed to be an agent of the payee and have received royalties on behalf of the
payee if that person‘s address appears in the payer‘s records as the address of the payee;
and the warrant or cheque in payment of the royalties is delivered at that person‘s address.
A payer or agent who fails to withhold or pay non-resident tax on royalties shall be
personally liable for the amount of non-resident tax that should have been paid together with
an amount equal to 100% of such amount.
Where tax is withheld, the payer shall furnish the payee with a certificate showing:
- The amount of non-executive directors fees paid; and
- The amount of tax on non-executive directors‘ fee withheld.
Failure by a payer or agent to withhold tax renders them personally liable for the payment to
the Commissioner, an amount of tax which should have been paid together with an amount
equal to 100% of such tax.
Every paying officer who has the obligation to pay someone under a contract shall withheld
tax at a rate of 10% of the amount paid, unless the payee furnishes the payer with a tax
clearance certificate. The amount withheld should be paid to the Commissioner by the 10th
day of the month following the month that in which payment is made.
Where the paying officer has withheld the tax he shall furnish the payee with a certificate
showing the amount of tax withheld. The Commissioner is of practice of crediting the amount
of withholding tax levied against the income tax liability of such payee upon assessment.
The Commissioner shall retain the amount so withheld until an assessment is made.
Payment means payment by cash, barter, set-off, crediting a director‘s loan account,
intercompany debits or credits or by other settlement of obligations whatsoever and in any
form.
An estate agent means a person who is a registered estate agent in terms of the Estate
Agents Act [Chapter 27:05]
Where property or insurance commission tax is withheld, the payer should furnish the payee
with a certificate showing: the amount of commission and the amount of property or
insurance tax withheld.
A financial institution that has paid an automated financial transaction tax is allowed to
recover the tax from customer by debiting the customer‘s account or by other means. A
payment of an automated financial transaction tax should be accompanied by an appropriate
tax return.
A financial institution means; a registered bank, registered building society, finance house
and discount house.
A financial institution, for the purpose of the tax, means a registered bank, building society,
Reserve Bank of Zimbabwe, POSB, Zimbabwe Development Bank, a postal company
licensed under the Postal & Telecommunication Act [Chapter 12:05] , a successor of the
Agricultural Finance Corporation and any mobile banking service.
A mobile banking service means a service that allows customers to financial institution or a
telecommunication service operator to transfer money or perform a financial transaction over
a mobile device such as a mobile telephone for which the telephone operator receives a
commission.
Financial institutions that have paid an intermediate money transfer tax shall recovery the tax
from either the person on whose account the transaction was effected.
Financial institutions that fail to pay an intermediate money transfer tax shall be liable to pay
the tax together with an additional tax (penalty) equal to 15% of such tax. If a taxpayer
proves to the Commissioner that he has been charged tax in excess of the amount properly
chargeable, Commissioner will authorise a refund.
- furniture-making or upholstery;
- metal fabrication;
Furniture making and upholstery means the manufacture for profit of furniture or the
fitting of furniture with padding, springs, webbing or covering for profit.
d) Cross-border trader means a person who imports commercial goods into Zimbabwe
with the intention of carrying on any trade in those goods, but does not, subject to
paragraph 13C, include any person registered as an operator in terms of the VATA.
With effect from 1st January 2015 Zimbabwe National Road Administration (ZINARA) is
appointed as an agent for the collection of presumptive taxes from operators of commuter
omnibuses, taxicabs, haulage trucks and driving schools.
The tax will be collected at the point of licence renewal, and operators can only renew their
motor vehicle licences only when they are compliant with their presumptive tax obligations.
- Withholding tax is tax levied at source. A payer (a person responsible for making a
payment to another) withholds tax on sum payable to a payee and remits the tax to the
tax authorities.
- Withholding tax is levied on dividends and interest, whether paid to a resident or to a
non-resident.
- Withholding tax is also levied on amounts paid to non-residents in the form of royalties,
fees and remittances.
- Other forms of withholding taxes include, intermediate money transfer tax, automated
financial transaction tax, tobacco levy and property and insurance commission tax.
- Presumptive taxes are taxes levied on informal traders, like hairdressers, taxi cabs
operators etc. the tax is levied on the basis of presumed income.
How much tax was withheld at source in total from Farai‘s dividend income in 2015?
A US$651
B US$570
2. ABC Ltd earned the following interest for the year ended 31 December 2015.
A $2 100
B $1 100
C $7 000
D $1 400
3. What is the due date for remittance of withholding tax on non-executive director‘s fees?
A 30 days
B 10 days of payment
C 10th day of month following the month of payment
D 15 days
5. What are the rates for withholding tax on contracts and Non-resident tax on remittances?
Contracts Non-resident tax on remittances
A 10% 10%
B 15% 20%
C 15% 15%
D 10% 15%
A $100
B $500
C $600
D $300
A $5 750
B $5 162
C $4 059
D $4 200
Chapter outline
15.1 Introduction
15.2 Double Taxation Agreements (DTA
15.3 Definition of a person
15.4 Determination of residence status
15.5 The concept of Permanent Establishment (PE)
15.6 Taxation of income & capital
15.7 Elimination of double taxation
15.8 Unilateral Provision for elimination of double taxation
15.9 Mutual agreements
15.10 Chapter summary
15.11 Practice questions
15.1 Introduction
Where individuals or enterprises participate in cross-border transactions, they are regularly
subject to tax in different jurisdictions. Cross-border transactions may give taxing rights to
both contracting states involved, giving rise to double taxation.
Juridical double taxation is where the same taxpayer is taxed on the same income in two
different states. Economic double taxation means the inclusion, by more than one state‘s tax
administration, of the same income in the tax base when the income is in the hands of
different taxpayers. Transfer pricing cases are the best example of economic double
taxation. Juridical double taxation is mainly linked to the fact that most jurisdictions levy tax
on the worldwide income of their residents and certain activities that are closely connected to
the territory of their state (i.e., taxation of non-residents).
Zimbabwe uses a territorial approach to taxation but section twelve (deemed sources) of the
ITA seek to tax certain income derived outside Zimbabwe which might have been subjected
to tax in the source country.
Double taxation can be avoided unilaterally if one of the states involved surrenders its taxing
right. In this regard, a residence state often allows a credit for the tax levied in the source
state up to an amount equal to its own tax charge. In contrast, some countries avoid double
taxation by exempting income deriving from foreign sources and capital situated abroad.
Though every tax treaty is subject to negotiations between the two Contracting States, the
majority of tax treaties are fairly similar. This is because the negotiations between the
Contracting States are generally based on the OECD Model Convention and amendments
tailored to their particular economic interests. The OECD Model is for developing countries
while the UN Model is for developed countries. The OECD Model is thus relevant for the
study of Zimbabwe taxation. It should be comprehended by a tax student that the OECD
Model Convention is not legally binding but rather, a point of reference typically relied upon
to achieve, inter alia, the abovementioned objectives.
The fundamental principle underlying the entire OECD Model Convention is that the
allocation of taxing rights stems from the substantive economic nexus of the income and
capital. The OECD Model Convention attempts to specify wherever possible a single rule for
each situation. However, it at times does provide leeway to Contracting States. Indeed, while
Contracting States will usually incorporate the substantive principles of the Model into their
treaties, certain flexibility remains; for example, with respect to reduced rates of withholding
tax and by which method double taxation is avoided. The OECD Model Convention also
mentions alternative or additional provisions for some cases.
The OECD Model Convention defines a person as including an individual a company and
any other body of persons. Persons who qualify for treaty benefits are those who are
residents of one or both contracting states.
Identifying persons who are eligible for treaty benefits is crucial for the application of this
model tax convention. Individuals are generally rather straightforward in this context as they
are so clearly ―persons‖. Nevertheless, some issues for treaty entitlement can arise due to
different domestic systems for taxing families, some countries would tax family members as
individuals and some would tax the individuals in their family units. In that case, there may
well be a mismatch between the domestic laws of the two contracting States. The two
contracting States would have to agree, however, whether a claim for treaty benefits should
be made by the family unit as a whole or whether it should be made by the separate
individuals within the family unit.
Companies again are straight forward; a ―company‖ is taken generally to mean any body
corporate and any entity that is treated as a body corporate for tax purposes. Reliance has
to be placed on domestic laws of contracting laws as to the definition of ‗company‘.
‗Any other body of persons‘ gives a wide meaning of the term ‗person‘. This seems to cover
all other structures which are recognised as legal personalities by the domestic laws of the
contracting states. Since laws of different countries differ a lot; there is likelihood that a
structure could be treated as a legal person in one contracting state but not as a person in
The OECD Model Convention defines a resident of a contraction state as any person who,
under the laws of that State, is liable to tax therein by reason of his domicile, residence,
place of management or any other criterion of a similar nature, and also includes that State
and any political subdivision or local authority thereof.
The term resident does not include any person who is liable to tax in that State in respect
only of income from sources in that State or capital situated therein.
The following further points provide further clarification where, by virtue of the definition, a
person is deemed to be a resident of both contracting states:
Where by reason of the above definition, a person other than an individual is found to be a
resident of both Contracting States, then it shall be deemed to be a resident only of the
State in which its place of effective management is situated.
OECD Model Conventions defines the term permanent establishment to mean ―a fixed place
of business through which the business of an enterprise is wholly or partly carried on‖. A
fixed place of business is thus clearly the core of the concept of PE. It generally refers to a
specific geographical location that is used to carry on business. Each geographical location
is treated separately unless the place constitute a ―coherent whole commercially and
geographically‖. The place of business must have a certain degree of permanency, that is to
say, if it is not of a purely temporary nature.
The following is a list of examples for fixed place of business: a place of management, a
branch, an office, a factory, a workshop, a mine, an oil or gas well, a quarry or any other
place of extraction of natural resources.
A resident taxpayer in the business of construction who builds buildings, roads, canals, etc.
will be rendering service to the owner of the building or roads. Such rendering of service is a
permanent establishment. The OECD convention provides that a PE encompasses a
building site, a construction, assembly or installation project or supervisory activities in
connection therewith, but only if such site, project or activities last more than 12 months.
In determining how long the site, project or activity has existed, no account is taken of the
time previously spent by the contractor concerned on other sites or projects which are totally
unconnected with it. In other words, a non-resident taxpayer may spend eleven months on
each unconnected building site without having a PE. Where the nature of the construction is
such that the contractor‘s activities has to be relocated continuously, as the project
progresses, performed at each spot are treated as part of a single project and the project is
regarded as a PE.
Services rendered, including consultancy services by an enterprise, constitute a PE, but only
if activities of that nature continue (for the same or a connected project) within a contracting
state for a period or periods aggregating more than 183 days in any 12-month period.
A similar physical presence test applies to independent personal services under Article 14 of
the United Nations Model Convention. In the case of entertainers and sportspersons,
however, there is no specific time requirement (Article 17). Therefore, any performance of
entertainment or athletic activities in the source country is sufficient to give the source
country the right to tax.
Where an enterprise does not carry on business directly in the source country but through an
agent, such agent is a PE. An agent constitute a PE if the agent is dependent and has
authority to conclude contracts on behalf of the non-resident enterprise and habitually
exercises that authority in the source country, or if the agent has no authority to conclude
contracts, but habitually maintains in the source country a stock of goods or merchandise
from which he regularly delivers goods or merchandise on behalf of the non-resident
enterprise. Merely having employees or agents present in the source country does not give
rise to a PE.
The activities of an independent agent do not constitute a PE. An independent status is not
available when the activities of an agent are carried out wholly or almost wholly on behalf of
the non-resident enterprise, and there is no arm‘s length relationship between the agent and
the non-resident enterprise.
The following are specifically excluded from the definition of Permanent Establishment:
a) the use of facilities solely for the purpose of storage, display or delivery of goods or
merchandise belonging to the enterprise;
b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely
for the purpose of storage, display or delivery;
c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely
for the purpose of processing by another enterprise;
d) the maintenance of a fixed place of business solely for the purpose of purchasing goods
or merchandise or of collecting information, for the enterprise;
e) the maintenance of a fixed place of business solely for the purpose of carrying on, for the
enterprise, any other activity of a preparatory or auxiliary character;
f) the maintenance of a fixed place of business solely for any combination of activities
mentioned in subparagraphs a) to e), provided that the overall activity of the fixed place
of business resulting from this combination is of a preparatory or auxiliary character.
OECD Model Taxation Convention provides guidance for the taxability of cross border flows
of certain income and capital. Income or capitals which flows between contracting states
might give taxing rights to both countries, hence giving rise to double taxation.
In either case above, if conditions are imposed between the two enterprises in their
commercial or financial relations which differ from those which would be made between
independent enterprises, then any profits which would, but for those conditions, have
accrued to one of the enterprises, but, by reason of those conditions, have not so accrued,
may be included in the profits of that enterprise and taxed accordingly.
- 5 per cent of the gross amount of the dividends if the beneficial owner is a company
(other than a partnership) which holds directly at least 25 per cent of the capital of the
company paying the dividends;
- 15 per cent of the gross amount of the dividends in all other cases.
Interest is deemed to arise in a Contracting State when the payer is a resident of that State.
Where, however, the person paying the interest, whether he is a resident of a Contracting
State or not, has in a Contracting State a permanent establishment in connection with which
the indebtedness on which the interest is paid was incurred, and such interest is borne by
such permanent establishment, then such interest shall be deemed to arise in the State in
which the permanent establishment is situated.
Where gains arise from the disposal of ships or aircraft in international transport as
discussed in paragraph see above shall be taxable only in the Contracting State in which the
place of effective management of the enterprise is situated.
The same principle applies to pension paid to a resident of a contracting state in respect of
past government service rendered in the other state.
A student who is a resident of a contracting state, solely for the purpose of his education or
training, but being a resident of other contracting state immediately before visiting a the first
Contracting State; who receives for the purpose of his maintenance, education or training
shall not be taxed in the first mentioned state, provided that such payments arise from
sources outside that State.
Income not dealt with in the previously discussed articles as may accrue to a resident of one
contracting state being derived from another contracting state, shall be taxable in the state
where the taxpayer is resident. However, the principle does not apply to income deriving
from immovable property (other than immovable property discussed under article 6) which is
connected to a permanent establishment situated in the source country.
Capital represented by ships and aircraft operated in international traffic and by boats
engaged in inland waterways transport, and by movable property pertaining to the operation
of such ships, aircraft and boats, shall be taxable only in the Contracting State in which the
place of effective management of the enterprise is situated.
All other elements of capital of a resident of a Contracting State shall be taxable only in that
state.
Since the beginning of tax treaties, contracting states would solve the problem of double
taxation through distribution of taxable earnings between themselves by allocating the tax
right to only one state, making these earnings tax exempt in the other.
With the exemption method the country of residence leaves the taxing right solely with the
source country, giving that country the responsibility to tax the source income according to
its own tax rules and rates. With the credit method, the residence country gets a subsidiary
tax right which will have its effect when the source country levies a lower tax than the
country of residence, because then an additional amount of tax needs to be paid on the
worldwide income.
Countries using the exemption method reserve this mainly for ―active income‖ such as
business profits (through permanent establishments) and employment income, while they
use the credit method for ―passive income‖ such as interest, dividends and royalties.
The country of residence will exercise its taxation rights on income earned by the taxpayer
(whether sourced in foreign land or locally). Thus, the taxpayer is taxed on the total income
and is then granted a double taxation relief as a credit against his or her tax liability.
Example 1
Anesu Rukuni is a Jazz musician resident in Zimbabwe. During the year Anesu earned a
total income of $150 000, of which $50 000 was earned from shows held in Singapore with
rest having been sourced in Zimbabwe. Zimbabwean tax rates are 25% for income up to
$100 000 and a rate of 30% applies to income that exceeds $100 000. Singapore has a flat
tax rate of tax which is 25%.
Calculate the total tax liability of Anesu Rukuni and tax relief that he is entitled to.
Solution
With the ―exemption with progression‖, the home country, will takes into account the
exempted foreign income to determine the rate of tax to be applied on domestic income.
Example 2
Calculate the total tax liability of Anesu Rukuni and tax relief he is entitled to.
Solution
$
Zimbabwe tax on worldwide income ($100 000 + $50 000) *30% 45 000
Tax levied in source country $50 000*25% 12 500
Total tax suffered 57 500
Example 3
Calculate the total tax liability of Anesu Rukuni and the double taxation relief.
Solution
Step 1: tax burden without double taxation elimination
$
Zimbabwe tax (world-wide income) $150 000 * 30% 45 000
Tax levied in foreign country $50 000* 25% 12 500
Total tax burden suffered 57 500
Tax credit (foreign tax suffered) (12 500)
Tax liability 45 000
Example 4
Assuming the same facts as in example 1, except that Zimbabwe imposes a 20% flat rate of
tax on income.
Calculate total tax liability for Anesu Rukuni and the tax relief applicable to him.
Solution
$
Zimbabwe tax (world-wide income) $150 000 * 20% 30 000
Tax levied in foreign country $50 000* 25% 12 500
#Tax on foreign income at Zimbabwean rate 20% *50 000 $10 000
15.8 Unilateral provisions for the elimination of double taxation (Sect 93 of ITA)
Zimbabwe will grant a relief where a resident or non-resident who is deemed to have derived
income from Zimbabwe ( by virtue of section 12 of the ITA –deemed sources) proves to the
satisfaction of the Commissioner that he has suffered tax on the same income in the source
country which has not signed a tax treaty with Zimbabwe. The amount of tax suffered in the
source country is used to reduce the tax charged on income from Zimbabwe.
The Act however, had specified the following income to qualify for that relief:
- Income for services rendered to the state
- Income deriving from intellectual property being employed in Zimbabwe, e.g. patents,
trademark, etc.
The MAP article in tax conventions allows designated representatives (the ―competent
authorities‖) from the governments of the contracting states to interact with the intent to
resolve international tax disputes. These disputes involve cases of double taxation (juridical
and economic) as well as inconsistencies in the interpretation and application of a
convention.
The MAP article in most conventions does not compel competent authorities actually to
reach an agreement and resolve their tax disputes. They are obliged only to use their best
endeavours to reach an agreement. Unfortunately, on occasion competent authorities are
unable to come to an agreement. Reasons for unresolved double taxation range from
restrictions imposed by domestic law on the tax administration‘s ability to compromise to
stalemates on economic issues such as valuations.
Question 1
a) With the aid of relevant sections of the ITA, explain what could possibly cause a double
taxation upon a taxpayer. [ 5 marks]
b) What is a Permanent Establishment, of what importance is that concept in international
tax? [3 marks].
c) Why is it important for contracting states to sign tax treaties? [2 marks]
Question 2
Munotida is a Zimbabwean resident with several investments outside the country. During the
year he received the following income:
$
Foreign interest: Gross 1200: Net 900
Foreign dividends: Gross 2 400: Net 1 600
Required
Calculate Munotida‘s tax liability [6 marks]
ESTATE DUTY
Chapter outline
16.1 Introduction
16.2 Gross estate
16.3 Valuation of an estate
16.4 Allowable deductions
16.5 Administrative issues
16.6 Chapter summary
16.7 Practice questions
16.1 Introduction
Estate duty is levied on the estate of every deceased person who was ordinarily resident in
Zimbabwe at the time of death. Estate duty is levied on worldwide estate of a deceased
person, what is important is that the deceased was ordinary resident in Zimbabwe at the
time of death. Foreign assets acquired prior to 1January 1967 and assets acquired prior to
the deceased becoming ordinary resident in Zimbabwe are however excluded.
16.2.1 Property
Property for estate duty purposes means:
- Any right in or to property, movable or immovable, corporeal or incorporeal, and include:
a) Any fiduciary, usufructuary or other like interest in property (including a right
to an annuity charged upon property) held by the deceased immediately prior
to his death; and
b) Any right to an annuity (other than a right to an annuity charged upon any
property) enjoyed by the deceased immediately prior his death.
- Immovable property situated in Zimbabwe.
- Any movable property physically situated in Zimbabwe;
Where the deceased was not ordinary resident in Zimbabwe at the date of death, the
following are not included in the definition of property.
a) Property sold
Property other than shares in a company not quoted on the Stock Exchange, which is
sold in the course of liquidation of the estate, the sale price is taken to be the value of
that property.
b) Limited interest
Fiduciary, usufructuary or other like interest, held by the deceased as at the date of
death and which cease at the date of death is calculated as follows:
e) Donations
In the case of donations, the subject matter of the donation is to be valued in the
same manner as any other property. Where the donee sold the subject matter of
donation for full consideration before the death of the donor, then the amount of the
consideration is to be the value of the donation.
g) Unquoted shares
The value of shares of a company not quoted on the stock exchange is determined
by sworn valuation of some impartial person appointed by the Master. By convention
this valuation is usually carried out by auditors, accountants or bookkeeper to the
company.
b) Debts
Debts due by the deceased persons ordinarily resident in Zimbabwe are allowed as
deductions, including income tax up to date of death, but subject to the following:
- The debt must have been discharged from property liable to duty.
- The debt incurred by the deceased after 1 January 1967 is not allowed as a
deduction if it is due to a company in which the deceased held shares acquired
by him before 1 January 1967 and the valuation of the shares has taken into
account any restrictive provision in the Articles of the company.
c) Cost of administration
Such costs include;
- The costs of valuations;
- The costs of providing security by the executor;
- The cost of advertising for claims and advertising the executer‘s account
- The executor‘s remuneration
- The Master‘s fees
- The cost of transfer of property to the heirs
- The cost of realisation of assets sold
The cost of administration of property which does not constitute estate will not be
allowed. Also, not allowed as deduction, is the cost incurred in the management and
control of any income accruing to the estate after the date of death.
The above paragraph applies to immigrants to Zimbabwe who, either at the time they
first did so were possessed of assets outside Zimbabwe or who received a donation
of assets after becoming residents of Zimbabwe, a donation of which was made by a
person who is not ordinarily resident in Zimbabwe.
ii. Donations or bequest to public institution which, in terms of the Act must
comply with the following:
- Must be domiciled within Zimbabwe
A family home includes any land which surrounds or is adjacent to the dwelling and
does not exceed two hectares; it also includes complimentary building like garages,
storerooms, etc.
The Master of High Court is responsible for the administration of the EDA.
The Executor of estate is responsible to render returns to the Master of High Court
disclosing the amount claimed by the person submitting the return to represent the dutiable
amount of the estate together with full particulars regarding:
The Master may adjust such value or amount and determine the dutiable amount if he is of
the opinion that the amount claimed to represent the dutiable amount as disclosed in the
return does not represent the correct dutiable amount or is dissatisfied with any value at
which any property is shown in any such return or sworn valuation.
The Master may call upon any person to furnish him with such information as he may require
and to produce for examination by the Master or by any person appointed by him for that
purpose, at such time and place as may be appointed by the Master. The Master may, by
notice in writing, require any person whom the Master may deem able to supply information,
to attend at a time and place to be named by the Master for the purpose of being examined
on oath respecting any transactions or matters affecting any estate; and any person so
Question1
a) Explain the estate duty treatment of non-Zimbabwean property. [4 marks]
b) Explain the principal duties of an executer of a deceased estate. [5 marks]
c) Explain the treatment of debts owed by the deceased to persons not resident in
Zimbabwe. [3marks]
Question 2
Mr Diehard became ordinarily resident in Zimbabwe beginning of March 2013. On 1 July
2015 he died at Avenues Clinic after a short illness and was survived by his wife and a son,
Ashleen.
Diehard had donated a Mitsubishi twin cab to his cousin Peter in 2011, worth $14 000.
Notes
1. The Master of High Court accepted the Toyota Land cruiser as a family car.
2. Mr Diehard acquired the block of flats were situated in 2012, the block of flats are
situated in Francistown, Botswana
Required
Calculate the dutiable amount in respect of Mr Diehard estate (20 marks)
Chapter outline
17.1 Introduction
17.2 Gross capital amount
17.3 Exemptions
17.4 Allowable deductions
17.5 Damage or destruction of a specified asset
17.6 Fair market price of an asset
17.7 Reconstruction, mergers, etc.
17.8 Transfer of specified assets between spouses
17.9 Transfer of individual‟s immovable asset
17.10 Suspensive sale
17.11 Principal Private Residence
17.12 Roll over relief (general)
17.13 Capital gains withholding tax
17.14 Administration of the Act
17.15 Summary
17.16 Practice questions
17.1 Introduction
A capital gain arises when a specified asset is disposed. A specified asset, for capital gain
tax purposes, means: an immovable property or a marketable security. The CGTA is the
authority for the levy of accruals of capital nature which are specifically excluded from gross
income for income tax purposes, covered under the ITA.
Immovable property includes assets like land and buildings whilst marketable security
means any bond capable of being sold in a share market or exchange; or any debenture,
share or stock; or right possessed by reason of a person‘s participation in any unit trust.
Capital gains tax is levied at a rate of 20% of capital gain for assets acquired on or after 1
February 2009. For assets acquired before 1 February 2009, a rate of 5% is charged on the
Where an asset is disposed, say, outside Zimbabwe for a price in foreign currency, the gross
capital amount is deemed to be the consideration expressed in Zimbabwean currency
according to the prevailing exchange rates at the time of disposal. Where a disposal and
subsequent receipt of the consideration occurs in different years of assessment, effect is
made in the year in which the amount accrued.
Example 1
An immovable property was acquired for $80 000, capital allowances of $45 000 had been
granted to the date of disposal of which proceeds of $90 000 were received.
Solution
$
Sales proceeds 90 000
Less: recoupment (W1) (45 000)
Gross capital amount 45 000
W1 $
Sales proceeds 90 000
Less: ITV (80 000 - 45 000) 35 000
Potential recoupment 55 000
Capital allowance granted 45 000
Actual recoupment is therefore 45 000
b) Expropriation of an asset
Where a specified asset is expropriated such specified asset shall be deemed to
have been sold for an amount equal to the amount paid by way of compensation for
the expropriation of such specified asset.
a) Receipts and accruals of bodies, whose receipts and accruals are exempt from
income tax according to the 3rd Schedule to the ITA, see chapter 1, paragraph 1.10.1
(a); (b) and (c). However, receipts of local authorities and Zambezi River Authority
are not exempt.
b) Amounts received or accrued on realization or distribution by the executor of a
deceased estate of a specified asset forming part of such estate. This exempts
deceased estates from capital gains tax in the post-death period.
c) Proceeds on sale of marketable securities being bonds or stock in respect of loans to
the Government, local authority or statutory corporations. The sale of marketable
security includes redemptions of such securities and is thus exempted.
d) Amounts accruing on sale of specified assets by a person carrying on life insurance
business.
e) Amounts received or accrued on sale of any shares in Zimbabwe Development Bank
by an institutional investor who is not ordinarily resident in Zimbabwe.
f) An amount received by a petroleum operator on sale of an immovable property used
for the purpose of petroleum operations to another petroleum operator.
g) The receipts and accruals of a licensed investor from sale of a specified asset
forming the whole or part of the investment to which his investment licence relates.
h) The receipts and accruals of an industrial park developer from the sale of a specified
asset that forms part of or is connected with his industrial park.
i) Amounts received by or accruing to an employee from sale or disposal of his shares
or interest in an approved employee share ownership trust where such sale or
disposal is to the trust.
j) Amounts received by a person on sale of his or her principal private residence by a
person who at the date of disposal is 55 years old or more.
k) Amounts received by or accruing to a person who is of or over the age of fifty-five
years on the sale of any marketable security, other than a marketable security in
respect of the first three thousand United States dollars received by or accruing to
him or her in the year of assessment.
l) Any amounts already withheld as a withholding tax.
m) Any amounts accruing to a person who is a holder of capital gains tax clearance
certificate
n) Market price of shares sold to an indigenisation partner - disposals of shares under
an indigenisation scheme are exempt from CGT. The exemption is restricted to the
amount by which the fair market price of shares sold to an indigenisation partner or
community share ownership trust or scheme exceeds the actual price at which those
shares were sold‖
b) Inherited assets
Where a taxpayer has disposed a specified asset which has been acquired by way of
inheritance, the taxpayer shall be deemed to have incurred expenditure on such
acquisition to an amount which is equal to the amount at which the specified asset
was valued in the deceased estate concerned.
c) Other acquisitions
Where a person disposing of a specified asset acquired otherwise by way of
purchase or inheritance, the amount to be deducted shall be determine by reference
to the date the act was introduced:
- Prior to 1 August 1981: the fair market value at the time the asset was acquired;
- On or after 1 August 1981: any amount included in respect of such asset, for
income tax or capital gains tax purposes, in the hands of the person from whom it
was acquired.
In the case of sale of shares in a company which owns immovable property any
expenditure incurred personally, by the seller of the shares on additions or alteration
to the property, is deemed to be expenditure incurred by him on additions to the
shares.
e) Inflation allowance
An inflation allowance, calculated at a rate of 2.5% per annum of the cost of a
specified asset as well as the cost of addition to such assets, shall be allowed as a
deduction. The allowance is calculated for each calendar year it remains outstanding.
Example 2
Mr Mubango bought a flat in Belvedere on 2 February 2012 for $120 000. In March
2013 he effected improvements at a cost of $30 000. He sold the property in October
2015. Calculate the inflation allowance in respect of the flat for capital gains
purposes.
Solution
Inflation allowance
f) Selling expenses
Selling expenses incurred by a person which arise directly with the disposal of a
specified asset are deductible.
g) Bad debts
Amount of debts due to a taxpayer, which can be proved to the satisfaction of the
Commissioner to be bad, shall be allowed as a deduction. The debts should have been
included in the taxpayer‘s capital amount in the current or previous year of assessment.
h) Cost of appeal
The cost of a successful tax appeal to the High Court or the Special Court which
have been allowed in full or to a substantial degree is allowed as a deduction. The
cost of appeal should not have been recovered from whatever source.
If the recovery does not exceed the sum of the original cost and the cost of improvements, or
additions to the asset, such asset is not deemed to have been sold.
Where a specified asset is damaged or destroyed and the Commissioner is satisfied that the
whole or part of the amount in respect of such damage or destruction has been or will be
expended within two years from the date on which the specified asset was damaged or
destroyed, on the purchase of a further specified asset of a like nature in replacement of the
damaged or destroyed specified asset; or the repair of the specified asset, where the
specified asset was damaged, no capital gain arises in respect of amount so expended.
Where a transfer is effected from a company incorporated under the Companies Act
[Chapter 24:03] to a private business corporation into which the company has been
converted in terms of the Private Business Corporations Act [Chapter 24:11]; or vice versa,
the transferor or transferee may elect to use the ‗tax values‘ for tax purposes regardless of
the actual consideration, no capital gains tax arises on such ‗internal‘ transfers.
b) Share swaps
Where a marketable security such as shares, issued by a company involved in a scheme of
reconstruction as above, is exchanged for no cash consideration for shares, etc., issued by
another company, any shareholder concerned may make an election to transfer the
securities at their ‗tax values‘, thus escaping a potential tax liability.
If a taxpayer disposes of specified assets under a suspensive sale agreement in which the
consideration is payable in instalments, an allowance similar to that discussed under 13.3 is
allowed against the capital amount realised. The allowance is determined by the following
formula:
A x (B- C)
D
A represents an amount deemed to have accrued under the agreement which is outstanding
at year end.
B represents the capital amount deemed to have accrued under the agreement.
C represents the aggregate sums deductible with respect to specified assets as discussed
under allowable deductions.
Example 3
Mr Naison Mbengu sold his property during the year ended 31 December 2015 for $120 000,
the property was built at a cost of 80 000 in May 2012. The property was sold with the
following conditions:
c) The transfer of the property to the buyer will only occur upon full payment of the purchase
price.
Calculate the capital gains for Mr Naison Mbengu for the three years.
Solution
2015
Allowance = (120 000- 60 000)* (120 000-86 000)
120 000
= $17 000
2015
Outstanding debtors at year end 120 000-50%*120 000-25%*120 000 $30 000
= $8500
$
Allowance b/f from previous year 17 000
Allowance for the year (8 500)
Taxable capital gains 8 500
2016
Outstanding debtors $120 000 -50%*120 000-25%*120 000-25%*120 000 =Nil
Allowance is therefore nil.
$
Allowance b/f 8 500
Allowance for the year -----
Taxable capital gains 8 500
AxB
C
A represents an amount of consideration expended on the acquisition of a similar PPR
B represents the capital gain (as calculated)
C represents the total consideration received on disposal of an asset
Where the amount expended on acquisition of a new PPR is greater than the consideration
received or accrued on disposal of an old PPR, the whole of the capital gain is not taxed.
Rollover relief also applies where a residential stand is disposed and the consideration is
used to acquire another residential stand. The roll-over principle discussed above applies
where the taxpayer has made an election to that effect.
Example 4
Mrs Graham sold her Marlborough house in June 2015 for $140 000. She had bought the
house in 2012 for $60 000, she built a swimming pool for $15000 in 2015 and a garage for
$16000 in February 2015. She bought another house in Greendale for $120 000. Calculate
the roll-over relief to be allowed to Mrs Graham.
Solution
= $ 35 871
AxB
C
A represents part of the consideration expended
B represents the capital gain
C represents the total amount of consideration received or accrued.
Capital gains withholding tax is due for submission not later than the third working day from
the date when payment has been received. Where the depository fails to withhold the tax
and pays over the whole amount to an agent, then the agent assumes the same
responsibility.
A depositary who is in the course of business, e.g. property agent, need to apply for a
registration certificate with Zimra as a depositary, within thirty days after he commences that
business. The application must be made in writing and must be accompanied by the
person‘s personal details, and in the case of a company a certificate of incorporation,
memorandum of association and articles of association, business address and the nature
and extend of business as a depositary. A depositary who fails to observe this requirement
shall be guilty of an offence and liable to a fine not exceeding level 3 or to imprisonment for a
period not exceeding one month or to both such fine and such imprisonment.
An agent who receives from a depositary, an amount representing the whole or part of the
price of a specified asset on behalf of a payee, shall withhold a capital withholding tax where
the tax has not been withheld by a depositary. The agent shall provide the payee with a
certificate showing the same details as those on a certificate issued by a depositary himself.
A person shall be deemed to be an agent of the payee if:
- That person‘s address appears as the address of the payee in the records of the
depositary who paid the amount; and
- The warrant, cheque or draft in payment of the amount is delivered at that person‘s
address.
No capital gains withholding tax shall be deducted from an amount received by a payee if
the payee concerned possesses a clearance certificate. The Commissioner shall issue a
clearance certificate if he satisfied that no capital gains tax is likely to be payable in respect
of the sale or that any capital gains tax so payable is likely to be less than the capital gains
withholding tax required to be withheld; and adequate arrangements have been or will be
made for the payment of any capital gains tax payable in respect of the sale.
Any depositary who fails to withhold or pay the Commissioner any Capital Gains Withholding
Tax shall be personally liable for the whole amount .Penalty for non-payment is 15% of tax
due. [transfer not yet effected]. If transfer had already been effected the penalty is 100% of
tax due.
The Commissioner shall refund any person if he is of the opinion that such person has been
levied tax in excess of should have been properly chargeable. A claim for refund should be
made within six years from the date on which tax was paid.
Capital Gains Withholding Tax previously levied is granted as a credit against capital gains
liability arising on subsequent assessment. Any excess paid by a taxpayer will be refunded.
- Capital gains tax is tax levied on gains realised on disposal of a specified asset. A
specified asset is an immovable asset and a marketable security (share, bond or
debenture capable of being traded at a stock exchange).
- Gross capital amount is the proceeds or deemed proceeds received on disposal of a
specified asset. Gross capital amount excludes any recoupment realised for income tax
purposes.
- Inflation allowance is calculated at a rate of 2.5% of the cost of an asset (including cost
of addition) for each calendar year the asset remains outstanding.
- Where the specified asset is damaged or destroyed and amounts are received as
compensation, such asset is deemed to have been sold.
- Where amounts are received as compensation for damage or destruction of an asset,
and the Commissioner is satisfied that the whole or part of the amount so received has
been or will be expended within two years from the date on which the specified asset
was damaged or destroyed, on the purchase of a further specified asset of a like nature
in replacement of the damaged or destroyed specified asset; or the repair of the
specified asset, where the specified asset was damaged, the asset shall not be deemed
to have been sold as aforesaid in respect of amounts so expended.
- Transfer of an asset between spouses or companies under the same control does not
give rise to capital gains tax if the parties to the transfer elect to transfer such assets at
their tax values. The same principle applies where assets are transferred by an individual
to a company he controls.
- Where specified assets are disposed and the consideration is settled by way of
instalments an allowance similar to that in hire purchase should be allowed against
capital gain.
- A roll-over relief is granted where part or all of the consideration on sale of a specified
asset is used to purchase or construct a similar asset.
What is Chipo‘s final capital gains tax liability in connection with the disposal of these
shares?
A US$1 925
B US$2 600
C US$5 225
D US$3 202.5
2. S Limited‘s industrial building was completely destroyed by a fire in March 2015. The
industrial building was constructed at a cost of US$70 000 and brought into use on 25
April 2018.
S Limited‘s insurance company paid them compensation of US$60 000 in April 2015 in
respect of the destruction of the building.
What is the amount of capital gains tax payable by S Limited for the year ended 31
December 2015?
A US$0
B US$3 000
C US$9 000
D US$2 000
3. Which of the following is NOT a deemed disposal under the Capital Gains Tax Act?
The shares in both companies were acquired in 2010. She disposed her investments in
July 2015. What is withholding tax chargeable?
A $3000
B $1400
C $4000
D $2400
6. Mr James purchased a house in waterfalls for $60 000 in 2010. He sold it for $80 000 in
2015 and used the proceeds to purchase a similar house in Houghton park for $70 000.
What is the roll-over amount?
A $10 000
B $70 000
C $9 625
D $17 500
Question 2
Mapango Unlimited is a company in the business of timber operating from Marondera town.
On 2 February 2015, the Minister of transport wrote to the company directors that the
ministry was constructing a railway line which will pass through the company premises;
hence some of its properties will inevitably be affected and will face demolition.
Government made an offer to pay a compensation for the affected assets that is equivalent
to their market values.
Additional information
1. The directors of Mapango Unlimited believed that the business, as a going concern had
been materially affected so they decided to sale remaining assets as follows:
Selling price
$
¼ of land (remaining) (original cost $80 000) 90 000
1000 shares of $1.00 each in Timbers P/L (acquired 1/1/2013) 3
000
2. The company donated the showroom to a local Football club, Marondera FC, the show
room had a market value of $30 000. The showroom which was acquired in 2013, had a
cost and ITV of 24 000 and 16 000 respectively.
3. Last year Mapango Unlimited sold one of its properties in Rusape, capital loss in respect
of that sale was assessed to be $12 000.
4. On 31 October the Government credited Mapango Ltd with the total agreed
consideration less $60 000 .The amount was paid to Zimra as a withholding tax.
Required
a) At what rate of withholding tax the government should have calculated the withholding
tax for Mapango Unlimited. Calculate the correct withholding tax for the company.
[5 marks]
b) Calculate capital gains tax liability for Mapango Unlimited for the year ended 31
December 2015. [15 marks]
Question 3
Pekkins purchased a Principal Private Residence in Glen Lorne for $300 000 on 1 February
2012 and immediately made the following improvements:
Required
a) Calculate the capital gains tax payable by Pekkins on the sale of the specified
assets.
b) Suppose he elected for roll-over, calculate tax payable if any. [22 marks]
18.1 Introduction
18.2 Registration of suppliers
18.3 Tax periods
18.4 Deemed supplies
18.5 Value of supplies
18.6 Time of supply
18.7 Standard rated supplies
18.8 Zero rated supplies
18.9 Exempt supplies
18.10 Input tax
18.11 Export VAT
18.12 Accounting documents
18.13 Returns and tax payments
18.14 Payment of tax and refunds
18.15 VAT Deferment
18.16 Adjustments and other matters
18.17 Fiscalised electronic registers
18.18 Administrative issues
18.19 Chapter summary
18.20 Practice questions
18.1 Introduction
Valued added tax (VAT) is tax levied on the supply of goods and services, including imports.
VAT is a form of consumption tax, i.e. levied on consumers. VAT is levied on each stage of
the value chain; only registered operators are refunded VAT suffered on inputs supplied to
them. VAT is triggered by a supply of goods or services in the course of furtherance of a
trade. Trade is defined as:
- In the case of any registered operator, other than a local authority, any trade or activity
which is carried on continuously or regularly by any person in Zimbabwe or partly in
Zimbabwe in which goods or services are supplied to any other person for a
consideration; or
- The supply of goods or service by any Public authority, e.g. Zesa, Telone etc.
- In the case of a local authority, the supply of water, supply of services like refuse
removal or disposal of garbage, including the supply of goods or services incidental to
those discussed above.
A taxpayer should satisfy the Commissioner that such threshold will be achieved not as a
result of:
- any cessation of, or any substantial and permanent reduction in the size or scale of, any
trade carried on by that person; or
- the replacement of any plant or other capital asset used in any trade carried on by that
person; or
- abnormal circumstances of a temporary nature.
A taxpayer who fails to register for VAT will attract a fine not exceeding US$30 for every day
the taxpayer remains unregistered. The penalty is calculated from the first day a taxpayer is
due for registration up to 181 days. If after 181 days the taxpayer remains in default, he shall
be liable, on conviction, to a fine not exceeding level seven or to imprisonment not
exceeding twelve months or to such fine and such imprisonment.
An operator is required to notify Zimra in writing within 21 days of its intention to cease trade
or of the changed circumstances warranting deregistration. Deregistration will be effected on
the last day of the operator‘s tax period. Upon deregistration, an operator should surrender
the registration certificate and pay all outstanding VAT liabilities.
Where goods are supplied under an instalment credit agreement, in which the consideration
for the supply is payable in instalments, the tax point is the earliest of receipt or the issue of
a tax invoice relating to that payment.
Zero rated supplies are taxed at 0%. A supplier of zero rated items must register as an
operator so as to be eligible to claim any input tax that may be suffered by him. The
registration requirements as discussed before apply the same for such suppliers. The
following are examples of zero rated supplies:
Movable goods that are supplied under a sale agreement credit agreement are charged to
tax at zero rate, provided that they are sold to an export country or having been exported.
Goods supplied in the course of renovating, repairing or modifying of any foreign going
aircraft or to goods temporarily imported into Zimbabwe is charged VAT at zero per cent.
The leasing of goods in an export country under a rental agreement, charter party or
agreement for chartering is zero rated. The goods must be used exclusively in an export
country. The goods are also zero rated if they are used by such lessee or other person
exclusively in a commercial, financial, industrial, mining, farming fishing or professional
concern conducted in an export country.
The supply of gold in the form of bars, blank coins, ingots, buttons, wire, plate or granules or
in solution, which has not undergone any manufacturing process other than the refining
thereof or the manufacture or production of such bars, blank coins, ingots, buttons, wire,
plate, granules or solution; to the Reserve Bank of Zimbabwe or any bank registered under
the banking act is zero rated.
The supply of the following goods which are used or consumed for agricultural purposes are
zero rated.
- Animal remedy – animal vaccines or medicines used for treatment, cure or maintenance
of livestock. Livestock includes poultry, fish or wild animals, including wild birds.
- Fertilisers, pesticides, herbicides and chemicals
- Plants- goods consisting of living trees and other plants. Bulbs, roots, cuttings and
similar plant products in any form used for cultivation.
- Seed in a form used for cultivation.
- Tractors used for agricultural purposes and parts thereof.
- Agricultural equipment or machinery.
c) Supply of accommodation
The letting and hiring of residential accommodation, i.e. houses, flats etc. is an
exempt supply. Also exempt is the supply of a residential accommodation to an
employee by an employer where the recipient is entitled to occupy the
A dwelling means any building, premises, structure or any other place, or any part
thereof, used predominantly as a place of residence or abode of any natural person
or which is intended for use as a place of residence or abode of any natural person,
together with any appurtenances or structure belonging thereto and enjoyed
therewith, but does not include a commercial rental establishment.
The supply of land under a lease agreement for the purpose of accommodation in a
dwelling erected or to be erected on the land is exempt. The supply of land under a
sale agreement is however, not exempt.
h) Medical supplies
The supply of medical services by any person or institution is exempt.
Input tax is also defined as the tax fraction applicable to a consideration deemed to be for
the supply, where goods previously sold under a credit instalment agreement are
repossessed. Note that, where goods are repossessed as discussed above, a supply is
deemed to have been made by a debtor to the person exercising his right of possession. A
tax fraction is determined by the following formula:
- An operator must be a holder of a valid tax invoice, credit note, or debit note in
respect of a supply made to him. Input tax is claimable within the tax period or 12
months from the date of the supply, whichever is longer. If the operator does not
receive an invoice within such period or have not claimed the tax he will forfeit the
claim.
- The bill of entry or other documents required in terms of the Customs Act for the
importation of goods which has been delivered and is held by the registered operator
making the claim or by his agent at the time that any return in respect of that
importation is furnished. With effect from 1 January 2015, the time period within
which a Bill of Entry can be used to claim input tax has been limited to twelve
months.
- Sufficient records are maintained.
- An operator who gets a refund is the one who was charged and paid input tax, unless
the supply was for second hand items by a non-registered operator.
c) Fees or subscriptions
Input tax incurred in respect of fees or subscriptions paid by a registered operator for his
continual membership to any club, association or society of a sporting, social or
recreational nature is not deductible as an input tax. The operator is however entitled to
claim VAT incurred by him on subscriptions to membership of trade association or
professional body, as long as membership relates to taxable supplies made by the
registered operator.
d) Medical services
Input tax suffered on any goods or services acquired by a registered operator, who is a
medical society or a benefit fund, for the purpose of a supply by such operator of any
medical or dental services or services directly connected with such medical or dental
services or of any goods necessary for or subordinate or incidental to the supply of any
such services may not be claimed. In addition, input tax may not be claimed in respect of
any payment or request for reimbursement of expenses incurred by members covered
under a scheme in respect of medical and dental services.
VAT incurred on acquisition of the vehicles specially excluded under the definition of
PMV is claimable, as long it is used in the making of taxable supplies. The operator can
also claim VAT incurred by him on the PMV running expenses i.e. repairs, maintenance
and insurance, including the modification or installation costs incurred on the PMV after it
is delivered.
a) Unbeneficiated chrome
The export of unbeneficiated chrome attracts a VAT at a rate of 20% of the value of
such chrome, the tax is payable by the supplier. Unbeneficiated chrome means chrome
ore and fines which have not been subjected to smelting, crushing, milling and washing
to remove waste material.
c) Unprocessed hides
With effect from 1st January 2015 unprocessed hides will be levied an export
tax of $0,75 per kg.
With effect from 1 January 2015, taxpayers will be penalised for failure by suppliers to
issue VAT invoices with prescribed features.
For VAT purposes, a debit or credit note may be issued under the following circumstances:
- The supply has been cancelled
- The nature of supply has been cancelled; or
- The previously agreed consideration for that supply has been altered by agreement
with the recipient (including a discount).
- Where part of, or all of the goods or services supplied are returned to the supplier
(including returnable containers).
However, a debit or credit note may not be issued unless the supplier has issued a tax
invoice and tax charged is incorrect or the supplier has furnished a return in which the
correct amount of output tax was accounted.
- It shall not be lawful to issue more than one credit note or debit note for the amount of
the excess.
- Where the original credit note or debit note is lost, the supplier or recipient, as the case
may be, may provide a copy clearly marked ‗copy‘.
- A supplier shall not provide the recipient with a credit note where the adjustment in the
consideration for the supply as shown on the invoice arises from a cash discount being
taken by the recipient.
- Where a recipient, who is a registered operator, creates a document purporting to be a
credit note or debit note in respect of a supply of goods or services made to the recipient
The Commissioner may require any person, whether or not he is registered, to furnish on his
own behalf or as an agent or trustee, other returns or further returns as and when required
by the Commissioner.
The period upon which VAT will be deferred is extended with effect from 1 January 2015 and
shall depend on the value of capital equipment imported into the country as follows;
Deferred debts which are not settled on due date may result in the VAT deferment facility
being stopped or withdrawn. Deferred VAT debts may also be subject to interest and
penalty charges.
Where the intended use of such trade, part, goods or services, as the case may be, in the
course of making taxable supplies is equal to not less than ninety per centum of the total
intended use of such trade, part, goods or services, as the case may be, the trade, part,
goods or services concerned may for the purposes of this Act be regarded as having been
acquired wholly for the purpose of consumption, use or supply in the course of making
taxable supplies.
- A screen on which the customer can see simultaneously displayed the input being
made by the till operator
- It must incorporate a backup master audit facility
- It must incorporate or be capable of being upgraded to incorporate a feature enabling
the fiscalised electronic register to be linked to an input facility operated by ZIMRA or
any other network facility
- It must be capable of retaining a fiscal memory of total daily sales, total VAT charged
and total sales for at least three years.
Some of the permitted devices are designed to be stand-alone (i.e. for those who do not
already have an electronic till or a point of sale facility) and others may be integrated where
possible with an existing accounting system. 50% of the cost of acquisition of fiscalised
electronic registers shall be claimed as input VAT and with effect from 1 October 2010, 50%
of the remaining cost will rank for capital allowances.
With effect from 1 January 2015, the VAT Act (Chapter 23:12) is amended in order to allow
clients to lodge objections against the assessment or decisions made in respect of fiscal
regulations.
With effect from 1 January 2015, clients are allowed to lodge objections against the
assessment or decisions made in respect of fiscal regulations.
18.18.1 Records
Every registered operator shall keep and retain books of accounts and records, whether in
the form of print-out or other retrievable form, so as to enable him to comply with the
statutory requirements as well as to enable the Commissioner to monitor compliance. The
records shall be kept for a period of six years from the date of last entry in the books. Such
books of accounts, records and documents shall be open for inspection by an official acting
in under the authority of the Commissioner. The following documents or records shall be
kept in particular:
- A record of all goods or services supplied by or to the registered operator showing
the goods and services, and the detail of suppliers and their agents. Documents to
be retained include, tax invoices, credit notes, debit notes, bank statements, deposit
slips, stock sheets and paid cheques.
- A record of all importation of goods and documents relating to importations.
- A charts and codes of account, the accounting instruction manuals and the system
and programme documentation which describe the accounting system used in each
tax period in the supply of goods and services; and
- Documentary proof where a rate of 0% has been applied by a registered operator.
a) General offences
Any of the following offences will render a person guilty and warranties a fine not
exceeding level seven or to imprisonment for a period not exceeding twelve months,
or to such fine and such imprisonment:
- Falsely holding oneself as an officer engaged under the authority of the
Commissioner.
- Fails to collect tax on importations of services.
- Refuses or neglects to furnish, produce or make available any information,
documents or items; reply to or answer truly and fully, any questions put to him;
or attend and give evidence as and when required; when requested by the
Commissioner or any officer engaged under his authority.
- Hinders or obstructs or assaults any officer engaged in carrying out his duties.
- Fails to notify the Commissioner upon becoming a representative registered
operator.
- Being a registered operator, fails to provide another registered operator with a tax
invoice, credit note or debit note as required by the Act;
- Fails to keep books of accounts, records and documents as requested by the Act;
On subsequent conviction for failing to submit any return or document required by the
Commissioner or for refusing to furnish any information or reply, or to produce any
books or papers required of him by the Commissioner or any other officer, the
taxpayer shall be liable to a fine not exceeding fifty dollars for each day that he is in
default, or to imprisonment for a period not exceeding twelve months. It has to be
proved that such taxpayer has been previously been convicted of a similar offence in
relation to the same return , document, information, reply or books for the penalty to
apply.
Any person who commits the above offences will be liable on conviction to a fine not
exceeding level twelve or to imprisonment not exceeding twenty-four months or to both such
fine and such imprisonment.
Where it can be proved that a registered operator or any person acting on behalf of a
registered operator fails to perform the duties imposed upon him by the Act, with intent to
evade tax or causing a refund to be made to him by the Commissioner, such operator shall
be chargeable with an additional tax equal to 100% of an amount that should have been
paid or the refund claimed.
Objections
A taxpayer may lodge an objection with the Commissioner on one of these possible grounds
of dissatisfaction:
A valid objection must be in writing and it should be made within 30 days after the date on
which notice of any decision or assessment against which such objection is lodged was
given by the Commissioner, unless the Commissioner is satisfied that reasonable grounds
exist for delay in lodging the objection.
The Commissioner shall sent to the person on which an objection is made, a notice of the
reduction, increase, alteration or disallowance , whatever the case may be. Any taxpayer
who did not receive such notice within three months shall consider his objection disallowed.
Appeals
The court of appeal for VAT issues is the Fiscal Court of Appeal. A taxpayer who is
dissatisfied by the decision of the Commissioner shall lodge an appeal to that court within 30
days of receipt of the notice of the decision of the Commissioner. An appeal should be made
in writing by way of a notice.
1. Tino is in the process of finalising her value added tax (VAT) return for the month of
August 2015. Her VAT payable for the month is US$6 300 before taking into account the
following VAT inclusive adjustments:
US$
Sales value of goods applied to own use 2 200
Recovery of impaired debts 3 000
Purchases returns 1 200
What is the adjusted VAT payable by Tino for the month of August 2015?
A US$7 135
B US$12 700
C US$7 260
D US$6 534
2. Mary registered for value added tax (VAT) under category A on commencement of
business operations on 1 January 2015. Mary‘s VAT inclusive sales and purchases for
her first quarter are as follows:
Sales: Purchases:
Month US$ Month US$
January 6 000 January 2 000
February 10 000 February 4 000
March 15 000 March 7 000
What is the net amount of value added tax (VAT) payable by Mary for the tax period
which includes the results from March 2015?
A US$2 100
B US$2 700
C US$1 826
D US$2 347
(ACCA Adapt)
3. The following are the monthly sales of B&B Incorporation from Jan the first month of its
trading.
January $3 000
February $3 800
March $4 800
April $5 200
A January
B February
C March
D April
A (iii) only
B none of the above
C (iv) only
D (i) only
6. Jack Ltd is a category B operator. The following are his sales (all VAT exclusive)
What is the amount that Jack Ltd should declare as output tax in its first VAT return for
2015 tax year?
A $9 450
B $8 250
C $5 250
D $15 900
7. Which one of the following categories of goods / services which is NOT zero rated?
8. Mudzi (Pvt) Ltd purchased goods from registered and un-registered VAT suppliers. The
following are the purchases made in the month of March 2015.
What is the amount for VAT amount for VAT input tax amount in respect of purchased
made in March?
A $9 832.5
B $8 550
C $10 650
D $12 247.5
10. MPC Mining P/L purchased equipment worth $800 000 from Zambia, what is the
maximum number of days will the company allowed to defer the payment of VAT on
importation of the equipment?
A 90 Days
B 120 Days
C 180 Days
D 0 days
Question 2
The following are the extracts from the sales and purchases ledger of FT for the 11 months
ended 31 December 2015:
US$
February 3 500
March 4 200
April 4 800
May 5 300
June 6 200
July 7 500
August 4 500
September 8 600
October 8 900
Other expenses from 1 July 2013 to 31 December 2013 (VAT inclusive as appropriate)
US$
Motor vehicle expenses 2 400
Stationery 1 000
Payroll costs 3 100
Other office expenses 900
Acquisition of fiscalised electronic registers 8 000
Entertainment expenditure 2 000
Additional information
FT registered for VAT on 1 July 2015 and also complied with all the other ZIMRA registration
requirements on the same date.
Required
a) Show by when FT should have registered for VAT and by when FT should have
submitted its first VAT return.[4]
b) Calculate the amount of input tax recovery forfeited by FT due to the VAT registration
on 1 July 2013. [2]
c) Calculate the VAT payable by FT for the year ended 31 December 2013, assuming
ZIMRA accept the VAT registration date of 1 July 2013. (8 marks)
Question 3
VAT regulations require all registered operators to use cash registers for the purpose of
accounting for VAT. Your client approaches you as a tax advisor requesting your advice on
the requirements. You are required to list the requirements so that he can decide on the
appropriate machine to buy. [20 marks]
19.1 Introduction
19.2 Tax avoidance
19.3 Anti-avoidance rules
19.4 Tax evasion
19.5 Chapter summary
19.1 Introduction
Tax is an expense that most taxpayers relent. Taxpayers may seek to mitigate their tax
burden by any means possible, legal or illegal. This chapter seek to clarify both the
legitimate and illegitimate ways of reducing a tax burden. Tax avoidance is a legitimate way
of mitigating tax burden whilst tax evasion is an illegitimate way.
b) Exemption technique
c) Deduction technique
Deduction technique can be employed were a taxpayer seeks to claim maximum
allowable deductions so as to reduced taxable income and thus, reducing tax liability. An
example is where a taxpayer elects to claim Special Initial Allowance (SIA), instead of
wear and tear (W&T).
d) Transfer pricing
Transfer pricing is the pricing of intercompany transactions which take place between
affiliated enterprises or between the head office and its branch. It is the manipulation of
prices and other terms of trade between related parties on cross-border transactions.
The transfer pricing process determines the amount of income that each party earns.
Usually multinational companies, with operations in different countries (tax jurisdictions),
employ this technique.
Example
A microchip company has operations in different countries that have different income tax
rates as follows: country A, 25%; country B, 40% and country C, 50%. The company
would design its products in country C, manufacture in country B assign marketing rights
in country A. In order to avoid tax, the corporation allocate costs between the branches
such that it will shift profits from country C to say, country A with a lower tax rate.
Income splitting can be applied to personal taxes by way of redirecting income within a
family group to take advantage of the lower tax bracket, deductions and credits available
to each family member. Generally, speaking the total tax on family income will be the
lowest when each member earns approximately the same level of income.
For corporates, business income splitting may be achieved by, employing spouse and
children, paying directors‘ fee to your spouse, loaning funds to your spouse to start-up a
business.
Generally, the following methods are used to achieve income splitting or shifting:
With effect from 1 January 2015, section 98A was added to the ITA which specifically
deals with income splitting. The section empowers the Commissioner to adjust the
taxable income of a taxpayer and associate to prevent any reduction of tax payable as a
result of income splitting.
And the sole or main reason of transfer of income or property being to lower the tax
payable upon the income of the taxpayer or associate.
In making the adjustments the Commissioner may re-characterise the source of income
and nature of any payment or loss as revenue, capital or otherwise.
There are rules specifically set in tax legislation that seek to prohibit the set-off of
expenses or losses and income from different areas. For instance, taxpayers cannot set
off private expenses derived from employment against business income and vice versa.
Another example is in mining were expenses of one mine location cannot be set off
against income of another mine location.
19.4.3 Round-tripping
It involves local businesses taking advantage of tax incentives offered to foreigners. They
achieve this by sending their own money offshore, legally or, more commonly, illegally, then
bringing it back disguised as foreign investment, which qualifies for preferential tax
treatments.
Taxpayers found guilty of evasion would face heavy penalties and / or possible
imprisonment.
238 A Guide to Zimbabwe Taxation
19.5 Chapter summary
- Tax avoidance is the legitimate way of mitigating a tax burden by taking advantage of
leeway that may exist in tax statutes.
- Tax evasion is illegal and criminal. Tax evasion may take the form of falsifying
records, wilfully defaulting on rendering of returns, etc.
- The Commissioner is empowered to accept or reject an avoidance scheme entered
into by a taxpayer.
FISCAL INCENTIVES
Chapter outline
20.1 Introduction
20.2 Rebates
20.3 Small business enterprises.
20.4 Tourist sector
20.5 Exporters
20.6 Manufacturing
20.7 Industrial park developer
20.8 Build Own Operate and Transfer (BOOT) and BOT arrangements
20.9 Farmers
20.10 Mining companies
20.11 Double taxation Agreements
20.12 Value Added Tax
20.13 Other incentives
20.14 Chapter summary
20.1 Introduction
Tax incentives are generally defined as ‗fiscal measures‘ that are used to attract investment
capital to certain economic activities or particular areas in a country. Fiscal incentives take
the form of, customs rebates, tax holidays and reduced tax rates, or accelerated
depreciation. Zimra administers various tax incentives aimed at promoting investment while
the Ministry of Industry and Commerce, Industrial Development Corporation and Zimbabwe
Investment Authority are the main administrators of non-tax incentives.
20.2 Rebates
These are available to all manufacturing industries. Provision exists for rebate or drawback
of certain duties applicable to imported goods, raw materials and components used in
manufacturing, processing or for export.
Most of these incentives come in the form of rebates and suspension of duty and the
summary is shown below.
- Rebate of duty on goods for the mining industry- It is granted on specified articles when
imported or taken out of bond or purchased from the licensed premises of a
manufacturer by a person engaged in the mining industry.
- Rebate of duty on goods for the prospecting and research for mineral deposits- Granted
on goods which are imported by a person who has entered into a contract with the
240 A Guide to Zimbabwe Taxation
Government, which is approved by the Commissioner, for the prospecting and search for
mineral deposits
- Rebate of duty on goods imported temporarily for an approved project- granted on goods
which are temporarily imported by contractors or other persons for completion of
approved projects as may have been approved by the Minister.
- Refund of duty on capital goods imported for use in tourist development zones- granted
to an operator of a tourist facility in a tourist development zone on capital goods imported
for the purposes of or in connection with that tourist facility
- Rebate of duty on imports covered by a Duty Free Certificate issued under the export
incentive scheme- Granted on capital goods and raw materials specified by the Minister
to be eligible.
- Rebate of duty on goods imported for Tourist Development Zones- granted on such
equipment and machinery as the Commissioner may approve, when such goods are
imported for use in a tourism development zone.
20.5 Exporters
Tax incentives available to exporters include, double deduction on export market
development and incentives available to taxpayers operating in Export Processing Zones.
a. Corporate Tax Levied on Exporting Companies
With effect from 1 January 2015, a lower corporate tax structure for exporting
companies is introduced as follows;
To trade in the EPZ an investment licence is required. A company which operates in the EPZ
is referred to as a licenced investor and should undertake in a manufacturing, processing or
service utility which exports at least 80% of its production.
The following incentives apply to licensed investors:
- Tax holiday – taxable income from operations in export processing zones is taxed at 0%
for the first 5 years.
- A tax rate of 15% applies after the first 5 years.
- Exemption from capital gains tax
- Exemption from non-resident and resident shareholder‘s taxes, non-residents taxes on
interest, fees, royalties and remittances
- Duty free importations
- Sales tax on goods and services is refundable.
- Fringe benefits earned by staff employed by licenced investors operating in export
processing zones are exempt from income tax. The exemption on fringe benefits is to be
restricted to 50% of an employee‘s taxable income.
VAT - Most farm inputs such as animal feed, animal remedy, fertiliser, plants, seeds and
pesticides and equipment or machinery used for agricultural purposes are zero rated.
[Section 10 a. r. w. 2nd schedule of VAT Act Chapter 23:12]
- Value added tax can be deferred on some capital equipment for exclusive use in mining,
manufacturing, agricultural and aviation industries whose investment generally relies on
imported capital. The whole amount becomes due within 90 days from the date of
deferment.
- VAT refund may be granted to:
Any person who is not a citizen or permanent resident of Zimbabwe, and enjoys
full or limited rights or privileges, in terms of the Privilege and Immunities Act or,
Any diplomatic or consular mission of a foreign country, established in Zimbabwe
for official supplies. The refund shall not be payable to a citizen or permanent
resident of Zimbabwe.
c) SME‘s
Qualifying SME‘s can access a capital allowance structure of 50% SIA, and
25% accelerated wear-and-tear in the next two years of assessment.
MLD‘s taxable income for the years ended 31 December 2015 and 31 December 2015 is
as follows:
US$
2015 420 000
2015 380 000
What is MLD‘s total corporate tax liability for 31 December 2015 and 31 December
2015?
A US$123 600
B Nil
C US$58 710
D US$57 000
2. Dominic is a manufacturing company which exports 60% of its output to Europe. During
the year ended 31 December 2015 its taxable income was$640 000. What is its tax
liability?
A $164 800
B $131 840
C $Nil
D $98 880
3. Industrial Park Developers are taxed at what rate in the 6th year of operations?
A 20%
4. Which of the following incentives is /are not common to both Industrial Park Developers
and Export processing zones?
i. Tax holiday for the first 5 years
ii. Taxed at 15% after 5 years
iii. Exemption from capital gains
iv. Exemption form withholding tax on royalties, and fees paid to non-residents.
A (i) only
B (iii) only
C (ii) & (iii)
D (iv) only
5. Which sector of the economy with operators who do not qualify for rebates?
A Manufacturing
B Financial
C Agriculture
D Tourism
Chapter outline
21.1 Introduction
21.2 Duties and rights of the Commissioner
21.3 Returns
21.4 Assessments
21.5 Additional tax
21.6 Representative taxpayers.
21.7 Objections and appeals
21.8 Penalties, interest, fines for offences
21.9 Tax Amnesty
21.10 Chapter summary
21.11 Practice questions
21.1 Introduction
Revenue laws of a country are issued out by the parliament. Zimbabwe Revenue Authority
(ZIMRA) is a statutory body responsible for enforcing the tax laws. The duties mandated to
Zimra include, collection of tax, accounting for these taxes and ensuring that the tax laws are
complied with, etc. Zimra is presided by the Commissioner-General, whose duty is mainly to
represent Zimra in carrying out its mandate. The Commissioner- General may also delegate
to the officers employed by Zimra any function conferred by the tax laws.
The Commissioner or his officer is given the right to access and inspect registers, books,
accounts, records, returns, etc. the Commissioner or his officer shall, for no fee or charge,
be permitted to inspect for such purpose such registers, books, accounts, records, returns,
papers, documents or proceedings and to take such notes and extracts as he may consider
necessary.
The ITA, defy the secrecy provisions of other acts (e.g. Post Offices, POSB etc.) which could
preclude Zimra‘s access to records for the purpose of securing any tax or to give proof or
lead to discovery of any fraud, offence or omission in relation to any tax.
An agent includes:
The agent is required by law to furnish the Commissioner with information in respect of any
money, funds or other assets which may be held by him for, or due by him to , any other
person. A failure to do so will result in the agent being personally liable for the tax due.
The Commissioner has the power to request information from any person whom he has
appointed agent for the collection of tax. He has also the power to access all public records.
For the purpose of getting the information and enforcing collection of tax, the Commissioner
or any of his appointed officers is empowered to enter or search the premises of a person,
and carry out an inspection or audit of any information, documents or things at any premises.
He may require any person to prepare and additionally, or alternatively, to produce for
inspection a print-out or other reproduction of any information stored in a computer or other
information retrieval system.
Every person who is a taxpayer is required to furnish the Commissioner with a tax return in
such form and at such time as the Commissioner may prescribe. The following are examples
of such returns:
Every person whose gross income does not constitute solely of remuneration, salary or
compensation of personal service, i.e. a person who is in receipt of business income, is
required to keep in English language, books of accounts. The books of accounts includes, all
ledgers, cash-books, journals, paid cheques, bank statements and deposit slips, stock
sheets, invoices, and all other books of account relating to any trade carried on by him or her
in which the details from which his or her returns were prepared, are recorded their in. A
taxpayer shall retain such books for a period of six years from the date of the last entry in
those books.
Income accruing to a minor child shall be included in the returns of their parents. The
principle has been explained in chapter 7, under paragraph 7.2(e)
Every person who makes a return of his own income or, in a representative capacity, makes
a return of income of some other person, shall, if called upon by the Commissioner to do so,
attach to such return a statement showing fully:
a) The number and class of shares in any company registered in the name of the
taxpayer for whom the return is rendered;
b) The gross dividends from any company received by or accrued to the taxpayer for
whom the return is rendered and the amounts of tax, if any, deducted therefrom;
c) If the taxpayer for whom the return is rendered is not entitled to retain the dividends
received or accrued from any company, the name and address of the person who,
under any agreement or arrangement, is entitled to receive and retain such
dividends;
d) The number and class of shares in any company which are not registered in the
name of the taxpayer for whom the return is rendered but in respect of which such
taxpayer, under an agreement or arrangement with the registered owner, obtains all
dividends payable by such company;
e) The gross amount of the dividends and the amount of the tax, if any, deducted
therefrom, so received by the taxpayer for whom the return is rendered from the
person in whose name such shares are registered.
A person who fails or refuses to without just cause attach the above statement or
attaches a statement containing incorrect information, shall be guilty of an offence and
liable for a fine not exceeding level 5 or imprisonment. Where his or her conduct was
wilful, he shall be liable to a fine not exceeding level 6 or imprisonment for a period not
exceeding one year or to both such fine or imprisonment.
Any person, who, without just cause, fails to furnish the Commissioner with a certificate,
shall be guilty of an offence and liable to a fine not exceeding level four or to imprisonment
for a period not exceeding three months or to both such fine and such imprisonment. Where
the failure of such taxpayer is wilful, he shall be liable to a fine not exceeding level six or to
imprisonment for a period not exceeding one year or to both such fine and such
imprisonment.
21.4 Assessments
If it appears to the Commissioner that any person is unable from any cause to furnish an
accurate return of his income the Commissioner may agree with such person what shall be
the amount of his taxable income or assessed loss. Any amount of taxable income or
assessed loss so agreed shall not be subject to any objection and appeal. If the
Commissioner is of the opinion that the taxpayer, at the time the amount of his taxable
income or assessed loss was agreed, withheld information which, had it been known to the
Commissioner, would have resulted in him not agreeing to that amount, the Commissioner
may, increase such agreed amount of taxable income or decrease such agreed amount of
assessed loss in such manner as he may consider to be appropriate.
An additional assessment may be raised where income which was meant to be taxed was
never charged to tax, where in the determination of assessed loss, income was included
from tax or where an expense was erroneously deducted or where any sum granted by way
of credit should not have been granted.
Under the above circumstances, the Commissioner shall adjust such an assessment so as
to charge the correct tax. However, no adjustment shall be made where:
- The assessment was made according to the practice generally prevailing at the time the
assessment was made.
- Six years has lapsed from the end of the relevant year of assessment, unless the
Commissioner is satisfied that the adjustment or call is 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.
Where it is provable to the satisfaction of the Commissioner that any person has been
charged with tax in excess of the amount properly charged, the Commissioner shall issue an
amended assessment reducing the tax charged and, if necessary authorise a refund of tax
overpaid. Such amended assessment issued by the Commissioner shall not be subject to
objection or appeal. The Commissioner will not authorise a refund of overpaid tax if a claim
is made after six years has elapsed.
The Commissioner is required to pay interest on overpaid taxes if they are not refunded to
the taxpayer within 60 days of a taxpayer claiming the refund, or the date of completion of
the assessment, whichever is the later date. However, the Commissioner is not liable to
refund where the overpayment was due to an incomplete or defective return or some other
error of a taxpayer.
If it is proved to satisfaction of the Commissioner that a taxpayer‘s assessed loss for any
year of assessment is less than the amount which should be the assessed loss for that year,
the Commissioner shall issue an amended assessment to increase the assessed loss.
However, no amended assessment shall be raised if:
- The assessment was made in accordance with the law existing at the time of
assessment.
- Six years have passed since the date of notice of assessment in question.
A taxpayer shall be required to pay an additional tax where he has defaulted, evaded or
omitted to pay tax. The following are the circumstances and the additional taxes that should
be paid:
252 A Guide to Zimbabwe Taxation
a) Default in rendering of returns – the additional tax shall be 100% of the tax
chargeable in respect of his taxable income for the year of assessment or an amount
equal to a fine of $400, whichever is greater.
b) Omitting from a return of an amount that ought to have been included – the additional
tax is equal to the difference between the tax as calculated in respect of the taxable
income returned by him and the tax properly chargeable in respect of his taxable
income as finally determined after including the amount omitted.
c) Incorrect statement any return rendered by him – the additional tax is the difference
between the tax as calculated in accordance with the return made by him and the tax
properly chargeable if the incorrect statement had not been made.
d) Failure to disclose in any return made by him of facts that should have been
disclosed - the additional tax is an amount of tax equal to the difference between the
tax as calculated in accordance with the return made by him and the tax properly
chargeable if the disclosure had been made.
e) If he makes any statement which results or would, if accepted, result in the granting
of a credit exceeding the credit to which he is entitled – the additional tax is an
amount equal to the difference between the tax with which he was chargeable as a
result of his statement or would have been chargeable as a result of his statement
had it been accepted and the tax with which he is properly chargeable.
A taxpayer who defaults, omit, or does any act which results in him being liable to pay an
additional tax, shall pay the tax outstanding together with a penalty equal to 100% of such
tax.
If the Commissioner considers that the default in rendering the return was not due to any
intent either to defraud the revenue or to postpone the payment by the taxpayer of the tax as
chargeable, or that any such omission, incorrect statement or failure to disclose facts was
not due to any intent to evade tax on the part of the taxpayer, he may remit such part or all of
the said additional amount for which provision is made under this section as he may think fit.
The Commissioner may, either before or after an assessment is issued, agree with the
taxpayer on additional amount to be charged and the amount so agreed shall not be subject
to any objection or appeal.
The Commissioner may, however, vary the agreed assessment if he subsequently discovers
that the taxpayer, at the time the additional amount was agreed, withheld information which
could have an effect of him making a different decision.
The following are the representative taxpayers in respect of income tax earned by the
following persons:
a) Company – representative taxpayer is the public officer
b) Trust – representative taxpayer is the trustee.
A representative taxpayer shall be assessed in his own name on the income of a taxpayer
he has the management, receipt, disposal, remittance, payment or control, shall be subject
in all respects to the same duties, responsibilities and liabilities as if such income were
received by or accruing to or in favour of him beneficially. However, such assessments are
made in his representative capacity only.
Any credit, deduction, exemption or right to deduct a loss which could be claimed by the
person represented by him shall be allowed in the assessment made upon the
representative taxpayer in his representative capacity.
A representative taxpayer who pays tax on behalf of a person he represents shall be entitled
to recover from the person on whose behalf it is paid, or to retain out of any moneys that
may be in his possession or may come to him in his representative capacity, so much as is
required to indemnify him for the payment.
A representative taxpayer is liable personally for taxes he is required to pay should he, while
it remains unpaid, he alienates, charges or disposes of the income from which taxes are
chargeable or when he disposes of fund money which could have been used to settle the
taxes.
Upon receipt of an objection, the Commissioner may reduce, alter, increase or disallow in
whole or in part, the assessed tax or amend the assessment accordingly. The Commissioner
shall serve the taxpayer with a notice of the decision as soon as practicable. If no response
is made within 3 months after the date of objection, the case is considered disallowed. If the
objection is disallowed or where a taxpayer is dissatisfied with the decision or deemed
decision of the Commissioner, he may appeal to Special Court of Income tax appeal or the
High Court.
- An appeal must be made within 21 days of receiving the notice of decision of the
Commissioner or after the expiry of 3 months.
- An appeal must be in writing and must state whether the appellant wishes to appeal to
the High court or Special court/ Fiscal court of Appeal.
- At the hearing of any such appeal the arguments of the appellant shall be limited to the
grounds stated in his notice of objection.
An appeal which does not meet the above requirements is invalid and may not be
entertained.
The obligation to pay and the right to receive any tax, additional tax, penalty or interest,
chargeable shall not, unless the Commissioner otherwise directs and subject to such terms
and conditions as he may impose, be suspended pending a decision on any objection or
appeal which may be lodged by the taxpayer. If any assessment or decision is altered on
appeal, a due adjustment shall be made, for which purpose amounts paid in excess shall be
refunded and amounts short paid shall be recoverable.
21.8.1 Penalties
A penalty for late payment of tax is 100% of the tax due.
Civil penalty apply to returns submitted under the following tax statutes:
- The ITA [Chapter 23:06]
- The CGTA [Chapter 23:01]
- The VATA
21.8.3 Interest
Any tax liability of a taxpayer which remains outstanding attracts an interest at a rate of 10%
per annum. Interest is calculated from the date such tax is due to the day before the date of
payment. Interest also applies to any penalty imposed. The Commissioner may waive the
whole or part of interest charged where the person liable to pay the interest has given good
reasons or cause in writing.
Example
B Ltd paid the March 2015 PAYE of $4 320 on 29 April 2015. Calculate the additional tax
payable by B Ltd for failure to pay tax by the due date.
Solution
a) Rendering of returns
Any person who is found guilty of an offence for failing, neglecting, refusing to furnish
a return, or fails to include in a return, submitted either on his behalf or on behalf of
someone, any portion of gross income received by or accrued in favour of that
person, shall be liable to a fine not exceeding level 7 or imprisonment for a period not
exceeding 3 months or to both such imprisonment or fine.
Any person who is found guilty for failing to file a return or furnish certain information,
which may be requested by the Commissioner and also a person who obstructs a
Zimra official on duty will be liable to a fine not exceeding level 7 or to imprisonment
for a period not exceeding 1 year or to both such fine or such imprisonment.
d) False statements
Any person who makes a false statement or entry in any return rendered in respect
of any year of assessment, or if he makes a false entry in any ledger, cash-book,
journal or other book of account without reasonable grounds for believing it to be
true, shall be liable to a fine not exceeding level seven or to imprisonment for a
period not exceeding one year or to both such fine and such imprisonment.
Any person who, with intent to evade or to assist any other person to evade
assessment or taxation by way of causing, allowing or making a false statement, or
who prepare, authorise or maintain any of any false books of account or other
records shall be liable to a fine not exceeding level eight or to imprisonment for a
period not exceeding two years or to both such fine and such imprisonment.
g) Refusing to be investigated
The provisions of the Instrument are meant to give opportunity to taxpayers who are in
irregularities no normalise their tax affairs. Tax amnesty specifically applies to taxpayers
under the following statutes:
A taxpayer who is granted an amnesty will have to settle his or her outstanding tax
obligations either in full or by instalments by 31 March 2015. The tax amnesty is in respect of
any non-compliance which occurred during the period beginning 1st February 2009 to 30th
September 2015 (the amnesty period)
Taxpayers who wish to be considered for an amnesty should make an application to the
Commissioner on form TA01. On application the taxpayer should make a full disclosure of all
tax irregularities.
The Commissioner- General may approve or not an application for tax amnesty. Taxpayers
who are likely to be approved are those who had completed correctly the prescribed form,
made full disclosure and are not under special investigation or audit.
- Every taxpayer is required to furnish the Commissioner with a tax return in such form
and at such time as the Commissioner may determine.
- A taxpayer in receipt of income other than employment income is required to keep books
of accounts. Such books shall be returned for a period of six years.
A Guide to Zimbabwe Taxation 259
- Every company is required to file with Zimra a copy of Memorandum and Articles of
Association within 30 days of incorporation. Also to be filed with Zimra are amendments
to such documents.
- Returns for business income should be attached with accounts as supporting schedules
of information contained in the return.
- An estimated assessment may be raised if a taxpayer is unable to furnish an accurate
return or is about to leave the country.
- An additional assessment may be raised where income that was meant to be taxed was
never charged to tax.
- An additional tax may arise from an additional assessment. An additional tax is a penalty
of 100% of the tax not paid by a taxpayer where he has defaulted, omitted or evaded to
pay tax.
- A representative taxpayer is a person appointed by the statutes to represent a taxpayer.
The duty of the representative taxpayer is to pay tax on behalf of the taxpayer to whom
he represent before disposing off any amounts that he has in possession which belongs
to the taxpayer.
- A taxpayer has a right to lodge an objection with the Commissioner if he or she is
unhappy with an assessment made on him.
- The Commissioner shall consider the objection lodged by a taxpayer and give his
determination with regard to the matter. If again the taxpayer is unhappy with the
decision of the Commissioner, he may appeal to the Special court of appeal, the Fiscal
Court of Appeal or the High Court. Further appeal can be made to the Supreme Court.
- Interest is chargeable on outstanding tax liabilities at a rate of 35% per annum from the
date the tax is due to the date immediately before the date of payment.
1. XY Limited‘s accountant submitted the company‘s Pay As You Earn (PAYE) returns to
the Zimbabwe Revenue Authority (ZIMRA) for the quarter ended 30 June 2015 on the
following dates:
For how many days in total during the quarter ended 30 June 2015 were XY Limited late
in filing their Pay As You Earn (PAYE) returns?
A 15 days
B 25 days
C 65 days
D 35 days
2. Which of the following statements are true in connection with a taxpayer raising an
objection to an assessment by the Zimbabwe Revenue Authority (ZIMRA)?
A 1 and 2 only
B 1, 2, 3 and 4
C 1 and 4 only
D 2 and 3 only
3. Moyo P/L remitted its PAYE for March 2015 of $3020 on the 20th of April. The interest
and penalty chargeable by ZIMRA is:
Interest $ Penalty $
A Nil 3020
B 302 3020
C 8.27 Nil
D 8.27 3020
4. Fairmore Trading (Pvt) Ltd delayed submission of its VAT returns by 31 days. What is
the civil penalty it should expect to pay ZIMRA?
A None
B (i) only
C (ii) and (iii) only
D All
6. A company is required to file with ZIMRA a copy of its Memorandum and Articles of
association within….
A 10 days
B 15 days
C 60 days
D 30 days
Question 1
- Certainty
- Simplicity
- Vertical equity principle
b) Direct tax is tax that is borne by the same person (taxpayer) who is responsible of paying
the tax to the tax authorities. Indirect tax is tax borne by some other person different from
(the taxpayer) who is responsible for remitting it to the authorities.
1. A
2. B
Housing benefit (600-200)*12 =4 800. Note housing benefit is valued based on value
to the employee not the cost to the employer of providing the benefit. The cost of
upkeep to the employer is not important.
3. B
Loan 60%* 5000*6.5% $195
Motoring benefit $9 600
Total $9795
4. C
5. B
Mango 9 000
Ralph (1/3* 54 000) 18 000
Joyce 20 000
Total 47 000
6. C
Section B
Question 1
a) According to the 13th Schedule to the ITA, the following provisions in regard to PAYE
apply:
- Para. 3(1) - Every employer is required to withhold employee tax from remuneration
paid by him to his employee. The withhold tax shall be paid to the Commissioner by
the tenth day of the month following the month of deduction.
- Para. 4(1) – Every employee shall maintain a record showing the amounts of
remuneration paid, employee tax withheld. The records shall be available for
inspection by the Commissioner.
- Para.4 (2) – Every employer shall furnish the Commissioner with returns as
appropriate. The return is ITF 16.
- Para. 4(3)- The above returns shall be submitted to the Commissioner within 30 days
of the end of the year of assessment.
Note that, persons in receipt of income from employment, which has been subjected to
employees‘ tax (PAYE) and were employed by the same employer throughout the year need
not complete a P6 Form.
d) Employees who have been under employment by different employers during a tax year
are required to furnish a tax return (ITF1) on their own for assessment. Such employees
should obtain a tax clearance certificate (P6 Form) from the respective employers which
should be attached to the return. Note that, persons whose employers are not on FDS
should also remit returns own their own.
Question 2
a) This is the system whereby the employer is directed to withhold PAYE from the
employee‘s remuneration in such a way as to ensure that the amount so withheld in any
year of assessment is as nearly the same as the income tax liability for the employee
concerned.
b) See section 3.1.5 of chapter 3
c) Mr Gonyora
Computation of minimum tax liability
$
Basic salary 23 000
Motoring benefit (3 600*7/12) 2 100
25 100
Less: Pension 3 000
NSSA 6*7 42
PAAB Subs 250
Subs to football club - (3 292)
Taxable income 21 808
Question 3
Notes
1. Interest benefit is not apportioned since the date on which the loan was granted is
not stated.
2. Disposal of a motor vehicle to an elderly person is exempt from tax.
3. Maximum contribution to RAF is $2 700 and the aggregate maximum for all pension
contribution is $5400.
4. Gross tax is calculated as follows:
0 – 3 600 3 600 0% -
3 601 – 18 000 14 400 20% 2 880
18 001 – 36 000 18 000 25 % 4 500
36 001 – 36450 450 30% 135
1. D
3·5% x (700 + 600 + 500) x 6 = US$378
Tutorial note: Tax payers aged 65 and above do not contribute towards the monthly
NSSA contributions.
2. C
Only the contributions to the registered retirement annuity fund are allowable for
deduction as the pension fund is not registered. These are subject to the contribution
limit.
3. C
4. A
7.5%*1 200 = $90.00
5. B
Lump sum 24 000
Less: (1800)
Less: Disallowed portion (4 200)
Less: Transfer to RAF (10 000)
Taxable income 8 000
6. B
Employee 1 15 000*7.5% 1125
Employee 2 23 000*7.5% 1725
Employee 3 76 000*7.5% 5700 5400 max
Employee 4 81 000*7.5% 6075 5400 max
Total 16 275
1. C
2. C
3. B
4. D
Note the assets qualify for SIA because they were acquired during the year of
assessment.
7. C
SIA on Factory Blng 25%*200 000 50 000
W&T on office blng 2.5%*120 000 3 000
SIA on Plant & Machinery 25%*110 000 27 500
SIA on Motor vehicles 25%*(30 000+50 000) 20 000
SIA on Furniture & Equipment 25%*60 000 15 000
Total 115 000
8. C
9. C
Block of flats - Staff housing
Manufacturing bldg. - Industrial bldg.
Warehouse – Industrial bldg.
Haulage trucks- Machinery, equipment, utensils
Admin Block – Commercial bldg.
10. D
Section B
Question 1
Notes
1. By comparing the cost, date of acquisition and ITV of an asset, you can determine
whether SIA or W& T has been applied. The rule applied to delivery truck,
computers, warehouse and factory building, is to test whether SIA has been
applied by recalculating ITV assuming SIA, if the ITV calculated does not agree
with that on the question, then W &T applies. Note, W&T on immovable assets is
calculated on straight line while W&T on movable assets is calculated on reducing
balance.
2. W&T on Delivery truck is apportioned to date of destruction. No recoupment arises
because it is being replaced.
3. Mercedes Benz is a PMV, so its cost is restricted to $10 000. On the same token a
Nissan Primera is a PMV, the same principle applies.
4. The cost of new industrial machinery is made up as follows;
11. A
Renovation of ward 100 000
Harare Municipal Library 50 000
Lump sum pension contribution 50 000
Total 200 000
Section B
Question1
a) Every company is required to register with Zima within 30 days of incorporation and file
the following;
- Articles and memorandum of association
- Name and details of the public officer of the company.
b) ITF 12 B
c) Timing differences arise as a result of items which are accounted for by both the
accountant and the taxman but in different periods. Timing differences are mainly caused
by different approaches as applied by an accountant and taxman, an accountant applies
an accruals basis to income and expenditure while the taxman uses both accrual and
receipt basis. An example is accrued expenses.
Question 2
Ruwani Enterprises P/L
Computation of tax liability for the year ended 31 December 2015.
Notes $
Net profit as per accounts 1 736 000
Add: Extension of administration building 1 43 000
Depreciation 72 000
VAT 2 10 200
272 A Guide to Zimbabwe Taxation
Interest on loan 1 35 000
HR Manager‘s trade convention (20 000 -2 500) 17 500
Ex-gratia payments (41 000- 10*500) 36 000
Penalty for breaching customs procedures 12 000
Legal cost of suit 33 400
Interest on PAYE 16 000
Repair to CEO‘s house 25 600
Donation to Chief executive wedding 20 000
Recoupment 3 333
Less: profit on disposal of Mercedes Benz (2 000)
Dividends (exempt) (15000)
Export incentive bonus (40 000)
Interest (exempt) (10 000)
Capital allowances 4 (36 750)
Taxable income 1 953 283
Tax @ 25% 488 320.75
Add 3% Aids Levy 14 649.62
Tax liability 502 970.37
Notes
1. The cost of extension as well as interest on loan for that purpose is capital expenditure.
2. Tax suffered by a taxpayer on other tax heads is a prohibited deduction
3. Recoupment
$
Disposal proceeds $8000 *10 000/15000 5 333
Less: ITV (see note 4) 5 000
Potential recoupment 333
Capital allowances granted 5000
Actual recoupment 333
36 750
3. A
4. D
Dividend 10 000
Rentals (6000 -3000) 3000
Pension (exempt) -
Interest (20 000-3000) 17 000
Total 30 000
Question 1
b) Mr Mandivamba‘s computation of tax liability for the year ended 31 December 2015.
Notes $
Consultation fees 72 400
Rentals (61300 -3 000) 58 300
Interest from Barclays Bank (22 000 – 3 000) 19 000
Proceeds from betting --
Total income 149 700
Less: allowable deductions:
Rates (13 200)
Legal cost of suit -
Taxable income 136 500
Tax @ 25% 34 125
Less: Medical expenses credit (50%* 14 000) (7 000)
Elderly credit (900)
26 225
Add: 3% Aids Levy 786.75
Total tax liability 27 011.75
CHAPTER 8: PARTNERSHIPS
1. B
2. B
Share of taxable income 2/5* 125 000 50 000
Subscription to Men Lawyers Association 800
Contribution to Pension Fund 5 400
Contribution to Medical Aid Society 700
56 900
Section B
Question 1
Question 2
a) Computation of minimum taxable income for the year ended 31 December 2015.
Notes $
Shorai $ Shamiso $
b) Calculation of Partners taxable income
112 540 225 080
Share of taxable income (2/6 & 4/6)
2 000 3 000
Medical aid contribution
- 3 000
Insurance: Life of Shamiso
5 400 5 400
Pension contributions
-
Motoring benefit
119 940 237 480
Notes
1. Maximum allowance is $2 500 per annum for not more than one attendance.
2. Maximum allowable donation to destitute and homeless persons is $50 000.
3. Capital allowances schedule.
11 880
CHAPTER 9: FARMING
= 24 000*50%
= $12 000
Question 1
a) Treatment of livestock
i. Inherited livestock is valued according to the value attached to the livestock for estate
duty purposes. Where a farmer inherits livestock and immediately disposes the stock
the proceeds from such disposal is not taxable. Where a farmer incorporates the
livestock into his farming operations, such stock is valued according to the farmers
elected values.
ii. Donated livestock is valued according to values given the similar classes of livestock,
i.e. FSV‘s adapted by the farmer. Where a farmer donates livestock, the value of
such donation is gross income to the farmer.
iii. Livestock consumed is gross income to the farmer and is valued according to what
the Commissioner to be the fair and reasonable value.
b) Fiscal incentives available to farmers.
- 100% deduction of certain capital expenditures as stipulated in the seventh schedule
to the ITA.
- Most farm inputs such as fertilisers, pesticides, animal remedy, etc. are zero rated.
Question 2
a) Mr Dawson
Livestock reconciliation
Notes
1. Recoupment
$
Sales proceeds (14 000+ 4000) 18 000
Less: ITV 10 500
Recoupment 7 500
Thin capitalisation – debt serving cost in respect of loan acquired from a parent company
is restricted to maximum debt, which is three times the subsidiary‘s equity.
Question 2
a) Capital redemption allowance
b) Zhang Zhii
Computation of taxable income for the year ended 31 December 2015
Notes $
Net profit as per accounts 1 904 300
Add: Depreciation 120 000
Lease expenses 10 000
Interest to parent company 150 000
Management fees 24 000
Renewal & replacement (14 000 – 1500) 12 500
Less: Profit on sale of front-end loader (15 300)
Interest to parent company 1 (54 000)
Management fees 2 (5147)
Capital redemption allowance (100 813)
Taxable income 2 045 540
Notes
1. Interest
Equity (120 000 +60 000) $ 180 000
Debt limit (3*180 000) $ 540 000
2. Management fees
Total allowable expenditure (450 000+54000+134 000 +1 500) $639 500
1. D
The cost of improvement is spread over the unexpired lease period or 10 years
whichever is shorter.
2. A
Lease premium 10 000/10 $1000
Lease improvements 200 000/114 *6 $10526
3. B
Note# Lease premium is taxed in full to the lessor in the year of receipt but lease
improvement is spread over the unexpired lease period.
4. D
30000/5 years +80 000
$86 000
5. C
=(100 000+4*4000) – 86 000
=$30 000
Section B:
Question 1
1. Lease premium
30 000
10 years
2. Lease rentals
3. Lease improvements
$6 000
Nyasha P/L
Allowable deductions for 2015 Tax Year
$
Lease premium 3 000
A Guide to Zimbabwe Taxation 281
Lease rentals 1 800
Lease improvement 6 000
b) Properties Ltd
1. Lease premium
The whole amount of $3 000 is taxable in the year of agreement.
2. Lease rentals
$1 500* 12 months $18 000
3. Lease improvements
$200 000 * 6 months
120
$10 000
Note# The lessor is taxed as per the value of agreement, if there is no agreement, the lessor
will be taxed on the amount which the Commissioner deems to be the fair and reasonable
value.
c)
Tax implication to the lessee
- The lessee is taxed on the recoupment that may arise.
- The lessee may elect to spread such recoupment over six years.
Question 1
a) Testamentary trust- this is a trust created by the will of the testator. Testamentary trusts
became effective from the date of death of the testator.
b) A person has vested rights if, being the beneficiary of a trust, have a right to trust income
and the trustee having no discretion as to distribute to the beneficiary
Question 2
The Income for the year ended 31 December 2015 is assessable as follows:
- The son, Zhou, is taxable on his share of of the remaining taxable income and the trust is
liable on its 60% share.
$
Total net income 75 000
Less: exempt income:
Zimbabwe dividends 10 000
Foreign rentals 30 000 40 000
35 000
Less: proportion of annuity (1 000*35000/75 0000 467
34 533
Question 2
Selling price per unit $450
Less: cost $270
Gross profit $180
= 40%
2. B
(15%*4000 +5%*10 000)
= $1 100
3. B
4. C
5. D
6. A
7. A
(20/80 *8000 + 20/80*15 000)
CHAPTER 15
Question 1
a) Double taxation may arise as a result of:
- For instance Section 12 of the ITA deemed certain foreign income to have been
received from a Zimbabwean source, as such income accruing to Zimbabwean
residents like dividends; interest etc. may be taxed in the source country thus giving
rise to double taxation.
- Withholding taxes like Section 26: Non –resident shareholder‘s tax; section 30 non-
resident tax on fees; Section 31: Non-resident tax on remittances etc., are sections
which authorises the taxing of non-residents, who may be taxed in the country of
residence hence giving rise to double taxation.
Question 2
Munotida
Notes
1. Domestic tax Foreign tax Credit
Foreign interest 370.8 300.00 300
Foreign dividends 480.00 800.00 480.00
850.8 1 100.00 780.00
Question 2
Mapango Unlimited
b) Computation of capital gains tax liability for the year ended 31 December 2015.
Notes $
Proceeds on land (300 000 +90 000) 390 000
Proceeds on showroom 30 000
Proceeds on non-listed shares 3 000
Proceeds on admin building 80 000
Less: recoupment 1 (40 000) 40 000
Proceeds on warehouse 45 000
Less: recoupment 1 (7 500) 37 500
Proceeds on timber stalls 45 000
Less: recoupment 1 (10 000) 35 000
Notes
1. Recoupment
Admin building Warehouse Timber
3. Inflation allowance
Land (320000*2.5%*4) 32 000
Administration (60 000*2.5%*4) 6 000
Warehouse (75 000*2.5%*3) 5 625
Timber stalls (40 000*2.5%*2) 2 000
Showroom (24 000*2.5%*3) 1 800
Shares (1 000*2.5%* 3) 75
Total 47 500
Question 3
Perkins
a) Calculation to capital gains tax liability
$
Sales proceeds 1000 000
Less: cost (300 000)
Additional bedroom wing (50 000)
Staff cottage (20 000)
Dura wall (30 000)
Electric gate (15 000)
Swimming pool (40 000)
Inflation allowance:
Cost (2.5%* 300 000*4 ) (30 000)
Bedroom wing (2.5%*50 000*2) (2 500)
Staff cottage (2.5%* 20 000*2) (1 000)
Dura wall (2.5* 30 000*2) (1 500)
Electric gate (2.5%*15 000*1) (375)
Swimming pool (2.5%*40 000*1) (10 000)
Capital gains 508 625
Tax @ 20% 101 725
= $ 356 038
$
Capital gains 508 625
Less: roll-over relief 356 038
Taxable gains 152 587
Tax @20% 30 517.4
3. D
Note# a person is compulsorily required to register for VAT purposes if he/ she is
expected to attain a annual turnover of $60 000, i.e. a monthly turnover of $5 000.
4. A
5. C
6. A
15% *(35 000 +28 000)
= $9450
Category B operators submit in bi-monthly period ending February, April etc. So January
and February sales will be included in February return.
7. D
8. B
15/115*(10350+41400+13800)= $8 550.
9. C
10. A
If the Commissioner gives his determination concerning the objection of a taxpayer‘s appeal,
and such taxpayer is still dissatisfied, he or she may make an appeal to the Fiscal Court of
Appeal. An appeal should be in writing and should be made within 30 days of receipt of the
notice of determination of the Commissioner.
c) VAT registration
An operator is required to register for VAT purposes once his taxable supplies made in the
previous twelve months exceed $60 000, or where he or she reasonably believes that his
supplies will exceed $60 000 in the next twelve months.
Question 2
FT Limited
a) FT should be registered for VAT when they attained a sales threshold of $5 000 monthly.
They should therefore have registered for VAT in the month of May 2013, and submitted
the respective first VAT return on 25 June 2013.
Question 3
Statutory Instrument 104 of 2010 is the regulation which requires every registered operator
in category C to acquire a fiscalised electronic register or a non-fiscalised electronic register
which has a fiscalised memory device.
4. D
Penalty = 31*30*75% = 697.5
5. D
6. D
Question 1
a) Due dates
i. VAT return – 25th of the month following the end of a tax period
ii. Self-assessment return- by the 30th April following the end of tax year of the
Commissioner‘s notice.
iii. QPD return-on or before 25 March, 25 June, 25 September and 20 December or any
other date approved by the Commissioner.
iv. Capital gains tax return 30 days from the date of transfer or receipt of payment of
gross capital amount.
A Guide to Zimbabwe Taxation 293
v. ITF 16 – 31 January
vi. Monthly PAYE- 10th day following month end.
vii. Annual tax return – 30 days from the Commissioner‘s notice.
viii. Withholding tax on contracts – the 10th day of the month following that in which it was
deducted.
ix. Withholding tax on Non-Executive Directors fees – within 10 days from the date of
payment.