TAX LAW & PRACTICE(CUAC

212)

PROG: BSCAC
LEVEL: 2.1
YEAR : 2021
E.Muguti, PhD,AICTA.
+263775712712
emuguti@cut.ac.zw
Block 12
 Food for thought

‘There are only two things which are certain in life; death and
taxes’ (Franklin)

‘People often say death and taxes are the same, but this is
wrong. Death is a taxable event, but taxes never die’-Anonymous
 CUAC 212 COURSE OUTLINE
AIM
• To develop knowledge and skills with respect to the Zimbabwean tax
system.
MAIN CAPABILITIES
• After completing this course students should be able to:
1. Explain the importance of taxation
2. Outline the general framework for the administration of taxes in
Zimbabwe.
3. Apply tax principles in computing the income tax liability of an
individual.
 CUAC 212 COURSE OUTLINE
4. Apply tax principles in computing corporate tax liability.

5. Apply tax principles in computing the capital gains tax liability.

6. Apply tax principles in computing Value Added Tax (VAT) payable or

refundable.
 Course Outline continues….
1.Introduction to Taxation in Zimbabwe
2. Gross Income
3. Exemptions
4. Allowable deductions (& prohibited deductions).
5.Capital Allowances.
6. Tax Credits
7. Taxation of employment income and income from trade and
investment (individuals)
8. Taxation of companies
9. Taxation of farmers and partnerships
10. Capital Gains Tax (CGT).
11. Value Added Tax (VAT).
Course Outline continues….

2020 tax year!

 Introduction to Taxation

1.1 Definition of tax

 Tax is a compulsory amount paid by individuals or businesses to
a central or local government of a country.
 Introduction to Taxation
1.2 Purpose of taxation
•Taxation serves four broad objectives; Revenue, Redistribution, Re-pricing
and Representation.
(a) Revenue
 Source of revenue for financing government expenditure, e.g health
care, education, infrastructure development, etc.
(b) Redistribution
 To redistribute wealth among society members.
 To support economically disadvantaged members of the society e.g sick,
unemployed and elderly.
 To reduce income gap between the rich and the poor.
 Introduction to Taxation
1.2 Purpose of Taxation
(c) Repricing
 To influence the prices of goods and services, so as to;
 Control imports, prevent dumping, stimulate local industries, reduce
unemployment, discourage or encourage consumption in certain sectors
of the economy and to regulate consumption.
•(d) Representation
 People generally demand accountability and better governance once
taxed.
 Introduction to Taxation
1.3 Classification of taxes
 Taxes may be classified according to any of the following three
ways;
(i)Direct or indirect.
(ii)Regressive or progressive
(iii)Administrative classification
 Introduction to Taxation
(a) Direct or Indirect tax
 Direct tax: The person who is charged tax is the one who pays
it.
 For example, corporate tax.
 Indirect tax: Tax is charged on one person but paid by a
different person.
 For example, Value Added Tax (VAT).
 VAT is charged on a trader but paid by the consumer.
 Introduction to Taxation
(b) Regressive or progressive taxes
 Regressive tax is represented by a flat tax rate.
 High and low income-earners are both charged the same rate of tax.
 It therefore impacts the poor more negatively than the rich because
they pay a greater proportion of their income as tax.
 E.g VAT
 Introduction to Taxation
(b) Regressive or progressive taxes
 Progressive tax: Increases the rate of tax as the income increases.
 The more income you get, the more tax you pay.
 Relatively fairer on the poor since they pay less of their income as tax as
compared to the rich.
 E.g PAYE (tax on employment income).
 The tax bands will generally look like this;
•Income band ($) Rate of tax (%)
•Up to 3600 0%
•3601 to 5000 20% etc.
 Introduction to Taxation
(c) Administrative classification
 Taxes may be classified according how they are administered(charged
and collected) by the government as follows;
• Income Tax
• Capital gains tax
• Value Added tax
• Customs duty
• Excise duty
• Estate duty, etc
 Introduction to Taxation
1.4 Sources of Tax Law
 There are basically three sources of tax law in any given
country; namely,

• Legislation.
• Case Law (Judicial precedence).
• Departmental Practices.
 Introduction to Taxation
1.5 Tax Administration
In Zimbabwe, taxes are generally administered by the
Zimbabwe Revenue Authority(ZIMRA).

 The head of ZIMRA is known as the Commissioner

General(CG) of taxes.

The CG has the overall responsibility to administer

taxes.
 Introduction to Taxation
1.6 Principles of a good tax system
 The following tax principles should govern, a good tax
system:
(i)Vertical equity principle
 Every member of state should contribute towards the burden
of tax in accordance with his/her ability.
(ii)Horizontal equity principle
 Taxpayers in the same economic circumstances should receive
equivalent tax treatments.
 Introduction to Taxation
1.6 Principles of a good tax system
(iii)Certainty
The amount, timing and manner of payment should be
known.
(iv)Simplicity
Tax legislation must be in simple language and;
Easily understood by the subjects.
 Introduction to Taxation
1.6 Principles of a good tax system
(v)Tax neutrality or efficiency principle
Tax should ensure that economic resources are diverted
from where they are abundant to where they are
needed most.
(vi) Flexibility
Tax system should be able to accommodate changes in
business, technology and markets.
 Introduction to Taxation
1.6 Principles of a good tax system
(vii) Effectiveness
A tax system should achieve its objectives.
It should be able to generate revenue.
(viii) Consistence and coherence
Transactions with the same commercial results should
have the same tax result.
 Introduction to Taxation
Activity
Discuss the extent to which Road tolls system(tollgate)
as a form of tax satisfies the qualities of a good tax
system.
 Introduction to Taxation
1.7 Definition of a Person
 Only a ‘person’ is charged tax.
 A "person" includes a natural person and an artificial person.
 Artificial persons are entities with separate legal existence,
e.g; company, trust or co-operative
 Partnerships and joint ventures are not persons.
However, the partners are persons and therefore charged tax.
 Introduction to Taxation
1.8 Basis of Taxation
The tax system of a country can either be;
Source-based(territorial), or
Resident-based(worldwide).
Source-based systems only tax income obtained from
within a country’s boarders.
Resident-based systems tax income obtained by
residents from all over the world.
 Introduction to Taxation
1.8 Basis of Taxation

Zimbabwe uses a source-based tax system!!.

 Introduction to Taxation
1.9 Definition of Residence
A resident of Zimbabwe is;
A Zimbabwean national, or
A person domiciled in Zimbabwe.
A person whose aggregate stay in Zimbabwe
exceeds 6 months in any year.
 Introduction to Taxation
1.9 Definition of Residence
A body corporate incorporated, established or formed
in Zimbabwe, or
Has its place of effective management in Zimbabwe.
 Introduction to Taxation
1.10 General Framework for the computation of income tax
Income tax is tax on Taxable income.
‘Taxable Income’ Formula
Gross Income(Sect. 8,10 & 12) XX
Less Exemptions (sect.14 a.r.w 3rd
Schedule) (XX)
Income XX
Less Allowable Deductions(sect.15 &16) (XX)
Taxable Income/(Assessed Loss) XX
 Introduction to Taxation
1.10 General Framework for the computation of
income tax
Taxable Income(TI) XX
Tax chargeable(apply tax rates)-FA XX
Less Tax Credits-Finance Act(FA) (XX)
Net tax XX
Add 3% Aids Levy 3%(where applicable) XX
Tax Payable/Tax liability XX
 Introduction to Taxation
1.10 General Framework for the computation of
income tax
A distinction should be drawn between;
Taxable income from employment and;
Taxable income from trade and investments.
Introduction to Taxation

END OF CHAPTER 1
CHAPTER 2:GROSS INCOME