TAX PRINCIPLES IN ZIMBABWE

2020 EDITION

By

MARVELLOUS TAPERA
MBA in Financial Services (University of Zimbabwe)
Association of Certified Chartered Accountants (ACCA)
Post Graduate Diploma in Tax-ICTA
Higher National Diploma in Accounting
Chartered Institute of Secretaries & Administrators (CIS)

i
A note about copyright

Dear Customer

What does the little © mean and why does it matter?

Matrix Tax School (Pvt) Ltd has committed time and resources in
coming up with this study material. The work requires total
commitment, sacrifice, patience, time and knowledge and these
attributes require years of investment. To make this quality
material accessible to you Matrix Tax School (Pvt) Ltd and its
staff have invested in this activity. Copyright law protects their
livelihoods. It does so by creating rights over the use of the
2020 Edition content.
ISBN
The abuse of copyrighted works or intellectual property is a
dishonest act, a theft, a fraud and a robbery -as well as being a
criminal offence in Zimbabwe. It also amounts to a serious breach
Published by of professional ethics.
Matrix Tax School (Pvt) Ltd The advance in technology should not be taken as a passport for
46 Van Praagh making this study text freely available to you, without the express
Milton Park permission of Tax Matrix (Pvt) Limited:
Harare, • Photocopying our materials is a breach of copyright
• Scanning, ripcasting or conversion of our materials into different
Zimbabwe file formats, uploading them to social media, or emailing them to
M: +263 242 252850 your friends is a breach of copyright
www.taxmatrix.co.zw We do not deny you the right to pass on the material you have
bought to your fellow students once you passed, but you should
© know that the Tax material changes on a regular basis and the
study text is intended for the sole use by you for 2020 exams.
Matrix Tax School (Pvt) Ltd shall not be liable for its use in any
other examination year.

We thank you for taking heed to this advice and which if fully
exercised by you will help in supporting you and future students.
Matrix Tax School (Pvt) Ltd
2018

ii
Preface
This book explores tax principles in Zimbabwe covering all tax heads namely corporate income tax,
withholding tax, VAT, capital gains and estate duty. The book has been updated in line with recent
developments covering Statutory Instrument 142 and all fiscal instruments gazetted up to 31 January
2019. It therefore articulates the monetary and fiscal changes vis their impact in the way business is
conducted and taxes are paid. Tax principles, as provided for in the different fiscal instruments are
simplified in a manner that provides a basic understanding to entrepreneurs, professional students,
researchers, investors and the entire tax community. Zimbabwe has double taxation agreements with
approximately sixteen countries and these provide for reduced rates of taxes between contracting
states. With this in mind, the book also focuses on double taxation agreements. The book is a business
toolkit as it guides business on important principles such as transfer pricing. Specific topics covered in
this book include taxation of employees, corporates, specifically insurance, mining, farming,
partnership and other business set-ups. In outlining these specific topics, the book provides practical
examples, problems and solutions that the reader can easily relate with and use to solve any tax
challenge they may be faced with be it in an exam or in their business. It does not only help with
problem solving but also provides an insight into tax compliance thus offering people in business an
opportunity to plan their tax. In this edition, the authors unpack the different areas of uncertainty and
illuminate some of the grey areas in the Zimbabwean tax code through practical examples and
solutions to demonstrate the correct exposition of the law from a practical perspective without
deviation from the precepts of the law. The reader‘s interest is captivated by book involves and
captures the reader‘s interest with a series of carefully designed features like studies in order to help
the reader understand the concepts from a practical point. Markings and signposts to highlight key
examinable point, court cases to help readers understand the concepts from a practical point of view,
chapter round up to highlight on the key aspects in each chapter is understood and to serve as a quick
reference for examination preparations. It is a student oriented textbook with the aim of addressing
areas of difficulty in tax, areas of misalignment between accounting and tax principles and the correct
way of closing the dichotomy between the two. University students and professional students will find
this book an important study guide as they prepare for their exams.

Entrepreneurs, professional students, researchers, investors and the entire tax community will find this
book to be a useful toolkit. However, whilst every effort has been made to ensure information
contained in this book is accurate, it does not constitute a ZIMRA Ruling. If any uncertainty exists
with a particular aspect of the information provided, please do seek clarity from the ZIMRA. All tax
legislation, tax rates and credit amounts included in this booklet are based on information available as
of the 10 February 2020 unless otherwise stated. The book was updated using Statutory Instrument 33
which requires use of the Zimbabwe Dollar as the functional currency for accounting and other
purposes and for this reason the currency used in this book is the Zimbabwe Dollar unless otherwise
stated.

Matrix Tax School (Pvt) Ltd

February 2020

iii
Background to currency of paying tax
The government enacted various monetary and fiscal policies in 2019 whose effects are far reaching
and have permanently changed our tax code. These are comprised of Statutory Instruments 32, 33 and
142 of 2019, Finance Act no 1, 2 and 3. Statutory Instrument 32 of 2019 changed the definition of
currency to include electronic currency (RTGS). This was then complimented by Statutory Instrument
33 of 2019 which had a massive impact on the fiscus despite being a monetary policy. These two
Statutory Instruments were then crystallised into permanent law through the Finance Act No 2 of
2019. The provisions of Statutory Instrument 33 of 2019 now sit in the Reserve Bank of Zimbabwe
Act [Chapter 22:15] (No. 5 of 1999). The critical provisions of Statutory Instrument 33 of 2019 whose
impact is felt across the entire fiscal front is section 4(d) which provides as follows: ―that, for
accounting and other purposes (including the discharge of financial or contractual obligations), all
assets and liabilities that were, immediately before the first effective date, valued and expressed in
United States dollars (other than assets and liabilities referred to in section 44C(2) of the principal
Act) shall on the first effective date be deemed to be values in RTGS dollars at a rate of one-to-one to
the United States dollar‖ and section 4(f) which reads as follows: ―every enactment in which an
amount is expressed in United States dollars shall, on the first effective date (but subject to subsection
(4)), be construed as reference to the RTGS dollar, at parity with the United States dollar, that is to
say, at a one-to-one rate.‖ The implication of SI 33 was that it declared the RTGS dollar as the
functional currency for reporting, accounting and other purposes. Tax reporting will therefore be made
in Zimbabwe dollar, despite the laws for payment of taxes in foreign currency. Assessed loss and other
aspects of income tax which have the effect of affecting more than one year such as computation of
recoupment, lease improvement allowance, lease premium allowance, bad debts, trading stock to
mention but a few if held prior to 22nd of February 2019 in United States dollar take the Zimbabwe
dollar character after this date. They must be entered in the Zimbabwean dollar income tax
computation without further conversion. There are also implications regarding exchange gains and
losses arising from the conversion which will be fully explained inside this book, along with
methodology for computation of income tax on business profits. SI 33 also provides for benefit to the
fiscus in areas where ZIMRA is required to make refunds to taxpayers. Persons with refunds which
accumulated prior to 22 February 2019 will from this date paid in Zimbabwe dollar at 1.1 USD to
RTGS$. Taxpayers with outstanding tax liability will enjoy tax amnesty since their liabilities will be
converted at 1: 1 USD to RTGS$ if they remain unpaid on or after 22 February 2019.

Statutory Instrument (SI) 142 of 2019 introduced on 24th of June 2019 outlawed the use of foreign
currency in domestic transactions by designating the Zimbabwe dollar represented by the bond note
and the RTGS dollar as the sole currency for tender purposes within Zimbabwe. Exception for the use
of foreign currency is for purposes of paying of duty and VAT upon importation of goods as well as
paying airfares to airlines.

Notwithstanding the provisions of SI 142, section 4A of the Finance Act Chapter 23:04 is the
provision on which the legality of payment of taxes in foreign currency is predicated. Therefore where
persons whether individuals, corporates or non-body corporates who earn, receive or accrue their
income in foreign currency in whole or in part are required pay tax in the same or another specified
foreign currency on so much of that income as is received or accrued in that currency. This brings
about the issue of splitting the United States Dollar and Zimbabwe dollar incomes for purposes of tax
settlement. We explain in detail the methodology inside this edition. The mechanics on the payment of
taxes in foreign currency are however subject to interpretation and ZIMRA has already provided its
own interpretation with regards to the computation of taxes through Public Notice No 26 of 2019. This
is explained and analysed in this edition.

iv
The two Finance Acts no 2 and 3 are also important in so as prescribing rates of taxes, statutory
allowances and other prescribed values. To secure coherence between the revenue acts and SI 142, the
government has through these instruments enforced the issue of paying taxes in foreign despite returns
being expressed in Zimbabwe dollar. For these reasons, the currency utilised throughout this book,
unless otherwise stated, is the Zimbabwe dollar.

v
Tax rates, allowances and prescribed values
Individual Tax Tables

Employment Income in ZWL – 1 January to 31 July 2019

ANNUAL TABLE (ZWL$)
Rate
From 0 To 4,200 multiply by 0% Deduct -
From 4,201 To 18,000 multiply by 20% Deduct 840
From 18,001 To 60,000 multiply by 25% Deduct 1,740
From 60,001 To 120,000 multiply by 30% Deduct 4,740
From 120,001 To 180,000 multiply by 35% Deduct 10,740
From 180,001 To 240,000 multiply by 40% Deduct 19,740
From 240,001 And Above Multiply by 45% 31,740

Aids Levy is 3% of the Individuals' Tax payable after credits

Employment Income in ZWL – 1 August to 31 December 2019

ANNUAL TABLE (ZWL$)
Rate
From 0 To 3,500 multiply by 0% Deduct -
From 3,501 To 15,000 multiply by 20% Deduct 700
From 15,001 To 50,000 multiply by 25% Deduct 1,450
From 50,001 To 100,000 multiply by 30% Deduct 3,950
From 100,001 To 150,000 multiply by 35% Deduct 8,950
From 150,001 And Above multiply by 40% Deduct 16,450
Aids Levy is 3% of the Individuals' Tax payable after credits

Employment Income in USD – 1 August to 31 December 2019

ANNUAL TABLE (US$)
Rate
From 0 To 350 multiply by 0% Deduct -
From 351 To 1,500 multiply by 20% Deduct 70
From 1,501 To 5,000 multiply by 25% Deduct 145
From 5,001 To 10,000 multiply by 30% Deduct 395
From 10,001 To 15,000 multiply by 35% Deduct 895
From 15,001 And Above multiply by 40% Deduct 1,645
Aids Levy is 3% of the Individuals' Tax payable after credits

vi
Employment Income in ZWL – 1 January to 31 December 2020

ANNUAL TABLE (ZWL$)

Rate
From 0 To 24,000 multiply by 0% Deduct -
From 24,001 To 90,000 multiply by 20% Deduct 4, 800
From 90,001 To 180,000 multiply by 25% Deduct 9,300
From 180,001 To 360,000 multiply by 30% Deduct 18,300
From 360,001 To 600,000 multiply by 35% Deduct 36,300
From 600,001 And Above multiply by 40% Deduct 66,300

Aids Levy is 3% of the Individuals' Tax payable after credits

Employment Income in USD – 1 January to 31 December 2020

ANNUAL TABLE (US$)
Rate
From 0 To 840 multiply by 0% Deduct -
From 841 To 3,600 multiply by 20% Deduct 168
From 3,601 To 12,000 multiply by 25% Deduct 348
From 12,001 To 24,000 multiply by 30% Deduct 948
From 24,001 To 36,000 multiply by 35% Deduct 2,148
From 36,001 And Above multiply by 40% Deduct 3,948
Aids Levy is 3% of the Individuals' Tax payable after credits

NB: Foreign employees holding temporary employment permits issued by the Department of
Immigration to work in the licensed Special Economic Zones, pay Income Tax at 15% of their taxable
income.

vii
Fringe benefits

Benefit Taxable Comment

Accommodation Cost to employee Open market rental is deemed cost to employee
Airtime allowance Cost to employer If business usage is justified there is no benefit to
the employee.
Insurance polices Cost to employer Premiums paid by employers on group insurance
are non-taxable.
Canteen meals and Cost to employer Cost includes both variable and non-variable
subsidized lunches (fixed) costs.
Cellphone Handset Cost to employer The benefit is implied whether acquisition is by an
outright purchase or leasing.
Clothing benefit Cost to employer Uniforms or protective clothing as a condition of
duty in terms of CBA is a non-taxable benefit to
the employee.
DSTV Cost to employer Non-business entertainment is taxable.
Entertainment Cost to employer Business entertainment non taxable
Fuel coupons Cost to employer Business mileage should be recovered using AA
rates. Excess allowance is regarded as benefit to
employee.
Fuel for use in private Cost to employer Business mileage should be recovered using AA
car for company rates. Excess allowance is regarded as benefit to
purposes employee.
Fuel for use in private Cost to employer Allowance is regarded as benefit to the employee.
car for personal purposes
Gardener Cost to employer Taxable in the hands of the employee.
Interest free loan LIBOR + 5%  LIBOR is obtainable from Zimra website
depending on the tenure of the loan.
 Small loans $1000 or below are tax free
 Salary advances recovered on the next pay
day are not deemed loan.
 Loans for education or for medical purposes
are tax free.
Medical contributions Cost to employer Amounts paid to an approved medical aid society
on behalf of an employee are an exempt benefit to
the employee.
Medical expenses Cost to employer medical expenses paid by employer are exempt
Motor vehicle acquired Open market Exempt for persons who are 55 years or above.
from employer value
Passage benefit Cost to employer First passage benefits for taking up or termination
of employment (one a piece) is non-taxable.

viii
Payment of employee‘s Value of debt
debts paid
Promotional material Cost to employer There is no taxable benefit to the employee.
Reimbursement of Cost to employer First passage benefits for taking up employment
employee moving and termination of employment (one a piece) non-
expenses taxable
Right of use of company Statutory values Based on deemed annual cost as follows:
cars
Engine capacity ZWL$ USD
Up to 1500 CC 54,000 4,500
1501-2000 CC 72,000 6,000
2001-3000 CC 108,000 9,000
3001 CC & above 144,000 12,000
School fees Cost to employer 50% exemption on value of the benefit on
maximum of 3 children of staff for teachers and
non-teaching staff at a school.
Subscriptions to Cost to employer Professional subscriptions are non-taxable since
recreational clubs the person is eligible for deduction (s15 (2) (s)).
Subscriptions to social or Cost to employer Subscriptions to professional membership of an
sports clubs association are exempt.
Travel and subsistence Cost to the Business travel-non-taxable. Employee should be
allowance employer away from place of work overnight and rates must
be reasonable.

ix
Employee exemptions

Item $ ZWL $ US
Bonus 5,000 320

Retrenchment packages 50 ,000 or 1/3 of 3,200 or 1/3 of

240,000 (i.e. 80,000) 15,100 (i.e.5,033.33)
whichever is greater
amount
Pension commutation when employment ceases 50 ,000 or 1/3 of 3,200 or 1/3 of
due to retrenchment 240,000 (i.e. 80,000) 15,100 (i.e.5,033.33)
whichever is greater
amount
Pension accrual or receipts of elderly persons Amount received or Amount received or
(person over 55 years) accrued accrued

Medical contributions and expenses incurred by Amount paid or Amount incurred by

employer on behalf of employee, his/her spouse incurred by the the employer
or child. employer

Death benefit paid by Amount paid Amount paid

(a) by a trade union; or
(b) from a benefit fund; or
(c) in terms of a policy of insurance covering
accident, sickness or death; or
(d) By a medical aid society.
Civil servants benefits e.g. representation Amount paid Amount
allowance, sale or donation of motor,
entertainment allowance etc
School benefit for teachers and non-teaching 50% of school 50% of school
staff at school benefit up to 3 benefit up to 3
children children
Free use of residence or quarter or allowance Amount paid or Amount paid or
including transport for members of staff of a value given value given
mission hospital or rural clinic
Scholarship or bursary Amount paid or Amount paid or
value given value given

x
Tax credits

Tax credits in Zimbabwe Dollar- annual rates

Item 2020 2019
Credit to taxpayers over 55 years of age 9,000 7,200
Blind person‘s credit 9,000 7,200
Mentally or physically disabled person credit 9,000 7,200
Medical expenses $1 in every $2 $1 in every $2
incurred incurred

Tax credits in United States Dollar- annual rates

Item 2020 2019
Credit to taxpayers over 55 years of age 720 720
Blind person‘s credit 720 720
Mentally or physically disabled person credit 720 720
Medical expenses $1 in every $2 $1 in every $2
incurred incurred

Elderly persons concession in Zimbabwe dollar

Item Annual Monthly

Rental Income 30 000 2 500

Interest on deposits with financial institutions 30 000 2 500
Interest on discounted instruments 30 000 2 500
Pension for a person who is 55 years or above No limit No limit
Gain on disposal of Principal Private Residence No limit No limit
Gain on disposal of marketable securities 18 000 N/A
Gain on acquisition of motor vehicle from employer No limit No limit

xi
Trade and investment income tax rates

Taxpayer Rate
Self-employed , sole trader or partners 24.72%*
Companies and trusts 24.72%*
Special Mining lease 15%
Licensed investor in Special Economic Zone (SEZ)
First five years of the arrangement 0%
Second five years of the arrangement 15%
An approved BOOT or BOT arrangement :
First five years of the arrangement 0%
Second five years of the arrangement 15%
Thereafter 24%
Industrial park developer
First five years of the arrangement 0%
Second five years of the arrangement 24%
Taxable income of operator of a tourist facility in approved tourist development
zone (before the fifth year of his or her operation as such) 0%
An operator of a tourist facility in approved tourist development zone
First five years of the arrangement 0%
Second five years of the arrangement 24%
Export manufacturing company which exports:
Export level(%) 30-40 of its output 20%
Export level(%) 41-50 of its output 17.5%
Export level (%) above 51 15%

*3% AIDS levy is applicable on income tax chargeable after tax credits. Normal rate is 24%

Capital allowances

Type of Capital Allowance Rate

Special Initial Allowance:
Large Corporates 25% per annum
Licensed Investor 50% in first year & 25% in subsequent years
SMEs 50% in first year & 25% in subsequent years
Accelerated Wear & Tear 25%
Wear and Tear on:
Industrial buildings 5%
Farm Buildings 5%
Commercial Buildings 2.5%
Motor Vehicles 20%
Moveable Assets 10% (General Rate)

xii
Withholding tax rates

Withholding Tax Due date Rate of tax

Non-Residents Shareholders Within 30days of the date of 10% ZSE listed
‗Tax distribution 15% unlisted shares
Resident Shareholders' Tax Within10daysof the date of 10% ZSE listed
distribution 15% unlisted shares
Non -resident tax on interest Repealed Exempt
Non-Residents' Tax on Fees Within 10 days of the date of 15%
payment
Non-Residents‘ tax on Within 10 days of date of payment 15%
remittances
Non-resident tax on royalties Within 10days of date of payment 15%
Resident tax on interest By the 10th of the following month  15% general rate
 5% deposit of at least 90
days
 Exempt deposit of at
least 12 months
Tobacco levy Within15daysof the date of 1.5%
distribution
Automated Financial Bythe10thday of the month 0.50c
Transactions Tax following the month transaction
was effected
Demutualization Levy Within three months after issuing 2.5%
to the member
Intermediated Money transfer By the 10th day of the month 2% of value of transaction
tax (IMTT) following the month in which it
was effected.
Withholding tax on local By the 10th day of the month 10%
contract following month of payment

Non-Executive Directors ‗Fees Within 10 days of the date of 20%

payment
Property or insurance By the 10th day of the month 20%
commission tax following month of payment
Non-resident artists By the 10th day of the month 15%
following month of payment

xiii
Treaty rates of taxes

Country Dividends(1) Fees Royalties Remittances(3)

% % % %
Botswana 5(1)/10(2) 10 10 15
Bulgaria 10 10 10 15
Canada 10 10 10 15
China 2.5(1)/7.5(2) 7.5 7.5 15
France 10 10 10 15
Germany 10 7,5 7,5 15
Malaysia 10 10 10 15
Mauritius 10 0/15 (4) 15 15
Netherlands 10 10 10 15
Norway 15 10 10 15
Poland 10 15 10 15
South Africa 5/10 5 10 15
Sweden 15 10 10 15
United Kingdom 5 10 10 15

Notes
(1)
Only on shareholding or voting power, by a company, of at least 25%; otherwise the rates remain
(1)
.
(2)
The rate in scenario where voting power is below 25%.
(3)
Not applicable on DTAs hence Non-residents‘ tax on remittances remains at 15% in all cases
(4)
Both rates are specified. Exemption appears to depend on there being liability in Mauritius.

xiv
Table of Prescribed Values (2020)

Value Added Tax prescribed values

Item Amount (ZWL$)
Compulsory VAT registration threshold 1,000,000
Voluntary VAT Registration CG to fix minimum value
Qualification under VAT category C 4,000,000
Qualification under VAT category D 2,000,000
Minimum capital goods value for VAT adjustment 600
Minimum lay bye value 250
Value of supply not requiring tax invoice 100
Minimum VAT to be Refund 600
Civil penalty per day for late submission of returns 30
Civil penalty per day for late VAT registration 30
Civil penalty per day for late notification of change in status 30
Minimum value qualifying for VAT deferment 48,000
Penalty for delayed VAT arising from sale in execution of debt Amount of tax due
VAT standard rate 14.5%
VAT Zero rate 0%
VAT on imported services 14.5%
Exempt rate Nil

Income Tax prescribed values

Item 2020 2019 2018
(ZWL$) (ZWL$) (USD)
Value of small loan free of tax 1,000 100 100
Arrear Pension contribution by individuals 18,000 14,400 1,800
Allowance to former employee retiring on grounds of ill 5,000 4,000 500
health etc (exgraitia payment)
Allowance to former partner retiring etc on grounds of ill 2,000 1,600 200
health (exgraitia payment)
Allowance to dependent (s) of former employee or 2,000 1,600 200
partner
Donations to State, local authority, or religious 1,000 800,000 100 000
organisation hospitals 000
Donation to a research institution 1,000 800,000 100 000
000
Donation of educational equipment, construction, or 1,000 800,000 100 000
maintenance, books and other educational materials. 000
Donation to the Public Private Partnership Fund 500,000 400,000 50,000
Donation to the Destitute Homeless Persons 500,000 400,000 50,000
Rehabilitation Fund
Trade Conventions or Trade Missions (each) 25,000 20,000 2,500
Deduction in respect of income of a Cooperative society. 5,000 4,000 500

xv
Expenditure incurred on infrastructural development or 500,000 400,000 50,000
maintenance of property owned by local authority
Maximum lease expenses for PMV 100,000 80,000 10,000
Withholding tax on contracts (ITF263) threshold 10,000 8.000 1,000
Exemption of annuity on retirement lump sum payment 18,000 14.400 1,800
cap
Exemption from income tax of Lump sum payments from 18,000 14,400 1,800
funds with changed rules
Fixed standard value in relation to a class of stud 1,500 1,200 150
livestock
Purchase price value in relation to stud livestock 1,500 1,200 150
Exemption of rental income in respect of tax payer aged 30,000 3,000 3,000
55years or more
Minimum exemption of pension commutation from the 50,000 10,000 10,000
Consolidated Revenue Fund where employment ceases
due to retrenchment
Maximum exemption of pension commutation from the 80,000 20,000 20,000
Consolidated Revenue Fund where employment ceases
due to retrenchment (1/3 of amount up to maximum of a
1/3 of 240,000)
Exemption of a deposit with a financial institution to 30,000 24,000 3,000
persons of 55 years and above
Exemption on banker‘s acceptances and other discounted 30,000 24,000 3,000
instruments traded by financial institutions and accruing
to a taxpayer who is of or over the age of 55 year.
Staff housing qualifying cost for capital allowances 250,000 25,000 25,000
Cost of farm dwelling for capital allowances 150,000 15,000 15,000
Limitation of PMV for capital allowances 100,000 80,000 10,000
Any building used by farmer as hospital, nursing home or 100,000 80,000 10,000
clinic
Any building used by farmer as a school 100,000 80,000 10,000
Any building used mainly as a dwelling by one or more 100,000 10,000 10,000
individuals who control the mining company
Cost of PMV for miner 100,000 80,000 10,000
Any building used as hospital, nursing home or clinic at 500,000 400,000 50,000
mine
Any building used as a school at mine 500,000 400,000 50,000
Renewal or replacement of buildings, works or 100,000 8,000 1,000
equipment (mining)

Renewal or replacement of buildings used as dwelling 15,000 12,000 1,500

(mining)
Contributions by Employers to benefit funds for each 15,000 12,000 1,500
member (employee)
Pension contribution employers per member 54,000 43,200 5,400
Contributions by Members of retirement annuity funds 54,000 43,200 54,000
Informal Traders are individuals with a minimum income 60,000 48,000 6,000
of

xvi
Capital gains tax

Capital gains tax rates

Date of acquisition of specified asset Applicable rate
Acquired before 1st of February 2009 and sold thereafter 5% of capital amount (proceeds less
exemptions)
Acquired after 1 February 2009 and sold before 22 nd 20% of capital gain (proceeds less
February 2009 exemptions less deductions)
Acquired after 1 February 2009 and sold after 22nd of 5% of capital amount (proceeds less
February 2019 exemptions)
Acquired after 22nd of February 2019 and sold thereafter 20% of capital gain (proceeds less
exemptions less deductions)
Listed marketable securities acquired after 1 Feb 2009 1% of gross proceeds

Capital gains withholding tax

Date of acquisition of specified asset Applicable rate
Immovable property 15% of proceeds (not final tax)
Unlisted marketable securities 5% of proceeds (not final tax)
Listed marketable securities acquired 1% of gross proceeds
after 1 February 2009

Inflation adjustment rate 2·5%

Capital gains withholding tax

Item Amount in ZWL$
Assessed capital loss to be reduced by an amount of 1,000
Exemption of amounts accruing to persons over 55 18,000
years on sale of marketable security
Limitation of deduction on computation of capital 500
gains tax

xvii
Table of Contents

Tax rates, allowances and prescribed values .......................................................................... vi

CHAPTER 1: THE TAX SYSTEM.................................................................................. 1
1.1 Introduction ................................................................................................................... 1
1.2 Purpose of taxation in modern economy ........................................................................ 1
1.3 Different types of taxes .................................................................................................. 3
1.4 Capital vs. Revenue taxes ............................................................................................... 3
1.5 Structure of the Zimbabwean tax system ........................................................................ 4
1.6 Different sources of revenue law .................................................................................... 5
1.7 Zimbabwe tax system vs. other tax jurisdictions ............................................................. 6
CHAPTER 2: GROSS INCOME...................................................................................... 7
2.1 Introduction ................................................................................................................... 7
2.2 Definition of gross income .............................................................................................. 7
2.3 Conclusion.................................................................................................................... 20
CHAPTER 3: EMPLOYMENT TAX ............................................................................ 21
3.1 Introduction ................................................................................................................. 21
3.2 Taxation basis of employees ......................................................................................... 21
3.3 Self-employment .......................................................................................................... 23
3.4 Employment income..................................................................................................... 23
3.5 Employees’ tax ............................................................................................................. 23
3.6 Deemed accrual............................................................................................................ 26
3.7 Determination of employee’s taxable income............................................................... 26
3.8 Specific inclusion in the employee’s gross income ........................................................ 27
3.9 Fringe benefits (s 8 (1)(f)) ............................................................................................. 34
3.10 Exemptions ............................................................................................................... 44
3.11 Deductions ................................................................................................................ 49
3.12 Computation of tax liability ....................................................................................... 51
3.13 Employment tax liability in foreign currency .............................................................. 52
3.14 Tax credits ................................................................................................................ 52
3.15 Administrative aspects .............................................................................................. 55
3.16 Final deduction system (FDS) .................................................................................... 57
3.17 Other payroll matters ................................................................................................ 57
CHAPTER 4: TRADING INCOME ............................................................................... 59
4.1 Introduction ................................................................................................................. 59
4.2 An overview taxpayers ................................................................................................. 59

xviii
4.3 Basis of assessment ...................................................................................................... 61
4.4 Meaning of trade .......................................................................................................... 61
4.5 Carrying on a trade ....................................................................................................... 62
4.6 The adjustment of profits ............................................................................................. 62
4.7 Taxable income and taxes in foreign currency............................................................... 64
4.8 The tax rates................................................................................................................. 65
4.9 Youth Employment tax incentive .................................................................................. 67
4.10 Specific gross income items....................................................................................... 67
4.11 Lease premium, know-how payments ....................................................................... 69
4.12 Lease improvements ................................................................................................. 69
4.13 Growing crops ........................................................................................................... 71
4.14 Trading stock ............................................................................................................ 71
4.15 General recoupment ................................................................................................. 73
4.16 Concessions .............................................................................................................. 75
4.17 Leasing recoupment .................................................................................................. 76
4.18 Grants / Subsidies ..................................................................................................... 77
4.19 Foreign exchange ...................................................................................................... 77
4.20 Exemptions ............................................................................................................... 78
5.1 Introduction ................................................................................................................. 83
5.2 General deduction formula- s15(2)(a) ........................................................................... 83
5.3 Expenditure and Losses ................................................................................................ 84
5.4 General expenditure..................................................................................................... 89
5.5 Specific deductions ....................................................................................................... 95
5.6 Prohibited deductions (Section 16 of the ITA) ............................................................. 112
5.7 Hire purchase or suspensive sale ................................................................................ 120
6.1 Introduction ................................................................................................................... 124
6.2 General overview ........................................................................................................... 124
6.3 Capital ‘expenditure’ ...................................................................................................... 124
6.4 Assets ranking for capital allowances............................................................................. 124
6.5 Special initial allowance ................................................................................................. 128
6.6 Wear & tear................................................................................................................... 130
6.7 Scrapping allowance...................................................................................................... 132
6.8 Recoupment of capital allowances ................................................................................. 133
6.9 Schemes of Reconstruction ............................................................................................ 135
6.10 Capital allowances on lease improvements ................................................................. 135
xix
6.11 Finance lease ................................................................................................................ 136
6.12 Hire purchase ............................................................................................................... 136
6.13 Letting of assets ........................................................................................................... 136
6.14 Small and medium enterprises (S.M.Es) ....................................................................... 137
6.15 Special Economic Zones................................................................................................ 137
6.17 Conclusion .................................................................................................................... 137
7.1 Introduction ................................................................................................................... 138
7.2 Partnership .................................................................................................................... 138
7.3 Basis of assessment ........................................................................................................ 138
7.4 Changes in membership ................................................................................................. 140
7.5 Change in profit sharing arrangements .......................................................................... 141
7.6 Assets co-owned ............................................................................................................ 142
7.7 Goodwill ......................................................................................................................... 143
7.8 Trade convention and mission ....................................................................................... 143
7.9 Bad debts ....................................................................................................................... 143
7.10 Subscriptions ................................................................................................................ 143
7.11 Interest on money borrowed by partner ...................................................................... 144
7.12 Passage benefit ............................................................................................................ 144
7.13 Returns and assessment ............................................................................................... 144
7.14 Assessed loss ................................................................................................................ 144
8.1 Introduction ................................................................................................................... 146
8.2 Livestock trading stock ................................................................................................... 146
8.3 Farming special capital expenditure ............................................................................... 149
8.4 Enforced sale of livestock ............................................................................................... 151
8.5Subsidies or grants .......................................................................................................... 152
8.6 Timber farmers .............................................................................................................. 153
8.7 Orchards and vineyards farmers .................................................................................... 155
8.8 Leasing of farming land or equipment............................................................................ 156
8.9 Restocking allowance ..................................................................................................... 156
8.10 Inheritance and donation ............................................................................................. 156
8.11 Capital allowances ....................................................................................................... 157
8.12 Other deductions ......................................................................................................... 158
8.13 Standing crops bought with the land............................................................................ 158
8.14 Assessed loss ................................................................................................................ 158
9.1 Introduction ................................................................................................................ 159
xx
9.2 Scope of mining tax .................................................................................................... 159
9.3 Meaning of mining operations .................................................................................... 159
9.4 Meaning of mineral .................................................................................................... 160
9.5 Mining capital expenditure ......................................................................................... 160
9.6 Estimate of life of mine .............................................................................................. 163
9.7 Computation of capital redemption allowance ............................................................. 163
9.8 Replacement allowance .............................................................................................. 167
9.9 Mining rehabilitation expenditure ............................................................................... 167
9.10 Overburden removal costs ....................................................................................... 168
9.11 Independent mining locations .................................................................................. 168
9.12 Mining operations vs other trades ............................................................................ 168
9.13 Cessation of mining operations ................................................................................ 169
9.14 Transfer of ownership of a mine .............................................................................. 169
9.15 Mining Royalty ....................................................................................................... 169
9.15.2 Royalty rates ........................................................................................................... 170
9.15.3 Royalty rates on gold ............................................................................................. 171
9.15.4 Royalty remittances and returns............................................................................... 171
9.15.5 Penalties for late remitted royalties .......................................................................... 172
9.15.6 Statutory Commissions ........................................................................................... 172
9.15.7 Conclusion .............................................................................................................. 172
10% WITHHOLDING TAX MORATORIUM FOR RBZ ........................................... 231
The Isuzu which was being used by Miranda was involved in an accident and was sold as scrape
on 3 January 2019 for $38,000; the profit on its disposal amounting to $5,600 is incorporated in
pre-capital allowances profits stated above. ......................................................................... 334

xxi
xxii
Chapter 1: The Tax System

1.1 Introduction

The chapter introduces the Zimbabwean tax system. It outlines the function and purpose of
taxation, focusing on economic, social and environmental factors. We identify the type of taxes
in Zimbabwe and briefly describe the sources of revenue. In conclusion, it looks at the tax
controversy and the need for ethical behaviour in dealing with this aspect. We show you how
the Zimbabwean tax system interacts with overseas tax jurisdictions. Finally we highlight the
difference between tax avoidance and tax evasion and explain the need for a professional and
ethical approach in dealing with tax.

1.2 Purpose of taxation in modern economy

Tax is money or consideration paid to the government compulsorily and with no direct return of
value to the payer. The levying tax is driven by the economic, social and environmental factors.
Broadly taxation performs the following functions for the government:

 Revenue generation: Taxes generate revenue for funding public expenditures e.g. health
care, education, infrastructure development etc.
 Wealth redistribution: Taxes are used as mechanism of redistributing wealth among society
members to support economically disadvantaged members of the society, e.g. sick,
unemployed or elderly people, or to reduce the income gap between the rich and poor.
 Re-pricing: Taxes can be used in repricing as a way of addressing externalities e.g. Green
taxes or emission taxes (carbon taxes in Zimbabwe), dumping taxes etc. They can also be
used to address market failures e.g. encourage or discourage investment in certain sectors of
the economy.
 Representation: Taxes stimulate demand for representation. You demand accountability and
better governance once you are taxed.

The purposes for which taxation is levied for can also be explained in the context of its
economic, social and environmental effects to the economy. We explain this in detail below.

1.2.1 Economic factors

Taxation is a major fiscal tool used by every economy to influence the country‘s aggregate
demand and the operation of an efficient tax system is essential especially in the current
challenging economic environment.

As stated above, revenue is required to finance public expenditure e.g. health service, retirement
pensions, unemployment benefit and other social benefits, education, financing government
borrowing (interest on government stocks), etc. This revenue can only come from tax. Reliance
cannot be placed on donor fund and other budgetary supports, because they cannot be
guaranteed.

In addition, taxation can also be used to address market failures e.g. encourage or discourage
investment in certain sectors of the economy or activities. For example, the government

1
discourages the exporting of unbeneficiated chrome by imposing a 14.5% export VAT, when
other forms of exports are zero rated.

Taxes can also be used to influence the macroeconomic performance of the economy or modify
patterns of consumption or employment within an economy, by making some classes of
transaction more or less attractive. For example economies always charges VAT on luxury
goods and either zero rate or exempt supply of basic necessities. This has the progressive effect,
as it increases a tax burden on high end consumption and decreases a tax burden on low end
consumption.

1.2.2 Social factors

Taxes are also used as mechanism of redistributing wealth among society members to support
economically disadvantaged members of the society, e.g. sick, unemployed or elderly people, or
to reduce the income gap between the rich and poor. In a free market, some individuals generate
greater amounts of income and capital than others and once wealth has been acquired, it tends to
grow through the reinvestment of investment income received. This can lead to the rich getting
richer and the poor poorer, with economic power becoming concentrated in relatively few hands.
To address this economies often levy high taxes on high income earners and give handouts to the
less privileged members of the society. For example, individuals earning in excess of $20,000
per month ($240,000 p.a) are taxed at 50% of such excess. On the other hand, pension income
accruing to persons over the age of 55 years is exempt from tax.

1.2.3 Environmental factors

In recent times, taxation has become an important economic tool in protecting the environment
or addressing market externalities, especially with the rising concerns over global warming and
depletion of non-renewable sources of energy. The following are the main categories of
environmental taxes:

Energy taxes: This group includes taxes on energy products used for both transport and
stationary purposes. The most important energy products for transport purposes are petrol and
diesel.

Transport taxes: This group mainly includes taxes related to the ownership and use of motor
vehicles.

Pollution taxes: This group includes taxes on measured or estimated emission to air and water,
management of solid waste and noise. A good example of pollution tax is carbon tax which is
levied based on the engine capacity of the car.

Resource taxes: In addition, taxes on extraction of minerals and petroleum are often designed to
capture the resource rent, and do not influence prices in the way that other environmental taxes,
e.g. product taxes, do. In Zimbabwe a royalty tax is levied of the fair value of minerals extracted
or sold.

2
1.3 Different types of taxes

1.3.1 Taxes in Zimbabwe

The government raises revenue through a wide range of taxes. The main taxes, their incidence
and their sources, are set out in the table below.

Tax Type Act

1. Corporate Chargeable on trade and investment income Income Tax Act
tax
2. Pay As You Chargeable on employment income Income Tax Act
Earn
3. Value Chargeable on goods and services Value Added Tax
Added Tax Act
4. Estate duty Chargeable on the deceased person‘s Estate Duty Act
property
5. Capital Chargeable on gains from sale of Capital Gains Tax
gains tax immovable Act
property and marketable securities
6. Customs Chargeable on imported goods. Custom & Excise
Duty Act
7. Withholding Chargeable on passive investment income Income Tax Act
Tax
8. Presumptive Chargeable on income of informal traders Income Tax Act
Tax

1.4 Capital vs. Revenue taxes

Revenue taxes are those charged on income. In Zimbabwe revenue taxes includes Pay As You
Earn and corporation tax. On the other hand, capital taxes are those charged on capital gains or
on wealth e.g. capital gains tax and estate duty. Note however, that estate duty is not covered by
your syllabus.

1.4.1 Direct and indirect taxes

Taxation is classified into two broad classes direct and indirect taxes.

Direct tax is tax charged directly on income received by a person or an organization. The tax
burden for direct tax falls on the individual or company which makes out the tax cheque to the
government and cannot be shifted to other parties.

Indirect tax is tax charged on a good or service. The tax is suffered upon consumption of the
good or service. The tax is borne by someone, other than the person responsible for making the
payment to the government, e.g. liquor tax. It is often included in the price of the item, so even
though the seller sends the payment to the government, the buyer is the real payer. Indirect tax is
also called consumption tax. The tax can also be called a hidden tax because the buyer may not
be aware of its presence in the commodity price.
3
The following table classifies taxes into direct and indirect taxes:

Direct taxes Indirect taxes

Tax on business income Value added taxes
Capital gains taxes Customs duty
Estate duty Excise duty
Pay as you earn

Direct taxes tend to be progressive in nature, while indirect taxes are regressive in nature. A
regressive tax is represented by a flat tax rate. The tax percentage does not depend on the income
base. The more a person has, the lower the absolute tax as a proportion of a person‘s income.
This tax hurt the poor more than the rich as each of them is required to pay the same tax despite
the income base e.g. value added tax since every person pays the same percentage of tax.

On the other hand, progressive tax is represented by the increase in the tax rates as income
increases (the more you have the higher the tax rate). Progressive taxes reduce the tax burden of
people with smaller incomes, since they take a smaller percentage of their income. The tax is
usually represented by tax bands which are based on the income classes (economic classes).

A good tax system should adhere to a certain set of principles:

 Vertical equity principle (ability to pay principle); - every member of the state should
contribute towards the burden of tax in accordance with his respective ability to pay.
 Horizontal equity; - taxpayers in the same economic circumstances should receive
equivalent tax treatment.
 Certainty; - the tax which each individual is bound to pay ought to be exact, and not
arbitrary. The amount, time of payment, or the manner of payment should be known. It helps
in business planning and provides a degree of revenue certainty for the government.
 Simplicity; - the tax legislation must be in simple language easily understood by the
subjects. The legislation should be stable, predictable and reliable for making long term
plans.
 Tax neutrality or efficiency principle; - tax should act as resource allocation by ensuring
economic decisions are diverted to best locations i.e. tax should not distort choice.
 Flexibility principle; - the tax system should be able to accommodate changes in business,
markets or technology. However, there should be a trade-off between flexibility and
certainty.
 Effectiveness; - is essentially the capacity of the tax system to achieve its objectives. Thus
the tax system should be able to generate revenues and set the desired economic incentives.
 Consistency & coherence; - transactions with the same commercial result should have the
same tax result i.e. commercial decisions should not be distorted by taxation considerations.
 Administrative efficiency- a tax should be easy and cheap to collect. Therefore in tax policy
design costs associated with the administrative options, both for the taxpayer and the taxing
authority, may have a significant bearing on what is included or excluded from the
legislative definition of income.

1.5 Structure of the Zimbabwean tax system

The management of a tax system lies with the Zimbabwe Revenue Authority (ZIMRA). Zimra is
a division of the Ministry of Finance and is ultimately under the control of the Minister for
Finance. ZIMRA‘s core business is the assessment, collection and accounting for revenue on
4
behalf of the State through the Ministry of Finance. It derives its mandate from obligations
imposed by the Revenue Authority Act and other government statutes. In broad terms the work
of ZIMRA includes:

1) Assessing, collecting and managing taxes and duties

2) Administering the Customs regime for the control of imports and exports and collection of
duties.
3) Co-operating with other state agencies in the fight against drugs, smuggling, and
international trade crime and enforcing import, export and exchange controls.
4) Provision of policy advice on fiscal and economic issues.

It has its head office in Harare with a number of regional offices throughout the country.
Taxpayers must pay their dues at the Regional Office under which the business is located or
registered.

1.6 Different sources of revenue law

Countries have legislative bodies that enact tax laws, courts that adjudicate tax disputes and tax
agencies that administer the law. These, therefore form the major sources of a country‘s tax law.

1.6.1 Legislative law

Tax legislation is drafted by or with the concurrence of the Ministry of Finance and passed by a
parliament. The law is updated each year through a Finance Bill, with the presentation each year
of a new budget, which changes to the legislation are secured through Parliament.

The legislation includes government statutory instruments issued from time to time. The
following is the legislative process which gives rise to the annual revision to the tax law:

1. Each year after the government announces its budget, the changes to the tax legislation are
incorporated by way of the Finance Bill.
2. The Finance Bill will then be debated in the Houses of Assembly and some amendments
may be made to the draft Finance Bill at the committee and report stages. Therefore, what is
announced in the budget will not always end up being the final rules for a tax year.
3. The Finance Bill will eventually be voted through the House of Assembly, signed by the
President and become the Finance Act.
4. The Finance Act is then passed into law and incorporated into the various relevant tax Acts.

1.6.2 Judicial law

Judges preside over tax cases brought before the courts and thereby create case laws. Their
opinions are binding and they provide guidance on the interpretation and application of sources
of law, but it is not the role of judges to re-write the law.

Zimbabwe adopts the law which was in force in the Cape of Good Hope on 10 th June 1891,
subject to adjustment of English law and judicial decisions made thereafter. The law was Roman
Dutch law. This law forms the nucleus of Zimbabwean, South African, Botswana, Lesotho,
Namibian and Swaziland laws. Tax cases cited in this book are predominately based on Roman

5
Dutch law. We will also make reference to English cases. Because of our colonial history, the
English system has significant influence in our court judgements.

1.6.3 Agency interpretation

The tax legislation may be difficult to interpret. Tax agencies may therefore issue written
statements stating how they interpret and apply provisions of the existing tax laws. Examples of
written statements of tax interpretation are Advanced Tax Rulings issued by the Commissioner
General on request by a taxpayer or group of taxpayers.

1.7 Zimbabwe tax system vs. other tax jurisdictions

Zimbabwe has entered into double tax treaties with a few countries. Amongst these countries are
Zimbabwe, Germany, Sweden, Botswana, South Africa, France and Mauritius. The treaties
contain rules which prevent income and gains from being taxed twice, but often include non-
discrimination provisions, preventing a foreign national from being treated more harshly than a
national. There are also usually rules for the exchange of information between the different
Revenue authorities. Even where there is no tax treaty, the Zimbabwean tax system gives some
relief for foreign taxes paid.

6
Chapter 2: Gross Income

2.1 Introduction

Income tax is calculated in terms of s7 of the Income Tax Act, which provides that income tax
with which a person is chargeable shall be calculated by reference to the person‘s taxable
income in the year of assessment and the appropriate rates of tax relating to the year of
assessment and the credits entitled to the person (not being company or trust) in that year.
The starting point in calculating income tax is the definition of gross income.

2.2 Definition of gross income

Income tax is charged on taxable income. Taxable income is computed as gross income less
exemptions less deductions. Gross income less exemption result in income. Income net of
deductions equals taxable income. If deductions are greater than income the result is an assessed
loss for the year. No taxes are paid in that year and the loss is carried forward to be off set
against the person‘s future income.

Section 8(1) of the Income Tax Act defines gross income as “the total amount received by or
accrued to or in favour of a person or deemed to have been received by or to have accrued to or
in favour of a person in any year of assessment from a source within or deemed to be within
Zimbabwe excluding any amount so received or accrued which is proved by the taxpayer to be
of a capital nature …”.

The elements of the gross income are dealt with as follows:

2.2.1 Total amount

Section 2 of the Act defines ‗amount‘ as money or any other property, corporeal or incorporeal
having an ascertainable value in money. Therefore an amount is not only limited to the actual
cash. Property also with an ascertainable monetary value would constitute gross income (CIR v
Delfos 1933 AD 242)). The case of CIR v People‟s Stores (Pvt) Ltd 1990(2) SA 353 (AD) also
stated that the word amount covers corporeal or incorporeal property, which has a money value,
including debts and rights of action.

Where items are bartered it is the value of the asset acquired which constitutes gross income i.e.
the market value at which the asset was initially obtained (Lace Proprietary Mines v CIR, 1938
AD 267). Lastly the onus of proving an amount has ascertainable money value lies with the
Commissioner and the taxpayer has the burden of proving why it should not be taxed (CIR V
Butcher Bros (Pvt) Ltd (1945)).

2.2.2 Received by

2.2.2.1 General

An amount must be received by a taxpayer for it to be taxable, ―Received‖ means received by a

taxpayer ―on his own behalf or by somebody for his benefit (Geldenhuys v CIR 14 SATC 419,

7
1947(3) SA 256(C)). An agent who receives money on behalf of a principal does not receive the
money for his own benefit, but on behalf of the principal. As held in ITC 11282 “......,the
expression ‟received by him‟ means that the money must be received by him in such
circumstances that he becomes entitled to it.....In order for there to be a “receipt”, the money
must be “received “ by the taxpayer for his own benefit.”

Also emphasising the point of agency is the case CIR v Genn & Co (Pvt) Ltd (1955. It held that
an agent does not receive, but keeps in custody for a principal, and is so the borrower. The
borrower is given possession and falls under an obligation to repay. What is borrowed does not
become his, except in the sense...that what is borrowed is consumable ...” The lesson learnt from
this case is that loans or security deposits are non-taxable. Trade or security deposits are only
taxable when the customer is under no obligation to claim it back or if the deposit is forfeitable.

2.2.2.2 Illegal receipts and theft

The fact that income is tainted with illegality does not mean that it would not constitute a receipt
{CIR v Delagoa Bay Cigarette Co Ltd (1918). The taxability of a receipt can never be affected
by the legality or illegality of the business through which the receipt is derived.‖ In CIR v Aken
(England), the Commissioner sought to tax a woman‘s income earned from prostitution based on
the fact that she was engaged in a trade. Held: ―prostitution is not an offence in England, it is
“immoral” but it is illegal for the prostitute to engage in many activities which a “moral”
business person would, for example, the forming of a company.” The issue of legality or
illegality of an activity is irrelevant regarding the taxation as clarified in the UK courts cases:
“....& various courts have repeatedly rejected the argument that a trade ceases to be a trade for
the purposes of the Taxes Acts because it is illegal. The reason why they have said that profits of
burglary are not taxable is not because burglary is illegal, but because burglary is not a trade.
Conversely, if an activity is a trade, it is irrelevant for taxation purposes that it is illegal & I do
not think that the word “trade” in itself has any connotation of unlawfulness. There may be
lawful trade, there may be unlawful trade. But it is still trade.”

A decision in COT v G 1981 (4) SA 167 (ZA), The Zimbabwean Appellate Division, rejected the
notion of stolen money as constituting a receipt. It stated that ―the word “received” should be
given its ordinary meaning and that no logical reading would take it to mean a “unilateral
taking, such as theft.‖ It further stated that it was not only the taxpayer‘s intention that mattered,
but also the intention of the ―giver‖, for an amount to constitute a receipt it should be
unconditionally received. The employer had never intended the thief to keep the funds and do
with them what he liked, so he could not be said to have received funds at all.

However, in MP Finance Group CC v Commissioner, SARS, 69 SATC 141, it was held that
‗received by‘ should also be interpreted with reference to the intention of the taxpayer, meaning
that if a thief retains what he has stolen for his own benefit, he has received despite the fact that
it does not belong to him.

In conclusion, most revenue authorities tax illegal receipts as a way of condoning the activity
generating the proceeds and disallowing a wrongdoer to benefit from advantages which are
denied to honest taxpayers. Zimbabwe notwithstanding the ―G‘ case also tax illegal receipts.

2.2.2.3 Deposits

When goods are sold in returnable containers and e.g. crates, gas bottles etc. and taxpayers are
required to pay a deposit for the container in addition to the price of the goods, whether or not

8
the deposit constitute gross income of the seller all depends on how the deposit is treated by the
seller. The court held in Brookers Lemos Ltd v CIR 1947 (2) SA 976 (A), 14 SATC 495 that
when the deposit is not received in trust by the seller for his customer but becomes his absolute
property, the deposit will constitute gross income to him, despite the undertaking by the seller to
refund the amount if the container is returned. Where on the other hand, the supplier has no right
to claim the amount, to mix it with own property or use it as he wishes, but is under an
obligation to keep in trust for the customer e.g. in separate bank account, then deposit cannot
constitute gross income of the supplier (Greases (SA) Ltd v CIR 1951(3) SA 518 (A), (17 SATC
358)).

2.2.3 Accrued to a person

An amount is taxed when it is received or accrue to a person, whichever occurs first, but it is
never intended that the amount is taxed twice. Therefore, prepaid income is taxed in the year of
receipt.

An amount accrues to a person when he obtains a fixed and unconditional right to receive the
income, i.e. when he becomes entitled to the income (Lategan v CIR 1926 2 SATC 16). The right
must be supported by a legal agreement contestable in a competent court of law. All conditions
precedent must be satisfied before a taxpayer can be entitled to an amount (Mooi v SIR (1971)
34 SATC). In Building Contractors v COT (1941) 12 SATC182 it was held retention money did
not constitute gross income until the engineer had given his final quittance of the no defects
certificate; this is when the person became entitled to an amount.

In CIR V Delfos 1933 6 SATC P32, it was held that an amount accrues when it becomes due and
payable to a person. An amount becomes due and payable when a liability is ascertainable and
settlement is reached, despite the amount remains unpaid. The practice usually used however, is
that expressed in Lategan case.

An amount accrues when it obtains the “quality of income”, i.e. when a taxpayer has a right to
it and under no restrictions, contractual or otherwise, as to its disposition, use or enjoyment.
The significant risks and rewards of ownership must pass to the taxpayer, despite the payment
remaining outstanding. In practice, payment is not a condition precedent. Events that determine
the liability must have occurred and the liability must be ascertained with reasonable accuracy.
According to CIR v People‟s Stores (Pvt) Ltd, there is no accrual until the right to claim payment
vets in the taxpayer. This can only be so when the price and quantity becomes certain or easily
ascertained. For instance, where goods are shipped in terms of FOB contracts, ownership of the
goods passes upon the handover of a bill of lading to the purchaser in respect thereof. If the
purchaser can refuse to accept the goods upon inspection, this does not apply, because price or
quantity cannot be determined.

2.2.4 In favour of a person

The case of Commissioner for Inland Revenue v Witwatersrand Association of Racing Clubs 23
SATC 380 (A) - 1960 illustrates the problem encountered by taxpayers in avoiding the accrual
of income to the taxpayer which he is then obliged to pay to another person. It held that once an
amount has been beneficially received by or accrued to a taxpayer, he is taxed on such amount
even though he may have an obligation to pay it over to some other person. In tax terms such an
arrangement is referred to as ―antecedently‖ divesting oneself of income. In other words, where
a taxpayer divests himself of income prior to it accruing to him by ceding the right to future
income, the income accrues to the cessionary rather than the taxpayer.

9
2.2.5 From a source within Zimbabwe

Source is relevant because Zimbabwe is source jurisdiction, meaning the country assert to tax
amounts with a source or deemed source within Zimbabwe. Whether a person is a resident or not
is immaterial.

The Income Tax Act does not contain the definition of source. Its meaning is found in court
judgement. The case of MM Parker v COT stated that ―source‖ is not a legal concept, but
something which a practical man would regard as the originating cause of income. In CIR v
Lever Bros & Unilever Ltd 1956 14 SATC, the source of receipts, received as income, was held
not to be the quarter whence they come, but the originating cause of their being received as
income. This is the work which a taxpayer does to earn the income, a quid pro quo which he
gives in return for the income. It requires the consideration of two things: the originating cause
and the location of the originating cause. An inquiry should be made of “what a taxpayer has
done to earn the income and where he has done it”.

Unfortunately, the source of income is sometimes hard to pin down e.g. income may have more
than one originating cause. Generally, income has its origin in Zimbabwe if paid by a domestic
corporation, a citizen, a resident alien or an entity formed under Zimbabwean laws. Income is
also from a local source if it is generated out of a property located in Zimbabwe or out of
services performed in Zimbabwe. All amounts with their origin in the country are taxed in
Zimbabwe, regardless of the beneficiary‘s residence status.

2.2.5.1 Sources of categories of income

Business operations
Business income is assigned a geographical location by reference to the location of the assets
and activities that are used to generate the income or to the place where the operations are
carried out. Where all of those assets and activities are located in Zimbabwe that would be
considered to be the unambiguous source of the income. If some of the assets or activities
generating income are located in more than one State, the source of the income is less clear. In
such circumstances, source rules might apportion the income between the two claimant States or
they may assign it to one State exclusively (Overseas Trust Corporation Ltd v CIR (1926) 2
SATC 71).

The question of source on business income was also considered in the case of M Ltd v COT
(1958) 22 SATC 27 where a company carried on copper mining in the Federation of Rhodesia &
Nyasaland, but reinvested surplus proceeds in short term UK government securities for resale at
profit. It was held that the profits from this investment was London, the basis being that the
activities conducted in London constituted the originating cause of such receipts and was a
separate activity from that carried in Rhodesia.

In ITC 1103 (1967) 29 SATC 35, the court accepted the view that the source of income can be
partly in one jurisdiction and partly in another. The court found out that some of the profit
derived from the sale of goods manufactured in Zimbabwe (flour) and sold by the taxpayer
through its branch in Zambia accrues from sources in Zimbabwe. However, the court accepted
the position that though part of the accruals from the sale of flour in Zambia had its originating
cause in the taxpayer‘s activities in Zimbabwe, the business in Zambia was responsible for part
of the overall profit. However, in Transvaal Associated Hide & Skin Merchants v CIT Botswana
(1967) 29 SATC 97 the court was of the view that the source of a receipt should be the country
where the dominant activity giving rises to the income took place.

10
Rent on property
The tax law stipulates that the source of rent from an immovable property is where the property
is situated. Therefore income from a building located outside Zimbabwe is non-taxable in
Zimbabwe.

Regarding source of rent from the leasing of movable property the source of the rent is either the
place the property is used by the lessee or the place where the lessor is conducting his business
(COT v British United Shoe Machinery (SA) (Pty) Ltd (1964) (3) 169 (FC) (26 SATC 163). In
the case of small items or items with shorter useful life (less than 5 years), the source of the
rental income is where the lessor is conducting his business. In practice these are items hired
under an operating lease i.e. an arrangement where the equipment will revert to the lessor after
the expiry of the lease term. For long leases (at least 5 years) e.g. leases involving substantial
industrial or commercial equipment with an extended useful life where the business of the lessee
is being carried on matters. The duration of lease entails that it be either an operating or finance,
with the former usually with duration of not more than 5 years.

Services rendered
Income for services rendered is derived from the place services are performed, regardless of
where the contract is made, the place of payment or the residence of the payer. An employee's
principal place of work is usually the place where he spends most of his or her working time. If
there is no one place where most of the work time is spent, the main job location is the place
where the work is centred, i.e. where the employee reports for work or is otherwise required to
base his or her work. Where services are rendered partly inside Zimbabwe and partly outside
Zimbabwe, an allocation of income for services performed in Zimbabwe should be based on a
time basis. The question of residence status is secondary the place where the services are
rendered.

The case of COT v Shein 1958 (3) SA 14 (FC) is the authority on this matter. The court held that
when responsibility is accepted, it is accepted at the place at which the relevant undertaking for
which responsibility is accepted is carried on, wherever the person accepting the responsibility
may happen to be.

Note that services rendered outside Zimbabwe may be taxed in Zimbabwe when such services
are incidental to those carried out in Zimbabwe. That is, the reason for income received for
services rendered outside Zimbabwe should be as a result of the employee being employed in
Zimbabwe. The case of CIR v Nell, 1961 (3) SA 774 (24 SATC 261) is relevant. It emphasised
that there should be a closer link between the work done outside and the carrying of a trade
within the country. In conclusion the work must be of the same nature, requiring similar skills or
experience and merely incidental and subsidiary to the services rendered in county for the
outside income to be subject to tax.

In ITC 1104 (1967) 29 SATC a commercial diver working at Kariba took his equipment from
his Harare base to the Zambian side of the Zambezi river where he set up a temporary office
while his activities were being conducted on both sides of the border between Zimbabwe and
Zambia. The court held that in the circumstances only profits from the diver‘s activities on the
Zimbabwean side, calculated on a time apportioned basis, were held to be sourced from
Zimbabwe (see also ITC 1102 (1967) 29 SATC 28).

Partnership income
The source of partnership income is the place where the partner renders his services to earn the
income. In Epstein v CIR 1954 (3) SA 689 (A) the taxpayer acted as an agent for foreign firms.
The court held that where a business is carried on through partners or agents, the place where the
taxpayer‘s income originates is not where he personally exerts himself but where the profits are
11
realized; thus profits of a partner who earned his income from rendering services in South Africa
were within South Africa, irrespective of the source of the partnership‘s profit.

Dividends
In Boyd v CIR (1951)17 SATC 366 held that the source of the dividend income is the place
where the shares register is kept. As a general rule, shares are situated at the registered office of
the company or the country of incorporation. The case of Lamb v CIR (1955) 20 SATC 1 was
more explicit as it held that the source of dividend income is the place the principal register is
kept. Regarding the shares registered in a branch register, section 122 of the Companies Act
(Chapter 24:03) states that a branch register constitutes part of the principal register making the
source of dividend income for shares in a branch remaining in the country of incorporation of
the company. The source of income used to pay the dividend is immaterial regarding the source
of dividend.

Directors‘ fees
The office of a director of a corporation is located at the place the effective management of the
corporation is exercised, i.e. the head office (McMillan v Guest, 24 TC 190). Therefore, fees
paid to a director of a corporation whose effective management is exercised in Zimbabwe are
sourced within Zimbabwe. For working directors, the source of income remains the place where
the services are rendered.

Royalties
Royalties come from the author‗s wits and labour and their source is the place where the wits
and labour are exercised, regardless of the place of publication. The relevant case is that of
Millin v CIR 1928 AD 207(3SATC 170). The author wrote works of fiction in South Africa
which were printed and published in England and the United States of America. The
Commissioner sought to tax the royalties, on the basis that they were from a source within South
Africa, which the taxpayer disputed arguing that the source of such income was the place where
the copyright was employed i.e. in London. The court held that the income did accrue to the
author from a source within South Africa. The following dictum of Solomon CJ, at 216, is
pertinent: “...It is true that in this case no capital in the ordinary sense of that term was
employed by Mrs. Millin. It was the exercise of her wits and labour that produced the royalties.
They were employed in South Africa. Her faculties were employed in South Africa, both in
writing the book and in dealing with her publishers...”

The same rule applies to royalties from patents, trademarks, secret formula, musical or some
other similar works. The source is the place where these works were created or perfected.

Interest
The source of interest is determined by the place where the funds which attracted the interest are
made available to the borrower. Following the judgment in CIR v Lever Bros and Another 1946
AD 441, the source of interest is what a lender does to earn the interest which is the provision of
credit and where this act is done so is the source of interest.

Annuity
The source of an annuity is the act or document under which it is created. This rule is a product
of the court decision in COT v. R 28 SATC 115where it was held that the source of an annuity
arising out of a trust deed is the trust irrespective of the origins of the trust income. Also, the
source of a contractual annuity is the situs of the contract (Boyd v. CIR 17 SATC 366) i.e. the
country the fund is resident or situated.

12
2.2.6 Deemed source of income

Section 12 deems certain incomes from a source within Zimbabwe as follows:

2.2.6.1 Sale of goods

Section 12 (1)(a) of the Act is one of the imaginary section of the Act which presupposes that
the income of a contract of sale of goods concluded in Zimbabwe is deemed to be from a source
within Zimbabwe despite the goods not have been produced in Zimbabwe or delivered in
Zimbabwe. It does matter also where the payment for goods will be made or where the goods
will be sold from.

2.2.6.2 Services rendered in pursuance of trade

Whenever a person is carrying on a trade in Zimbabwe, any amount that is received by or accrues to
the person for services rendered in pursuance of that trade is deemed to be from a source within
Zimbabwe. It does not matter whether the residence status of the person making the payment or the
physical source of the payment. There must be a nexus between the trade being carried on in
Zimbabwe and the services rendered outside.

2.2.6.3 Services rendered outside Zimbabwe

Employees who are ordinarily resident in Zimbabwe on temporary assignment outside

Zimbabwe are deemed by section 12(1)(c) to be rendering services in Zimbabwe during the
duration of that assignment provided the assignment is for a period not longer than 183 days in a
year of assessment. This applies to employees and directors alike who physically render services
outside Zimbabwe for a period or periods not exceeding 183 days in aggregate in a year of
assessment. In counting the 183 days, it is not necessary that the services should have been
rendered on a continuous basis. The income earned during the period of temporary absence
should be aggregated with local source income for purposes of determining the person‘s tax
liability in Zimbabwe. It does matter also whether the person making the payment is a resident of
Zimbabwe or not and whosesoever payment is actually made.

2.2.6.4 Services for the State

The income earned by an employee for services rendered to the Zimbabwean government and
paid to that employee in another country, such income is deemed to be from a source within
Zimbabwe. The person should be an ordinary resident of Zimbabwe and only present in the
other State for purposes of rendering services for the Zimbabwean government. The income is
exempt from Zimbabwean tax in the hands of a non-resident who renders services for the
Zimbabwean government in his home country e.g. a South African resident who renders services
for Zimbabwean Embassy in South Africa.

2.2.6.5 Pension

Pensions granted by any person wherever resident or the Government of the former Federation; or
the State in respect of services rendered is deemed in terms of section 12(1) (e) to be from a source
13
within Zimbabwe. This does not include the pension in respect of the service which were performed
wholly outside Zimbabwe unless the pension is payable in pursuance to services rendered for the
State by an ordinary resident (i.e. services rendered in terms of section 12(1) (d)). Where the
pension was granted by the Government of the former Federation, such pension or part of it shall
not be deemed to be from a Zimbabwean source if the pension was triggered by the dissolution of
the Federation and the recipient was ordinarily resident in Zambia or Malawi on the 31st March,
1964 or ordinarily resident in a country other than Zimbabwe. Pension, other than State pension,
which is in respect of services rendered in Zimbabwe and some other country, shall be apportioned
based on service period, and only the pension applicable to the services period in Zimbabwe shall
be taxable.

2.2.6.6 Foreign dividend and interest

Dividend or interest derived from foreign held securities are deemed by section 12(2) of the Act
to be from a source within Zimbabwe where they are received by or accrue to or in favour of a
person who at the time of accrual or receipt is ordinarily resident in Zimbabwe. It does not
matter whether the person has invested, accumulated or otherwise capitalized the amount or that
the income has not been actually paid over to him but remains due and payable to him or has
been credited to an account or re-invested or accumulated or capitalized or otherwise dealt with
in his name or on his behalf.

A taxpayer who receives or becomes entitled to a foreign dividend is precluded by section

16(1)(n) of the ITA from claiming any expenditure incurred in earning such dividend income
Therefore where dividend is received net of tax suffered at source, it should be grossed up so
that Zimbabwean tax is computed on the gross dividend. The rate of tax to be applied on foreign
sourced dividend is 20%, whereas income on other forms of securities as defined above is
subject to income tax at the rate of 24.72%. A relief for double taxation in respect of tax
suffered in the foreign country is then granted in terms of section 93 where there is a double
taxation agreement between Zimbabwe and the country of source.

2.2.6.7 Annuity

Income received by way of annuity from a foreign source is deemed to be from a source within
Zimbabwe if the annuitant was ordinarily resident in Zimbabwe at the time of acquiring the right to
the annuity; whether by purchase or by the disposal of an asset. The provision ensures that contracts
for the purchase of annuities concluded outside Zimbabwe or annuities payable by funds situated in
Zimbabwe remains taxable if the money used originated from a Zimbabwean resident. The phrase
"at the time the right to the annuity was acquired" should be interpreted to mean the time at which
the proposal for the annuity was accepted.

2.2.6.8 Royalty

A royalty is deemed to be from a Zimbabwean source if or to the extent that such income is
received or accrues as a result of the use or the privilege of use or right of use of any intellectual
property within Zimbabwe. Royalties from the use of a patent, design, trademark, copyright,
model, plan, secret process or formula, motion picture film or television film in Zimbabwe or the
imparting of "know-how" for the use of any of the afore-mentioned items in this country are by this
subsection, deemed to be from a source within Zimbabwe.

14
2.2.6.9 Recoupment

Recouped capital allowances in respect of fixed assets sold outside Zimbabwe are deemed by
section 12 (5) to be from a source within Zimbabwe if capital allowances in respect of those assets
were claimed in Zimbabwe.

2.2.6.10 Supply of broadcasting and e-commerce services

In order to widen the tax base, the legislature has proposed to tax income of satellite broadcasting
and e-commerce operator domiciled outside Zimbabwe to the extent that such income is received
from persons resident in Zimbabwe for services rendered in Zimbabwe. Section 12 of the Income
Tax Act is amended by the insertion of subsections (6) and (7). The effect of this amendment to the
provision is that an amount receivable by or on behalf of a satellite broadcasting service domiciled
outside Zimbabwe from persons resident in Zimbabwe in respect of television or radio subscriptions
of fees paid by persons resident in Zimbabwe will be taxed in Zimbabwe. Furthermore, the
provision entails that income from electronically supplied products (e.g. downloaded music, books,
and software) receivable by or on behalf of an electronic commerce operator domiciled outside
Zimbabwe from persons resident in Zimbabwe in respect of the provision or delivery of goods or
services to such residents is taxable in Zimbabwe. A ―satellite broadcasting service‖ is defined as
a service which by means of a satellite (whether or not in combination with cable optical fibre or
any other means of delivery) delivers television or radio programmes to persons having
equipment appropriate for receiving that service.‖ A typical example of broadcasting services that
are contemplated by the legislature is DSTV.

Electronic commerce operator means an operator selling, providing or delivering services from
outside Zimbabwe by the use of a telecommunications network or electronic means (and whether
mediated by computers, mobile telephones or other devices) to customers or users in Zimbabwe.
This definition replaces the following definition with effect from 1 August 2019: ―Electronic
commerce platform‖ was defined as a service which by the use of a telecommunications service
or electronic means (and whether mediated by computers, mobile telephones or other devices)
sells and delivers goods and services to customers.

A typical example of electronic e-commerce operator contemplated by the legislature is the use of
online buying platforms such as Amazon. To the extent that the satellite broadcasting service
provider and e-commerce service provider receive revenue from Zimbabwe in excess of US$500
000.00 (ZWL$500,000 before 24th of June 2019), the income will be taxed at a flat rate of 5% in
terms of section 14(2)(k) of the Finance Act. This in essence means that no deductions will be
allowed. In addition, rules of permanent establishment as defined in terms of section 19B of the
Act do not apply as provided for in terms of the new section 12A inserted in the Act taking
effect from 1 January 2019. Meanwhile, Finance Act no 2 of 2019 amended to exclude from
income of an electronic commerce operator royalty deemed to be from a source within
Zimbabwe in terms of section 12(4) of the Income Tax Act (see above).

The non-resident broadcaster or e-commerce operator shall be required within 3 0 days of becoming
l iable t o p a y t h e t a x o r o f the promulgation of the Finance (No. 3) Act of 2019,
whichever applies to appoint a person domiciled in Zimbabwe to act as its representative
taxpayer. The appointment should be notified to the Commissioner in writing. In the event of no
appointment being made, the Commissioner can appoint any person to be the representative of
the non-resident broadcaster or e-commerce operator. Section 53 of the Income Tax Act has also

15
been amended to add to the list of existing representative taxpayer, person in Zimbabwe
appointed by that company or entity or by the Commissioner as aforesaid.

2.2.7 Not receipts and accruals of capital nature

2.2.7.1 General overview

The distinction between an item of capital nature and revenue is of paramount importance. This
is because a return of capital nature would not form part of gross income, yet a return of revenue
nature does. The legislation does not provide a distinction between revenue nature income and
capital nature income. The distinction is often based on the legal form rather than the economic
form of the receipt. Courts often rely on the notion of fruit and tree in differentiating revenue
and capital income. As held in CIR v Visser 1937, “….Income is what capital produces, or
something in the nature of interest or fruit as opposed to principal or tree..” This principle
cannot be universally applied, e.g. what might be a capital receipt to one person can be a revenue
income to another. For example, a motor vehicle held by a farmer is a capital asset, but may be
held as trading stock by a motor dealer. Generally, receipts and accruals of capital arise from
disposal of fixed assets or compensation of fixed assets or income producing or generating units.
Receipts from the sale, disposal, loss or destruction of a fixed asset are capital in nature and not
subject to income tax.

The table below attempts to summarise tax implications of certain transactions:

Account Description Tax effect

Capital As a gain on the disposal of a Mere realization of an investment in
Capital Gain Tax Asset property
a disposal of trading stock, Property sold as part of a property
property is held for sale in the development business , where property is
Revenue ordinary course of taxpayer‘s held for purpose of re-sale
business or trade
Revenue asset. Sold as part of Property is sold as part of an isolated or
profit making scheme one –off transaction. The transaction has
been entered into with a profit making
purpose, and in a sufficiently commercial/
business- like manner

The critical factors used for purposes of illustrating what is capital in nature are intention,
objective factors and continuity

2.2.7.2 Taxpayer‟s intention

The taxpayer‘s intention is a very important factor in determining whether an operation is being
carried on for purposes of profit-making or not. The taxpayer‘s intention must be established at
the time of acquiring the asset. Ascertaining a taxpayer‘s main intention is not easy though,
sometimes a taxpayer may have more than one intention in dealing with an asset. Usually the
courts test taxpayer‘s intention against the surrounding circumstances of the case, e.g. the
frequency of transactions, nature of transaction, and method of funding and reasons for selling.
For example, if an asset is repeatedly bought and sold, then the proceeds will arguably be
regarded to be of a revenue nature. The outcome is different if an asset is not held for re-sale, but
16
held to earn income in the form of rent, interest or dividend. In such a case, any proceed
generated from the sale of the income-generating asset is regarded to be of a capital nature.

In CIR v Wyner, 2004, the taxpayer was the lessee of a Clifton bungalow which was
subsequently offered by the lessor. The lessee could not afford to buy and retain the bungalow at
the time when it was offered to her, nor could she afford to continue as lessee at market-related
rentals. She was however offered a bridging loan by a bank on condition that she agreed to sell
the bungalow within a period of a year. She purchased the property and sold it as agreed. The
property was sold at a profit, which the Commissioner sought to tax. The court held that if
receipt was ―a gain made by an operation of business in carrying out a scheme of profit-making‘
then it was revenue derived from capital productively employed and had to be income". This
meant that receipts or accruals bore the imprint of revenue if they were not fortuitous, but
designedly sought for and worked for. In arriving at the decision were the intention with which
the taxpayer acquired the property and the circumstances in which it was sold. The taxpayer
entered the transaction knowledgeable of the eventual profit and had accordingly devised a
scheme with the assistance of the bank. The profit was of a revenue nature.

If there are mixed intentions, the taxpayer‘s intention will be determined by his dominant or
main purpose (COT v Levy 1952 (2) SA 413 (A), 18 SATC 127). If there is a secondary or
alternative purpose of making a profit, the profit will be of a revenue nature. In CIR v Tod 1983,
a taxpayer purchased shares cum div (ripe with dividends), received the dividends and then sold
the shares ex div. It was held that the resulting profits were of a revenue nature.

2.2.7.3 Objective factors

In practice the following tests, not conclusive, are often applied:

Income flow (product of capital)

Income is what capital produces or something in the nature of interest or fruit as opposed to
principal or tree, but is not definite, e.g. what might be a capital receipt to one person can be a
revenue receipt to another. For example, a motor vehicle held by a farmer is a fixed asset, but
can be trading stock for a motor dealer.

Recurrent test
This is based on the premise that a recurring receipt has the character of income, while an
irregular or once off receipt is usually of a capital nature, but this cannot be determinative.

Profit –making structure or the profit making process

A receipt arising out of profit making scheme has the character of an income. Whether a scheme
is undertaken for a profit, an enquiry must be made of the intention of a taxpayer, which must be
determined at the time an asset is acquired.

Source of receipt test

A receipt out of a disposal of a fixed capital is more likely to be of a capital nature, and a receipt
out of a disposal of a circulating capital is more likely to be of revenue

2.2.7.4 Continuity

If a taxpayer engages in certain transactions more often, he/she may be deemed to be engaged in
a profit making scheme arrangement and the income derived from such activities are most likely
to be of revenue nature.

17
2.2.7.5 Specific transactions

2.2.7.5.1 Compensation

Whether or not compensation money is taxable depends on the subject of compensation. The
case of Burmah Steam Ship Co Ltd v IRC (1931 SC 156) is the most celebrated case in dealing
with compensation. It was held that a compensation that fills the hole in profits is of a revenue
nature and if it fills the hole in assets then it is of a capital nature. Applying this test to trading
stock, it was held that ―the trees (trading stock) were floating capital and therefore the
compensation was filling the hole in profits‖. The same test is also applied to insurance
compensation.

The tax effect of compensation was recently enumerated in the case of Fourie Beleggings v
Commissioner of SARS. The taxpayer a hotelier, entered into an agreement with Denel
(Propriety) Limited‘s division for the provision by the taxpayer of accommodation to members
of the military forces of United Arab Emirates receiving training in South Africa. Due to the
9/11 (2001) attack the students left prematurely, resulting in Denel cancelling the contract. The
taxpayer sued for performance and was granted R1.3million out of court settlement as
compensation. SARS sought to tax the amount. The taxpayer rejected on the basis that the
amount was of a capital nature. Its representative argued that, if the compensation had been paid
in lieu of rent due, then it would automatically be taxed, but it represented an amount paid for
the loss or sterilisation of assets i.e. the lease agreement. To them, the lease agreement was an
income producing asset or a contract itself. The judge accepted that in certain circumstances a
compensation for the cancellation of trading contract may constitute an amount of a capital
nature, provided the contract is used by a taxpayer for the purposes of generating income.

2.2.7.5.2 Gambling, wins, gifts etc.

Gambling, lotteries, wins (unless such receipts are won by professional punters or gamblers),
prizes and gifts (including inherited gifts) which are received by a taxpayer without calling for
them are usually (fortuitous receipts) capital in nature. As held in SIR v Watermeyer (1995), a
gift is gross income when it is linked to trade or services rendered, despite the service or trade
not as a direct result of the award as long as there is a casual link making the award from the
trade or service possible. In Moore v Inspector of Taxes (1972) it was stated that 1,000 pounds
received by a player in participating in England team 1966 World Cup, an exceptional event was
ruled as a gift or testimonial. A prize which is won because of employment is however taxed. As
held in ITC 976, a journalist or writer who wins a prize in a literary competition will be taxed on
the receipt because of its relatedness to employment. However, an annuity paid of a ‗will‘ of a
deceased person or out of legacy forms an exception to this rule. An amount paid to restrain
another person from carrying out a task, trade, exercising certain skills or knowledge is a receipt
of a capital nature. It is neither taxed nor deductible.

2.2.7.5.3 Gifts, donations and inheritances

Fortuitously i.e spontaneously receipts are generally capital in nature and not taxable. The
income is excluded from tax by the definition of gross income in s 8(1) unless specifically
embraced by some specific provision of the Act; the amount is capital in nature. Gifts or
inheritances which however takes the form of an annuity are taxable in terms of section 8 (1) (a)
of the Act. Other windfall such as donations, for instance, a prize won by a journalist in a
literary competition was taxed, due to its relatedness to employment. Certain receipts such as
customers tip (unless given as gifts or testimonials), disguised remunerations, nevertheless
constitute remuneration.
18
2.2.7.5.4 Restraint of trade

Where a person‘s right to freely trade and is paid for that restriction, the payment is akin to
compensation for loss or sterilization of a fixed asset and the payment is of a capital nature. The
amount is excluded from gross income (see principles applied in the case of Taeuber & Corssen
(Pty) Ltd v SIR, 1975 (3) SA 649 (A) (37 SATC 129). The same principle applies to an
individual or an employee. Therefore an employee, who by means of a covenant in restraint of
trade surrenders a portion of his income-earning capacity in return for a payment of money, is
parting with a capital asset and the payment is of a capital nature. The Commissioner would not
agree to exclude amount in restraint of trade unless the amount is proved to be received or
accruing in pursuance of a genuine restraint of trade agreement. For nature of restraint, see
Magna Alloys and Research (SA) (Pty) Ltd Ellis 1984 (4) SA 874 (A), where the court held that
the restraint undertakings are not void but rather unenforceable if against the public interest
(although this was in reference to South African law this equally applies to Zimbabwean law).
For a law not to be against public interest it must be reasonable (Manousa-kis v Rental
Entertainment CC 1977 (4) SA 552 CPD). The courts often apply the following tests in
considering whether or not the payment is made for a genuine restraint of trade

i) The recipient must in fact surrender a right of a capital nature i.e. the ‗restraint‘ must provide
for the sterilization of the recipient‘s right to freely trade in some manner. In ITC 1512 (54
SATC 45), the managing director who had few months to complete his term of contract was
dismissed, on agreement with the employer he was to be paid his remuneration till the end of
the contract on the condition that he maintains at all times confidential and secret all
knowledge and information relative to the affairs and activities of his employer and its
associated companies.

ii) Further, the recipient must be in a position to cause a loss to the payer‘s business in the
event that the restraints acts are not observed. The threat should emanate from the nature and
scope of the recipient‘s involvement with the payer, or it may result from personal
experience, expertise and connections on the part of the particular recipient.

iii) There has to be a sacrifice on the part of recipient. Further the agreement should provide in it
a clause with regard to the restraint act, the restraint period and the area.

2.2.7.5.5 Share transactions

Receipts realised from share transaction do not become revenue nature because the frequency
and volume of the number of transaction are large as to constitute the carrying on of a business.
The intention of the taxpayer is very important. Therefore, each transaction must be considered
in isolation. Meanwhile, share dealers can hold shares on either revenue or capital account. It
was held in CIR v Pick„n Pay Employee Share Purchase Trust that a share incentive trust does
not carry on business and that it has no profit motive, making receipts and accruals from
disposal of shares in share incentive trust capital in nature.

19
2.2.7.6 Summary capital vs. revenue receipts

The following diagram summarises the difference between revenue and capital receipts:

Was it a Was there a Yes

scheme of No subsequent
profit- change in
making at circumstances?
inception?

No Capital
nature

Yes Non-taxable

Yes Was there a

subsequent No Taxable
change in income
circumstances?

2.3 Conclusion

Our tax system is based on a source basis. Generally an amount is from source within Zimbabwe
if it arises out of an activity carried on or undertaken in Zimbabwe.

20
Chapter 3: Employment Tax

3.1 Introduction

Employment income is income that accrues to an individual from rendering services within or
deemed source within Zimbabwe. An employer-employee relationship needs to exist. The
employment rules also cover a person‘s relationship with past and prospective employers.

3.2 Taxation basis of employees

Only remuneration from a source within or deemed source within is subject to tax in Zimbabwe.
We consider the various scenarios below.

3.2.1 Services rendered in Zimbabwe

Taxation in Zimbabwe is based on source principle and not the residence status of an individual.
In the case of Commissioner of Taxes vs. Shein 22 SATC 12 the court highlighted that the source
of income for services rendered is the place where the services would have been rendered or
performed (see also ITC 837 (21 SATC 413). This means that residents and non-residents alike
rendering services in Zimbabwe, no matter where the payment is coming from are liable to
employees‘ tax in Zimbabwe on such services.

3.2.2 Services rendered in pursuance of Zimbabwean trade

Income for services rendered outside Zimbabwe may not escape taxation in Zimbabwe
notwithstanding the fact that the person has rendered services outside Zimbabwe for a period
exceeding 183 days. As long as the services are rendered by resident in pursuance of trade carried
on in Zimbabwe, the income connected to those services shall be deemed to be from a source within
Zimbabwe no matter the duration the services are rendered outside Zimbabwe (section 12(1) (b)

3.2.3 Temporary absence outside Zimbabwe

Income for services rendered by employees who are ordinarily resident in Zimbabwe on
temporary assignment outside Zimbabwe is deemed by section 12(1)(c) to be from a source
within Zimbabwe provided the assignment is for a period not longer than 183 days in a year of
assessment. This applies to employees and directors alike who physically render services outside
Zimbabwe for a period or periods not exceeding 183 days in aggregate in a year of assessment.

3.2.4 Services of a non-resident or expatriates

In terms of double tax agreement (―DTA‖) rules an expatriate or a non-resident employee can be
exempted from taxation in Zimbabwe if a ―DTA‖ exists between his country of residence and
Zimbabwe provided all the following conditions are satisfied:

21
a. The employee remains treaty resident in his home country,
b. The non-resident or expatriate renders services in Zimbabwe for a period of less than 183
days in a year of assessment,
c. His/her remuneration is not be paid by, or on behalf of, an employer who is a resident of
Zimbabwe and the person is taxed on this income in the home country,
d. The remuneration is not be borne by a ―permanent establishment‖ that the non-resident
employer has in Zimbabwe.
A ―permanent establishment‖ is an international tax term meaning a fixed place of business
through which the business of the employer is wholly or partly conducted.

3.2.5 Services rendered by civil servants abroad

Income received by a resident who renders services for the State (civil servant) outside
Zimbabwe is deemed to be from a source within Zimbabwe in terms of s12(1) (d) of the Act.
This does not cover income of a non-resident who renders services for the Zimbabwean
government in his home country e.g. a South African resident who renders services for
Zimbabwean Embassy in South Africa. However, the 183 days exemption does not apply to
Zimbabwean government employees (civil servants).

A person who renders services abroad and pays tax is however entitled to a tax relief in in terms
of s93 of the Act to relieve him of double taxation that may be imposed by the two countries.

3.2.6 Pension for services rendered abroad

Where an annuity is derived from a pension or benefits, the source of that annuity is the country
of resident of the fund. This makes pension derived from a source outside Zimbabwe not subject
unless the pension arise by reason of s12 (2) (e) of the Act. The section provides that pension or
annuity for services rendered, whether paid from a source outside Zimbabwe is deemed to be
from a source within Zimbabwe as long as the pension or annuity is paid or payable in respect of
services rendered in Zimbabwe. The annuity or pension shall not be deemed to be from a source
within Zimbabwe if the service or employment for which it was granted was performed wholly
outside Zimbabwe and where remuneration for the service or employment was not paid to an
ordinary resident rendering services for the Government of Zimbabwe. In this case a widow's
pension or annuity paid from a source outside Zimbabwe escapes taxation because the widow
did not render services to obtain the pension or annuity although her late husband did.

A person who has rendered services partially in Zimbabwe and partly outside shall only be
subject to tax in Zimbabwe in the proportion of the pension or annuity relating to the service
period in Zimbabwe.

3.2.7 Annuity purchased from abroad

An annuity or pension from a source outside Zimbabwe may still be taxable in Zimbabwe
despite there being no services rendered in Zimbabwe by the annuitant. This is in terms of s12
(3) of the Act, which provides as follows: ―Any amount received or accrued by way of an
annuity from any source outside Zimbabwe, the right to which was acquired by means of the
payment by the annuitant of a sum of money or the disposal by the annuitant of an asset or by
both those means, shall be deemed to be income from a source within Zimbabwe if the annuitant
was ordinarily resident in Zimbabwe at the time the right to the annuity was acquired‖.
22
For the above to apply the person should be ordinarily resident in Zimbabwe at the time he
acquires the right to the annuity.

3.2.8 Diplomats and consular mission staff

A foreign diplomat or consular mission staff is exempt from employee‘s tax in Zimbabwe as
long as he/she is stationed in Zimbabwe for the sole purpose of holding office in Zimbabwe as
an official of foreign government (see para.4(a)(iii) of the 3rd Schedule to the Act). In the event
that the employee applies for and receives a permit for permanent residence in Zimbabwe, the
exemption no longer applies and liability for normal tax arises from the date of issue of such
permit.

3.2.9 Employees of foreign governments

The salary or emoluments payable to any person in terms of any agreement entered into by the
Government of Zimbabwe with any other government or international, regional or foreign
organization are exempt from income tax (see; Paragraph 4(a) (IV) of the 3rd Schedule.

3.3 Self-employment

Employment tax rules do not apply to self-employed persons or independent contractors. An

independent contractor is a person or entity hired to provide a specific service or product. He
usually contracts to do a piece of work according to his own methods and is subject to his
employer‘s control only as to end product or final result of his work. His work is characterised
by a great measure of independence or degree of freedom. He has no restricted working hours
and is not tied to a particular contract. The person is at a financial risk for any defective work
and must deliver a fine finished product chiselled and shaped by his use of unbridled or free
productive capacity.

3.4 Employment income

Employment income includes income arising from an employment under a contract of service. It
does not include income earned through a business or from a contract for services (self-
employment income). An employee is generally subject to the superior‘s whims and dictates of
the mandatory often expressed in the statutory phrase control and supervision (Rampai J, in ITC
17674). He/she renders continuous service for a salary. The distinction between a contract of
services and a contract for services is important because the two are treated under different tax
heads. Whether an individual is employed rather than self-employed this can be implied in the
facts of the engagement.

3.5 Employees‟ tax

Employees‘ tax is levied in terms of s73 as read with the 13th Schedule to the Act. It is computed
on remuneration paid or payable in any year of assessment to an individual who is an employee.
It is that portion of an employee‘s remuneration which is required to be deducted by an
employer in satisfaction of a tax in accordance with para. 3 of the 13th Schedule to the Act.
Every employer should withhold employees‘ tax from all remuneration paid or payable to an
23
employee who renders services in Zimbabwe during a tax year even if the employee is not a
resident of Zimbabwe.

The key elements that should exist for employee‘s tax to be levied are employee, employer and
remuneration. If one of these is missing there is no employee‘s tax.

3.5.1 An employee

An employee is a person who performs services for an entity under the direction and control of
that entity. The relationship of employee/employer exists when the person for whom services are
performed controls remuneration and terms of employment. An employee may perform services
on a temporary or less than full-time basis. The law does not exclude services from employment
that are commonly referred to as day labour, part-time help, short term fixed contract, casual
labour, temporary help or probationary.

Para. 1(1) of the 13th Schedule‘s to the Act defines an employee as ―an individual to whom
remuneration is paid or payable at an annual rate of ZWL$24,000. This makes any person not
earning more than ZWL$24,000 per annum (ZWL$2,000 per month or the equivalent daily rate)
not an employee for purposes of the Act.

Section 2 of the Labour Act defines an employee as

―...any person who performs work or services for another person for remuneration or reward
on such terms and conditions as agreed upon by the parties or as provided for in this Act, and
includes a person performing work or services for another person.

a) in circumstances where, even if the person performing the work or services supplies his
own tools or works under flexible conditions of service, the hirer provides the substantial
investment in or assumes the substantial risk of the undertaking; or
b) In any other circumstances that more closely resemble the relationship between an
employee and employer than that between an independent contractor and hirer of
services;‖

3.5.2 An employer

According to para. 2 of the 13th Schedule to the Act, an employer is a person liable to pay
remuneration to an employee including all persons who pay remuneration out of public funds or
an Act of Parliament (e.g. statutory corporation or enterprise of the State) and representatives of
employers. The definition excludes any person not acting as a principal but includes any person
acting in a fiduciary capacity or in his/her capacity as a trustee in an insolvent or deceased estate,
an executor or an administrator of a benefit fund, pension fund, pension preservation fund,
provident fund, provident preservation fund, retirement annuity fund or any other fund or
association.

The definition of an employer includes a representative of the employer and non-resident

employers. A non-resident employer is a non-resident individual, a company, partnership or
organisation with no head office or principal place of business in Zimbabwe. The following
persons are regarded to be representative employers in terms of Para 1 (1) of the 13th Schedule to
the Act:

 A public officer in the case of a company,

24
 A liquidator in the case of a company under liquidation,
 A person appointed by the governing board in the case of an association,
 For a local authority or like authority an officer appointed by the authority or like authority
 In the case of a person under legal disability, the trustee,
 In the case of an employer who is not ordinarily resident in Zimbabwe, any agent of such
employer who is authorized to pay remuneration on behalf of such employer,
 In all other cases, any individual or any other individual authorized to pay remuneration on
behalf of an employer.

3.5.3 Remuneration

Remuneration includes all forms of compensation to an employee for services performed,

namely salary, leave pay, allowance, wage, overtime pay, gratuity, tip, commission, bonus, fees,
pension, stipend, superannuation allowance, annuity or any other item of value paid to an
individual for services performed as an employee, whether or not the amount is paid in cash or
in kind (paragraph 1(1) of the 13th Schedule to the Act). Other specific items of remuneration
include:

 any amount received for services rendered by virtue of any employment or the holding of
any office,
 any amount received upon relinquishment, termination, loss, repudiation, cancellation or
variation of any office or employment, excluding lump sum awards from a pension,
provident or retirement annuity fund,
 lump sum benefits from a pension, provident or retirement annuity fund,
 any amount received in commutation of amounts due under any contract of service or
employment,
 Any fringe benefits calculated in accordance with s8 (1) (f) of the Act.
 Gains that may from the exercise, cession or release of any right to acquire marketable
security (s8 (1) (t) of the Act), etc.

3.5.4 Non-remuneration items

Certain amounts are excluded from the definition of remuneration by para 1(1) of the 13th
Schedule to the Act as follows:

Fees paid to contractors

Amounts paid in respect of services rendered by self-employed persons (independent contractor
or consultant) do not constitute remuneration. An independent contractor or consultant does not
include a dependent agent who carries on work on behalf of a registered insurer or a registered
estate agent, but freelance brokers or agents are independent contractors.

Non-executive director‘s fees

Fees paid to non-executive directors (including a chairman or board member of any statutory
corporation and councillors of any corporate body or association) in respect of services rendered
or to be rendered are not remuneration unless the director received some other amounts
constituting remuneration from the same company in addition to the fees.

Amounts exempt from income tax

Certain income is exempt from income tax by virtue of the Third Schedule to the Act. They will
not therefore constitute remuneration.
25
Partner‘s salaries
A partnership is not recognised as a person for income tax purposes A partner cannot therefore
be an employee of the partnership; for a person cannot be an employer of himself (see Ellis v.
Joseph Ellis & Co. [1995] 1 K.B. 324). This makes an agreement providing for salaries or
income paid to a partner only for purposes of regulating the division of income between partners
and not necessarily affecting the income accruing to the partner. Therefore payments made to a
partner by the partnership do not constitute remuneration.

Reimbursements
Any expense which the employee incurs on account of the employer or in the course of
performing his duties and reimbursed to him by the employer does not constitute remuneration.
Pension commutation
When an employee commutes his/her pension or annuity that portion representing the
commutation - normally one-third of the pension entitlement does not constitute remuneration.

Amounts prescribed as non-taxable by the Commissioner

The Commissioner General has the powers to prescribe that certain amounts would not
constitute remuneration. As an example, he can rule that certain trivial amounts shall not
constitute remuneration.

3.6 Deemed accrual

Taxable earnings from an employment in a tax year are the general earnings received in that tax
year. A tax year or year of assessment is a period of 12 months beginning on the 1st January and
ending on 31st December, each year.

According to s10 (1) of the Act, employment income is received when the payment is made or
when a person becomes entitled to the amount, whichever occurs first. This is regardless of what
the person does with the income thereafter. For example, reinvested, capitalised or accumulated
income is still deemed to have accrued to a person as long as it is dealt with on his behalf or as
he directs. The income is deemed to be dealt with in the name of the taxpayer when it:

- has been invested, accumulated or capitalised by him

- has been credited to an account, re-invested or accumulated for a taxpayer‘s benefit
- is due and payable to a person, even if not actually paid over to him/her

Section 10 (3) of the Act provides that parents are taxable on settlements, dispositions or
donations in favour of or for the future benefit of his/her minor child (whether legitimate or
illegitimate child).

3.7 Determination of employee‟s taxable income

Taxable income is gross income less exemption less deductions. An employee‘s taxable income
is determined in accordance with sections 8(1) (b), (c), (f), (n), (r) and (x) as read with the 1 st, 3rd
,6th and 13th Schedules to the Act, summarized follows:

Provision Subject Matter

Section 8(1) (a) Annuities
Section 8(1) (b) Amounts for services rendered
Section 8(1) (c) Pension withdrawals or refunds
26
Section 8(1)(f) Fringe benefits
Section 8(1) (r) Commutation of pension from retirement annuity fund
Section 8(1) (n) Commutation of pension from pension fund
Section 8(1) (t) Share options
Section 15(2) (h) Pension & Retirement annuity funds contributions
Third Schedule Exemptions
Sixth Schedule Pension & Retirement annuity funds contributions
Thirteenth Schedule Employees‘ Tax

3.8 Specific inclusion in the employee‟s gross income

3.8.1 Annuities (s 8 (1)(a))

An annuity is an amount which is received regularly on an annual basis, for life or for a limited
period. It should be paid on an annual basis, although it may be divided into annual instalments
e.g. weekly or monthly. It should be repetitive i.e. payable from year to year, at any rate, for
some specific period. Lastly it should be chargeable against a ―person‖ and claimable by a
specified person.

Pension for services rendered

An example of an annuity is a pension for services rendered, because it is received for life or for
an indefinite period. Each annual instalment constitutes gross income, but there must be
excluded from this amount any amount which was not allowable as a deduction to the person at
the time of contribution. The contributions are equivalent of amount used to purchase the
annuity, which is a capital amount.

EXAMPLE

N aged 49 had an early retirement from her job. On 1 July 2020, she received $40,000 from a
pension fund, being the first of her 60 monthly payments. Over the years, Michelle had
contributed $600,000 to the pension fund which was not allowable as deduction at the time of
contribution. Show M‗s taxable income in 2020.

ANSWER

Pension received ($40,000 x 6 months) 240,000

Less Contributions disallowed ($600,000/60 months) x 6 months 60,000
Taxable income 180,000

Purchased annuity
Another form of an annuity is that which is purchased by a person from an insurance company.
The law recognises that the purchaser invested a cost to acquire it (i.e. capital amount or
investment) and only provides for inclusion into gross income of the purchaser the interest
component of the capital invested. This interest is calculated as follows:

I = P -A/N
I = Interest
P = Annual payment/receipt
A = Amount used to purchase the annuity
N = life expectancy of the annuity

27
In the event that the full cost of purchasing the annuity is recovered, all subsequent installments
received afterwards become fully taxable.

EXAMPLE

Mr. D paid $150,000 to purchase an annuity from insurance company that will pay him $20,000
a year for the next 10 years. In the current year, Mr. D commenced receiving an annual annuity
of $20,000 from the fund. He is also expecting to outlive the annuity. Advise Mr. D of his
annual taxable income and the taxable income if he outlives the annuity.

ANSWER

His taxable income for the next 10 years (life expectancy) is $5,000 per annum, i.e. $20,000 -
$150,000/10 years and should he outlives the annuity the annual taxable income would be the
full annual instalment (i.e. $20,000).

Where the annuity is paid for an indefinite (unlimited) period the life expectancy for purposes of
computing the gross income of a purpose is limited to 10 years.

Annuity on sale of business

An annuity can also arise only upon sale of a business as long as the payment is payable
regularly in perpetuity or for a limited period. The case of CIR v Milstein 1942 TPD 57(11
SATC 279) Millin J sought to differentiate between an annuity and capital amount on a sale of
business. It was pointed out that the difference between a capital amount and annuity on sale of a
business lies in whether the principal continues to exist as a debt or is liquidated when the
transaction takes place. If the principal was to be liquidated then the result would be an annuity
and capital amount if the reverse is true.

Inherited or gift annuity

The fourth category of an annuity is one that is paid out of legacy or gift, that is, an annuity
stipulated in the will of a deceased person or gifted to the taxpayer. The beneficiary is taxed in
full on this amount since the amount constitutes profit.

3.8.2 Amount for services rendered (s8 (1)(b))

Amounts derived in connection with employment include all amounts received or accruing to a
person by reason of employment. It does not matter whether such amounts are paid in terms of a
signed contract or paid under an implied contract. Such income can come from Past, Present or
Prospective employers (s8 (1) (b)) of the Income Tax Act).

The income includes any payment in respect of services or in appreciation of services rendered
if there is a casual link between the services and payment. Gratuitous payments coming from
employer‘s clients e.g. tips of waiters, given in appreciation of services rendered or connected to
the rendering of services also constitute income for services rendered. Even ex-gratia (voluntary)
payments paid in contemplation of services will constitute employment income.

The duration of a contract is of insignificance as far as liability to tax is concerned. As such part-
time workers, casual workers or temporary workers are required to pay tax as long as their
earnings meet the minimum tax threshold of ZWL$2,000 per month (or the equivalent daily
amount).

28
Examples of amounts for services rendered:
 Salary or wages or an allowance, bonus, extra pay, or gratuity,
 fees, commission, prizes, awards, compensation etc.,
 executive directors or manager fees
 compensation for loss of employment or service
 Termination payments, e.g., payments for unused annual leave, golden handshake‘ etc.
 Payments from third parties in appreciation of services rendered e.g. tips or gifts etc.

Cash in lieu of notice

Cash in lieu of notice is brought into an employee‘s gross income in terms of s8 (1) (b) of the
Act when received or accrues.

Sick pay
Sick pay is any amount paid under a plan to an employee who is unable to work because of
sickness or injury. There is nothing within the statutes that exempt salary received by a person
during the time of his sickness resulting in him unable to render services to his employer.

Gifts or voluntary payments

Gifts or voluntary payments whether of capital nature, for example, shares given for services
rendered constitute remuneration. There should be a relationship between the gift or award and
services being rendered. Such gifts must however be distinguished from those that arise as result
of affection or esteem of the recipient. For instance, in the absence of some other factors to the
contrary, a mere gift which accrues to the taxpayer in his personal capacity cannot be held to be
taxable. Further, third party gifts which are in respect of services rendered may constitute gross
income.
.
Ex gratia payments to former employees
A voluntary award or payment made to an employee even for life or for a limited period after he
leaves or retires from employment may still be subject to tax, unless it can be shown that the
motive for paying such amount is not in recognition of past services rendered by the person or if
it is paid to a widow who never rendered services to the company. However it is difficult to
bring within the tax net voluntary payments made by an employer to a relative of a deceased
person or employee (including a widow).

Tips from third parties

Tips from customers are generally subject to employee‘s tax. It does not matter how negligible
they maybe. Employees are required by law to report tips to their employers for purposes of
including them in the payroll. This means that tips received by barbers, hotel, restaurants, bar
staff etcetera are taxable no matter how small they maybe.

Employee prizes and Awards

Prizes or awards which are closely linked to services rendered are taxable by reason of s8 (1) (b)
of the Act. A prize has a causal link with services rendered if it is given in appreciation of
services rendered.

Employee long term awards

When an employer gives an employee a reward as a gesture of appreciation for services
rendered, outstanding or splendid performance the reward will constitute remuneration. Also, a
long term service award or a worker of the year award constitutes remuneration.

29
Tokens
Tokens are taxable if they are related to services rendered, that is given in appreciation of the
services rendered. The value of the vouchers or tokens is determined by the market value of the
goods received in exchange of them (Lace Proprietary Mines v CIR, 1938 AD 267). Christmas
vouchers or hampers are also taxable because it‘s difficult not to associate them with services
rendered.

Honorarium
An honorarium received by or accruing to an employee however small it might be in recognition
of services rendered constitute gross income.

Students on attachment
Allowances paid to students on attachment constitute remuneration as long as they exceed the
minimum daily, weekly, monthly or annual taxing threshold. Also, allowances paid to research
workers are indistinguishable in nature to salaries and should be subject to PAYE rules. And so
are allowances paid during periods of training for future employment, such as public service
cadetships, they fall within taxable income.

Pastors or church staff

Clergymen, pastors and other staff rendering services to the church are employees for purposes
of employees‘ tax. It does not matter, the church itself is not subject to income tax.

An ex gratia gift made in token of the esteem in which the pastor or minister has been held by
members of the fellowship is non-taxable.

Restraint of trade
Where a person‘s right to freely trade is restricted and is paid for that restriction, the payment is
akin to compensation for loss or sterilization of a fixed asset and the payment is of a capital
nature. The amount is non-taxable (Taeuber & Corssen (Pty) Ltd v SIR, 1975 (3) SA 649 (A)
(37 SATC 129).

Golden hand shake and redundancy payments

A golden hand shake is a compensation paid for loss of office or termination of an office. The
amount is taxable in full irrespective of whether it is received in instalment or as lump sum
payment. A compensation for loss of employment would include:

 compensation for breach of a contract of service

 compensation on the termination of services
 commutation of amounts due under a contract of employment or service;
 ex-gratia or contractual payments such as redundancy payments, severance pay, etc. made to
employees who have become redundant for reasons beyond their control

Compensation and awards

Any amount which is paid or payable as a consequence of services should be brought into an
employee‘s gross income. An arbitration award against an employer for reasons such as
employment contract breach in order to compensate for lost wages, or receive retroactive
payments as a result of a decision such as pay equity may constitute taxable income. Also,
arbitration awards whether for unfair dismissal or termination of the employment contract
constitutes gross income and so is an amount paid as a consequence of early termination of the
employment contract. However, a damage or compensation paid or payable to an employee by
reason of delay of payment is not an amount for service rendered and should not be taxable.

30
Para 7 of the 3rd Schedule to the Act however exempts from tax certain amounts paid to the
employee, his family or his estate for injury, sickness or death to the extent that these are paid by
a trade union, a benefit fund, a medical aid society or by an insurance company on a policy
covering accident, sickness or death. Also non-taxable are compensation, including a pension,
paid in respect of injury, disease, disablement or death suffered in employment or compensation
for the personal qualities or esteem of the recipient.

3.8.3 Pension on retirement (s 8 (1)(a))

A member who retires under normal circumstances automatically obtains a pension exemption
in terms of para6 (h) of the 3rd Schedule to the Act provided he attained the age of 55 years
before the commencement of the year of assessment. In the case of a member person who had
not turned 55 years in the prior year, the pension is taxable income to the employee after
deducting previously disallowed contributions. The disallowed contributions are those
contributions which were not allowed to the employee when he was contributing to the pension
or retirement annuity fund (excess contributions).

The amount disallowed is spread equally over the person‘s life expectancy.

EXAMPLE

Michelle aged 49, had an early retirement from her job. On 1 July 2020, she received $40,000
from a pension fund, being the first of her 60 monthly payments. Over the years, Michelle had
contributed $600,000 to the pension fund which was not allowable as deduction at the time of
contribution.

Calculate Michelle‘s taxable income in 2020.

ANSWER
Pension received ($40,000 x 6 months) 240,000
Less Contributions disallowed ($600,000/60 months) x 6 months 60,000
Taxable income 180,000

3.8.4 Commutation of pension from a Pension or Consolidated Revenue fund (s 8(1)(r ))

Under the pension rules a person can commute his pension upon election. A commutation
implies giving up part or all of the pension payable from retirement in exchange for an
immediate lump sum payment. Section 8 (1) (r) of the Act brings into gross income: ― any
amount so received or accrued by way of commutation of a pension or annuity which is payable
from the Consolidated Revenue Fund or a pension fund, other than a retirement annuity fund, if
the pension or annuity itself would not have been subject to income tax‖

When one makes an election to commutes his pension, a third of his pension entitlement is
treated as pension commutation (capital nature amount), which is non-taxable. Any pension
received after the commutation is then taxable in full when received or accrues.

EXAMPLE

Mr. Dean aged 51 retired on 2 May 2020. When he retired he elected to commute his pension.
As a result, he received a lump sum payment amounting to $180,000. From 1 June 2020

31
onwards, Mr. Dean will be entitled to $2,000 monthly pension. His pension entitlement prior to
the commutation was $420,000.

Calculate his taxable income in 2020.

ANSWER
Lump sum payment 180,000
Less Pension commutation ($420,000/3) 140,000
Add Reduced pension ($2,000 x 7) 14,000
Taxable income 54,000

A pension accruing to a person over the age of 55 years is however tax exempted. The person
should have attained 55 years before the commencement of the tax year to qualify for the
exemption.

Where a person‘s employment has ceased due to retrenchment, he can also qualifies for tax
exemption on the pension or annuity (para 6 (h1) of the 3rd schedule of the Act). The person
should have been retrenched at the age of less than 55 years. The exemption is as follows: ―an
mount referred to in section 8(1)(r) that is received by a person who has not attained the age of
fifty-five years before the commencement of the year of assessment, to the extent of the first ten
United States thousand dollars or one third of such amount, whichever is the greater, of the
amount of any pension commutation or annuity, which is paid to an employee on the cessation
of his or her employment, where his or her employment has ceased due to retrenchment…‖.
However, there is an exemption of ZWL$50,000 or one-third of the pension or annuity, up to a
maximum of one-third of ZWL$240,000 (i.e. ZWL$80,000), whichever is the greater amount
(2019: exemption is ZWL$10,000 or one-third of the pension or annuity, up to a maximum of
one-third of ZWL$60,000 (i.e. ZWL$20,000), whichever is the greater amount)

EXAMPLE
Miss T aged 31 was recently retrenched owing to downsizing of her employer. Miss T received
a lump sum of $750,000. This sum consisted of ZWL$140,000 in lieu of annual leave and
pension of ZWL$610,000 from the Employer Sponsored Pension Fund. The pension fund is
registered in terms of the Pension and Provident Act (Chapter 24.09). She also received
ZWL$21,000 as a parting gift from his employer for his services over the years. Outline the
taxation ramifications of these events.

ANSWER

Miss T will be taxable in full on cash in lieu of annual leave of ZWL$140,000

She would also qualify for an exemption provided for in terms of Para 6 (h1) of the 3rd Schedule
of the Act of ZWL$80,000. Only ZWL$530,000 of her pension is taxable (ZWL$610,000 -
ZWL$80,000). The parting gift is a benefit granted on retrenchment, it would qualify for
exemption under Para 4(p) of the 3rd Schedule to the Act. The exemption is the greater of one-
third of ZWL$80,000 and ZWL$50,000.

3.8.5 Commutation of pension from a Retirement Annuity fund (s 8(1)(n))

Section 8(1) (n) provides for inclusion in gross income of the member of: ―any amount received
or accrued by way of commutation of a pension or annuity, the right to which was acquired by
virtue of contributions first made on or after the 1st August, 1970, and which is payable by a
retirement annuity fund, to the extent that it exceeds the amount that would have been payable
had 1/3rd only of the total value of the pension or annuity been commuted‖

32
By virtue of electing to commute the pension a third of the pension entitlement becomes tax
free. The pension in question should be paid out of retirement annuity fund. The reduced
pension is taxable as and when it accrues. The commutation is a third of the person‘s pension
entitlement and is treated as pension commutation (capital nature amount), which is non-taxable.

EXAMPLE

Mr. B aged 51 retired on 2 May 2020. When he retired he elected to commute his pension. As a
result, he received a lump sum payment amounting to $480,000. From 1 June 2018 onwards, Mr.
B will be entitled to $2,000 monthly pension. His pension entitlement prior to the commutation
was $840,000. Advise him of his taxable income in 2020.

ANSWER

Lump sum payment 480,000

Less Pension commutation ($840,000/3) 280,000
Add Reduced pension ($2,000 x 7) 14,000
Taxable income 214,000

A pension accruing to a person over the age of 55 years is however tax exempted. The person
should have attained 55 years before the commencement of the tax year to qualify for the
exemption.

3.8.6 Pension refund or withdrawal (s8 (1)(c ))

A pension refund or withdrawal is an amount paid to or payable to a beneficiary by reason of the

member‘s withdrawal, leaving/changing jobs or employer closed business or by reason of
liquidation or winding up of the fund before the envisaged benefits from the fund are due to be
paid.

Pension refunds or withdrawals are also referred to as terminal benefits in the 1 st Schedule to the
Act. The 1st Schedule to the Act defines a ―terminal benefit ‖ in relation to a benefit fund as
amount (other than a payment by way of annuity) which is paid or will be payable to the
beneficiary by reason of his withdrawal from or the winding up of a benefit fund.

Terminal benefits are brought into gross income through s8 (1) (c) as read with the 1st Schedule
to the Act after deducting the first $1,800, any amount used to purchase a retirement annuity,
transfer to pension fund or benefit fund. The computation of taxable income is as follows:

Pension/Benefit fund

Lump sum payment (terminal benefit) xxx

Less Prescribed amount (18,000)
Less Amount used to purchase annuity on retirement (xxx)
Less transfer to pension fund (xxx)
Less transfer to benefit fund (xxx)
Taxable income xxx

Note that transfer from pension fund to benefit fund does not qualify for exemption (deduction).

33
A lump sum payment (pension refund) is taxed at a special rate and does not attract AIDS levy.
The special tax rate is the person‘s top marginal rate of tax (highest rate on his employment
income). If the person‘s employment income is less than the zero rate tax bracket, the pension
refund will be taxed at the rate of 20%. A directive must be obtained from ZIMRA for the
computation of a lump sum payment.

EXAMPLE

Mrs. W aged 37, resigned on 30 April 2020. Upon her resignation, Mrs W received a lump sum
payment amounting to $198,000 from a pension fund she joined in 1997. She purchased an
annuity on retirement for $100,000, transferred $20,000 to another pension fund and $10,000 to
benefit fund. Her salary before resigning was $50,000 per month. Advise Mrs W of her tax
liability.

ANSWER

Salary ($50,000 x 4) 200,000

Lump sum payment 198,000
Less Prescribed amount 18,000
Less Amount used to purchase an annuity 100,000
Less Transfer to a benefit fund n/a
Less Transfer to another pension fund 20,000 60,000
Taxable income 260.000

Tax on ($260,000-60,000) (see) 60,260

Less credits -
60,260
Add 3% AIDS Levy 1,808
Tax liability 62,068
Add Tax on LSP ($60,000 x 40%) 24,000
Tax liability 86,068
Less PAYE -
Tax payable 86,068

3.9 Fringe benefits (s 8 (1)(f))

3.9.1 Introduction

Remuneration includes any amount which is equal to the value of any advantage or benefit in
respect of employment services or other gainful occupation in connection with taking up
employment whether in cash or kind. The benefit must be given in respect of office or to the
holder of an office. In other words there must be a causal link between the benefit granted and
the employment.

Section 8(1)(f) of the Act defines an "advantage or benefit" as board, the occupation of quarters or
a residence, the use of furniture or a motor-vehicle, the use or enjoyment of any property
whatsoever, corporeal or incorporeal, and an allowance granted by or on behalf of an employer to
an employee, his spouse or child. An employee includes a person, a director of a company, an
agent or a servant or a person otherwise gainfully occupied.

34
3.9.2 Valuation of benefits

Where benefits are not expressed in monetary terms they have to be valued for inclusion in gross
income. Section 8 (1) (f) (II) of Act provides for two valuation methods as follows:

―The value of the grant of an advantage or benefit, other than a payment by way of an
allowance, shall be determined—

a. in the case of the occupation or use of quarters, residence or furniture, by reference to its
value to the employee; and

b. in the case of any other advantage or benefit, by reference to the cost to the employer‖

The value to the employee refers to what the employee is willing to pay for the benefit which is
a function of the employee‘s living circumstances.

The cost to the employer is the amount of any expense incurred by the employer in connection
with the provision of the benefit. This is what the employer has paid or incurred in order to
provide the benefit to the employee.

To the extent a benefit or an allowance is used for the purpose of the business transactions of the
employer, or to the extent that an employee pays something for it, there shall be no taxable
benefit or the benefit is reduced.

EXAMPLE

A company‘s selling price is arrived at by adding a mark-up of 20% to the cost of production.
The company‘s employees are offered a 15% discount on all purchases of the firm‘s products. It
has been established that goods which cost the company $5,000 were sold to employees for
$5,100 instead of the normal retail price of $6,000. ZIMRA officials contend that the discount of
$900 should be treated as a taxable benefit liable to employee‘s tax (PAYE.). What is the benefit
to each employee?

ANSWER

$5,000, i.e. what it cost the employer to provide the benefit though the employee paid less than
the market price, the arrangement did not result in financial loss to the employee.

However specific valuation rules exist for some benefits motor vehicle, loan benefits, etc.

3.9.3 Accommodation

Accommodation includes the occupation of quarters, holiday cottages, and housing boats,
furnished or unfurnished and with or without board, fuel, power or water provided by an
employer or an associate of the employer. Residential accommodation provided to an employee
either free of charge or for a consideration that is less than its determined rental value gives rise
to a taxable benefit. Generally this value has been accepted to be the open rental of the house
reduced by whatever rent paid by the employee.

EXAMPLE

35
An employee pays $2,500 per month for occupying a company house. The prevailing charge for
renting a similar house within the area is $35,000 per annum. How much is his taxable income?

ANSWER

Taxable income = $35,000 – (2,500 x 12) = $5,000

Other charges such as water, electricity, telephone bills; etcetera, paid for by employer constitute
further taxable benefits. If an employer pays rent on behalf of the employee, the benefit to the
employee is the cash or consideration paid.

The right of use of housing (residence or quarters) and/or a housing allowance granted to a
member of staff of a mission hospital or rural clinic is exempt from tax in terms of para 4 (t) of
the 3rd Schedule to the Act. The same paragraph provides for the exemption from tax of a
transport allowance given to the same staff. A mission hospital or rural clinic is a private
hospital or a rural clinic owned, operated or sponsored by a religious body or a rural district
council.

3.9.4 Passage benefit

A "passage benefit" covers the cost borne by an employer for any journey undertaken by an
employee, his spouse or child to take up employment, on termination of employment or any
other journey in so far as it is not made for the purpose of a business transaction of the employer.
All recruitment and repatriation related trips by the employee should be taxed to the employee to
the extent that they are paid by the employer.

The first journey on taking up employment, with each employer, shall not be taxed to the
employee. These are relocation expenses to take up or on termination of employment paid for by
the employer. They include the cost of moving an employee and his family and their goods. The
exemption on the first journey applies to both resident and non-resident persons.

The first journey on termination of employment, with each employer, shall not be taxed to the
employee as well.

All private trips of an employee and his family member trips sponsored by his/her employer are
taxed to him/her. Where the holiday part of the trip was merely incidental to a business trip, the
resultant benefit will not be taxable. As a guide, any trip whose objective accounts for less than
10% of its time on the business of the employer, it is regarded as a private trip. The business
time is considered incidental to the person‘s holiday trip.

If an employee is accompanied by his/her spouse on a business trip, and the employer reimburse
their travel expenses, that payment is a taxable benefit to the employee unless the spouse was
engaged primarily in business activities on behalf of the employer during that trip. Annual home
trips provided to expatriate staff and their family members are normally for holiday purposes.
They are therefore assessable under the usual rules.

EXAMPLE

An employee spent 10 days on his employer‘s business and 5 days on his business. The
employer paid $150,000 for the trip, 60% of this covered employee‘s family. Compute gross
income

36
ANSWER

Gross income = (5/15 x 40% x 150 000) + (150,000 x 60%) = $110 000

3.9.5 Entertainment and subsistence allowance

Entertainment allowance in money or in kind is a taxable benefit in terms of s8 (1) (f) of the Act.
The benefit is exempt where it is expended on the business of the employer. Entertainment is
expended on business of employer when expended on or enjoyed with business clients.

The Oxford English Dictionary defines entertainment as ―the action of providing or being
provided with amusement or enjoyment.‖ We are persuaded by the court‘s meaning of the word
in Rev v Hathorn & Others 1948 (4) SA 162, 15 SATC 456 at 461 where the court pointed out
that ―entertainment is capable of comprehending a banquet, a meal, or indeed refreshments of
any kind and hospitable provisions generally.‖ Thus it includes hospitality or amusement of any
form includes a banquet, a meal, and refreshments of any kind and hospitable provisions
generally e.g. DSTV payments, subscriptions by the company on behalf of staff, gym fees and
holiday cottages.

Paragraph 15 of the 3rd Schedule to the Act however exempts entertainment allowance
expended on the employer‘s business, for example, entertainment allowance expended by an
employee on entertaining employer‘s clients.

3.9.6 Right of use of company cars

A taxable benefit arises when an employee is granted the right of use of the employer‘s motor
vehicle for his/her private or domestic use. Private usage includes travelling between home and
place of work or between two distinct businesses or use of the vehicle over the weekends for
private purposes. Private usage is also assumed if the vehicle is kept at the employee‘s home
where it can be used by the employee or his family at any time. The taxable benefit is
determined using the engine capacity of the applicable vehicle. If the person‘s taxable income is
wholly or partly in foreign currency United States dollar tables are to be applied. Both rates are
as follows:

Zimbabwe dollar motoring benefits

Engine capacity (CC) Annual Monthly
Up to 1500 54,000 4,500
1501-2000 72,000 6,000
2001-3000 108,000 9,000
3001 and above 144,000 12,000

United States motoring benefits

Engine capacity (CC) Annual Monthly
Up to 1500 3,600 300
1501-2000 4,800 400
2001-3000 7,200 600
3001 and above 9,600 800

37
The benefit cannot be apportioned because the vehicle is used partly business and partly private.
As long as the private element is present the full benefit applies. Apportionment can only be
made where the period of use is less than a month or year. Although paid by the employer, costs
such as licenses, insurance, toll fees, repairs and maintenance or other cost of running the
vehicle, also inure to the benefit of the employee i.e the deemed benefit are all inclusive.

3.9.7 Staff Benefit – Fuel

In terms of s8 (1) (f) of the Act, the value of any benefit or advantage granted to an employee,
his/her spouse or child by an employer constitute a taxable benefit. Therefore where an
employee enjoys the benefit of a motorcar with free fuel, the value of fringe benefit in respect of
such fuel should be included as part of the employee‘s gross income from employment. The
benefit on free fuel to be declared is the actual amount of fuel expenditure incurred by the
employer i.e. cost to the employer. The taxable benefit only relates to the cost of fuel incurred on
personal errands of the employee; fuel allocated for business trips is non-taxable. Private usage
covers fuel issued for home to office journeys or vice versa or fuel issued for employee‘s
weekend journeys or any other personal journeys of the employee.

EXAMPLE

Vonai was granted a car, engine capacity 2700 cc, by her employer. She used the vehicle from 1
May 2020 to 31 December 2020 and did a personal mileage of 15,000km of the total annual
mileage of 33,000km. Fuel consumed for the period amounted to US$6,000. Vonai earns in
foreign currency. How much is her assessable income for the year of income?

ANSWER

Fuel benefit (15000/33000 x 6,000) 2,727

Right of use of car (600 x 8 months) 4,800
Taxable income 7,527

3.9.8 Personal vehicles used for work

Where an employee use own vehicle to discharge his employer‘s duties, a fringe benefit will
arise if the employee is reimbursed his cost or given an allowance to cover his private mileage or
when he is reimbursed his expenses for the business expenses incurred. Business mileage should
be recovered for tax purposes using the mileage rates provided by the Automobile Association
of Zimbabwe (‖AA rates‖). The excess to be treated as taxable benefit.

In the event that the employer pays for the repair and maintenance costs on the employee‘s car
these also constitute taxable benefit to the extent the amounts exceed value for business mileage
measured using AA rates.

Private travelling includes travelling between the employee‘s place of residence and his place of
employment.

38
EXAMPLE

Tongai used his own car when he went to Mutare on account of his employer‘s business. He
travelled 470 km. The employer gave him an allowance of $3,150 to cover his fuel and wear &
tear on the car. You are told that all-inclusive AA rate is $5 per km.

Compute Tongai‘s taxable income.

ANSWER

Allowance from employer 3,150

Less Business Allowance (5 x 470 km) 2,350
Taxable income 800

3.9.9 Motor vehicle acquired from employer

The acquisition of a motor vehicle by an employee from an employer may result in a taxable
benefit to the employee. It does not matter the employee acquires the vehicle during or upon
termination of employment. The taxable amount to the employee depends on whether the
vehicle was acquired by the employer before 1 January 2009 or after that date.

Where the vehicle was acquired by the employer after 1 January 2009, the taxable benefit to the
employee is computed as follows:

A–B

A is the market value of motor vehicle at the time of sell to an employee

B is the cost at which the employee acquired the motor vehicle (employee‘s cost)

In determining the market value of a motor vehicle (factor A of the formula), the Commissioner
shall have regards to the valuation of a member of such institution or association of motor
dealers or valuers as prescribed by him by notice in the Gazette. It is advisable to obtain three
quotations and endeavour to use the highest of the quotations as opposed to the lower price to
avoid disagreements with ZIMRA.

EXAMPLE

Frank bought VW Golf from his employer at $24,000 when the market value was $54,000 on the
date of purchase of the vehicle.

How much is Frank‘s taxable income?

ANSWER

Frank‘s taxable income is $30,000 ($54,000 -$24,000).

Where the vehicle was acquired by the employer before 1 January 2009 and sold to an employee
on or after that date, the same formula as above should be applied when computing the taxable
benefit to the employee, however the cost aspect of the formula will change. The ―cost‖ of the
vehicle shall be the value of the vehicle shown in the final balances of the employer determined
and carried forward in terms of s3 (3) and (4) of the Finance Act, 2009.
39
Thus, the factor B of the formula shall be the United States dollar equivalent of converted
Zimbabwean dollar as at 31 December 2008.

Acquisition of motor vehicle by an employee who is or over 55 years on the date of sale of
vehicle is exempt from tax.

3.9.10 Loans and advances

A loan is any form of loan or credit granted directly or indirectly to an employee, his spouse or
child by or on behalf of his employer or a person associated with his employer. Loans that are
approved to the satisfaction of the Commissioner to have been granted for the purpose of the
education or technical training or medical treatment of an employee, spouse or child are
excluded. This means that interest free loans for the purpose of the education or technical
training or medical treatment of an employee or of the employee‘s spouse or child are tax
exempt.

The benefit is computed as follows:

A–B

A is LIBOR + 5%

B is the interest rate paid on the loan by the employee

LIBOR means London Inter-Bank Offer Rate

The benefit is apportioned where the loan tenure is less than a year. Employers who do not wish
their employees taxed should fix the interest rate at 6% per annum.

An employee who accesses a loan from an associate of his employer, for example from the
parent company, subsidiary or from a fund to which the employer contributes for the benefit of
its employee is deemed also to be accruing a benefit from his/her employer.

Interest on loan for education, technical education or medical cost for the taxpayer, his/her
spouse or any child of his/her child is excluded from the definition of gross income. Also
excluded from the employee‘s gross income is interest on a loan which does not exceed $1,000
and interest on a loan whose rate of interest is at least LIBOR + 5%.

EXAMPLE

Mrs. Hove borrowed $150,000 from her employer on 28 February at an interest rate of 2.6% p.a
and repaid the amount in full on 31 December of same year. The annualised Libor was 0.6%.

Calculate Ms. Hove‘s taxable income.

ANSWER

Mr. Hove‘s taxable income Error! Bookmark not defined.is $3,750 {(10Error! Bookmark
not defined./12 x $150,000 x (5.6%-2.6%)}.

40
3.9.11 Loan write offs

A loan write off also constitutes a benefit in kind which should be included in the gross income
of the employee and subject to PAYE. In the hands of the employer, a loan which is converted
into remuneration remains tax deductible on the basis that it is a staff cost.

3.9.12 Education Benefits

Amounts paid by an employer in connection with the education of an employee, his/her spouse
or child are by virtue of s8 (1) (f) of the Act included in gross income of the employee. This
means that educational assistance benefits from the employer under an educational assistance
program or not is part of taxable income. The education benefit also includes school fees paid
for the employee‘s spouse or children.

Paragraph (4) (m) of the 3rd Schedule to the Act exempts bursaries and grants to employees,
their spouses or children if not granted as a consequence of services rendered or to be rendered
by the beneficiary or his near relative. In The Endeavour Foundation and UDC Ltd v COT
(1995) 57 SATC 297 a bursary or scholarship granted by the foundation, for the education of a
child of an employee of a company participating in the funding of such foundation, was held to
constitute an allowance in the hands of such employee. Also, if a child renders services and is
granted education benefit or any other benefit pursuance to services rendered the benefit is
taxable in his hands (Hill L.W. 1993:21).

3.9.13 Meals and Refreshments

Meals, refreshments or vouchers entitling an employee to a meal or refreshment provided by an

employer at a subsidized price or for free constitute a taxable benefit. The benefit is the cost of
the meal, refreshments or voucher to the employer reduced by amounts recovered from each
employee.

A benefit would not arise on meals or refreshments supplied by an employer to any employee
during extended working hours (like night shift workers) or when the employee is entertaining
business clients or someone on behalf of the employer.

3.9.14 Non-business Subscriptions

The cost of an employee‘s membership of a sporting or social club by his employer or an

associate of the employer is taxable. Professional subscriptions for an employee‘s continued
membership of the professional body paid by the employer are exempted .Also exempted is
professional indemnity insurance premiums paid by the employer. An employee‘s entrance fees
and life membership subscriptions paid on behalf of the employee by the employer constitutes
taxable benefits.

3.9.15 Cell phones and similar gadgets

Airtime or data paid to staff for private usage constitute a taxable benefit, unless the airtime or
data is used on account of the employer‘s business. The business usage of the airtime or data
should be proved. In other words, the company must ensure that cellphone usage is analysed for
41
private and business usage and the private usage accounted through employees‘ payroll. In the
absence of an analysis, ZIMRA may deem the whole usage as fully taxable to the employee.

3.9.16 Free or discounted services

Free or cheap services provided by the employer to an employee constitute taxable benefit. For
example, a hotel providing to its staff hotel accommodation for free or at discounted rates, a
cellular company giving its employees free or unlimited use of talk time, a bank allowing its
staff to obtain banking services without levying bank charges, an airliner giving free ride to its
employees and their families‘ etcetera. The benefit is the cost of rendering the services by the
employer reduced by what the employee pays to obtain the benefit.

3.9.17 Reimbursement

Where office holders or employees incur expenses of travel in the performance of the duties of
their office or employment, the reimbursement of such expenses may, within certain limits be
tax-free. However, expenses incurred in travelling from home to work or vice versa incurred are
expenses on the private travel of the employee and therefore taxable.

3.9.18 Travelling and subsistence allowance

Where an employee is required to work away from his usual place of work as to necessitate
sleeping away from home any amount paid to convey the person to that place and reasonable
subsistence allowance are tax exempt to the employee. If an employee is given an advance to
cater for the nights he will spend away from his usual place of residence, the employer has to
reconcile the advance by the following month and ensure advance not expended on employer‘s
business is taxable. If the employee did not travel as intended, the advance has to be repaid to
the employer or is taxed in full as a general allowance or salary.

Subsistence includes accommodation, food and drink costs whilst an employee is away from
usual workplace. Subsistence expenditure is specifically treated as a product of business travel
and is therefore treated as part of the cost of that travel. This means that an allowance for
overnight board, lodging and transportation to special worksites involving duties of a temporary
nature, or to remote worksite is tax exempt. Contemporaneous records as stated above should
also be kept to support the travel expenses.

3.9.19 Share option scheme

Share option scheme is an arrangement to benefit employees whereby shares are offered to them
for purchase at a future date at a price fixed in advance. The option would be valid for a certain
period, and an employee may therefore exercise that option at a time when the value of the
shares may have increased. The grant of an option to acquire shares is not, in itself, a taxable
benefit, but the benefit will accrue when the employee exercises the option and acquires shares
in the company. The benefit is taxable in terms of s8 (1) (t) of the Act which provides that gross
income shall include ―the amount so received or accrued as a result of the sale of shares offered
to an employee pursuant to a share option scheme, as adjusted in accordance with the following
formula for an option exercised by an employee after 1 February 2009:

42
A – (B + C)
Where

A represents the sale value of the shares at the time of the exercise of the share option by the
employee;

B represents the value of the shares offered to the employee pursuant to a share option scheme;

C represents the figure B to which the inflation allowance is applied, which allowance is to be
determined in accordance with the following formula:

(D – E) xB
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
time when the shares were offered to the employee pursuant to a share option scheme‖.

EXAMPLE

Mr. X was offered 100,000 shares by his employer (Z Ltd) at a price of ZWL$0.50 per share and
should remain in the employment of Z Ltd for 5 years and assume he did and that on the date
consumer price index had moved from 1.2% to 1.65% (time of offer to time of option). Advise
Mr. X of his taxable income, if the share price on the date of exercise is ZWL$1.50.

ANSWER

A = ZWL$1.50 per share

B is ZWL$0.50 per share

C is ZWL$0.19 (0.50 x (1.65-1.20)/1.20)

Benefit = 100,000 (1.50 – (0.50 + 0.19) = ZWL$81,000

The above applies on an option acquired by the employee after 1 February 2009. Different rules
apply to an option acquired prior to 1 February 2009 but exercised after this date (s22 K of the
Finance Act). On such an option the tax liability to the employee is 5% of the market value of
the shares prevailing on the date of the exercise of the option. This tax is final and is settled in
accordance with PAYE rules - although it does not necessarily pass through the payroll it must
be remitted to ZIMRA on the 10th of the following month following that of deduction.

EXAMPLE

Debbie, an Assistant Tax Manager with Star (Pvt) Ltd. was offered an opportunity by her
employer to acquire shares under a share option scheme on 31 January 2008 at a time when the
shares were valued at Z$30m. She exercised her right and acquired the shares on 20 November
2013 when the shares were valued at ZWL$50.000. The all items CPI were 116 and 805 for
January 2008 and November 2013, respectively.
43
How much is taxable to Debbie in 2013?

ANSWER = $2,500($50,000 x 5%)

The share option benefit is tax exempt where the employee share ownership scheme or trust has
been approved by Minister of Indigenization and Empowerment.

Where after the date of accrual of the exercisable option the value of the shares increase or
decrease that should not affect the amount to be included in the employee‘s gross income.

Approved employee share ownership trust

In terms of paragraph 19 of the 3rd Schedule to the Act, 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 is exempt from tax.. Note the exemption only applies when shares,
interest etc. are sold back to the Trust or redeemed by the trust any disposal to some other person
attracts tax.

3.9.20 Clothing benefit

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

3.9.21 Grossing up of Benefits

A benefit may also arise when an employer grosses up the employees benefits. ZIMRA accepts
grossing up of amounts where the employer wishes to pay tax on behalf of the employee. This
applies in cases where employees would want to remain receiving a certain net salary.

3.10 Exemptions

The following items are exempt from tax:

3.10.1 Bonus or performance related award

Taxable income includes bonus or performance-related award, e.g. annual bonus, thirteenth
cheque, profit share or production award received by or accruing to an employee or agent in
respect of services rendered. An employee or agent is however entitled to an exemption of up to
ZWL$5,000 of the bonus or performance related award in a year of assessment in terms of
paragraph 4(o) of the 3rd Schedule to the Income Tax Act. It does not matter that this bonus is
44
paid in January, November or any other month of the year. Where the bonus is less than the
prescribed exemption amount, the full amount is exempted.

The bonus exemption of ZWL$5,000 was effected through Finance Act no 3 of 2019 with effect
from November 2019 from ZWL$1,000. Whilst the tax free bonus for persons receiving or
deemed to be receiving their earnings in foreign is ZWL$360 with effect from the same date.
See the table of prescribed values in the Appendix for further details.

EXAMPLE

Let‘s suppose Mr. X‘s earnings from January to 31 July 2019 includes an annual salary of
ZWL$270,000 and annual bonus of ZWL$31,000. Advise Mr. X of his tax liability.

ANSWER

Item ZWL$
Salary 270,000
Bonus 31,000
Less Exemption bonus (1,000)
Taxable income 300,000
Tax thereon (300,000 x 45%- 31,740) 103,260
AIDS Levy 3,098
Tax liability 106,358

3.10.2 Retrenchment package/severance pay

A retrenchment package is brought into gross income of an employee in terms of s8 (1) (b) of
the Act. However, one-third (1/3) (up to maximum of one third of ZWL$240,000 i.e.
ZWL$80,000) of the package or ZWL$50,000 is an exemption under paragraph 4(p) of the 3rd
Schedule to the Act. For persons receiving or deemed to be receiving their earnings in foreign
currency the tax free retrenchment package is US$3,200 or a third of US$15,100, whichever of
the two is the greater amount. These measures are with effect from 1 November 2019. See
prescribed values table in the Appendix for details of historic exemptions.

A retrenchment package includes severance pay and other benefits granted on retrenchment, but
not pension and cash in lieu of leave. Other benefits include any amount payable by reason of
cessation of employment e.g. school fees for children (even if it‘s to cover future periods),
compensation for loss of office, awards etcetera.

Pension and cash in lieu of leave are taxable in full.

A gratuity payable to an employee whether during or termination of employment constitutes

gross income to an employee. However certain gratuities are exempt from tax as follows:

 Any gratuity payable to a judge of the supreme court or the High Court in terms of his
conditions of service (para 4(d1) of the 3rd Schedule of the Act)
 A gratuity paid as part of a retrenchment package qualifies for an exemption applicable to a
retrenchment package i.e. is aggregated with retrenchment package for purposes of
computing the exemption element (para 4 (p) of the 3rd Schedule of the Act).
45
 A gratuity paid in conjunction with the Colonial Police and Fire brigade Long Service
Medal or Good Conduct ( para 4(h) of the 3rd Schedule to the Act)
 A gratuity paid to a Police staff in conjunction with a medal for Long Service Award (para
4(ii) of the 3rd Schedule to the Act)
 A gratuity payable in terms of War Veterans Act (para 6(j) of the 3rd Schedule of the Act)
 A gratuity given in conjunction with the grant of any honour or award created in terms of
section 3 of the Honours and Awards Act (Chapter 10:11)(para 4(l) of the 3rd Schedule of
the Act)

A re-engagement award or extended service gratuity payable to an army, a police or and air
force officer shall be taxed at the person‘s top marginal rate of tax. Where the person has no
income or has income which is below the tax threshold (i.e. below ZWL24, 000 per annum) the
rate to be applied is 20%. AIDS Levy is not chargeable on such type of gratuity

EXAMPLE

Mr. T was retrenched by his employer and got paid a lump sum gratuity of ZWL$500,000. He
had completed 11 years in services with his employer. Advise Mr. T of the tax treatment of this
amount.

ANSWER

The gratuity is taxable after excluding the exemption specified in para 4(p) of the 3rd Schedule
of the Act. Hence his taxable income is ZWL$420,000 (ZWL$500,000 – 1/3 x ZWL$240,000).

3.10.3 Bursaries and scholarship

A scholarship, bursary or grant paid in respect of tuition fees or other educational allowance to a
student receiving instruction at a school, college or university is exempt from tax in terms of
paragraph 4(m) of the 3rd Schedule to the Income Tax Act. The exemption also applies to
payments from the National Scholarship or Bursary fund or any other private scholarships and
similar educational awards. The scholarship, bursary or payment should cover tuition fees or
other educational allowance, including books, supplies, and equipment and other monies for
living whilst at the college.

The exemption does not extend to amounts guaranteed by past services rendered or future
services to be rendered (e.g. bond arrangement) whether to be rendered by the student or a near
relative of the student. Also, scholarships or fellowships received by graduate students in
exchange for services, such as teaching or research are taxable.

3.10.4 School benefit

Paragraph 8 (3) of the 3rd Schedule to the Act provides for the exemption of ½ (50%) of the
amount or value of a school benefit applicable to not more than 3 children of the taxpayer. A
school benefit imply a discount or waiver by a school of its right to receive the whole or any
portion of the amount of tuition fees, levies and boarding fees (―school benefit‖) from a teacher
or non-teaching staff‘s (e.g bursar, grounds men, security guard at the school) child. The waiver
or discount can be from the school that the person is a teacher or non-teaching staff or some
other school where the person‘s child is a student. The benefit constitutes taxable income subject
to 50% exemption of the benefit applicable to the first three children of the teacher or non-

46
teaching staff. The exemption only applies to a school benefit granted by a school defined in
terms of the Education Act (Chapter 25:04). For example if the school waives $6,000 on your
four children‘s school fees the exemption to you will be $2,250 (50% x $6,000 x ¾).

The date of accrual regarding the school benefit is the month in which the school fees first
becomes due and payable.

EXAMPLE

Henry is a grounds man at Norton Primary School. He has 4 children learning at the school. The
school offered him 20% school fees discount. The school fees payable by a pupil at the school is
$13,000 per child per term.

How is Henry‘s taxable income?

ANSWER

Total fees schools 156,000

Less Paid by him 124,800
Benefit 31,200
Less Exemption 50% on school fees of 3 children ($3,120 x 50% x ¾) 11,700
Taxable income 19,500

3.10.5 Expatriates or non-resident employees

An expatriate or a non-resident who performs services in Zimbabwe is liable to employees‘ tax

in Zimbabwe based on the place the services are performed. However, his/her employment
income for services performed wholly outside of Zimbabwe is exempted.

In the event that a double taxation agreement exists between a non-resident‘s country and
Zimbabwe, any employment income for services rendered in Zimbabwe may be exempt should
the person be employed in Zimbabwe for a period of less than 183 days in a year of assessment.
The following conditions must also be satisfied:

a. The person‘s remuneration must be paid by, or on behalf of, an employer who is not a
resident of Zimbabwe and the receiver of this remuneration will be taxed on this income in
the home country.

b. The remuneration must not be borne by a ―permanent establishment‖ that the non-resident
employer has in Zimbabwe.

A ―permanent establishment‖ means a fixed place of business through which the business of the
employer is wholly or partly conducted.

3.10.6 Foreign Service allowance

An allowance granted to a person performing Government services outside Zimbabwe which

represents the extra cost of living outside Zimbabwe is exempted in terms of paragraph 4(j) of
the 3rd Schedule to the Act. This is meant to cover travel allowance and other incidentals
incurred in discharging services outside Zimbabwe as well as educational allowances for
47
children of diplomats serving overseas. The same paragraph provides for exemption of the cost
of maintaining a taxpayer and his family in excess of costs normally incurred in Zimbabwe, for
example the cost of living allowance or additional school fees, accommodation costs etcetera.

3.10.7 Awards, benefits and compensation

The following items are exempt from tax:

 An award, a benefit or compensation, including a pension, paid in respect of injury, disease,

disablement or death suffered in employment.
 Any amount paid to the employee, his family or his estate for injury, sickness or death by a
trade union, a benefit fund, a medical society or by an insurance company on a policy
covering accident, sickness or death
 Any amount paid in respect of personal injury, disablement or death in terms of War
Victims Compensation Act or paid from the Wankie Disaster Relief Fund

3.10.8 Civil servants allowances

Allowances or the value of any benefit granted to civil servants are exempted by paragraph 4 (d)
of the 3rd Schedule to the Act, subject to being gazetted. The following are some of the
allowances which have been gazetted:

- Representation allowance and entertainment allowance granted to full-time government

employee (SI 319 of 1985)

- The sale or donation of a motor vehicle by the State to Minister, Constitutional appointee or
full –time government retiring or leaving employment (SI 87 of 2005).

3.10.9 Medical expenses and contributions

The value of medical treatment or of travelling to obtain such treatment which is provided by an
employer for the benefit of an employee or the dependent of an employee, whether provided in
kind, by direct payment, by refund or in any other manner whatsoever is an exempt benefit to an
employee (Paragraph 8(1) of the 3rd Schedule to the Act). The Act does not limit the exemption
only to the taxpayer, spouse or child of taxpayer; it also covers any person dependant on the
employee for financial or other support or a person who relies on another as a primary source
of income.

The amount of any contributions paid to a medical aid society by an employer on behalf of
his/her employees is an exempt benefit to the employee in terms of paragraph 8(2) of the 3rd
Schedule to the Act. The exemption also extends to contributions made by the employer on
behalf of the employee‘s dependents. This means that medical contributions paid by an
employer on behalf of an employee be it that it‘s for the benefit of the employee‘s mother, father
or other dependant of an employee to an approved medical aid fund is an exempt benefit to the
employee. A medical aid society should be approved annually by the Commissioner of the
Zimbabwe Revenue Authority in terms of section 13 of the Income Tax Act.

Where an employee is paid in cash for medical expenses or for medical contributions, such
payment is a taxable benefit. In addition, medical expense or medical contribution paid by the
48
employer for the benefit of the employee‘s relatives, other child or spouse of the employee, is a
taxable benefit.

3.10.10 Pension accruals

A pension paid from a pension fund or the Consolidated Revenue Fund received by a person
who has attained the age of 55 years before the commencement of the year of assessment is tax
exempt.

3.10.11 Alimony

An amount received by a taxpayer from his/her spouse or former spouse, under any judicial
order or written agreement of separation or under any order of divorce is tax exempt. It includes
any allowance paid towards the maintenance of the children.

3.11 Deductions

Deductions are granted in terms of s15 of the Act. Employees can only claim pension
contributions, retirement annuity fund contributions, NSSA contributions, arrear pension
contributions, professional subscriptions, NEC contributions, union contributions, and cost of
trade tools and approved donations.

3.11.1 Pension fund contributions

Contributions to an approved pension fund or the Consolidated Revenue Fund by members

(employees) are tax deductible in terms of s 15 (2) (h) as read with the 6th Schedule to the Act.

An employee who joined an approved pension fund or Consolidated Revenue Fund on or after 1
July 1960, (member of New Fund) is entitled to a deduction in the year of assessment of the
ordinary contributions made by him. The deduction should not however exceed 7.5% of the
employee‘s annual emoluments or ZWL$54,000 per annum, whichever is the lesser.

3.11.2 Arrear pension contribution

Arrear pension contributions are deductible in terms of s 15(2) (i) of the Act to the employee up
to a maximum of $18,000 per annum. Members of a retirement annuity fund and the
Consolidated Revenue Fund (State pension fund) are however not allowed to deduct arrear
contributions.

3.11.3 NSSA Contributions

NSSA contributions are a form of social security meant to cushion the employee in the event of
injury or disablement at work. It is prescribed in terms of the National Social Security Act
(Chapter 17:04). NSSA rules require employers and employees to make a 50/50 contribution to
NSSA, each contributing 3.5% of the employee‘s basic salary. This is however limited to 3.5%
of $8,400 annual pensionable earnings of the employee. The employee is allowed to deduct his
contributions subject to the said limit.

49
3.11.4 A retirement annuity fund

Amount used to purchase a retirement annuity by an ordinary resident of Zimbabwe is tax

deductible in terms of s 15(2) (h) as read with paragraph 16 of the 6 th Schedule to the Act. This
is however limited to the lesser of 7.5% of the member‘s annual emoluments and $54,000 per
annum.

Section 11 of the Pension and Provident Funds Regulations of 1991 provides that only persons
who are ordinarily resident in Zimbabwe should be contributors to a retirement annuity fund,
thus disallowing non-residents from being members of the fund. This is further affirmed by s
15(2) (h) of the Act which prohibits deduction of contributions made by a non-resident to
retirement annuity fund. However the contributions by a non-resident to a non-resident are tax
deductible if the following conditions are

1. The person should have been ordinarily resident in Zimbabwe at the time he became a
member of the fund, and
2. He should have become a member of the fund before the 1st April 1967, and
3. No amount in respect of his/her contribution should be allowed as a deduction in another
country.

3.11.5 Maximum allowed to a person

Deduction of pension, NSSA, arrear and retirement annuity contributions are limited to
ZWL$54,000 per annum. Where the limit is likely to be exceeded, the order of deduction is
pension contributions first, NSSA, arrear pension contributions and lastly retirement annuity
fund contribution.

3.11.6 Unapproved fund contributions

Contributions to an unapproved fund are prohibited under s16 (1) (g) of the Act. The section
broadly prohibits deduction of contributions made by any taxpayer to a fund established for the
purpose of providing pensions, annuities or sickness, accident or unemployment or other
benefits for employees or the widows, children, dependants or nominees of deceased employees
or for all or any of those purposes, unless that fund is approved.

3.11.7 Subscriptions

Subscriptions paid by the employee to a registered professional or technical body to which he is

a qualified member are tax deductible in terms of s 15(2) (s) of the Act.

Because of the requirement for a person to be a continued member of the professional or

technical body, entrance fees, annual student subscriptions and those to sporting or recreational
clubs are disallowed on the basis that they are not for the person‘s continued membership to a
professional or technical association.

3.11.8 Tradesman`s tools

50
Costs of tradesman‘s tools are allowed in full on purchase and on replacement (if it is in terms of
the employment contract).Receipts should be retained by the employer for a period of not less
than 6 years. Only qualified journeymen are eligible to claim this cost of trade tools whilst
trainees and apprentices are not.

3.11.9 Union and like Dues

Members of trade unions and national employment councils are allowed to deduct against their
employment contributions to such organisations.

3.12 Computation of tax liability

The tax liability is computed by applying the tax table for each year of assessment on the taxable
income and deducting from that tax any rebates of the individual. The calculation of taxable
income includes the following:

Salary xxx
Bonus xxx
Less bonus exemption xxx xxx
Cash in lieu of leave xxx
Gratuity xxx
Leave pay xxx
Cash allowance xxx
Passage benefit (first time passage benefit) -
Motoring benefit (based on engine capacity of car provided) xxx
Housing benefit (open market rent or 12.5% of basic salary) xxx
Interest xxx
Furniture benefit (8% of cost of furniture) xxx
Entertainment allowance xxx
Less exemption (on expended on employer business) xxx xxx
Compensation for injury, sickness or death -
Pension for an elderly person -

Commission xxx
Income xxx
Less Deduction
Pension fund contributions (ordinary & arrear) xxx
Retirement annuity fund contributions xxx
NSSA contributions xxx
Professional subscriptions xxx
Approved donations xxx
NEC and Union contributions xxx
Trade tools xxx (xxx)
Taxable income xxx

After the taxable income has been determined, the next step is the computation of tax payable
using the tax rates for employed individuals as set out in Appendix A.

51
3.13 Employment tax liability in foreign currency

An employer must remit PAYE in foreign currency, for amounts paid to employees in foreign
currency. This is in terms of the Finance Act 3 of 2019 which provides that where earnings are
wholly or partly in foreign currency, USD tables should be used. The RTGS amounts (earnings
and deductions) should be converted to USD using the interbank rate prevailing on the date of
payroll for purposes of using USD tables. Tax credits for United States dollar amounts are now
also available together with deemed motoring benefit amounts. The company must then
withhold the tax in foreign currency and then remit same in foreign currency. However, the law
is silent on how the PAYE due is apportioned between the two amounts, that is the US dollar
earnings and the RTGS dollar earnings. Our view is that the apportionment of tax should be
based taxable income in foreign currency and in Zimbabwe dollar in terms of section 4 A (1) (a)
of the Finance Act [Chapter 23: 04].

3.14 Tax credits

After applying the tax rates the next step is to deduct the tax credits to which an individual is
entitled. An individual is entitled to deduction against his income tax invalid appliances and
medical expense, elderly, blind and mental or physical disability credits.

3.14.1 Summary of tax credits

Notes Elderly Blind Medical Mentally,

Person Person Expenses Physically
Disability
Tax Credit $9,000 $9,000 $1 for every $9,000 p.a.
p.a. p.a. $2 paid
Apportionment of credit Yes No No No
Transfer between spouses No Yes No Yes
Blind child Grant credit
Non-resident Yes Yes Medical aid No
contributions
credit only
Blind taxpayer Yes
Medical expenses for a Invalid
child who is no longer a appliances or
minor child fittings only

Above rates are for 2020, see prescribed values for 2019 rates

3.14.2 Invalid appliances and medical expenses

a) Invalid appliance or fitting

An invalid appliance or fitting includes:

 a wheelchair or any mechanically propelled vehicle specifically designed or constructed to

carry one person who has a physical defect or disability,
 an artificial limb, leg callipers or crutch,
 spectacles or contact lenses or,
52
 Any special fitting for the modification or adaptation of a motor vehicle, bed, bathroom or
toilet to suit the use by a disabled person.

b) Medical expense

A medical expense means any payment incurred or made by the taxpayer on/for:

 the purchase, hire, repair , modification or maintenance of an invalid appliance or fitting

considered to satisfaction by CG for the use by the disabled person
 the services supplied to a taxpayer or his family by a medical or dental practitioner
 drugs and medicines supplied to him or his family on the prescription of a medical/ dental
practitioner
 accommodation, maintenance, nursing and treatment, including blood transfusion and X-ray
and laboratory examinations, tests, etc. of the taxpayer or his family at a hospital, maternity-
home, nursing-home, sanatorium, surgery, clinic or similar institution.
 The conveyance by ambulance, including an air ambulance of the taxpayer or his family.
 The contributions to a medical aid society for the benefit of himself or his family.

No credit is granted on the cost of invalid appliance of medical expense refunded or recovered
from any source whatsoever.

The cost incurred can be claimed as a credit.

EXAMPLE

Musanhu is employed as an architect. For the calendar year 2020, she paid the following
medical expenses:
Medical insurance contributions 7,800
Doctor bills for Amos and Junior (Musanhu‘s parents) 7,300
Doctor and dentist bills for Musanhu 2,500
Prescription medicines for Maria (Musanhu‘s daughter) 750
Non-prescription drugs for Musanhu 950

Maria is blind. Musanhu filed a claim for reimbursement of $1,000 of her own expenses with her
employer and received the reimbursement in 2021. What is Musanhu‘s total tax credit in 2020?
Explain.

ANSWER

Musanhu‘s total tax credit is $6,425, determined as follows:

Medical insurance contributions 7,800

Doctor bills for Amos and Junior (Musanhu‘s parents) -
Doctor and dentist bills for Musanhu 2,500
Prescription medicines for Maria (Musanhu‘s daughter) 750
Non-prescription drugs for Musanhu -
Total 11,050

Medical expense credit (50% x $11,050) 5,525

Add Maria blind credit 9,000
Total 14,525

53
Amos and Junior cannot be claimed as Musanhu‘s dependents, only medical expenses applicable
to taxpayer, his/her spouse and children are claimable in a taxpayer‘s return.

Non prescribed drugs do not qualify as medical expenses. The medical reimbursement was not
received until 2021. It can only affect the tax credits of 2021

3.14.3 Elderly person‟s credit

An elderly taxpayer is granted to a person who is over 55 years.

3.14.4 Blind Workers

A blind person is ―a person whose eyesight is so defective during more than half of the period of
assessment and is unable to perform any work for which eyesight is essential.”

The blind credit is ZWL$9,000 p.a. per case. A spouse who has income must claim the credit in
his/her own return and only transfer to spouse unused credit.

EXAMPLE

Amanda and James are married. James is blind and 56 years old. He has a taxable income of
$40,600. Amanda earns $25,600 per annum.

Compute Amanda‘s and James‘ tax liability in 2020

Item James Amanda

Taxable 60,000 62,400
Tax thereon 13,260 13,980
Less Credits
Elderly - 9,000
Blind - 4,260 - 4,740
Tax liability - 9,240
Add 3% Aids Levy - 277
Tax liability - 9,517

Non-transferred credits should be claimed first, e.g. elderly credit. Because James‘ tax cannot
cover his blind credit, the uncovered amount is transferred to the spouse.

3.14.5 Mentally or physically disabled persons credit

A credit is granted for mental and physical disability of a substantial degree and permanent
nature. A disability is of substantial degree if it is certified by a doctor to be at least 50%.

Refer to the tax credits table set out above. A spouse who has income must claim the credit in
his/her own return and only transfer to spouse unused credit.
54
A spouse excludes a separated, divorced, unmaintained spouse or a wife in a polygamous
marriage (not the first wife). A child includes one‘s own child, a legally adopted or step child.

3.15 Administrative aspects

3.15.1 Registration of employers

Once a business hires an employee and pays an amount in excess of $24,000 in a tax year it
should register with ZIMRA within 14 days of becoming an employer. Non-resident employers
are further required to appoint a resident representative for purposes of registration for PAYE
and administration of this tax. This appointment has got to be in writing and duly communicated
to the Commissioner. For failing to discharge this duty, the non-resident could have his permit
or those of directors cancelled on the directive of Commissioner by Chief Immigration officer.
The Commissioner may also appoint a representative taxpayer on behalf of the person.
Registration to withhold employees‘ tax applies to all employers (companies, partnerships,
associations, trusts etc.).

A non-resident employer is an individual who is not ordinarily resident in Zimbabwe or a

company, partnership or organisation which does not have its head office or principal place of
business within Zimbabwe (Para 1 (1) of the 13th Schedule of the Act).

Where the taxpayer fails to register as an employer, ZIMRA can back the registration to the
effective date of registration. It will then demand PAYE which should have been collected from
the effective date of registration. ZIMRA may also charge penalty and interest on the tax that
should have been paid had the registration been made on time. The penalty and interest are
100% and 25% p.a., respectively.

3.15.2 Deregistration of employers

The employer must notify the Commissioner of the intention to deregister once he is no longer
an employer and this must be done within 14 days of cease to be an employer. In practice
ZIMRA refuses to deregister employers who no longer employ any person earning at least
$24,000p.a. The view is that in future he will employ a person earning more than $24,000 p.a.
unless such employer is ceasing operations. An employer must also notify the Commissioner of
any change in his address within 14 days of such change.

An employer must maintain a record of remuneration paid or payable to every employee and
employee‘s tax withheld thereto in respect of each year of assessment. The record must always
be available for scrutiny by the Commissioner.

3.15.3 Remitting of employees‟ tax

Employees‘ tax should be remitted to ZIMRA by the 10th day of the month following the month
of deduction, or within such other period as the Commissioner may for good cause allow. If a
person has ceased to be an employer before the end of such month, the tax should be remitted
the next day after he ceases to be an employer. Payment should be accompanied by a return
(Form P2). If tax is not remitted on time 100% penalty and interest of 25% p.a. accrues.

55
The Commissioner has the right to sue for any outstanding taxes together with penalty and
interest and he may recovery them through an action by him in any court of competent
jurisdiction or by garnishing of the employer‘s bank accounts.

The employer should also act on the directive of the Commissioner regarding how much tax
should be deducted in certain instances e.g. the Commissioner often issue a tax directive for
items like pension income, gratuity and retrenchment package.

3.15.4 Submission of returns

Every employer should furnish a year end return (ITF 16) to ZIMRA within 30 days after end of
year of assessment (i.e. end of January) or within such longer period as the Commissioner may
approve. A person who ceases to be an employer because he ceased to carry on any business or
other undertaking or because he no longer employs any person liable to pay employees‘ tax
should submit the return (ITF 16) within 14 days of ceasing to be an employer or within such
longer period as the Commissioner may approve.

Two years of assessments have been gazetted for 2019 for persons deriving income from
employment. The first one being a period of seven month beginning on 1 January 2019 and
ending on the 31 July 2019 and the second one beginnings on 1 August 2019 and ends on 31
December 2019. This triggers the requirement of two ITF16s for 2019 financial year within 30
days of end of each period of assessment.

An ITF 16 is an annual summary of employees‘ earning details (salary, wages, allowances,

benefits or pensions, whether in money or otherwise) paid to all employees during the tax year
and taxes withheld.

A civil penalty of $300 a day up to a maximum of 91 days‘ penalty applies on late submission of
returns. After 91 days the defaulting party may be subject to prosecution.

3.15.5 Offences

It is an offence for an employer and an employee to enter into an agreement of avoiding paying
tax. Such an agreement is null and void. In addition to the penalty and interest discussed above,
the employer shall be guilty of an offence and liable to a fine not exceeding level seven or to
imprisonment for a period not exceeding six months or to both such fine and such imprisonment
if he commits any of the following offence:

 Fails to withhold employees‘ tax or to pay it to the Commissioner as required by the law,
 Applies for some other purpose the employees‘ tax withheld by him,
 Issues or allows to be issued an employees‘ tax certificate which is false,
 Fails without just cause to comply with any directive issued to him by the Commissioner,
 Fails or neglects to deliver to any employee or former employee an employees‘ tax
certificate.
 Fails or neglects to maintain any record as required by the law or to retain it for a period of
six years,
 Fails to furnish to the Commissioner any return or any copy of any employees‘ tax
certificate
 Fails or neglects to apply to the Commissioner for registration as an employer,

56
 Fails or neglects to notify the Commissioner of any change of his address or of the fact of
his having ceased to be an employer,
 Not being an employer and without being duly authorized by any person who is an
employer, issues or causes to be issued any document purporting to be an employees‘ tax
certificate.

The penalty is increased on subsequent conviction.

3.16 Final deduction system (FDS)

Paragraph 20A.of the 13th Schedule to the Act provides that the Commissioner may give a
directive to an employer to apply the FDS in the computation of employees‘ tax. This is a PAYE
final assessment system and requires no further assessment thereafter. The tax that the employer
deducts is deemed final. In computing the employee‘s tax of each employee, the employer
should take into account tax credits available to the person. Also to be taken into account is any
additional income of the employee. Any refunds due to the employee should be made by the
employer.

Employees should furnish their entitlements such as additional income, tax credits and
deductions to the employer for them to be effected through the payroll. This should be done
within seven days of being employed or of change of any of his particulars. It is not the
obligation of the employer to know the employee‘s other source of income. Rather, the
employee should voluntarily declare other employment income including pension if they wish to
have it taken into account when calculating the tax liability.

An employer who has been directed to apply the FDS has the responsibility to compute the tax
correctly and should avail all the documentation setting out the terms of the FDS directive for
inspection at all reasonable times by any interested employee who may be affected by it. The
Commissioner shall not be liable to make any refund of income tax overpaid on account of any
failure by an employer to make an appropriate adjustment of the amounts of employees‘ tax to
be withheld or refunded in accordance with a directive. In so far as the person is receiving
employment income throughout the year from one employer, such person will not be required to
submit a return to ZIMRA for assessment. However, persons with more than one employer or
who have not worked throughout the year are required to submit tax returns for assessment by
ZIMRA.

FDS compute tax on a progressive/cumulative basis in the course of the year. The system
ensures that the amount of PAYE withheld and paid in respect of each employee during a year
of assessment matches the amount of income tax that a person would have to pay upon
assessment. It is intended that under this system, at least in the last month of the tax year, the
calculation of PAYE should be by reference to the total taxable income for that year of
assessment and the total PAYE due in that year. The PAYE for the final month should be a
residual amount, being the difference between PAYE due for the year less the amount paid.

3.17 Other payroll matters

3.17.1 National Social Security Authority (NSSA)

Every working Zimbabwean between the age of 16 and 65 years is required to contribute 3.5%
of his/her pensionable earnings up to a maximum of 3.5% of $700 per month as pension

57
contributions NSSA. The employer also contributes an equal amount. Non-resident persons,
domestic workers and the informal sector are currently not part of the scheme.

Besides the pension scheme, NSSA also operates the Accident Prevention and Worker‘s
Compensation Insurance Fund (WCIF). The purpose of this other scheme is to offer members
compensation for injury, death or sickness at work (workmen‘s compensation).

WCIF is employer funded. Employees do not contribute to this other scheme. The contribution
for worker‘s compensation which the employer is required to pay is calculated using a risk
factor depending on the type of the industry the company is involved in.

An employer is required to register with NSSA within 30 days of commencing business. This
should be done through a P2 Form (employer registration form) and a P3 Form (employee
registration). Failure to register for NSSA may result in the employer being compulsorily
registered and the registration will commence on the date the employer was supposed to have
been registered. This would result in the contributions being backdated to such date. Both the
NSSA contributions and the WCIF should be remitted to NSSA by the 10th day of the month
following the month of the deduction. A surcharge is levied for payments which are not paid on
time as follows:

Late by 1 month 10% of the amount due

Late by 2 months 20% of the amount due
Late by 3 month 30% of the amount due
Late by 4 months 40% of the amount due
Late by 5 months or above 50% of the amount due

58
Chapter 4: Trading income

4.1 Introduction

The income tax is computed on taxable income i.e. employment and trade income and
investment income. Section 7 of the Act provides income tax chargeable against a person is
calculated in accordance with the charging Act by reference to a the person‘s taxable income in
the year of assessment and the appropriate rates of income tax fixed by the charging Act relating
to that year and then deduct tax credits to which the person is entitled in terms of the charging
Act relating to that year from the tax chargeable. Only natural persons are entitled to tax credits.
The tax payable in respect of a self-assessment return shall be calculated in the same manner in
respect of each year of assessment during which a taxpayer carried on a trade and is required to
submit a self-assessment return in terms of 37A of the ITA. The computation of trading income
is the same whether the trade is carried on by an individual, a corporation, a partnership, or a
trust. Persons who are liable to pay tax on business and investment income pay based on annual
quarterly payment dates. This includes non-executive directors and anybody whose income does
not consist of remuneration on which pay as you earn was deducted.

4.2 An overview taxpayers

Corporates

A company is has a separate legal personality that it is individually liable for corporate tax.
Corporate income is initially taxed in the name of the company as tax on profits and then subject
to withholding tax when distributed to shareholders. This is the hallmark of income earned
through a corporate and probably the biggest disadvantage of a company compared to a sole
trader or a partnership. Sole traders and partners only suffer tax once at individual level whereas
shareholders will suffer tax at profit level and dividend level. Also, company losses are non-
transferable to a shareholder, but can be inherited by a company which is under the same control
with that company, subject to conditions stated in section 15(3) of the Act. A company pays tax
on its profits, while its shareholder is subject to tax on dividend distributed to him. This ―double
taxation‖ of profits— once at the corporate level and then again on distribution to shareholders
is the hallmark of company tax.

Partnerships
A partnership is not a separate legal persona for income tax purposes (VAT Act is an exception).
It is not assessed for income tax as a company, but each partner is liable to income tax in his
individual capacity on his/her share of taxable income. It constitutes a fiscal transparent entity
(flow –through vehicle) in the sense that it is not in itself liable to tax on its profits but rather the
individual partners are individually liable to tax on their respective proportionate shares in the
partnership. This ―flow-through‖ approach results in a single layer of taxation—at the partner
level. An advantage of using a partnership as an investment vehicle is that assessed loss is not
trapped in partnership as this immediately flows to partners. Also, a partnership does not
distribute a dividend and once the partners are taxed there is no further tax on their income. A
joint venture is treated in the same manner unless constituted as a company.

Sole Proprietorship
A Sole proprietorship or sole trader is a business that is run by its owner by himself. A sole
proprietorship is not an entity separate from the individuals who own them, so they are not
59
subject to separate taxation. The tax liability therefore falls upon the individual and treatment is
similar to that of a partner in a partnership.

Trusts
A trust is an entity formed by one person called a Founder, donor or settlor with its
administration being entrusted to Trustees for the benefit of named beneficiaries. The
beneficiaries may be specific or a group or class of persons. A trust is a common law institution
in Zimbabwe i.e. it is not established through the provisions of a specific Act of Parliament. It is
formed through a deed of trust executed by the Founder and the Trustees. The deed of trust is a
form of an agreement wherein the parties spell out, inter alia the name of the Trust, the main
objectives behind the formation of the Trust, the first Trustees and how they retain or lose office,
duties and powers of trustees, the entitlements of beneficiaries, and amendment of the Deed and
dissolution of the Trust. For more information on nature, types and taxation of trusts, see
Chapter on Trusts. Public trusts are however exempt from income tax (see para 2(l) of the 3rd
schedule of the Act).

Non-resident companies
A non-resident company is taxable only in Zimbabwe if it has a permanent established situated
in Zimbabwe. A non-resident company is deemed to have a permanent establishment in
Zimbabwe if and only if it has a fixed place of business there through which the business of the
company is wholly or partly carried on or through a dependent agent.

A fixed place of business includes, without prejudice to the generality of that expression an
office, place of management, a branch, a factory, workshop, an installation or structure for the
exploration of natural resources, amine, an oil or gas well, a quarry or any other place of
extraction of natural resources or a building site or construction or installation project.

Exclusions under PE
A PE does not arise where a company carries on business in Zimbabwe through an agent of
independent nature acting in the ordinary course of his or her business. This however not apply
to a person who act is exclusively or almost exclusively on behalf of one or more companies to
which it is closely related, meaning a PE status can be deemed under these circumstances. The
following are also excluded from the definition of a PE under the new section 19A of the Act:

 Facilities used for the sole purpose of storage, display or delivery of own goods or
merchandise belonging to the enterprise (non-resident company).
 Maintenance and display of own stock of goods or merchandise by an enterprise for the
sole purpose of storage or display or delivery.
 Maintenance of stock of goods or merchandise belonging to the enterprise solely for the
purpose of processing by another enterprise
 Stock of goods or merchandise belonging to the enterprise displayed in a fair or exhibition
which are sold at the end of the fair or exhibition
 The maintenance of a fixed place of business solely for the purpose of purchasing goods or
merchandise or for collecting information, for the enterprise
 The maintenance of a fixed place of business solely for the purpose of advertising, for the
supply of information, for scientific research or for similar activities which have a
preparatory or auxiliary character, for the enterprise

Any combination of above activities shall not constitute a PE so long as the overall activity is
that of preparatory or auxiliary character (para 4 of Article 5 of the OECD). But, there are no
hard and fast rules that can be laid to determine in each case which activities constitute

60
preparatory or auxiliary character and those that are not. It all depends on the facts of each case
(para. 24 Art 5 OECD).

Note that, a preparatory or auxiliary activity excludes management services within a group of
companies. A fixed places whose sole purpose is advertising or supplying information or for
scientific research or for the servicing of a patent or a know-how contract, provided such
activities have a preparatory or auxiliary character (para. 23 Art 5 OECD), shall not constitutes a
PE.

A liaison office established in Zimbabwe merely for undertaking promotional work as a prelude
to actual commercial activities would not constitute a PE, unless it engages in commercial
activities. It is deemed to be engaged in commercial activities when it enters into negotiations
with the customers in Zimbabwe for import or purchase of goods by the Zimbabwean customers
from the principal company.

Once a PE is deemed in Zimbabwe a tax nexus exists in Zimbabwe. The PE shall be required
register and pay taxes in Zimbabwe (income tax and PAYE) as if it were a resident of
Zimbabwe. It must appointment a resident representative (public officer) for the registration and
administration of taxes. Where it transacts sales value of goods or services which exceeds
$1,000,000 in any period of 12 months it must also register for VAT.

4.3 Basis of assessment

Trade and investment income is taxed at 24.72%. The tax is paid in advance of year end on
quarterly payment dates (known as QPDs) based on the estimated annual taxable income.

An ordinary tax year starts on 1 January and ends on 31 December. This is the ordinary year of
assessment. The Commissioner may, on written application by a taxpayer grant a permission to
use a different twelve month as the year of assessment and this shall be called a substituted year
of assessment. The application must be supported by valid reasons. For example this can be
extended to subsidiaries of foreign entities or entities that have income of a seasonal nature.

The Commissioner may, by notice in writing, withdraw a taxpayer‘s permission to use a

substituted tax year and any such withdrawal shall take effect at the end of the taxpayer‘s current
substituted year of assessment. An interim period is a separate tax year (transitional year of
assessment).

The person may also be granted different dates for payment of provisional tax (QPDs).

Where the year of assessment for a taxpayer changes from the ordinary year of assessment to a
substituted year of assessment to an ordinary year of assessment or from one substituted year of
assessment to another, the period between the last full year of assessment prior to the change and
the date on which the changed year of assessment commences shall be treated as a separate year
of assessment, to be known as a ―transitional year of assessment‖.

4.4 Meaning of trade

The definition of a "trade" is a very wide and intended to embrace every activity taken up with a
view to producing income. Even the courts have interpreted trade to be neither exhaustive nor
restrictive and will include any activity where a person risks something with the object of

61
making a profit. But this does not mean to say that all income generating activities would
constitute a "trade", as the term "trade", "does not embrace all activities that might produce
income, for example, income in the form of interest, dividends, annuities or pensions.

Section 2 (1) of the Act ―trade‖ 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 and anything done for the purpose of producing such
income‖.

4.5 Carrying on a trade

The legislation has defined what a ―trade‖ is, but the expression ―carrying on business‖ has not
been defined. The question whether a person is carrying on business is an inference from the
facts, which inference is a matter of law (CIR v Stott) i.e it depends on the particular
circumstances of the company. It can therefore be submitted that a company such as a shelf
company whose transactions have been limited to those formalities necessary to keep the
company on the register of companies will not be regarded as carrying on business.

The following factors are often considered by the courts in determining whether a trade is being
carried on or not:

 the manner of organization

 information they have to run the business
 past experience
 frequency of transactions
 money put into an activity in order to make money
 existence of legal relationships
 commercial character of the activities
 the size and scale of the activities
 characteristics or quality of the property dealt in, and
 inherent characteristics of a taxpayer
 The pursuit of an operation for profit, etc.

4.6 The adjustment of profits

Tax is paid on taxable income, and not on net profits. Taxable income is the adjusted net profit
before tax as per financial statements. Any person who derives income from trading must pay
income tax on his taxable income. The taxable income is the adjusted net profit as per the
financial statements. Net profits must be adjusted because accounting systems used to determine
income and deduction may differ in some areas with those of tax. The net profit must therefore
be adjusted for tax income purposes. The starting point is the net profit figure in the income
statement then adjusted as follows:

Adjustment required Examples

Proceeds from disposal of fixed asset
Deduct capital nature receipts and Compensation or insurance monies for loss of
accruals fixed assets
Profit on sale of fixed asset
Restraint of trade income, sale of goodwill etc.

62
Deduct exempt income and income Bank interest, dividend etc.
subject to final withholding tax
Add trading income not in net profit Recoupment, deferred income or income
received in advance
Add back disallowed expenditure Donations, provisions, entertainment, fines,
deducted in arriving at the net profit depreciation etc.
Deduct allowable deductions not in net Capital allowances, scrapping allowance,
profit assessed loss, export market development
expenditure etc.

The rules relating to profits from trades apply equally to profits from all professions and
vocations, i.e. self-employed persons, partners, companies and cooperatives.

Capital nature receipts must be deducted from the net profit. Receipts of a capital nature are
those derived from the sale, disposal, loss or destruction of a fixed asset, but the nature of capital
receipts is a question of fact to be determined from the circumstances of each particular case.

Capital nature receipts include compensation of fixed assets or for cancellation of contract with a
major impact on the organisational structure of the company. Compensation for cancellation or
loss of trading or commercial contract, lost trading stock or other working capital, is of revenue
items must not be deducted from the net profit. In general, compensation must take the character
of an item being compensated for.

Bank interest is exempt from taxable income and must be deducted from net profit. Other
interest receivable for example, interest on receivables, working capital, any interest local bonds
or debenture, interest received from a foreign source, etc. must all be taxable.
FAST
Recoveries of amounts previously allowed not included in net profit must be added to the net
profit e.g. bad debts recovered, recoupment of capital allowances etc.Deferred income or income
received in advance must be included in gross income.

Disallowable (i.e. non-deductible) expenditure must be added back to the net profit in the
computation of the taxable trading profit. Any expenditure not incurred for purposes of trade or
in the production of income or to the extent it is of a capital nature is disallowable expenditure.
Certain other items, such as depreciation, are specifically disallowable and others are
specifically disallowed by the legislation.

Amounts not charged in the accounts that are deductible from trading profits must be deducted
when computing the taxable trading income. Capital allowances are an example of such
expenditure. Another example is a lease improvement allowance to the lessee, which must be
spread over the shorter of 10 years and unexpired period of the lease. Lease amortisation
expenses must be added back to the net profit.

Here is an illustrative adjustment of a statement of profit or loss:

Net profit as per accounts before tax xxx

Less
Interest from financial institution included xxx
Dividend xxx
Capital receipts xxx
Profit on sale of assets xxx (xxx
Add: Non-deductible expenditure charged in the accounts
63
Depreciation xxx
Fines xxx
Penalties xxx
Donations xxx
Restraint of trade xxx

Loss on sale of asset xxx

Entrance fees xxx
Improvements to premises xxx
Drawings xxx
Income tax payments xxx
Covenants xxx
Private element of certain expenses xxx
Interest on late payment of tax xxx
Increase in general bad debts xxx
Provision for bad debts xxx
Entertainment xxx xxx
Add: Taxable income excluded from the accounts
Recoupment xxx
Income received in advance xxx xxx
Less: Expenditure not charged to accounts
Lease improvement allowance xxx
Special initial allowance xxx
Wear & tear xxx
Accelerated wear & tear xxx
Scraping allowances xxx (xxx)
Taxable income xxx

4.7 Taxable income and taxes in foreign currency

Section 4A of the Finance Act Chapter 23:04 provides that: ―Notwithstanding section 41 of the
Reserve Bank of Zimbabwe Act [Chapter 22:15] and the Exchange Control Act [Chapter 22:05]—
a) a person other than a company, a trust or a pension fund whose taxable income from
employment is earned in whole or in part in a foreign currency shall pay tax in the same or
another specified foreign currency on so much of that income as is earned in that currency;
(b) a person other than a company, a trust or a pension fund whose taxable income from trade or
investment is received or accrued in whole or in part in a foreign currency shall pay tax in the
same or another specified foreign currency on so much of that income as is received or accrued in
that currency;
(c) a company, trust, pension fund or other juristic person whose taxable income is earned,
received or accrued in whole or in part in a foreign currency shall pay tax in the same or another
specified foreign currency on so much of that income as is earned, received or accrued in that
currency;
(d) a person who is liable to presumptive tax as a small scale miner, an operator of a taxicab,
omnibus, goods vehicle, driving school or hairdressing salon, or as an informal cross-border
trader, in terms of section twenty-twoC (b) and (c),(d),(e),(f),(g),(h),(i),(j) or(k), shall pay that
presumptive tax in a foreign currency;
(e) the persons specified in section twenty-twoE and twenty-twoH shall pay the taxes there
mentioned in a foreign currency.
(f) the persons specified in section 37A shall pay the royalties there mentioned in a foreign
currency to the extent that the amounts from which the royalties are withheld are foreign currency
amounts.‖
64
This provision entails that where a taxpayer earns income wholly or partly in foreign currency, the
tax thereof must be in foreign currency. This applies to both natural and juristic persons. The
mechanics on the payment of taxes in foreign currency are however subject to interpretation and
ZIMRA has already provided its own interpretation with regards to the computation of taxes
through Public Notice No 26 of 2019. This public notice alluded that where earnings are partly in
foreign currency and local currency the basis of splitting the resulted tax between foreign currency
taxes and local currency taxes is the turnover (revenue).

The correctness of ZIMRA‘s interpretation may be subject to impugn in a court of law despite
being very reasonable and practical. From the reading of the law, in preparation of the income tax
return, the basis of apportionment between the USD income tax liability and Zimbabwe dollar
income tax liability appears to be based on taxable income. The law provides that the tax shall be
paid on ―so much of income as is earned, received or accrued”. Therefore, whilst it may seem
practical to adopt the ZIMRA interpretation of apportionment based on turnover, it may not
necessarily be what the legislature envisaged. Taxable income is defined in terms of section 8 of
the Income Tax Act as: ―means the amount remaining after deducting from the income of any
person all the amounts allowed to be deducted from income under this Act.‖. The basis of
apportionment to be applied by a taxpayer is taxable income, as defined above. Public Notices
remain subordinate to the law. A public notice is not an advance tax ruling that is provided for in
terms of section 34D of the Revenue Authority Act Chapter 23:11. A publication or other written
statement shall not be considered as a binding general ruling unless it states: that it is a binding
general ruling; the provisions of the relevant Act which are the subject of the binding general
ruling and the year of assessment or other definite period for which it applies. In light of the
forgoing a public notice by ZIMRA cannot be construed to be an advance tax ruling as
contemplated in section 34D, and is not binding on ZIMRA. This therefore does not remove the
ZIMRA‘s right to collect the taxes based on the correct application of the law despite having
issued a public notice misguiding taxpayers (Delta Corporation Ltd v ZIMRA (Case No. 15-HH-
62)1.

The table below demonstrates how taxes are to be computed based on interpretation of section
4A(1) ( c) of the Finance Act (Chapter 23:04):

Item ZWL USD

Revenue xxx xxx
Less exemptions (xxx) (xxx)
Income xxx xxx
Less deductible expenses (xxx) (xxx)
Taxable income xxx xxx
Tax at 24.72% xx xx

4.8 The tax rates

The general rate of tax on trade and investment income is 24% plus 3% AIDS levy. It is the same
rate for self-employed persons, sole trades and partners, who derive income from trade and
investment. Individuals are however entitled to tax credits which are deducted before application of
AIDS Levy.

65
Taxable income of the following projects or trades is however taxable using special rates:

Approved BOOT or BOT arrangement

Section 14 (1) of the Finance Act, 2014 define an approved BOOT or BOT arrangement as
‗contract or other arrangement approved by the Commissioner, under which a person undertakes
to construct an item of infrastructure for the State or a statutory corporation in consideration for
the right to operate or control it for a specified period, after which period he will transfer or
restore ownership or control of the item to the State or the statutory corporation concerned‘.

BOOT means build, own, operate, and transfer. BOT means build, operate and transfer. A
contractor, in relation to an approved BOOT or BOT arrangement, means the person who enters
into the arrangement with the State or the statutory corporation concerned. A BOOT or BOT
operator is taxed on its profits in terms of s14(2) (h) of the Finance Act at 0% in the first 5 years
of the arrangement, 15% in the second 5 years of the arrangement and ordinary rates (24%)
thereafter.

Tourist development zone

An approved tourist development zone is an area declared under the Tourism Act (Chapter
14:20) as such and approved by the Tourism Authority. To be declared as such the operator
should have at least 60% of his turnover denominated in foreign currency. The operator‘s profit
is taxed at 0% in his the first 5 years of its operations, 15 % in the second 5 years of its operation
(6 -10th year) and 24% thereafter. The rates apply to tourist facilitators registered or who
commenced operation prior to 1 January 2010 (Section 14(2) (j) of the Finance Act).

Exporting manufacturing companies

An exporting manufacturing company refers to a company that conducts manufacturing

operations and in any year of assessment exports at least 30% (50% before 1 January 2015) of
its manufactured output. The operator is taxed in terms of s14 (3) of the Finance Act, provided
such taxable income is derived from manufacturing operations conducted in Zimbabwe during
the year of assessment to the satisfaction of the Commissioner. The following are the special
income tax rates according to the level of exports effective 1 January 2015 (20% before this
date):

Export threshold (% manufactured) Corporate rate

30-40 20%
41-50 17.5%
Above 51 15%

The output is measured in terms of the physical units or quantities and assessed separately for
each year of assessment. A manufacturing operation is a „process of production which
substantially changes the original form of, or substantially adds value to, the thing or things
constituting the product‟ (Section 14 (1) of the Finance Act).

Special process zone companies

With effect from 1 January 2017, section 14 (2) (e) (1) of the Finance Act is repealed and
substituted by section 14 (2) (e) of the same Act. The effect is to repeal the rates applicable to
export processing zone operators at the same time fixing tax rates to be applied on income
derived by special economic zone operators. Taxable income of licensed investor having
66
qualifying degree of export orientation is taxed at the rate of 0% in the first of operation and
15% thereafter.

A special economic zone means any part of Zimbabwe declared in terms of the Special
Economic Zones Act (Chapter 14:34) (No. 7 of 2016) and that of an investment licence to mean
an investment licence issued in terms of the Special Economic Zones Act (Chapter 14:34) (No. 7
of 2016), to a licensed investor with a qualifying degree of export-orientation and licensed
investor shall be construed accordingly. It also defines a qualifying degree of export-orientation
characterizing a licensed investor to mean that the licensed investor exports all of its goods and
services. This is with effect from the 1st of January, 2017.

Power Generation
A number of fiscal concessions towards power generating projects were introduced by the
government and they are inclusive of a rebate of duty on capital equipment and exemption from
excise duty on diesel. This has assisted in minimizing construction costs. Considering the
current growth expectation there is need for investment in power generating projects such as
small hydro and solar plants. To this end, the Minister of Finance and Economic Development
has also made provisions for the exemption from income tax of receipts and accruals of power
generation projects in the first 5 years of operation of such project, with effect from 1 January
2018. Thereafter, a corporate tax rate of 15% will apply.

4.9 Youth Employment tax incentive

A tax incentive of ZWL$500 per month per employee for corporates that employ additional
youth employees in a year of assessment is granted with effect from 1 January 2020, subject to
the following conditions:
 The maximum rebate for the company or trust shall be limited to ZWL$ 60 000 p.a.
 Company or trust should be registered for income tax and compliant in previous tax periods.
 Incentive is claimable when additional employee has served for 12 consecutive months;
 Employees should be aged 30 years and below at the time of employment;
 The term additional employee does not include trainee, apprentice, intern or manager ie the
tax credit is not applicable to supervisory grades.
 Minimum wage payable to the additional employee should be ZWL$ 2000 p.m.
 Incentive not applicable to companies or trusts with turnover exceeding US$1 million p.a.
 The rebate is deducted from the income tax payable by the company or trust.

4.10 Specific gross income items

Certain incomes are specifically included in gross income of a business in terms of ss 8(1)(d), (e
), (g), (h), (i), (j), (k), (l), (m), (o), (p), (s) and 8(2) of the Act i.e. lease premium, lease
improvement, growing crops, trading stock, mining recoupment, general recoupment,
concessions, lease recoupment, subsides and grants, designated area grants, income of petroleum
operators, income of a holder of special mining lease and foreign exchange gains, respectively.

4.10.1 Rental income

The letting of any property is a trading activity, provided that there should be a system or plan
which shows some regularity and some degree of continuity in the activity. Basically, one

67
should look at the activities concerned as a whole and then ask whether the activity concerned as
a whole is the sort of activity which in commercial life would be regarded as carrying on
business (see ITC 1529).

Summary rules on taxation of rental income

The following diagram summaries how rental income is taxed in Zimbabwe.

Immovable Exempt
property Yes Landlord a Yes $3,000 p.a if
situated in natural person 55 years or
Zimbabwe above

Taxable income
No taxed @24.72%

No Non-taxable

A commercial rental activity is assessed to tax based on rules applying to a business. The
income is brought into gross income when received or when accrued, whichever occurs first.
The rent should accrue from a source within Zimbabwe if it arises out of the letting of a fixed
property i.e land and buildings located in Zimbabwe or the conduct by the lessor of short term
leasing contract of movable property in Zimbabwe. The following guidelines are applicable:

 Where the rental income is deemed to be from a source within Zimbabwe, the profit will be
computed and be taxed for each year of assessment. The person should be registered for
income tax purposes and should pay his tax on quarterly basis in advance of year end i.e on
quarterly payment dates (QPDs).

 Where he employs any person earning at least $30,000 per annum, he should register as
employer with Zimra within 14 days of employing such person.

 The landlord whose rental income exceeds $1,000,000 per annum should register as an
operator for VAT purposes with ZIMRA and should charge VAT on the rent.

 Where the landlord is 55 years old or above the first $30,000 per annum shall be exempted
from tax. When the period of assessment is less than a year the relief shall be reduced
proportionately. The exemption is an annual exemption and not on each property.

EXAMPLE

Tafadzwa, aged 57, owns a residential flat which she lets to tenants for a monthly rental of
$17,000. Her expenditure for the tax year was as follows:

Council tax and water rates 34,000

Advertising for tenants 34,800
68
Insurance 32,000

How much is Tafadzwa‘s taxable income for the year?

ANSWER

Gross rentals ($17,000 x 12) 204,000

Less Deductions
Council tax and water rates 34,000
Advertisements 34,800
Insurance 32,000 100,800
Net rental income 103,200
Less Exemption 30,000
Taxable income 73,200

4.11 Lease premium, know-how payments

Section 8(1)(d) of the Act brings into lessor‘s gross income amounts so received or accruing
from the lease in the form of a premium or a like consideration for the right of use of or
occupation of land or buildings, plant or machinery, any patent, design, trade mark, copyright,
model, plan, secret process or formula or any other property which, in the opinion of the
Commissioner is of a similar nature, any motion picture film or television film, sound recording
or advertising matter connected with such film or recording. Also included in gross income is a
premium or like consideration for the imparting of or the undertaking to impart any knowledge
directly or indirectly connected with the use of any such plant or machinery, patent design, trade
mark, copyright, model, plan, secret process or formula or other property as aforesaid, film,
sound recording or advertising matter.

The premium is taxable in full in the year of receipt or accrual, whether or not it may be referred
to as a premium or like consideration or as an amount of a capital nature. Lease premium means
a consideration having an ascertainable monetary value passing from lessee to lessor whether in
cash or in kind but is distinct from and is in addition to or in lieu of rent (CIR v Butcher Bros
(1945) 13 SATC 21). They may include non-returnable deposits, lease goodwill and tenancy
rights. A lease premium is different from rent because it is usually a lump sum payment,
whereas rent is typically payable periodically during the term of the lease e.g monthly, quarterly
or at some other equal interval. The premium amount is payable over and above the normal rent
normally at commencement of the lease but it is unusual for a lease premium to be paid at the
end of the lease period or at some other stage.

A lease premium can also pass from a sub-lessee to a lessee and such amount constitute gross
income to the lessee if befit the definition of a lease premium or like consideration (ITC 860
(1958) 22 SATC 293).

4.12 Lease improvements

According to section 8(1) (e) of the Act, where a lessor in terms of any agreement relating to the
grant to any other person of the right of use or occupation of land or buildings or by the cession
or assignment of any rights under any such agreement, has accrued in year of assessment the
right to have improvements effected on his land or to the buildings by any other person he must
include such improvements in his gross income. The reason being that the land belongs to the

69
lessor and because in law buildings are attached to the land, the building becomes the property
of the lessor when it is built and upon termination of the lease. As a result an advantage accrues
to him.

The amount to be included in gross income of the lessor is (i) the amount stipulated in the
agreement as the value of the improvements or as the amount to be expended on improvements
or (ii) if no amount is so stipulated, an amount representing, in the opinion of the Commissioner,
the fair and reasonable value of the improvements (usually the cost of improvements). In case
either the value of improvements is taxable effective the date improvements are completed
spread over the shorter of unexpired period of such agreement, cession or assignment and 10
years. On the other hand, the lessee is entitled to deduct from his income the same value of the
improvements over the shorter of the unexpired period of the lease and 10 years, effective the date
such improvements are used by him for purposes of his trade.

EXAMPLE

On 1 June, 2020, XYZ (Pvt) Ltd signed a 9- year lease agreement with ABC (Pvt) Ltd, the
lessee. In the agreement, the lessee was to effect lease improvements valued at $55,000. The
work was completed on 30 August 2020 and first used by the lessee on 1 November 2020. What
is XYZ (Pvt) Ltd‘s taxable income in 2020?

ANSWER

Value of lease improvements 55,000

(9 years x 12 months) 108
Unexpired lease period (108 months – 3 months) 105
Monthly taxable income ($55,000/105) 524
Taxable income in 2020 ($524 x 4) 2,096

The fair and reasonable value of the improvements is usually the cost. Where the lease
agreement provides that the lessee is to erect the improvements to a value of say $120,000 but
then the lessee effect improvements to the value of $150,000, the lessor will only be taxable on
the agreed amount the excess being regarded as voluntary improvements. Where however the
parties agree to vary the value of the improvements by including a clause in the agreement, in
order to cater for the increased cost, the amended value of improvements will only be accepted if
the variation is done prior to completion of construction (COT v Ridgeway Hotel Ltd (1961) 24
SATC 616). However, where the variation is done after completion of construction, the lessor
would only be taxed on the agreed original figure and the excess treated as voluntary
improvements (Professional Suites Ltd v COT (1960) 24 SATC 573).

Where instead, the lessee is required to construct improvements with certain specifications, with
certain minimum value e.g. a national stadium containing toilets and offices, the value of
improvements for inclusion in the lessor‘s gross income is the fair and reasonable value and not
merely the minimum amount stated. The rationale for the valuation appears to be that the lessor
is not simply asking for a building to be erected, he is requesting for a particular building, and
the lessee must meet his requirements even if the cost exceeds the stated minimum value in the
lease (ITC 1036 (1963) 26 SATC 84).

As held in ITC 767 (1953) 19 SATC 206, there must be a legal and enforceable obligation on the
part of the lessee to effect improvements before gross income may accrue to the lessor. A legal and
enforceable obligation may not be specifically expressed in a contract but may in certain cases be
implied or inferred (Rex Tearoom Cinema (Pty) Ltd v CIR (1946) 14 SATC 76). Also, it is

70
possible in terms of law of contract principles to conclude an enforceable oral lease agreement.
It is however, recommended that the agreement be in writing to avoid conflict with Zimra.

In the event that the lease agreement is cancelled, ceded or assigned, or the land or buildings on
which the improvements were effected is disposed of or sold or the lessor is deceased or
declared insolvent, the installments which were still to be included in gross income of the lessor
shall be deemed to have accrued to him immediately. Where the lease term is renewable or
extended or renewed for a further period or periods, the period to be used in computing the
lessor‘s gross income shall be deemed to be the initial lease term only. Where no lease period is
stated or is for an indefinite period, the lease period is deemed to be to 10 years.

4.13 Growing crops

Growing crops which are sold together with the farm or land are brought into gross income by
s8 (1) (g) of the Act. For further details refer to Chapter on farming.

4.14 Trading stock

A person who carries on a trade must take into account trading stock on hand at the beginning of
the year and trading stock on hand at the end of the year in the computation of his income tax.
Trading stock at year end is brought into gross income in terms of s8 (1) (h) of the Act, whilst,
trading stock at the beginning of the year is deductible in terms of s15 (2) (u) of the Act. Since
the accounting practice appears to satisfy this requirement; no adjustment may be required other
than where there is inconsistency in valuation methods between accounting and tax.

In summary, the definition of ‗trading stock‘ embraces broadly the following:

 Stock that has not been disposed of at the end of the year of assessment; or
 Stock that has been taken by the person for his domestic or private consumption or use
 Stock that has, during the year of assessment:
o vested in the trustee of the person on the insolvency, winding up or death of the person;
o been given by the person to some other person; or
o been disposed of by the person otherwise than in in a manner described in this paragraph;
or by sale or exchange
 Stock that has at the end of the year of assessment, attached in pursuance of an order of
court
 Stock that has, during the year of assessment, been:
o disposed of by the person in pursuance of the sale or other disposal of his business
o Sold in pursuance of an order of court.

4.14.1 Valuation of trading stock

Trading stock is valued in terms of the Second Schedule to the Act and the valuation method
differs per each category of trading stock. The criteria for valuation are cost, market value and
the replacement value. Para 1 of the Second Schedule defines cost as including the freight
charges, insurance premium, duty and other costs and expenses incurred by the person in
bringing the trading stock to hand i.e all costs necessary to bring the stock to a saleable condition
(including overheads in the case of manufactured goods). Market value is an amount equal to the
consideration for which other trading stock of the same kind, quality and condition is disposed
of in the ordinary course of trade by other persons carrying on the same trade in like

71
circumstances, but does not include any amount attributable to freight, handling and selling
charges and commission incurred in the disposal in the ordinary course of trade of trading stock
normally disposed of through an agent. The Commissioner may however deem the market value
of trading stock as amount he considers to be fair and reasonable if there is insufficient evidence
of the market value of trading stock at the date of valuation. The term fair and reasonable usually
refers to the cost.

4.14.2 Stock on hand at year end

A taxpayer can elect to value his closing stock in the three ways, namely (a) at cost price; (b) at
market value (c) or replacement cost whichever the person or his trustee may elect at the time of
submitting the return of income in which the trading stock is included. The date of valuation of
the stock is the last day of the tax year or accounting year. It is submitted that a taxpayer is not
bound to use one valuation method from year to year or to apply the same method to all items of
his stock. For example he can opt to value bolts using market value and nuts at cost. Where the
Commissioner is satisfied that it is impossible or impracticable to determine the value of trading
stock he may accept such other method of valuation as he considers appropriate in the
circumstances.

4.14.3 Stock vested in the trustee an insolvent, wound-up or deceased person

With regard to stock that has vested in the trustee of the person on the insolvency, winding up or
death of the person, a taxpayer can opt to use cost, market value or replacement, whichever he or
his trustee may elect at the time of the return of income in which the trading stock is included.
The date of valuation of the stock is the date of the event i.e. insolvency etc. Where the
Commissioner is satisfied that it is impossible or impracticable to determine the value of trading
stock he may accept such other method of valuation as he sees fit in the given situation.

4.14.4 Stock given to some other person (gift)

A taxpayer can opt to value donated stock using cost, market value or replacement cost
whichever the taxpayer or his trustee may elect at the time of submitting the return of income in
which the trading stock is included. The date of valuation for this type of stock is the day it was
gifted. Where the Commissioner is satisfied that it is impossible or impracticable to determine
the value of trading stock he may accept such other method of valuation as he considers the
circumstances warrant.

4.14.5 Stock disposed of otherwise than by sale or exchange etc.

The Act has no definition of the phrase ‗disposal otherwise than by way of sale‘. It submitted
this is a broad principle of taxation that ensures stock disposed by whatever means finds its way
into taxable income. The date of valuation for this type of stock is the date it was disposed of.
Where the Commissioner is satisfied that it is impossible or impracticable to determine the value
of trading stock, he may accept such other method of valuation as he considers appropriate in the
circumstances.

4.14.6 Stock taken for own use

72
If goods are purchased and put in stock but are then withdrawn by the taxpayer for private or
domestic purposes there is no deduction to be granted to the taxpayer. Such goods must be
brought into the gross income of the taxpayer at an amount equal to the cost price to the person
or the market value of the trading stock, whichever the person may elect.

4.14.7 Goods disposed of in pursuance of the sale or other disposal of his business

Trading stock sold on sale of business constitute gross income at amount at which the stock was
sold or disposed of at. The price stipulated in the sale agreement for trading stock will
accordingly bind the buyer and the seller, unless the Commissioner is of the view that the
transaction is a sham.

4.14.8 Goods sold in pursuance of an order of court

Amount realised from goods sold in pursuance of an order of court is included in gross income
at the amount at which they are sold at.

4.14.9 Partially manufactured trading stock, etc.

If the stock was partially manufactured, the Commissioner may however consider the value of
the stock to be the fair and reasonable value at the date of valuation. That applies to all types of
stocks referred to above which are partially manufactured.

4.14.10 Summary valuation

Type or circumstance Date of valuation Method to be elected

Trading stock (closing Last day of tax year or Cost price, market value or
stock) held on the last day accounting year replacement cost.
of the year.
Consumed by taxpayer or Date of such use or Cost price or market value.
put to other use. consumption.
Stock on hand : Date of such happening. Cost price, market value or
On date of death , replacement cost
insolvency
Attached by court order End of tax year Cost price, market value or
replacement cost
Sold with Business or Date sold Selling Price
Pursuance of court order
Partially produced Last day of tax year or What the CG considers as fair
goods(WIP) accounting year and reasonable price.

4.15 General recoupment

Section 8(1) (j) of the Act brings into gross income amounts which were deductible for income
tax in terms of s15 (2) of the Act which are subsequently recovered or recouped by a taxpayer
e.g. bad debts recovered, capital allowances or other forms of cost recoveries, but excluding
recoveries arising from disposal of farm development expenditure in terms of para 2 of the
Seventh Schedule to the Act. Recoupment therefore is a recovery of amounts previously
claimed.

73
The recoupment of capital allowances is limited to capital allowances previously claimed.
Therefore the selling price to be used must never exceed the original cost of the asset. If the
selling price exceeds cost, cost then becomes the selling price. Hence recoupment of capital
allowance is computed as the difference between the selling price of the asset (capped to the
original cost) and its income tax value (ITV). ITV is the difference between original cost and
capital allowances.

SI 33 of 2019 has an impact on the computation of recoupment in respect of assets acquired

prior to 22 February 2019 and sold thereafter. The cost and ITV of such assets are deemed
converted from United States dollar to the Zimbabwe dollar on one to one basis with effect from
22 February 2019. In the event of the asset being sold in United States Dollar after this date, its
selling price should be converted into Zimbabwe dollar in order to match the cost and ITV
deemed expressed in Zimbabwe dollar as a result of SI 33 of 2019. Such selling price shall be
converted at the spot rate applicable on the day the asset is sold.

Recoupment of capital allowances (Special Initial Allowance or wear and tear) shall not
constitute gross income if it arise as result of damage or destruction on which a compensation is
received or accrues to the taxpayer if the Commissioner is satisfied that the taxpayer has
purchased or constructed or will purchase or construct, within a period of 18 months from the
date the asset was damaged or destroyed, a further asset of a like nature in replacement thereof
and such asset has been or will be brought into use within a period of 3 years from the date the
aforesaid asset was damaged or destroyed. In the event the assets is not replaced within 18
months of its damage or brought into use within 3 years, the recoupment is taxed. Also, if the
taxpayer only expends part of the proceeds, income tax applies on recoupment applicable to the
amount not expended.

The recoupment on damage of an asset will be computed using the following formula:

Ax B
-------------
C

A is the unexpended amount

B is the recoupment computed using the full compensation

C is the compensation received

EXAMPLE

A business received $65,000 insurance compensation following the damage by fire of its raw
material warehouse. The warehouse had been constructed for $60,000 and had an ITV of
$45,000 on the date of its destruction. The business intends to construct another warehouse at a
cost of $50,000 before the end of the year

Compute the business‘s taxable recoupment.

ANSWER

Selling price (maximum of original cost) 60,000

Less ITV 45,000
Recoupment 15,000
74
Less ($15,000 x $50,000/$65,000) 11,538
Taxable recoupment 3,462

Recoupment shall include any amount recovered or recouped by an employer on the winding up
of a benefit or pension fund or on his ceasing to be an employer because of insolvency or
liquidation or on the withdrawal of all his employees from membership of the fund shall not be
excluded from gross income

4.16 Concessions

If as a result of any concession granted by, compromise or an arrangement made with a creditor
a taxpayer is relived of a liability which arose from expenditure in respect of which a deduction
has been made under s15 (2) of the Act, the relieved or partially relived expenditure shall be
included in the taxpayer‘s gross income (s 8(1) (k) of the Act). A concession includes a discount,
a refund, rebate, write off or a waiver obtained by the taxpayer from a creditor. It may also be
represented by an expenditure incurred and deductible to the taxpayer and written off by the
supplier. The same principle applies to a concession granted for assets ranking for capital
allowances.

Meanwhile, a loan written off is not taxed, except when the borrower is a bank or a money
lending firm. If the loan was expended on items of a revenue nature, e.g. purchasing goods,
which were deductible for tax purposes, the taxable income shall be the cost of those goods.

EXAMPLE

A business borrowed $20,000 from a bank and used $12,000 to acquire machinery and $8,000
on raw materials. Capital allowances and cost of raw material were tax deductible. The
machinery had an ITV of $8,000. How much constitute concession to the business?

ANSWER

Purchase of raw materials 8,000

Capital allowances (12,000-8,000) 1,000
Taxable income 9,000

Notwithstanding the above, gross income does not include a concession which arises as a result
of:

 Winding up of a company by the court because of its inability to pay debts

 A taxpayer being adjudged or declared insolvent or assigned his property or estate for the
benefit of creditors.
 The estate of the taxpayer having been vested in the Corporation as defined in section 2 of
the Agricultural Finance Act (Chapter 18:02)

However, a concession or benefit from a creditor arising when a company is voluntarily wound
up (winding up effected by resolution of the company), ipso facto dissolved (winding up
effected other than by court order or resolution of the company), dissolved by reason of
expiration of period, dissolved by reason a reduction of the number of members below or upon
occurrence of event, constitute gross income of the taxpayer.

If interest bearing debt is converted into share capital, the question that must be considered is
whether or not the benefit arising there from should increase taxable income. As held in CIR v

75
Datakor Engineering (Pty) Ltd, the meaning of the phrase "any benefit" is of a wide and
indeterminate meaning and arose out of the fact that the debt to the creditors had been reduced
or extinguished and replaced by redeemable preference shares resulting in a benefit to the
company.

4.17 Leasing recoupment

A lease recoupment arises when a previously leased property is sold for a price which has taken
into account the rent already paid, lease premium previously paid or lease improvements
incurred by a tenant. The recoupment is computed as the lower of the discount on acquisition of
the property and the expenditure previously incurred by the tenant (i.e aggregate of rent, lease
premium and lease improvement).

EXAMPLE

On June 30, 2016, FTE entered into a 9 year lease agreement with the City of Harare to rent
office premises. The agreement grants FTE the option to purchase the premises on termination
of the lease agreement for $170,000. The option was exercised on 1 November 2020 when the
market value of the property was $250,000. FTE effected lease improvements amounting to
$30,000 in terms of the contract which were first used for purposes of FTE‘s trade on 1 January
2017. Monthly rentals of $500 were payable under the lease agreement until 30 October 2020.

Compute FTE‘s:

1. Total deductible lease improvement

2. Total deductible rent
3. The minimum lease recoupment in 2018

ANSWER

Lease improvement
Lease improvements 30,000
Unexpired lease period (9 x 12)-6 102
Monthly allowance (30000/102) 294

Completed months to 31 Dec 2020 36

Total 10,588

Rent
Rent (period June 2017 to 31 Oct 2020- $500 x 40) 20,000

Lease recoupment
Minimum lease recoupment ($30,588 / 6 years) 5,098

Workings:
Recoupment is the lesser of A and B, as follows:
A = Discount ($250,000 - $170,000) 80,000
B
Lease improvement paid and deducted 10,588
Rent previously deducted 20,000
Total 30,588

Note
76
Expenditure incurred by a tenant in terms of an agreed obligation to make improvements is
treated in the same way as rent or lease premium paid and deducted.

Lease improvements are deductible up to year end when the property is acquired

A taxpayer may elect to be taxed on the recoupment over 6 years in equal instalments. The first
instalment shall be taxed in the year of acquisition of the property. The election is binding. This
means that once the election is made it cannot be reversed. If the property is sold before the
expiry of six years, any outstanding amount shall however be included in gross income on the
date the property is sold.

The monetary policy changes in 2019 have an impact on lease recoupment in that the aggregate
of rent, lease premium and lease improvement previously incurred for periods before 22
February 2019 remain suppressed at 1:1 with the United States dollar whilst the discount on
acquisition market value of the obtaining the property is inflated. The taxpayer will have joy in
these instances because recoupment is the lesser between the difference between discounted
price and the expenditure previously incurred. The amount expended as rent is in United States
dollars at 1:1 for periods prior to 22 February 2019. If the property is being disposed after the
22nd of February, the lease recoupment will be very low in comparison to the difference between
the discounted cost and the market value cost of acquisition. See below the demonstrations on
computations:

4.18 Grants / Subsidies

Grants and subsidies are brought into gross income in terms of s8 (1) (m) of the Act. Such grants
and subsidies should be paid or payable in respect of any expenditure which is allowed as a
deduction in terms of s15 (2) of the Act. An example would be any subsidy paid by the
Government after say, the construction of a farm dam. The subsidy is subject to tax in the year in
which it accrues, even though the project in respect of which it arises may have been completed
during a previous year

If a subsidy or grant is used to offset capital or non-productive expenses, it is not taxed. A

capital grant or subsidy must be set-off against the cost of the asset for tax depreciation
purposes. A subsidy received by a farmer as drought relief, fuel rebates, including grants or
payments awarded to farmers in terms of Designated Area Grants (DAG) is taxable.

4.19 Foreign exchange

Section 8(2) of the Act provides that exchange gains are brought into gross income when
realised, provide they arise from trading i.e. they should be of a revenue nature. Exchange gains
arising on non-trading assets (e.g. investments, loans etc.) are non-taxable. Revenue nature
foreign exchange gains are those which arise from the sale of goods or services in the course of a
taxpayer‘s trade or on working capital items i.e. debtors, settlement of trade creditors, on bank
deposits used in the day to day business activities of the taxpayer or on inventory. As provided
in s8 (2) (b) of the Act if the receipt and the accrual occur in different years of assessment, effect
shall be given to the increase or reduction in the gross income in the year of assessment in which
the amount was received. Capital nature foreign exchange gains are non-taxable and can only be
off set against cost of the asset when realized. Whereas, unrealized exchange foreign gain are not
recognized for tax purposes. A capital nature foreign exchange gain arises on acquisition or
disposal of fixed assets, on long term loans or on capital account.

77
4.20 Exemptions

4.20.1 General overview

Exemptions are set out in s14 of the Act as read with the 3rd Schedule. Exempt income means
income which is exempt from income tax and includes income which is not taxable income.
According to the Shorter Oxford Dictionary, to exempt is ―to grant (a person, etc.) immunity or
freedom from a liability to which others are subject‖

4.20.2 The concept of receipts and accruals

The terms receipts and accruals broadly cover all forms of income i.e. profits from trading,
interest, dividend, rent, or any other form of income which is chargeable to income tax. For
example, interest from a local financial institution which is normally subject to withholding tax
at source would be exempt from such tax if payable to an entity whose receipts and accruals are
exempt from tax.

4.20.3 Employees of exempt employers

The salaries and wages of persons employed by exempt organisations, although paid out of
exempt income, are subject to tax. Where the organization has employees, it should register as
an employer and deduct PAYE from on the remuneration paid to the employees.

4.20.4 Public entities

The following organisations are exempt on their receipts and accruals under para 1 of the 3rd
schedule:

 Local Authorities;
 The Reserve Bank of Zimbabwe;
 The Zambezi River Authority;
 The Environment Management Board;
 The Peoples Own Savings Bank
 ZAMCO- the wholly owned company of Reserve Bank of Zimbabwe i.e. Zimbabwe Asset
Management Corporation (Private) Limited (ZAMCO)

4.20.5 Organisations not for profit

Organisations which are operated not for profit have their receipts and accruals exempt in terms
of para 2 of the 3rd schedule of the Act. These include:

 agricultural, mining and commercial institutions or societies not operating for the private
pecuniary profit or gain of the members
 Benefit funds
 Building societies;

78
 clubs, societies, institutes and associations
 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 the Public Finance Management Act (Chapter
22:19);
 Pension funds
 Any statutory corporation which is declared by the Minister to be exempt from income tax,
but the Minister may impose a limit on receipts and accruals
 Trade unions
 Trusts of a public character
 Deposit Protection Fund
 Investor Protection Fund
 Insurance and Pension Housing Company

4.20.6 Clubs, societies, institutes and associations

Clubs, societies, institutes and associations primarily 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 ensure to the benefit of any member or shareholder
other than by way of remuneration for services rendered, are exempted.

4.20.7 Ecclesiastical, charitable and educational institutions of a public character

Income from trade or investment of an ecclesiastical, charitable or educational institution is

subject to income tax at the rate of 25.75 with effect from 1 January 2016. The exemption
contemplated by paragraph 2 (e) of the Third Schedule of the income tax act [Chapter 23:06]
will be limited to:
 Donations, tithes, offerings or other contributions by the members or benefactors of the
institutions concerned
 Any other receipts or accruals that are not receipts and accruals of income from trade or
investment carried on by or on behalf of the institutions concerned
 Receipts and accruals from trade or investment by any company of the institution provided
the institution is the sole or principal member. The company should be licensed by the
Minister responsible for the Companies Act [Chapter 24:03] in terms section 26 of the
Companies Act.

4.20.8 Venture capital company

Receipts and accruals of any company which has as its principal objective to provide venture
capital for development purposes are exempt from income tax subject to the following
conditions:

 The venture capital fund or company and the recipient company should be residents and
should be compliant;
 The venture capital company or fund must not reinvest the receipts and accruals subject to
exemption in a business for the sale, leasing or other dealing with immovable property,
business ordinarily carried on by financial institutions, financial or advisory services,
gaming or games of chance. Additionally,
 the recipient must not be listed on a stock exchange; and

79
 the recipient must be or must propose to be active in agriculture, mining, manufacturing,
tourism or other aspect of the economy deemed by the Minister by statutory instrument to be
critical for national development; and
 the venture capital company or fund must not hold shares in the recipient to the extent of
controlling it, nor must it exert
 control over the recipient directly or indirectly through a related entity; and
 The predominant mode by which the venture capital company finances recipients is by
means of equity rather than debt.

4.20.9 Mortgage financing

A building society is exempted on its receipts and accruals in terms of para 2(c) of the 3 rd
schedule of the Act. Effective 1 January 2013 the exemption was extended to financial
institutions providing mortgage finance, but only to the extent of those receipts or accruals of the
financial institutions which are attributable to the provision of mortgage finance. Mortgage
finance refers to the provision of loans for the acquisition of immovable property for residential
purposes, which loans are secured by the collateral of immovable property.

4.20.10 Investor Protection Fund

The Finance Act 1 of 2014 introduced para 2(n) of the 3 rd schedule to the Act which exempts
from income tax receipts and accruals of the Investor Protection Fund established in terms of the
Securities Regulations, 2010 published in Statutory Instrument 100 of 2010. The fund is meant
to protect investors in publicly quoted securities. The exemptions were made to apply
retrospectively from 1 January 2013.

4.20.11 Interest on treasury bills

Interest income from treasury bills held by banks is not subject to income tax if the terms sheet
of the Treasury bill specifies that the income was tax free. This exemption is backdated to 24th
of November 2014. This gives relief to banks for lending the government.

4.20.12 Insurance and Pension Housing Company

As a measure to facilitate provision of housing to potential home seekers, the Finance Act 1 of
2014 introduced paragraph 2(m) to the 3rd schedule of the Act exempting from income tax
receipts and accruals of the Insurance and Pension Company.

4.20.13 Quasi-Government and other bodies

The receipts and accruals of the following entities are exempt from income tax:

 Any agency of any government, other than the Government of Zimbabwe, approved by the
Minister by notice in a statutory instrument;
 Any international organization specified in terms of section 7 of the Privileges and
Immunities Act [Chapter 3:03] which has been approved by the Minister by notice in a
statutory instrument;
 The organizations referred to in the International Financial Organizations Act [Chapter
22:09]
 The African Development Bank
 The African Development Fund
80
• The South African Reserve Bank
 Any foreign organization that provides finance for development in Zimbabwe, to the extent
that its receipts and accruals are from a project approved for the purposes of this
subparagraph by the Minister.

4.20.14 Elderly person

An elderly person is entitled to various exemptions in terms of the Act as follows

 A pension accrual or receipt from a pension fund.
 The first $30,000 p.a of interest earned on any deposit with a financial institution.
 The first $30,000 p.a of interest on a banker‘s acceptances and other discounted instruments
traded by financial institutions
 The first $30,000 p.a of rental income accruing to the taxpayer in the year of assessment

An elderly person is a person who is 55 years old or above. Please note the person should be
above 55 years to be entitled to a pension exemption

4.20.15 Dividends

Paragraph 9 of the 3 rd Schedule to the ITA exempts from tax dividends from companies
incorporated in Zimbabwe provided that the paying company is chargeable to tax. It is irrelevant
whether or not it has taxable income on which tax is in fact charged, provided it is a company
which would pay tax on its profits. For example, dividends received from building societies are
not exempt, since their income is exempt from tax. Those dividends which are exempt from
income tax may nevertheless suffer withholding tax. With effect from January 2017 the
exemption contemplated under paragraph 9 of the 3rd Schedule does not, however, apply to
deemed dividend i.e. interest computed on a debit exceeding debit to equity ratio 3:1or excess
fees, management or administration (section 16(1) (r) and 16(1) (q) respectively). It is taxable
income in the hands of recipient company.

4.20.16 Interest

The following interest incomes are exempt from tax:

 Interest on Tax reserve certificates (TRCs) issued by Zimbabwe Revenue Authority.

 Interest payable to a financial institution by another financial institution
 Interest payable to a holder of moneylender‘s license by a financial institution
 Interest payable to an insurer registered in terms of the Insurance Act (Chapter 24:07) by a
financial institution
 Interest payable to a person whose receipts and accruals are tax exempt, e.g. interest payable
to charitable organizations, trust of a public, education institutions, society or associations
etc.,
 Interest on any savings certificate issued in terms of any law,
 Interest on any sum deposited with the Post Office Savings Bank of Zimbabwe,
 Interest on any loan made by the European Investment Bank,
 Interest on any loan to the Infrastructure Development Bank of Zimbabwe made by a non-
resident institutional shareholder,
 Interest on class ―C‖ permanent shares as defined in the Building Societies (Class ―C‖
Shares) Regulations, 1986

81
 Interest on any ―agricultural bond‖ issued by the Agricultural Finance Corporation and a
consortium of commercial banks,
 Interest on any bond issued by the Reserve Bank of Zimbabwe on behalf of the National
Fuel Investments Company (Private) Limited.
 Interest on any ―Diaspora Bond‖ issued by the Commercial Bank of Zimbabwe (CBZ).

4.20.17 Small scale gold miner loan

Paragraph 10(q) of the 3 rd schedule of the Act provides for exemption of interest on any loan
made to a small-scale gold miner for carrying on mining operations or undertaking prospecting
or exploratory works for the purpose of acquiring rights to mine gold as far as it is used by the
small-scale gold miner in carrying on or undertaking such operations or works in Zimbabwe. A
―small-scale gold miner‖ is a miner who, whether working on his or her own or with the
assistance of one or more employees, is classifiable as a ―micro-enterprise‖ in the mining and
quarrying sector of the economy by reference to the Fourth and Fifth Schedules to the Small and
Medium Enterprises Act [Chapter 24:12].
4.20.18 Low cost housing savings

Paragraph 10 (r) of the 3 rd schedule of the Act provides for an exemption of interest on any
deposit for the low cost housing savings instrument as defined in the regulations to be prescribed
by the Minister.

4.20.19 Export incentive grant or incentive

An amount paid by the government to an exporter of goods under a scheme for the development
of export trade is exempted from tax in the hands of the beneficiary taxpayer. The exempted
amount shall not include an amount of any duty refunded in terms of the Customs and Excise
Act.

4.20.20 ZAMACO

With effect from 1 January 2017, paragraph 1 (f) of the 3rd Schedule the Income Tax Act is
repealed and substituted by the inclusion of the exemption of receipts and accruals from the
Zimbabwe Asset Management Corporation (Private) Limited. This has the effect of exempting
the receipts and accruals of the said entity with effect from the 15th of July 2014

4.20.21 RBZ export incentive

There is an insertion of paragraph 16 in the 3rd Schedule to the Income Tax Act which includes
as exempt income a premium paid by the Reserve Bank of Zimbabwe (RBZ) in terms of Export
and Foreign Remittance Incentive Scheme on receipt of earnings by exporters and on
remittances from abroad received by individuals resident in Zimbabwe, being receipts or
remittances channeled through any authorised dealer in terms of the Exchange Control Act
(Chapter 22:05). The exemption was introduced by Finance Act No 2 of 2017 with effect from
23 March 2017 and the Finance Act 2018 has backed it to take effect from the 1 st of June 2016
in order to align the exemption to the date the incentive was introduced.

4.20.22 Duty exemption certificates

An amount received by way of the sale, disposal or transfer of any duty exemption certificate
issued by the Reserve Bank of Zimbabwe to an exporter qualifying for a rebate of duty on
imports in terms of an export incentive scheme under which such certificates are issued is
exempt from income tax.
82
Chapter 5: Trading deductions

5.1 Introduction

Section 15 (2) (a) of the Act provides the general guidelines to be applied when seeking to
deduct expenditure not specifically covered in the Act. It is complemented by specific provisions
which allow deduction of specific expenses and s16 which prohibits deduction of certain
expenses in the computation of taxable income. The following diagram illustrates the approach
to deductions as provided for in the Act:

Yes Has the expenditure No

actually been incurred?

Is it in the Is the No Is it
Yes
production expenditure specifically Yes
of income disallowable
capital in
or for by the Act?
purposes of nature?
trade?

Yes
No

Is the expenditure
specifically Yes
allowed by the Allow
Act?

No
Disallow
No

5.2 General deduction formula- s15(2)(a)

83
Section 15(2) (a) of the Act encompasses the general deduction formula. Section 15(1) and (2)
(a) of the Act provides as follows:

15 Deductions allowed in determination of taxable income

(1) For the purpose of determining the taxable income of any person, there shall be deducted
from the income of such person the amounts allowed to be deducted in terms of this section:
Provided that—
(a)…….
(b)……
(c)……
(2) The deductions allowed shall be—
(a) expenditure and losses to the extent to which they are incurred for the purposes of trade or in
the production of income except
(i) to the extent to which they are expenditure or losses of a capital nature;
(ii) expenditure that constitutes prepayment for goods, services or benefits that will be used in
any subsequent year of assessment (in which event the expenditure will be allowed
proportionately over the years of assessment in which the goods, or services or benefits are used
up‖ (this part introduced to take effect from 01 January 2018).

In simple terms, deductions that are allowed in the determination of taxable income in
Zimbabwe are expenditures or losses incurred by a taxpayer for the purposes of his trade,
alternatively in the production of income as long as such losses or expenditure is not of a capital
nature. It is important then to understand the constituent parts of the general deduction formula,
in particular, how our courts have interpreted the parts in determining whether or not an item of
expenditure is deductible or not.

5.3 Expenditure and Losses

The Act has not defined what constitutes ‗expenditure‘ and what constitutes ‗losses‘. Guidance
was sought from Joffe and Co (Pty) Ltd v CIR 1946 AD 157 the taxpayer, a construction
company, incurred liability for damages and legal costs as a result of the death of a plumber. The
taxpayer argued that the damages were not deductible as expenditure; they were deductible as a
loss.

5.3.1 To the extent to which

Where expenditure or loss is incurred partly for trade or in the production of income and partly
for some other purposes apportionment arises. Apportionment also takes place when expenditure
is partly capital in nature, domestic in nature or incurred in the production of exempt income. No
basis for apportionment is laid down in the Act, but the apportionment must be fair and
reasonable.

5.3.2 Actually incurred

The word incurred ordinarily means an actual payment or an obligation undertaken. It means
moneys actually paid out; or moneys which a trader is legally liable to pay‖.

Expenditure is actually incurred if the taxpayer is under a legal, unconditional liability to effect
payment, even though the actual payment may only be made after the end of the relevant tax
year.

84
A trader can therefore deduct the cost of goods or services acquired in the year of assessment
despite the amount being owed at year end, as long as there is an existing liability or committed
obligation, which is not contingent. For expenditure to be deductible as ‗actually incurred ‗there
must be a certain legal liability to pay an amount regardless of the fact that it was not ‗actually
paid‘ by a taxpayer. Based on the above reasoning, no deduction is made of provisions,
contingencies, impairments or revaluations in the computation of taxable income.

5.3.3 Prepaid expenses

The Finance Act 2018 has inserted section 15(2) (a) (ii) dealing with expenditure that constitutes
prepayment for goods, services or benefits. Prior to 1 st January 2018, there were no clear rules
dealing with prepaid expenses, whereby taxpayers pay for goods and services in advance. The
new law provides for the apportionment of prepaid expenses in the determination of taxable
income over the years of assessments in which the goods, services or benefits are used up. The
amendment ensures expenditure in respect of income to be received or accrued in future year of
assessment is reported when income accrues or is received.

Where a payment is made in the absence of a presently existing pecuniary liability, generally a
deduction is allowable because a liability arises necessitating the payment of an expense.
However, some payments are not necessitated by a presently existing pecuniary liability, and
they are incurred only upon payment. Examples of such expenses include gifts, insurance
premiums, license renewals and motor vehicle registration fees - these payments are at the
discretion of the taxpayer, if the taxpayer wants those benefits. The Finance Act 2018 implies
that prior to 1 January 2018, if an expenditure complied with the requirements of s15 (2) (a) of
the Act, it would be deductible immediately even if the benefits flowing from such expenditure
will be enjoyed in the future. For this reason, a taxpayer would be allowed to deduct
prepayments not of a capital nature laid out in the production of income in the year of
assessment.

The amendment brings the Zimbabwean legislation in line with the South African practice.
South Africa introduced Section 23H in its Income Tax Act to address the situation of
prepayments. Section 23H of the South African legislation provides that where prepayments are
made in respect of the deduction formula, for expenditure related to supply of goods (e.g. legal
expenses, reinsurance expenses etc.), then only that expenditure that relates to the goods actually
supplied in the tax year may be claimed as a deduction. A deduction in respect of services to be
rendered may only be claimed to the extent that the services are rendered in the tax year
concerned. In the case of any other benefits, the deduction is limited in effect to the period in the
tax year in which the benefit is enjoyed. In all other cases, the expenditure is apportioned where
the goods or services are partly supplied or rendered in the tax year and in the other.

Regarding the Zimbabwean situation our view is that, a symmetrical approach should provide a
logical measurement of taxable income. If what comes in is assessable to you when it comes in,
then what goes out is only deductible when it goes out. On the other hand, if what comes in is
assessable to you when it has accrued, even if not yet received, then outgoings made to produce
that amount should be deductible when you are committed to paying them, even if you haven't
paid them yet.

5.3.4 For purposes of trade

The expression for the purpose of trade means ‗for the purpose of enabling a person to carry on
and earn profits in the trade‘. This means that as long as an eexpenditure was not incurred for
purposes of enabling a person to carry on and earn profits in the trade it is non-deductible.
Where the expenditure is not incurred wholly or exclusively for purposes of trade it is
85
apportioned and allowed to the extent it reflects business purpose (the duality test). Where the
payments are made to or on behalf of employees, the full amounts are deductible but the
employees are taxed under the benefit accordingly.

5.3.5 In the production of income

The requirement that an expense laid out by a taxpayer must be in the production of income
requires that it should have been incurred for the purpose of earning income; it would therefore
immaterial that the expenditure in question actually produced income. Therefore, as long as the
expenditure is incurred for the purpose of producing income whether that taxable income is for
the future period, the expenditure is deductible when incurred.

Where expenditure incurred effected a dual purpose viz, production of taxable and exempt
income or income not from a source within Zimbabwe (non-taxable income), the expenditure
actually effected a dual purpose requiring an apportionment of the expenditure incurred in the
activities producing taxable income and that only that amount should be allowed as a deduction.

Whether or not expenditure is incurred in the production of the taxpayer's income, relevant
considerations are (a) the purpose for which the expenditure is incurred and (b) what the
expenditure actually effects. In determining whether expenditure is incurred in the production of
income, the closeness of the connection between the expenditure and the income-earning
operations must be assessed, having regard both to the purpose of the expenditure and to what it
actually affects. The same approach must be adopted in determining whether expenditure is
incurred in respect of receipts or accruals not constituting income as defined (exempt income).

The above principles found ground in Port Elizabeth Electric Tramway Company Ltd v CIR
where the court had found as follows earlier on:

 The test for determining whether expenditure is incurred ―in the production of income‖
is twofold:

 The act to which the expenditure is attached should be performed in the production of
income. An act will be regarded to as being performed in the production of income if it
is performed bona fide for the purpose of carrying on trade which earns the income.

 The expenditure in question should be closely linked to such act that it can be regarded
as part of the cost of performing it. Provided that it is so linked, it does not matter
whether the expenditure in question is necessary for the performance of the act, attached
to it by chance or bona fide incurred for more efficient performance of business
operations.

 Where the act in question, though performed in the production of income, is unlawful or
negligent, the expenditure attendant upon such act would probably not be deductible.

In CIR v Genn & Company Limited 1955 (3) SA 293, 20 SATC 113, the court observed that an
expenditure is sufficiently closely linked to an income producing operation if it would be proper,
natural or reasonable to regard it as part of the cost of performing it, having regard both to the
purpose of the expenditure and to what it actually effects.

As regards damages and loss through embezzlements, these are only deductible if they meet the
requirements of s15 (2) (a) i.e. the requirements outlined in the above court judgments. These
types of expenses are deducted if they are a result of an act which is closely related to the
production of income.
86
In COT v Rendle 1965 (1) SA 59 (SRAD), 26 SATC 326 the taxpayer was a partner in a firm of
Chartered Accountants which had collected certain monies from the sale of some properties on
behalf of its clients. One of the clerks employed by the firm had embezzled the clients‘ funds,
and the taxpayer had incurred expenditure in reimbursing the clients as well as in investigating
the embezzlement and in obtaining legal advice. The taxpayer sought to claim a deduction for
the expenditure. It was held that the amounts were allowable as they were part of the cost of
performing the taxpayer‘s business operations. The court re-confirmed that the test established
in the Port Elizabeth Electric Tramway Company case, supra was the appropriate test to apply
when determining whether the expenditure and losses arising from the embezzlement or theft of
money was incurred by the taxpayer in the production of the income and noted the following:
―All expenses attached to the performance of a business operation bona fide performed for the
purpose of earning income are deductible whether such expenses are necessary for its
performance or attached to it by chance or are bona fide incurred for the more efficient
performance of such operation provided they are so closely connected with it that it would be
proper, natural or reasonable to regard the expenses as part of the cost of performing the
operation.‖

In deciding whether the fortuitous expenditure was deductible, the court in the Rendle case was
of the opinion that the inquiry must be whether the ―chance‖ of such expenditure or loss being
incurred is sufficiently closely connected with the business operation. The focus is thus on the
risk of the expenditure or loss being incurred and not on the actual expenditure or loss itself. The
court summarised the legal position as follows: ―Before fortuitous expenditure can be deducted,
the taxpayer must show that the risk of the mishap which gives rise to the expenditure happening
must be inseparable from or a necessary incident of the carrying on of the particular business.‖

The test as formulated above has been confirmed and applied in various other court cases (see
ITC 1221 (1974) 36 SATC 233 (R); ITC 1242 (1975) 37 SATC 306 (C); ITC 1268 (1977) 40
SATC 57 (T); ITC 1383 (1978) 46 SATC 90 (T) and ITC 1710 (1999) 63 SATC 403 (C)).

In summary, the court in Rendle case held that an expense is incurred in the production of
income if:

 It is necessary for the performance of the business operation

 It is attached to the performance of the business operation by chance or closely connected to
the performance of the business operation
 It is a bona fide expense incurred for the more efficient performance of business operations

Based on a finding by the court that the act leading to the loss occurring was a necessary
concomitant of the operation and that the risk of the mishap or misappropriation became
inherent when the clerk was employed and the loss became inseparable from or a necessary
incident of the carrying on of the business, the court held the deduction allowable. The same risk
cannot be implied if the act is perpetrated by a person other than an employee or agent e.g. by a
proprietor, partner, managing director or manager acting as a proprietor. In general, the
application of the risk test in embezzlement or theft committed by senior employees or officials
can be more difficult. The court cases have tended to find that such expenditure and losses are
not deductible. In Lockie Bros Ltd v CIR 1922 TPD 42, 32 SATC 150 a manager of the South
African branch of a United Kingdom company had stolen a large sum of money from the
company and the appellant sought to claim the loss as a deduction for income tax purposes.
Mason J found that the loss was not incurred in the production of income because the
embezzlement of the funds was not an operation undertaken for the purposes of the business. In
support of the above approach, Fieldsend J in ITC 952 (1961) 24 SATC 547 (F) at p. 551 said
that: ―one does not reasonably expect a senior manager or managing director to make away with
87
his employer‘s funds, and that such a risk is not reasonably incidental to the trade, as the petty
larcenies of servants and the leakages through carelessness or dishonesty to which the revenues
of most profit-earning organizations are exposed‖.

5.3.6 Not of a capital nature

Section15 (2) (a) of the Act makes it clear that capital nature expenditure should not be
deductible even if it is ‗in the production of income‘ or for purposes of trade. Capital nature
expenditure includes cost of acquiring fixed assets, share capital or capital employed in business,
an income-producing unit, goodwill, intellectual property (software, patents, trademarks etc.),
and cost of improving or enhancing any of these items plus related expenses. Similarly,
depreciation and profit/loss on sale of fixed asset are on capital account. But it is the
identification of capital nature expenditure that presents a problem and it largely remains one of
the most contentious tax issues. As such it is difficult to single out a conclusive test that satisfies
the distinction between revenue and capital expenditure.

However, as a starting point a useful test for distinguishing capital and revenue expenditure is
the distinction between fixed and floating capital. In CIR v George Forest Timber Co Ltd 1924
AD 516, 1 SATC 20 at 23 Innes CJ stated the following:

―Capital, it should be remembered, might be either fixed or floating. The substantial difference
was that floating capital was consumed and disappeared in the very process of production, while
fixed capital did not; though it produced fresh wealth it remained intact. The distinction was
relative, for even fixed capital, such as machinery, did gradually wear away and required to be
renewed.‖

The tests stated below are often used in distinguishing capital from revenue expenditure. The
tests are just a synopsis not meant to be conclusive or to work individually. They are general
guidelines formulated through judicial decisions. It is possible for one decision of the court to
encompass more than one test or one test applied sometimes exclusively based on the facts of
the case, or in conjunction with other tests so as to arrive at the most appropriate determination
of a particular expenditure.

Need or occasion test

This inquiry looks at what prompts the expenditure and whether the surrounding circumstances
and ultimate objective of the expenditure supports a capital or revenue classification.

Recurrence Test
It has generally been said that ‗capital expenditure is a thing that is going to be spent once and
for all, and income expenditure is a thing that is going to recur every year‘. This is based on the
assumption that a recurring expense is often revenue in nature, while a once off expense is
usually of a capital nature. Although the test is not conclusive, it is very useful in drawing a
distinction between capital and revenue expenditure.

Identifiable Asset Test

Expenditure is regarded as of a capital nature if an identifiable capital asset was acquired or it
results in an asset being owned. Generally, money spent on the acquisition or improvement of an
asset or the elimination of a commercial disadvantage is capital in nature.

Enduring benefit Test

If an enduring advantage is acquired by expending the money, the expenditure is likely to be of a
capital nature. An enduring benefit can arise from expenditure made to relieve the business of an
onerous asset.
88
Profit-making structure or the profit making process
An expenditure which relates to a business‘s structure (i.e. assets used to carry on the business)
is capital in nature. This test is often linked to the identifiable asset and enduring advantage tests
above. It is submitted that, expenditure intended to enhance profit-yielding structure, but failing
to do so, would be a loss of a capital nature. Expenditure merely to restore the profit-yielding
capacity of a business to its original state would more likely to have revenue character whilst
expenditure, either periodic or once only, to operate or work the profit-yielding structure, would
be of a capital nature. The hallmark of the test is about contrasting between:

 the acquisition of the means of production and the use of them;

 the establishment or extension of a business organization and the carrying on of the
business;
 the implements employed in work and the regular performance of the work in which they
are employed; and
 the enterprise itself and the sustained effort of those engaged in it.

Source of payment tests

Where expenditure is made out of fixed capital it is more likely to be of a capital nature, and
expenditure made from circulating capital is more likely to be of revenue nature.

Conclusiveness of the Capital & revenue expenditure tests

Viscount Radcliffe in Commissioner of Taxes v Nchanga Consolidated Copper Mines Ltd [1964]
1 All ER 208 (PC) at 212B–D ([1964] AC 948 at 959) gave a general warning against
overreliance on the above tests. He stated that:
―...[a]ll these phrases, as, for instance, ―enduring benefit‖ or ―capital structure‖ are essentially
descriptive rather than definitive, and, as each new case arises for adjudication and it is sought to
reason by analogy from its facts to those of one previously decided, a Court‘s primary duty is to
enquire how far a description that was both relevant and significant in one set of circumstances
is either significant or relevant in those which are presently before it.‖

(See also CIR v Manganese Metal Co (Pty) Ltd 1996 (3) SA 59)

Some of the expenses which should be capitalised, as opposed to being deducted are as follows:

 Costs incurred to create, preserve or defend a monopoly, but not when incurred in defending
against a routine business hazard.
 Costs to eliminate a potential business rival
 The cost of acquiring rights for example to quarry gravel or cut standing timber. However,
payments in the nature of a royalty are on revenue account.
 Where a business entity is in peril or under substantial threat, costs of defending or
protection of title to an asset
 Money spent in order to create a source of income
 Travelling costs to purchase fixed assets,
 Installation costs,
 Transfer duties, non-refundable VAT, import tax, etc.
 Cost of altering share capital, memorandum or articles of association
 Underwriting expenses, advertising for share offer, brokerage fees etc.

5.4 General expenditure

5.4.1 Deductibility of Interest

89
The Act has no definition of interest. In CIR v Genn 1955 (3) SA 293 (A), 20 SATC 113
however the court held that interest is consideration for the use of money. Interest like other
expenses is deductible where the loan is used by the taxpayer in the production of taxable
income. Whether or not it has been used in the production of income, it all depends on the
purposes of the expenditure and what it actually affects. For example if the borrowing is applied
in the acquisition of fixed assets which are used to produce income any interest incurred on such
borrowings is tax deductible.

The case of CIR v Genn 1955 (3) SA 293 (A), 20 SATC 113, also stressed that it does not
necessarily follow that because liability under a loan is incurred for the acquisition of fixed
capital assets the interest paid on such loan should also be of a capital nature.

The purpose for which the money is borrowed for is central to the deduction of interest. If the
purpose for which the money is borrowed excludes the possibility of producing income, then the
interest incurred on the borrowed funds would not be deducted. It also appears from the case of
ITC 112 (1928) 4 SATC 61, that where a taxpayer borrows money at a higher interest rate and
on-lends it at lower interest rate, the purpose for which the money was borrowed is not to
produce income. The interest cannot be said to have been incurred in the production of income
or laid out or expended for the purposes of trade. The interest should be incurred with ―one
view‖ of producing income. This therefore rules out the deduction of interest on idle, vacant or
unproductive property or property producing exempt income or income not from a source within
Zimbabwe.

Pre-production interest
Interest incurred prior to commencement of trade is deductible subject to satisfying requirements
of s 15(2) (t) of the Act. However where it is incurred on the development of a building or
property, it is not deductible as it may not comply with the ―trade‖ requirement. It was held in
ITC 697 (1950) 17 SATC 93 that interest which related to a period in which an old building was
demolished and a new building being erected was disallowed on the basis that it was not laid out
for the purposes of trade. The court pointed out that until the asset becomes an asset capable of
producing income any expenditure upon it is of a preliminary nature and is not deductible. Also,
non-deductible is interest incurred in the erection of a building COT v Parkwell House (Pvt) Ltd.,
34 SATC 105. The expenditure should be capitalised.

Interest on purchase of shares

Interest incurred on money borrowed to buy shares, preparatory to a take-over of the ‗target‘
company, is disallowed. The reasoning is that the income yielded by shares, in the form of
dividends, is ordinarily exempt from tax in the hands of the shareholder. Section 16 (1) (f)
prohibits deduction of expenditure incurred in deriving exempt income. But the case of CIR v
Drakensbug Garden Hotel (Pty) Ltd 1960 (2) SA 475 (A), 23 SATC 251 is distinguished .The
taxpayer, a company of which husband and wife were the sole shareholders, leased a hotel from
another company, and sublet the hotel to the partnership (partnership of which husband and wife
controlled). The partnership carried on a hotel business. They also leased a trading store from
the same lessor; the trading store was used by the company, the taxpayer. The income of the
taxpayer consisted of rent from the partnership and trading store. In order to obtain control of
the hotel and the store, the taxpayer bought all the shares of the lessor of the hotel and trading
store. This provided the taxpayer with security of tenure, the rights to make improvements as
desired, the rights to sub-let at an increased rental etc. The purchase of the shares was financed
by a loan which attracted interest, which the taxpayer sought to deduct. The Commissioner
disallowed the deduction on the basis that the interest was not expended in the production of
income, but to produce a dividend which was exempt from tax. The court held that the purpose
for buying the shares was to ensure the continuance of, and an increase in its income from
90
subletting and trading and there was therefore a clear connection between the purchase of the
shares and the production of the taxpayer‘s income.

Interest was also allowed as a deduction on money borrowed to buy shares in ITC 1604 (1996)
58 SATC 263, where interest on funds borrowed to acquire shares was deductible on the basis
that such acquisition was closely connected with his earning of an increased salary and a bonus,
also in ITC 1521 (1992) 54 SATC 175 where the taxpayer was successful on the grounds that
the acquisition of shares was related to the earning of management fees. A similar situation
emerged in Southern Products (Rhodesia) (Pvt) Ltd v COT, the taxpayer conducted a business in
which skill and expertise was necessary. It was held that the acquisition of the shares and the
payment of interest were directly and closely connected with the production of income
(management fee) in its ordinary trade and the interest was deductible.

Interest incurred when a business ceases

When a trade ceases, the question turns on whether the purpose of the loan remains in the
production of income. It appears in an incorrectly decided cases ITC 411 (1938) 10 SATC 238
and ITC 1171 (1971) 34 SATC 80, the interest that continue to be paid after the business has
ceased is interest not incurred in the production of income and should be disallowed. The facts
in ITC 1171 were that, the taxpayer, a director and employee of various companies, also carried
on a general dealer‘s business which it financed through an interest bearing loan. When the
business failed to prosper, the taxpayer closed the business. The issue in contention was whether
the interest on the loan will continue to be deductible after the business had ceased. It was held
that once the taxpayer had ceased trading the choice of retaining the use of the money was no
longer made for the purpose of earning income. Accordingly, the interest expenditure incurred
after the taxpayer had ceased trading was not incurred in the production of income and therefore
non- deductible. It would appear that the rationale behind the disallowance of the interest is that
there is no more production of income to which the loan is applicable i.e. there is no longer a
connection between the interest payable and the business operations.

Interest on money borrowed to pay dividend

Interest on money borrowed to enable a company pay a dividend is not deductible (ITC 678
(1949) 16 SATC 348).

Interest deduction cap for foreign loans

The law places a ceiling on interest incurred on foreign loans for income tax purposes. Any
interest expenditure in excess of that would have been payable had the exchange rate used to
purchase the foreign currency needed to service the interest on the loan been the same exchange
rate as that ordinarily offered to other clients of the financial institution providing or mediating
the loan on the date of the transaction in question is disallowed. In other words, interest on
foreign loans which is in excess of that expressed in Zimbabwe dollar using the interbank rate is
disallowed. This is effect from 1 January 2020.

Thin capitalisation provisions

Notwithstanding the above provisions interest on debt in excess of debt to equity ratio is
disallowed in terms of s16 (1) (q) of the Act. The section provides that no deduction shall be
allowed with respect to:

―(q) any expenditure incurred by a local branch or subsidiary of a foreign company, or by a local
company or subsidiary of a local company, in servicing any debt or debts contracted in
connection with the production of income to the extent that such debt or debts cause the person
to exceed a debt to equity ratio of three to one;

The section is considered in detail below.

91
5.4.2 Raising and finance charges

Raising fees that are deductible are those of a revenue nature, while those incurred on items of a
capital nature and unproductive activities are disallowed. As held in CIR v Genn & Co. (Pvt)
Ltd 20 S.A.T.C 113, raising fees and finance charges should be allocated on a pro rata basis to
items on which the loan has been expended, based on the gross amount of the loan. Raising fees
for a loan incurred on special deductions available to farmers are deductible and also deductible
is raising fee on a loan used for the day-to-day running of a business. Raising fees incurred on
loan used to purchase assets ranking for capital allowances are capitalised to form part of the
cost of the assets, thereby disallowing them. Raising fees on those assets which do not rank for
capital allowances must also be disallowed.

5.4.3 Losses- fire, theft and embezzlement

A loss that is caused by fire, theft, embezzlement etc. are tax deductible on the basis of them
being incurred in the production of income. A loss of trading stock through fire is also a loss
incurred in the course of producing income which should be tax deductible, as long as such
stock was not insured (ITC 1060 (1963 26 SATC 313).

5.4.4 Legal expenses

Legal expense include fees for services of legal practitioners, expenses incurred in procuring
evidence or expert advice, court fees, witness fees and expenses, taxing fees, the fees and
expenses of sheriffs or messengers of court and other expenses of litigation etc. The general
principle is that legal fees will be allowed if they were incurred in the production of income. The
claim, dispute or action at law should arise in the ordinary course of or by any reason of the
taxpayer‘s trade. Examples of legal and related costs which are deductible when incurred in the
production of income or purposes of trade include:

 Defending commercial contracts or other civil claims.

 Defending a wrongful dismissal action brought by former employees or directors
 Preparing minutes of business and shareholders‘ meetings.
 Eliminating competition, protecting an asset or removing an obstacle.
 Evicting a tenant to obtain more rent by a landlord (but not alter or change property use)
 Evicting a rent- defaulting tenant
 Recovering misappropriated funds.
 The issuance of bonds, mortgages, debentures, borrowing or debt restricting.
 Drawing up a lease agreement by a lessor, but not by the lessee.

Capital nature legal costs are disallowed e.g. legal costs incurred for the purpose of acquiring a
capital asset for the enduring benefit of business, costs incurred in defending an act which is
meant to protect a capital asset (land, income – producing unit , etc.,) , associated with the
acquisition of a fixed asset, incorporations, amalgamations, corporation reorganizations or share
issue etc. In ITC 1528, 54 SATC 243, it was held that capital nature legal costs do not include the
cost of removing a business obstacle.

5.4.5 Fines and breaches of law

Whether incurred in trading or in the production of income, fines, bribes and penalties are non-
deductible. They are contrary to public policy and allowing them would frustrate the legislative

92
intent i.e. causing the punishment imposed to be diminished or lightened. Examples include
traffic fines and penalties for breach of any statute whether of Zimbabwe or any country.

5.4.6 Employment expenses

Almost all expenditure incurred by employers in the form of remuneration whether for past,
current or future services are deductible i.e. salary payments; fringe benefits and so forth are tax
deductible. The employer should simply prove that the expenditure was incurred in the
production of his income or for purposes of his trade. Also revenue expenditure is a payment
made in order to get rid of an unsatisfactory employee or director.

However, unreasonable or excessive, payments made to related parties or directors are

disallowed e.g. excessive salary paid to a family member. Also disallowed are payments to
retiring directors for agreeing not to compete with the company (payments in restraint of trade).

5.4.7 Relocation costs

Where a taxpayer incurs cost in moving and reinstalling equipment at the new site, such cost is
non-deductible on the basis that it is of a capital nature. The expenditure should be capitalized
and be granted capital allowances. Cost of stock removal and rubbles within the same premises
is treated is revenue in nature and should be deductible. Also deductible is the cost of relocating
staff (ITC 1716 (64 SATS 27).

5.4.8 Sponsorship

Sponsorship cost is deductible if a close connection exists between the expense and a taxpayer‘s
business, no matter a third party is also to benefit out of the sponsorship. This connection is
reflected by the fact that business is being promoted by incurring the sponsorship expenditure,
for example:

 The sponsorship agreement should be a specific requirement in the promotion of a

taxpayer‘s business. It should also reflect the extent and prominence of the business
exposure.

 The sponsorship arrangement is regarded as a coherent marketing strategy.

 The relationship of the potential market to the taxpayer‘s business.

 The relationship between expenditure and the ultimate income derived, i.e. can it be proved
that the income is a result of sponsorship? For example, a sale of bulls at an agricultural
show by a farmer sponsoring the event in return for being able to display the bulls shows a
direct relationship between the sponsorship expenditure and the resultant income.

A sponsorship expenditure of a capital, private or domestic nature is not deductible.

A sponsorship is of a capital nature if its main object is to create an image or goodwill, whereas
it is of a revenue nature if it provides an opportunity for the taxpayer to advertise and also to
conduct market research. For example, any corporate social responsibility (CRS) activity which
is linked to publicity campaign or advertising is deductible, provided the sort of expenditure is
not on capital nature items.

5.4.9 Patent, trademark, know-how etc.

93
Acquisition of know-how, a patent or a trademark, etcetera is capital expenditure, unless the
taxpayer is trading in such items. The cost of registering the trademark or patent, etcetera also
constitutes capital expenditure. However, the case is different where person re-sales the same
patent to a number of people. This means that the person is retaining ownership of the patent,
designs, know-how, etc. In such a case, the payment made to the person is a consideration made
for the right of use of the patent or trademark, rather than the acquisition of rights, which is tax
deductible in terms of section 15 (2)(d) of the Act. Royalties and rentals are fully deductible,
whether paid in fixed or variable amounts.

5.4.10 Cost of earning rental income

Expenditure incurred in the production of rental income is tax deductible, but not during the
period the property is idle, vacant or unproductive. Various expenses allowable to the landlord
include rates, advertising for tenants, water, repairs and maintenance of the property, expenses
incurred in collecting rent, interest on loans to buy or improve the rented property, cost of
evicting a tenant to obtain more rent or evicting a rent defaulting tenant, but not to alter or
change the use of property. The landlord is also entitled to deduct amounts representing
irrecoverable rent.

Legal costs incurred in connection with letting of immovable property may also be deductible
depending with how they are incurred. The general rule is to look at the nature of the transaction
under which the legal expenses were incurred. For instance, cost of a breach of contract / dispute
over a contract is deductible if the contract relates to taxable trading activities. Legal expenses
and stamp duty incurred by a tenant in connection with letting of an immovable property are not
deductible because the tenant obtains a right to occupy a property for a period and this right is a
capital asset of the tenant. Legal expenses for drafting the lease agreement are allowed to the
lessor, but not the tenant.

5.4.11 Licenses

The payment of licenses is more closely connected to the taxpayer‘s income–earning structure
rather than its income earning operations. It is regarded as payment incurred to find and lawfully
commence the operation and treated as capital nature expenditure. For example, in ITC 1726 64
SATC 236 it was held that the initial basic cellular licence fee was not routinely incurred in the
running of the taxpayer's business, but constituted expenditure that was incurred to found and
lawfully commence the operation of taxpayer's income earning structure, which was the cost of
acquiring the right to perform the operations. The on-going annual licence being a recurrent
expenditure was held to be deductible.

Related to the issue of licencing is the payment of royalties or franchisee fee. The general
principle is that royalties or franchisee fees will be allowed if they are incurred in the production
of income. Where they are related to the capital structure so as to create goodwill, secure a
competitive advantage, protect and promote the core business of the taxpayer, namely, its
structure and identity they fall to be capital in nature.

Expenditure on renewal of licences is however deductible (ITC 1726 (2000) 64 SATC 236(G)).
Also deductible are costs incurred in connecting electricity, telephone, water system or sewerage
system to premises used in the production of income.
5.4.12 Insurance policies

Insurance costs incurred for purposes of trade, or the production of income are deductible.
Examples of deductible insurance premiums include group-term life insurance policies, public
liability policies (third party policies), loss of profits, fire, theft or any business related insurance
94
etc. The general principle is that where premiums are paid on the employees‘ life insurance
premium, the premiums remains deductible if the ultimate beneficiary is the employee and
where the employer is the beneficiary, the deduction is disallowed. The insurance premiums for
joint life policies and ceded life policies are however disallowed.

5.5 Specific deductions

5.5.1 Foreign exchange losses

Section 15(1) (a) of the Act permits the deduction of realised foreign exchange losses of a
revenue nature from the income of a taxpayer. The amount to be deducted is the amount actually
paid in Zimbabwean currency to the extent that it differs from the amount of the liability that
had been incurred prior to the variation in the rate of exchange. If the incurring of the liability
and the payment thereof occur in different years of assessment, effect shall be given to the
increase or reduction in the amount in the year of assessment in which the amount was paid.

5.5.2 Ring fencing of expenditure

Section 15(1) (b) provides for the ring fencing of expenditure of a trade and investment activity
from being deducted against income from employment and vice versa. The effect of the ring
fencing is that expenditure should only be claimed in respect of the income to which it relates.
Section 15(1) (c) also prohibits deduction of expenditure incurred by a person earning income
from mining operations against income from other trade and investment and vice versa. In other
words, mining operation expenditure should be deducted only against income from mining
operations and its income also is not available for offsetting with expenditure from other trades
and investments.

5.5.3 Repairs and maintenance

Repairs and maintenance are deductible in full in the year in which they are incurred under
s15(2)(b) of the Act as long as they are incurred on property occupied or used for purposes of
trade or in the production of income or result from the letting of a property. On the other hand,
an improvement is disallowed. It however qualifies for capital allowances in terms of s 15(2) (c)
of the Act.

Meaning of repair
The term ―repairs‖ is not defined by the Act. The Shorter Oxford English Dictionary however
defines it as the ‗[r]estoration of some material thing or structure by the renewal of decayed or
worn-out parts, by refixing what has become loose or detached‘. Also, Buckley L.J. in Lurcott
v. Wakely & Wheeler [1911] 1 K.B. 905, 924 defined repairs as follows:
"Repair is restoration by renewal or replacement of subsidiary parts of a whole. Renewal, as
distinguished from repair, is reconstruction of the entirety, meaning by the entirety not
necessarily the whole but substantially the whole subject−matter under discussion."

The key aspect with repairs is that it presupposes a defect or malfunction; meaning that the
original structure must have become impaired and the work done must be to restore it by repair
(ITC 626 (1946) 14 SATC 530). The original property must first be deteriorated, damaged or
weakened. The courts have also tried to draw a distinction on the one hand, between repairs,
improvement, reconstruction and renewal‖. However there are no precise guidelines to
distinguish between a ‗repair‘ and an ‗improvement (Flemming v KBI [1995] (57 SATC 73)).
Each case must be dealt with based on its set of surrounding circumstances.

Improvement
95
An improvement makes an item functionally better than it was previously, for example, use of
modern or more efficient materials. This is regarded as new work or additions i.e. a new asset is
created. It is usually the reconstruction of the entirety, meaning by the entirety not necessarily
the whole, but substantially the whole subject matter. Improvement is often associated with
increase in durability, change of character and increase in performance of the underlying asset
(Rhodesia Railways & Other v COT 1925 AD 438, 1 SATC 133). Where expenditure has been
re-classified as improvement it should be added back to net profit and instead be ranked for
capital allowances. Whether it qualifies for wear & tear or SIA, this depends on the class of asset
on which the improvements are being effected.

Repair v renewal or replacement

Repair and ―renew‖ appear one and the same thing. Repair always involves renewal; renewal of
a part; or a subordinate part. The matter only becomes more difficult with regard to larger
installations, such as a production line, comprised of a number of specialized machines, each
with a separate function, that are configured sequentially to produce a particular product in an
entirely automated process. The question then is that if one of the components is renewed does
this then constitute a repair or an improvement or whether each machine is an ―entirety‖
(Rhodesia Railways Ltd v Income Tax Collector, Bechuanaland [1933] (6 SATC 225))

Notional repairs
A taxpayer cannot, where an item of property could have been repaired, carry out a non-
deductible capital improvement and claim the "notional" amount which it would have incurred
just to repair the item (FC of T v Western Suburbs Cinemas Ltd (1952) 86 CLR 102).

Initial repairs
Initial repairs occur when the taxpayer makes good defects that existed at the time the property
was acquired, regardless of whether the taxpayer was aware of the need of the repair at the time
the property was purchased. Such repairs are not deductible; they must be capitalized as part cost
of the property.

Repairs: property must be occupied or used for purpose of trade

In terms of s15 (2) (a) of the Act, repairs incurred on property not occupied or used for purpose
of trade should not be deducted. The expression, ‗for the purpose of trade‘ means for the purpose
of enabling a person to carry on and earn profits in the trade (see Strong and Co of Romsey Ltd v
Woodifield (Surveyor of Taxes) [1906] TC 215). This therefore rules out deduction of repairs
incurred on a vacant, idle property and on property producing exempt income.

Use of new materials on repairs – whether improvement?

It is not necessary that the materials used should be identical with the materials replaced, what is
necessary is that the original property should have become impaired (CIR v African Products
Manufacturing Company Ltd 1944 TPD 248, 13 SATC 164). The court in ITC 361 (1936) 9
SATC 189 pointed out that there is no hard and fast rule to the determination of what constitutes
‗repairs‘; each situation has to be assessed based on its facts.

Repairs- underpinning of foundation

Correction of original defects is not a repair because the property never deteriorated but was
malfunctioning from the start. In Rialto and Variali v COT, 1977, the taxpayers had a
residential property from which they derived rental; the property had developed extensive
cracking in the walls of the building. The taxpayers, on the advice of consultants, felled the trees
whose roots were affecting the foundations and strengthened the foundations by underpinning.
The taxpayer claimed the cost of felling the trees and the consultants‘ fees. It was held that
underpinning did not constitute a repair of any part of the premises but was a modification to the
foundation, designed to eradicate what was apparently an original structural defect and it was an
96
improvement. The felling of the trees also did not constitute a repair of any part of the premises
but eliminated a source of danger to the foundations and a lighting hazard, and was an
improvement.

5.5.4 Capital allowances

Capital allowances (tax depreciation) are deductible in terms of s15 (2) (c) as read with the 4th
Schedule to the Act. The allowances are available to all traders other than miners in respect of
commercial buildings, farm improvements, fencing, industrial buildings, railway lines, staff
housing and tobacco barns acquired or constructed and in both cases used by the taxpayer for the
purposes of his trade. Capital allowances are granted also on articles, implements, machinery
and utensils belonging to and used by the taxpayer for the purposes of his trade.

5.5.5 Lease premium and know-how

Section 15(2)(d) of the Act provides for the deduction of an allowance in respect of any
premium or consideration in the nature of a premium paid by any taxpayer for the right of use or
occupation of land or buildings, plant or machinery, any patent, design, trade mark, copyright,
model, plan, secret process or formula or similar property, any motion picture film or television
film, sound recording or advertising matter connected with such film or recording of such film,
sound recording or advertising matter and the imparting of or the undertaking to impart any
knowledge directly or indirectly connected with the use of any such plant or machinery, patent,
design, trade mark, copyright, model, plan, secret process or formula or other property as
aforesaid, film, sound recording or advertising matter.

Other than the allowance for know-how (imparting of knowledge), the lease premium is
deductible in equal instalments over the shorter of the unexpired period of such agreement,
cession or assignment and 10 years. If the lease period is longer than 10 years or is for an
indefinite period, the amount of annual deduction is 1/10th of total premium. A renewal of the
lease term does not affect subsequent computations. If the lessee has an option to sub-let, such
option is ignored in determining the amount of annual deduction.

For know-how, the allowance shall be spread over such period Commissioner considers as the
period during which the taxpayer will enjoy the right. This is necessary because as a general rule, no
definite period is stipulated as is done in the case of a lease agreement. The property in respect of
which the premium is paid should be used or occupied for the purposes of the lessee‘s trade or in
used or occupied in production of income. If the property is used for dual purpose the
expenditure must be apportioned. Where the property is no longer used for the purposes of trade
before lease expires, e.g. tenant vacates, cedes or stopped using the property, the allowance is
immediately lost. But if the lessee or another person purchases the leased property the allowance
is claimed up to the end of the tax year.

EXAMPLE
Frank and Ben entered into agreement for the leasing of equipment for a period of 12 years. The
agreement was entered on 3 March 2020. Ben paid a lease premium of $2 000 at inception and
$4,400 monthly rent. Show Ben‘s deductions in 2020.

ANSWER
Rent ($4,400 x 10) 44,000
Lease premium ($2,000 x 10/120) 167
Total deduction 44,167

97
Because of the conversion of premium from United States dollar to RTGS dollars, there is an
impact on the amount that can be claimable in RTGS dollar terms because whilst the premium
remains stagnant, the income of the taxpayer is increasing due to inflation. Therefore, where a
taxpayer would ordinarily be taxed less due to having an existing lease premium in United
States dollar, the figure has remained stagnant at 1:1 whilst income is moving with the interbank
rate. The taxpayer is then taxed more because of diminished deduction on lease premium. The
deductible allowance in the hands of the lease will therefore be denominated Zimbabwe dollar
after 22nd of February 2019 and if this has been converted into USD the excess is disallowed.

5.5.6 Lease improvement

Section 15(2) (e ) of the Act, which is a complement of s8 (1)(e ) of the Act provides for a
deduction of an allowance in respect of ‗any expenditure actually incurred‘ by the lessee in
‗pursuance of an obligation to effect improvements‘ on land or to buildings incurred under ‗any
agreement whereby the right of use or occupation of the land or buildings is granted by the
lessor, provided such land or buildings are used or occupied by the lessee for the purposes of
‗his trade or in the production of income.‘

The amount to be deducted in each year of assessment shall be the value of lease improvement
divided by the shorter of the remaining lease period in years (unexpired lease period) and 10
years. The unexpired lease period is calculated from the date improvements are first used or
occupied by the lessee for purposes of his trade or in the production of income. If the lessee is
entitled to such use or occupation for an indefinite period, the use or occupation shall be deemed
to be 10 years.

We summarise key requirements, for deduction of leasehold improvements allowance as

follows:

 Existence of a lease agreement

 There must be an obligation to effect improvements in terms of the lease agreement;
 There must be expenditure actually incurred in pursuance of such obligation; and
 The land or building must be used or occupied for purposes of trade or in the production of
income

These will be examined individually below:

Lease agreement
No allowance for lease improvement can be granted to the lessee in the absence of a lease
agreement i.e. lease agreement goes before lease improvement. Although it is possible at law to
conclude an enforceable oral lease agreement, for purposes of s15 (2) (e) a lease agreement
which is reduced to writing will ease the burden of proof for the lessee. The contract imposing
the obligation on the lessee to effect improvements must constitute, in essence, a lease; that is to
say, an agreement granting the right of use or occupation of property (see Des Kruger Tax
Strategy 4th Ed p. 94). It is also important that the lease agreement should include a clause on the
obligation to effect the lease improvements.

In terms of the common law a lessee shall be entitled to compensation of useful or luxurious
improvements if they had been in terms of an express or implied consent of the lessor. It can
therefore be submitted that the flip side of this statement is that luxurious improvements will not
qualify for an allowance in terms of s15 (2) (e) if the lessor did not give his consent.

Obligation to effect improvements

98
Expenditure actually incurred for the leasehold improvements, in pursuance of an obligation in
terms of the lease agreement, must be for purpose of trade or in production of the lessee‘s
income. In ITC 1615 the court had to examine whether there was an obligation to effect
improvements where part of the agreement provided that „the lessee undertakes and agrees and
shall be obliged...to erect such new buildings and/or effect such improvements...upon the leased
property...at its own sole cost and expense…”

The court pointed out that an obligation can only exist if the provision does not leave it to the
discretion of the lessee to effect the improvements or not. The court held that ―shall be obliged‖
referred to the need to effect improvements, and once it is clear that the lessor has a need that
improvements should be effected, an obligation for the lessee is created and the lessor may
demand that the improvements are effected. Upon failure by the lessee to effect such
improvement, the lessor may sue for specific performance.

In a related case, ITC 1188 the Court had to decide whether an obligation to effect
improvements arose where the right of occupation was conditional upon the lessee effecting
such improvements, as the lease agreement did not contain an express obligation for the lessee.
The Commissioner had argued that it was essential that the obligation to effect improvements
should be legally enforceable and that its breach should entitle the lessor to sue for specific
performance or damages. The court pointed out that the lessee may have an obligation to effect
improvements even in the absence of a right of the lessor to sue for specific performance or
damages, and that the lessee does however has to establish that a legally enforceable obligation
to effect the improvements was incurred. The court concluded that the mere fact that a lease
agreement can be terminated upon failure by the lessee to effect improvements does not create a
legally enforceable obligation. The point was raised that there should however be a clear and
unambiguous obligation on the lessee in terms of the lease agreement, to effect the leasehold
improvements. The obligation should simply be part of the agreement either through an express
provision or through necessary implication.

In our view, it is always critical that the obligation to effect improvements should be clear and
unambiguous, so that it is evident from the four corners of the agreement in question. In that
scenario, expenditure would meet the requirement of being ―actually‖ incurred in the production
of income.

Extent of allowance
The allowances under this paragraph shall not exceed the amount stipulated in the agreement as
the value of the improvements or as the amount to be expended on the improvements or, if no
amount is so stipulated, an amount representing in the opinion of the Commissioner the fair and
reasonable value of the improvement. Where such agreement is for an initial period which may
be extended or renewed for a further period or periods, the period of such agreement shall be
deemed to be the initial period only;

EXAMPLE

Farai Investment and Boxcar (Pvt) Ltd entered into 11 year leasing agreement on 2 March 2017.
The leasing object is a warehouse which Farai Investment is using to store its goods. On 5 April
2017 an agreement was entered to the extent of the showroom. Farai Investment was tasked to
effect these improvements which were capped at $40,000, which it completed on 2 March 2018,
but were brought into use on 1 September 2018

Compute Farai Investment‘s allowance in 2019.

ANSWER
99
Value of lease improvements 40,000
Unexpired lease period (132 months -18 months) 114
Monthly allowance ($40,000/114) 351
Allowance in 2019 ($351 x 12) 4,211

The changes coming through in 2019 have a bearing on the amount to be deductible in the
income tax return after the 22nd of February 2019. The Income Tax Act provides that the amount
to be deducted in each year of assessment shall be the value of lease improvement divided by the
shorter of the remaining lease period in years (unexpired lease period) and 10 years. This
computation is affected in that the claim on deduction on lease improvements made is essentially
diminished through conversion of the value of that lease improvement to RTGS$ at a rate of 1:1
with the USD on the 22nd of February 2019. The allowance in the hands of the lease will
therefore be denominated Zimbabwe dollar after 22nd of February 2019 and if this has been
converted into USD the excess is disallowed.

5.5.7 Bad debts

General

Section 15 (2) (g) of the Act provides for the deductibility of an amount (i) of any debts due to
the taxpayer (ii) to the extent to which they are proved to the satisfaction of the Commissioner to
be bad, (iii) if such amount is included in the current year of assessment or was included in any
previous year of assessment in the taxpayer‘s income.

All the three conditions stated above must be satisfied for a debt to qualify for deduction. Also
deductible are debt collection expenses, legal expenses incurred in the recovery of debts and debt
factoring expenses (see COT v. Pan-African Roadways Ltd. 21 SATC 236). Bad debts can still be
deductible even after the business has ceased. However, provision for doubtful debts is non-
deductible.

Proof of recoverability
The question whether a debt is bad is a matter of fact (Dinshaw v. Bombay COT (1934) 50 TLR
527). The onus is upon the taxpayer to prove that the amount is irrecoverable. The current
practice of the Commissioner is that he needs to be satisfied that the taxpayer has exhausted all
recovery measures and has even sued for the debt. A person seeking to claim an allowance for
bad debt must therefore take steps that include written summons, legal proceeding, and recovery
actions following acquiring a judgement or civil imprisonment.

The fact that a debtor is insolvent, died without leaving sufficient assets, or in the case of a company
is under judicial management or in liquidation with no sufficient assets from which to pay debts is
sufficient evidence that the debt is irrecoverable

Bad debts on debts sold with business

Bad debts on debts that were sold by a taxpayer or disposes off together with the business are
non-deductible because the debts are no longer owned by him (RE Cooper v COT (1952) 18
SATC 259). Also, in a case where a taxpayer sells his debts and which he then buys the debts
would lose character as debts arising from ordinary trading, he cannot be an owner of debts he
has sold, unless they were previously sold or ceded with a resolutive condition that the seller
may repossess or reimburse the buyer of the debts the buyer was unable to collect (SIR v
Kempton Furnishers (Pty) Ltd 1974(3) SA 36 A) 36 SATC 67 at 69-71).

100
Bad debts on purchased or acquired debts
Where one purchases bad debts, the bad debts on debts he acquired together with business are non-
deductible since the debts were never part of his trading debts or included in his income. Also non-
deductible are bad debts on inherited debts and to a newly admitted partner in respect of partnership
debts incurred before his admittance.

Advances and loans to employees

It has generally been accepted that irrecoverable advances to employees are deductible where it
is the custom of the trade of the taxpayer to make advances in order to ensure the retention of a
satisfactory labour force or as custom of farmers or of insurance companies in relation to
irrecoverable agent‘s commission. However, bad debts in respect of general loans are not
deductible, except for cases of money lending businesses.

5.5.8 Contributions to Pension and Benefit funds and retirement

An employer‘s contributions that are made to Pension fund or Consolidated Revenue Fund,
NSSA or benefit fund or on behalf of member are deductible to the employer (taxpayer) as
follows, per member:

Order of deduction Limitation

Pension fund contributions Limited to the LESSER of
Ordinary contributions -$54,000 per annum per employee or
-7.5% of member‘s annual emoluments or
-Contributions made
Arrears Such amount as approved by the CG
NSSA Limit 3.5% of employee‘s basic salary of
$8400 p.a.

Benefit fund $15,000 per annum per employee

Note that the maximum deduction that an employer can ever claim per employee per year where
contributions are for ordinary pension, arrear pension and NSSA is $54,000.

Where the pension fund or the benefit fund contributions have already been deducted in arriving
at the net profit, only the excess amounts (amounts exceeding the prescribed limits) are added
back to the net profit.

No provision is made for the deductions of contributions made by the employer on behalf of the
member to a retirement amount fund.

5.5.9 Arrear pension contributions

The deductible amount of any arrear contributions which are paid by the taxpayer in respect of
past service with his employer to a pension fund (and not to retirement annuity fund) or to the
Consolidated Revenue Fund are $18,000 p.a.

5.5.10 Medical costs

Section 15(2) (j) of the Act provides for the deduction of an amount of any contributions paid to
a medical aid society by an employer on behalf of its employees or their dependents. A medical
101
aid society is defined in terms of s2 of the Act as ‗any society or scheme which is approved by
the Commissioner in respect of the year of assessment in question in terms of subsection (2) of
section thirteen‘. This makes contributions made to unapproved funds such as in-house medical
schemes or foreign medical aid societies non-deductible. According to section 13 (2) of the Act,
the Commissioner approves a medical aid society or scheme if he is satisfied that it is a
permanent society or a scheme bona fide established for the purpose of providing benefits for its
members and their dependants in respect of expenditure incurred on medical, dental or optical
treatment, including treatment prescribed by a medical or dental practitioner, the provision of
drugs for medical, dental or optical purposes, the provision of medical, surgical, dental or optical
appliances or the provision of ambulance services. On the other hand, medical expenses or
reimbursements of medical related travelling cost of employees or their families actually
incurred by the taxpayer are deductible as staff welfare expenses in terms of section 15(2)(a).

5.5.11 Section 15 (2)(k) and section 15 (2)(l)

Refer to chapter on farming.

5.5.12 Experiment and research

A taxpayer is entitled in terms of s15 (2)(m) of the Act to claim expenditure incurred by him
during the year of assessment in carrying out experiments and research related to his trade, other
than on capital expenditure, e.g. cost of plant, machinery, land, premises, acquisition of rights,
development cost, etc.

5.5.13 Jointly conducted experiment and research

A taxpayer is allowed under s15(2) (n) of the Act to deduct any sum contributed by him during
the year of assessment in respect of expenditure incurred by any other person to which the above
paragraph would have applied had the expenditure been incurred by him. The deduction should
not however exceed an amount that is computed using the following formula:

AxB
________
C

A is the amount of contribution made by the taxpayer

B is the cost which would have been deductible to another person had it been incurred by
him

C is the expenditure incurred on the experiment or research (both revenue and capital
costs)

5.5.14 Contributions to scientific and public institutions

Section 15 (2)(o) permits deduction of contributions made by a taxpayer during the year of
assessment to a scientific or educational society or institution or other similar body of a public
character approved by the Commissioner (e.g. SIRDC, UZ, NUST etc.). The sum should be
utilised by the society, institution or body solely for the purpose of industrial research or
scientific experimental work connected with the taxpayer‘s business.

5.5.15 Scholarship, grants and bursaries

102
A scholarship, grant or bursary which is paid by a taxpayer on behalf of a person taking a course
in technical education is allowable in terms of s15 (2) (p) of the Act subject to the following
conditions:

1. The education or training should be related to a taxpayer‟s trade, and

2. The beneficiary or trainee should not be connected to the taxpayer.
3. The expenditure to be allowable is that incurred during the year of assessment

A connected person is a person who is a spouse or a near relative of a taxpayer. If the taxpayer is
a company, a connected person is an individual:

- Controlling the company, his/ her spouse, near relative or nominee, spouse‘s nominee or
near relative
- Who is a director, director‘s spouse, near relative or nominee, including near relative and
nominee of a spouse of a director.

A near relative is a person who is:

(a) A linear descendant of a taxpayer , step father or step mother

(b) A child or a linear descendant of a taxpayer
(c) A brother or sister, half-brother/sister, step brother/sister, uncle, aunt, nephew or niece of a
taxpayer
(d) A spouse of any of the persons stated in (a) to (c) above

A near relative excludes taxpayer‘s cousin. A director excludes a person holding less than 5% of
voting shares of the company and an executive director. A nominee is a person who can vote in
a company meeting on behalf of a taxpayer or who has shares in a company, whether directly or
indirectly on behalf of a taxpayer.

5.5.16 Pensions, Annuities and Allowances

Section 15(2)(q) of the Act provides for the deduction of voluntary pensions, annuities and
allowances paid by an employer or a partnership to former employees or partners who retired
due to grounds of ill health, infirmity or old age, or to dependents of such former employees or
partners. Voluntary payments (also referred to as ex-gratia payments) are payments to which the
recipient has no right to receive, but something which is voluntarily given or paid. It is
comparable to a gift i.e. a mere casual payment which depends upon somebody else‘s goodwill.
When stipulated in the contract it ceases to be an ex-gratia payment, but an involuntary payment.
An involuntarily payment as opposed to an ex-gratia payment is deductible in full if it satisfies
the requirements of s15 (2) (a) of the Act. Whereas payments that are voluntarily paid (ex-gratia
or non-contractual payments) are deductible provided they are incurred during the year of
assessment, subject to a limit of $5,000 for payment to a former employee, $2,000 for a payment
to a former partner and a maximum of $2,000 to one and all dependents of a former partner /
employee.

A director of a company, other than a working director or a managing director, is not an

employee (Leopard Rock Hotel Company (Pvt) Ltd v C. of T., J. 345). This means that any ex-
gratia payment paid to a non-employee, shareholder or a third party is disallowed in full.
5.5.17 Donations

Donations are disallowed, it should be connected to production of income to be deductible. As

such donations bona fide incurred for business purposes or in the production of income are

103
deductible. However, clear gratuitous donations like political, church or social clubs donations
are disallowed.

The following donations to public benefit organisations are however specifically provided for in
terms sections 15(2) (r) - (r 5) of the Act as deductible in the computation of income tax:

i. Amounts paid during the year of assessment, without any consideration, to the State or
to a fund approved by Minister of Health— for the purchase of medical equipment,
construction, extension or maintenance 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 deduction in a year of assessment is $1,000,000.
Note that the approved donations should be paid to the State, not directly to the hospital,
otherwise they may be disallowed.
ii. Amounts paid during the year of assessment, without any consideration, to the State or
to a fund approved by Minister of Education for the purchase of educational equipment
or, the construction, extension or maintenance of school or the procurement of books or
other educational materials to be used in a school operated by the State, a local authority
or a religious organisation. The maximum deduction in a year of assessment is
$100,000. The qualification in (i) applies viz the donation must be paid to the state or
relevant ministry of government.

iii. Any amount paid by the taxpayer during the year of assessment, without any
consideration whatsoever, to a research institution approved by the Minister responsible
for higher or tertiary education. The maximum deduction in a year of assessment is
$1,000,000.

iv. Any amount paid by the taxpayer during the year of assessment to a Public Private
Partnership Fund. The maximum deduction in a year of assessment is $500,000.

v. Payment made by the taxpayer during the year of assessment, without any consideration
whatsoever to the National Scholarship Fund established in terms of the Audit and
Exchequer Act.

vi. Payment made by the taxpayer during the year of assessment, without any consideration
whatsoever to the National Bursary Fund established in terms of the Audit and
Exchequer Act.

vii. Any amount made to charitable trust administered by the Minister responsible for social
welfare or the Minister responsible for health, in his capacity as such or by any official
in his Ministry on his behalf.

viii. Any amount paid to the Destitute Homeless Persons Rehabilitation Fund, being a fund
established by the Ministry of Finance in terms of the Audit and Exchequer Act to
alleviate the condition of destitute homeless persons. The maximum in year of
assessment is $500,000.

ix. Donations to Mayor‘s Cheer Fund, Charitable trusts, Nurses homes for old people or
orphans, refugee camps and special treatment of certain aliments

5.5.18 Subscriptions

Professional membership, technical association and business related subscriptions are tax
deductible in terms of s15 (2) (s) of the Act. The subscriptions must be paid during the year of
104
assessment for purposes of retaining a membership of a professional institution, regardless of the
fact that the association is not connected to a taxpayer‘s trade. For example, an engineer can pay
subscriptions to an accounting body and can claim the deduction as long as the subscription is
for the purpose of his continued membership of that association. The deduction of the
subscriptions is triggered by actual payment of subscriptions. This means that an accrual of the
subscriptions in the accounts does not trigger a tax deduction of the expenditure.

It is submitted that where an employer makes a payment for professional subscriptions on behalf
of an employee, it is the employer who should get the deduction and not the employee. The
payment has no effect in the hands of the employee.

Subscriptions made purely for business motives e.g. subscriptions to Standard Association of
Zimbabwe, Zimbabwe National Chamber of Commerce etc. are deductible. No deduction is
granted of amounts paid to access or obtain membership of the association or body the ‗so
called‘ entrance fees.

5.5.19 Pre-production expenditure

Section 15(2) (t) of the Act provides for the deduction of qualifying expenses incurred before the
commencement of trade (pre-trade expenses). A trade should be carried on by a taxpayer and the
expenditure should have been incurred within 18 months prior to the commencement of trade.
Also, the expenses should have been incurred in the process of establishing a business. The
expenses should qualify as a deduction in terms of the general deduction formula (CO T v
Parkwell House (Pvt) Ltd 34 SATC 105). The expenses are deductible when trade commences.

Pre-production expenses exclude company formation expenses, preliminary and capital

expenses. Meaning these amounts cannot be claimed as a deduction even if they were incurred
within 18 months prior to commencement of business. A business commences when an income
earning stage (selling stage) has been reached. It can also be inferred that assessed loss incurred
18 months prior to commencement of trade is not allowable under s15 (2) (t) of the Act since the
section only allows for ‗expenditure‘ rather than losses.

5.5.20 Opening trading stock

Section 15 (2) (u) of the Act allows for the deduction of trading stock on hand in the immediate
preceding year and trading stock attached in pursuance of a court order in the immediate
preceding year. The value of this stock is the same as that reported in the immediate preceding
year.

Trading stock on hand (expressed in USD at parity with RTGS$) if subsequently disposed of,
sold or dealt with in RTGS$ after the 22nd of February 2019 may result in artificial income tax.
In the same vein as explained above, trading stock will be expressed in RTGS dollars at a rate of
1:1 with the US dollar, however, on disposal of that stock at a later stage, the disposal value will
be at the interbank rate of exchange which will result in artificially inflated profits. This means
that the taxpayer‘s deduction of trading stock brought forward from a period prior to 22nd of
February 2019 will be limited to amount expressed in Zimbabwe dollar.

5.5.21 Trading stock acquired other than by way of purchase

Section 15(2) (v) of the Act deals with deduction of stock acquired otherwise than by way of
purchase e.g. donation, inheritance, exchange. The amount to be deductible for such type of
105
stock shall be an amount considered by the Commissioner as the fair and reasonable value of
such trading stock on date of its acquisition. However, with the exception of inherited stock, the
deduction 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. In practice, the donation is valued at fair and reasonable value, while inherited stock is
valued at the value used for estate duty purposes. If the inherited or donated trading stock is
immediately sold or disposed, no deduction is allowed of such stock and the proceeds from sale
of such stock are also non- taxable.

5.5.22 Trade convention and mission

A deduction is granted in terms of s15 (2) (w) of the Act with respect to expenditure incurred by
the taxpayer during year of assessment on one convention and one trade mission. The
expenditure should be in respect of a convention which, in the opinion of the Commissioner,
was connected to the taxpayer‘s trade. The expenditure should be in respect of a trade mission
approved by the Minister, in connection with the taxpayer‘s trade. Only one convention and one
trade mission, up to a maximum of $25,000 each. If a trade convention or mission commences in
one year of assessment and ends in another, the deduction is granted in the year in which it ends.

5.5.23 Cooperative

There are two types of cooperatives in terms of the Act, namely a co-operative agricultural
company and a co-operative society. A co-operative agricultural company is a co-operative
company registered under the Companies Act [Chapter 24:03] and whose membership in terms
of its articles shall be comprised of any person carrying on farming operations for the benefit of
himself in Zimbabwe, either exclusively or in conjunction with some other person or with some
other business, profession or occupation or another co-operative agricultural company or a co-
operative society. On the other hand, co-operative society is a co-operative society which is
registered in terms of the Co-operative Societies Act [Chapter 24:05].

A co-operative can deduct discounts, rebates or bonuses awarded or granted by it to its

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 (s15 (2)(y) of the Act). The co-
operative can also deduct an amount by which its taxable income remaining after deducting the
above allowance is less than ZWL$5,000. Thus, if the co-operative has taxable income of
$4,000, it is allowed to deduct $1,000, such that its taxable income will be $3,000. However if in
the opinion of the Commissioner, the company or society and one or more other co-operative
agricultural companies or co-operative societies are under the management or control of the
same persons, the deduction allowable shall not exceed an amount computed as follows:

A
C
A B
A. Is the taxable income of the company or society before the deduction of any of the
aforesaid allowance
B. Is the total of the taxable income of such other companies or societies before the
deduction of any of the aforesaid allowance
C. Is the amount that would have been calculated in terms of this section if such amount
had been calculated on the total of the taxable incomes, before the deduction of any
allowances in terms of the section, of the company or society and such other companies
or societies.
The deduction allowable in terms of this section shall not exceed the taxable income of the
company or society calculated before the deduction of any allowance in terms of this section.

106
5.5.24 Special deduction applicable to farmers

Section 15 (2) (z) refer to Chapter on farming operations.

5.5.25 Legal costs of income tax appeals

Legal costs associated with the preparation and filing of an objection or appeal on tax issues in
the High Court or Special Court are deductible under s 15(2)(aa) of the Act. Should an appeal be
taken further (by either party) to the Supreme Court, and the taxpayer‘s case be upheld wholly or
partially, again the court may at its discretion permit the costs to be deducted under s 15(2)(bb)
of the Act. In both cases the taxpayer should have won the case, if the appeal is allowed to a
substantial degree but not in full, the court may direct that the costs be deductible or else the
expenditure shall be apportioned.

5.5.26 Expenditure not yet incurred

Where a taxpayer has received income in advance of expenditure to be incurred after end of year
of assessment when goods are delivered or services rendered, the Commissioner may grant an
allowance which the taxpayer has to deduct from the income, provided the taxpayer makes an
election (s15(2)(cc) of the Act). In practice this allowance is computed using the taxpayer‘s
standard gross margin (for instance if taxpayer‘s gross margin ratio is 20%, the allowance will
be 80% of sales).

However the following must be observed viz that:

(i) Such allowance shall be reduced by the amount of any expenditure or losses, not being
expenditure or losses of a capital nature, which are incurred during the year of assessment and
which are directly related to gross income to be received or to accrue after the end of the year of
assessment in respect of services rendered or to be rendered or goods delivered or to be
delivered.
(ii) Such allowance, after any reduction in terms of proviso (i), shall be included in the income
of the taxpayer for the following year of assessment.

5.5.27 Growth point allowances

Section15 (2) (dd) of the Act relating to allowances for growth point business was repealed with
effect from 1 January 2010.

5.5.28 Special Mining operations

Section 15(2) (ff) deductions applicable to special mining operators, see Chapter on Mining.

5.5.29 Export market development expenditure

A taxpayer is granted a double deduction ($2 for every $1 incurred) on an export-market

development expenditure, other than on expenditure of capital nature, incurred by him during
the year of assessment in developing export markets (section 15(2) (gg) of the Act). The section
defines export market development expenditure as one incurred in the process creating or
expanding a presence in foreign markets, it includes expenditure incurred on any of the
following activities:

 Research into, or the obtaining of information relating to, markets outside Zimbabwe,
 Research into the packaging or presentation of goods for sale outside Zimbabwe,
107
 Advertising goods outside Zimbabwe or securing publicity outside Zimbabwe for goods,
 Soliciting business outside Zimbabwe or participating in trade fairs,
 Investigating or preparing information, designs, estimates or other material for the
purpose of submitting tenders for the sale or supply of goods outside Zimbabwe,
 Bringing prospective buyers to Zimbabwe from outside Zimbabwe,
 Providing samples of goods to persons outside Zimbabwe.

The expenditure should be related to the export of goods and not for services. The term ‗goods‘
refers to ‗anything that has, in Zimbabwe, been manufactured, produced, grown, assembled,
bottled, canned packaged, graded, processed or otherwise dealt with in such manner as the
Commissioner General may approve‘.

The Commissioner must be satisfied that the expenditure has been incurred wholly for the
purpose of seeking opportunities for exporting goods from Zimbabwe or increasing demand for
such exports.

5.5.30 Tobacco levy

Section 15 (2) (hh) of the Act provides for the deduction tobacco levy paid in the year of
assessment in terms of section 36A of the Act;

5.5.31 Approved employee share trust

Section 15 (2)(jj) provides for the deduction of the fair value of any stock, share, debenture, unit
or other interest awarded to an employee in terms of a tax approved employee share scheme.
Deductible too is the cost of shares awarded to employees or directors in lieu of cash
remuneration or bonus. Any other shares awarded by the company to employees or directors are
disallowed.

In terms of Section 2 of the ITA, an approved employee share ownership trust is defined as:
‗an arrangement embodied in a notarised trust deed which satisfies the Commissioner that its
dominant purpose or effect is to enable employees of a company or group of companies to
participate in or receive profits or income arising from the acquisition, holding, management or
disposal of the stock, shares, debentures or any property, including money, of the company or
group of companies concerned where—

(a) The stock, shares, debentures and any property, including money, are held in trust for the
employees; and
(b) The arrangement has either or both of the following characteristics—
(i) the employees‘ contributions, if any, and the profits and income out of which payments are to
be made are pooled;
(ii) each employee has a right or interest, whether described as a unit or otherwise,
in the stock, shares, debentures and any property, including money, held in trust for the
employee, which may be acquired or disposed of under the arrangement‘;

5.5.32 Donation to a local authority

Section 15(2) (kk) of the Act allows a taxpayer who pays an amount at the request of a local
authority to deduct such expenditure up to a maximum of $50,000. The expenditure should be
approved by the Minister of Local Government and should be incurred on construction or

108
maintenance of any one or more of the following items, which should be under the management
or owned by a local authority;
a) buildings
b) roads
c) sanitation works
d) water works
e) public works
f) any other utility, amenity or infrastructure works

5.5.33 Donation to community share ownership trust

The Finance Act 1 of 2014 introduced new deductions for the promotion of indigenisation (s15
(2) (ll) of the Act). The deductions are available to both the corporate taxpayer and the
indigenisation partner. This measure was back dated to 1 January 2013. The deductions
permitted in terms of this section are as follows:

 Any contributions or donation paid by a taxpayer in the year of assessment to a community

share ownership trust or scheme established by the taxpayer in compliance with the
Indigenisation and Economic Empowerment Act [Chapter 14:33].

 The value of the shares of corporate taxpayer that are lent in the year of assessment to an
indigenisation partner of the taxpayer pursuant to a corporate vendor-financing loan is
allowable equally over the period of the loan.

 Interest payable by an indigenisation partner in the year of assessment on any loan advanced
to him or her to purchase shares in the company of which he or she is indigenisation partner.

A community share ownership trust or scheme is a scheme approved in terms of the

Indigenisation and Economic Empowerment (General) Regulations, 2010, published in Statutory
Instrument 21 of 2010. Corporate vendor-financed loan is a loan of shares in a corporate
taxpayer to an aspirant shareholder of that taxpayer which are purchased by the aspirant
shareholder by means of dividends forgone on those shares in favour of the taxpayer. On the
other hand, indigenisation partner is an indigenous person who benefits (whether as an employee
or in any other capacity) under an indigenisation implementation plan approved in terms of the
Indigenisation and Economic Empowerment (General) Regulations.

5.5.34 Lump sum contribution to pension fund

Section 15 (2) (mm) of the Act provides for deduction of amounts (lump sum payments) made
during the year of assessment by the employer to a pension fund to which his employee are
members for purposes of capitalising the fund. The Commissioner must however be satisfied
that the contribution is necessary for the said purpose and must be furnished with an actuarial
certificate by the employer or someone on behalf of the employer. Another certificate from the
Minister, in consultation with the Insurance and Pensions Commission, certifying that the lump
sum contribution will result in increased pensions or benefits for members is also required.

5.5.35 Anchor company expenditure

The Finance Act 2018 provides for a deduction of expenditure of technical and support services
incurred by an anchor company in assisting outgrower farmers plus 50% of such expenditure.

109
The deduction came into effect on the 1st of January 2018. For the purpose of this amendment to
section 15 of the Income Tax Act:
―anchor company‖ means a company that provides inputs, agronomic advice and marketing
opportunities to a group of outgrower farmers and small or medium enterprises;
―expenditure related to technical and support services‖ means such items of expenditure as the
Minister shall
specify in regulations made under section 90
―Outgrower farmer‖ means a farmer who is a party to a scheme or contract where under an
anchor company supplies inputs, agronomic advice and marketing opportunities in return for the
outgrower farmer selling or delivering the contract or scheme produce to the anchor company or
other person designated by the scheme or contract

5.5.36 Assessed losses

General overview
In terms of section 15(3) an assessed loss can be carried forward and deductible against future
taxable income, provided that an assessed loss can only be carried forward for a maximum of six
years from end of year of assessment in which the assessed loss first occurred. However,
assessed losses are ring fenced to a particular taxpayer and cannot be offset against income
derived by another taxpayer. For example, moving assessed loss from an individual to a
company or from company to another company is prohibited by law. However, an assessed loss
from a trading or an investment activity can be off set against income from another trading or an
investment activity carried on by the same taxpayer. Separate assessments are also done for
employment income, capital gains tax and income tax. Where assessed loss does not exceed
$100, it cannot be carried forward. Whilst an assessed loss of a general business can be carried
forward for six years and be deducted against future profits on First In First Out basis (FIFO),
those of a miner are carried forward indefinitely. There is no provision for the carrying back of
an assessed loss to a previous year.

Impact of SI 33 of 2019

Assessed loss is deemed an asset for accounting purposes. Balances of assets and liabilities
established prior to 22 February 2019 were converted from United States values into Zimbabwe
Dollar on one to one basis through section 4 (1) d of SI 33 of 2019 which provides as follows:
―that, for accounting and other purposes, all assets and liabilities that were, immediately before
the effective date, valued and expressed in United States dollars (other than assets and liabilities
referred to in section 44C (2) of the principal Act) shall on and after the effective date be
deemed to be values in RTGS dollars at a rate of one-to-one to the United States dollar”.

Therefore assessed loss accumulated in US$ prior to 22 February 2019 have been converted to
Zimbabwe dollar on one to one basis on or after 22 February 2019. In line with SI 142 of 2019
which provided for accounting and reporting in Zimbabwe dollar, the converted assessed losses
requires no further conversion. If accounts have however prepared in foreign currency, the
Zimbabwe dollar converted loss should be converted inti US$ using the exchange rate prevailing
on the date of accounts.

Example

XYZ Limited had an assessed loss of US$ 200, 000 on 31 December 2018. It has taxable
income of ZWL$ 15, 000 for the year ended 13 December 2019.

Required
a) To compute the balance of assessed loss to be carried forward by XYZ Limited to 2020.
110
b) To compute the balance of assessed loss to be carried forward y XYZ Limited to 2020
assuming the taxable income for 2019 as stated above i.e. 15,000 is in United States dollar
and that the interbank rate at 31 December 2019 was ZWL$ 16.44 to 1 USD.

Answer

Item Answer to (a) Answer to (b)

Taxable income 15,000 246,600
Assessed loss 200,000 200,000
Taxable income /(Assessed loss) (185,000) 46,600

Note Taxable income in answer to (b) in Zimbabwe dollar is equal ZWL$246,600 (USD15 000
x 16.44)

Insolvent taxpayers (section 15 (3) (i) of the Act)

Section 15(3) of the Act contains specific anti-tax avoidance measures which discourage a carry
forward of an assessed loss under certain circumstances. Firstly, a person that has been declared
insolvent or had his property or estate assigned for the benefit of creditors, is prohibited from
carrying forward an assessed loss to himself (the rehabilitated person) when he is eventually
rehabilitated

Related companies (section 15(3) (ii))

Where there is a change in the shareholding of a company with assessed loss or which directly
or indirectly controls any company with an assessed loss and the Commissioner is of the opinion
that such change has been effected solely or mainly in pursuance of or in connection with any
scheme for taking advantage of such assessed loss, no assessed loss incurred prior to that change
shall be deductible. The section empowers the Commissioner to disallow the set-off against
assessed loss of that company of any income arising there from (see: CIR v Ocean
Manufacturing Ltd 1990 (3) SA 610 (A), 52 SATC 15). Therefore, a taxpayer who satisfies the
Commissioner that the change in shareholding was done for non-tax or non-fiscal reasons e.g.
rationalising operators, accessing trading licence of the other, synergy etc. can successfully
inherit the assessed loss as aforesaid. In ITC 983, 25 SATC 55 the taxpayer, company was
engaged in clothing manufacture. It bought shares in a company also engaged in clothing
manufacture and which had an assessed loss. The court held that the main purpose of buying the
shares was to enable the purchasing company to obtain a productive manufacturing unit that
could go into immediate operation to supplement its own productive capacity. Accordingly the
assessed loss was granted (see also ITC 989, 25 SATC 122, ITC 1209, 36 SATC 84, ITC 1347
44 SATC 33).

However, in the case of New Urban Properties Ltd v SIR, 27 SATC 175 the shareholders in
successful land dealing companies bought the shares of another land dealing company but which
was hopelessly insolvent, had an enormous deficit and assessed loss. It was held by the court
that the obvious intention was to channel profits of the successful companies to the unsuccessful
one and, thereby, take advantage of the assessed loss. Based on those findings the court found
out that the sole or main purpose of the change in shareholding was the utilization of the
assessed loss. This resulted in the court denying utilization of the assessed loss as that would be
tantamount to a tax avoidance scheme.

A company is deemed controlled by another where its majority (at least 50%) of its voting
shares are controlled indirectly or directly by that other person or company. Thee change should
not only occur in a company with assessed loss for the relief to be granted. It can also occur in a
company that controls the one with an assessed.
111
Conversion of foreign company (section 15(3) (iii))
A third anti-tax avoidance measure involves a transfer of assessed loss where a company
formally incorporated outside Zimbabwe (non-resident company) which was carrying on its
principal business within is about to be wound up voluntarily in its country of incorporation for
the purpose of the transfer of the whole of its business and property wherever situate to its
successor, a Zimbabwean incorporated company. An assessed loss shall not be inherited by the
Zimbabwean company unless the Commissioner is satisfied that the sole consideration for the
transfer will be the issue to the members of the old company of shares in the new company in
proportion to their shareholdings in the old company; and no shares in the new company to any
new shareholder.

Conversion of a company or PBC (section 15(3) (v))

A company which is incorporated under the Companies Act which converted into a Private
Business Corporation or vice versa cannot carry forward assessed loss into the new entity if the
conversion has been motivated solely or mainly by the existence of an assessed loss.

5.5.37 No deduction allowable twice

An amount capable of being deducted more than once under different sections of the Act, whether
in the same or different years of assessment, shall only be deducted once (s15 (4) of the Act). The
taxpayer has to make a choice under which provision the deduction shall be made.

5.5.38 Assessed loss- petroleum operator

Section 15(7) prohibits the deduction of an assessed loss and expenditure of other trades against
income of the petroleum operator or vice versa.

5.5.39 Interest paid by a financial institution prohibition

Section 15(6) of the Act prohibits a set-off of an assessed loss against interest payable by a
financial institution. In other words, if a taxpayer has assessed loss he cannot off set that
assessed loss against interest earned from a bank, discount house or finance house or a building
society.

5.5.40 Assessed loss- special mining lease

Section 15(7) of the Act prohibits the deduction of an assessed loss under a special mining lease
against expenditure from other trades or vice versa.

5.5.41 Assessed loss- employment income

Section 15(8) of the Act prohibits the deduction of an assessed loss from trade against income
received or accruing to a taxpayer from employment or vice versa.

5.6 Prohibited deductions (Section 16 of the ITA)

5.6.1 Cost of maintaining a taxpayer and his family

112
Section 16(1) (a) of the Act prohibits the deduction of expenditure incurred in the maintenance
of a taxpayer or his family. This ordinarily includes personal expenses and household expenses
e.g. food, clothing and shelter etc., medical expenses and clothing, other than protective clothing
or compulsory work clothing and those worn by television presenters and related cleaning cost.
Home expenses (e.g. rates, water, rent etc.) and any expenditure for maintaining a taxpayer or
his family are disallowed, unless the home expenses are related to the carrying on of a business
at home.

5.6.2 Travelling expenses (Section 16(1)(b))

Travelling expenses are deductible if they are incurred for purposes of trade or in the production
of income. Even so, their deductibility is sometimes a question of fact and the onus is on the
taxpayer to prove deductibility. The deductibility of such expenses therefore requires the
necessity for a taxpayer to keep contemporaneous records of travelling.

Travelling cost from getting home to place of work or to place where a taxpayer carries on a
trade (or vice versa) is disallowed including the cost of travelling between two places of work /
trade whose businesses are distinct in nature. A home can be a place of business if it is
specifically equipped for the purposes of the taxpayer‘s trade or regularly and exclusively used
for such purposes. However, the cost of travelling between business activities which are similar
in nature is deductible. Deductible too are travelling expenses for business trips. In ITC 1524
(1990) 54 SATC 201(C), it was held that the expenditure incurred on travelling partly for
business and partly for private purposes and which formed one lump-sum of expenditure, e.g.
air-ticket , cannot be apportioned on the basis that some of the expenditure is incurred partly for
private purposes.

5.6.3 Indemnity insurance

Where the taxpayer has suffered loss or expense which is recoverable under any insurance contract,
guarantee, security or indemnity he is denied from claiming such loss in terms of s16(1)(c) of the
Act.

5.6.4 Tax and interest thereon

Tax on profits or income of taxpayer whether payable in Zimbabwe or outside Zimbabwe is

disallowable in terms of s16 (1) (d) of the Act. Also disallowed in terms of s16 (1) (d) is interest
chargeable on late payment of any tax. A few exceptions, however exist on the cost of
complying with an obligation imposed by ZIMRA in relation to the tax affairs e.g. cost for
preparing tax returns, tax health checks etc. Also deductible is PAYE, withholding taxes and
irrecoverable VAT if expenditure is of a revenue nature.

5.6.5 Intermediated Money Transfer (IMTT)

The Finance Act, 2019 has amended the Income Tax Act by adding after section 16(1)(d) a new
provision namely, s16(1)(d1) whose effect is to disallow IMTT for income tax purposes.
However, the provision of the deductibility of IMTT is silent on the commencement date. In
terms of section 132 of the Constitution ―an Act of parliament comes into operation at the
beginning of the day on which it is published in the Gazette, or at the beginning of any other day
that may be specified in the Act or some other enactment.‖ Given the silence of the provision on
the disallowance of the IMTT as a deduction on the commencement of the provision, it appears
that the provision will commence beginning the 20th of February 2019 which is when the
Finance Act 1 of 2019 was gazetted.
113
5.6.6 Transfers and appropriations

Section 16 (1)(e) of the Act prohibits deduction of all forms of profit appropriation i.e. dividend,
general reserve or any income carried to any reserve fund, appropriated or capitalized in any
way. This includes impairment reserve, revaluations and other similar amounts. Also disallowed
are all forms of provisions including but not limited to provisions for leave, bonuses and
directors fees and audit fees.

Further expenditure which has not been finalized at year end i.e. a contingent liability cannot be
allowed on the basis that it has not been actually incurred.

5.6.7 Expenditure on exempt or non-Zimbabwean source income

In terms of s16 (1) (f) of the Act, no deduction is allowable on expenditure incurred in the
production of exempt income, income not from a source within Zimbabwe or private income.
The expenditure is apportioned if it is incurred for dual purposes i.e. partly in the production of
income and partly for some other purposes.

5.6.8 Contributions to unapproved funds

Contributions made to an unapproved pension fund, benefit or medical aid fund are disallowed
(s 16(1) (g) of the Act). Benefit and medical aid funds are approved by the Commissioner in
terms of s13 of the Act.

5.6.9 Notional interest

In terms of section 16(1)(h) of the Act, no deduction is allowable on the cost of any notional
interest forgone as a result of investing capital in a trade i.e. opportunity cost interest. This
includes interest earned on capital employed in business e.g. interest on preference shares.

5.6.10 Vacant or unproductive property

Domestic or private expenses, including rent, repairs or expenses incurred on a vacant, domestic,
private, unproductive property or property not occupied for the purposes of trade are disallowed
(s16(1)(i) of the Act). Repairs resulting from the letting of property or the occupation by the
tenant are however deductible.

5.6.11 Restraint of trade

Expenditure in restraint of trade is disallowed in terms of s16 (1) (j) of the Act as being of a
capital nature. Restraint of trade includes an exclusive agency agreement which restraints
another person from selling goods other than those supplied by the taxpayer or an agreement
entered for purposes of eliminating competition.

5.6.12 Leasing of a passenger motor vehicle

According to s16 (1) (k) of the Act, no deduction shall be made of cost of hiring or leasing a
passenger motor vehicle which is in excess of $100,000. The limit is determined on a cumulative
basis i.e. over the life of leasing the same vehicle. The limit is applied only to the leasing or
114
hiring costs; motor running expenses are deductible in full unless the vehicle is used by a
shareholder or someone in the position of a proprietor (e.g. managing director, owner, partner
etc.) for private purposes.

In terms of subparagraph (2) of the 14th Schedule of the Act, a passenger motor vehicle is a
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. The term ―mainly‖
refers to the extent of a least 50%. Examples of passenger motor vehicles are station wagons,
estate cars, vans, 4x4 double cabs. In ITC 1596 (1995) 57 SATC 341, it was held that an
objective test had to be applied as to whether the vehicle is constructed mainly, i.e. more than
50%, for the carriage of passengers. Purpose for which vehicle acquired or for what purpose it
would be used is irrelevant. The fact that the vehicle is classified as light delivery vehicle for
registration purposes was also considered to be irrelevant. The court was of the view that the
vehicle in question was constructed mainly for the carriage of passengers as the purchaser had
prepared to forgo a certain amount of loading space for the convenience of more passenger
space. Therefore the use of a vehicle by an employee or a director does not mean that the vehicle
automatically becomes a passenger motor vehicle. On the same considerations, the manner of
use of an estate car or 4x4 double cab, for instance, as a delivery vehicle does not disqualify it as
a passenger motor vehicle.

The definition of a passenger motor specially excludes vehicles:

 Used for conveying passengers for gain (taxis, commuter buses, etc.)
 used by hotel operators to convey their guests (hotel courtesy cars)
 carrying 15 or more passengers excluding the driver
 purchased by a taxpayer for leasing under a finance lease or an agreement where the lessee
is given the option to buy the vehicle
 which are caravans and ambulances

EXAMPLE

On 1 December 2020, XYZ Ltd commenced hiring a PMV from a local motor hirer company. It
is required to pay monthly rental of $30,000. Show its deductible lease expenses in 2021.

ANSWER

Maximum required by law 100,000

Less Paid the previous year (30,000)
Deductible amount 70,000

5.6.13 Cost of shares

Where a company awards its own shares to its employees (including directors) the deduction is
not permissible for income tax purposes in terms of s 16(1) (l) of the Act. Shares that are given as
remuneration or as a bonus to an employee or a director are however deductible. See also above
deduction in terms of s 15 (2) (jj) of the Act

5.6.14 Entertainment expense (section 16(1)(m))

Entertainment is construed to mean hospitality or amusement of any form. Broadly, it covers the
entertainment of customers, prospective customers, employees or any person. In Rev v Hathorn
& Others 1948 (4) SA 162, 15 SATC 456 at 461 it was said that ‗entertainment is capable of

115
comprehending a banquet, a meal, or indeed refreshments of any kind and hospitable provisions
generally‘

Entertainment expenditure is disallowed in the computation of tax liability in terms of s16 (1)
(m) of the Act. This is regardless of the fact that the taxpayer has incurred expenditure directly
or indirectly through provision of any allowance to any employee or director for purposes
entertaining anyone on behalf of the taxpayer. For example expenditure incurred by companies
on DSTV subscriptions for staff, gym fees; holiday cottages are considered forms of
entertainment expenditure. However, the fact that the expenditure may appear to be hospitality
in nature does not necessarily mean that it is automatically disallowed. The expenditure still
needs to be tested against the general deduction formula in section 15(2) (a) of the Act and if it
is found to be incurred for purposes of trade or in the production of the taxpayer‘s income, it will
not be disallowed. For instance, the court case ITC 1394 (1984) 47SATC 119 (Z) considered
whether lunch provided to bank tellers that were required to work during lunchtime because of
nature of their work was allowable under incurred in the production of income. The court held
that the expenditure in question was tax deductible. It was held as follows: ―while the provision
of a meal may well constitute ―entertainment‖ as envisaged in s16(1)(m) of the Act, the element
of entertainment o hospitality is absent where employees are required to continue with their
duties during the meal; and that s16(1)(m) thus had no application‖.

Before the introduction of the RAA, the provision of office teas, staff Christmas and canteen
meals to employees were all deductible in terms of the departmental handbook. The current
practice of the Commissioner is treat these items as entertainment expenditure.

5.6.15 Expenditure on dividend from a foreign source

Expenditure incurred by a resident in respect of a dividend from a foreign source e.g. on

brokerage fees, bank charges, postage expenses, interest payable on money borrowed to
purchase the shares, etc. is disallowed under s16 (1)(n) of the Act.

5.6.16 Expenditure incurred in the production of interest paid by a financial institutions

Section 16 (1) (o) of the Act disallow expenditure incurred in the production of interest payable
by a financial institution. In other words, where a taxpayer borrows money for on-lending to a
bank, discount house or finance house or building societies, any interest incurred by him on the
borrowed funds is not deductible. The reason being that no deduction is permissible of income
exempt from tax. Interest payable by financial institution is exempt from tax but subject to final
withholding tax at source.

5.6.17 Interest on excessive debit capital (the Thin Capitalisation Rule)

Where a company is financed primarily by debt it is deemed to be thinly capitalized. It is the use
of high proportions of loan to equity capital in order to gain tax advantages. Section 16 (1) (q)
discourage thin capitalisation by limiting interest deductible for income tax purposes. It disallow
―(q) any expenditure incurred by a local branch or subsidiary of a foreign company, or by a local
company or subsidiary of a local company, in servicing any debt or debts contracted in
connection with the production of income to the extent that such debt or debts cause the person
to exceed a debt to equity ratio of three to one (for the purpose of this paragraph, ―equity‖ means
issued and paid-up capital, unappropriated profits, reserves, realised reserves and interest-free
loans from shareholders):
Provided that this paragraph shall not apply if the debt or debts in question—

116
(i) are contracted by a local company or subsidiary of a local company with a locally domiciled,
registered or incorporated financial institution or other person ordinarily resident in Zimbabwe;
and
(ii) the contracting parties are not associated with each other within the meaning contemplated in
section 2A, and have not colluded for the purpose of avoiding tax by the application of this
proviso;‖

This means that interest or other related expenditure incurred on a debt contracted in connection
with production of income which is in excess of 3:1 debt to equity ratio is disallowed. However,
where the debts are contracted by a local company or subsidiary of a local company with a
locally registered financial institution or other person ordinarily resident in Zimbabwe, they shall
be income tax deductible as long as the contracting parties are not associated with each other in
the manner specified in section 2A of the Income Tax Act [Chapter 23:06] and have not made
relations or collided for the purpose of tax avoidance. The disallowed expenditure (excessive
interest and other consideration) is computed as follows:

A x (B-C)
________
B

A = is the total interest or expenditure incurred during such year on debt

B = is the total financial assistance (debt)
C = is the equity capital multiplied by 3

The following is the step by step procedure:

1. Aggregate equity is the aggregate of share capital, share premium, revenue or capital profits
and any other owner‘s permanent capital (including shareholders loans)
2. The result is to be multiplied by three (―result 3‖); and,
3. Then, result 2 shall be subtracted from the balance of all debts
4. Then, multiply excessive debt by total interest or expenditure incurred, and then divide by
total debt
5. Result will be the excessive expenditure or interest.

Associates are defined in section 2A as persons excluding an employee and his/her employer
who act according to each other‘s instructions, directions, requests, suggestions or wishes no
matter the persons are in a business relationship or not. It covers a person and his/her near
relative or a person and his/her partnership unless the Commissioner is satisfied that neither
person acts in accordance with the directions, requests, suggestions or wishes of the other.
Companies that are under the same control are deemed associates and, so are shareholders and
the companies to which they are members.

The term ―expenditure‖ is wide and looks at all costs associated with the debt, i.e. interest,
foreign exchange loss on a foreign currency denominated loan, loan raising fees, administration
fee etc. If the ratio of 3:1 is exceeded, any interest or related expenditure incurred on the excess
debt is disallowed. This applies to debt incurred in the production of income of a local branch or
subsidiary of a foreign company, a local company (whether local or foreign borrowings) and a
subsidiary of a local company. It appears from section 16(1) (q) of the Act that the restriction
does not apply to a partnership, local or like authority, deceased or insolvent estate and a private
trust.

The excess debt is then reclassified as equity and the interest or other related expenditure on the
reclassified debt is treated as dividend distribution by the company to its shareholders. These
117
dividends are however subject to 15% Non-Resident Shareholder‘s Tax when such interest is
paid to a non-resident.

Equity means ―issued and paid-up capital, unappropriated profits, reserves, realised reserves
and interest-free loans from shareholders. It however has not defined debt. It is submitted that
the ordinary meaning of debt is always implied, and financial indebtedness would ordinarily
include any indebtedness in relation to money borrowed (including any overdraft); any
debenture, bond, note or loan stock; any finance lease, hire purchase, credit sale or conditional
purchase agreement to the extent that it is treated as debt on the balance sheet or the capital
element of any amount raised under any other transaction having, as a primary and not as an
incidental effect, the commercial effect of borrowing. Trade creditors are often excluded, unless
their term is of sufficient length to be interest-bearing and also excluded is non-interest bearing
debt because it has not participated in contributing to thin capitalisation.

This law prior to 1 January 2018 (i.e. old s16 (1) (q)), placed limit on non-related parties debt
and locally contracted debt in addition to the related party debts. Thus it disallowed ―any
expenditure incurred by a local branch or subsidiary of a foreign company, or by a local
company or subsidiary of a local company, in servicing any debt or debts contracted in
connection with the production of income to the extent that such debt or debts cause the person
to exceed a debt to equity ratio of 3 to 1”

The Finance Act 2 of 2019 revised thin capitalisation rules to exclude from limitation of
deduction of interest and other related expenditure on debt to equity ratio exceeding 3:1 if the
ratio is exceeded by reason of a debt contracted through a Government credit facility by a public
entity as defined in the Public Entities Corporate Governance Act. This is with effect 1st of
August 2019.

5.6.18 General administration or management charge

Deduction of general administration or management expenditure paid by a local holding

company, branch or subsidiary of a foreign company or local company is restricted by section
16(1) (r) of the Act. Such expenditure should have been incurred for a subsidiary or the holding
company of the taxpayer. It does not cover similar expenditure made to a fellow subsidiary,
branches or associate companies. The limit imposed by the Act depends on whether such
expenditure is incurred prior to commencement of production of the paying company or
afterwards in accordance with the formula:

(a) 0.75% x [A-(B +C)], when incurred prior to commencement of production of the paying
company

A is the total expenditure qualifying for deduction in terms of s15 of the Income Tax Act.

B is the expenditure on general administration and management paid outside Zimbabwe by

the taxpayer

C is the mining capital allowances (applicable only to a taxpayer who is a miner)

(b) 1% x [A-(B+C]when incurred prior to commencement of production of the paying company

In practice the factor ―A‖ is computed as follows:

Step 1: Take the total expenditure as per the income statement (cost of sales plus operating
expenses)
118
Step 2: Deduct from the total expenditure in step 1, expenditure included therein which are not
deductible for tax purpose (e.g. depreciation, donations, fines etc.)

Step 3: To the result of step 2 add expenditure which is deductible for tax purposes, but which
was never included in the total expenditure as per income statement (e.g. capital
allowances, scrapping allowance etc.)

Where the payee is not a mining company C is excluded from the equation. Further, B is also out
of the equation if the fees are paid within Zimbabwe.

EXAMPLE
Calculate the deductible management fee for PH Mines. It is charged 2.5% of its turnover as
management fee by its South African head office. Below is an extract of its financial statements:

Turnover 2,450,000
Capital allowances 45,000
Total expenditure in accounts 900,000

ANSWER

1% x [$900,000-($61,250+$45,000) = $7,938

B=25% x 2,450,000 =61,250

The excess expenditure which is disallowed is treated as a dividend for purpose of withholding
tax.

Where the expenditure is also for specific or proven task this may not be viewed as expenditure
which should be limited as stated above. In the event that a taxpayer has a service level
agreement in place which itemise the services to provided and invoiced for when performed, the
expenditure could be viewed as a specific expenditure fully deductible. And where for instance
the general administration or management fee is expressed as a percentage of turnover or other
performance indicator e.g. cost of sales, the Commissioner will always invoke the provisions of
section 16(1)( r) of the Act. It is thus a prudent practice for taxpayers to have in place service
level agreements to avoid disagreements with the Commissioner. In practice it appears a cost
recovery would not be taken in the realm of management or general administration expenditure.

With effect from the 1st of January, 2017 section 16 (1) (r) of the Income Tax Act (Chapter
23:06) has been amended to read in the case of expenditure incurred on fees, administration and
management in favour of a company of which the taxpayer is an associated enterprise, or (where
the company is a foreign company) the local branch. The effect of this amendment is to limit
deduction of amounts payable between associated enterprises. Fees encompasses amounts
payable in respect of services of consultative, technical, managerial and administrative in nature.
Hence broadening the current scope of expenditure subject to limitation of deduction from
administration or management expenditure to include technical and consultative expenditure.
Meanwhile, the change has also the effect of limiting deduction of fees, administration and
management payable to related party by insertion of the term ―associated enterprise‖. Associated
enterprises includes company, its holding company, its subsidiary, its fellow subsidiary and a
company or person which is controlled by the person, either alone or together with 1 or more
associates, are all associated persons. The effect of the amendment therefore is to also limit
deduction of the said expenditure where this is incurred between fellow subsidiaries etc.

119
5.6.19 Interest cap on foreign loans

Section 16 (1) (s) prohibits deduction of any interest expenditure incurred on foreign loans in
excess of the interest that would have been payable had the exchange rate used to purchase the
foreign currency needed to service the interest on the loan been the same exchange rate as that
ordinarily offered to other clients of the financial institution providing or mediating the loan on
the date of the transaction in question. In other words, interest on foreign loans which is in
excess of that expressed in Zimbabwe dollar using the interbank rate is disallowed. This is effect
from 1 January 2020.

5.6.20 Cost not directly related to a taxpayer‟s trade

In terms of s16 (2) of the Act where the Commissioner is of the view that pension and benefit
contributions (s15 (2) (h)) and ex-gratia allowance, pension or annuities (s15 (2) (q)) is not
directly related to the trade carried on by the taxpayer in Zimbabwe, he can disallow the
expenditure.

5.7 Hire purchase or suspensive sale

5.7.1 General overview

Section 17 provides for the taxation of income accruing under a hire purchase or other agreement
providing for the postponement of passing ownership in property. It provides that regardless of the
fact that ownership in movable property or transfer of immovable property cannot pass until the
whole or a certain portion of the price has been paid, the full gross income accruing under the
agreement is deemed to have accrued on date the agreement was signed. The section recognises
principles laid down in the case of Lategan v CIR 1926 CPD 202. However, to relieve the
taxpayer of the tax burden of having to fund tax payment arising of the transaction before he is
paid by the debtor, an allowance is granted to the taxpayer.

5.7.2 Allowance on sale of movable property

In terms of s17 (a) of the Act, the allowance is at the discretion of the Commissioner. When
determining the allowance, the Commissioner shall take into consideration any allowance for
bad debts (refer s15 (2) (g) of the Act). The formulae used to compute it is as follows:

Gross profit
________ x outstanding debtors
Sales

The allowance granted in one year is brought back into gross income in the subsequent year of
assessment when a fresh allowance is being computed. In the event that the taxpayer cedes or
otherwise dispose of for valuable consideration his rights under the agreement, the allowance
shall be forfeited. This means that no allowance will be granted in the tax year in which the
cession is effected or the disposal took place.

EXAMPLE

120
A motor dealer sold a truck under hire purchases for $22,000, which he bought for $17,600. In
the sale agreement, the buyer pays a deposit of $5,000 and the balance over 24 monthly equal
instalments, starting from 30 June 2016. Show the motor dealer‘s allowance and the taxable
income.

ANSWER

Income Statement

Cost of goods for re-sale 17,600 sales 22,000

Net profit 4,400 ………
22,000 22,000
Balance b/f 4,400
Less Allowances 2,408
Taxable income 1,992
…….
4,400 4,400

Allowance

1st step Gross profit % = ($22,000 - $17,600) / $22,000 = 20%

2nd step monthly installment = ($22000 -$5000) /24 = $708

3rd step Debtors = ($22000 - $5000-($708 x 7 months) = $12,042

4th step Allowance = 20% x $12,042 = $2,408

5.7.3 Allowance on sale of immovable property

Property dealers or developers trading in land or buildings can claim the hire purchase allowance
in terms of s17 (ii) of the Act. The allowance is computed by applying the following formula:

D x ((E- (F +G))
………………………
E

D is the outstanding debtors under the sale agreement

E is the selling price if the immovable property
F is the cost of acquiring the immovable property
G is the development cost incurred on immovable property

To the taxpayer the immovable property (land or building) should constitute floating capital i.e.
trading stock in his hands acquired for resale at a profit. Where the immovable property is an
investment this will instead be subject to capital gains tax. Where the taxpayer has incurred
expenditure on development of the property e.g. on roads, water, sewerage, light, tree planting,
laying out of parks, etc., and on administration prior the land being ready for sale, such cost is
capitalised and added to the cost of the land or building. Any development expenditure which is
incurred after the taxpayer has commenced selling property is fully deductible in the year of
assessment the expenditure is incurred. The allowance so deducted becomes taxable income of the
taxpayer in the following tax year and shall be replaced by a fresh allowance computed for that
year.
121
In the event that the property is ceded or otherwise disposed of for valuable consideration by the
taxpayer, then no such allowance shall be made by the Commissioner in the year of assessment
in which such cession or disposal took place. A cession is effected by an agreement. When a
buyer defaults on payments under a hire purchase contract, the item is repossessed and payments
made are forfeited. Repossession does not change the computation of the allowance. The
outstanding balance on the repossessed goods should be deducted from the balance not yet due
and payable.

EXAMPLE

A property developer sold a residential stand on hire purchase for $140,000. The buyer paid a
deposit of $20,000 and the balance over 24 equal monthly instalments, starting from 30 April
2020. The property is ready for sale is deducted in full in the period they are incurred.

1st step monthly instalment = ($140,000 -$20,000) /24 = $5,000

2nd step debtors (D) = $140,000 -$20,000 – ($5,000 x 9 months) =$75,000

3rd step Allowances = $75,000 x (($140,000-($45,000 +$12,000)) =$44,460

$140,000

EXAMPLE 2

A property developer acquired a farm for $700,000 and subdivided it into 10 equal sized
residential stands. The stands were ready for sale on 1 March 2020 for $150,000 each. It
incurred pre-sale development costs amounting to $150,000. Buyers paid at 25% deposit on
signing of the contract and the balance equally over 3 years commencing the year following that
of the sale. It sold 6 stands in 2020 and 4 stands in 2021. A buyer who bought a stand in 2020
failed to pay the 2021 instalment. It was repossessed and payments were forfeited and resold on
the same terms in 2022.

YEAR 2020 2021 2022 2023 2024

Sales 900,000 600,000 150,000
Less cost of units sold (F) 510,000 340,000 nil nil nil
Gross return 390,000 260,000 150,000 nil nil
Add allowance b/f 292,500 357,500 260,000 97,500
Less allowance c/d 292,500 357,500 260,000 97,500 16,250
Taxable income 97,500 195,000 247,500 162,500 81,250

Debtors
Balance b/f 675,000 825,000 600,000 225,000
Add Sales 900,000 600,000 150,000
Less Deposit 225,000 150,000 37,500
Less Installments (5) 187,500 187,500 187,500
Less Installments (4) 150,000 150,000 150,000
Repossessed (1) 112,500 37,500
37,500
Closing debtors 75,000 825,000 600,000 225,000 37,500

NB: Cost per unit sold is = $700,000/10 + $150,000/10 = $85,000

Thus, D x ((E – (F+G)/E) 1st year allowance is $675,000 x (($900,000 – ($420,000)/$900,000.

122
5.7.4 Allowance on credit sales

Section 18 of the Act provides where a taxpayer sales his goods on credit the full sale price is
deemed to have accrued to the taxpayer on the date on which the agreement was signed. The
taxpayer will then be entitled to an allowance in respect of outstanding debtors. The allowance is
computed after taking into consideration any allowance for bad debts (refer s15 (2) (g) of the
Act). In practice, this allowance is equal to the percentage of the person gross profit to debtors
(gross profit/ sales x outstanding debtors). The allowance granted in one year is brought back
into gross income the subsequent year of assessment when a fresh allowance is being computed.
In the event that the taxpayer cedes or otherwise dispose of the property for a valuable
consideration, the allowance shall cease to be granted.

Conclusion

Section 15 of the Act is very important when one is inquiring into the deductions that are
allowed in arriving at taxable income. The general deduction formula is contained in s15 (2) (a)
of the Act with other deductions of a specific nature dealt with individually under other
subsections of s15.

123
Chapter 6: Capital Allowances

6.1 Introduction

Capital allowances are granted to persons earning trading and investment income, no matter
such income is earned by a sole trader, a self-employed, a partnership or a company. Miners are
however not entitled to capital allowances instead they are granted capital redemption
allowances.

6.2 General overview

Section 15(2) (c) read with the 4th Schedule to the Act makes provision for deduction of capital
expenditure incurred by the taxpayer‘s for purposes of trade or in the production of income
through ‗capital allowances‘. They are granted only on assets used in trade or in production of
income and held by the taxpayer on the last day of the tax year. If an asset is constructed or
acquired in one tax year but only put into use in a later tax year, capital allowances shall only be
given in the year in which it is put into use.

6.3 Capital „expenditure‟

Capital expenditure includes the cost of acquiring or construction of the asset itself, insurance
and freight, initial set up, installation, calibration, programming, stamp duty, custom duty, travel
cost to purchase the asset, insurance and other ancillary costs related to the acquisition and
installation of the asset.

6.4 Assets ranking for capital allowances

The list of assets that qualify for capital allowances include commercial buildings, industrial
buildings, staff houses, farm improvements, computer software, implements, machinery or
utensils, railway lines, pipe lines, tobacco barns etc. Expenditure on land or interest in land,
unproductive assets or assets producing exempt income, dwellings is disqualified.

6.4.1 Commercial building

A commercial building is a building constructed on or after 1 April 1975 and is used to the
extent of at least 90% of its floor area for purposes of trade. Generally, all buildings used for
commercial purposes are commercial buildings, e.g. retail shops, supermarkets; hotels registered
in terms of Tourism Act, leased blocks of flats, office buildings, showrooms, warehouses for
storing other people‘s goods.

Exclusions:

 farm improvements, industrial buildings, tobacco barns, staff houses,

 flats or apartments used by partners or shareholders for residential purposes,
 additions, improvements or alterations on a commercial building constructed before 1 April
1975,

124
 a building which is used to the extent of at least 10% of its floor area for residential
purposes, unless it is used as a block of flats, apartments or as licensed hotel.

Whether constructed or purchased, a commercial building will never be granted SIA. It is only
granted wear & tear at 2.5% on cost ("straight line" basis).

6.4.2 Industrial Building

An industrial building is a building used ―mainly as a factory or for industrial purposes, to the
extent of least 50% of its floor area. An industrial building includes:

 Any building containing a machinery and is used mainly for the purposes of operating
machinery worked by steam, electricity, water or other mechanical power
 Any building which is on the same premises with such building and which suffers
depreciation by reason of the operation of machinery installed in such other building.
 Any building which, in the opinion of the CG, suffers depreciation by reason of the use of
chemicals, corrosives, furnaces of any description or any other agent directly utilized in the
particular trade or industry of which the building forms an integral part.
 A hotel with a permanent liquor license or a casino license, including ancillary structures
such as swimming pools, changing rooms, permanent tennis courts, golf courses, bowling
greens, etc. used together with the hotel building.
 A building owned by a manufacturer and used by him for storing his goods i.e raw material,
processed goods or work in progress or finished goods.
 Canteens, garages and drawing offices used mainly in connection with a manufacturing
industry.
 Toll-roads or toll-bridges as declared in terms of the Toll-roads Act
 Fencing or tarmac, concrete of similar sealing surrounding an industrial building.

Fencing includes walls of bricks or concrete etc., while sealing would embrace car parks,
courtyards and driveways. Any other fencing, e.g. fencing or a permanent sealing surrounding a
commercial building, staff housing, tobacco barn etc. does not rank for capital allowances.

A constructed industrial building is granted SIA upon election. It is granted wear & tear at 5%
on cost ("straight line" basis), where SIA has not been granted or if the building was acquired.
Full SIA or wear & tear is granted even if the building is used less than 12 months.

6.4.3 Staff housing

A staff house is a permanent building used by an employer for purposes of his trade wholly or
mainly for the housing of his employees. It excludes a residential unit constructed or acquired on
or after 1 January 2009 whose cost exceeds $250,000. A residential unit is an apartment, flat, a
detached, semi-detached or terraced house or a similar unit. If any unit amongst the attached
units exceed $250,000 the whole block is disqualified. The $250,000 limit is for purposes of
defining what constitute staff housing. The law appears silent on the cost to be used for purposes
of computing capital allowances, which used to be the case in the past. It therefore implies that
the $250,000 can also be used as the maximum cost in the computation of capital allowances on
staff housing.

EXAMPLE

125
AMT Limited constructed two blocks of staff houses. Block M has two units A and B whose
cost are $200,000 and $250,000 respectively. Block S comprise of Unit C and D, with a cost of
$150,000 and $300,000 respectively. You are required to state, with reasons which units are
disqualified.

ANSWER

Although the average cost per unit in each block is below $250,000, Block S is qualified (none
of its units qualify) because one of the units‘ cost exceeds $250,000.

6.4.4 Passenger motor vehicle

A passenger motor vehicle (PMV) is a 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. A PMV embraces station wagons, estate cars, vans, 4x4 double cabs.

Exclusions:

 vehicles used for conveying passengers for gain (taxis, commuter buses, etc.),
 vehicles used by hotel operators to convey their guests (hotel courtesy cars),
 vehicles carrying 15 or more passengers excluding the driver,
 vehicles purchased by a taxpayer for leasing under a finance lease,
 Caravans and ambulances.

Capital allowances on a PMV are computed based on a maximum cost of $100,000. A vehicle
which is not a PMV qualifies for capital allowances based on its full cost. All motor vehicles
(PMVs or not), qualify for SIA, upon election if used at least 90% for purposes of trade. Where
SIA has not been granted, they are granted wear & tear at 20% based on reducing balance ("on
ITV).

EXAMPLE

Wanda Hotel purchased the following vehicles during the year ended 31 December 2020.

Isuzu Double cab for MD 320,000

Nissan Navarra double cab (for procurement) 650,000
Toyota Noah (for collecting guests from airport) 120,000
Staff bus 800,000
Nissan Pickup 2.7 allocated to the marketing manager 300,000

State, with reasons, which of the above vehicles are PMVs and which ones are not.

ANSWER

Vehicle Type Reason

Isuzu a PMV Carrying less than 15 passengers
Navara a PMV Carrying less than 15 passengers
Toyota Noah Not a PMV used in the business for gain
Staff buses Not a PMV Carrying 15 or more passengers
Nissan 2.7 Not a PMV Carrying 15 or more passengers

126
6.4.5 Farm improvements

A farm improvement means any building, works or structure of a permanent nature, e.g. sheds,
roads, canals, dip tanks, bridges, water furrows, etc. used in farming operations. It includes any
building whose construction commenced on or after 1 April 1988 and is used as a school or as a
medical establishment (a hospital, a nursing home or a clinic) in connection with the farming
operations. More than 50% of farm school pupils must be children of farmer workers. More than
50% of the patients must be farm workers and their families.

A farm improvement includes any building used wholly or mainly for the housing of staff
employed at the school or at a medical establishment (staff houses for teachers and nurses. The
housing for all other farm employees (who are not teachers or nurses) are staff housing as
defined above.

All buildings, works or structure of a permanent nature used in connection with farming
operations are farming improvements. Recreational amenities such as beer halls, cinema,
swimming pools, social clubs, etc. often found on the farms are however not farming
improvements. A farmer‘s dwelling or homestead used or occupied by a taxpayer and his family
is specifically disqualified as a farm improvement.

The following are the limits (deemed costs) for purposes of capital allowances:

Item ZWL$
Any residential unit used by staff employed at the school , hospital, nursing 100,000
home or clinic (teachers and nurses houses )
Any residential unit which is used for housing the taxpayer‘s employees 250,000
and their families.
Any one such school , hospital, nursing home or clinic 100,000

For employees staff houses the whole amount is ignored if the cost per unit exceeds $250,000.

A constructed farm improvement qualifies for S.I.A, where a taxpayer has made an election for
it. Where an election for SIA has not been made or the farm improvement acquired, wear & tear
granted on the item at the rate of 5% on cost per annum.

EXAMPLE

Mr Gara bought a farm for $2,600,000. The price included the cost of land $900,000, a
greenhouse $800,000, farm house $300,000 and $600,000 for 2 units of staff housing. He added
a school and houses for 3 teachers, costing $500,000 and $900,000 ($300,000 per unit),
respectively.

Show the cost which will rank for capital allowances. State the reasons for your decision.

ANSWER

Asset Ranking cost Reason

Land - Non ranking asset

Green house 800,000 Ranking asset at full cost

Farm house - Non ranking asset
Staff housing - Disqualified, cost exceed $250,000/ unit
127
School 100,000 Ranking asset cost limited to $100,000

Teachers' houses 300,000 Ranking assets cost limited to $100,000/unit

Total 1200,000

6.4.6 Articles, implements, machinery and utensils

Capital allowances are granted on articles, implements, machinery and utensils belonging to and
used by the taxpayer for the purposes of his trade. An article includes a movable asset with an
independent identity, despite it being an integral part of a building. It can be mounted or
demounted.

If an article lacks an independent identity from a building to which it is attached or forms part
of, e.g. a storage platform or mezzanine floor, it ceases to qualify as an article. Carports erected
by taxpayers in the hotel industry (with an intention to later dismantle) qualified as articles
because they had an independent identity. Where an item becomes so integrated into a building
or structure of a permanent that it loses its own separate identity, it can no longer be regarded as
an article. For example, windows, doors etc. However, demountable partitions which can be
removed and be moved to suit tenant‘s requirements can qualify for capital allowances as
independent units, e.g. office separates, mezzanine floors etc.

A taxpayer is also allowed to claim capital allowance on expenditure on additions or alterations

to articles implements, machinery or utensils not owned by him, but are used by him for the
purposes of trade. However, the granting of some other allowances e.g. repair deduction
precludes the taxpayer from claiming capital allowances on those assets.

The definition of articles, implements, machinery and utensils was widened recently to include:
―Tangible and intangible property in the form of computer software that is acquired, developed
or used by the taxpayer for purposes of his/her trade, otherwise than as trading stock. Computer
software means an set of machine-readable instructions that directs a machine‘s processor to
perform specific operations‖

This means that expenditure on acquiring or developing computer software ranks for SIA
deductible over 4 years equally (25% p.a.), with effect from 1 January 2015 or wear & tear, at
an ordinary rate of 10% computed on the balance of the expenditure where SIA has not been
granted.

6.4.7 Railway lines

A railway line refers to the rails, sleepers and equipment pertaining to a railway track but does
not include ballast, embankments, bridges, culverts and other railway constructions. A railway
line that has been constructed by the taxpayer qualifies for SIA where a taxpayer has made an
election for it, otherwise it qualifies for wear & tear rate at 5% on cost per annum.

6.5 Special initial allowance

Special initial allowance (SIA) is granted in terms of para 2 of the 4th Schedule of the Act. This
is an elective allowance granted at the rate of 25% of the capital cost in the first year in which
the asset is brought into use. Thus, in the first year the taxpayer is entitled to SIA of 25% of the
128
cost incurred by him/her on construction of immovable property (excluding commercial
buildings) and on acquired movable property, where an election has been made. Once SIA has
been granted, the taxpayer will automatically qualify for an accelerated wear and tear, which is
25% of the cost incurred, equally over 3 years. A taxpayer should make an election to qualify for
SIA and this has got to be on capital expenditure incurred by him. It appears that items acquired
free of charge (donations, samples or inheritance or otherwise) by the taxpayer do not qualify for
SIA. For the avoidance of doubt, SIA is granted upon election on capital expenditure incurred by
the taxpayer on:

 Cost of immovable asset constructed by the taxpayer, e.g. farm improvements, industrial
buildings, railway lines, staff houses and tobacco barns, excluding commercial
buildings. Thus a taxpayer cannot be granted SIA on acquired or purchased immovable
property.
 Cost of additions or alterations to the above qualifying immovable properties,
 Purchased movable assets i.e. articles, implements, machinery, utensils and motor
vehicles,
 50% of the cost of fiscal electronic register the other 50% qualifies for input tax under
the VAT Act

It does not matter whether or not a movable asset is purchased as brand new, implying that
movable assets bought as second hand or as used would also rank for SIA.

SIA is 25% of the cost of the asset in the first year in which the asset is put into use. If a
taxpayer does not claim SIA in the first year the asset is put into use, he/she forfeits SIA and
must instead rank for wear & tear. Where a taxpayer ranks for SIA in the first, he/she is granted
accelerated wear & tear in the second year until the fourth year of 25% of cost p.a.

SIA cannot be apportioned according to usage or time of operation. It is either allowed in full or
not granted at all. The asset should be used to the extent of at least 90% in a taxpayer‘s trade or in
the production of income for it to qualify for SIA. Even if an asset is used only one day in a year
assessment, a full year‘s SIA is granted. What matters is that the asset should be in use on the
last of the year of assessment and is used at least 90% in a taxpayer‘s trade or in the production
of income

SIA cannot be granted on assets acquired by way of inheritance or donation and on movable
assets purchased by a taxpayer for the purpose of leasing under a finance lease.

EXAMPLE

XYZ Investments completed the construction of its raw material stores on 2 July 2019 at a cost
of $600,000 and first used it on 1 January 2020.

Compute Max Investments‘ maximum allowances over the asset‘s life span.

ANSWER

Cost 600,000
2018 SIA 25% 150,000
ITV 450,000
2019 Accelerated wear & tear 25% 150,000
ITV 300,000
2020 Accelerated wear & tear 25% 150,000
ITV 150,000
129
2021 Accelerated wear & tear 25% 150,000
ITV nil

6.6 Wear & tear

6.6.1 General

Wear & tear is granted in terms of para 3 of the 4th of the Act on cost of immovable asset
purchased or constructed by the taxpayer, additions, alterations or improvements to immovable
properties, and on purchased movable assets i.e. articles, implements, machinery, utensils and
motor vehicles, belonging to and used by a taxpayer in trade. The allowance is granted where
SIA has not been granted. Wear & tear is computed on the written down value of the asset for
movable assets and on cost for immovable assets. A trader need not to elect for him/her to be
granted wear & tear; he/she qualifies for this allowance automatically. Further, the expenditure
need not necessarily be incurred by the taxpayer to be granted wear & tear. This means that a
taxpayer can claim wear & tear on items that were acquired by him other than by way of
purchase e.g. acquired through inheritance, donation or given to him as samples.

6.6.2 Rates of wear & tear

Rates of wear & tear are calculated in terms of paragraphs 6 and 7 of the 4th Schedule of the Act.
For all ranking immovable assets, other than commercial buildings, wear & tear is calculated at
the rate of 5% on cost (‗straight line basis) and 2.5% on cost (straight line basis) of a commercial
building, computed from the first year of assessment in which the asset is first used. Where an
immovable asset was granted SIA in the first year in which it was brought into use, it shall rank
for accelerated wear & tear at the rate of 25% on cost in the second year (also in 3rd and 4th year).

Wear & tear on movable assets (para 7 of the 4th schedule) e.g. articles, implements, machinery
and utensils used for trade, etc. is computed at a general rate of 10% on the written down value
of the asset (diminishing value), subject to few exceptions e.g. 20% for motor vehicles, 2 shift
plant & machinery 17.5%, 3 shifts plant & machinery 25% etc. Where a movable asset was
granted in SIA in the first year in which it was brought into use, it shall rank for accelerated
wear and tear at the rate of 25% on cost in the second year(also in 3rd and 4th year). Where a
deduction has been allowed under s15 (2)(b) of the Act in respect of such articles, implements,
machinery or utensils, the amount so allowed do not rank for capital allowances.

6.6.3 Wear & tear-apportionment

Wear & tear apportioned on movable assets when the asset is used for dual purposes (business
and private usage) by the taxpayer. The taxpayer in this case refers to the own or proprietor. This
means that the private usage of an employee does not imply apportionment of wear & tear.
Taxpayers must keep log books to justify their business and private use of the movable property
and in the absence of this record, the Commissioner may regard the asset to be wholly used for
private purposes of the taxpayer. Provided that in arriving at ITV, the full wear and tear should
be deducted, but only wear and tear relating to the business usage is claimed when computing
income tax. Whilst wear and tear is apportioned due to dual usage, there is no apportionment by
reason of the asset being used in a business for both revenue and capital purposes, for instance
where a farmer may use a tractor partly on ploughing and on capital projects.

EXAMPLE
130
Mr. X, a self-employed bought a car in 2018 for $180,000 and has been using it 60% in the
business and 40% for private purposes. Show Mr. X‘s wear & tear for 2020.

ANSWER

Wear & tear in 2020

Motor car Business use Wear
& tear
Cost 180,000
Less wear & tear 20% 36,000 60% 21,600
ITV end of 2018 144,000
Less wear & tear 2019 20% 28,800 60% 17,280
ITV end of 2019 115,200
Less wear & tear 2020 20% 23,040 60% 13,820
ITV end of 2020 92,160

―ITV‖ refers to the Income Tax Value

Taxpayers may also be required to apportion wear and tear in the year in which the business
commences and the year in which the business ceases. In the year in which the business
commences, wear and tear is computed for the period of accounts which starts on the date the
business began. A fixed asset acquired before commencement of business is treated as having
been acquired on the first day of commencement of business. The same applies in the year of
assessment in which a business ceases i.e. wear & tear is computed for the period of accounts up
to the date the business ceases.

6.6.4 Notional wear and tear

As provided for in para 6 of the 4th Schedule of the Act, where a taxpayer buys an asset and uses
it for personal purposes he cannot claim capital allowances. If he then decides to use the same
asset in his business, the Commissioner will determine the value of the asset for capital
allowances purposes. He will adjust the original cost by notional wear and tear to obtain the
value on which wear and tear can be claimed on in the year in which the asset is put into the
business. Notional wear & tear is an allowance applicable to the usage of the asset other than for
purposes of trade or in the production of income e.g. personal usage. It is not deductible for tax
purposes. The rate of notional wear & tear is however, similar to the statutory rate for the
applicable class of the asset. Afterwards, the ordinary wear & tear shall be computed on the
asset. S.I.A is not given for assets qualifying on notional cost. Notional wear & tear is also
deducted off an asset which was used in a trade outside Zimbabwe when it is brought into use in
a trade in Zimbabwe. Another instance in which the concept of notional wear & tear would
apply is with regard to assets bought in Zimbabwean dollar which then converted to United
States dollar.

EXAMPLE

Mr. X bought a 3 tonne truck for $60,000 in 2017 which he used it for private purposes until 31
December 2019. With effect from 1 January 2020, the truck is being used in his business. Show
Mr. X‘s wear & tear for 2020.

131
ANSWER

Cost 60,000
2017 notional wear & tear 20% 12,000
48,000
2018 notional wear & tear 20% 9,600
38,400
2019 notional wear & tear 20% 7,680
Cost introduced into business (1/1/2020) 30,720

Wear & tear 2020 ($3,072 x 20%) =$6,140

6.6.5 Assets not belonging to the taxpayer

Paragraph 11 of the 4th schedule of the Act permits a taxpayer to claim capital allowances (SIA
or wear & tear) when he incurs any expenditure which is not allowed as a deduction in terms of
s15 (2) (a) on additions or alterations to articles, implements, machinery or utensils which do not
belong to him but are used by him for the purposes of his trade. Note that the lessee cannot claim
capital allowances on the cost incurred by the lessor whether in acquiring or improving the said
assets. In that regard, it is the lessor who is entitled to claim capital allowances. As ruled in ITC
1513 (1988) 54 SATC 56 (Z), equipment bought for leasing purposes is equipment used wholly
or almost wholly for the purposes of trade and accordingly the lessor is entitled to capital
allowances.

6.7 Scrapping allowance

A scrapping allowance arises when an asset is disposed of for less than its income tax value. It is
computed and deductible in terms of para 4 of the 4th schedule of the Act. It does not necessarily
mean a scrapping allowance from a sale. Even a mere cessation of use of the asset can give rise
to scrapping allowance. The asset should be used up, discarded or no longer used by a taxpayer
for purposes of his trade. This should be preceded by a decision to scrap the asset, that is, the
asset should be worn out and no longer usable. The Commissioner should be satisfied that the
asset has become useless for business purposes or has been discarded with no intention to use it
again. Where an asset was not used exclusively for business purpose then, only scrapping
allowance applicable to the use of the asset in business is deductible. In cases where an asset is
initially used for private purposes and then introduced into the taxpayer's business any scrapping
allowance is calculated with reference to the value introduced and not the original cost.

EXAMPLE

A taxpayer sold an asset for $23,000. The asset was used 30% privately by her. It was originally
purchased for $236,000 and ITV on date of sale was $66,000. What is the deductible scrapping
allowance?

ANSWER

$30,100 i.e. ($23,000 -$66,000) x 70%

An asset does not necessarily have to produce income in order for scrapping allowance to be
deducted. What matters is that it should have been used by the taxpayer for the purpose of trade.
For example, in ITC 1538 (1991) 54 SATC 387 scrapping allowance of a helicopter exclusively
132
damaged in accident a day after delivery, while the taxpayer‘s pilot had commenced training for
conversion certificate, was allowed as a deduction on the basis that the training was directly
related to taxpayer‘s trade and that the helicopter was used for such trade.

Losses on the sale of vehicles and other assets to finance houses in pursuance of a lease-back fund
raising scheme do not qualify for scrapping allowances.

A scrapping allowance does not arise simply because the taxpayer has ceased trading or sold his
business. There should be a decision to scrap an asset followed by cessation otherwise the
allowance is disallowed. Under those circumstances, the allowance can only be at best be set off
against recoupment, if any. If the result is net recoupment, it is taxed while net scrapping
allowance is disallowed.

6.8 Recoupment of capital allowances

6.8.1 General

Recoupment is brought into gross income in terms of s8 (1) (j) of the Act. A recoupment of
capital allowances is the difference between the selling price and the asset‘s income tax value
but restricted to the amounts previously allowed as capital allowances. The selling price should
be capped at the original cost of the asset. For assets that qualified on a deemed cost a deemed
selling price should be used instead of actual selling price (this is explained below). Recoupment
is brought into gross income in the year in which a sale agreement is concluded regardless of the
fact that the proceeds are receivable in instalments running into years of assessment subsequent
to the year of sale.

Where an asset is damaged or destroyed and compensation is then applied in constructing or

purchasing a similar asset within 18 months of the date of damage or destruction of the original
asset and such new asset is brought into use within 3 years of damage or destruction recoupment
applicable to the so expended compensation shall not be taxed.

EXAMPLE

XYZ Limited constructed a manufacturing building in June 2016 for $1,500,000 and the
building has been in use since then. In 2020, it closed its business and sold the asset for
$1,700,000. You are required to show XYZ Limited‘s minimum taxable income.

ANSWER

Selling price (up to original cost) 1,500,000

Less ITV (1, 50, 0000 – 1,500,000 x 100%) 0
Recoupment 1,500,000

Note SIA & accelerated wear & tear claimed is equal to 100% of cost.

6.8.2 Deemed selling price

Assets that qualify for capital allowances based on a restricted cost e.g. PMVs, schools, hospitals
and residential units for teachers or nurses should have their selling price restricted for purposes
of computing recoupment. The restricted selling price referred to as deemed selling price, is
computed as follows:

133
Deemed sale price (DSP) = Deemed cost x Actual sale price
Original cost

Provided that the deemed selling price should not exceed the deemed cost.

EXAMPLE

XYZ limited sold a passenger motor vehicle for $250,000 during the year 2020. The car had
been acquired in 2017 for $30,000. Further, XYZ Limited always maximum allowances. You
are required to show XYZ Limited‘s taxable income.

ANSWER

Selling price (100,000/300,000 x $250,000) 83,330

Less ITV ($100,000 – (25% x 3 years $100,000)) 25,000
Recoupment 58,330

6.8.3 Change of ownership of assets

Paragraph 8(1)(a) of the 4th Schedule to the Act, provides that on change of ownership of
immovable asset (e.g. commercial buildings, farm improvements, industrial buildings, railway
lines, staff housing or tobacco barns), the buyer and the seller must set out the market value of
the underlying assets and provide a statement to the Commissioner in support of this. If the
Commissioner is satisfied with such statement, he shall allow the amount so declared to be the
cost to the transferee and deemed selling price for purposes of computing recoupment in the
hands of the transferor. The Commissioner may determine the value where he is not satisfied
with the statement.

Where immovable assets (e.g. commercial buildings, farm improvements, industrial buildings,
railway lines, staff housing or tobacco barns) are sold for lump sum payment, the buyer and the
seller must set out details of the allocation of the purchase price to the various classes of the
property transferred as required by the Commissioner and provide a statement to the
Commissioner in support of this. If the Commissioner is satisfied with such statement, the
amounts so allocated shall rank as cost to the transferee for purposes of claiming capital
allowances and deemed selling price for purposes of computing recoupment in the hands of the
transferor. The Commissioner may determine the value where he is not satisfied with the
statement so provided (para 8(1) (b) of the 4th Schedule to the Act).

In terms of para 8(1)(c) of the 4th Schedule to the Act, where the ownership was acquired by the
transferee for no valuable consideration, the Commissioner shall determine the cost of the
immovable asset (e.g. commercial buildings, farm improvements, industrial buildings, railway
lines, staff housing or tobacco barns).

Para 8(2) of the 4th Schedule to the Act, provides that on change of ownership of movable assets
(e.g. articles, implements, machinery or utensils), the buyer and the seller must set out the
market value of the underlying assets and provide a statement to the Commissioner in support of
this. If the Commissioner is satisfied with such statement, he shall allow the amount so declared
to be the cost to the transferee and deemed selling price for purposes of computing recoupment
in the hands of the transferor. The Commissioner may determine the value where he is not
satisfied with the statement so submitted.

134
6.9 Schemes of Reconstruction

6.9.1 Foreign company

In terms of para 8(3) to the 4th Schedule of the Act, where the ownership of an asset is
transferred from a company formally incorporated outside Zimbabwe (non-resident company),
which was carrying on its principal business within Zimbabwe to its successor Zimbabwean
incorporated company, the transferor and transferee may elect to transfer such asset at income
tax value (ITV) notwithstanding the terms of the agreement of sale. The ITV will then become
the price to be used by the transferor for purpose of computing recoupment and the amount
which will rank for capital allowances in the hands of the transferee. The effect of this provision
is a complete tax relief on recoupment in the hands of the transferor. It does not matter whether
the transfer is made from a company with or without assessed loss. This is meant to apply to a
branch of non-resident company which is subsequently converted or incorporated to be a
Zimbabwean company. On conversion, no new shareholder should be taken aboard and the old
shareholding should not be varied.

6.9.2 Conversion of a company to private business corporation or vice-versa

A company which is incorporated under the Companies Act [Chapter 24:03] which converted
into a private business corporation or vice versa would also qualify for the recoupment relief
subject to an election being made, whether or not there is assessed loss.

6.9.3 Related companies

A transfer of an asset between related companies (companies under the same control) or between
spouses is treated in the same manner subject to an election being made. The transfer between
companies must be in the course of or in furtherance of a scheme of reconstruction of a group of
companies or a merger or other business operation which, in the opinion of the Commissioner, is
of a similar nature. The election thus allows the transferor to minimise recoupment through the
use of ITV as the transfer value notwithstanding the terms of any agreement of sale i.e. as
opposed to the fair market value of the assets on date of transfer.

In all the above cases, recoupment will only arise when the asset is eventually sold by the
transferee to a third party. When that happens, such recoupment shall be computed as if the asset
has always been in the hands of the transferor. The implication is to limit the transferee‘s
recoupment to a maximum of the cost of the assets as established in the hands of the transferor.
A perpetual sale of an asset between companies under the same control will not result in tax
recoupment, as long as an election is made.

6.10 Capital allowances on lease improvements

Instead of claiming the lease improvement allowance as contemplated above, an option is

available to claim capital allowances on the improvements, subject to the following conditions:

i. Where the erection is not in terms of an obligation in the lease (voluntary

improvements):

• Lessee - Allow special initial or wear and tear allowances.

135
• Lessor - No special initial or wear and tear allowances until property is rented out to
another tenant and rent is thus receivable for the building.

ii. Where the erection is in terms of an obligation in the lease

• Lessee - Special initial or wear and tear allowances allowable if elected as an alternative
to the lease improvement allowance.
• Lessor - Wear and tear allowances only.

iii. Where the erection is in terms of an obligation in the lease and the cost exceeds the
stipulated amount
• Lessee - Special initial or wear & tear allowances on the whole or the stipulated part as
an alternative to lease improvement allowance or on the excess if lease improvement
allowance is taken.
• Lessor - wear and tear allowance on the stipulated amount but not on the excess until the
property is re-let to another tenant.

Capital allowances should be computed on improvements which did not rank for lease
improvements allowance (voluntary improvements) in the hands of the lessee, when one is
seeking to maximise tax advantages. The excess lease improvements may be deductible in terms
of paragraph 2/3 of the 4th schedule to the Act. Notwithstanding what is said in this paragraph,
where the improvements are effected on property that does not qualify for capital allowances it
equally follows that those improvements would not rank for capital allowances. In the same
manner improvements effected on commercial buildings cannot qualify for SIA.

6.11 Finance lease

For income tax purposes a finance lease resembles a sale of an asset on credit. The lessor
effectively transfers the rewards and risks of ownership of the asset to the lessee while retaining
legal title in the asset. Effectively capital allowances should be claimed by the lessee and not the
lessor. Para 2 of the 4th Schedule of the Act prescribes that articles, implements, machinery or
utensils purchased for leasing purposes shall not rank for SIA to the lessor if the Commissioner is
satisfied at the termination of the lease that the assets will be transferred to the lessee or if the lessee
or another is given an option to purchase or other right in the assets. The lessor must add back
depreciation and finance charges in relation to the asset. Then recognise lease payments received
or receivable are recognised as gross income.

6.12 Hire purchase

A hire-purchase agreement is deemed to be an outright sale. The buyer, and not the seller, is
therefore entitled to claim capital allowances on cost of articles, implements, machinery, utensils
or plant acquired under a hire purchase. The value for purposes of capital allowances equal to
the purchase price fixed in the agreement. Also, where property is sold under a suspensive
condition change of ownership in the property is deemed to take place from the date of the sale.
The buyer is entitled to claim capital allowances from the date of sale.

6.13 Letting of assets

As contended in ITC 1513 (1988) 54 SATC 56 (Z) equipment bought for leasing purposes is
equipment used wholly or almost wholly for the purposes of trade and accordingly the lessor is
136
entitled to capital allowances . The case involved a farm manager who had bought equipment
and leased it to his father for use on the farm. The taxpayer contended that his overriding
intention in purchasing the equipment was to build up a stock of equipment in order, ultimately,
to commence farming operations in his own right and at the same time earns some income from
rentals and to increase his bonus.

The basis of the contention is that the definition of trade ―includes the letting of any property,
carried on, engaged in or followed for the purposes of producing income. Therefore a lessor is
entitled to claim capital allowances on assets belonging to him and used for leasing purposes.
Since the lessee is not the owner of the assets he cannot claim capital allowances on assets
leased to him. He can only claim capital allowance on the cost of additions or alterations to
articles implements, machinery or utensils leased by him for the purposes of trade. The lessee is
also entitled to claim capital allowances on lease improvements effected by him, when elected as
an alternative to lease improvements allowances.

6.14 Small and medium enterprises (S.M.Es)

An S.M.E qualifies for S.I.A of 50% on cost of the asset in the 1st year of use of the asset and
25% p.a. accelerated wear and tear in the next two years.

EXAMPLE

XYZ Ltd meets all the criteria for qualification as a small business corporation. During the year
it acquired an equipment for $400,000 and recorded a depreciation of $100,000, leaving it with a
profit of $4,050,000.

Compute the taxable income for XYZ in 2020.

ASNWER

Trading profit 4,050,000

Add Depreciation 100,000
Less SIA ($400,000 x 50%) 200,000
Taxable income 3,950,000

6.15 Special Economic Zones

With effect from the 1st of January, 2017 the 4th Schedule to the Income Tax Act is amended by
providing for Special Initial Allowance of 50% in the first year of assessment and 25% in each
of the next two years of assessment in respect of capital expenditure incurred by the licensed
investor within the special economic zone. The conditions for claiming special initial allowances
must be satisfied (see section 10.4 above), otherwise the licensed investor would be granted
wear & tear.

6.17 Conclusion

Every trader is entitled to capital allowances on qualifying capital expenditure in terms of the 4 th
Schedule of the Act.

137
Chapter 7 : Partnership

7.1 Introduction

A partnership is not a legal persona and is not liable for income tax liabilities. Its profits or
losses are allocated to the partners according to their rights to share in the partnership profits.
The tax liability of the partnership therefore falls on the partners.

7.2 Partnership

A partnership is simply a group of individuals trading together. Its income and losses is shared
between the partners as agreed in the partnership deed and then assessed to tax in the hands of
the individual partners. The partnership itself has no separate legal entity compared to its
members and not a person for income tax purposes. Its residence status is determined by the
residency status of partners. A partnership is a resident of Zimbabwe if at any time during a tax
year a partner is a resident of Zimbabwe. Its income is derived from the services of a partner.
This is the place where a partner renders his services to earn the partnership income. The sources
of partnership income therefore depends on the services of partner, not the partnership.

If a partnership income is derived out of business operations, the source becomes the place the
business activities are carried on. As a result, income of partners shall be deemed to be from the
same location, unless a partner has a specific assets not forming part of the partnership assets.
For a partner who has other contracts with partnership, for example employment, loan contract,
etc., the income is sourced under the general sources rules.

7.3 Basis of assessment

The computation of a partner‘s taxable income commences with the computation of partnership
joint taxable income. Once the partnership's profits for a period of account have been computed,
they are shared between the partners according to the profit sharing arrangements for that period
of account. A partner is treated as a third party on other contracts he may have with the
partnership. The following table summarizes treatment of expenditure paid by a partnership for
or on behalf of a partner:

Expenditure Treatment In The Hands Of The

Partnership Respective Partner
1) Partner‘s salary Allowable Taxable

2) Joint life policies Not allowable Taxable

3) Partner‘s life policy – Not allowable Not taxable
partnership is the
beneficiary
4) Partner‘s life policy – Allowable Taxable
partner is the beneficiary

138
5) Partner‘s life policy – Not allowable Not taxable
ceded to the partnership
6) Partners interest on Allowable Taxable
Capital
7) Drawings Not allowable Not taxable

8) Interest on drawings Taxable Non deductible

9. Rents payable to a Allowable Taxable
partner

10) Sports subscriptions Allowable Taxable

11) Other Club Allowable Not Taxable if
subscriptions substantially
patronized by

12) Medical aid Allowable Taxable. Grant

contributions credit
13) Ex- gratia payments to Allowable up to $5,000 per former
former partner or partner and $2,000 per dependent
Tax the full
dependant thereof who has (s) of one former partner
amount
resigned from the
partnership because of ill-
health, infirmity or old age
14) Partner‘s private use of Allowable Taxable
a motor vehicle

15) Retirement annuity Allowable Taxable and,

fund contributions Allow deduction
up
Pension, NSSA or RAF Deductible Nondeductible and
contributions up to $54,000p.a non-taxable

A partner is not an employee. Therefore rules applied to employees for the valuation of fringe
benefits do not apply to a partner. The partner should be assessed on the market value of the
benefit. Note that, whatever a partner gets from the partnership i.e. salary, share of profits, and
interest on capital, fringe benefits etc. constitute an appropriation of partnership profits on which
he is liable to pay tax.

EXAMPLE
Alan, Betty and Charles are partners in a partnership. Alan has an annual salary of $60,000 and
annual school fees of $10,000 for his son drawn from the partnership. Betty drew an annual
salary of $20,000 from the partnership. The 3 partners share the balance of profits and losses
equally. The partnership made a net loss of $60,000 in the current tax year after adjusting for all
of the above items.

Compute taxable income for each partner.

139
ANSWER
Ratio share of partnership income other incomes Total

Allan 1/3 (20,000) 70,000 50,000

Betty 1/3 (20,000) 20,000 nil
Charles 1/3 (20,000) (20,000)

7.4 Changes in membership

When there is a change in membership of the partnership profits or losses must be apportioned
and shared according to the ratio applying before and after the change. A change in a partnership
membership as a result of a new partner joining an existing partnership, death of a partner or a
partner(s) leaving or retiring, constitute a fresh partnership. If this change causes a change in
sharing ratio, the accounting period is split into ―min-periods‖ before and after each change. The
profits are then allocated to each ―mini-period‖ according to the appropriate basis and then
shared amongst the partners present in each period.

EXAMPLE

Mucha and Musoni are in a partnership sharing profits 2:3. Mucha is entitled to an annual salary
of $240,000. On 1 May 2020, Sophia joined the partnership. The sharing ratio changed to 2:1:2.
Profits for the year amounted to $1,200,000.

How much is each partner‘s taxable income?

ANSWER
Total Mucha Musoni Sophia
1 January –April
Trading profits (4/12 x $1,200,000) 400,000
Mucha‗s salary (4/12 x $240,000) (80,000) 80,000
Joint taxable income 320,000
Profit sharing ratio (PSR) (320,000) 128,000 192,000

1 May –December
Trading profits (8/12 x $1,200,000) 800,000
Mucha‗s salary (8/12 x $240,000) (160,000) 160,000
Joint taxable income 640,000
Profit sharing ratio (PSR) (640,000) 256,000 128,000 256,000
Taxable income 624,000 320,000 256,000

Note that, the partners will still be required to prepare the accounts for a full year up to the last
day of the accounting period. Only in a case of a death of a partner should accounts be prepared
in order to ascertain the results of the partnership operations for the period from the last
accounting date to the date of the death of a partner. The surviving partners are however, not
required to show their share of the income as shown by those accounts in any return. They are
only required to do so when a partner dies before the accounting date of the partnership‘s first
anniversary year.

140
7.5 Change in profit sharing arrangements

If the profit sharing arrangements change part way through the period of account, the profits,
salaries and interest for the period of account must be pro-rated accordingly.

EXAMPLE
Freddy, Joshua and Forlorn are in partnership as FJF Associates sharing profits and losses
equally. The partnership‘s accounting year end is 31 December. With effective 1 July 2020,
Joshua and Forlorn were allocated increased responsibilities in the partnership and it was
decided that the new profit and loss sharing will be 2: 3: 3, Freddy, Joshua and Forlorn,
respectively.

The total earnings of the firm for January to December 2020 were $7,312,500. According to the
partnership agreement, the partners were to make the following withdrawals per month: Freddy
$80,000, Joshua $60,000 and Forlorn $40,000. The capital allowance allowed for the partnership
was $850,000.

The following expenses were incurred during the year by the firm:
Staff Salaries 3,500,000
Office rentals 270,000
Repairs 84,380
Electricity 74,250
Generator: repair & servicing 95,630
Industrial Training Fund levy 54,560
Approved Pension Fund 126,560
Bank charges 235,130
Miscellaneous 243,000
Total 4,683,510

Compute the partnership income of each partner for the relevant year.

ANSWER
Computation of partners‘ taxable income
Professional earnings 7,312,500
Deduct
Salaries 3,500,000
Rent 270,000
Repairs 84,380
Electricity 74,250
Repairs and servicing 95,630
Bank charges 235,130
Industrial training & levy 54,560
Pension fund 126,560
Miscellaneous 243,000
Capital allowances 850,000 5,533,510
Joint taxable income 1,778,990

141
Total Freddy Joshua Forlorn
1/1/20-30/6/20
Profit 889,500
Share of profit (889,500) 296,500 296,500 296,500

1/7/2020-31/12/20
Profit 889,500
Share of profit (889,500) 222,380 333,560 333,560
Partnership income 518,880 630,060 630,060

Share of profit between periods:

Before of change in ratios: $1,778,990 x 6/12 = $889,500
After change of ratios: $1,778,990 x 6/12 = $889,500
Drawings are non-deductible.

7.6 Assets co-owned

A partnership cannot own property in its own capacity, property held in it is held by partners
jointly, as co-owners. Any capital allowances and balancing charges on such property are
apportioned between the partners according to their sharing ratio.

When there is a change in membership or when a sole trader forms a partnership, the sole trader
or the old partnership is deemed to have sold its business at its market value to the new
partnership. The resulting recoupment or scrapping allowance shall be attributed to the sole
trader or old partners in proportion to their old sharing ratio.

EXAMPLE
Tom has been operating a business as a sole trade since 2016. On 2 February 2020 he decided to
invite Anna on a 50:50 profit sharing ratio. Anna will be paid annual salary of $240,000.

Tom brings to partnership an office building which he acquired at $400,000 in July 2016 and its
fair market price was established at $450,000. The partnership‘s annual profits before adjusting
any of the above items amount to $850,000.

Compute taxable income for each partner for year ending 31 December 2020?

ANSWER
Total Tom Anna
Net profit 850,000
Anna‘s salary ($240,000 x 11/12) (220,000)
W&T on office building ($450,000 x 2.5%) (11,250)
Joint taxable income 618,750
Share of profits (618,750) 309,380 309,380
Salary 220,000
Recoupment ($400,000 x 4 years x 2.5%) 40,000
Partner‘s taxable income - 349,380 529,380

On the other hand, if a partner avails an asset for use in the partnership which he clearly states
that such an asset is not to form part of the partnership property, then capital allowances and the
balancing charge on that asset must be granted to that partner only. If a partner is being paid rent

142
on this asset, he will be taxed on that rent and the partnership is allowed to deduct it as a
business expense.

EXAMPLE

Jasper is in a partnership business with Alice, manufacturing agricultural chemicals. He owns a

building which is used by the partnership for storing its raw materials. Jasper is paid an annual
rental of $400,000 for the use by the partnership of his building. The building has an ITV of
$320,000 ($650,000 original cost). The partnership has a taxable income of $840,000, before
adjustment of this item.

How much is Jasper‘s tax liability?

ANSWER
Taxable income 840,000
Less Rent for Jasper 400,000
Partnership taxable income 440,000

Jasper‘s share of partnership taxable income (50% x $440,000) 220,000

Rental income 400,000
Less Wear & tear (5%) on building 32,500
Taxable income 587,500
Tax @ 24.72% 145,230

7.7 Goodwill

Goodwill is capital in nature and has no tax effect to either the seller or the buyer. It is closely
associated with the business income earning structure than it is with income earning operations.

The only time goodwill is taxable is when used as a trade good in a profit making scheme, sold
to one of the remaining partners. For example, a goodwill exchanged by a partner for payments
representing partnership share of profits is taxable to the seller (partner). To the purchaser,
goodwill is still considered an amount of capital nature.

7.8 Trade convention and mission

Rules for trade missions or conventions to the partnership are similar to those of the other
taxpayer, except that each partner is entitled to one trade convention and one mission.

7.9 Bad debts

Conditions for deduction of bad debts are similar to the general rules under s15 (2) (g) of the
Act. Note that an incoming partner cannot claim any bad debts arising out of those debts which
occurred before he was a partner. He cannot be taxed too, on recovered debts of a sale which
occurred before he joined the partnership. If a partner leaves a partnership, the remaining
partners cannot claim the full allowance, because the portion of the debts was never due to them
only.

7.10 Subscriptions

143
Subscriptions paid for a partner by a partnership are deductible to the partnership and taxable to
the partner. A partner can then deduct the same subscriptions. If dual usage can be established, a
partner will be called upon to submit his estimate of business and private usage with a view to
allow a deduction in respect of his business usage only.

7.11 Interest on money borrowed by partner

Interest on money borrowed to purchase interest in partnership or for on-lending to partnership,

by a partner, is a deductible expense to the partner. The interest is regarded to have been
incurred in the production of a partner‘s income.

On the other hand, a partner who incurs interest on drawings from the partnership is not allowed
to deduct that interest despite the interest being taxable to the partnership. The drawings
themselves are of a capital nature which is neither taxable to the partner nor deductible the
partnership

7.12 Passage benefit

The cost of partner‘s business trip is deductible to the partnership even if he uses the opportunity
to take a holiday after the business. However, if the partnership bears the cost of a holiday for a
partner the amount is taxable to the partner and deductible to the partnership.

7.13 Returns and assessment

Partners must submit a joint tax return of their partnership income together with other
information as is required by Zimra from time to time. The return must be accompanied by the
financial report necessary to show the result of the partnership‘s operations. Each partner is
separately and individually liable for the rendering of the joint return, although he is liable to tax
only on his share of partnership profit or loss.

7.14 Assessed loss

Assessed losses are deductible and carried forward at a partner level, subject to a six year limit.
They are apportioned between the partners in the same way the profits made from the
partnership are shared. Assessed losses belongs to the individual partners forever even if he or
she leaves the partnership or dies, but may not be carried forward for a period exceeding six
years. The partners are individually entitled to loss relief in the same way as sole traders. They
are allowed to carry forward the losses and claim them against future trading profits of that
partner. They can also set off the losses against general income of the same year from other
trades. At a partner who has trading losses cannot set it off against capital gain or vice versa. A
partner who has been declared insolvent or had his property or estate assigned for the benefit of
creditors is prohibited from carrying forward assessed loss.

EXAMPLE
Diana and Dinah have been trading for many years sharing profits equally. On 1 June 2020
Diana retired and Rodgers joined the partnership. Dinah and Rodgers share profits in the ratio of
3:2. Although the partnership had previously been profitable it made a loss of $480,000 for the
year to 31 December 2020. The partnership is expected to be profitable in the future.

Calculate the loss accruing to each partner for 2020.

144
ANSWER

We must first share the loss for the period of account between the partners.

Total Diana Dinah Rodgers

Y/e 31.12.20
1 Jan – 30 May
Total $240,000 × 5/12 (200,000) (100,000) (100,000)
1 Jun – 31 Dec
Total $480,000 × 7/12 (280,000) (168,000) (112,000)
Total for y/e 31 Dec (480,000) (100,000) (268,000) (112,000)

Conclusion

A partnership is not a person for tax purposes and is non-taxable. Its profits and losses must be
shared and be taxed in the hands of the individual partners. The profits or losses are shared
between the partners according to the profit sharing arrangements in the period of account
concerned.

145
Chapter 8 : Farming

8.1 Introduction

Farming is any operation of pastoral, agricultural in nature or similar activities, including leasing
of grazing lands, hunting or race horses breeding. Farming also includes a person who derives
income from letting of a farm. Farming as a hobby or for own consumption and selling the
surplus is not covered.

8.2 Livestock trading stock

Trading stock (closing stock) at the end of a tax year is gross income, while the opening stock is
a deductible expenditure. The accounting practice satisfies this requirement; hence no
adjustment is required other than that emanating from the valuation methods.

Livestock is classified into stud and ordinary livestock. A stud is an animal kept for breeding
purposes. An ordinary livestock is an animal born on the farm or purchased other than for
breeding purposes. Ordinary livestock are valued using the fixed standard value, while stud
livestock are valued using the purchase price value method.

In ascertaining the taxable income from a business, the value of the stock in trade at the
beginning and at the end of the period should be taken into account. The trading stock at the
beginning is deductible expenditure, while the trading stock at the end of the year is gross
income. The current accounting practice of taking into account the value of the stock in trade in
the profit and loss account satisfies this requirement.

8.2.1 Trading stock at the beginning of the year

The value of opening stock at the beginning of the tax year, unless it is in the year of
commencing of a business, must always be the same as the value of the stock in trade at the end
of the immediately preceding basis period.

Bases of valuation of stock in trade

In the actual accounts prepared by the taxpayer, however, stock in trade may be valued on a
basis which is not acceptable for income tax purposes. If the stock in trade has been valued on
some basis other than that required by the Act, the taxpayer must make the appropriate
adjustment so that the adjusted income is correctly computed.

Fixed standard value, purchase price or cost & maintenance

The word ―livestock‖ is not defined in the Act. The Collins English Dictionary defines the word
to include ―cattle, horses, poultry, and similar animals for domestic use but not as pets, esp. on
a farm or ranch.‖ In R Koster & Son (Pty) Ltd and Another v CIR 1985 (2) SA 834 (A) 47
SATC 23 it was held that the term livestock generally comprises any animals kept or dealt in for
use or profit.‖ Livestock thus includes animals held for breeding purposes (fixed capital) and
146
those held for resale (floating capital). The livestock should be used in the farming operations.
Livestock are further classified into stud and ordinary livestock. A stud is an animal kept for
breeding purposes. An ordinary livestock is an animal born on the farm or purchased other than
for breeding purposes.

The livestock of a farmer is valued as follows:

- Ordinary livestock is valued using fixed standard value of the livestock or the cost and
maintenance value of the livestock whichever the farmer, in his first return of income in
which that class of livestock is included, may elect.

- Stud livestock is valued using the purchase price value of each animal or the fixed standard
value of the livestock, whichever the farmer in his first return of income in which that class
of livestock is included may elect.

The valuation is done according to each class of livestock e.g. for cattle, cows, heifers, oxen,
tollies, bulls and calves, subject to approval of by the Commissioner. Once a farmer elects or
fixes a valuation method and a value for a particular class of livestock and approved by the
Commissioner, it becomes binding and irrevocable, and the farmer is prohibited from altering
that value at a later date without the consent or approval of the Commissioner. This restriction
applies as long as the farmer is carrying on operations. If he ceases to carry on farming
operations and recommences at a later date, he shall be entitled to make a fresh election of the
valuation methods and the standard value for each class of livestock in the first return of income
in which the ordinary or stud livestock is included. If there is a valid reason for a change, details
of the change should be appropriately documented and disclosed in the statement of accounts
and/or the tax computation. The election should be made at the time of lodging an income tax
return which includes a class of livestock. The valuation methods are defined as follows:

(a) Cost and maintenance value for an ordinary livestock is the sum of the amount, as nearly
as it can be ascertained, of the cost price to the farmer of the livestock or, as the case may
be, the cost incurred by the farmer in breeding the livestock and the cost to the farmer of
maintaining the livestock in the year of assessment and any preceding year of assessment.
(b) Fixed standard value for each class of ordinary livestock is the standard value fixed by the
farmer with the approval of the Commissioner. In the case of a class of stud livestock of a
farmer, where the cost price of an animal to the farmer was less than ZWL$1,500, the
standard value fixed shall be the price fixed by the farmer. If the cost of the animal in that
class was ZWL$1,500 or more, the farmer can elect to use the fixed standard value or $
ZWL$1,500;
(c) Purchase price value for stud livestock is the cost of the animal for an animal acquired at a
price less than ZWL$1,500 and for animal acquired at price above ZWL$1,500,the farmer
can elect to use the cost price or $ ZWL$1,500

EXAMPLE

Lion farm has 42 heifers, 20 oxen and 4 bulls. Bulls were bought for $1,300 each. The FSVs for
each animal by class are: heifer $1,300, ox $1,100 and bull $1,700.

Compute Lion Farm‗s trading stock (valuation of trading stock).

ANSWER

Heifers 42 x $1,300 = 54,600

Oxen 20 x $1,100 = 22,000
147
Bulls 4 x $1,700 = 6,800
Total 83,400

Cost and maintenance (CMV) is rarely used in practice.

Any acceptable method used in the valuation of stock in trade should be elected and applied
consistently. If there is a valid reason for a change, details of the change should be appropriately
documented and disclosed in the statement of accounts and/or the tax computation. The election
must be made at the time of lodging an income tax return which includes a class of livestock.

8.2.2 Trading stock withdrawn for own use

Where any stock in trade of the business is withdrawn for the person‘s own use without any
considerations being given for the stock in trade, the fair and reasonable value i.e. the FSV of the
stock in trade withdrawn from the business is taken as part of the gross income of the taxpayer.

8.2.3 Trading stock on cessation of business

Where a person ceases to carry on the business and at or about the time he ceases in the business
he sells his stock in trade or transfers his stock in trade for valuable consideration to another
person, the price paid for the stock in trade or the value of the consideration is to be taken as the
value of the stock in trade at the cessation of the business.

8.2.4 Livestock reconciliation

Before livestock are valued they must be reclassified. The process is required because some
animals might have moved to higher grades during the tax year due to natural progression, e.g.
calves grow to become heifers or tollies. Heifers become cows and tollies grow to become oxen.

EXAMPLE

Calculate the closing trading stock for Mr. Baraza a farmer in Mahusekwa. Mr. Baraza had 4
bulls, 10 cows, 14 oxen, 13 calves and 9 tollies at the beginning of the assessment year. During
the year, 7 calves were born, 3 calves became heifers and 1 of them became a tollies, 3 tollies
became oxen and 5 cows were sold. Mr. Baraza purchased 10 cows and 7 heifers.

ANSWER

Details Bulls Cows Heifers Tollies Oxen Calves Total

Opening stock 4 10 9 14 13 50
Purchases 10 7 17
Births 7 7
Promotions in 3 1 3 7
Sales -5 -5
Promotions out -3 -4 -7
Total 4 15 10 7 17 16 69

8.2.5 Valuation of livestock

The following example is on computation of year end trading stock:

148
EXAMPLE

Same facts as above example, but the FSVs are, cows $1,800, heifers $1,500, tollies $1,400,
calves $1,000 and oxen $1,700. Bulls are valued at a minimum statutory price.

Details Bulls Cows Heifers Tollies Oxen Calves Total

Number 4 15 10 7 17 16 69
FSV/PPV 1,500 1,800 1,500 1,400 1,700 1,000 -
Trading stock 6,000 27,000 15,000 9,800 28,900 16,000 102,700

Summary valuation table

Type of stock Date of Ordinary Stud Crops

Valuation livestock livestock
(T/p to (T/p to elect)
Closing stock Last day of tax elect)
FSV PPV Fair &
year CMV FSV reasonable
Consumed by taxpayer Date of such Fair & Fair & Fair &
or put to own use Use Reasonable Reasonable reasonable
to other
Stock onuse.
hand: Date of such FSV PPV Fair &
On date of death, Happening CMV FSV reasonable
insolvency
or donation
Attached by court order End of tax FSV PPV Fair &
year. CMV FSV reasonable
Sold with Business or Date sold Selling price Selling price Selling
Pursuance of court order price

8.3 Farming special capital expenditure

A farmer is allowed a 100% deduction of the following expenditure incurred by him during the
year of assessment in connection with farming operations:

 Works for the prevention of soil erosion, i.e. planting of trees, contour ridging, etc.
 Any water conservation works and contributions towards such works done by another
person.
 The stumping and clearing of land for farming purposes.
 The sinking of bore holes and wells, but borehole equipment (pipes and pumps) are granted
capital allowances.
 Aerial and geophysical surveys.
 Fencing used in farming operations.

Fence must be erected by the taxpayer or by any other person whose cost is recoverable from the
farmer in terms of the Fencing Act and must be used in farming operations. On the other hand,
water conservation work means any reservoir, weir, dam or embankment constructed for the
impounding of water.

The following points are important:

 The full deduction precludes deduction of capital allowances.

149
 The expenditure is not deductible if the item was acquired together with the farm, whether
by way of purchase, inheritance or donation.
 The works need not be completed; deduction is made of cost incurred in that year.

EXAMPLE

Mr. Murimi commenced farming operations on 1 January 2020. He incurred the following initial
expenditure in starting the project:

Cost of 35 hectare site 1500,000

Clearing of land 250,000
Construction of temporary road 100,000
Construction of water reservoir 700,000
Construction of a drainage system 120,000
Construction of Abattoir 1.130,000
Construction of 2 units of staff housing 450,000
Construction of farm school 1.180,000
Construction 1 unit teacher‘s house 400,000

Compute Mr. Murimi‘s maximum deductible expenditure in 2020.

ANSWER

Item Allowance claimed $

Land (35 ha) none n/a

Clearing of land Farmer special exp. 250,000
Construction of temporary road Farmer special exp 100,000
Construction of water reservoir Farmer special exp 700,000
Construction of a drainage system SIA 30,000
Construction of Abattoir SIA 282,500
Constructed 2 units of staff housing SIA 112,500
Construction of farm school SIA 25,000
Construction 1 unit teacher‘s house SIA 25,000
Maximum deductions 1,525,000

Note.

 2 units of staff housing have been qualified because each of them is less than $250,000 per
unit and capital allowances computed on the actual cost.
 For farm school and a teacher‘s house allowances are computed on maximum of $100,000
no matter the cost incurred.
 The farm capital expenditure does not suffer recoupment on their disposal.

EXAMPLE

XYZ Ltd sold its farms together with farm improvements and farm implements. The breakdown
of the selling prices on sale of the farm and assets were as follows:

Asset Date acquired Cost ITV Selling price

150
Land 2013 18,000 18,000 100,000
Farm house 2013 180,000 180,000 160,000
School 2014 490,000 5,000 470,000
Tractors 2014 50,000 25,000 35,000
Dam 2014 450,000 - 510,000
Fence 2014 61,000 - 69,000

How much is XYZ‘s recoupment from the disposal of the above assets?

ANSWER

Land Non recoupable 0

Farm house Non recoupable no capital allowances 0
School $9,592 - $5,000 4,592
Tractors $$35,000 - $25,000 10,000
Dam Non recoupable 0
Fence Non recoupable 0
Total 14,592

 Land and farm house are non-ranking assets hence there is no recoupment on assets that do
not qualify for capital allowances.
 Capital allowances on the school were computed based on a deemed cost of $10,000 for a
period prior to 1 January 2019. Recoupment is computed using deemed selling i.e. $9,592
($10,000/$490,000 x $470,000). Recoupment is then deemed selling price less ITV.
 Farmer‘s special capital expenditure is non-recoupable.

8.4 Enforced sale of livestock

Where a farmer carrying farming operations in a drought stricken area or due to an epidemic
disease or due to a compulsory acquisition of the farm, has been forced by such conditions to
dispose some of the livestock, he may elect to have the income so derived from the disposal of
such live stock to be allocated equally between that year of assessment in which such disposal
took place and the following 2 years in equal instalments. Such election is irrevocable.

Where income from such forced sales exceeds the income of the farmer from his other farming
operations in a particular year, then the farmer may elect to spread the taxable income from all
the operations in the current year and the next 2 years in equal instalments. A return of grazers to
their owners due to the stress of drought conditions is a deemed disposal for purposes of
claiming a relief. The enforced sale taxable income shall be taxed over 3 years equally
commencing the year of sale. The relief is not automatically granted. A farmer must make an
election to qualify for it. Once the election is made it is irrevocable.

The enforced sale taxable income is computed as follows:

Livestock enforced sales xxx

Purchases [number sold x FSV] xxx
Direct livestock expenses xxx (xxx)
Enforced sale taxable income xxx

Direct livestock expenses are expenses directly identifiable with the keeping of livestock, e.g.
livestock expenses, dipping fees, stock feeds, herd men wages, etc.

Direct expenses are computed as follows:

151
Direct expenses = Number of Enforced sales x Total farm direct expenses
Average stock (number)

Average stock is the total of opening stock and closing stock divided by 2.

EXAMPLE

Nelson sold 25 oxen and 10 cows for $400,000 due to drought. His FSV for each oxen and cow
were $1,300 and $1,500 respectively. Opening and closing stocks of the herd were 260 and 210
respectively. The direct livestock expenses were $45,000.

Compute Nelson‘s yearly minimum taxable income.

ANSWER

Epidemic sales 400,000

Cows: 10 at $150 15,000
Oxen: 25 at $130 32,500
Direct expenses 6,700 54,200
Enforced sales taxable income 345,800

Yearly minimum taxable income = $345,800/3 = $115,270

Direct expenses = 35 x $45,000 = $6,700

-----------------
(260 + 210)/2

A farmer who has enforced sale taxable income may also elect to spread his other farm taxable
income equally, over 3 years, if that income is less than the enforced sale income. The election
once made, is irrevocable.

EXAMPLE

Mr.Nleya has $1,200,000 taxable income from enforced sales and $600,000 from other farming
operations.

Compute Mr.Nleya‘s taxable income.

ANSWER

Taxable income: enforced sales 1,200,000

Taxable income: other farming activities 600,000
Taxable income 1,800,000

In order to minimise taxable income, the income is spread over 3 years and only $600,000 is
taxable in the current year of assessment. Further, an enforced sale taxable income accruing to
an individual shall be taxed at the highest rate applicable to the individual‘s last dollar of the
employment income.

8.5Subsidies or grants

152
A subsidy or grant which relieves a farmer of special expenditure i.e. expenditure on dams,
fencing etc. must be included in the farmer‘s gross income. When the subsidy or grant is toward
capital nature expenditure it is capitalised. It must be deducted from net profit if it has been
included in the computation.

EXAMPLE

Ms. Denga is a farmer in Nyanga. During the current year of assessment he incurred the
following expenditure.
Construction of dam 55,000
Farm implement 90,000

Ms. Denga received a government grant of $75,000 (allocated $45,000 for the dam and $30,000
for the farm implement). The grant was included in the net profit for the year, which amounted
to $125,600. The net profit is before accounting for allowances on the dam and the farm
implement.

Compute Ms. Denga‘s taxable income.

ANSWER

Net profit 125,600

Dam (100% allowance) (55,000)
Grant on the dam (supposed to be taxed –hence treated correctly)
Farm implements (W&T- 60,000 x 10%) (6,000)
Grant on farm implements (capital nature) (30,000)
Taxable income 34,600

Note that a grant on farm implement is capitalized, result in net capital expenditure qualifying
for capital allowance of $60,000 ($90,000- $30,000)

8.6 Timber farmers

The disposal of timber constitutes gross income and if they are sold together with the land on
which they are growing they still constitute gross income. Gross income is recognized at the
point of disposal. To the buyer the cost of timber acquired together with the farm is a deductible
cost. A deduction is also granted of the costs of the growing timber, including cost of
maintaining the plantation and of replacing any trees in the year in which the expenditure is
incurred. However, because timber is long term crop a farmer can elect to deduct the cost of
growing the timber as follows (as opposed to claiming a deduction of cost in the year in which it
is incurred when there is no income):

 The cost of planting the timber shall be carried forward until the timber has reached
maturity;
 An allowance of 5% of cost of planting shall be added annually until the timber has reached
maturity an amount;
 Whenever the timber is sold, there shall be deducted from the proceeds of such sale a
proportionate part of the sum of the cost of planting and the total of the fixed percentage
added annually.

153
 Allowance of 5% is included in the taxable income or deducted from the assessed loss
annually.
 There shall be deducted from the taxable income or added to the assessed loss, each year all
deductions permissible to farmer (i.e. labour, cost of maintenance and keep of the plant etc),
including capital allowances, lease premium and lease improvements.

EXAMPLE

You are required to compute taxable income /assessed loss for Mufindi Paper Mills, a timber
estate in Chipinge. The following is an extract of the 1000 hectares of timber planted in 2014
and first harvested in 2017. Half of the plantation was sold for $185,000 in 2018.

Year 2014 2015 2016 2017 2018

Dam construction 50,000
Annual wear & tear 2,000 2,000 2,000 2,000 2,000
Timber upkeep costs 22,000 14,000 10,000 7,000 5,000
Cost of plantation 75,000 40,000

ANSWER
Year 2014 2015 2016 2017 2018
Deferred cost
Plantation cost 75,000 115,000 115,000 115,000 115,000
Fixed Allowance 3,750 5,750 5,750 5,750
Fixed Allowances b/f 3,750 9,750 15,250 21,000
Less Expensed _____ ______ ______ ______ ______
Balance c/f 78,750 124,500 130,250 136,000 68,00

Sales 185,000
+Annual Fixed All 3,750 5,750 5,750 5,750
Gross income 3,750 5,750 5,750 5,750 185,000
Less Deduction
Expenses deferred cost 68,000
Wear & tear 2,000 2,000 2,000 2,000 2,000
Timber upkeep costs 22,000 14,000 10,000 7,000 5,000
Dam _____ 50,000 ______ ____ _____
Current year (20,250) (60,250) (6,250) (3,250) 110,000
Assessed loss b/f _____ (20,250) (80,500) (86,500) (90,000)
Taxable income/ loss (20,250) (80,500) (86,750) (90,000) (20,000)

Once the election is made it shall be binding in respect of all subsequent years of assessment. A
farmer who has not made an election as stated above has two alternatives available. He may
choose to claim the working expenditure as a deduction in the year in which the expenditure is
incurred or defer the working expenditure until the plantation reaches the income-producing
stage. Where the expenditure is deferred, at the time the timber is sold a proportion of the
accumulated expenditure is allowed each year in proportion to the sales. Any timber cut for
farming purposes (e.g. tobacco curing) a pro rate proportion of the accumulated expenditure will
be allowed.

Irrespective of whichever method is chosen, the proceeds of sales are taxable in full in the year
in which they accrue. Capital development expenditure, capital allowances, scrapping
154
allowances, repairs, lease premiums and lease improvement are deductible in the year of
assessment in which they are incurred.

The term working expenditure includes

 preparation of ground and of planting (including seeds, seedlings and cost of trees),
 cultivation expenses, general maintenance and thinning of plantation
 removal of temporary tram lines from place to place,
 trimming, barking, pruning, spraying, etc.,
 re-establishment of plantations in places where cutting has taken place, fire breaks,
 temporary roads for transporting timber,

8.7 Orchards and vineyards farmers

Orchard and vineyard farmers who make an election can defer the deduction of operating
expenses (general and statutory deductions plus planting and farm upkeep expenses) until a farm
becomes productive. However, farm capital expenditure and capital allowances are deductible
against taxable income or added to assessed loss as and when incurred.

The operating expenditure is deductible when production commences over the estimated
productive life of the orchard or vineyard. A farmer must submit to the Commissioner in the
year the farm becomes productive, the estimated number of years the farm is expected to remain
productive. If no estimate is submitted or if the Commissioner is not happy with the estimate, he
can make his own estimate. A deduction will then be made in equal instalments over the
productive life of the farm.

EXAMPLE

Wine Ltd, a vineyard farmer, spent $120,000 establishing the farm by planting grapevine trees in
200. The first grapevines were picked on 1 February 2020. The plants have an effective life of
7 years. Wine Ltd‘s farm upkeep expenses from 2012 to 1 February 2020 amounts to $90,000.
In 2019 it built a dam for $56,000. How much is Wine Ltd‘s deductions in 2020 tax year?

ANSWER

Operating expenses (see below) 30,000

Assessed loss b/f (in respect of the dam) 56,000
Total deductions 86,000

Deductible portion of operating expenses = ($120,000 + $90,000) /7 years = 30,000

Where an orchard or a vineyard ceases to operate, no deduction is made of the outstanding

operating expenses. In the event that part of the plantation is uprooted and replanted, the
operating expense for the uprooted part is deducted immediately and the replanted area is treated
as a new plantation.

When an orchard or vineyard is sold, the buyer and the seller must jointly submit to the CG a
statement in writing showing the proportion of the selling price relating to the planting and
upkeep expenditure. If no statement is submitted or if the CG is not happy with the allocation,
he can make his own allocation. If the allocated selling exceeds the unclaimed balance of the
operating costs, that is regarded as recoupment. The recoupment shall not exceed the total of the
operating expenses before amortization.
Zimra accepts the above treatment in respect of tea and coffee farms.
155
Where a farmer has not made an election, the cost of trees and other capital expenditure are not
allowable deductions. He will deduct capital allowances, repairs, lease premium, lease
improvement and farm development expenditure in the year in which they are incurred. The cost
of seeds an expenditure on seed beds is also allowed as and when it is incurred and so is the cost
of trees purchased to replace others which are no longer productive is an allowable deduction.
Working expenditure is treated in the same way as that of timber farmer.

8.8 Leasing of farming land or equipment

Farming includes the letting of a farm for farming purpose. The rental received therefrom
constitutes gross income. The farmer is entitled to a deduction of expenditure incurred in earn
such income. He can also carry forward the balance of expenditure or assessed loss which
cannot be claimed in the year assessment, just like other traders. However, the letting of
equipment or machinery for farming purposes, such as shearing, harvesting, and transportation
services on behalf of other farmers on their land was held not to be farming operations in ITC
1548 (191) 555 SATC 2 (C)

8.9 Restocking allowance

A farmer who restocks livestock which were sold due to impending drought, epidemics or farm
acquisition is entitled to a restocking allowance of 50% of the purchase price of every animal he
purchases in order to restocking his herd. The allowance is limited to livestock purchased as
shall not exceed the assessed carrying capacity of the land (ACCL), i.e. it must not exceed the
amount computed using the following formula:

AxB
-------------
2C

A is the cost of livestock purchased for restocking purposes

B is the difference between ACCL and stock on hand before restocking
C is the number of livestock purchased for restocking purposes

EXAMPLE

Mr. F bought 400 sheep for $93,000 in order to restock the herd sold due to drought. The ACCL
is 500 sheep and his stock on hand before restocking was 300.

Compute Mr. F‘s restocking allowance.

ANSWER

93,000 x (500-300)/2x400 = $23,250

8.10 Inheritance and donation

A farmer who acquires farm trading stock i.e. livestock or produce by way of a donation or
inheritance may deduct against his trading income as follows:

156
 Inherited stock is value of stock assigned for estate duty purposes (estate value)
 Donation is the fair market price of stock at the time of donation

The deduction is not available to a person who is not a farmer or farmer who sold such stock
immediately after acquisition. In such event, the proceeds from sale will be excluded from
income on the basis of being capital in nature.

8.11 Capital allowances

Farmers are also entitled to claim capital allowances.

EXAMPLE

Natsai bought a farm in Wedza on 30 October 2019, on which she commenced mixed crop
farming on 1 January 2020. The following are the fixed assets acquired/constructed and used on
the farm for the year ended 31 December 2020.

Tractor 440,000
Borehole and water tank 195,000
Farm workers compounds (10 units) 1,500,000
Farm house (used by Natsai) 220,000
Fencing 280,000
Fowl runs 78,000
School 690,000
Two passenger motor vehicles 650,000

The cost of borehole and water tank is split as $185,000 for the borehole and $10,000 for the
tank. Natsai‘s farm hosts the only school within a radius of 5kms. During 2020 the surrounding
farms contributed 200 pupils of the 350 intake.

Natsai also incurred the following expenses in 2020 tax year.

Stumping and clearing of the land 150,000

Contour ridges 100,000

Compute Natsai‘s deductions in 2020.

ANSWER
Item Allowance claimed $

Tractor wear & tear @ 20% 88,000

Borehole Purchased together with farm 0
Water tank wear & tear @ 10% 1,000
Farm workers compounds wear & tear @ 5% 75,000
Farm house (used by Natsai) disqualified 0
Fencing Purchased together with farm 0

Fowl runs wear & tear @ 5% 3,900

School disqualified less than 50% pupils 0
Two passenger motor vehicles wear & tear @ 20% 40,000
Stumping and clearing of the land Farmer special exp. 150,000
Contour ridges Farmer special exp 100,000
Total deductions 457,900
157
8.12 Other deductions

The following items of capital expenditure are also deductible to farmers:

 Cost of temporary farm roads or realigning of temporary farm roads,

 Cost of realigning permanent farm roads for the avoidance of soil erosion,
 Cost of protective works in respect of abandoned mines or prospects, and
 Cost of refilling or blocking shafts.
 Expenditure on bilharzia and liver fluke eradication expenses.

8.13 Standing crops bought with the land

A farmer who buys land together with crops, timber or produce growing on that land can deduct
the acquisition cost of such crops, timber produce. Where no payment was made, the deduction
shall be the amount fixed by the Commissioner as representing the sock of such timber, crops or
produce. .

8.14 Assessed loss

Assessed losses are carried forward and can be claimed against future trading income of the
farmer, subject to a six year limit. A farmer is allowed to carry forward the losses and claim
them against his future trading profits, subject to a six year limit. He can also set off the losses
against general income of the same year from other trades. This means that a farmer who has
trading losses cannot offset them against capital gain. But can offset assessed losses from one
trading activity against the income of another trading activity which is carried on by him. A
farmer who has been declared insolvent or had his property or estate assigned for the benefit of
creditors is prohibited from carrying forward assessed loss.

Conclusion

Farming operations are basically subject to the ordinary taxation regime except that farmers are
entitled to special reliefs specified under the 7th Schedule of the Income Tax Act namely
enforced sale tax relief, restock allowance relief to mention but a few.

158
Chapter 9 :Mining taxation

9.1 Introduction

The taxable income of a mining operation is determined in the same way as taxable income of
other business activities, subject to some exceptions. Besides the exceptions, mining operators
are subject to all other provisions of the Income Tax Act, and are entitled to claim all allowances
and deductions provided for in the Act, unless specifically prohibited in terms of the Act.

9.2 Scope of mining tax

Mining taxable income is income that is derived from mining operations. The taxable income is
computed in a similar way as other business operations. The few differences lie in the type of
capital allowances a miner is entitled to. In place of capital allowances (SIA and wear & tear),
lease premium, lease improvements and preproduction expenditure, a miner gets capital
redemption allowance. The other differences include the deduction of expenditure incurred on
prospecting operations, the method used for calculating and claiming recoupment and the
indefinite carrying forward of assessed losses

9.3 Meaning of mining operations

Mining includes every method or process by which any mineral is won from, the soil or from
any substance or constituent of the earth. It is the process of extracting or winning of minerals
without a different finished product or different substance with different qualities emerging or
produced. Thus, underground mining, open cast mining, quarrying and the process of purifying
mineral from its ore falls within the definition of mining. According to the Income Tax Act
mining operations means: ―(a) Any operations for the purpose of winning a mineral from the
earth; and (b) Any operations for the purpose of winning a mineral from any substance or
constituent of the earth which are carried on in conjunction with operations referred to in
paragraph (a) by the person carrying on those operations ; and (c ) Any operations for the
purpose of winning a mineral from any substance or constituent of the earth which are not
carried on in conjunction with operations referred to in paragraph (a) or by a person carrying on
those operations as the CG may determine to be mining operations‖.

It can be submitted that all activities carried on in conjunction with or independently of mining
operations whose end result is the extraction of minerals are considered mining operations. The
Income Tax Handbook accept activities such as the extraction of gold by the cyanide process
159
from old mine-sand, dumps or slimes by a taxpayer who buys the right to treat such sands,
dumps or slimes, whether or not he himself undertakes operations to win gold directly from the
earth, as mining activities. However, mining operations do not include prospecting and
exploration activities (Murchison Exploration and Mining COMPANY Limited vs. CIR 1938
TPD 421). Such activities are not concerned with the winning of a mineral from the earth, but
with ascertaining the existence of mineral body and its economic viability.

9.4 Meaning of mineral

A mineral is any valuable crystalline or earthly substance which was deposited on earth by
natural agencies. The term includes any substance obtainable from the earth‘s surface which has
a valuable apart from its own bulk and weight. A mineral does not include substances such as
sand, stone, rocks, (e.g. granite), gravel, clay (other than fire-clay), soil, petroleum, etc. or such
other substances extracted by a method of surface working, e.g. quarrying. A mineral should be
useful generally, whereas products of quarrying are only useful as far as being used in building
and civil engineering works.

The definition of ―mineral‖ in the Income Tax Act has been harmonised with that in the Mines
and minerals Act. The effect is that cut or uncut dimensional stone subjected to tax on the
exportation of uncut and cut dimensional stone in terms of section 12E of the Value Added Tax
Act have been made part of definition of mineral effective from 1 August 2019. For income tax
purposes any person involved in the production of uncut and cut dimensional stone is deemed a
miner and entitled to claim 100% of its capital expenditure as capital redemption allowance in
terms of the 5th Schedule to the Income Tax Act (Chapter 23:06) with effect from 1 August
2019.

9.5 Mining capital expenditure

Mining capital expenditure means capital expenditure incurred in relation to mining operations
on buildings, residential buildings, staff welfare facilities, works, equipment, land, shaft sinking,
including premium paid for the use of buildings, works, equipment or land etc. It excludes
prospecting, cost of claims, option money, and goodwill and company flotation expenses.
Generally, it would include the cost of getting access to the place where extraction of valuable
ore is to commerce, excluding cost of constantly extending a decline tunnel during the extraction
process.

9.5.1 Building and works

The term building includes facilities for storing minerals, facilities used in operating or
maintaining treatment plants, workshops, mine offices (excluding admin offices located away
from the mine), site preparation buildings, etc. It includes any improvements made on any
building used in mine operations and lease premium paid for the use of any building, works,
equipment or land. The term ―works: has a wider meaning and wide enough to include all other
expenditure of a capital nature incurred for the purposes of mining operations not specifically in
the Act.

160
9.5.2 Shaft sinking

Shaft sinking includes the cost of getting access to the location where extraction of minerals is to
commence. It includes the cost of sumps, pumps chambers, stations and ore bin accessory to a
shaft.

9.5.3 Housing and welfare facilities

Housing and welfare facilities include residential accommodation, houses for teachers and
nurses working for a mine school or a mine medical establishment, staff canteens, recreational
facilities or similar facilities used in mining operations. The facilities include any building
which was constructed on or after 1 April 1988 and used as a school or as a medical
establishment (hospital, a nursing home or a clinic) in connection with mining operations.

A school must be used by at least 50% of mine pupils, while a medical establishment must be
used by at least 50% of persons employed at a mine and their families. Housing facilities
include any building used mainly as a dwelling by one or more individuals who control the
company, in the case of a mine owned, tribute or leased by a company, in the case of a mine
owned , tribute or leased by a company which is controlled by not more than four shareholders
or directors. In the case of a mine which is not owned by a company, a dwelling house occupied
by the mine-owner would not be used for mining purposes but for domestic or private purpose
and so would automatically be excluded.

A dwelling must be located or be adjacent to the mine. Employees houses located 50km from a
mine were ruled to be adjacent to the site the case of BHP mineral. Yet an administration block
or office located away from the mine may be disqualified as mining capital expenditure.

The capital expenditure stated in this section shall be capped (maximum) as follows:

Item ZWL$
Any building used mainly as a dwelling by one or more individuals who control 100,000
the company, in the case of a mine owned, tribute or leased by a company
which is controlled by not more than four shareholders or directors.

Any residential unit used by staff employed at the school, hospital, nursing 500,000
home or clinic (teachers and nurses houses)
Any residential unit which is used for housing the holder‘s employees and their Cost
families. incurred
Any one such school, hospital, nursing home or clinic 500,000

EXAMPLE

M Ltd is owned by 3 shareholders. In 2020, it constructed 10 houses for its middle managers at
a cost of $3,000,000, 3 houses for nurses at $1,750,000 and 2 houses for the directors at
$300,000 each.

Calculate M Ltd capital expenditure ranking for capital redemption allowance.

ANSWER

Employees‘ housing (full cost) 3,000,000

161
Nurses‘ housing (restricted to $500,000 each) 1,500,000
Directors‘ housing (restricted to $100,000 each) 200,000
Capital expenditure 4,700,000

9.5.4 Preproduction expenditure

Preproduction expenditure is expenditure on mine development, general administration and

management (including and interest and other charges or loans utilized for mining purposes)
incurred prior to commencement of production or during a period of non-production. These
include expenditure on preliminary surveys, boreholes, development, general administration and
management expenditure (e.g. salaries & wages, etc.) and any interest payable on loans utilized
for mining purposes. It is submitted that production commences when ores and minerals are
extracted from the mine and are commercially marketed or sold

EXAMPLE

Eagles Ltd obtained a mine license in 2018. In 2019, it borrowed $3,000,000 from a bank, at an
interest rate of 10% p.a, and used this loan to drill a borehole for $250,000, $1,500,000 on mine
development expenses and $200,000 on salaries. Actual production commenced on 2 January
2020, but temporarily stopped in July and August 2020 due to underground excessive water.
The mine paid interest and salaries amounting to $300,000 and $450,000 respectively in 2020.

Compute its capital expenditure in 2020.

ANSWER:
2019 2020
Balance b/f - 2,250,000
Interest on loan 300,000 50,000
Salaries 200,000 70,000
Development expenses 1,500,000
Borehole drilling 250,000
Capital expenditure c/f 2,250,000 2,375,000

Interest and salaries incurred during non-production period July/August are treated as capital
expenditure.

2019 Interest = $3,000,000 x 10% = $ 300,000

2020 Interest = $3,000,000 x 10% x 2/12 = $ 50,000

Sales = $450,000 x 2/12 = $ 75,000

9.5.5 Computer software

Mining operators are put at par with non-mining operators with regard to claiming of capital
allowances on computer software developed or acquired. This is effected by amending the
definition of ―expenditure on equipment‖ to include tangible or intangible property in the form of
computer software that is acquired, developed or used by a taxpayer in connection with his or
her mining operations. The computer software" refers to ―any set of machine-readable
162
instructions that directs a computer's processor to perform specific operations‖. The effect is that
miners will be allowed to claim capital redemption allowances on computer software as
aforesaid long after non-mining operators were granted this concession in 2015. Miners will
therefore be entitled to claim CRA on computer software as aforesaid with effect from 1 January
2020.

9.6 Estimate of life of mine

An estimate of the life of a mine is the approximate life span of a mine, computed on the basis of
certified mineral reserves in each year. A company carrying on operations in a mine of which it
is the owner is required to furnish to Zimra an estimate of the life of its mine on annual basis.
The estimate should be based on the certified estimates of ore reserves and supported by
calculations showing how the estimate is determined. However, such estimate shall not exceed
the following life spans:

Type of mine Life estimate

Iron mine 5 years

Lead or zinc mine 10 years
Any other mine 20 years

The estimate shall constitute the basis of calculating the capital redemption allowance for the
particular year of assessment. An estimate of the life mine is computed from the beginning of
the tax year and is revised annually, but its revision does not affect CRA computed in any of the
previous years.

EXAMPLE

Bronzes Mines Ltd has submitted an estimate of the life of its mine as 12 years from 31
December 2018. What is the life of its mine for purpose of claiming CRA in 2018 tax return?

ANSWER

Years counting from 1 January 2018. Life of mine is counted from the beginning of tax year.

2/12 = $7,500

9.7 Computation of capital redemption allowance

Mining capital expenditure is written off against taxable income by a method called capital
redemption allowance (CRA). CRA can only be claimed once production has commenced.
Before this, the capital expenditure is carried forward to future years. CRA is computed using
any of the three methods namely new mine basis, life of a mine basis or mixed basis.

Method Description -

163
New  A new mine is a mine which commenced production on or after 1 April
Mine 1968, including a mine which was closed down or which changed
basis ownership and subsequently reopened on or after 1 April 1968.
 Method may be elected in the first in which production commences on a
new mine.
 CRA is equal to Current capital expenditure (CCE) + unredeemed
balance of capital expenditure (UBCE) brought forward.
 Any subsequent capital expenditure incurred is claimed in full in the
year in which it is incurred.
 Recoupment (RE) is included in gross income separately
 Thus 100% of capital expenditure is claimed as CRA
Life of  The method applies to owners of mines (individuals or companies).
mine  Capital expenditure incurred prior to production and the current capital
basis expenditure is aggregated, the total is then divided by the life of the
mine.
 Therefore CRA is equal to (UBCE –RE + CCE) /LOM
 The remaining balance after claiming CRA constitutes UBCE to be
used in the computation of CRA in the following year.
 The aggregate amount is divided by the life of the mine as
established at beginning of the year of assessment. The allowance is not
apportioned even if period of assessment is less than 12 months or where
there is a period of non-production in a year.
 A company which is not the owner of the mine, but which is working
on the mine is entitled to deduct in the year of production, an allowance
as fixed by the CG as considered to be fair and reasonable. In practice
however, the company can claim CRA on the shorter of leasing/tributing
period and the estimated life of the mine.
 An individual who is the owner of the mine can furnish an estimate
of the life of the mine and compute CRA in the same manner as a mine-
owing company. Alternatively, the individual can claim an allowance
considered by the Commissioner as fair and reasonable. The allowance
shall not be subject to objection and capital, provided it is properly made
and bona fide.
 An individual who is not the owner of the mine can claim an
allowance considered by the CG as fair and reasonable. The person
cannot use the ―life of mine‖ basis. Individuals and companies who are
the owners of mines can deduct the cost of shaft-sinking as a current
outgoing. However, where an extensive programme of shaft-sinking has
been undertaken, such cost shall be claimed over the life of the mine or
in a way the Commissioner considers to be fair and undertaken, such cost
shall be claimed over the life of the mine or in a way the Commissioner
considers to be fair and reasonable. An allowance on buildings, plant
and equipment and motor vehicles is generally fixed by the
Commissioner at 20% p.a based on the diminishing balance method.
 Where the mine is worked on a tribute basis, the Commissioner may
grant the allowance over the period of tribute. Expenditure on shaft-
sinking and development is generally allowed in the year of assessment
in which production commences.

164
Mixed  Accumulated capital expenditure brought forward from previous
basis year is spread over the assessed life of the mine, whilst current capital
expenditure is claimed in full.
 Therefore CRA is equal to (UBCE – RE) /LOM + CCE
 The method is used only where a taxpayer has made an election for
it.

EXAMPLE

Calculate CRA for Petro Mines (Pvt Ltd, an iron mine which commenced production in 2020 It
spent 2018 and 2019 developing the mine. During this period it incurred $900,000 shaft sinking,
$455,000 on mining building and $650,000 on wages. In 2020, it bought 3 PMVs for $560,000
and paid $255,000 in wages.

Mixed
Item New Mine Life of Mine Basis

Balance b/f (UBCE) 2,010,600 2,010,600 2,010,600

Shaft sinking 900,000 900,000 900,000

Mine buildings 455,000 455,000 455,000

Wages (capex) 655,600 655,600 655,600

Current capital expenditure 300,000 300,000 300,000

3 PMVs (restricted x
100000) 300,000 300,000 300,000

Wages (revenue) - - 0

CRA 2,310,600 462,120 702,120

New Mine = 2,010,600 + 300,000: LOM = (2,010,600 + 300,000)/5 years: Mixed Basis =
2,010,600/5years + 300,000

9.7.1 Recoupment

Expenditure means net expenditure after taking into account any refund or recoupment of capital
expenditure. The recoupment reduces capital expenditure. It is set off against unredeemed
capital expenditure brought forward. Where it exceeds current capital expenditure and
unredeemed capital expenditure brought forward, the excess is taken to gross income. The full
recoupment for a mining operation is represented by the full amount received from the disposal

165
of an asset, whereas the general recoupment is restricted to capital allowances previously
deducted.

In the case of items on which capital expenditure was restricted, e.g. passenger motor vehicles,
schools, hospitals etc, recoupment is equal to the deemed selling price of the asset.

EXAMPLE
Calculate the recoupment for Sandpit Mines on sale of its 3 passenger motor vehicles. The
vehicles were sold for US$42,000 and had been brought in 2011 at US$30,000 each.

ANSWER
Deemed cost/Actual cost x Actual selling price = US$30,000/US$90,000 x US$42,000
= $14,000

9.7.2 Prospecting or exploration

Prospecting or exploration expenditure is expenditure incurred by a miner in searching for

potential claims or in searching for minerals after a claim has been pegged. It includes the
expenditure for identifying mineral locations and any expenditure which is proved to the
satisfaction of the CG to have been incurred during the year of assessment on trenches, surveys,
boreholes, test pits, preliminary samples and other prospecting and exploratory works
undertaken for the purpose of acquiring rights to mine minerals in Zimbabwe or incurred on a
mining location in Zimbabwe. It includes any other capital expenditure incidental to prospecting
or exploration operation, other than expenditure qualifying under the definition capital
expenditure stated above.

Prospecting or exploration expenditure shall be deducted in full in the year of year assessment in
which it is incurred. Alternatively, the cost can be carried forward and allowed against income
from mining operations in any subsequent year of assessment. The taxpayer must elect the
method he wishes to adopt. Once the elections is made it shall be binding i.e. it is irrevocable.
There is no time limit for the carrying forward of the unclaimed balance.

9.7.3 Deductibility of royalties

Effective 1 January 2020 miners are allowed to deduct minerals royalties for income tax
purposes. This follows the reinstatement through Finance Act no 2 of 2019 of s15 (2) (f) (ii) of
the Income Tax Act which had been repealed with effect from 1 January 2013. Prior to this date
general miners were entitled to a deduction of royalty paid to the government since 1 January
2004 when the mineral royalty was introduced in Zimbabwe.

9.7.4 Assessed losses

Section 15(3) of the Income Tax Act provides for indefinite carrying forward of mining assessed
losses. They cannot be offset against income of other businesses or vice-versa. In addition,
different mine locations are ―dissimilar properties,‖ so that losses of a mining location are ring
fenced to that mining location. Therefore a person who is engaged in mining operations in more
than one mining location who has an assessed loss in respect of the year of assessment cannot
off set such assessed loss against the income of another mining location. The ring fencing
provisions are also extended to expenditure and income of a mine location. This entails that
expenditure of one mining location cannot be deducted against income of another mining
location. The ring fencing provisions of mining assessed loss commenced way back in 2001.
166
This is according to s15(3) (vi)which provides that” in the case of a person engaged in mining
operations in more than one mining location who has an assessed loss in respect of the year of
assessment ending on the 31st December, 2000, and at the end of any subsequent year of
assessment, no such assessed loss shall be allowed as a deduction unless the person concerned
submits for the approval of the Commissioner a breakdown showing the extent to which such
assessed loss is attributable to each of the locations concerned”. .

9.8 Replacement allowance

A deduction shall be granted of the full cost of a single replacement or renewal of buildings,
works or equipment which together with its accessories does not exceed $10,000. If the
expenditure is incurred on a building used as a dwelling by the shareholders/directors, the
deduction is restricted to $1,500, provided that the mine is controlled by not more than 4
shareholders or directors. A taxpayer has must make an election to qualify for the replacement
allowance. In addition, any recoupment arising out of an asset which was the subject of a
replacement election is limited to allowances previously granted.

EXAMPLE

Golden mine, an iron mine, has a net income of $3,100,000. Its UBCE on 1 January 2020 is
$340,000 and its capital expenditure incurred in 2020 is $1,250,000. Included in this
expenditure is $50,000 for new equipment. The new equipment was replacing old equipment
which was sold for $45,000. The old equipment was bought for $35,000 and it had qualified for
the replacement election. Golden mine uses mixed basis to claim CRA. How much is Golden
Mine‘s tax liability for the 2020 tax year?

ANSWER

Net income 3,100,000

Add recoupment on equipment 35,000
Replacement election (new equipment) (50,000)
CRA (1,268,000)
Taxable income 1,817,000

Tax thereon @ 24.72% 449,527

CRA = $340,000/ 5years + $1,200,000 1,268,000

Since the old equipment had qualified for the replacement election, its ITV on date of sale was
nil. Therefore, the recoupment is equal to $35,000 (35,000 -$0).

9.9 Mining rehabilitation expenditure

Mining rehabilitation are measures undertaken to prevent, minimize or remedy environmental

damage or restore the area disturbed by mining, including such other measures necessary to
close mine plant areas. They are also called mine reclamation costs. The Act does not
specifically state how such costs should be treated for tax purposes.

167
For a special mining lease operator, the expenditure on measures to prevent, minimize or
remedy environmental damage caused by development operations, where such measures are
taken pursuant to a mining development plan approved by the Minister responsible for the
administration of the Mines and Minerals Act are treated as development expenditure. It would
appear for an ordinary miner, the expenditure can come under the definition of ‗works‖ which
forms part of the definition of capital expenditure. Thus, ordinary miners can treat the mine
reclamation costs as ―capital expenditure‖.

9.10 Overburden removal costs

In open pit mining operations, it is necessary to remove the overburden and other barren waste
materials to access ore from which minerals can economically be extracted. The mineral body
lies close to the surface and is accessed by removing the relatively thin covering of earth
(overburden) and raising the ore. There is no permanent developing in this process as the earth
is replaced during the mining operations by way of back filling. This process is called stripping.
As pointed out in Hanna Iron Ore Co. v. CIR United States of Appeals Third Circuit, stripping is
not development of the mine but actually part of the production of ore.

Accountants treat the removal of overburden under surface mining as an asset in accordance
with the accounting framework (IFRIC 20). It recognizes that the stripping activity may benefit
both future and current period production and should thus be uniformly reported in the financial
statements.

The Act neither states nor prescribes how the expenditure should be dealt with. In South Africa,
the expenditure is ordinarily treated as revenue expenditure for tax purposes. In the Income Tax
Handbook the expenditure has been treated as capital expenditure.

9.11 Independent mining locations

Section 15(1) (c) of the ITA provides that each independent mine location should be assessed
separately despite being owned by a person with other mine locations. This entail the ring
fencing of income and expenditure of a mine location against set off with income and
expenditure of another mining location... However, section 15(2) (f) (i) provides for claiming of
CRA between mining location. It reads as follows: ―the deductions allowed shall be ―in respect
of income from mining operations, the allowances and deductions for which provision is made
in the Fifth Schedule in lieu of the allowances and deductions provided in paragraphs (c), (d), (e)
and (t); ―Provided that an allowance or deduction in terms of this subparagraph may be claimed
in respect of two or more mining locations together, whether or not the expenditure or losses are
attributable to either or any one of the mining locations concerned, where the Commissioner is
satisfied that the mining operations conducted on the mining locations are inseparable or
substantially interdependent, that is to say—(i) both or all of the mining locations are held by the
same taxpayer; and (ii) the mineral or minerals produced at the locations are part of an
integrated process of beneficiation under the control of the taxpayer.‖ The underlined words
were added by Finance Act no 1 of 2019 with effect from 1 January 2018 in order to bring as to
the meaning of the phrase inseparable or substantially interdependent

9.12 Mining operations vs other trades

168
Section 15(1) (c) of the ITA provides for ring fencing of mining operations and other businesses
or trades. It states that ―in a case where a person earns income from mining operations and
income from other trade and investment, any amounts allowed to be deducted in terms of this
section shall only be claimed in respect of the income to which they relate‖. The provision
entails separate assessment of income mining operation and income derived from other trades by
prohibition of setting off income and expenditure of mining operations against those of other
trade or investment or vice versa. In order to apply this provision there should be a clear
distinction between mining income and non-mining income. If income has its roots in mining
operations it will remain mining income despite not being a result of mineral sales. The case of
Western Platinum Ltd v C: SARS 2004 4 All SA 611(SCA) 67 SATC 1 which held that there
should be nexus or direct connection between income and mining operations in the sense of
extracting minerals from the soil to be conveniently be termed mine income confirms this view.
For example income from metal scrape have its roots in mining operation if such scrape is an
ancillary to the carrying on of mining operation or a result of such process..

9.13 Cessation of mining operations

When a miner ceases to operate a mine as a result of the life of a mine having expired or
minerals having been exhausted, he is allowed to claim the balance of UBCE in the year in
which the mine ceases to operate. However, the UBCE shall not be claimed, if a taxpayer
abandons a mine, e.g. by forfeiture of a claim, before its life has come to an end.

9.14 Transfer of ownership of a mine

Whenever a mine is sold, the buyer and the seller must jointly submit to Zimra a statement
showing the allocation of price the assets being sold. Where the disposal is for no valuable
consideration, they must allocate to each asset the cost which would rank as capital expenditure.
If the Commissioner is satisfied with such statement, he shall allow the amount so declared to
rank as capital expenditure for redemption to the transferee of the mine and such amount shall be
deemed to be a recoupment from capital expenditure in the hands of the transferor. If he is
unhappy with the statement furnished or if no statement has been furnished, he can prepare one
himself.

An opportunity exists for avoiding recoupment if the transfer is between related parties,
provided an election made. The assets will be transferred at UBCE as recorded in the
transferor‘s books, irrespective of the actual selling price. The transfer must take place in the
course of a scheme of reconstruction, merger, takeover or some other business combination,
which in the opinion of the CG is of a similar nature (see chapter 10 for details)

9.15 Mining Royalty

9.15.1 The value to be used in computing royalty

Section 244 of the Mines and Minerals Act (Chapter 21:05) requires every miner with a
registered mining location to pay royalty to the government on all minerals or mineral-bearing
products won by him or on his behalf from his mine location. It does matter such minerals are
sold within or outside Zimbabwe. Whereas the rates to be applied and the value to be used are
stipulated in s37B of the Finance Act (Chapter 23:04) which reads in part as follows: ―(1) With
effect from the 1st January, 2010, and every subsequent year of assessment, the following
persons shall, as agents for and on behalf of Commissioner-General of the Zimbabwe Revenue
169
Authority, deduct royalty on the following minerals at source, based on the face value of the
invoice therefor—―.

The Act has not defined the underlined words. In practice this should be taken to as the value of
the payable metal less deductions and penalties. The value of payable metal is determined using
reference pricing such the London Metal Exchange (LME); Shanghai Futures Exchange (SHFE)
or the Commodity Exchange Division of the New York Mercantile Exchange (COMEX). The
term payable metal means the percentage of mineral present (often determined using assay
reports) in the concentrate. Deductions and penalties are often comprised of treatment and
refining charges, and penalties for impurities and/or penalties for excessive moisture where
needed.

In summary the typical formula for computing the price payable back to the mine for purposes
of both income tax and royalties is R = PQ − FQ − RCQ –TCQ . Where: R= Gross revenues,
R=Commodity price, RC = Refining charge (where applicable), TC = Treatment charge (where
applicable) F = Freight costs (where applicable). In one way or the other the adjustments are on
account of the seller whether payable upfront or deducted from proceeds because the pricing of
refined is known and this is the starting point

9.15.2 Royalty rates

Section 37A of the Finance Act lays out the rates of royalties as follows:

Mineral Notes Rate

(%)
Diamonds (other than diamonds sold to any local diamond 1 10
manufacturer, for which no royalties shall be payable)
Precious stones 10
Gold 2 5
Platinum 10
Other precious metals 4
Base metals (other than chrome) 2
Black granite and other cut or uncut dimensional stone 3 2
Chrome 4 5
Industrial metals 2
Coal bed methane 2
Coal 1

Notes

1. Rate of royalty on diamond rate was reduced by an amending in the finance Act no 3 of
2019 from 15% from 10% with effect from 1 January 2020 through Finance Act no 3 of
2019
2. The rate of royalty for gold sold for a price of below US$12,000 per ounce is fixed at 3%
and 5% above this price. These measures take effective from 1 August 2019
3. Black granite and other cut or uncut dimensional stone royalty rate was fixed by an
amending in the Finance Act no 3 of 2019 but backed date to 23rd of February 2019. The
170
producers of black granite and other cut or uncut dimensional stone were classified as
miners by the Finance Act no 1 of 2019 effective 1 January 2019
4. Royalty on chrome was increased from 2% to 5% through Finance Act 8/2015 w.e.f 1
September 2015

9.15.3 Royalty rates on gold

c) Large producers

With effect from 1 October 2014, a lower rate of 3% is applied on incremental gold output of a
gold producer in each financial year. Such incremental output is computed using the previous
year‘s production as a base year and determined at the end of the financial year. The benefit of
the tax savings is not refunded to the miner but used to set off against his future tax
obligations.The Finance Act no 1 of 2019 has stated that the value of the tax benefit shall be the
value of the gold output in question based on the average prices realised for the gold in the year
of assessment in which the reduced royalty is claimed. The concession is not available to small-
scale gold miners.

d) Small gold miners

The rate of royalty on gold supplied by small scale gold miners for the period 1 January 2014 to
30 September 2014 was fixed at 3% (see Finance Act no 1 of 2014). It was reduced from 3% to
1% through Finance Act 8/2015 and this measure was backed to 1 January 2014. The rate was
increased through Finance Act no 2 of 2019 from 1% to 2% with effect from 1 August 2019. A
―small-scale gold miner‖ means a miner who, whether working on his or her own or with the
assistance of 1 or more employees, is classifiable as a ―micro-enterprise‖ in the mining and
quarrying sector of the economy by reference to the *Fourth and *Fifth Schedules to the Small
and Medium Enterprises *Act [Chapter 24:12]‖.

9.15.4 Royalty remittances and returns

Section 37A of the Finance Act places responsibility for the deduction and remittances of
mineral royalty to the ZIMRA on the Minerals Marketing Corporation of Zimbabwe (MMCZ) as
the exclusive agent for marketing and selling of all minerals produced in Zimbabwe except
silver and gold. Whereas for gold and silver, the list of persons responsible for collecting and
remitting royalties includes a financial institution in addition to MMCZ.. Section 37A as read
with s 245 of the Mines and Minerals Act requires royalty to be remitted to the ZIMRA no later
than the 10th day of month next to the month in which the proceeds from sale of minerals are
received or such other period as the Commissioner may for good cause allow. The royalties that
have not been remitted attracts interest at the rate of 25% p.a. Section 251 of the Mines and
Minerals Act places responsibility on the miner to submit a return to ZIMRA not later than the
10th day of each month. The return should show the output and full details of the disposal made.
Additionally, the miner should submit affidavits, certificates and documents relating to minerals
won and precious stones and to the mining commissioner the royalty payable in the preceding
month or the provisional amount of royalty.

If a person is unable to calculate the royalty due, the Commissioner-General is empowered to

assess a provisional amount of royalty. In so doing he shall at all reasonable times have access
for the purpose of inspection to all books and records, reports and other documents relating to
the acquisition, disposal or removal of any mineral or mineral-bearing product as may be
necessary for the purpose of ascertaining or verifying any return, details, solemn declaration,
certificate or document rendered. The Commissioner can also issue an order prohibiting the

171
disposal of any minerals or mineral-bearing products until all outstanding royalty has been paid
or the miner has entered an arrangement with the ZIMRA. A prohibition order can also be issued
if returns, details, solemn declarations, certificates and documents referred to in section two
hundred and fifty-one are delayed. .

9.15.5 Penalties for late remitted royalties

The Finance Act 1 of 2019 amended s37A (―Collection of mining royalties‖) of the Finance Act
(Chapter 23:04) to empower the Commissioner to give a notice to a person who paid the royalty
late to pay double the amount of the royalties payable (the primary civil penalty). If the person
fails without just cause to comply with the notice within the first 7 days of the period of 181
days, he or she shall be liable for a secondary civil penalty of $300 (or the maximum monetary
figure specified from time to time for level four, whichever is the lesser amount) for each day
the person remains in default, not exceeding a period of 181 days. If the person continues to be
in default after the 181 days, he or she shall be guilty of an offence and liable on conviction to a
fine not exceeding level ten or to imprisonment for a period not exceeding 6 months or to both
such fine and such imprisonment. The Commissioner can however waive the payment or refund
the whole or part of any secondary civil penalty if he is satisfied that the default was not wilful.
The said penalties shall constitute debts due by the infringer to the Zimbabwe Revenue
Authority and shall be recoverable in a court of competent jurisdiction by proceedings in the
name of the ZIMRA. They shall however be paid into and form part of the funds of the
Consolidated Revenue Fund.

9.15.6 Statutory Commissions

The Minerals Marketing Corporation (MMCZ) charges a commission on all mineral exports,
whether or not the sale is handled by it, at the rate 0.875% of the gross invoice value. Mineral
has a different meaning under the Minerals and Mines Act. It means any substance produced
from a registered mining location or quarry; or product derived from the smelting, refining or
other beneficiation of a substance produced from a registered mining location or quarry
manufactured or partly-manufactured thing which is declared to be a mineral, bur excluding any
substance or product declared not to be a mineral.

9.15.7 Conclusion

Mining operations are taxed in the same way as other businesses except for method used in the
claiming of capital allowances. Further, they also enjoy the unfettered carrying forward of
assessed losses unlike the 6-year limit applicable to other businesses.

172
Chapter 10: Capital Gains Tax

10.1 General overview

Capital gains tax arises from gains realized from the sale or deemed disposal of a specified asset
from a source within Zimbabwe. A specified asset means an immovable property or any
marketable security. It does not include movable property and intangible property (goodwill and
other intellectual property).

An immovable property includes land, dams, roads, all buildings or structures with foundations
in the soil.

A marketable security is any security, stock, debenture, share or any other interest capable of
being sold in a share market or exchange or otherwise, the scrip, certificate, warrant or other
instrument by which the ownership of or title to any such security, stock, debenture, share or
other interest aforesaid is represented. It includes any bond tradable on the stock market,
debentures, share or stock and any right derived out of participation in a unit trust, excluding any
form of loan or overdraft.

10.2 From a source within Zimbabwe

The CGTA employs a source based taxation system. It is founded on true source principles,
which states that only gross capital amount (proceeds) derived from a source within Zimbabwe
is taxable. It does not matter whether the person making the disposal is resident or non-resident
of Zimbabwe. Therefore the source of gain on an immovable property is where the property is
situated. As for marketable securities, it is the place the investor is conducting his investment
activities (ITC 1395 (1985)) i.e. the source of the proceeds from sale of shares is where the seller
carries on his investing or trading activities.

10.3 Payment of capital gains tax in foreign currency

Section 39A (9) of the Finance Act (chapter 23:04) is amended by Finance Act no 2 of 2019 not
to deem disposals for purposes of Capital gains Tax Act (chapter 23:01) not to be in Zimbabwe
dollar notwithstanding SI142 of 2019 which provides the Zimbabwe dollar as the sole legal
tender in domestic transactions from 24th of June 2019. It provides that―… it shall not be deemed
for the purpose of the Capital Gains Tax Act [Chapter 23:01] that all transactions involving the
sale or other disposal of a specified asset are in Zimbabwean currency, rather—….where any
such transaction results in a capital gain being received by or accruing to or in favour of a person
in whole or in part in a foreign currency, capital gains tax at the rate specified… shall be paid in
foreign currency on the capital gain or on such portion of it that is equivalent to the portion of
the total transaction denominated in foreign currency‖. This implies that where part of the
capital gain is in foreign currency only capital gains tax applicable to the capital gain in foreign
currency is remitted in foreign currency. The basis of apportionment is the capital gain.

10.4 Rates of Capital gain tax

Section 39A (10) provides that “for the purposes of determining the capital gain received by or
accrued to or in favour of any person in respect of a specified asset acquired on or after the 1 st
February, 2009, but the 22nd February, 2019, and disposed of after that date, no amounts shall
be deducted therefrom that are allowed to be deducted in terms of section 11 of the Capital

173
Gains Tax Act [Chapter 23:01]”. This amendment is meant to address the distortion brought
about by SI33 of 2019 which provides for United States dollar values as at 22nd of February
2019 to RTGS$ on 1:1 basis the Finance Ac.

Date of acquisition of specified asset Applicable rate

Acquired before 1 st of February 2009 and 5% of capital amount (proceeds less
sold thereafter exemptions)
Acquired after 1 February 2009 and sold 20% of capital gain (proceeds less exemptions
before 22nd February 2009 less deductions)
Acquired after 1 February 2009 and sold 5% of capital amount (proceeds less
after 22nd of February 2019 exemptions)
Acquired after 22nd of February 2019 and 20% of capital gain (proceeds less exemptions
sold thereafter less deductions)

10.5 Mechanics of the CGT system

Capital gains tax is chargeable in terms of s 6 of the CGTA at the rate of 20% of the capital gain.
Capital gain is the proceeds less the cost of acquisition and other associated cost of the specified
assets being disposed of. If the capital gain is $1,000 or less no capital gains tax will arise, the
amount is written off in the year of assessment. The following is the framework used to compute
capital gains tax liability:

Gross capital amount xxx

Less Recoupment (xxx)
Less Exemption (xxx)
Capital amount xxx
Less Deduction
Cost of specified asset xxx
Improvements, additions or alterations xxx
Less capital allowances (xxx)
xxx
Inflation allowance:
Original cost x 2.5% x no. of years xxx
Improvements, additions or alterations x 2.5% x no. of years xxx
Selling cost xxx (xxx)
Capital gain/loss before relief xxx
Less Reliefs (xxx)
Less Assessed loss b/f (xxx)
Capital gain/loss xxx

Where a specified asset (immovable asset or unlisted marketable) was acquired before the 1st
February, 2009, by the person selling or disposing of that asset capital gain is computed as 5%
of the gross capital amount realised from the sale or disposal of that asset. Listed marketable
securities are exempted from capital gains tax and subject to 1% withholding tax.

174
EXAMPLE

XYZ (Pty) Limited purchased a commercial building in 2010 for US$600, 000 and sold it for
US$800 000. Ignoring recoupment and capital allowances compute XYZ (Pvt) Limited‘s capital
gains tax liability if

a. The specified asset is sold on 22 January 2019

b. The specified asset is sold on 20 March 2019

ANSWER

a) If specified asset is sold on 22 January 2019

Item US$ US$

Gross proceeds 800,000
Less Exemption -
Capital amount 800,000
Less Deductions
Original cost
600,000
Inflation (600000 x10 years x 2.5%) 750,000
150,000
Capital gain (loss) 50,000

Tax thereon (50000 x 20%) 10,000

b) If specified asset is sold on 22 January 2019

Item US$ US$

Gross proceeds 800,000
Less Exemption -
Capital amount 800,000

Tax thereon (800,000 x 5%) 40,000

175
The following diagram is a summary the capital gains tax system in Zimbabwe:

Yes Specified Non

No
asset is from taxable
Zimbabwe
source?

Gross capital amount

Acquired
after 1 Listed No Exemptions
Yes shares
Feb
2009? Capital amount

Yes Deductions

Capital gain

1% final Rate of tax (20%)

withholding
taxIs it specifically
allowable by the
Tax payable
Act?
Listed
shares
No
5% of gross
Other assets
capital amount

10.6 Gross Capital Amount

Gross capital amount is ‗the total amount received by or accrued to or in favour of a person or
deemed to have been received by or to have accrued to or in favour of a person in any year of
assessment from a source within, from the sale on or after the 1st August, 1981, of specified
assets excluding any amount so received or accrued which is proved by the taxpayer to
constitute ―gross income‖ (i.e. recoupment), but including capital allowances.‘

The terms ―total amount‖, received by or accrued to or in favour of a person‖ have the same
meaning as applied for income tax (refer to chapter 2 for details). Like the Act, gross capital
amount is accounted for when received by or accrues to the taxpayer, whichever occurs first ,
despite the fact that the capital gain tax is payable within 30 days of a transfer of a capital asset.

While receipts and accruals of a capital nature are not subject to income tax, the reverse is also
true under the CGTA. Regarding rules for differentiating capital receipts or accruals from
income tax receipts or accruals, this was outlined in chapter 2

Gross capital does not include amounts that are taxable under the Act, for example recoupment.
Taxpayers whose receipts and accruals are exempt from income tax e.g. agricultural, mining and
commercial institutions or societies not operating for profit or gain, building Societies,
employees saving schemes or funds approved by the Commissioner (refer paragraph 1 – 3 of the
3rd Schedule to the Act regarding taxpayers exempt from tax) are not affected by this rule.
176
EXAMPLE

XYZ (Pty) Limited purchased a commercial building in 2015 for $100, 000 and sold it for $150
000 on 30 September 2018. The building was used by XYZ (Pvt) Limited wholly for purposes
of its trade. You are required to show XYZ (Pvt) Limited‘s capital amount.

ANSWER

Gross capital amount 150,000

Less Recoupment ($100,000 x 2.5% x 3 years) 7,500
Capital amount 142,500

10.7 Deemed accruals

A capital amount shall be deemed to have accrued to a person in the circumstances set out under
s10 (1) and (2) of the Act and the provisions of those section equally apply under the CGTA.
Once a capital gain or capital loss has been determined, it may in certain instances be attributed
to a person other than the person who disposed of the asset. Accordingly, in certain instances,
capital gains are attributed to spouses, to donors, to parents of a minor child and to residents in
respect of gains vesting in non-residents. The attribution rules are only triggered where the gain
is directly or indirectly attributable to a donation, settlement or other gratuitous disposition by
the person to whom the gain is attributed, or where the gain is derived from a tax avoidance
scheme to which that person is a party.

10.8 Foreign exchange gain

Gross capital amount is an amount received or accruing in the United States dollar. If it is
received or accruing in some other currency the conversion rules shall apply.

10.9 Deemed sales

Certain disposals are deemed to trigger capital gains tax. Such deemed disposals include
gratuitous disposals (disposals for a consideration not measurable in money and disposals
between connected persons other than at an arm's length price), expropriation of asset, sale of
asset by way of a court order, redemption or maturity of asset, deed of sale and cessions.

10.9.1 Disposal otherwise than by way of sale

Where a person disposes of a specified asset otherwise than by way of sale, he is deemed to have
sold his asset at an amount which, in the opinion of the Commissioner, is equal to the fair market
price of the specified asset.

10.9.2 Expropriation of specified 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.

10.9.3 Sale in execution of court order

177
Where a specified asset is sold in execution of a court order it shall be deemed to have been sold
at the amount realised from the sale.

10.9.4 Redemption or maturity of specified asset

Redemption or maturity of a specified i.e. preference shares by a company is a transfer in the

hands of shareholders and they will be liable for capital gain for the same. The gross capital
amount for purposes of computing the capital is the amount received on maturity or redemption
of the shares.

10.9.5 Deed of sale

A deed of sale is a sale on which ownership of the specified asset will pass to another person
upon the payment of the whole or a portion of the sale agreement. Where a person transfers to
another his rights under a Deed of Sale in respect of the passing of ownership of a specified
asset, he is deemed to have sold the asset for an amount equal to the whole amount received by
or accruing to him as a result of the transfer.

10.9.6 Cessions

A transfer of rights in a residential, commercial or industrial stand is deemed to be a disposal of

the stand. It does not matter whether the stand is serviced or not or whether the person‘s title to
the stand is registered under the Deeds Registries Act (Chapter 20:05). The amount to be
included in the gross capital amount is the amount paid to or accruing to the transferor.

10.9.7 Relinquishing of rights in condominium

A relinquishing of membership by a member in condominium property is deemed to be a

disposal of the property by the member. Gross capital amount is the amount paid to or accruing
to the member as a result of his relinquishing his rights in the property.

10.10 Exemptions

Exemptions are contained in section 10 of the CGTA, as follows:

 Sale of a principal private residence if such person was, on the date of the sale, 55 years or
above
 Sale of a specified asset by a public entity, an organisation not for profit and a quasi-
Government and other related bodies. The exemption however does not apply to agricultural,
mining and commercial institutions or societies not operating for the private pecuniary profit
or gain of the members, building societies and employees saving schemes or funds approved
by the Commissioner
 The first $18,000 on sale of any unlisted marketable security by a person who is 55 years or
above.
 Sale of listed marketable securities, these are subject to a final withholding tax of 1%
 Sale or disposal by an employee of his shares or interest in an approved employee share or
ownership trust to the trust.
 The realization or distribution by the executor of a deceased estate or a specified asset
forming part of such estate
 Sale of specified asset by licensed investor or industrial park development
 Sale of any marketable security in respect of any loan to the State or any company in which
all shares are owned by the State, a local authority or a statutory corporation
178
 Sale by a petroleum operator of immovable property used for the purposes of petroleum
operations, to another petroleum operator, property should be applied to same use by the
buyer
 Disposal of any shares withheld by an insurance company for purposes of paying
demutualisation levy
 Sale or disposal of any shares or other marketable securities to the Sovereign Wealth Fund
established by the Sovereign Wealth Fund of Zimbabwe. Effective 1 st of January 2019.
 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 i.e. the component representing excess of fair market price over the actual amount
received by the taxpayer.

A community share ownership trust or scheme is a scheme approved in terms of the

Indigenisation and Economic Empowerment (General) Regulations, 2010, published in SI 21 of
2010. On the other hand, indigenisation partner is an indigenous person who benefits (whether
as an employee or in any other capacity) under an indigenisation implementation plan approved
in terms of the Indigenisation and Economic Empowerment (General) Regulations, 2010,
published in SI 21 of 2010

10.11 Deductions

Deductions are granted in terms of s 11 of the CGTA. The aggregate of deduction (base cost) of
a specified asset is the sum of expenditure actually incurred by the taxpayer in acquiring or
constructing the specified asset together with expenditure directly related to its improvement and
cost of disposal etc.

10.11.1 Original cost

Section 11(2) (a) of the CGTA allows for the deduction of expenditure to the extent to which it
is incurred on the acquisition or construction of such specified assets that are sold during the
year of assessment. This includes all costs directly related to the acquisition or disposal of the
asset (e.g. transfer costs, relocation costs) and valuation costs. The following are some of the
direct costs of purchase or construction of specified assets:

 Cost of acquisition
 Cost of creating an asset
 Interest on bond used to purchase or construct a specified asset which was not deductible
under the Act (under the Income Tax Act)
 Cost of obtaining a valuation for CGT purposes
 Cost of surveyor, valuer, auctioneer, accountant, broker, agent, conveyancer etc.
 Stamp duty, transfer duty or similar duty
 Advertising costs to find a seller
 Installation costs including foundations and supporting structures
 VAT paid and not claimed or refunded in respect of an asset
 Costs of establishing, maintaining or defending a legal title or right in the asset

A taxpayer who acquired a specified asset other than by way of purchase e.g. through
inheritance or donation is entitled to deduction as well. Where the acquisition is by a way of
inheritance, the amount to be deducted is the valuation of the specified asset as used for estate
duty purposes (estate value). For a donation, the taxpayer is entitled to deduct an amount that the
donor included in his gross capital amount or gross income, whichever is applicable.
179
10.11.2 Improvements

Taxpayers are entitled to deduct expenditure incurred by them in enhancing the value of a
specified asset i.e. cost of altering, additions or improving the specified asset in terms of section
11(2) (b) of the CGTA. Costs which are deductible in determining income tax are excluded e.g.
repairs. For a share block company (company housing investment property) additions, alteration
or improvements are deemed enhancement cost and deductible even if the company is selling the
shares instead of the immovable property.

Capital expenditure deductible in terms of the 4th, 5th Schedules and paragraph 2 of the 7th
schedule, capital allowances, capital redemption allowances, special deductions applicable to
farmers respectively and other capital related expenditure deductible in terms of the income tax
Act etc. should not be deducted when computing capital gain. Deducting them would result in
double deduction.

10.11.3 Inflation allowance

On disposal of a specified asset a taxpayer is entitled to a deduction of an inflation allowance of

2.5% of the original cost and cost of improvement in respect of each year or part of a year of
assessment computed in terms of s 11(2)(c) of the CGTA.

10.11.4 Incidental cost of disposal

Section 11(2)(d) of the CGTA permits deduction of incidental disposal cost, i.e. legal costs,
advertising costs, selling expenses, estate agency fees or commission, brokerage commission or
fee, valuation costs, etc. The expenditure is deductible to the extent that it is directly incurred for
the purposes of or in connection with the sale of a specified asset.

10.11.5 Bad debts

A bad debt, other than doubtful debts, arising out of sale of specified assets is deductible. The
debts should be due and payable to the taxpayer and proved that they are irrecoverable. Further,
the amount should have been included in the current year of assessment or was included in any
previous year of assessment in the taxpayer‘s capital amount in terms of the CGTA.

10.11.6 Legal expenses

Expenditure incurred for successful capital gains tax appeal cases in the High Court, Special
Court or Supreme Court is deductible.

10.11.7 Exchange losses

Foreign currency losses are deductible in the computation of capital gains tax. However, capital
exchange losses are not allowable until they are realized. Exchange losses are realized when the
foreign currencies are physically converted into the functional currencies of the business.

10.11.8 Capital losses

Section 11 (3) of the CGTA makes a provision for the deduction from capital gain in the year of
assessment, any assessed capital loss determined in respect of the previous year of assessment.
Any capital loss that cannot be immediately claimed is carried forward and deducted in future.
There is no limit on the number of years a capital loss can be carried forward into the future.
However a loss of $100 or less cannot be carried forward, i.e. the loss is reduced to nil in the
180
year of assessment in which it is incurred. Capital loss is also ring fenced to capital gains tax,
meaning it cannot be set off against other tax heads or vice versa.

Capital loss is specific to a taxpayer and cannot be transferred from one taxpayer to the other. In
this regard, a taxpayer who is adjudged or declared insolvent or who had his property or estate
assigned for the benefit of his creditors cannot pass on his capital losses to a rehabilitated
taxpayer or another taxpayer.

Whenever there is conversion of a company into a private business corporation or vice versa, the
Commissioner will permit the capital loss to be inherited or transferred from the company to the
private business corporation or vice versa. However the scheme should not be taken with the
motive of taking advantage of the existence of capital loss.

Related companies (companies under the same control) are permitted to transfer capital loss to
each other. Therefore, if during any year of assessment there is a change in the shareholding of a
company with an assessed capital loss or in the shareholding of any company which directly or
indirectly controls any company, a capital loss can be transferred to the transferee. The
Commissioner may however not sanction the transfer of the capital loss if he is of the view that
the change in control was made with view to take advantage of capital loss. A company is
deemed controlled by another where its majority (at least 50%) of its voting rights attaching to
all classes is controlled indirectly or directly by that other person or company.

10.11.9 Expenditure deductible under more than one section

Where a deduction of expenditure is allowable under more than one provision in the CGTA,
whether in the same year or different year of assessment is claimed once. A taxpayer should
elect the provision through which he want it deducted.

10.11.10 Lease improvements

A lessor who is taxable on the value of lease improvements effected by the lessee in terms of s
8(1)(e) of the Income Tax Act is deemed to have incurred expenditure on such improvements
and shall be deductible to him when computing capital gains tax on the immovable property.
For purposes of computing inflation on such improvement, the expenditure is assumed to be in
the year in which each installment is included the lessor‘s gross income.

10.11.11 Deed of sale

Where a person transfers to another person his rights under a deed of sale in respect of the
passing of ownership of the specified asset which is the subject of the deed of sale, he shall be
deemed for the purposes of this section to have acquired the specified asset from the person with
whom he entered into the deed of sale for an amount equal to the amount payable by him under
the deed of sale.

10.12 Prohibited deductions

No deduction shall be allowed in the computation of capital gains tax in respect of expenditure
incurred of a specified asset situated outside Zimbabwe, a specified asset exempt from capital
gains tax or expenditure not related to the capital asset disposed.

181
10.13 Partial disposals

Regarding sectional titles and division of specified asset being sold and the other portion being
retained, rules of apportionment of cost will apply. The cost shall be split between the part sold
and the part retained, using the appropriate basis. The balance of the cost is carried forward until
the eventual disposal of the remaining part of the asset.

10.14 Damage or destruction of a specified asset

Where an asset is destroyed, it is deemed sold for an amount equal to receipt or accrual in
respect of the damage or destruction. A taxpayer will therefore be required to bring such receipt
or accrual e.g. insurance compensation into gross capital amount for purposes of computing
capital gains tax on the specified asset. Section 13(2) however deems the specified asset not to
have been sold where the receipt or accrual in respect of the damage does not exceed the original
cost of the specified asset plus its cost of improvement i.e. s11(2) (a) and (b). In such a situation,
the taxpayer should reduce the aggregate of s11 (2) (a) and (b) with receipt or accrual in respect
of the damage or destruction, instead of computing capital gains tax. If at a later stage the
specified asset is sold, an inflation allowance i.e. s 11(2) (c) will be calculated in relation to the
reduced total amount effective the date of such reduction, while inflation allowance on the costs
before reduction will be computed from the date the costs were first incurred up to the date of
reduction.

EXAMPLE

Mr. X bought a warehouse in 2016 for $80,000. In 2017, the warehouse was damaged by fire
and the insurance money amounting to $60,000 was received as compensation. In 2018, the
warehouse was eventually sold for $50,000. Show the capital gains tax effect of this transaction.
Ignore capital allowances.

ANSWER

2017
Insurance monies 60,000
Less Deduction
Cost (80,000)
Reduced cost c/f (20,000)

2018
Gross capital amount 50,000
Less Deduction
Reduced cost 20,000
Inflation
On original cost ($80,000 x 2 year x 2.5%) 4,000
On reduced cot ($20,000 x 2 years x 2.5%) 1,000 25,000
Capital gain 25,000

A taxpayer who otherwise decides to use the receipt or accrual in respect of the damage to
replace or repair the specified asset is treated in terms of s13 (3) as having disposed of the
specified but shall be granted a relief of capital gain that would otherwise be taxable in respect
of the receipt or accrual used to replace the specified assets. Capital gains tax liability will only
accrue on the proportion of the proceeds not expended in replacement of the asset damaged. The
taxpayer should satisfy the Commissioner that he has or will expend the whole or part of the
proceeds in respect of the damage or destruction to repair or replace the specified asset within 2
182
years of its date of damage or destruction. The taxpayer should replace the specified asset by an
asset of similar nature otherwise the relief cannot be granted.

EXAMPLE

ABC (Pvt) Ltd constructed a finished goods warehouse in June 2013 for $125,000. In July 2017
the building caught fire and was badly damaged. As a compensation for the damage, the
company was paid $150,000 by its insurer and used $130,000 of the money to replace the
building, which was brought into use on 1 January 2018. Show the capital gains tax effect of the
transaction. Maximum capital allowances were claimed.

ANSWER

Gross capital amount 150,000

Less recoupment (125,000)
Less Deduction
Cost 125,000
Less capital allowances (125,000)
Inflation ($125,000 x 2.5% x 5 years) 15,625 15,625
Capital gain 9,375
Less Relief ($130,000/$150,000 x 9,375) 8,125
Capital gain 1,250

In the event that the replacement specified asset is sold, the amount which was expended on
acquiring or purchase shall not be allowable as a deduction.

EXAMPLE

This example is continued from the previous example. The replacement asset was sold on 3
September 2018 for $160,000. Show the capital gains tax effect of this transaction.

ANSWER

Gross capital amount 160,000

Less Deduction
Cost ($150,000 -$130,000) 20,000
Inflation ($20,000 x 2.5% x 1 year) 500 20,500
Capital gain 139,500

10.15 Fair market value

If a person purchases a specified asset from any other person at a price in excess of the fair
market price or where he sells a specified asset to any other person at a price less than the fair
market price the Commissioner may, for the purpose of determining the capital gain or assessed
capital loss, determine the fair market price at which such purchase or sale shall be taken into his
accounts or returns for assessment.

183
10.16 Schemes of Reconstruction

10.16.1 Conversion of foreign company

Where the ownership of a specified asset is transferred from a company formally incorporated
outside Zimbabwe (non-resident company), which was carrying on its principal business in
Zimbabwe to its successor Zimbabwean incorporated company, the transferor and transferee
may elect to transfer such specified asset at base cost notwithstanding the terms of the agreement
of sale. The base cost will then become the price to be used by the transferor for capital gains
tax, and the cost of the specified asset to the transferee. The effect of this provision is a complete
capital gains tax relief in the hands of the transferor. It does not matter whether the transfer is
made from a company with or without assessed loss. The provision is meant to apply to a branch
of non-resident company which is subsequently converted or incorporated to be a Zimbabwean
company. On conversion, the condition is that no new shareholder should be taken aboard and
the old shareholding should not be varied.

Capital gain tax shall be computed when the specified asset is eventually sold to a third party.

10.16.2 Related companies

In terms of s15(1) (b) of the CGTA, a transfer of a specified asset between related companies
(companies under the same control) shall not be subject to capital gains tax, subject to an
election being made. The specified asset will be deemed transferred at base cost (amount equal
to section 11(2)(a) to 11(2)(d)) at the date of transfer, notwithstanding any price paid in
exchange of the specified asset. The base cost will then become the price to be used by the
transferor capital gains tax and the cost of the specified asset to the transferee. It is therefore
submitted that intragroup selling cost and transfer expenses (section 11(2) (d)) are deductible
when the property is eventually sold. The transfer should be made between companies under the
same control in the course of or furtherance of a scheme of reconstruction of a group of
companies or a merger or other business operation which, in the opinion of the Commissioner, is
of a similar nature. The relief of capital gain tax is conditional upon the election being made not
later than the date of submitting capital gains tax, a return for assessment of capital gain.

Section 15(1) (b) provides the taxpayer with an opportunity to sale or transfer specified assets to
their sister companies without being charged tax, by rolling forward the capital gain tax until the
property is sold or disposed of outside the group i.e. capital gains tax will only become payable
when the specified asset is sold to a third party. Thus, a perpetual sale of an asset between
companies under the same control will not result in capital gains tax, as long as an election is
made. When the specified asset is sold to third party, capital gains tax shall be computed as if the
specified asset has always been in the hands of the transferor. A company is under the same
control with another, if it is controlled by another. A company is deemed to be under the control
of an individual if the majority of voting rights attaching to all classes of shares in the company
is controlled, directly or indirectly, by the individual. An individual and his nominee are deemed
to be one individual. Companies that are controlled by one company are companies under the
same control i.e. fellow subsidiaries. The subsidiaries still need to be effectively controlled at
least 50% by one company.

It is submitted that in the case of companies under the same control the transferee does not
necessarily have to be a resident of Zimbabwe.

184
10.16.3 Conversion of a Company to Private Business Corporation

A company which is incorporated under the Companies Act (Chapter 24:03) which converted
into a Private Business Corporation or vice versa would also qualify for the capital gain tax
exemption subject to an election being made, whether or not there is assessed loss. Capital gain
tax will however arise when the specified assets are eventually sold by the transferee to a third
party. Such capital gain tax shall be computed as if the asset has always been in the hands of the
transferor.

10.16.4 Share exchange

Section 15(2) of the CGTA provides for capital gains tax relief in a 'share-for-share transaction'.
A share for share transaction involves an exchange arising when a marketable security issued by
a company involved in the scheme, merger or operation is transferred from one person to
another for no cash consideration, in exchange for a marketable security issued by another such
company. The exchange must take place between related companies (companies under the same
control) in the course of or furtherance of a scheme of reconstruction of a group of companies or
a merger or other business operation which, in the opinion of the Commissioner, is of a similar
nature or between a former foreign company and its successor Zimbabwe company (i.e. in a
conversion of foreign company). Thus, the transferor may elect that, notwithstanding the terms
of any agreement of sale, the marketable security transferred by him shall be deemed to have
been sold for an amount equal to the base cost (section 11(2)(a) to (d)) at the date of transfer in
respect of marketable security transferred by him. The election should be made not later than the
date for submission of a return for the assessment of capital gain.

Reorganization takes place where new shares or a mixture of new shares and debentures are
issued in exchange for the original shareholdings. The new shares take the place of the old
shares. If an election is made these shares will not suffer capital gains tax or withholding tax.
The problem is how to apportion the original cost between the different types of capital issued
on the reorganization. If the new shares are quoted, then the cost is apportioned by reference to
the market values of the new types of capital on the first day of quotation after the
reorganization.

The following documentation is required to effect transfer when a specified asset is transferred
between related parties:

 A completed Capital Gains Tax 1 Form

 A property sale agreement
 A sale agreement for the new property when claiming partial or full rollover
 A deed of transfer or title deeds
 A proof of payment for addition as, alterations or improvements incurred on the property
 A letter of undertaking to pay withholding tax for client represented by a depository
 A proof of payment of Capital Gains Tax or withholding tax
 A copy of a marriage certificate for a transfer between spouses
 A special board resolution signed by the Company Secretary or Chairman bearing on
agreement of the proposed mergers or reconstruction.
 An organization chart, share register of the company and CR 14.

Almost similar documentation is required when an election for rollover of capital gains tax. The
election should be made in writing to the Commissioner and should be supported by the
following:

185
 Copies of CR14 forms for the companies involved.
 A board resolution authorizing transfer of assets or the reconstruction or scheme.
 Share certificates in respect of the shares that were disposed of by the subsidiary companies.
 A wear and tear schedule showing the Income Tax Values, (ITVs), of the assets being
transferred.
 Completed CGT forms (CGT1) for each participating company.
 Schedules of Capital Gains Tax calculations showing the tax that would arise in the event
that this application was not made.
 A diagram showing group structure before and after the reconstruction.

10.17 Bonus issue

A bonus issue constitutes an acquisition at nil value. Capital gains tax is only triggered on the
disposal of those shares and the cost of original shares is diluted (shared) between original
shares and the bonus shares.

It does not result in the change in the cost base. Its effect is that the existing base cost will be
spread amongst increased shares. The inflation allowance on the cost of the bonus issue will still
be computed effective the original shares were acquired. Bonus issue results in acquisition of
shares for free by reason of holding the shares in a company.

EXAMPLE

Mrs. X acquired 10000 shares in Portfolio Securities in June 2013 at 20 cents a share. In 2015,
Portfolio Securities made a bonus issue of 1 new share for every 2 held. As a result, Mrs. X
received 500 shares more and sold 50% of his total shares for 80cents each on 16 April 2016.
Show the new cost per share and Mrs. X‘s capital gain/ (loss).

ANSWER

New cost per share is 13.33 cents i.e. $2,000/ (10,000 + 5,000).

Capital gain
Gross capital amount 6,000
Original cost (13.33 x 7,500 shares) 1,000
Inflation ($1,000 x 2.5% x 4 years) 100 1,200
Capital gain loss 4,800

10.18 Rights issue

Under a rights issues the person is given shares which he should pay for at a discount upon
exercise of the right. It results in the increase in the base cost of the shares. The additional cost is
treated as an enhancement cost, which is deductible when computing capital gains tax. Inflation
allowance on the cost of the rights issue is computed from the date it was incurred.

10.19 Shares reduction and buy-back

In terms of s20 of the CGTA, a capital gain/loss is recognized when a company recovers or
recoups proceeds from specified asset which has not been sold. The common scenario is a share
reduction or redemption. The gain can be deferred if the proceeds of the share reduction or buy
back are insufficient to cover the base cost of the shares (original cost plus improvements). The
proceeds will be set off against the new shares. The tax deferral would last until the time the

186
asset is sold or when it is disposed of at above the base cost. At that time, inflation allowance
shall be computed based on each successive reduction.

Steps

a) Establish whether proceeds from reduction exceeds the base cost of the shares (original cost
plus improvement cost)
b) Where the proceeds are less than base cost, reduce base cost by proceeds. No capital tax is
computed
c) When the shares are eventually sold, use the reduced cost as the cost of the disposed of
shares.

EXAMPLE

Eugene bought 100,000 shares at 40c each in S Ltd in June 2011. In December 2012, she
received 20,000 shares of 25c each when S Ltd effected a share reduction. Another share
reduction was effected in June 2013 and Eugene was paid 30c share for 30,000 shares. She sold
the remainder of the shares for 80c each in June 2016. Show Eugene‘s capital gain/loss.

ANSWER

No gain/loss accrues as long as the reduction proceeds cannot cover the base cost of the shares.
The proceeds shall be set-off against the base cost of the shares.

Original cost 40,000

Less reduction (20,000 x 25c) 5,000
New share cost on 21 Dec 2012 35,000
Less reduction (30,000 x 30c) 9,000
New share cost on 21 Jun 2013 26,000

Gross capital amount 40,000

Less Deduction
Cost of shares (new cost) 26,000
Inflation
$40,000 x 2, 5% years 2,000
$35,000 x 2, 5% x 2 years 1,750
426,000 x 2, 5% x 4 years 2,600 (32,350)

Capital gain (loss) 7,650

10.20 Transfer of specified assets between spouses

Spouses are taxed separately. As such if they jointly own the asset, any gain accruing from the
sale is apportioned between them in the ratio of their respective interests in that asset at the time
of disposal. However, they enjoy a benefit of capital gain deferment should they transfer or sale
specified assets to each other, subject to an election being made. They are permitted by s16 of
the CGTA to transfer ownership in specified assets to each other without suffering capital gains
tax, subject to the transferor and transferee making an election. This also applies to a transfer of
ownership of a person‘s principal private residence to his former spouse in compliance with an
order of a court providing for the maintenance of the former spouse or dividing, apportioning or
distributing the assets of the former spouses on or after the dissolution of their marriage.

187
A person, who disposes of any immovable property or marketable securities to his/her spouse,
whether in the ordinary course of life or as a consequence of divorce, can defer the gain until the
property is transferred to a third party. The transferor and transferee may elect that the base cost
(amount equal to section 11(2) (a) to 11(2) (d)) at the date of transfer, be the transfer price
notwithstanding any price paid in exchange of those assets. The relief is also conditional upon
the election being made not later than the date on which the person making the election submits
a return for the assessment of his capital gain for the purposes of this Act. If the specified is then
sold or disposed of to a person who is not the spouse of the seller, the capital gain or assessed
capital loss in the hands of the seller shall be calculated as if the asset had at all times remained
in the ownership of the first transferor to whom this section applies.

EXAMPLE

In August 2013, Mr X bought a house for $95,000. Mr X is married to Mrs X. On 3 July 2016,
Mrs X was gifted with the house by her husband, when the house had a fair market value of
$125,000. Mrs X however sold the house to her uncle on 2 December 2017 for $120,000. Show
the minimum capital gains tax effect of these transactions.

ANSWER

House is transferred at base on 3 July 2016 if an election is made i.e.:

Cost of acquisition 95,000
Inflation allowance $95,000 x 2.5% x 4 years 9,500
Base cost 104,500

Capital gains realised will be taxed when Mrs X disposes of the house to her uncle (a third
party):

Gross capital amount 120,000

Less deduction
Base cost 95,000
Inflation allowance $95,000 x 2.5% x 5 years 11,875 106,875
Capital gain 13,125

Tax thereon @ 20% 2,625

10.21 Transfer of business property to company

A transfer by an individual of an immovable asset which was being used by him in his trade to a
company he controls does not result in chargeable gains subject to an election being made
(section 17 of the CGTA). The transferor and the transferee will be permitted to transfer the
property at its base cost i.e. section 11 (2) (a) to 11(2) (d) as established in the hands of the
transferor, notwithstanding the price exchanged. The individual should satisfy the
Commissioner that the immovable property was used by him for purposes his trade and the
company will continue to use the property for purposes of its trade. Further, the election should
be made not later than the date of submitting a return for assessment of capital gain.

In the event the transferee subsequently sells or dispose of the property to a third party, the
capital gain or assessed capital loss in the hands of the seller shall be calculated as if the property
had always been the hands of the individual. The implication is that the base cost of the property
as it applies to the transferor is used and inflation allowance computed accordingly. Where the

188
transfer is made to a company under the same control capital gain will be rolled forward until
the property is sold to an unrelated party.

The qualification to the roll-over in section 17(c) of the CGTA is that ‗the individual controls the
company, whether through holding a majority of the company‘s shares or otherwise‘. It is clear
that where one controls a company he/she must have at least 51% shareholding in the company.

EXAMPLE

Mr. X who has been carrying on sole trading business, leasing investment property to companies
and individuals requiring offices. The leased property was constructed in June 2012 for
$380,000. On 11 January 2016, Simba incorporated a company controlled 80% buy him and
20% by his spouse, which took over the investment property at a fair market price of $450,000.
Show minimum capital gains tax effect of the transaction.

ANSWER

Mr. X controls the company; he can elect to transfer the property at its cost base, making neither
capital gain nor loss on transfer. The gain he defers by making this election is as follows:

Gross capital amount

450,000
Less Recoupment ($380,000 x 2.5% x 4 years)
(38,000)
Less deduction
Cost 380,000
Capital allowances ($380,000 x 2.5% x 4 years) (38,000)
Inflation ($380,000 x 2.5% x 5 years) 47,500
389,500
Capital gain
22,500

10.22 Hire purchase relief

Where a specified asset is sold under a hire purchase agreement, a deed of sale or credit sale
agreement, the full gross capital amount accrues to a taxpayer on the date an agreement is
entered. It does not matter whether the full value of consideration agreed upon is received in
instalments in different years. A taxpayer will then be granted a relief (allowance) on the
outstanding debtors in terms of section 18 of the CGTA. The relief is deducted from the
taxpayer‘s capital gain, but will be brought into capital gain in the following year of assessment.
The allowance under a hire purchase agreement is computed as follows:

A x (B-C)
D

A is the amount not yet receivable (debtors) under the sale agreement at the end of the year
of assessment.
B is the capital amount accruing under the sale agreement
C is the base cost (acquisition, improvement, inflation allowance and selling cost)
D is the gross capital amount accruing under the sale agreement

189
The hire purchase allowance computed as above must be entered as capital amount in the
taxpayer‘s return of the following year of assessment and to be substituted by a fresh allowance
determined in that year of assessment. In the event that the agreement is ceded or otherwise
disposed of, the hire purchase allowance shall cease to be granted in the year of assessment in
which the agreement is ceded or otherwise disposed. Should the agreement be cancelled the
difference between the total of the amounts received by the seller and the total of the amounts
included in the capital gains is taxable in the year of assessment in which the cancellation takes
place. The hire purchase provision (section 18 of CGTA) will cease to apply after that year of
assessment. If the hire purchase value is $50 or below it shall be disregarded. A transfer of the
specified asset under a deed of sale is treated in the same way as the hire purchase transaction.
The specified asset is deemed to have been sold for the full proceeds of the rights and shall be
subject to hire purchase allowance being claimed.

EXAMPLE

HYT (Pvt) Ltd bought a factory building on 1 December 2013 for $400,000 and had been using
it in its business since that date. On 2 March 2016 the company found a buyer willing to
purchase the building for $750,000. This was the best bargain after several unsuccessful
attempts by HYT (Pvt) Ltd to sale the property. Selling expenses are 10% of the gross proceeds.

The terms of the agreement were as follows:

a) The buyer to pay 50% of the sale price in the year of sale agreement and the balance over 2
years in equal instalment commencing 2017.
b) Ownership to pass immediately upon payment of the first instalment
c) In the event that buyer fails to pay an instalment the property will be repossessed

Show capital gains tax of HYT (Pvt) Ltd for the periods 2016, 2017 and 2018

ANSWER

2016
Gross capital amount 750,000
Less recoupment ($400,000 x 5% x 3years) (60,000)
Capital amount 690,000
Less Deduction
Cost 400,000
Less capital allowances (3 years x 5% x $400,000) (60,000)
Inflation ($400,000 x 2.5% x 4 years) 40,000
Selling total gain 75,000 455,000
235,000
Less Hire purchase allowance ($235,000 x 375,000/$750,000) 117,500
Capital gain 117,500
Tax @ 20% 23,500

2017
Hire purchase allowance b/f 117,500
Less Hire purchase allowance ($235,000 x $187,500/$750,000) 58,750
Capital gain 58,750
Tax @20% 11,750
2018

190
Hire purchase allowance b/f 58,750
Less Hire purchase allowance (0 x ($690,000 -$455,000)/$750,000) .........
Capital gain 58,750
Tax @20% 11,750

Note debtors are computed as follows:

Gross capital amount 750,000
Less cash paid (50% x $750,000) 375,000
Debtors (D in the formula) 2016 375,000
Less cash paid in 2017 187,500
Debtors (D) in 2017 187,500
Less cash paid in 2018 187,500
Debtors (D) in 2018 nil

10.23 Credit sales agreement

A credit sale is an agreement where the ownership of a property passes to a buyer on the date of
its delivery. An allowance that the Commissioner considers as fair and reasonable will be
granted in respect of outstanding receivables (s19 of the CGTA). The allowance is similar to the
hire purchase allowance, except that it is computed on debtors net of bad debts. If the hire
purchase is $50 in value or below it shall be disregarded.

10.24 Principal Private Residence

A Principal Private Residence (―PPR‖) is a dwelling. A dwelling is any building, or any part of a
building, which is used wholly or mainly for the purpose of residential accommodation.
However, not all dwellings are PPRs. The dwelling has got to be a person‘s primary home to be
a principal private residence. Section 21 of the CGTA defines a principal private residence in
three parts as follows:

a) Any dwelling proved to the satisfaction of the Commissioner that:

 It has been a person‘s sole or main residence during the period it was owned by him
 It has been a person‘s sole or main residence for at least 4 years before the date it is sold
or for such other shorter period as the Commissioner considers reasonable.
 It has been a person‘s sole or main residence despite him being prevented from residing
in it due to employment or such other circumstances as the Commissioner considers
reasonable.

b) Any land, whether or not it is a piece of land registered as a separate entity in a Deeds
Registry, which:

 is owned by the individual concerned

 surrounds or is adjacent to the dwelling in (a); and
 is used by the individual primarily for private or domestic purposes in association with
the dwelling in (a)
 does not exceed 2 hectares or such larger area as the Commissioner having regard to the
size and character of the dwelling in (a), is satisfied for the reasonable enjoyment of the
dwelling as a PPR:

191
c) Other structures
Any garage, storeroom or other building or structure which is owned by the individual
concerned and forms part of or is attached to or otherwise associated with the dwelling in (a),
and which is used by the individual concerned primarily for private or domestic purposes in
association with the dwelling.
If a partner, shareholder or director has a right to occupy an apartment, flat or other residential
unit belonging to the company or partnership, capital gain/loss is realized when he ceases to be a
partner, shareholder or director of the partnership or of the company.

A person who sales a PPR or residential stand is entitled to a rollover of capital gains that would
be chargeable if he/she expends proceeds from sale or disposal of a PPR or residential stand to
purchase or construct another PPR or purchase another residential stand. Thus subject to an
election being made, capital gains on sale or disposal of PPR or a residential stand whose
proceeds are used to purchase or construct another PPR or to purchase a residential stand shall
not be taxed. The election must be made on or before the date of submitting a return for
assessment of capital gain. Further, the taxpayer should acquire or construct the replacement
specified asset on or before the end of the year of assessment following that of sale or he losses
he relief. The purchase or construction must be made on a land owned by the taxpayer in
Zimbabwe. The new PPR or residential stand must be for the individual concerned. Only one
house should be the primary home in the case of a person owning more than one residence and
the relief is only granted on that primary home no matter how many times it is replaced. If a
person sells his primary home and purchased the replacement home in the name of the spouse,
the relief shall not apply (should opt for spouse‘s relief instead). However the law drafters had
erroneously removed the relief in respect of a PPR when they inserted a -provision for a rollover
relief in respect of a sale or disposal of residential stand sometime in 2006. This error which
carried on until last year is being corrected by the Finance Act, 2019 which has reinstated the
rollover relief on sale or disposal of a PPR with effect from 1 January 2007. This means that
both residential stand and PPR qualify for a rollover relief. Capital tax shall only be chargeable
if the amount received from the sale of the old PPR or old residential stand exceeds the amount
expended. This is a tax benefit for those selling their homes or residential stands which they
replace with another home or residential stand. They can avoid capital gains tax as long as they
have used the proceeds fully to purchase or construct another home or residential stand. Where
proceeds are partially expended, only capital gains applicable to the amount not expended shall
be taxed. Meanwhile, the law does not limit the number of times one can qualify for rollover
relief, implying a person can successively replace his/her PPR or residential stand and still
qualify for the benefit. If a person utilises the sale consideration for other purposes and borrowed
an equal amount for the purpose of purchasing the residential house to claim rollover relief, he
would not qualify for the rollover provisions. But there is nothing wrong in pre-borrowing and
repaying the bond with proceeds from sale of the house when realised. Thus, in practice the
Commissioner accepts an agreement entered for the purchase of new house prior to sale of the
old house, though this is not automatic. As stated above, in the event that only a portion or part
of the proceeds from the disposal of a PPR or a residential stand are utilised to purchase or
construct another PPR or to purchase a residential stand, the relief shall be the gain applicable to
the amount expended. Such relief is computed as follows:

AxB
C

A is the amount used to purchase/construct a new a new PPR or residential stand

B is the potential capital gain on the old PPR or old residential stand
C is the proceeds accruing on the sale of the old PPR or old residential stand
192
EXAMPLE

Mrs. X sold his primary home for $120,000 on 2 January 2016. She bought this house on 1 June
2012 for $65,000. Mrs. X paid $10,500 sales commission and $1,500 legal fees in connection
with the sale. A month before selling the house, she incurred $5,000 on painting the house and
repaired some items of the house at a cost of $2,500. On January 15, 2016, Mrs. X bought a
new home for $95,000. Show the minimum capital gains tax impact of this transaction.

ANSWER

Gross capital amount 120,000

Less Deduction
Cost 65,000
Improvements 5,000
Inflation
$65,000 x 2.5% x 5 years 8,125

$5,000 x 2.5% x 1 year 125

Selling costs ($10,500 + $1,500) 12,000 90,250
Capital gain 29,750
Less Rollover (29750 x 95000/120000) 23,552
Capital gain 6,198
Tax @ 20% 1,240

The amount granted as a rollover relief on the old principal private residence shall be deducted
from the cost of the new PPR when determining the capital gain of the new principal private
residence. The inflation allowance will also be based on that reduced amount.

EXAMPLE

In 2015 Mr. X sold his old house to purchase another house for $120,000. From the sale of the
old house he accrued a gain of $20,000. He applied to the Commissioner and was granted 100%
rollover relief on this gain. On 2 September 2016 he sold his new PPR for $150,000 and is not
thinking of replacing it.

Compute Mr. X‘s capital gain/loss on disposal?

ANSWER

Gross capital amount 150,000

Less Deduction
Cost ($120,000 - $20,000) 100,000
Inflation ($100,000 x 2 years x 2.5%) 5,000 105,000
Capital gain 45,000

Items of a PPR (e.g. land, garage, storeroom etc.) sold separate of PPR cannot be granted a
rollover relief. Legally also, it‘s not possible to sale land or building separate of each other.

193
For houses which are used as office and for residential purpose, relief shall only be granted to
the proportion applicable to the domestic use of the house only. Taxpayer should apply the same
treatment when a PPR is sold jointly with some other property not used as residential
accommodation. The transferor and transferee must submit a statement to the Commissioner
showing the breakdown of the sale price for each individual asset. If the statement is not
submitted or is not acceptable to the Commissioner, he will determine the prices.

EXAMPLE

Mr. X bought a house for $150,000 for use as his dwelling in 2013, and turned about 40% of the
house‘s floor area into a business office. The house was sold for $184,000 in May 2016. He
bought another house for $150,000. Show the capital gains tax of his transaction.

ANSWER

Gross capital amount 184,000

Less Deduction
Cost 150,000
Inflation ($150,000 x 2.5% x 4 years) 15,000 165,000
Capital gain 19,000
Less Rollover relief (40% x $19,000 x $160,000/$184,000) 8,261
Capital gain 10,739

10.25 Residential stand

Section 21 of the CGTA defines a residential stand as follows “in relation to an individual, any
land, whether or not it is a piece of land registered as a Separate entity in a Deeds Registry,
which— (a) is owned by the individual concerned, and (b) is proved to the satisfaction of the
Commissioner to be intended for the building of a principal private residence thereon.

Where proceeds on disposal of ―residential stand‖ are applied on purchase of another residential
or to construct or purchase a PPR, rollover provisions as discussed above would also apply. The
residential stand should have been held for purpose of being converted into a PPR, ruling out
any claiming of rollover relief on commercial or industrial stands. It can be submitted that,
where a PPR is replaced by a residential stand the full proceeds from the principal private
residence should be fully utilised, otherwise the Commissioner may refuse to grant the rollover
relief.

10.26 Substitution of business property

In terms of section 22 of the CGTA, a capital gain accruing from sale or disposal of an
immovable property which was used by the taxpayer in his trade is not taxed if its sale proceeds
are utilized to purchase or construct another immovable property, subject to an election being
made. The taxpayer must satisfy the Commissioner that before the end of the year of assessment
following the sale, an amount equal to the whole or part of the consideration received or accrued
in respect of the sale has been or will be expended on the purchase or construction of other
immovable property. The election should be made by the taxpayer on or before the date of
submitting a return for assessment of capital gain. The old and new immovable property should
both belong to the taxpayer and used by him in his trade. In the event that the proceeds are not
fully expended, a partial rollover is granted. The partial rollover is computed using the following
formula:
AxB

194
C
A is the amount used to purchase/construct a new property
B is the potential capital gain on the old property
C is the proceeds accruing on the sale of the old property

The CGTA has not specified the time period for bringing the new asset into use in the trade. It is
submitted that it should not necessarily be immediate, but within the earliest possible
opportunity after disposing of the old property. The new property does not necessarily have to be
used in the same trade as the old property.

EXAMPLE

Mr. X owned a retail shop which he acquired in 2013 for $50,000 (current ITV $46,250). He
sold it in May 2016 for $80,000 and used $60,000 of the proceeds to purchase another shop.
Show the minimum capital gain tax of this transaction.

ANSWER

Gross capital amount 80,000

Less Recoupment ($50,000 - $46,250) (3,750)
Less Deduction
Cost 50,000
Less capital allowances (3,750)
Inflation ($50,000 x 2.5% x 4 years) 5,000 51,250
Capital gain 25,000
Less rollover ($25,000 x $60,000/$80,000) 18,750
Capital gain 6,250.

―ITV‖ refer to an asset‘s Income Tax Value

The rollover amount shall be deducted from the amount used to purchase or construct the new
property in the event that new property is sold. An inflation allowance is then computed on the
actual purchase or construction price of the new property less the gain rolled over effective the
year of assessment in which new property was constructed or purchased.

EXAMPLE

Same facts as the previous example, but the new property is sold for $100,000 in December 2016.
Show the capital gain tax impact of this transaction.

ANSWER
Gross capital amount 100,000
Less Deduction
Cost ($60,000 - $18,750) 100,000
Inflation ($100,000 x 2 years x 2.5%) 5,000 105,000
Capital gain 45,000

10.27 Employee Schemes

Employee‘s schemes include a housing scheme and a share option scheme or trust. Where one
disposes of shares in an approved share option scheme, the gain therefrom is exempt in terms of
10(k) of the CGTA if the sale is to the trust. For sale of shares which have not been issued in
195
terms of an approved share scheme or trust or those issued in terms of an approved share scheme
or trust but not sold to a trust, capital gain will arise.

The capital gain is computed in the ordinary way i.e. proceeds less base cost. If the shares were
acquired before 1 February 2009, capital gains tax is calculated by applying a flat rate of 5% on
the gross capital amount.

Housing schemes are treated in the same way as share options. Disposal of interest or share by a
member to housing trust which has been approved is exempt. Also exempted from capital gains
is a donation by a company or group of companies of immovable property to an approved
employee housing trust fund. An ―approved employee housing trust fund" is defined in terms of
the CGTA as follows: „an arrangement embodied in a notarised trust deed which satisfies the
Commissioner-General that its dominant purpose or effect is to enable a company or group of
companies to finance and construct housing for its employees on terms that will eventually allow
the employees to acquire ownership of their homes from the trust.‘

10.28 Partnership

A partnership is not a legal person, therefore specified assets owned in partnership are jointly
owned by partners. On disposal of such specified assets, capital gains tax is due by each partner
in proportion to his interest in the partnership property. However, a joint return must be made by
partners in terms of section 37 (15) of the CGTA. A partner leaving the partnership is deemed to
be effectively disposing of his interest and such disposal result in capital gain or loss. Also,
existing partners who give up their interests to a join partner are considered as disposing their
shares to the new partners. A partner who relinquishes his right in a condominium property is
deemed to have sold a residential accommodation for purposes of capital gain tax.
10.29 Capital gains withholding tax

Capital Gains Withholding Tax (―CGWT‖) is a tax withheld from any capital gain arising from
the disposal of a specified asset. Specified asset means immovable property (e.g. land and
buildings) and any marketable security (e.g. debentures, shares, unit trusts, bonds and stock).

10.29.1 Definitions for purposes of CGWT

Depositories
The responsibility for collection of withholding tax lies with a depositary. Section 22A of the
CGTA defines a depositary as a conveyancer, legal practitioner, estate agent, a registered
building society, the Sheriff or Master of the High Court, a stockbroker and financial institution.
It is also any other person who on behalf of any party to a sale of immovable property or
marketable security, holds the whole or any part of the price paid or payable in respect of the
sale and is required, on completion of the sale or on transfer of the property, to pay the whole or
any part of the amount he holds to the seller of the immovable property or to some other person
for the seller‘s credit.

The definition of ―depositary‖ was expanded on 1 January 2014 in relation to a cession of a

piece of land, the cedent, whether or not he or she is liable to pay the whole or any part of the
amount he or she holds to the land developer, the local authority which, or land developer who,
on behalf of a cedent or cessionary, holds the whole or any part of the price paid or payable in
respect of the cession or any person who mediates a cession of a stand or in relation to the
acquisition or relinquishment of a membership interest in a condominium, the owner of the
condominium, the custodian of the register of membership interests in the condominium or any
person who mediates such acquisition or relinquishment.

196
Business of a land developer
The business of acquisition of land for subdivision into more than three stands for residential,
commercial or industrial purposes and the servicing and the selling of such stands. It also
includes the servicing of stands acquired by another person for residential, commercial, or
industrial purposes. A land developer is person carrying business of land developing. On the
other hand, land development scheme is a scheme where land is subdivided into stands for
servicing by a local authority or a land developer; and beneficiaries of the scheme receive rights
of possession, occupation and, ultimately, of registration of title over the stands in their names
upon fulfillment of agreed conditions.

Cession of a stand
Cession is transfer to a cessionary for money or other valuable consideration of all rights in
respect of the stand that is part of a land development scheme (i.e. rights of possession,
occupation and, ultimately, of registration of title over the stand in the name of the cedent upon
fulfillment of the agreed conditions) acquired by the cedent under the agreement by which he or
she took possession of the stand from the local authority or the land developer. It does matter the
cedent is an original beneficiary under a land development scheme or is a cessionary of a
previous cession of the stand.

Condominium
This is a company, partnership or other association of persons owning any immovable property
comprised of one or more flats, apartments or other units of residential accommodation and the
members, by virtue of their membership have a right to occupy or time-sharing interest in
particular flats, apartments or units of residential accommodation comprising the immovable
property.

Membership interest in a condominium

This is an interest or share in a condominium that confers on the holder thereof any of the rights
referred to in paragraph (b) of the definition of ―condominium‖, however such membership,
interest or share is evidenced, whether by the holding or transfer of shares in a condominium
that is a company, or in the form of a partnership interest, or by registration of sectional title in
terms of section 27 of the Deeds Registries Act (Chapter 20:05).

Service
This is clearing of the land constituting the stand and to drain, dredge, pave, excavate, grade,
landscape, construct buildings upon or otherwise develop the stand in such way that will render
it suitable for residential, commercial or industrial purposes.

Stand

This is any unserviced or partly unserviced piece of land whether or not registered as a stand in
terms of the Deeds Registries Act [Chapter 20:05].

10.29.2 Rates of the CGWT

Section 22B of the CGTA provides for charging, levying and collection of capital gains
withholding tax in accordance with the rates fixed in section 39 of the Finance Act chargeable
on the price realised from the sale or disposal of a specified asset at the rate of 15% for an
immovable property, 5% unlisted marketable securities and 1% for listed marketable security. If
an immovable property or unlisted marketable was acquired by the seller before 1 February,
withholding tax is 5% of the sale price of the specified asset. However, no withholding tax shall

197
be deducted on an immovable property or unlisted marketable security which is exempt from
capital gains tax. The following table is a summary of the withholding tax rates:

Specified asset Rate Comment

Listed shares 1% Final tax

Specified assets acquired 5% Final tax

before 1 Feb 2009
Unlisted shares 5% Subject to assessment of capital gains tax

Immovable property 15% Subject to assessment of capital gains tax

10.29.3 Withholding of tax

In terms of section 22C of the CGTA, a depositary who mediates the sale or transfer of a
specified asset must withhold the tax from the amount he receives and remit the tax to Zimra not
later than 3rd working days of receiving sale proceeds of the specified asset, unless he has been
allowed more time by the Commissioner. In the event that a payment is received in installment,
the depositary will be required to withhold the full tax. However, if the withholding tax exceeds
the amount received, the depositary must only pay all what he received to Zimra, but not out of
his resources. A depositary need not withhold tax on a seller who has given him a tax clearance
from the Commissioner with instructions that tax must not be withheld or when a seller who has
made or will make adequate arrangements for the payment of any capital gains tax payable in
respect of the sale.

Thus, a seller who has made an application for assessment of capital gains tax or who is exempt
from paying capital gains tax is not liable to pay the withholding tax. He should obtain a tax
clearance which he must furnish to the depositary before the withholding tax is due to be
deducted. Depositaries must file the tax clearance as evidence that tax was not required to be
withheld to avoid conflict with Zimra. A depositary who has deducted tax must issue the payee
with a withholding tax certificate, which must show the depositary‘s name and address, the
payee‘s name and address; details of the property sold; and the withholding tax withheld.

Where the depositary fails to withhold the tax an agent of the payee must do so and remit the tax
to Zimra not later than 3 working days of receiving proceeds from the depositary. In the event of
there being two or more withholding agents, they shall be jointly and severally liable to deduct
and remit the tax to Zimra. An agent must also issue to the payee a withholding tax certificate
(same particulars as above). An agent of the payee includes person whose address appears as the
address of the payee in the records of the depositary who paid the amount and to whom the
warrant, cheque or draft in payment of the amount has been delivered to. For a beneficiary of a
trust, an agent is the trust which has received an amount on sale of specified asset from the
depositary. The powers of the Commissioner imposed by section 58 of the Act to appoint an
agent for collection of tax can equally apply to the agent or trust.

A payee who receives proceeds from which withholding tax was not deducted must remit the
applicable withholding tax to Zimra by the 3 rd working day of him receiving of proceeds from
sale of the specified asset.

198
10.29.4 Exemptions

CGWT does not apply to immovable property and unlisted marketable securities which are
exempt from capital gains tax in terms of section 10 of the CGTA. It is also exempted on the
sale of marketable securities by a unit trust registered as an internal scheme under the Collective
Investment Schemes Act (Chapter 24:19) or as an asset manager under the Asset Management
Act (Chapter 24:26). However, redemption by the investor of his unit or units in the unit trust is
subject to withholding tax.

A person whose ordinary course of trade or business is that of a depository should in terms of
section 22F register with Zimra within 30 days of commencing such business. The depository
must complete a CGTA1; have a place of business and the nature and extent of his business as a
depositary. The depository will be guilty of an offence and liable to a fine not exceeding level
three or to imprisonment for a period not exceeding one month or to both such fine and such
imprisonment for failing to register.

10.29.5 Depositaries to furnish returns

A depositary must by the last day of every month or other period approved by the
Commissioner, submit to the Commissioner a return which shows all sales of specified assets
concluded or negotiated by him on behalf of any other person and all amounts of capital gains
withholding tax the person has withheld during the preceding month. If the depositary is a
partnership or an association, a joint return must be submitted by the partners or the association.
If a depositary is an employee, the return may be submitted by the person‘s employer.

10.29.6 Penalty for non-payment of tax

A depository or agent is personally liable to pay the amount of capital gains withholding tax and
15% penalty if he defaults in withholding and remitting the tax to Zimra (section 22G of the
CGTA).. However, the Commissioner must collect the penalty first from the depository and if
the depositary discharges the onus he cannot then collect the same amount from the agent. The
Commissioner can however waive the full or part of the penalty if he is satisfied that a failure to
pay capital gains withholding tax was not due to any intent to evade the tax.

10.29.7 Refund of overpayments

Section 22I of the CGTA provides for the refunding of overpaid withholding taxes. All what the
taxpayer needs to do is to prove to the satisfaction of the Commissioner that withholding tax was
paid in excess of the amount properly chargeable to him. The claim should be made within 6
years of the date on which the tax was paid or else the withholding tax becomes non-refundable.
The Commissioner should pay interest on overpaid withholding tax not refunded within 60 days
of application by taxpayer or the date of completion of the assessment, whichever is the later
date, unless the overpayment was due to an incomplete or defective return or error of the
taxpayer. The rate of interest is fixed at 25% (see, SI 285 of 2019 Capital Gains Tax (Rate of
Interest Regulations)).

10.29.8 Credit where tax has been withheld

A taxpayer is entitled to be credited with an amount equal to the sum deducted by a depository
etc. to Zimra when he submit a return for assessment of capital gains on the specified asset
concerned (section 22J of the CGTA). The excess over capital gains tax chargeable should be
refunded to the person. However, in practice the Commissioner first sets off against other tax
obligations of the person to Zimra and the balance will then be refunded to the taxpayer. Note
199
that, the credit is granted only when the withholding tax in respect of that capital gain was
deducted at source and must be supported by a withholding tax certificate.

10.30 Administrative Aspects of CGT

10.30.1 Returns, assessments, tax collection, etc.

Sections 23 – 25 of the CGTA adopts the provisions of the Income Tax Act regarding matters
such as returns, assessments, penalties, representative taxpayers, objections, appeals and
offences . CGTA return (CGT1) should be submitted to Zimra by 30 April of the following year
(for 31 December tax year of assessment) in the case of taxpayers on self-assessment and for
others the period specified by the Commissioner in a public notice. A fine of $300 a day up to
181 days is payable for late submitted return. Regarding details on assessments, penalties,
representative taxpayers, objections, appeals and offences, sections 37 – 61 of the Act apply.

10.30.2 Payment of capital gains tax

In terms of section 26 of the CGTA, capital gains tax is paid to Zimra within 30 days of sale
agreement in the case of suspensive sales (hire purchase sale) or credit sale. In other cases it
must be paid to Zimra within 30 days of transfer of ownership (title) in the specified asset.
Capital gains tax which is not paid on time is subject to interest of 25% p.a.

10.30.3 Offences, forms and regulation

Section 27 of the CGTA adopts the provisions of the ITA (refer to section 81-90 of the Act).

10.31 Tax avoidance

Section 29 of the CGTA adopts a general anti-avoidance provision, similar to one in section 98
of the Act for purposes of determining capital gains tax liability where Commissioner is of the
view that capital gains tax is being avoided 2 (refer to chapter 20 for details on section 98)

10.32 Transfer of property (s 30)

In terms of section 30A of the CGTA registration, execution or attestation of a specified asset by
the registrar of deeds or transfer secretary is not permitted unless the withholding tax/capital
gain tax has been paid to Zimra. Zimra will issue a tax clearance certificate as proof of payment
of tax or that the specified asset is exempted from capital gains tax. And this is document which
the transfer secretary or the deeds office will need to effect transfer or ownership in a specified
asset. It is an offence to register a specified asset without a tax clearance certificate.

With effect from 1 January 2014 this was extended to a stand that originated from a land
development scheme and was subsequently ceded by the original beneficiary of the scheme to a
cessionary (or, where further or more cessions of the stand occurred after that, by the cessionary
seeking the registration of the stand) and membership interest in a condominium that is
evidenced by the registration of sectional title in terms of section 27 of the Deeds Registries Act
(Chapter 20:05). Thus, the cessionary or acquirer of the membership interest in the
condominium must present tax clearance to deeds office for registration to be effected.

10.33 Documents required when applying for tax clearance

When applying for a tax clearance certificate, a taxpayer should supply the following
documents:
200
1. Fully completed Capital Gains Tax form (CGT1), Fully completed Rev 1 form.
2. Agreement of sale (copy & original)
3. Deed of Transfer( Title Deed)/share certificate (copy & original)
4. Copy of proof of payment ( Original& Copy )
5. National identification for the seller and the buyer (copy & original)
6. Copies of two different utility bills if seller is claiming rollover/exemption
7. Special power of attorney sealed by notary public if the buyer/seller is out of the country or
is unable to present oneself at Zimra offices for good reason and is being represented by an
Agent (copy & original)

If the buyer or seller is a company the following additional information is required:

1. Certified copy of certificate of incorporation , Certified copy of CR6 & CR14

2. Copy of company resolution to sell / buy appointing two directors /a representative and the
resolution signed by two directors.
3. National identification particulars for the representative(s) /directors. (original & copy)

If the specified asset is sold by a deceased estate the following additional documentation apply:

1. Certified copy of the death certificate of the deceased person

2. Certified copy of the final liquidation and distribution account of the deceased estate
3. Certified copy of the letter of administration from the court specifying the
executor/executrix of the estate.
4. Letter from the court giving authority to dispose of the property in question.

If a minor is the seller of the specified asset, additional requirements:

1. Letter of authority from the High Court authorising the sell.

2. Birth certificate of the minor.
3. Letter of guardianship from the court if the person representing the minor is not the parent.

10.34 Returns by Deeds office

The Registrar of Deeds shall be required to notify the Commissioner in a return on all transfers
of immovable property registered in the Deeds registry during the period covered by the return,
name and address of the transferor and the transferee in each transfer, the transfer price, if any,
of property.

Where any marketable security is sold by or through the agency of a bank or other institution,
registered or required to be registered under the Banking Act, a building society or a broker
licensed or required to be licensed und the Securities Act, the return to be submitted by the
institution, society or broker, shall include the following information:

 The name and address of the seller and the purchaser; and
 The nature of the marketable security; and
 The price, if any, at which the marketable security was transferred

Conclusion

Capital gains tax is levied on disposal of specified assets as defined in terms of the CGTA.
Specified assets refer to immovable property and marketable securities. For there to be a tax,
there must be a gain.

201
Chapter 11: Deceased estates and trust

11.1 Introduction

The chapter focuses is on the deceased estate and trusts. A deceased estate is a result of death
and comes into existence through the operation of law. A trust on the other hand, is a contract
characterized by the management of property by a trustee, not the owner of the property, for the
benefit of specified beneficiaries. The trustor gives legal title of property to a trustee to manage
it for the benefit of beneficiaries, who may hold equitable title. A trust can be created by a
stipulation in a will of a deceased person or by a living person. A trust which is created by a will
is called a testamentary trust and that which is created by a living person (during the person‘s
lifetime) is called an inter vivos trust. The concept of trust is widely used in tax planning.

11.2 Deceased estates

A natural person ceases to be a taxpayer on date of his/her death. A new person comes into
existence i.e. the Estate Mr. X. In year of his death there could be two assessments for the same
person, namely; pre-death assessment, and post-death assessment

If a person dies whilst in employment or in business, income and expenses received and paid
prior to death are normally assessed in the period prior to date of death and that which is
received in post death period is assessed in the post death period.

The post death period relates to a new taxpayer- i.e. Estate Mr. X and is liable to tax on income
accruing after the death of Mr. X. The person will be represented by the executor or
administrator (the representative taxpayer). The representative taxpayer will be responsible for
collecting all incomes of the deceased whether that income accrues to the person during the pre-
death period or the post death period. He gathers the assets of the deceased administer claims
against the estate and realize assets to settle the claims. That is, he is responsible for the
collection of debts, pay creditors, reduce the estate into possession, render accounts, distribute
the property to the heirs and also responsible for the winding of the estate once he received the
letters of the executorships. Where the testator has created a trust, the person will also be
responsible for handing over the estate to the trustees.

11.2.1 Income of a deceased

A death of person does not change the nature of his income nor how it is taxed. If an amount
would have been income in the hands of the deceased, it will also be income when received by
the executor. His remuneration, including voluntary awards given in respect of service rendered,
remains employment income. However, the voluntary payments only apply to amounts received
or accrued to the executor. A voluntary award made directly to a dependent or heir of the
deceased could be treated as an amount of capital in nature, since the dependent did not render
any services.

The biggest problem usually arises on income and expenses received or paid after the date of
death and not income accruing before death. As a general rule, a deceased estate cannot be
taxed on amounts which the deceased had no right to claim income in his lifetime and ex gratia
or in pursuance of a gratuitous act made after the death of the deceased.

202
The following rules also apply:

 Cash in lieu of leave received by the executor of the deceased estate of civil servant will not
be taxable, even though the amount could have been taxable had it been received by the
civil servant during his life time.
 Bonuses and directors fees voted after death or which are not fixed articles of association
are not taxable since the deceased had no right to the amount during his lifetime.
 Leave pay under an employment contract, royalties on a book, bonus or directors fees fixed
in the articles of association (despite being voted after death) and contractual commission
are taxable. They are taxable in the post death period.
 Salary, business income accruing to the date of death, bonus or director‘s fees voted by the
date of death and contractual commission due at the date of death are taxed in the pre death
period.
 Commission in terms of a contract or agreement which is paid after death, to the executor
of a deceased estate will be taxable either in the hands of the deceased if it becomes due
and payable before death or in the hands of the estate if it becomes due and payable after
death.
 Any income made by a taxpayer as director of a company or as an employee in respect of a
right to acquire marketable securities, shall be deemed to have been made by him on the
day before his death and shall be included in his income up to the date of death
 Any lump-sum awards from pension, provident and retirement annuity funds payable on
the death of the member of such a fund are deemed to accrue to him prior to his death.
 Tax credits to which the person is entitled to can only be claimed pre-death. No tax credit
is allowed to a deceased estate. The credits are reduced proportionately on a time basis.
 Medical expenses credit is claimed in the pre-death assessment despite being paid after
death.

EXAMPLE

Calculate tax liability for Mr. R who died on 26 July 2019. He was 60 years at the time of his
death and was a civil engineer earning a salary of $6,000 per month. His July 2019 salary
amounting was paid to his executor on 7 August 2019, out of which the executor settled Mr. R‘s
death bed expenses amounting to $1,200

ANSWERS:
Pre-death Post death
Salary Jan-June 36,000
Salary July (payable after death) 6,000
Tax there on 7,260 360
Less credit
Elderly credit (6/12 x 7,200) (3,600)
Medical expenses credit $1,200 x 50% (600)
Tax liability 3,060 360

Add 3% Aids levy 92 11

Tax payable 3,152 371

Death may also result in life policies from an insurance paid to the estate or beneficiaries,
including some other death benefits, pension etc. These are generally non-taxable. Lump sum
paid direct to a beneficiary in terms of rules of a pension or benefit fund is of a capital nature.
Further recoupment resulting from realization by the executor of fixed assets owned by deceased
is not taxable, since no capital allowances were allowed to the estate, there are not taxable.

203
11.2.2 Ascertained beneficiaries

An ascertained beneficiary is an individual identified nominated in a will instrument who has an

immediate right to enjoy the present or future benefits of income accruing an asset formerly
owned by the deceased. He/she will on death of testator take ownership of the property and
liable to pay tax on income derived from the property from that date. Where an asset is
bequeathed to an heir he must be taxed on the income derived from that asset, but he cannot
claim a right on an asset in deceased estate before death of a testator.

Where a will provides for the whole estate to go to a specific individual the estate is taxed on the
income in the period prior to distribution and beneficiaries only after the distribution. Any
income derived from the asset constituting the residue of the estate will be taxed in the hands of
the residuary heirs in the proportion in which they share in the residue, provide that the heirs
must be an ascertained beneficiary. By the end of the tax year in which the relevant income was
derived by from the asset, the heirs are taxable in respect of such income, unless if he is
ascertained only after this period. If this is the case, the income will be taxable in the estate.
Any income to the extent to which it cannot be linked to an ascertained beneficiary, shall be
deemed to the income of the estate of the deceased. A person can also not be taxed on the
income from an inheritance is contingent upon the happening of a future event, for example his
marriage. He may never marry, in which case he would never receive the income, and in such
circumstances it cannot be said that the income is derived for his benefits. However, where the
receipt of the inheritance and the income is merely postponed until some future dates, for
example until their heir attains majority. Although in this latter case the heir cannot claim the
income immediately it is nevertheless being accumulated for his benefits. He may not live long
enough to enjoy the income, and on his death it will devolve upon his heir. Where they will
provides that if the heir dies before the date on which he may receive the income the benefits
will devolve upon other heirs, the beneficiaries are unascertained and the income must be taxed
in the hands of the estate. Where the heirs cannot be determined such as in the case of an
inheritance to children still to be born, the income is also taxable in the hands of the estate.

In practice, the heir may not acquire his/her right of ownership in an asset in the estate
immediately on the death of the deceased, since executor accounts must first be confirmed.
Legally, an ascertained beneficiary must accept the legacy or inheritance before he can be taxed
on the income accruing from legated assets. Initially, all the assets in a deceased estate,
including rights to income, vest in the deceased estate (the executor) as an entity separate from
that of the heir or beneficiaries.

11.2.3 Character of income in the hands of beneficiaries

An estate is simply a conduit pipe of beneficiaries. Income apportioned to the beneficiaries

retains its original character. This means that income which accrues to the executor in the form
of dividends or interest will also go to the beneficiaries as dividends or interest. However, the
exemptions provided in respect of dividends and certain interest etc. does not apply to an annuity
paid out of such exempt dividends and interest. An annuity forms an exception to the conduit
pipe principle.

A lump sum (cash) or property is a receipt of a capital nature and shall not be taxable to be
beneficiary. Only legacies which are in the nature of income, such as a bequest of an annuity
are taxable. Bequest of a recurring nature, such as annuities in the hands of the beneficiaries on
the date they are paid or legally be\come due and payable. This means that income from a
specific bequest which, for administrative or similar reason, is held up for a long period and is
paid over in a subsequent year in one lump sum by the executor is liable to assessment for tax in

204
the respective years in which the income was derived by the executors for the benefit of the
beneficiary in question.

11.2.4 Other aspects

 Carry forward of assessed losses of a deceased person to an estate or a beneficiary is not

allowed.
 A will that gives a person a right to income, but not to the ownership/inheritance of an asset
is known as a usufruct. As an example a person may leave a house to son but grant the
widower a life usufruct. The son may not sell the asset as long as the widower remains
alive.
 An estate is regarded to be ordinarily resident in Zimbabwe if the deceased was ordinarily
resident in Zimbabwe at the time of his death.
 If an asset is sold to a widow or beneficiary of a deceased employee by the company at a
price below the market value any difference or gain is not taxable in the hands of
beneficiary.
 Bad debts written off are a deduction on the deceased and those recovered by the heir
cannot be taxed on the heir since he is not the owner of the debts.
 Hire purchase allowance, allowed in the period up to death cannot be added back as income
of the estate after the deceased‘s death. This amount is brought into gross income in full in
the post death period.

11.3 Trust

11.3.1 Introduction

A trust can be created by a stipulation in a will of either a deceased person or by a living person.
A trust which is created by a will is called a testamentary trust and that which is created by a
living person (during a person‘s lifetime) is called an inter vivos trust.

There are four parties involved in a trust namely, a trustor (grantor or settlor), a trustee, a life or
term beneficiary and a remainderman. A beneficiary is a person entitled to the income of a trust.
A trustor is a person owing the property which he gives legal title to a trustee to manage on
behalf of beneficiaries. The person is also referred to as the settlor. A trustee manages the
affairs of a trustor on behalf of beneficiaries. A remainderman is a person entitled to the capital
of a trust on its termination.

A trust has a legal identity separate from its maker(s) and owns assets. Property in trust,
though named in the name of a trustee, is not subject to the claims of a trustee‘s creditors
or subject to a trustee‘s obligations. A trustee cannot benefit out of trust property other
than compensation for property with personal assets, he violates the duty owed to
beneficiaries and is liable for personal liability for any loss or damage suffered by them.

11.3.2 Resident status of a trust

According to the Income Tax Act section 2(3) (c) a trust shall, in relation to income the
subject of the trust to whish no beneficiary is entitled to, is treated ordinarily resident in
Zimbabwe if:

Part of the income subject to the trust is derived from sources in Zimbabwe or the trustee
is ordinarily resident in Zimbabwe; and

205
The person by whom the trust instrument was made was ordinarily resident in Zimbabwe at the
time he made the trust instrument.

11.3.3 Forms of trust

A trust can be created by a stipulation in a will of either a deceased person or living person. A
trust which is created by a will is called a testamentary trust and that which is created by a living
person (during his lifetime) is called an inter vivos trust.

Testamentary trust
A testament is a will and for a testamentary trust to be valid, a will must be valid. It can be void
on the basis of a testator‘s incapacity to make a will, when made under undue influence etc. A
will trust comes into existence on the death of a testator. The executors are usually its first
trustees and are normally delegated with the powers to approve the testator‘s choice of trustees.

A testamentary trust is funded by assets of the estate. It cannot be settled with assets prior to
the death of a testator or else it becomes an inter vivos trust. It can also not be settled by
contributions made by another person to the trust once a person has died, unless the assets are
flowing from another testamentary trust. A testator can vary the beneficiaries, powers of
trustees or trust assets as the wishes, until death, beyond that it becomes irrevocable. For this
reason, testamentary trusts are usually called irrevocable trusts.

Assets that flow through an estate into a testamentary trust are first subjected to estate duty.

Inter vivos trust

An inter vivos trust is created by an agreement between a trustor and trustee. No court approval
is required. The trustees‘ powers are vested in the trust agreement and the state law. Inter vivos
trusts are usually driven more by tax considerations. They are expensive to create compared to
will trusts, but are not subject to administration by an executor. There are no executors‘ fees and
no delays in setting the estate, since a trustor must transfer assets into the trust during his
lifetime. Income and asset distributions to beneficiaries in a will trust is difficult during the
probate, but a living trust is not frozen for distributions, even on the death of a trustor.

An inter vivos trust enjoys greater privacy compared to a testamentary trust. A testament is a
public document which can be inspected by members of the public. The contents of an inter
vivos trust are privileged to a trustor, the trustee or beneficiaries.

Living trusts can either be revocable or irrevocable. A revocable trust gives a trustor the power
to alter transfer of property to trust, change the trustees or vary the beneficiaries. A revocable
trust is called a settlor trust or an ascertained beneficiary trust. The trust is not treated as a
separate trust from a settlor or ascertained beneficiary. An income of a settlor trust or an
ascertained beneficiary trust is taxable to the settlor or ascertained beneficiary and property in
trust is deemed owned by settlor or by an ascertained beneficiary. A settlor trust or an
ascertained beneficiary trust cannot therefore, be used to avoid estate duty.

An irrevocable inter vivos trust is an unalterable transfer of an owner‘s property that creates
immutable rights for beneficiaries and remaindermen. It can be used in estate planning to reduce
the value of the settlor‘s gross estate without giving away the property to the beneficiaries. The
initial transfer of property to an irrevocable trust attracts capital tax, but subsequent increases in
the value of those assets escape estate duty in the estate duty in the estate of a trustor. Income
paid out of an irrevocable trust is taxed to the beneficiaries when received and that which is not
paid out or accumulated by the trust is taxed to the trust.

206
If a grantor does not surrender control over a trust, he is considered the owner of the trust assets.
Income from that trust shall be to the grantor. A grantor is said to retain control if he/she:

 Derives benefits from the trust income

 Retains the power to revoke the trust
 Retains power over beneficiary enjoyment
 Is able to exercise certain administrative powers over the trust‘s operation
 Retain a revisionary interest in either the income or principal of a trust

11.3.4 Powers of a trustees

A trust maybe discretionary or fixed (non-discretionary trust). This classification relates to

powers vested in the trustees.

Discretionary trust
A discretionary trust is a trust in which trustees exercise some discretion to the manner in which
property is to be distributed or to whom that property is to be distributed. Trustees make
decisions without making reference to the wishes of the trustor. The beneficiaries do not have
any interest in the trust property until the trustee elects to exercise the discretion in their favour.
The flexibility of this trust allows the trustor to distribute income or capital to more than one
beneficiary at the trustee‘s discretion.

A discretionary trust is often used as a means of protecting assets. It is useful, when at the time
of creation, the needs of a beneficiary or class of beneficiaries cannot be predicted. An
important feature of a discretion trust is that beneficiaries are not liable to estate duty on trust
property when they die. They are also not taxed on income of a trust until it is distributed to
them.

Fixed trust
A fixed is a trust in which the trustor‘s wishes, as stated in a trust deed, must be obeyed by the
trustees. The interests of the different beneficiaries are fixed or determined at the onset. The
trustees cannot make decisions regarding how the trust income or capital is distributed or to
whom that income or property should be distributed.

11.3.5 Trust beneficiaries

A trust beneficiary is a person who is entitled to enjoy the benefits of trust income. There are
three possibilities for income beneficiaries, namely:

• A beneficiary with a vested right/ascertained beneficiary

• A beneficiary with a contingent right
• A beneficiary with no vested right

A ―beneficiary with a vested right‖ is defined in relation to trust income, and refers to a person
entitled to an immediate fixed to enjoy the present or future benefits flowing from the trust
income;

A beneficiary with a vested right is a person who enjoys an immediate certain right to the
present or future enjoyment of trust income. A beneficiary with a contingent right is a person
whose enjoyment to trust income depends upon the happening of a future uncertain event. A
beneficiary with no vested right is a person with no right to the present or future enjoyment of
trust income.

207
A beneficiary with a vested right can take any of the following forms:

• A beneficiary with a clear vested right

• A beneficiary with again a vested right
• A beneficiary with a delay vested right

A beneficiary with a clear vested is a person who has an absolute right to claim trust income at
any time. He is taxable on income for his distribution and that retained in the trust.

A beneficiary with again vested right is a beneficiary whose income to be distributed to him is
decided by the trustees. The income retained and assets in trust are however, accumulated for
his/her benefit. The beneficiary is taxable on both distributions and income retained in the trust.

A beneficiary with a delay in the vested right is a beneficiary whose income to be distributed to
him/her is decided by the trustees. However, the same income can be distributed to somebody
else. The person‘s right to income is limited to the distributed income. The person is only taxed
on income for his/her distribution, while undistributed income is taxed in the hands of the trust.

11.3.6 Benefits of forming a trust

Asset protection
A trust can protect assets from erosion due to possible family breakdown or potential insolvency
of one or more of the beneficiaries. Divorces are usually emotional and may result in
unintended assets stripping. Assets that are registered in trust are not available for payment of
grantor‘s creditors, unless they were put in trust with the intention to defraud the creditors. A
window period is however, prescribed in the Insolvency Act to protect creditors against
dishonest debtors. Assets that are moved into a trust within the 5 years are liable to attachment
by a creditor who has a claim against an individual.

Benefits on death
Assets that are put in trust are protected against estate duty. A trust never dies; it continues in
perpetuity and therefore is never liable to pay estate duty. A trust can also save the person on
executors fees, stamp duty, or conveyance fees, that could be payable by the estate or heirs.

Benefit to beneficiaries
A trust will continue to pay benefits to beneficiaries after the death of a testator or founder
member. On the hand, assets in an estate are usually frozen during the estate winding up
process. During that time, no income is payable to beneficiaries until the estate is finalized.

Income tax saving

Income tax can he saved through a tax-efficient income splitting between or among
beneficiaries, as long as it is not within anti-tax avoidance schemes. A trust can also be
structured in a number of ways to provide tax efficiency, e.g. through the use of capital growth
investments or investments that pay dividends or interest, which are tax-free.

11.3.7 Taxes on formation of a trust

There is tax issue when a trust is formed, when it is dissolved or when it alienates any of its
property. These taxes arise mainly from property alienation and cash outbound from trust; cash
paid into a trust has no tax consequences. The taxes must be considered in light of all tax heads.

208
11.3.8 Estate duty tax

Assets transferred into trust before death does not suffer estate duty. For a donation, the donor
must survive the donation by 5 years to escape estate duty. A trust does not die, therefore it
allows for the continuation of asset growth, without suffering Estate Duty Tax.

11.3.9 Capital gains tax

A specified asset sold by the trust suffers capital gains tax. A donation or a transfer of a
specified asset into a trust is a disposal for capital gains tax purposes. Not that, if a PPR is part
of the disposal, there is no CGT to pay by a settlor who is 55 years old or above. Where the
transfer of property arises on the death of the settlor, no CG arises.

Assets that increase in value over the passage of time must be transferred to a trust to avoid
estate duty. An asset like a PPR does not suffer estate duty tax. It is deductible if the deceased
is survived by a spouse or children.

When a beneficiary has interest in the trust assets, as against the trustees, there is a deemed
disposal by the trustees for CGT purposes of this portion so transferred to the beneficiary. If the
life interest in the asset of a trust terminates, but property remains in trust, i.e. the beneficiary
does not have an absolute interest in the property, then CGT may apply to the trustees.

11.3.10 Income tax

There is no income tax consequence on money donated to a trust, as long as the donor, his
spouse or any of their unmarried minor children does not benefit, nor retain any benefit in the
trust funds. A donation of transfer of assets which qualified for capital allowances is a recovery
of capital allowances. Tax on recoupment is chargeable, whether realized by a trust or by an\y
any other person.

If income generating assets are transferred or donated to trust, income generated by those assets
becomes taxable to a trust. A trust is liable to pay tax on all undistributed income all the rate of
25%. If a trust is terminated, the income tax liability falls away, because the assets and the
income produced by them now belong to the ultimate beneficiaries.

Conclusion

A trust is subject to income tax at the rate of 25.75 % on undistributed income. Distributed
income is taxed in the hands of the beneficiaries at the same terms or rate as if it had been
received by the trust.

209
Chapter 12: Withholding taxes

12.1 General overview

A withholding tax system is a process of deducting tax at source. It enables tax to be secured
early and increases collection efficiency because tax will be collected from fewer payers as
opposed to a much greater number of payees. It is also an effective system of collecting taxes
from non-residents. Incomes subject to withholding tax at source includes dividends, interest
paid by local financial institutions, fees paid to non-residents, royalties paid to non-residents,
remittances paid to non-residents, local contracts of goods or services in which the payee is not
in possession of tax clearance to mention but a few.

12.2 Resident shareholders‟ tax

A distribution of a dividend to a resident shareholder, other than a company, is subject to

withholding tax in terms of s 28 as read with the 15th Schedule of the Act. The withholding tax
rate is fixed at 15% (10% when distributed by a listed company).

12.2.1 Meaning of dividend

General view
The word ―dividend‖ is defined in para 1(1) of the 15th Schedule to the Act as amount
distributed by the company to its shareholders. It can be in the form of money or other property
or any amount credited by a company to any person who is its shareholder.

Share buy backs or return of capital

Dividend does not include any amount which in the opinion of the Commissioner represents a
return of shareholder‘s or member‘s capital or shares held by him in a company or private
business corporation.

Excess interest
Dividend includes any ‗amount‘ (referred as deemed dividend) incurred by a local branch or
subsidiary of a foreign company, or by a local company or subsidiary of a local company which
is in excess of that computed on a debt to equity ratio of 3:1.

Liquidation dividends
Liquidation profits distributed to shareholders shall be deemed to be dividend to the extent that
such income represent income earned, unless such income represent a replacement of a loss of
paid up capital.

Bonus issues and scrip dividend

The definition of a dividend excludes a bonus shares. However, where a company issues
dividend in specie in whole or in part i.e. payment of dividend in kind (scrip dividend), in the
form of shares as opposed to cash payment, that payment would still be regarded as a dividend.
The amount of the dividend would be the market value of the asset distributed.

Building Society

210
A dividend does not include any distribution from a Building Society on a paid up permanent
class ―A‖ shares or an ordinary permanent fully paid–up shares or foundation fully paid up
shares.

Distribution of profits by partnerships

A partnership is not a person for income tax purposes. Therefore the income received by a
partner is not a dividend.

Industrial Development Corporation of Development Trust of Zimbabwe

An amount which is distributed by the Industrial Development Corporation of Zimbabwe
Limited in respect of its issued share capital is disregarded as dividend to shareholders.

Licensed investor
A dividend does not include amount payable by a person licensed in terms of the Special
Economic Zones Act. This is with effect from the 1 st of January 2017. The licensed investor
must have a qualifying degree of export-orientation which arises from its operations in a special
economic zone.

Other distributions
A dividend‘ does not include any amount so distributed to the Development Trust of Zimbabwe,
a body corporate established by notarial deed of trust on the 12th June, 1989 and dividend
distributed by an industrial park developer which arises from the operation of his industrial park.

12.2.2 Meaning of shareholder

A shareholder includes a member or stockholder i.e.an ordinary shareholder or preference

shareholder. Debenture holders and creditors are not members of a company.

12.2.3 Timing of payment of dividend

Withholding tax is triggered when a dividend is distributed to a shareholder (see para 2 of the
15th Schedule to the Act). A dividend is deemed distributed when it is paid to the shareholder,
credited to his account or so dealt with in the name of the shareholder so that he becomes
entitled to it, whichever occurs first.

12.2.4 Companies to withhold the tax

Every resident company should deduct Resident Shareholder Tax (―RST‖) at 15 per cent (10%
for a listed company) when it pays a dividend to a person as defined (other than on a dividend
distributed by the company to another local company) ordinarily resident in Zimbabwe. A
resident company is a company whose central management and control is situated in Zimbabwe.
Withholding tax on dividend does not apply when a dividend is paid to a resident company or a
company incorporated in Zimbabwe (a company limited by shares), a resident statutory
corporation, a private business corporation, a pension fund, a benefit fund or a medical aid
society.

The RST should be remitted to Zimra within 10 days of dividend distribution to shareholder by
the company or within such other further time as approved by the Commissioner, accompanied
by a return (REV 5). The return is required whether or not RST has been paid. A late paid RST
attracts a maximum penalty of 100% of the RST due. The penalty may be waived where Zimra
is satisfied that the reason for not paying the tax was not due to any intent to evade tax. RST not
paid on time is also subject to interest calculated at the rate of 25% p.a. When the return is not

211
submitted on time a fine of $300 a day up to 181 days is chargeable, after 181 days the public
officer may be prosecuted.

The RST together with penalty and interest chargeable may be recoverable by the Commissioner
by action in any court of competent jurisdiction (see section 77 of the Act).

12.2.5 Nominees to withhold the tax

A nominee is defined in para 1(1) of the 15th Schedule of the Act as any person who holds the
shares on which a dividend is paid directly or indirectly on behalf of another person. It includes
any person who is required to exercise voting powers in the affairs of a company in accordance
with the directions of the individual.

A nominee is required to deduct tax and submit the Rev 5 within the time frame referred to
above if the company has failed to do this. Should the nominee fail to comply with the
requirements, the same penalties and interest imposed on a company failing to withhold tax
equally applies.

12.2.6 Shareholder to pay tax

A shareholder to whom a dividend was distributed without RST being deducted shall pay to the
ZIMRA within ten days of the date of distribution of the dividend the tax that should have been
withheld.

The RST can only be withheld only once. Once the payer, nominee or shareholder has
discharged his obligation no further obligation lies on any party in respect of that WHT.
However, penalty remains payable by either the payer or agent. Interest is also a personal
liability on each party and it remains payable by a party that had defaulted in paying or remitting
the WHT.

12.2.7 Withholding tax certificate

Whenever RST is withheld by the payer, a shareholder should be issued with a withholding tax
certificate. The certificate should show the gross amount of the dividend, any reduction made on
the dividend for purposes of computing RST and RST withheld. When the certificate is issued
by the nominee it must, in addition to the above features, include the name of the company
distributing the dividend. A company or nominee that fails to issue a certificate or that issues an
incorrect certificate to the shareholder is liable to a fine not exceeding level 5 or to imprisonment
for a period not exceeding three months or to both such fine and such imprisonment. Where it is
proved that the company or the nominee‘s conduct was willful, it will be slapped with a fine
equivalent to level seven or to imprisonment for a period not exceeding one year or to both such
fine and such imprisonment.

12.2.8 Refund of Resident Shareholder‟s Tax

Paragraph 7 of the 15th Schedule of the Act provides for the refund of RST:
 where a shareholder has been charged RST in excess of the amount required in terms of the
15th Schedule to the Act

 When dividend has subsequently been rescinded with the approval of the Minister in order
to comply with any conditions attaching to the payment of any dividend outside Zimbabwe
in terms of the law relating to exchange control

212
 When a person‘s aggregate of dividend from a local source and interest from a local
financial institution are below certain threshold in a year of assessment as follows:

A shareholder who is at least 55 years old A shareholder who is below 55 years

Aggregate dividend & interest Refund Aggregate dividend & Interest Refund
% %
Up to 6,000 100 Up to 4,800 100
6.001 to 7,200 75 4,801 to 6,000 75
7,201 to 8,400 50 6,001 to 7,200 50
8,401 to 9,600 25 7,201 to 8,400 25

Note that the refund is reduced proportionately where the period of assessment is less than 12
months.

In all above circumstances, the refund should be claimed within 6 years of the date of payment
RST, otherwise it is non-refundable.

EXAMPLE

Compute the RST to be refunded for Mr Karume, 66 years old, who received dividends and
interest as follows in the 2020 year assessment:

Dividend from a local company (net) 3,400

Interest from CBZ bank (net) 2,040

Answer

Payment Net Tax deducted at source Gross Amount

Dividend 3,400 600 4,000

Interest 2,040 350 2,400
Aggregate dividend and Interest 6,400
Rate of refund on dividend (range $6,001 - $7,200) 75%
Tax refund ($600 x 75%) $450

12.3 Non-resident Shareholders‟ Tax (NRST)

A dividend payable to non-resident shareholder is subject to withholding tax in terms of section

26 as read with 9th Schedule to the Act. The withholding tax rate is fixed at 15% and 10% for a
dividend distributed by listed company (section 15 of the Finance Act).

12.3.1 Meaning of dividend

Dividend has the same meaning in all respect as in the case of RST. In addition it includes
excess fees, management and administration expenditure payable to non-resident (refer section
16(1) (r) of the Act) and excludes any amount distributed to the International Finance
Corporation referred to in the International Financial Organizations Act (Chapter 22:09).

12.3.2 Meaning of shareholder

213
A shareholder includes member or stockholder i.e. ordinary shareholders and preference
shareholders. Debenture holders and creditors are not members of a company. However, in
terms of tax treaties dividend includes income paid to a loan holder (hence are deemed
shareholders) who shares the risks of the company. A lender shares enterprise risks when his
loan heavily outweighs enterprise share capital and is substantially unmatched by redeemable
assets. It is also commonly accepted under tax treaties that dividend includes interest on
convertible debentures or participating loans or bonds after conversion, until then the amount is
treated as dividend.

12.3.3 Timing of payment of dividend

Same interpretation as in the case of dividend paid to resident shareholders.

12.3.4 Companies to withhold the tax

A company ordinarily resident in Zimbabwe should deduct NRST at 15% (10% listed company)
on gross dividend it pays to a non-resident person (other than a pension fund, a benefit fund or a
medical aid society), a foreign company, a foreign life insurance company or a non-resident
partnership. Therefore any dividend distribution made by the company to a foreign medical
society, pension fund or benefit fund will not be subject to NRST in Zimbabwe. However, a
dividend distributed to a foreign trust, a non-resident local or like authority or non-resident
deceased or insolvent person will be subject to NRST.

A company is deemed to be ordinarily resident in Zimbabwe if its central management and

control is situated in Zimbabwe. A non-resident partnership is a partnership which has no
partner who is a resident of Zimbabwe. A ―foreign company‖ means a body corporate which is
not ordinarily resident in Zimbabwe.

Where the Commissioner is satisfied that, during the relevant accounting year, the company‘s
receipts from sources outside Zimbabwe exceed 15% of its total receipts, the amount of dividend
subject to NRST shall be determined in accordance with the formula:

AxB
C
A is the amount of dividend declared
B is the total receipts from a source within Zimbabwe
C is the total receipts from a source within and outside Zimbabwe

Receipts include both capital and revenue receipts, other than borrowings, share and debentures
receipts.

The NRST should be remitted to ZIMRA within 30 days of distribution of the dividend to
shareholder by the company or within such other such further time as the Commissioner may for
good cause allow. On payment of NRST a return (REV 5) should be lodged with ZIMRA at the
same time. The return is required even if the company is unable to immediately meet its tax
obligation. When the return is not submitted on time a fine of $300 a day up to 181 days is
chargeable, after 181 days the public officer may be prosecuted.

The tax ramification for a company which fails to comply with NRST withholding tax
procedures is 100% penalty and 25% interest p.a. The Commissioner can waive the whole or
part of the penalty if he is satisfied that the reason for not paying the tax was not due to any
intent to evade tax.
214
The withholding tax together with penalty and interest chargeable may be recoverable by the
Commissioner by action in any court of competent jurisdiction. Provided that withholding tax
must only be deducted once, and where the payer, agent or payee discharge his obligation no
further obligation lies on any party in respect of that withholding tax However, penalty remains
payable by the payer and agent. Interest is also a personal liability on each party and it remains
payable by a party that had defaulted in paying or remitting the WHT.

12.3.5 Agent to withhold the tax

An agent is required to withhold the tax on dividend received by him on whom no tax was
withheld. He should withhold and remit the tax to ZIMRA within 30 days of the date of receipt
of the dividend. An agent is defined as a person whose address appears in the records of the
payer as the address of the payee, or to whom the warrant or cheque in respect of income subject
to withholding tax is delivered to. It also includes a person who has and exercise all the powers,
duties and responsibilities of an agent for a shareholder who is absent from Zimbabwe. This
provision ensures that banks are also agents for the role they play in distributing the dividend to
a non-resident shareholder.

12.3.6 Payee to withhold the tax

The obligation can only be on the payee where the payer or agent has failed to withhold the tax.
The payee should withhold and remit the tax to ZIMRA within 30 days of the date of receiving
the income subject to withholding tax together with a tax return.

12.3.7 Withholding tax certificate

The payer and agent must issue the shareholder with a withholding tax certificate. The certificate
should show the gross amount of the dividend, any reduction made on the dividend for purposes
of computing NRST and NRST withheld.

12.3.8 Refund of resident shareholder‟s tax

Paragraph 7 of the 9th Schedule of the Act provides for the refund of NRST as follows:

 When the shareholder has been charged NRST in excess of the amount required by the law
 When dividend which has subsequently been rescinded with the approval of the Minister in
order to comply with any conditions attaching to the payment of any dividend outside
Zimbabwe in terms of the law relating to exchange control;
 When dividend is utilized (only that part utilised) to import essential goods into Zimbabwe
in accordance with concessions allowed or permission granted by the Minister in terms of
any enactment

All claims for refund have a prescription of within 6 years, counted from the date of payment of
the NRST, otherwise the refund is forfeited.

12.3.9 Entitlement to avail DTA benefit

A lower rate is however, applied on dividends paid to a non-resident company controlling

directly or indirectly at least 25% of voting powers of the paying, provided that there is a double
taxation treaty (DTA) in place between Zimbabwe and the non-resident company‘s country of
resident. The payee should also be the beneficial owner of the dividend.

215
12.4 Non-Residents‟ Tax on Fees (NRTF)

12.4.1 General overview

A non-resident person means a person (other than the company), a partnership or foreign
company not ordinarily resident in Zimbabwe. A person includes a juristic person i.e. a
company, a body of persons corporate or unincorporated, a local authority, a deceased estate or
insolvent estate and a private trust.

A foreign company refers to a body corporate that is incorporated outside Zimbabwe. The
residence status of the payee or that of the payer is decided by reference to the date on which the
fees are paid by the payer. On the other hand, a partnership shall be deemed to be ordinarily
resident in Zimbabwe if at least one member of such partnership is ordinarily resident in
Zimbabwe.

12.4.2 Meaning of fees

Fees means income payable from a source within Zimbabwe for services of managerial,
consultative, administrative or technical in nature, excluding the following (i.e are exempt from
withholding tax on fees):

 Fees on services rendered to an individual unconnected with his business affairs.

 Fees that are paid for services rendered by the payer‘s employee (other than a director of the
payer)
 Fees that are paid for educational or technical training services
 Payment for repair of goods outside Zimbabwe
 Fees paid on any project which is specified by the Minister by notice in a statutory
instrument or amount paid for 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.
 Fees for services rendered by non-resident to a licensed investor in respect of its operations
in a special economic zone.
 Fees payable to non-resident non-executive director with effect from 1st January 2017.
 Fees paid to a non-resident person who renders export market services as an agent of the
company (not to cover agents of individuals, partnerships and trusts) not exceeding 5% of
the value of exports based on free on board prices.

―Export market services‖ means services rendered wholly or exclusively for the purpose of
seeking and exploiting opportunities for the export of goods from Zimbabwe or of creating,
sustaining or increasing the demand for such exports and, without derogation from the generality
of the foregoing, includes any of the following services-
(a) Research into, or the obtaining of information relating to, markets outside Zimbabwe,
(b) Research into the packaging or presentation of goods for sale outside Zimbabwe,
(c) Advertising goods outside Zimbabwe or securing publicity outside Zimbabwe for goods,
(d) Soliciting business outside Zimbabwe or participating in trade fairs,
(e) Investigating or preparing information, designs, estimates or other material for the purpose
of submitting tenders for the sale or supply of goods outside Zimbabwe,
(f) Bringing prospective buyers to Zimbabwe from outside Zimbabwe,
(g) Providing samples of goods to persons outside Zimbabwe.
12.4.3 Source of fees

216
Schedule 17 of the Act deems fees to be from a source within Zimbabwe if the payer is a
resident. A payer is any person who or a partnership which is ordinarily resident in Zimbabwe.
The term also covers the State or a statutory corporation or the agent on the behalf of the State or
any statutory corporation for purposes of paying the fees. Whether or not payer is resident or the
payee is a non-resident this shall be decided by reference to the date on which the fees are paid
by the payer.

12.4.4 Timing of payment of fees

A payment may be made in cash, in kind, by setoff, or by the transfer in the books of a bank of a
sum of money from the account of the debtor to that of the creditor, made with the consent of
both parties. In general, an amount is paid when cash or property is transferred from the payer to
the payee or when the amount is credited to the account of the payee.

For purposes of fixing the date for withholding tax on fees, fees are deemed to be paid to the
payee if they are credited to his account or so dealt with in such a way that the conditions under
which he is entitled to them are fulfilled, whichever occurs first.

12.4.5 Obligation to withhold the tax

A resident of Zimbabwe or a non-resident person carrying on a business in Zimbabwe through a

permanent establishment situated in Zimbabwe must withhold tax of 15% withholding tax on
fees and remit the tax to Zimra within 10 days of payment of fees or within such further period
as the Commissioner may approve. The payer is liable to pay the tax due together with 100%
penalty and interest of 25% p.a. on the tax due for failing to observe this requirement. The
Commissioner has the power to sue and recover through an action in any court of competent
jurisdiction for the tax due together with such penalty and interest. Payer refers to any person
who or partnership which pays or is responsible for the payment of fees, including the State or a
statutory corporation or agent of the State or any statutory corporation for purposes of paying the
fees.

At the same time the payer is remitting the tax to Zimra, he should also file a withholding tax
return (Rev 5) i.e. to be filed on or before the 10th day of payment of the fees to the payee. A
return which is not submitted on time carries $300 a day up to maximum of 181 days, after
which the public officer may be subject to prosecution. A payer who has deducted tax must
issue to the payee a withholding tax certificate.

Where the payer has failed to withhold the tax, an agent of the payee must do so and remit the
tax to ZIMRA not later than 10 days of the date of receipt of fees. An agent must also issue to
the payee a withholding tax certificate (same particulars as above).

A payee who receives fees from which withholding tax was not deducted must remit the
applicable withholding tax to Zimra within 10 days of receipt of the fees.

A payer or the agent who fails to issue a certificate or who furnishes an incorrect certificate is
liable to a fine not exceeding level 5 or to imprisonment for a period not exceeding three months
or to both such fine and such imprisonment. This can be increased to a fine not exceeding level 7
or to imprisonment for a period not exceeding one year or to both such fine and such
imprisonment if it is found out that the payer or agent‘s conduct was willful.

12.4.6 Credit of withholding taxes

217
The fact that a withholding tax is imposed does not relieve the person on whose behalf the tax is
withheld from the obligation of registering for Zimbabwe tax purposes. If he renders the return
of this income, he then becomes entitled in terms of s95 of the Act to a credit of NRTF deducted
by the payer of income. The section however limits the credit (relief) to an amount computed as
follows:

A–B

A represents the income tax payable by non-resident in on his income inclusive of fees on
which the credit is being sought

B represents the income tax payable by non-resident in on his income exclusive of fees on
which credit is being sought

Additionally, the total deduction to be allowed to any person for any year of assessment shall not
exceed the total income tax chargeable in terms of this Act in respect of that year of assessment.

12.4.7 Entitlement to DTA benefit

If the recipient of the fees is a resident of a territory which is a party to a DTA with Zimbabwe,
the withholding tax may be reduced or exempted if so provided for in the DTA. A DTA prevails
over the provisions of the Act.

12.5 Non-residents‟ tax on remittances

Non-residents tax on remittance is levied and collected in terms of s31, as read with the 18th
Schedule of the Act. The tax is triggered when a non-resident person transfers allocable
expenditure. An allocable expenditure is an expenditure of a technical, managerial,
administrative or consultative nature incurred outside Zimbabwe by a non-resident person in
connection with carrying on any trade within Zimbabwe. This applies in practice to expenses
incurred outside Zimbabwe by a foreign head office or any other apportionment of the foreign
head office‘s expenses that are incurred for the benefit of a Zimbabwean branch of that foreign
company. The administration of this tax and tax rates are similar in every respect to NRTF
considered above.

12.6 Non-residents‟ tax on royalties (NRTRoy)

12.6.1 General overview

Section 32 as read with the 19th schedule of the Act imposes an obligations on ordinary residents
to withhold tax on royalties paid or payable to a non-resident payee. A non-resident means a
person (other than a company), partnership or a foreign company, not ordinarily resident in
Zimbabwe. The term person in section 2 of the Act embraces a company, body of persons
corporate or un-incorporate (not being a partnership), local or like authority, deceased or
insolvent estate and, in relation to income the subject of a trust to which no beneficiary is
entitled, the trust. This means any person so defined as person and is non-resident is affected by
the provision of this schedule. A foreign company refers to a body corporate that is incorporated
outside Zimbabwe. The residence status of the payee or that of the payer shall be decided by
reference to the date on which the royalties are paid by the payer. In the case of a partnership
carrying on any trade in Zimbabwe, it shall be deemed to be ordinarily resident in Zimbabwe if
at least one member of such partnership is ordinarily resident in Zimbabwe.

218
12.6.2 Meaning of “Royalty”

A royalty is an amount paid for the right of use of any property, other than for an out and out
disposal of property. Payments for alienation/transfer of property, unless contingent on the use
or disposition of the property, are also excluded from the definition of royalty.

In paragraph 1 of the 19th schedule of the Act ―Royalties‖ is defined as any amount from a
source within Zimbabwe payable as a consideration for the use of, or the right to use any
literary, dramatic, musical, artistic, scientific or other work whatsoever (including
cinematograph films or recordings) in which any copyright exists or the right of use of any
patented article, trade mark, design or model, plan, secret formula or process. Under DTAs, the
rent or any amount payable for the use or right to use commercial or scientific equipment (not
being motor vehicles), or for information concerning industrial, commercial or scientific
experience is also regarded to be a royalty. An amount paid for the use of immovable property
does not constitute a royalty.

The term ―use‖, in relation to a copyrighted work or any patented article, refers to the doing of
anything which would infringe the copyright or patent concerned if it were done without the
permission or authority of the holder of the copyright or patent or his agent or assignee.

12.6.3 Exemptions

The 19th schedule exempts certain royalties from withholding tax. Those exempted includes
royalties payable under any project which is specified by the Minister of notice in a statutory
instrument or under a 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. Also exempted are, royalties payable by a licensed investor out of
his operations in the special economic zone.

12.6.4 Source of royalties

The 19th schedule of the Act deems the royalties to be from a source within Zimbabwe if the
payer is a person who or a partnership which is ordinarily resident in Zimbabwe or if the
royalties are payable for the use of the property in Zimbabwe. The word payer means any person
who or partnership which pays or is responsible for the payment of royalties and this includes
the State or a statutory corporation or an agent of the State or any statutory corporation.

12.6.5 Timing of payment of royalties

Royalties are deemed to be paid to the payee if they are credited to his account or so dealt with
in such a way that the conditions under which the payee is entitled to them are fulfilled,
whichever occurs first. A payment covers payment by cash, in kind, through setoff, or by the
transfer in the books of a bank of a sum of money from the account of the debtor to that of the
creditor, made with the consent of both parties.

12.6.6 Obligation to withhold the tax

The payer has to withhold NRTRoy of 15% of the gross royalties, which has to be remitted to
Zimra within 10 days of payment of the royalty to the non-resident or within such further period
as the Commissioner may approve.

At the same time the payer is remitting the tax to ZIMRA, he should file a withholding tax
return (Rev 5) i.e. to be filed on or before the 10 th day of payment of the fees to the payee. When
219
a payer fails to withhold and remit tax as required, he is liable to pay the tax due together with
100% penalty and interest of 25% p.a. on the tax due. The Commissioner has the power to sue
and recover through an action in any court of competent jurisdiction for the tax due together
with such penalty and interest. A payer who has deducted tax must issue to the payee a
withholding tax certificate. The certificate should show the payer‘s name, amount of the
royalties and the amount of the tax withheld.

Where the payer has failed to withhold the tax, an agent of the payee must do so and remit the
tax to ZIMRA not later than 10 days of the date of receipt of royalties. An agent must also issue
to the payee a withholding tax certificate. An agent of the payee includes a person whose
address appears as the address of the payee in the records of the payer and to whom the warrant,
cheque or draft in payment of the amount has been delivered to.

A payee who receives royalties from which withholding tax was not deducted must remit the
applicable withholding tax to ZIMRA within 10 days of receipt of royalties.

A payer or the agent who fails to issue a certificate or who furnishes an incorrect certificate is
liable to a fine not exceeding level 5 or to imprisonment for a period not exceeding three months
or to both such fine and such imprisonment. This can be increased to a fine not exceeding level
7 or to imprisonment for a period not exceeding one year or to both such fine and such
imprisonment if it is found out that the payer or agent‘s conduct was wilful.

12.6.7 Credit of withholding taxes

The fact that a withholding tax is imposed does not relieve the person on whose behalf the tax is
withheld from the obligation of registering for Zimbabwe tax purposes. If he renders the return
of this income, he then becomes entitled in terms of section 96 of the Act to a credit of NRTRoy
deducted by the payer of income. The section however limits the credit (relief) to an amount
computed as follows:

A–B

A represents the income tax payable by non-resident in on his income inclusive of

royalties on which the credit is being sought

B represents the income tax payable by non-resident in on his income exclusive of the
royalties on which credit is being sought

The relief so granted cannot result in the non-resident obtaining a refund, meaning it is limited to
income tax chargeable in the year of assessment.

12.6.8 Entitlement to avail DTA benefit

If the recipient of the payment is resident in a territory which is a party to a DTA with, the
withholding tax may be reduced or exempted if so provided for in the DTA. The DTA may
provide that taxation of the payment in the receiving state is a condition precedent to a reduction
to 0%. If there is any DTA entered it should prevail over the provisions of the Act.

12.7 Non-resident‟ tax on interest (NRTI)

220
Interest on all inbound loans provided by non-resident is not subject to withhold tax
(withholding tax on interest repealed with effect from 1 August 2009). Interest which is deemed
as dividend (excess interest in terms of the thin capitalisation rules (section 16 (1) (q) of the
Act)) is however subject to 15% withholding tax. Such interest is treated as dividend distributed
to a non-resident and subject to 15% withholding tax. It does not enjoy the benefits implied in a
tax treaty of reduced rate or exemption. The residence status of a ―person‖ is determined by
reference to the date the interest is paid to the ―person‖ by the payer. However, a non-resident
who cedes its interest to a resident may result in that interest being taxed in Zimbabwe.

12.8 Residents‟ tax on interest (RTI)

12.8.1 General overview

Resident tax on interest payable by financial institution is withheld in terms of section 34 as read
with the 21st Schedule of the ITA on interest payable by a Zimbabwean registered financial
institution to a person (i.e. including a company and trust) ordinarily resident in Zimbabwe. A
financial institution means a registered (or registerable) bank, building society, a company acting
as trustee or manager of a unit trust scheme, the Infrastructure Development Bank of Zimbabwe,
an asset manager, a collective investment scheme or discount houses, finance houses,
moneylending and the Reserve Bank of Zimbabwe. The Post Office Savings Bank is excluded
from the definition of a financial institution.

A resident person is a resident individual, partner, company or trust. The resident status of the
payee is determined on the date interest is paid by the financial institution.

12.8.2 Meaning of interest

The 21st Schedule defines ―interest‖ as interest from a source in Zimbabwe payable by a
financial institution on any loan or deposit. It includes dividends payable by a building society
in respect of any share other than CABS paid-up permanent share (class ―A‖), Founders
Building Society ordinary permanent fully paid-up share and the Beverley Building Society
foundation fully paid-up share or class ―A‖ share. Also considered as interest is income
generated by Treasury bills.

Interest includes income on banker‘s acceptances and other discounted instruments traded by
financial institutions. In practice Government and Municipal stocks are exempt from tax.

12.8.3 Exemptions from RTI

The following interest is exempted from Resident tax on interest:

 Interest payable to the holder of a money-lender‘s licence
 Interest payable to another financial institution
 Interest paid to persons whose receipts and accruals are exempt from tax e.g. pension funds
 Interest exempt in terms of paragraph 10 and 11 of the 3rd schedule of the Act.
 interest payable to an insurer registered in terms of the Insurance Act [Chapter 24:07];
 Interest payable on a foreign currency denominated account held by a taxpayer other than a
company or a trust, i.e. commonly an individual.
 It is understood that the Commissioner accepts that the term does not include the yield on
bankers‘ acceptances and, in the case of negotiable certificates of deposit, any yield in the
hands of a person trading them in the secondary market.
 A person who is or over the age of 55 years is exempt on withholding tax on interest as
follows
221
- On the first $30,000 p.a of interest on any deposit with a financial institution. A deposit
is defined as an amount of money, whether made up of Zimbabwean or foreign
currency or both, cheques or other negotiable or non-negotiable instruments, which a
financial institution accepts for credit to an account in its books or in those of another
institution inside or outside Zimbabwe. The exemption implied is per each deposit
with any financial institution.
- On the first $30,000 p.a. interest on banker‘s acceptances and other discounted
instruments traded by financial institutions. The exemption implied is granted on the
aggregate interest from all financial institutions.
 Interest which is ordinarily tax exempt in terms of the Act e.g. POSB interest, interest on
any ―Diaspora Bond‖ issued by the Commercial Bank of (CBZ) etc.,

12.8.4 Timing of payment of interest

Interest is deemed paid to a person when it is credited to his account or dealt in such a way that
the conditions under which he is entitled to it are fulfilled, whichever occurs first.
Notwithstanding the above, interest on a Treasury bill, Banker‘s Acceptance or discounted
instrument is paid on the date of maturity of the note or bill. It is at this point that RTI should be
withheld. Once an amount has been subjected to RTI no further tax shall be computed in the
hands of the payee.

12.8.5 Obligation to withholding the tax

A financial institution that pays interest to a person (including a company and a trust) ordinarily
resident in Zimbabwe should withhold RTI of 15% on interest earned on all other deposits and
5% on interest earned from a fixed term deposit. A fixed term deposit is a deposit with tenure of
at least 90 days. With effect from 1 January 2016, interest on fixed deposit held for at more than
12 months is exempt from RTI.

The financial institution should remit the deducted tax to ZIMRA on or before the 10th day of
the month following the month in which the payment was made or within such further time as
the Commissioner may for good cause allow. Interest is paid to a person when it is credited to
the person‘s account or dealt in the person‘s name in such a way that the conditions under which
he is entitled to it are fulfilled, whichever occurs first.

The term ―person‖ refers to an individual, a partner, a company, including a trust the subject or
income to which no beneficiary is entitled to. The person should be ordinarily resident in
Zimbabwe. The resident status of the payer is determined on the date interest is paid by the
financial institution.

The following diagram summaries interest taxing rules in Zimbabwe:

222
Yes Exempt

Interest is Paid by a local Recipient No

from a local Yes Financial No non-
source Institution (FI) resident

FI to withhold tax
Yes

Recipient
No
ordinarily Yes Subject
resident to CIT

No Not from
Zimbabwean
source

12.9 Automated financial transaction tax

An automated financial transaction tax is charged and collected in terms of s36B as read with the
25th schedule. The tax is levied and collected by a financial institution when its customer make
cash withdraws or its account is debited using an automated teller machine. Automated teller
machine is an electronic device which enables a customer of a financial institution to perform
transactions, including the withdrawal of cash from his account with the institution, directly and
without the intervention of a teller or other officer of the financial institution concerned. A
financial institution is a bank, discount house or finance house registered or required to be
registered under the Banking Act [Chapter 24:20] or a building society registered or required to
be registered in terms of the Building Societies Act [Chapter 24:02].

It however does not include, the Reserve Bank of Zimbabwe or POSB or the Infrastructure
Development Bank of Zimbabwe, Agribank or the postal company licensed in terms of section
113 of the Postal and Telecommunications Act to provide the postal services, or any person
licensed in terms of the Postal and Telecommunications Act to provide postal services, any
provider of a mobile banking service, a company acting as trustee or manager of a unit trust
scheme, an asset manager, a collective investment scheme or and moneylenders.

The tax withheld should be remitted by the financial institution to Zimra not later than the 10th
day of the month following the month in which the transaction in respect of which the tax is
payable was effected, supported by a return (REV5). In the event that a financial institution has
paid the tax on behalf of the customer it is entitled to restitution either by debiting the
customer‘s account or in any other manner.

223
A penalty of 100% is charged on a financial institution which fails to pay to the Commissioner
any automated financial transactions tax. The penalty can be reduced or waived if the
Commissioner is of the view that the reason for non-compliance was not was not due to intent to
evade the tax. Interest is also chargeable on both the principal and a penalty which is not paid on
time after it has been levied. The Commissioner may however extend the time for payment of
the penalty without charging interest.

In the event that tax is overpaid, a refund is granted if it is proved to the satisfaction of the
Commissioner that the tax was overpaid the Commissioner shall authorize a refund of the
amount overpaid: However, the claim needs to be made within 6 years of the date of
overpayment.

12.10 Intermediated money transfer tax

12.10.1 Overview

Intermediated money transfer tax is withheld by on a financial institution in terms of section

36G of the Act as read with 30th Schedule of the Act. A financial institution broadly includes a
bank that is registered or required to be registered in terms of the Banking Act , a building
society registered or required to be registered in terms of the Building Societies Act , The
Reserve Bank of Zimbabwe or POSB or the Infrastructure Development Bank of Zimbabwe,
Agribank or the postal company licensed in terms of section 113 of the Postal and
Telecommunications Act to provide the postal services, or any person licensed in terms of the
Postal and Telecommunications Act to provide postal services. The definition of a financial
institution includes any provider of a mobile banking service. It however does not include a
company acting as trustee or manager of a unit trust scheme, an asset manager, a collective
investment scheme or discount houses, finance houses and moneylenders The definition was
amended with effect from 1 August 2019 to include an operator of a mobile money transfer
platform (whether or not he or she or it is permitted or licensed to operate such a platform by a
financial institution or cellular telecommunicating or telecommunication service operator
licensed or required to be licensed under the Postal and Telecommunication Act [21;05]}, who
carries on the business of facilitating the receipt by any person {―the customer‖} by hosting on
such platform the customer and the financial institution or cellular telecommunication or
telecommunication service operator or any combination of them‖. The effect is to levy IMTT on
on cash out transactions by mobile agents.

12.10.2 Definition of terms

The Finance Act no 1 of 2019 has added to the 30th Schedule of the Income Tax Act certain
definitions for purposes of administration of this tax as follows:
――company‖ means a company or private business corporation registered or incorporated under
the enactment providing for the registration or incorporation of such entities;
―marketable security‖ has the meaning given to it by section 2 of the Capital Gains Tax Act
[Chapter 23:01];
―money market instrument‖ means any— (a) Treasury Bill, Treasury Bond, Reserve Bank of
Zimbabwe Bill or Reserve Bank of Zimbabwe Bond; (b) corporate bill or bond, that is, any bill
or bond issued in the name of a company; (c) negotiable certificate of deposit or fixed deposit
instrument;
―nostro foreign currency account‖ means any account designated in terms of Exchange Control
Directive RT/120 of 2018, held with a financial institution in Zimbabwe, in which money in the
form of foreign currency is deposited from offshore or domestic sources;

224
―pension fund‖ means— (a) the National Social Security Authority established by the National
Social Security Authority Act [Chapter 17:04]; (b) any pension fund registered as such in terms
of the Pension and Provident Funds Act [Chapter 24:09];
―remuneration‖ has the meaning given to it by paragraph 1(1) of the Thirteenth Schedule of the
Act (whether or not such remuneration is subject to employees‘ tax);
―specified trust account‖ means any trust account required to be opened and operated in terms of
the Insurance Act [Chapter 24:07], the Legal Practitioners Act [Chapter 27:07], the Estate
Agents Act [Chapter 27:17] (No. 6 of 1999) or the Estate Administrators Act [Chapter27:20]
(No. 16 of 1998);

12.10.3 Levying of liability

An intermediate transfer tax is levied on each transaction involving the ―transfer‖ of money
physically, electronically or by any other means takes place, other than a cheque. Whenever a
client of a financial institution effects a transfer of money to another person by means of an
automated teller machine belonging to or leased by or under the control of the financial
institution, the financial institution is deemed to have mediated the transfer of that money and
must withhold the tax. The transaction can be between 2 persons or from 1 person to 2 or more
persons or from 2 or more persons to 1 person. Any transfer of money made a by financial
institution to other financial institution on behalf of any of the persons for whom it acts as
intermediary is exempt from IMTT.

The Finance Act no 3 of 2019 repealed the wording in para 2 of the 30th Schedule of the Income
Tax Act which states that “…the financial institution concerned shall pay to the Commissioner
an intermediated money transfer tax on each such transaction…….Notwithstanding any other
law, a financial institution that has paid intermediated money transfer tax may recover the tax
from either of the persons on whose account the transaction was effected……..”.. The wording
has been replaced by “the financial institution shall withhold and remit to the Commissioner
an intermediated money transfer tax on each such transaction”. This amendment places the
liability for IMTT on transacting persons and not the financial institution. .

12.10.4 Remittance of IMTT

Once deducted, the tax must be remitted to ZIMRA on or before the 10th day of the month
following the month in which the transaction subject to intermediate money transfer took place.
A penalty of 15% is chargeable whenever the financial institution fails to withhold and remit the
tax. The Commissioner can however waive the penalty if in his opinion the reason for failure to
deduct and remit the tax was not due to intent to evade the tax. Interest at statutory rate is also
chargeable on the principal tax due and penalty that is not paid after it is charged. The
Commissioner is empowered under section 77 of the Act to recover outstanding taxes, penalty
and interest by action in any court of competent jurisdiction. In the event that a taxpayer has
over paid the tax he is entitled to a refund provided this is claimed within 3 years of the date of
the overpayment.

12.10.5 Rate of IMTT

The Intermediated money transfer tax, was previously at the rate of 5 cents for every transaction
but was revised with effect from 13th of October 2018 through Statutory Instrument 205 of 2018
to 2 cents per value of transaction. The Minister then regularised the amendment through the
Finance Act, 2019 and currently the rate stands at 2 cents for every dollar transacted (0.02
cents), in terms of section 22G of the Finance Act. The amount of transfer not subject to
225
Intermediated Money transfer tax is increased from ZWL$20 to ZWL$100 with effect from 1
January 2020. With effect from 1 January 2020, the tax is capped at ZWL$25 000 for a
transaction exceeding ZWL$1,250 000.

12.10.6 Exemptions from IMTT

The Act further provides for following transactions to be exempt from IMTT:
1. the transfer of money for the purchase or sale of marketable securities;
2. the transfer of money for the purchase or redemption of money market instruments;
3. the transfer of money on payment of remuneration;
4. the transfer of money to or from the Zimra for the payment or refund of any tax, duty or
other charges;
5. the intra-corporate transfer of money, that is to say, transfer of money between the treasury
account and any trading account held in the name of the same company;
6. the transfer of money from (but not into) specified trust accounts;
7. the transfer of money into and from nostro foreign currency accounts;
8. the transfer of money by Government from the Consolidated Revenue Fund or from funds
established in terms of section 18 of the Public Finance Management Act [Chapter 22:19]
(No. 11 of 2009);
9. the transfer of money to any pension fund or to beneficiaries of such a fund;
10. the transfer of money for the procurement, production or sale (wholesale or retail) of a
petroleum product by a petroleum company licensed in terms of Part VI of the Petroleum
Act [Chapter 13:22] (No. 11 of 2006)
11. the transfer of money between an individual‘s mobile wallet account and his or her bank
account; the transfer of money from a medical aid society registered in terms of the Medical
Services Act to a medical service provider in settlement of a claim for services rendered by
that provider;
12. the transfer of money in the form of insurance premiums— (i) by insurance brokers to
insurance companies; and (ii) by insurance companies to reinsures, retrocessionanaires and
asset managers registered in terms of the Asset Management Act [Chapter 24:26] (No. 16 of
2004);
13. the transfer of money to producers, sellers or exporters of minerals by the Minerals
Marketing Corporation of Zimbabwe pursuant to the Minerals Marketing Corporation Act
[Chapter 21:04];
14. the transfer of money to producers or sellers of gold by Fidelity Printers and Refiners
(Private) Limited;
15. the transfer of money to a successor company of the Zimbabwe Electricity Supply Authority
(referred to in section 75 of the Electricity Act [Chapter 3:09]) from a trust fund credited
with prepayments for electricity made by a mobile banking service provider;
16. the transfer of money by travel agents to airlines on the purchase and administration of air
tickets; the transfer of money involving a transaction other than one mentioned in the
foregoing paragraphs, if the value of transaction is ten United States dollars or below‖.
17. Transfer of money to purchase tobacco
18. Transfer of funds for the purchase of auction or contract tobacco from buyers or contractors
to auction floors. Effective 29th of March 2019
19. Transfer of funds by contractors and auction floors to growers of tobacco for deliveries of
tobacco. Effective 29th of March 2019
20. Transfer of funds to buyers to enable them to purchase cotton or cotton seed from growers
or contracted growers. Effective 29th of March 2019
21. Transfer of funds by buyers to purchase cotton or cotton seed from growers or contracted
growers. Effective 29th of March 2019
22. Social transfers by any organisation of body designated as a ―development partner‖ as
gazetted the Privileges and Immunities Act. A ―social transfer‖ means ―social assistance in
226
the form of money paid to those living in poverty or in danger of falling into poverty‖. This
appears effective from 1 January 2020.
23. Transfer of money from the African Export-Import Bank (―Afreximbank‖) established by the
Bank Agreement. Bank Agreement‖ means ―the Agreement for the Establishment of the
African Export-Import Bank (―Afreximbank‖) signed in Abidjan, Ivory Coast, by African
States and certain International Organisations on the 8th of May, 1993‖. This is with effect
from 13th of October 2018

12.11 Non-resident entertainers and sportspersons

Section 80A of the Act requires every registered taxpayer (an employer, any person in ZIMRA‘s
records as taxpayer other than as an employer or registered VAT operator) who enters into
contract with any non-resident entertainer or sportsperson to withhold 15% on all amounts it
pays in respect of any personal activity exercised by an entertainer or aristes. ―Contractor‖
means a contractor of the services of any payee who is a non-resident artist or entertainer
contracted to perform in Zimbabwe.

The withholding tax is triggered by payment. The term payment is wide and includes cash
settlement, barter, setoff, crediting a director‘s loan accounts, intercompany debits and credits or
by other settlement of obligations whatsoever and in any form.

The responsibility to withhold lies with the withholding agent. A ―withholding agent‖ means a
contractor, or person who is employed by a contractor and who is responsible for paying a payee
any amount due in terms of a contract. The agent must remit the tax to Zimra within 10 days of
payment of the fees to the non-resident or within such further time as the Commissioner may
allow. The agent must also file a withholding tax return (Rev 5) on or before the 10th day of
payment of the fees to the payee. For failing to withhold tax and remit tax on time, the agent is
liable to pay the tax due together with 100% penalty and interest of 25% p.a. on the tax due. The
Commissioner can sue and recover such taxes through an action in any court of competent
jurisdiction. If the Commissioner is satisfied that the reason failing to pay tax was not due to any
intent to evade tax he may waive the full or part of the penalty.

The withholding tax is not a final tax, a non-resident who wishes to submit the return can obtain
a tax credit against the income tax payable by him and where the amount exceeds the income tax
payable by the non-resident, the Commissioner shall forthwith refund the excess to the non-
resident.

No action shall lie against the contractor or withholding agent as result of properly exercising his
duty nor shall the withholding of the amount constitute a breach of the contract concerned. A
person who concludes a contract on behalf of the contractor shall take all reasonable steps to
ensure that the person with whom the contract is concluded is made aware of the provisions of
this section. However, failure to comply with this subsection shall not constitute a ground for
cancelling the contract or relieve a paying officer of his or her obligations under this section.

12.12 Withholding tax on local contracts (10%)

12.12.1 General overview

10% withholding tax on local contract is deducted on any payment made to a local counterparty
(supplier) which has no tax clearance. The responsibility to withhold the tax lies with every
person registered in the books of Zimra as a taxpayer, the State, a statutory body or a quasi-

227
government body which enters into a contract for the supply of goods or services to it by any
person aggregating $10,000 per annum.

The 10% withholding tax is also applied at the time of importation of goods.

A registered taxpayer includes a person who is registered in the books of ZIMRA as an

employer, a provisional taxpayer, a depositary in terms of the Capital Gains Tax Act or a VAT
registered operator.

12.12.2 Meaning of contract

A contract ‖ means a contract in terms of which the State or a statutory body, quasi-
Governmental institution or registered taxpayer is obliged to pay 1 or more persons an amount
or amounts totalling or aggregating $10,000 or more per annum.

12.12.3 Meaning of payment

The term ‗payment‘ means payment by cash, barter, setoff, crediting a director‘s loan accounts,
intercompany debits and credits or by other settlement of obligations whatsoever and in any
form.

12.12.3 Meaning of payee

The finance act 1 of 2019 amended the definition of ―payee‖ to excludes a non-resident person
liable to pay the withholding taxes under the Seventeenth, Eighteenth and Nineteenth
Schedules;‖ with effect from 1 January 2019-.These are non-resident persons subject to non-
resident tax on fees, remittance and royalties. The implication of this amendment is that the gap
(lacunae) that was in the law regarding contracts with non-residents is finally filled. It was not
unequivocally clear that contracts between non-residents and locals for services were not subject
to the provisions of section 80. Therefore on payments of amounts subject to non-resident tax, a
tax clearance (ITF283) is not required and the taxpayer shall not suffer 10% withholding tax on
tenders because of its absence. Nevertheless a non-resident person who carries a business on a
continuous basis in Zimbabwe through a fixed base or a permanent establishment must be
subject to 10% withholding tax if not in possession of ITF263. Cross border transporters whose
fixed place of business is in Zimbabwe should therefore produce tax clearance to be exempted
from 10% withholding tax on contract. A further amendment is made by the Finance Act 3 of
2019 with effect from 1 January 2019 with regard to the definition of payee as to exclude non-
resident broadcasters and e-commerce operators, non-executive director for purposes
withholding tax on fees only, persons making any delivery of grain to the Grain Marketing Board
and small-scale gold miner delivering gold to Fidelity Printers and Refiners (Private) Limited.
Persons who are not payee are not required to produce a tax clearance for purposes of receiving
their payments without the deduction of 10% withholding tax. Meanwhile, deliveries to Grain
Marketing Board without producing tax clearance for the period 1 August 2013 to 31 December
2019 has been condoned. The effect is that such deliveries are exempt from 10% withholding
tax, but taxes already withheld are non-refundable.

12.12.4 Exemption of 10% withholding tax

Payments by employers
Payments made by employees are not subject to withholding tax, unless the payments are made
to independent contractors.

228
Sales in the ordinary course of trade
Withholding tax provisions do not apply on a sale effected in any shop in the ordinary course of
the business of such shop, or any other consumer contract for the sale or supply of goods or
services or both in which the seller or supplier is dealing in the course of business and the
purchaser or user is not. In other words, an end user (not being in business) cannot request shop
a for a tax clearance when purchasing from such a shop. A tax clearance is required on a contract
for the sale, letting or hire of immovable property notwithstanding the buyer is the end user.

Certain services in terms of Zimra notice

According to the Commissioner General‘s Public Notice on Withholding Tax on Tenders of
2010 (http://www.zimra.co.zw) payments for Utilities are not subject to withholding tax.
Utilities referring to the set of services provided by public organisations i.e. services consumed
by the public: electricity, water, and sewage. Thus, services provided by Local Authorities,
electricity suppliers and water suppliers are exempt from withholding tax on local tenders.

Tobacco farmers
Sometime in May 2017 the Zimbabwe Revenue Authority raided the tobacco auction floors
wanting to collect 10% withholding tax on payments made to tobacco farmers not in possession
of tax clearances. It required Ministerial directive to stop the move and eventually the Finance
Act 2018 amended s80 of the Income Tax Act, Chapter 23:06 in order to provides for
exemption from 10% withholding tax contracts for the purchase of auction or contract tobacco in
terms of which tobacco levy may be required to be withheld. This means that the government
has exempt contract for the purchase of auction or contract tobacco in terms of which tobacco
levy may be required to be withheld from the application of section 80 of the Income Tax Act
with effect from 1 January 2018.

Delictual claims
Withholding tax is not deducted on tax payments and any delictual claims against the state.

12.12.5 Paying officer to withhold tax on contracts

A paying officer is an employee or officer of the State, a statutory body or a quasi-government

body or a registered taxpayer who is responsible for paying a payee any amount due to him
under a contract. The Act defines a ―payee‖ as a person to whom any amount is payable in
terms of a contract.

The tax withheld should be remitted to ZIMRA by the 10 th day of the following month following
in which the payment was made. It should be accompanied by a return (REV5). No action shall
be levelled against the State, quasi-government, a statutory body, an operator a paying officer
who withholds the tax on contract as required by the law nor shall such withholding constitute a
breach of the contract concerned. A person who concludes a contract on behalf of the State, a
statutory body, quasi-Governmental institution or registered taxpayer is required to take all
necessary steps to ensure that the person with whom the contract is concluded is made aware of
the provisions of this section. A failure by the person to comply with requirements does not
relieve a paying officer of his obligations.

The paying officer is liable for the payment to ZIMRA of the amount he failed to withhold or
pay to ZIMRA plus 100% (penalty) of such amount and 25% interest per annum on the tax due.
Interest is also payable on penalty which is not paid after it has been levied. The interest is
recoverable by the Commissioner by action in any court of competent jurisdiction: Provided that
in special circumstances the Commissioner may extend the time for payment of the penalty
without charging interest. The withholding tax, penalty and any interest chargeable shall be
debts due and payable to the State and may be sued for and recovered by the Commissioner in
229
any court of competent jurisdiction. The Commissioner may, if he or she is satisfied that a
failure to withhold or to pay the tax was not due to intent to evade the tax, he may waive the
payment of the whole or part of the penalty. He may also, in special circumstances extend the
time for payment of the penalty without charging interest.

12.12.6 Withholding tax certificate

The paying officer should issue to the payee a withholding tax certificate whenever he withholds
the tax. The certificate should set out the amount of the payment made and the amount of tax
withheld from the payment. The certificate should be in a form approved by the Commissioner
and show the gross amount and the tax withheld. A paying officer who fails to issue a certificate
or who furnishes an incorrect certificate shall be guilty of an offence and liable to a fine not
exceeding level 5 or to imprisonment for a period not exceeding three months or to both such
fine and such imprisonment. Where it is proved that the payer‘s or the agent conduct was wilful,
he shall be liable to a fine not exceeding level 7 or to imprisonment for a period not exceeding
one year or to both such fine and such imprisonment.

12.12.7 Credit of withholding taxes

The Commissioner shall retain the withholding tax remitted to him until the income tax payable
by the payee concerned for the year of assessment has been assessed. In other words, he should
submit a return to Zimra for assessment of the income tax to be afforded the credit. The amount
will then be allowed as a credit against the income tax so payable by the payee or where the
amount exceeds the income tax so payable by the payee, the Commissioner shall forthwith
refund the excess to the payee. A return for income tax is submitted in terms of Section 37 of the
Act. All persons carrying on trade are required to submit this even those that exempt from
paying income tax. Such should submit a nil return to obtain refund of their withholding tax.

12.12.8 Restitution – recovery

A statutory body, quasi-governmental institution or registered taxpayer is entitled to recover

from the supplier the withholding tax it paid to ZIMRA as a result of failing to deduct the
withholding tax from the supplier who did not furnish a tax clearance. It has 24 months from the
date the withholding tax was due to been paid to ZIMRA to recover the amount from the
supplier (payee). The right of recovery does not however extend to penalties and interest paid by
the payer to ZIMRA.

12.12.9 Miscellaneous changes to s 80

Withholding tax refund or set off for taxpayer exempt from income tax
The Finance Act, 2019 authorises the Commissioner to refund the 10% withholding tax or allow
a setoff against other tax payable to the ZIMRA for persons that are exempt from paying income
tax. It ensures 10% withholding tax on contract is not chargeable in cases where income tax is
not payable.

10% withholding tax moratorium for private schools

A tax relief has been granted to private schools who failed to withhold tax on payments made to
payees not in possession of valid tax clearances for the period of six years ending on the 31st
December 2017 in terms of the Finance Act, 2019. With effect from 1 January 2018, 10%
withholding tax on contracts is deducted where the recipient of payment from the private school
is not in possession of a tax clearance.

230
10% withholding tax moratorium for RBZ
The Finance Act, 2019 has granted a moratorium to the Reserve Bank of Zimbabwe for failing
to withhold 10% on amounts payable in cases where the recipient of interest accruing from
Treasury bill failed to produce a tax clearance certificate. The moratorium covers the period 1
February 2009 to 1 December 2018. With effect from 2 December 2018, RBZ will be required
to deduct 10% withholding tax where the recipient of interest earned from a treasury bill has no
tax clearance.

12.12.10 Withholding tax on payments to farmers

Sometime in 2009 ZIMRA published a public notice exempting purchases from farmers and
other supplies from 10% withholding tax on tenders. Contrary the public notice farmers are
required in terms of s80 of the Income Tax Act to produce for them not to suffer withholding tax
on tender. The mistake by ZIMRA in interpreting the law does not appear to be exempting them
from this requirement. This point is supported by the decision in Delta Corporation Ltd v
ZIMRA (Case No. 15-HH-621) where it was held that ―Sight should not be lost of the fact that
tax law is strict liability law. The fact that the respondent‘s predecessor made a mistake upon
which it relied does not save the appellant.‖ It implies that courts will not confirm an incorrect
position at law despite such misinterpretation being made by regulatory authority such as
ZIMRA. There is no question of the respondent acting unfairly when it acts in accordance with
the law, in other words lawfully. Implicit in lawfulness is fairness. Given that the ZIMRA public
notice was not an advanced ruling as contemplated under s34D of the Revenue Authority Act, it
is difficult in light of the Delta case for farmers to rely on the ZIMRA public notice, which
according to s34D is a non-binding private ruling.

12.12.11 Bookmakers taxation

The Finance Act 2018 introduced tax on book makers in accordance with section 36L read with
the 36 Schedule to the Income Tax Act [Chapter 23:06]. This is effect from 1 January 2018. In
terms of the 36th Schedule: ―bookmaker‖ means a person licensed or required to be licensed as
such in terms of the Betting and Totalizator Control Act [Chapter 10:20]; ―Gross takings‖, in
relation to a bookmaker, means the total money earned by the bookmaker from betting with
members of the public before paying out on any bet.

Every bookmaker is obliged to pay 3 per centum of his or her gross takings in every month to
the Commissioner General no later than the last day of the month following the month in which
the bookmaker collected those takings, or anytime that the Commissioner so allow. The
bookmaker is supposed to provide the Commissioner- General with a return in the approved
form which shows the bookmaker‘s tax and the amount of gross takings from which the tax is
paid. In the event of the bookmaker failing to deduct and remit the tax to the ZIMRA, penalties
in the form of a further amount equal to the unpaid tax and the amount of the unpaid tax will be
expected to be paid to the Commissioner-General not later than the date on which payment
should have been made. The amounts that the bookmaker is liable to pay which can attract
penalties are debts due by the principal to the state and those for which the bookmaker can be
sued for and recoverable by action by the Commissioner-General in any court of competent
jurisdiction. If however, the Commissioner is satisfied that failure by the bookmaker to pay tax
was not as a result of some form of tax evasion, he may waive the payment of the whole or such
part as he thinks fit of the amount in question.

In the case of overpayment of tax by the bookmaker, the Commissioner-General can authorize a
refund in so far as the amount is overpaid only if he is satisfied that there has been an overcharge
on the bookmaker‘s tax, provided the claim is made by the bookmaker not more than six years
from the date of payment of the tax.
231
12.13 Non-executive directors‟ fees (NEDF)

12.13.4 General overview

Section 36J as read with the 33 rd Schedule of the Act levy withholding tax on fees paid to non-
executive directors paid by a corporate body. The 33rd schedule defines a corporate body as
anybody or association incorporated or registered under any law relating to asset managers,
banks, building societies, unit trust schemes, companies, financial institutions, insurers or
pension funds or under a special law.

12.13.5 Meaning of directors fees

The 33rd schedule defines a director of a corporate body, as a person, by whatever name he or
she may be called, who controls or governs that corporate body; or a member of a body or group
of persons which controls or governs that corporate body. It includes any person occupying the
position of director or alternate director of a body corporate or shadow director. No body
corporate can be a director (section 173 of the Companies Act). Non-executive directors are non-
working directors and are not subjected to employees‘ tax. Their fees are supposed to be
effectively taxed as income from trade.

Whilst, non-executive director‘s fees is defined as any remuneration of a director paid by the
corporate body of which he or she is a director it does not include amounts of remuneration of
the kind given to an employee (refer para 1(1) (b) of the 13th Schedule). A non-executive
director who is entitled to any items of remuneration from the same payer will be deemed to be
an employee (para 1 (b) of the 13th schedule).

12.13.6 Source of fees

The source of fees earned by director, other than in the capacity of an executive director has
generally been accepted by the courts as being the head office of the company. A non-resident
who, in his capacity as an executive director, is a member of the board of directors of a
company, whose head office is situated in Zimbabwe, is subject to withholding tax on fees in
accordance with the 33rd Schedule. The source of income of executive directors is however
based on the place the services are rendered.

12.13.7 Timing of payment of fees

Non-executives directors‘ fees are due on payment of fees to the non-executive director. Unlike
the other forms of withholding taxes, the 33rd Schedule of the Act has a limited definition of
―payment‖ which means actual payment is implied.

12.13.8 Obligation to withhold tax

Section 22J of the Finance Act Chapter 23.04 stipulates the rate of the withholding tax on non-
executive directors‘ fees as 20% of the fees. The tax must be withheld and paid over to the
Commissioner within 10 days from the date of payment or within such extended period as the
Commissioner may allow. The obligation to withhold the tax lies with the payer. A payer is a
corporate body which has a central management and control in Zimbabwe. At the same time the
payer is remitting the tax to Zimra, he should file a withholding tax return (Rev 5) i.e. to be filed
on or before the 10th day of payment of the fees to the payee. When a payer fails to withhold and
remit tax as required, he is liable to pay the due together with 100% penalty and interest of 25%
p.a. on the tax due. The penalty can be waived or reduced if the Commissioner is satisfied that
the reason for not paying tax was not due to any intent to evade tax. The Commissioner has the
232
power to sue and recover through an action in any court of competent jurisdiction for the tax due
together with such penalty and interest.

A payer who has deducted tax must issue to the payee a withholding tax certificate. The
certificate must show the payer‘s name, amount of the non-executive director‘s fees and the
amount of the tax withheld.

Where the payer has failed to withhold the tax, an agent of the payee must do so and remit the
tax to ZIMRA not later than 10 days of the date of receipt of fees. An agent must also issue to
the payee a withholding tax certificate (same particulars as above).

A non-executive director who receives fees from which withholding tax was not deducted must
remit the applicable withholding tax to ZIMRA within 15 days of receipt of the fees.

A payer or the agent who fails to issue a certificate or who furnishes an incorrect certificate is
liable to a fine not exceeding level 5 or to imprisonment for a period not exceeding three months
or to both such fine and such imprisonment. This can be increased to a fine not exceeding level
7 or to imprisonment for a period not exceeding one year or to both such fine and such
imprisonment if it is found out that the payer or agent‘s conduct was willful.

It is intended by the legislation that withholding tax should be withheld once at the payer level,
alternative at the agent or payee level where there is default. Where a payer discharges his
obligation no further obligation lies on any other party. Similarly, if penalty or interest has been
collected from the payer, the agent can no longer be asked to pay the same amount.

12.13.9 Exemption from income tax

A NED‘s fees are exempt from income tax in terms of para 4(w) of the 3rd Schedule of the ITA
which reads ―… fees received by a non-executive director from which tax is withheld in terms of
the Thirty-Third Schedule.‖. This amendment was effected through Finance Act no 3 of 2019
and it has an effective date of 1 January 2020. Therefore the 20% withholding tax becomes a
final tax. He or she is also exempt from 10% withholding tax on tenders in respect of payment of
fees to him or her.

12.14 Tobacco levy

Tobacco levy is levied and collected in terms of s36C as read with 24th Schedule on tobacco sold
at an auction floor. Where the auctioneer sells his auction tobacco, he is empowered to retain
possession of the auction tobacco until the buyer has paid the tobacco levy. The tobacco levy takes
priority over other claims i.e. any writ or attachment or other process issued in respect of the auction
tobacco. The tobacco levy is 1.5 cents for buyer and 0.75 cents for the seller of the price payable
for auction tobacco sold to the auctioneer or relinquished tobacco by the auctioneer. The price,
in relation to auction tobacco that has been sold, means the total amount payable by the
purchaser under the agreement of sale.

The term buyer is includes a contractor. Whereas contract tobacco‖ means tobacco which is
subject to a tobacco contract. Tobacco contract is a contractual arrangement between a
contractor and a grower of tobacco, under which the contractor provides or finances the purchase
of inputs for the benefit of the grower in return for the grower selling his or her tobacco to the
contractor.

The levy must be remitted to Zimra within 48 hours of date of sale or relinquishing of auction
tobacco. A penalty of up to 15% of the tobacco levy is charged for failing to withhold or remit
233
the levy to Zimra on time. A lower penalty level can however be obtained from the
Commissioner depending on the auctioneer‘s case. The Commissioner can waive the penalty in
full or in part if he is satisfied that the reason for not paying the tax was not due to any intent to
evade tax. The payment of tobacco levy to Zimra should be accompanied by a return (REV 5).

The auctioneer should issue a withholding certificate to the seller or buyer upon withholding the
levy. The certificate should show the price at which the auction tobacco was sold and the
amount of tobacco levy withheld. For failing to issue a certificate or a correct certificate, the
auctioneer is liable to pay 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 stiffer punishment fine of
level 7 or to imprisonment for a period not exceeding one year or both such fine and
imprisonment may be levied if the auctioneer‘s conduct was wilful. An overpaid tobacco levy is
refundable upon application by the auctioneer to the Commissioner, provided the application is
made within 6 years of the date of the overpayment.

12.15 Presumptive taxes

12.15.1 General overview

Presumptive tax is levied and collected on income of those persons engaging in any of the
trades, occupations or undertakings i.e. informal traders, small-scale miners, cottage industry
operators, transport operators, etc. Operators keeping proper books of accounts furnish tax
returns and pay taxes are not subject to presumptive tax, subject to them being in possession of a
valid tax clearance. A presumptive tax is not a final tax it is credited against income tax on trade
and investment income when a tax return is rendered (section 97C of the Act).

12.15.2 Appointment of local authorities as agents

To facilitate the collection of presumptive tax the Commissioner is empowered to enter into a
collection agreement (‗collection contract‘) with ZINARA. Through this arrangement ZINARA
retains not more than 10% of the proceeds of the presumptive taxes collection to cover its
administration costs. The informal traders on which this arrangement is enforceable include
taxicabs, omnibuses and driving school vehicles operators. The tax is collected by ZINARA at
the time of issuing or renewing (point of licensing) an operator‘s licences

12.15.3 Hairdressing Salons

The operation of a hairdressing salon, means the person who owns or is in charge of the salon,
whether or not the salon or any hairdresser therein is licensed as such in terms of the Shop
Licences Act [Chapter 14:17] or under the by-laws of the local authority in which the salon is
located. A hairdressing salon is a commercial establishment in which any one or more
hairdressers carry on their occupation or business. An operator of a hairdressing salon is liable
pay a presumptive tax of $1,500 per quarter not later than 20 days after the end of each quarter
i.e. by 20th of April, 20th of July, 20th October and 20th January. With effect from 1 January 2017,
the quarterly payments are amendment to monthly payments at the same time the levying of the
tax will be per chair not on the operator i.e. $10 per chair per month. The tax can be paid at any
branch, division or department of ZIMRA or through any agent of ZIMRA notified by the
Commissioner. Upon payment of the presumptive tax, the Commissioner shall furnish the
operator with the appropriate tax clearance certificate. Interest is chargeable on the presumptive
tax that is not paid on time. The rate of interest is 25% p.a. Under special circumstances
however; the Commissioner may extend the time for payment of the tax without charging
interest.

234
12.15.4 Restaurants or bottle stores

A restaurant or bottle store includes any bar or beer-hall and any other place where food or drink
is served to members of the public for payment, whether consumed on or off the premises of the
restaurant or bottle store. An owner or a person in charge of a restaurants or bottle store should
pay presumptive tax of $300 every quarter. The presumptive tax is payable to ZIMRA no later
than 10 days after the end of each quarter i.e. by 10th of April, 10th of July, 10th October and 10th
January. Upon payment of the presumptive tax, the Commissioner shall furnish the operator
with the appropriate tax clearance certificate. Interest is chargeable on the presumptive tax that is
not paid on time. The rate of interest is 25% p.a. Under special circumstances however; the
Commissioner may extend the time for payment of the tax without charging interest. With effect
from 1 January 2017, the timing for payment of this tax is changed from a quarterly to a monthly
basis namely $370 per month (appear a mistake the Finance Bill wrote this as three seventy
dollars per month). Note that, the precise date for payment of tax to ZIMRA within or after that
month is not however stated. The tax can be paid at any branch, division or department of
ZIMRA or through any agent of ZIMRA notified by the Commissioner. Upon payment of the
presumptive tax, the Commissioner shall furnish the operator with the appropriate tax clearance
certificate. Interest is chargeable on the presumptive tax that is not paid on time. The rate of
interest is 25% p.a. Under special circumstances however; the Commissioner may extend the
time for payment of the tax without charging interest.

12.15.5 Commercial waterborne vessel or fish rigs

A commercial waterborne vessel is a ship, a cruiser, a boat, a houseboat, a speedboat, canoe or a

waterborne vessel that is employed for the carriage of passengers for profit on inland waters or a
fishing rig. One is deemed to be operating a commercial waterborne vessel if he is the owner of
the vessel or if he controls the commercial waterborne vessel, whether or not such vessel is
registered in terms of the Inland Waters Shipping Act [Chapter 13:06]. Inland waters‖ has the
meaning given to it in section 2(1) of the Inland Waters Shipping Act [Chapter 13:06]. This
does not include a person in possession of a tax clearance certificate indicating that he has
furnished an income tax return for the last year of assessment or a registered operator in terms of
the Value Added Tax Act. The presumptive tax for an operator of fish rig is $350 per quarter.
The amount should be paid to ZIMRA no later than 10 days after the end of each quarter i.e. by
10th of April, 10th of July, 10th October and 10th January. With effect from 1Januaryy 2017, this
is amended to be paid on a monthly basis namely $80 per month. Note that, the precise date for
payment of tax to ZIMRA within or after that month is not however stated.

An operator of a commercial waterborne vessels quarterly payment depends on the carrying

capacity of the vessel. Note that it is intended to change the law to allow the presumptive tax to
be paid to ZIMRA on a monthly basis with effect from 1 January 2017. Both the old and new
rates are as shown below:

Description Quarterly/vessel Monthly/vessel

($ZWL) ($ZWL)
1-5 passengers $250 $60
6-15 passengers $500 $100
16-25 passengers $1,000 $200
26-49 passengers $1,500 $350
50 and above $2,000 $450

The above amounts should be paid to ZIMRA no later than 10 days after the end of each quarter
i.e. by 10th of April, 10th of July, 10th October and 10th January. Note that, the precise date for
payment of tax to ZIMRA within or after that month is not however stated. This can be paid at
235
any branch, division or department of ZIMRA or through any agent of ZIMRA notified by the
Commissioner. Upon payment of the presumptive tax, the Commissioner shall furnish the
operator with the appropriate tax clearance certificate. Interest is chargeable on the presumptive
tax that is not paid on time. The rate of interest is 25% p.a.

12.15.6 Transport operators

Operator in relation to (a) the operation of a goods vehicle, omnibus or taxicab for the carriage
of goods or passengers for hire or reward, means the person in whose name the goods vehicle,
omnibus or taxicab is or is required to be registered in terms of the Road Motor Transportation
Act [Chapter 13:15] ;(b) the operation of a driving school, means the person to whom a
certificate of registration has been issued in terms of the Road Traffic (Driving Schools)
Regulations, 1985, published in Statutory Instrument 309 of 1985, or any other law substituted
for the same;

A driving school‖ means a person registered or required to be registered in terms of the Road
Traffic (Driving Schools) Regulations, 1985, published in Statutory Instrument 309 of 1985, or
any other law substituted for the same. Goods vehicle, ―omnibus” and ―taxicab” have the
meanings given to those terms by section 2 (1) of the Road Motor Transportation Act [Chapter
13:15]. Operators of driving schools or goods vehicles are liable to pay presumptive tax every
quarter. The law was changed to allow the presumptive tax to be paid to ZIMRA on a monthly
basis with effect from 1 January 2017. Both the old and new rates are as shown below:

Operators Description Quarterly/vehicle Monthly/vehicle

($ZWL) (ZWL$) wef
1/1/2017
8 to 14 passengers 150 40
15 to 24 passengers 175 45
25 to 36 passengers 300 75
From 37 passengers and 400 100
above
Tax-Cabs All –seating capacity of not 100 25
more than 7 passengers
Driving Class 4 vehicles 500 100
Schools Class 1 and 2 vehicles 600 130
More than 10 tonnes, but less 1 000 200
than 20 tonnes
More than 20 tonnes 2 500 500
Goods
10 tonnes or less, but with 2 500 500
Vehicle
combination of truck and
trailers of more than 15
tonnes, but less than 20
tonnes

Prior to 1 January 2017, the presumptive is payable to ZIMRA no later than 20 days after the
end of each quarter i.e. by 20th of April, 20th of July, 20th October and 20th January. The due date
based on the monthly payments as required by the new law with effect from 1 January 2017 has
not been fixed in the Finance Bill (anticipate this will be corrected when the Finance Bill turns
into a Finance Act). The tax can be paid at any branch, division or department of ZIMRA or
through any agent of ZIMRA notified by the Commissioner. Interest is chargeable on the
presumptive tax that is not paid on time. The rate of interest is 25% p.a. The Commissioner

236
however in special circumstances may extend the time for payment of the tax without charging
interest. Upon payment of the presumptive tax, the Commissioner shall furnish the operator with
the appropriate tax clearance certificate. The tax clearance certificate should be carried in the
omnibus or taxicab to which it relates. In the event that it is lost, destroyed, defaced or
dilapidated the operator should apply for a duplicate certificate to the Commissioner, which is
granted upon payment of a fee, if any, prescribed.

A tax clearance certificate should be declared to the police officer when requested. Failure by
the person in charge of the vehicle (driver or the owner) to declare the certificate or carry the
certificate in the car is an offence which is subject to a fine equal to the amount of the
presumptive tax payable for the omnibus or taxicab or, in default of payment, to imprisonment
for a period not exceeding six months. If failure to produce the tax clearance is due to loss or
destruction of the certificate, the driver or owner can be called upon to produce it within 7 days
at the place specified by the police officer. Meanwhile the driver or the owner may be issued
with a document admitting that he or she is guilty of the said offence and must pay a fine equal
to the amount of the presumptive tax payable for the omnibus or taxicab. If the person signs
admission of guilty document he shall not be required to appear in court.

12.15.7 Cottage industries

The operator of a cottage industry, means the person who owns or is in charge of the cottage
industry, whether or not the cottage industry is licensed as such in terms of the Shop Licences
Act [Chapter 14:17] or under the by-laws of the local authority in which the cottage industry is
located. A cottage industry is a furniture-making or upholstery trade, metal fabrication trade or
any other activity that the Minister by a notice in a statutory instrument may prescribe. Metal
fabrication is the fabrication of articles from metal for profit or any beneficiation of metal
whatsoever for profit. It does not matter whether the trade is conducted from the person‘s
residential premises or that the person is using his own tools or equipment. A ―furniture-making
industry‖ means the manufacture for profit of furniture or the fitting of furniture with padding,
springs, webbing or covering for profit.

An owner or a person in charge of a cottage industry, whether licensed or not, should pay
presumptive tax of $300 per quarter. The presumptive tax is payable to ZIMRA no later than 10
days after the end of each quarter i.e. by 10th of April, 10th of July, 10th October and 10th January.
With effect from 1 January 2017, the timing for payment of this tax is changed from a quarterly
to a monthly basis namely $70 per month. Note that, the precise date for payment within or after
that month is not however stated. An operator in possession of a tax clearance certificate
showing he has submitted income tax for the previous quarter or who is VAT registered operator
is exempted from the presumptive tax.

The tax can be paid at any branch, division or department of ZIMRA or through any agent of
ZIMRA notified by the Commissioner. Upon payment of the presumptive tax, the Commissioner
shall furnish the operator with the appropriate tax clearance certificate. Interest is chargeable on
the presumptive tax that is not paid on time. The rate of interest is 25% p.a.

12.15.8 Informal Traders

An informal trader is an individual whose annual gross income does not exceed $6,000 and has
not, in the most recent year of assessment furnished a return for the assessment of the income.
This includes vendors, hawkers, flea market operators and persons who manufactures or
processes items from residential premises. With effect from the 1st of January, 2017 the Twenty-
Sixth Schedule of the Income Tax Act (Chapter 23:06) is amended in paragraph 1(e) by the
insertion of ―but does not include a small scale miners, operator of a taxicab, omnibus or goods
237
vehicle, informal cross-border trader, operators of a restaurant or bottle-store or a cottage
industry operator;‖. The effect of this amendment is to exclude the said operators from the
definition of informal trader. The tax for an informal is calculated at the rate of 10% of the gross
rental.

An informal trader is duty bound to notify the lessor that he is an informal trader. Once notified,
the lessor should record the notification, together with the informal trader‘s name, address and
such other particulars as may be prescribed, and shall forthwith send the Commissioner written
notification thereof in a form approved by the Commissioner.

A lessor means a local authority to which an informal trader pays rent in respect of residential
accommodation or any person, including a local authority, to which an informal trader pays rent
in respect of premises or a place he/she carries on trade. The lessor should withhold 10%
presumptive tax on gross rental paid to him by an informal trader, unless the trader is in
possession of a valid tax clearance certificate from ZIMRA in respect of the income received by
or accruing to him or her from his or her trade. This is in addition to the rent paid. The tax
should be remitted to ZIMRA within 30 days of receiving the rent accompanied by a tax return.
An agent is liable to pay further tax in the form of 100% penalty and interest charges should he
fails to remit tax on time. The penalty can be reduced or suspended where the Commissioner is
satisfied that the reason for failure to pay the tax was not due to intent to evade taxes. An
informal trader who refuses to pay the tax is in breach of the lease contract and entitling the
lessor to terminate the lease without notice. In addition to deducting the tax, the lessor should
issue to an informal trader a certificate showing the amount of rent paid by the informal trader
and the amount of presumptive tax recovered. Upon payment of the presumptive tax, the
Commissioner shall furnish the operator with the appropriate tax clearance certificate.

12.15.9 Cross Boarder Traders

An informal cross-border trader‖ means a cross-border trader who does not furnish to an officer
a tax clearance certificate or proof of registration as a taxpayer in terms of the Act. A cross-
border trader means any person who imports commercial goods into Zimbabwe with the
intention of carrying on any trade in those goods. It does not include a VAT registered operator.
Commercial goods are goods which are used mainly for the generation of income or the making
of profits. A cross border trader who imports commercial goods into Zimbabwe is liable to a
presumptive tax of 10% of the value for duty purposes of the imported goods payable, which is
paid at the port of entry. Goods for which presumptive tax is not paid shall be denied entry and
be treated as if they have not been entered for home consumption in terms of the Customs and
Excise Act [Chapter 23:02], and the appropriate provisions of that Act shall apply accordingly
to those goods. The tax shall not be collected from a trader who is in possession of a tax
clearance showing that he or she has furnished income tax return for the preceding year of
assessment or with a proof that he is a registered taxpayer in terms of the Act.

12.15.10 Small Scale Miners

A small-scale miner is a holder or tributor of a mining location whose output of precious

metals or precious stones from his or her mining operations do not exceed such level for such
period as may be prescribed by the Minister shall and includes any intermediary. A miner is also
presumed to be a small-scale miner if not in possession of a valid tax clearance certificate.

For purposes of presumptive tax, precious metals include gold, silver, platinum, platinoid
metals, chrome and tantalite in an unmanufactured state, and includes all such slimes,
concentrates, slags, tailings, residues and amalgams as are valuable and contain such precious

238
metals. Precious stones mean rough or uncut diamonds or emeralds or any substances which the
Minister may declare by notice in the Gazette to be precious stones.

Where a small scale miner is not in possession of valid tax clearance certificate, an agent should
withhold 2% of the gross value of the minerals purchased. An agent includes the Minerals
Marketing Corporation of Zimbabwe, the Reserve Bank of Zimbabwe, in its capacity as a buyer
of precious metals, Fidelity Printers and Refiners (Pvt) Ltd and any holder of a gold-buying
permit granted in terms of section 5 of the Gold Trade (Gold-buying Permits for Concession
Areas) Regulations, 2002, published in Statutory Instrument 328 of 2002, or the agent of such a
permit-holder appointed in terms of section 8 of those regulations; and such other person as the
Commissioner may in writing appoint.

The agent should remit the tax to ZIMRA by the 10th of the following month after the month of
sale; otherwise a late payment is subject to penalty and interest of 100% and 25% p.a
respectively. The Commissioner may under special circumstances extend the time for payment
of tax without charging interest. The tax withheld from the small scale producers is not a final
tax. An operator can submit a tax return for assessment.

An agent should within 30 days of buying precious metals or precious stones from a small-scale
miner for the first time, as the case may be, notify the Commissioner in writing of the name,
home address and address of the mining location of the small-scale miner concerned. In
addition, he shall also maintain such records of any small-scale miner from whom he buys any
precious metals or precious stones as the Commissioner may require from time to time. The
agent should furnish the small-scale miner with a certificate, in a form approved by the
Commissioner, showing the amount so withheld.

The Commissioner shall, on production to him or her by a small-scale miner of a certificate

furnish the small-scale miner with a tax clearance certificate in respect of the presumptive tax
shown on the first-mentioned certificate to have been paid.

However, with effect from 1 October 2014 the presumptive tax was suspended. For the
avoidance of doubt the tax for small-scale miners is calculated at the rate of zero percent (0%) of
the purchase price of precious metals or precious stone.

12.16 Property or insurance commission tax

The law requires every employer to deduct pay as you earn on remuneration paid by him to any
person. The term ―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,
etc., whether in cash or otherwise and whether or not in respect of services rendered. It includes
amounts paid to an insurance agent. It does not however include amounts paid to a freelance
agent.

A freelance agent is independent insurance agent, broker or property negotiator. This type is one
who is not engaged in the capacity of an employee by the insurer or estate agent, whether on its
own account or on behalf of any party to the sale or lease of immovable property. It includes
insurance brokers and property negotiators. Where the agent, broker or property negotiator
offers to dependent services to the insurer or estate agent, PAYE rules shall apply on
commission payable to him.

239
Every principal who pays commission to a freelance agent is required to withhold property or
insurance commission instead of PAYE. The withholding tax is levied at the rate of 20% of the
gross commission. The principal (insurer or the estate) must then remit the tax to ZIMRA by the
10th day of the month following the month in which the payment was made. He is personally
liable to 100% penalty and 25% interest p.a. on delayed remittances. If the penalty is not paid on
time after it has been charged it will attract interest. If the Commissioner is not satisfied that
delay was not intentionally he can waive the full or part of the penalty. He can also extend the
time for payment of the penalty without charging interest.The outstanding tax together with the
penalty and interest shall be debts due by the principal to the State and may be recovered by the
Commissioner by action in any court of competent jurisdiction. A principal is also required to
provide the payee with a certificate, in a form approved by the Commissioner-General. The
certificate should show the amount of the commission and the amount of the property or
insurance commission tax withheld. In addition to remitting the tax, the principal should also
submit a return (REV 5) on or before the 10th day of the month following the month in which the
payment was made. A freelance agent who receives insurance commission on which no tax was
withheld should remit this tax to ZIMRA on or before the 10th of the following month that
follow the month in which the payment was made. In the event that the Commissioner has
already effected other recovery measures on the principal and is paid, the agent is relieved of this
duty.

A freelance who satisfies the Commissioner that withholding tax was withheld and paid in
accordance with the 32 rd Schedule of the Act, is entitled to a credit against income tax
chargeable on such fees on submission of a tax return (section 97A of the Act). The credit is
claimed when the freelance agent submit return for assessment of tax on the commission to
Zimra.

An overpaid tax on insurance commission is refunded, provided the refund is made within six
years from the date of payment of such tax.

240
Chapter 13: Value Added Tax
13.1 Introduction

Value Added Tax (VAT) is an indirect tax charged on consumption of goods and services. It is
charged, levied and collected on supply of goods or services within Zimbabwe. A supply of
second hand motor vehicles is however exempted from VAT and instead subject to excise duty.
The charging and levying of VAT is the responsibility of registered operators, the importer of
goods, the recipient of imported services and the auctioneer, whichever applies.

13.2 Charging of VAT by registered operator

Generally, the supply of goods or services must be made in the course or furtherance of a trade
carried on by registered operator for VAT to apply. The key essentials are as follows:

13.2.1 Supply

A supply must exist for VAT to apply. A supply includes all forms of supply, irrespective of
where the supply is effected and a derivative of ―supply‖. It includes a sale, rental agreement,
instalment credit agreement or barter transaction as well as supplies which are made voluntarily
or by operation of law and deemed supplies. A supply can however be taxable or non-taxable. A
taxable supply is a supply (including a deemed supply) of goods or services which is either
standard or zero rated. A non-taxable supply is a supply which is exempted or outside the VAT
scope.

13.2.2 Goods

Goods are defined as "corporeal movable things, fixed property, and any real right in any such
thing or fixed property. It excludes money or any right under a mortgage bond or pledge of any
such thing or fixed property. Also, not constituting goods is any stamp, form or card which has a
money value and has been sold or issued by the State for the payment of any tax or duty levied
under any Act of Parliament, except when subsequent to its original sale or issue it is disposed of
or imported as a collector‘s piece or investment article.

13.2.3 Services

The term services ―means anything done or to be done, including the granting, assignment,
cession or surrender of any right or the making available of any facility or advantage, but
excludes the supply of goods, money or any stamp. It includes all other "things" that can be
either consumed or used by a person that are not goods. Where something is done or is to be
done to another person (either by an illegal act or with an illegal result) it satisfies the
requirement of rendering a service.

13.2.4 Trade

A trade is any trade or activity carried on continuously or regularly by any person in or partly in
Zimbabwe in the course of which goods or services are supplied to any other person for a
consideration, whether or not for profit. It includes any trade or activity carried on in the form of
a commercial, financial, industrial, mining, farming, fishing or professional concern or any other
concern of a continuing nature or in the form of an association or club. Virtually all commercial

241
and non-commercial activities whether or not are made with the pursuit of profit constitutes
trade for purposes of the VAT Act.

The definition of trade specially includes activities undertaken by the following entities:

 Activities of a public authority (Statutory corporation or public entity) if the Minister is

satisfied that such activities are of the same kind or are similar to taxable supplies of goods
or services supplied in the private sector in the course or furtherance of any trade.
 Activities of private voluntary organisations
 Activities of local authorities e.g. waste management services (disposal of garbage), the
supply of water (other than supply of piped water), the supply of services consisting of the
drainage, removal or disposal of sewage and incidental services necessary for the supply of
goods or services in respect of any of these said services and the activities of a local
authority which are of the same kind or are similar to taxable supplies of goods or services
supplied in the private sector or public entities in the course or furtherance of any trade.
 Anything done in connection with commencement or termination of trade

The definition of trade specially excludes the following activities:

 The supply of goods or services by a concern from an independent branch or main business
which is permanently located outside Zimbabwe.
 Hobbies i.e private or recreational pursuits or hobbies.
 Services rendered by a person as employee other than as an independent contractor.
 Sale of personal effects e.g. occasional sale of domestic/household goods, personal effects
etc.
 Exempt supplies

13.2.5 Consideration

A supply must be made for a consideration to attract VAT. A consideration is anything given in
return of a supply or as payment for the supply. It takes the form of money, but barter
transactions where other goods are given or services rendered to the supplier as payment are also
included (ITC 872 XYZ CC v CSARS (2007) ZATC 7 (Case No VAT 616)) see also S (Pvt) Ltd v
Zimra 13 –FAC-005).

A consideration does not include a ―deposit‖ lodged to secure a future supply of goods or
services. A deposit payable or paid on a returnable container that is applied as consideration for
the supply or that is forfeited would however constitute a consideration.

13.3 Calculation of VAT liability

An operator should calculate his/her VAT by offsetting input tax against output tax. The
difference between the two will give rise to VAT payable by or refundable to a registered
operator. Output tax is the tax charged and collected by a registered operator on the supply of
goods or services in the course or furtherance of a trade carried on by him. Input tax is the tax
incurred by the registered operator on purchases or expenditure incurred by him for purposes of
producing taxable supplies.

242
13.4 Accounting basis (s 14)

Accounting basis implies the timing of transaction for purposes of accounting for output tax or
claiming of input tax. The two basis for accounting are invoice and payment basis. Under the
invoice basis (―accrual basis‖) VAT is triggered when an invoice is raised (or when payment is
received, whichever comes first). The registered operator accounts for output and input tax
based on the invoices issued or received in respect of a supply. The payment basis requires an
operator to account for VAT for output tax or claiming of input tax based on cash received or
payment made. It is subject to prior written approval of the Commissioner General. It is only
available to Local Authorities, Public Authorities or Associations not for gain.

13.5 Types of supplies

The following table is a summary of VAT treatment of supplies:

Supply type Category Claim input Charge output

Registration tax tax
Standard Taxable Yes Yes Yes at 14.5%
rated supplies
Zero rated Taxable Yes Yes Yes at 0%
supplies
Exempt Non-taxable No No No

13.6 Registration (s23)

To be able to charge or collect VAT on supply of goods or services one must be a registered
operator. The effect of registration is that the person will be required to collect output tax on his
sales and at the same time claiming input tax on purchases used to make those sales.

13.6.1 Requirements

A person is liable to register as an operator if at the end of any month the total value of supplies
of goods or services has exceeded $1,000,000 in the past period of 12 months or there are
reasonable grounds for believing that the total value of supplies of goods and services in the
following 12 months will exceed $1,000,000.

Only persons who make taxable supplies can register as VAT registered operators. Certain sales
whether zero or standard rated are excluded when determining the registration threshold as
follows:

 the sale of stock or other assets due to any cessation of trade

 income from any substantial and permanent reduction in the size or scale of any trade;
 Income arising from the replacement of plant and machinery or other capital assets used in
the trade.
 Sales arising from abnormal circumstances of a temporary nature e.g. once off tender.
 Exempt supplies.

243
13.6.2 Time frame for registration

The application for registration must be made not later than 30 days after a person has become
liable to register for the first time. The Commissioner has the right to reject registration if a
person who has not supplied him with the required particulars and any documentation for
purposes of registering him. However, this does not suspend any penalties and interest that may
arise as result of failing to register from the time the operator became eligible to register.

13.6.3 Registration of non-resident

A non-resident (individual, partnership or company) engaged in a trade in Zimbabwe is also

required to register for VAT. In addition to the ordinary requirements he is required to appoint a
representative registered operator and furnish the Commissioner with the particulars of that
representative. The representative can be an agent controlling the non-resident‘s affairs in
Zimbabwe or any manager of any trade of the non-resident in Zimbabwe. He must also open a
banking account whether with any bank, building society or other similar institution in
Zimbabwe and furnish the Commissioner with the particulars of such banking account.

13.6.4 Non-resident broadcasting and ecommerce operator

Finance Act no 3 of 2019 requires broadcasting or ecommerce operator with presence in

Zimbabwe to register for VAT through its representative domiciled in Zimbabwe. The operator
is deemed to have presence in Zimbabwe to provide broadcasting or electronic services from
outside Zimbabwe to an address in Zimbabwe or to a person who is a resident of Zimbabwe. The
representative person should comply with the administrative duties imposed on registered
operators in terms of the Act which includes filing of returns, remittance of VAT on time,
keeping records etc. The amendment in Finance Act no 3 is a result of the decision in MC Ltd vs
Zimra HH634-16 where it was held that a non-resident broadcasting operator is deemed to
provide services in Zimbabwe if he deploys assets in Zimbabwe and these assets enable the
operator to conduct its business activities in Zimbabwe despite the operator not having a
physical presence in Zimbabwe. The Finance Act closes cases where it is not possible to assign
physical presence through the deployment of assets

13.6.5 Consequences of late registration

If a person fails to register when required to do so, he may be registered from the date that he
became liable to register for the first time and may face the following consequences:

 Back dating of registration to effective date he was required to register with ZIMRA as an
operator and collecting output from that date
 Penalty of up to 100% on the back dated output tax
 Interest at the rate of 25% p.a. on the back dated output tax
 Denial of input tax incurred in the absence of valid tax invoices (because without being
registered one cannot be issued with a valid tax invoice for lack of VAT registration
number)
 ZIMRA could also charge ZWL$300 a day for late submission of returns, up to 181 days per
return
 ZIMRA could also charge ZWL$25 a day for failing to fiscalise per sales point, up to 181
days

244
 ZIMRA could also charge ZWL$300 a day for late registration as an operator by the person
up to 181 days. After 181 days there is prosecution or fine of ZWL$800, or to both such
prosecution and fine.

Where the sales were made without charging VAT when required to do, the VAT shall be
computed using the tax fraction (14.5/114.5).

13.6.6 Voluntary registration

The VAT Act make provisions for voluntary registration of persons whose turnover is below the
required threshold. The Commissioner must be satisfied that such person meets all the following
conditions:

 Should be carrying on any trade or intends to carry on any trade from a specified date, and
 Should have a fixed place of abode or business, and
 Should keep proper accounting records, and
 Should have opened a bank account with any bank or similar institution for trade
purposes, and
 Not have defaulted under Sales Tax system (the Repealed Act).

The Commissioner reserves the right to refuse registration if these conditions are not met and
must notify the person in writing.

Voluntary registration has the advantage of enabling the operator to claim input tax on purchases
from registered operators and boosts clients‘ confidence that business is well established. Most
big companies, particularly government entities are not willing to do business with non-
registered persons.

Voluntary registration can impact on the desirability of the operator‘s goods or services as they
will appear overpriced or can affect the operator‘s profitability if the increase in prices due to
VAT cannot be recovered from customers. It comes with the added burden of extra
administration and paperwork – businesses have to maintain accurate VAT accounting records
and invoices, and comply with submission of returns according to the category placed.

13.6.7 Change in registration thresholds

In the event of change in the registration threshold such new threshold shall not affect the
liability of any person to be registered or continue to be registered whose taxable supplies are
below the new amount if, before the date of the new prescription, such supplies exceeded the
amount previously prescribed

13.7 Deregistration (s 24)

13.7.1 Circumstances causing deregistration

The following are the circumstances that may give rise to deregistration:

Subsequent 12 months turnover expected to fall below threshold

The operator has to request in writing to the Commissioner to be deregistered. If the
Commissioner is satisfied that the taxable supplies will not exceed the prescribed threshold he
will cancel the operator‘s registration with effect from the last day of the tax period during

245
which the Commissioner was so satisfied or such other date he determines. He should notify the
operator of the effective deregistration date. Once the Commissioner is satisfied that the
registered operator has complied with all his obligations as laid down in the Act and any other
such conditions as he sees fit, he shall issue a notice of cancellation

Operator ceases to trade

A registered operator who ceases to carry on all trades should notify the Commissioner that
he/she ceased trading within 21days of the date of such cessation. After this notification, the
Commissioner may cancel the registration of such registered operator with effect from the last
day of the tax period during which all such trades ceased or such other date he determines. He
may not cancel the registration of an operator if there are reasonable grounds for him to believe
that the operator will carry on any trade at any time within 12 months from the date of such
cessation.

The notification to the Commissioner to the effect that an operator has ceased trading must be in
writing. Meanwhile, the operator should also state whether or not he/she intends to carry out
trading within 12 months from the date of ceasing to trade.

Commissioner not satisfied trading is being carried on

Where the Commissioner is satisfied that a registered operator is not carrying on any trade the
Commissioner may cancel the operator‘s registration with effect from the last day of the tax
period during which the Commissioner is so satisfied or from such other date he determines.
For instance, if a person registered for VAT, but for some reason never commenced trading.

Not meeting voluntary registration conditions

If a person had applied to be registered under the voluntary category and fails to comply with the
conditions of voluntary registration, the Commissioner may cancel the operator‘s registration.
However, if the person lodges an objection against the Commissioner‘s decision to cancel
his/her registration, the registration shall not take effect until such time as the Commissioner‘s
decision becomes final and conclusive.

13.7.2 Information required when deregistering

ZIMRA normally requests for information such as the date of cessation, whether all assets and
equipment were disposed of, details on how they were disposed of, and the status of the business
premises. This is to establish that the whole VAT liability was settled as well as ascertaining that
all returns are filed before de-registering the operator.

13.7.3 Effect of deregistering (s 7(2))

Deregistration triggers VAT on stock on hand and assets held. The items are deemed sold for a
consideration in money equal to the lesser of cost or open market value at the time of cessation.
The cost for these assets includes the cost of acquisition, manufacture, assembly, construction or
production of such goods and services including any tax charged in respect of the supply. Output
tax can only be accounted for on stocks and capital goods on hand on date of deregistration if
input tax was claimed on such goods.

13.8 Notify change of status (s 25)

An operator must notify the Commissioner of change in any of his business details within 21
days of any such change. Such details include but not limited to:

246
(a) any change in the name, address, constitution or nature of the principal trade(s)
(b) any change of address at or from which, or the name in which, any trade is carried on
(c) any change in VAT accounting basis (invoicing to payment basis or vice versa)
(d) any change of a tax period i.e. from categories A or B to Category
(e) the accuracy of the particulars provided on the application form
(f) change of the public officer of the organisation
(g) the business closing down; or additional service lines of the business
(h) Any other matter that ZIMRA should know about.

There is no however requirement to notify of any changes in the ownership of any company.

13.9 Liabilities not removed by deregistration (s 26)

VAT deregistered does not mean that an operator‘s VAT liabilities automatically fall away. It
must pay outstanding tax, file outstanding returns and fulfil all its outstanding obligations. It will
remain liable to such omissions or commissions even after being deregistered.

13.10 Tax periods(s 27)

Upon registration an operator is allocated a tax period. The various categories are as follows:

13.10.1 ―Category A‖

This is a two month VAT period and for operators whose tax periods are periods of 2 months
ending on the last day of the months of January, March, and May, July, September and
November of the calendar year. The operator combines the VAT transactions for the two months
up to the end of the tax period.

13.10.2 ―Category B‖

This is a two month VAT period and for operators whose tax periods are periods of 2 months
ending on the last day of the months of February, April, June, August, October and December of
the calendar year. The operators combine the VAT transactions for the two months up to the end
of the tax period.

Note that the discretion of registration under either category A or B lies with the Commissioner.

13.10.3 ―Category C‖

This is the category of registered operators whose tax periods are of 1 monthly ending on the
last day of every month i.e. January, February, March, April, May, June, July, August,
September, October, November and December of the calendar year. The turnover for this
category must be at least ZWL$4,000,000 in any period of 12 months. An operator may also
apply to be placed under ―Category C‖. A registered operator who has repeatedly defaulted in
performing any of his obligations in terms of this Act may also be registered under ―Category
C‖.

An operator can be downgrade if the Commissioner is satisfied that by reason of a change in the
registered operator‘s circumstances he satisfies the requirements of other categories.

247
13.10.4 ―Category D‖

The Commissioner may register an operator under ―Category D‖ upon a written application to
him if the operator‘s trade consists solely of agricultural, pastoral or other farming activities or if
his activity is a branch, division or separate trade that is deemed to be a separate person. The
operator should have turnover from those activities amounting to at least ZWL$2,000,000 in any
period of 12 months or expect to exceed such amount in the next period of 12 months. He should
not be eligible to be registered under ―Category C‖.

The operator can be downgrade or upgrade if the Commissioner is satisfied that by reason of a
change in the registered operator‘s circumstances he satisfies the requirements of other
categories.

The first day of the tax period shall be as advised by the Commissioner. The period may end
within 10 days before or after the last day of the month.

13.11 Deemed supplies(s 7)

Certain transactions (known as ―deemed supplies‖) are treated as supplies of goods and services
where they otherwise may not have been. These are as follows:

Sales in execution of a debt (s 7(1))

When goods are sold to settle owed debts, they are deemed to be sold in the normal course of
trade of the debtor. The seller of the goods must account for VAT on their sale or disposal. It
does matter he is a registered operator or not, unless he has received a notification in writing
from the debtor (owner of the goods) specifying that the supply of those goods would not be a
taxable supply if those goods were sold by the debtor. The debtor must therefore state fully the
reasons why that supply would not be a taxable supply.

Deregistration (s 7(2))
An operator who ceases to be registered for VAT is deemed to have sold goods or any or right
capable of assignment, cession or surrender forming part of the assets that registered operator‘s
trade. He must account for VAT on such assets or stock on the day prior to his deregistration
despite such assets not been sold.

Door to door credit sales (s 7(3))

A door to door credit sale is subject to a ‗cooling off‘ period i.e. period within which the
purchaser may cancel the agreement without prejudice to himself. Where the debtor does not
cancel the agreement within the cooling off period the sale will be deemed to be a supply
charged with VAT.

Cancelled lay-bye agreement (s 7(4))

A supply is deemed to take place when lay-bye agreement is cancelled and the deposit is
retained by the seller. The supply is in respect of the value retained. Where the seller recovers
any amount owing by the purchaser under such an agreement the seller shall be deemed to have
supplied a service.

Subsidies, grants and transfer payments (s 7 (5))

A registered operator shall be deemed to supply services to any public authority or local
authority to the extent of any payment made by the authority concerned to or on behalf of the
registered operator in respect of the taxable supply of goods or services by the registered
operator to any person. In other words, an operator who receives a subsidy, grant or transfer

248
payment from the State or a local authority is assumed to have made a supply to the State or
Local authority.

Sale of a going concern (s 7(6))

A supply is assumed to be made by an operator when he/she disposes of a business or part of a
business capable of separate operations as a going concern. The operator shall be required to
account for VAT at standard rate unless the disposal is to another registered operator and certain
conditions are satisfied, in which case it will be zero rated.

Indemnity insurance (s 7(7))

When an insured operator receives an indemnity payment (e.g. compensation for damaged or
loss of stock) or is indemnified under a contract of insurance it is assumed to have made a
supply to the insurer. The payment or indemnification shall, to the extent that it relates to a loss
incurred in the course of carrying on a trade, be deemed to be consideration received for a
supply of services performed on the day of receipt of that payment or on the date of payment to
such other person by that registered operator in the course or furtherance of his trade:

The provisions shall not apply in respect of any indemnity payment received or indemnification
under a contract of insurance where the supply of services contemplated by that contract is not a
supply subject to VAT. A deemed supply does not also apply in respect of any indemnity
payment received by a registered operator under a contract of insurance to the extent that such
payment relates to the total reinstatement of goods, stolen or damaged beyond economic repair
or in respect of goods the acquisition of which by the registered operator a deduction of input tax
was denied.

Transfers between branches (s 7(8))

Goods or services transferred by an operator to an independent branch or main business of the
registered operator located outside Zimbabwe are deemed to be sold or supplied by an operator
in its course of trade.

Repossession of goods (s 7(9))

In hire purchase arrangements, goods are usually repossessed and resold if the buyer does not
keep up the payments. The original buyer is considered to supply the goods to the new purchaser
if there is a forced sale. If the goods that are sold are used in a taxable activity, VAT must be
accounted for when they are sold after repossession. The goods must have been goods previously
supplied under a hire purchase (instalment credit agreement). Output tax must be accounted on
such a supply if the debtor is a registered operator. However a debtor who was denied input tax
on the goods (e.g. passenger motor vehicle) shall not be required to account for output tax.

Rental agreements (s 7(10))

Where the use, the right to use, or the permission to use any goods (whether with or without a
driver, pilot, crew or operator) is granted under any rental agreement, instalment credit
agreement, charter party, agreement for chartering or any other agreement under which such use
or permission to use is granted, there is a deemed taxable supply of goods.

Acceptance of a bet (s 7(11))

A betting on the outcome of a race or any other event or occurrence is a deemed supply. The
registered operator (recipient) is deemed to have supplied a service to any person who places a
bet with him.

249
Winnings from a bet (s7 (12))
A registered operator who is in the business of receiving betting monies and who in turn receives
winnings as a result of placing a bet with another operator is deemed to have made a supply to
the other operator. He/she must account for output tax on his/her winnings.

One consideration for two types of supply (s 7(13))

Where a single supply of goods and services would (if separate considerations had been
payable), has been charged VAT at 14.5% and in part 0%, each part is deemed to be a separate
supply.

Goods or services used for dual purposes (s 7(14) (a))

A supply is deemed made by a registered operator of goods or services where goods or services
were used partly for taxable supplies and some other purposes are subsequently sold. Such a
supply is deemed to be made wholly in the furtherance of a trade. This does not apply to a fixed
property that was purchased prior to 1 January 200 by a natural person and used mainly for
private residential purposes, if no input tax credit was claimed by the operator.

Goods or services used for dual purposes (s 7(14) (b))

The VAT Act provides that no taxable supply shall be deemed to have been made when a
registered operator supplied a fixed property he acquired prior to 1 January 2004 provided such
property should have been used by the registered operator (being a natural person) prior to its
sale as his private residence. In addition, no deduction of input tax should been claimed by the
person in respect of such property.

Share block companies (s 7(15))

If a company that owns and administers a fixed property (share block company) in which it has a
loan obligation, allocates or transfers its loan obligation to any person who is or will be a
shareholder of such company, such transfer or allocation of a loan obligation shall be deemed to
be a supply of shares. A share block company is a company with any share of the company that
confers a right to or an interest in the use of immovable property or any part of immovable
property. It means that the shareholders have right to occupy the company immovable property.

Supply of shares by a developer (s 7(16))

Any taxable supply of a share made in share block company made on or after a date fixed by the
Minister by notice in the Gazette by a developer who registers a notarial deed referred to in
section 27 of the Deeds Registries Act [Chapter 20:05], shall be deemed to have been made by
the company or association created by or under such deed, to the extent that—
a) The supply of such share to such developer was not a taxable supply by such company or
association to such developer; or
b) Such developer was not or will not be entitled to make a deduction of ―input tax‖ in respect
of the supply of such share to him.

Importations of goods by an agent for a foreign principal (s 7(17))

Where a local registered operator agent, imports goods on behalf of a foreign principal, and
supplies the goods to a recipient; the local agent is deemed to have made a supply. He should
account for output tax on the supply. The agent is taken to be the importer and is eligible to
claim input tax on the importation.

13.12 Time of supply

13.12.1 General time of supply rule (s 8(1))

Time of supply is the tax point that determines the timing for accounting for VAT. A mistake
can lead to wrong accounting of VAT with consequence of penalties and interest. The general
250
rule of time of supply of goods or services is the time an invoice is issued by the supplier or the
recipient in respect of that supply (self-invoicing) or the time any payment of consideration is
received by the supplier in respect of that supply, whichever time is earlier. The payment needs
not be in full. Any part payment triggers the full VAT despite no invoice having been issued by
the operator.

With effect from 1 January 2019, section 8(1) was amended to broaden the time of supply
through addition of the following aspects: in the case of a supply of a moveable good, at the time
of its removal from the place of sale; or in the case of a supply of an immoveable goods, at the
time the recipient takes possession of it; or in the case of a supply of a service at the time the
service is performed; whichever time is earlier. This essentially means that the time of supply
becomes the earlier time of issue of invoice by the supplier or time any payment of consideration
is received by the supplier, or in the case of a supply of a moveable good, the time of its removal
from the place of sale; or in the case of a supply of an immoveable good, the time the recipient
takes possession of it; or in the case of a supply of a service, the time the service is performed.
This is summarised as follows:

13.12.2 Connected persons (s 8(2)(a))

In related party transactions, goods or services are usually supplied without an invoice or
payment being immediately issued or made. The VAT Act dictates that where the goods are to
be removed, the time of supply is the time of removal of such goods. In the case of the goods
which are not to be removed, the time of supply is when the goods are made available to the
recipient. Whereas the time of supply in respect of services supplied between connected parties
is the time the services are performed.

However, if the payment is made or invoice issued or received before the last date on which the
operator is supposed to file a VAT return or the last day prescribed for the filing of the return,
the date of payment or invoice determines the time of supply.
251
Connected parties include related companies, spouses etc.

13.12.3 Door to Door credit sales ( s 8(2)(b))

A door to door credit sale is an agreement of sale which is subject to a ‗cooling off‘ period (trial
period) i.e. period within which the purchaser may cancel the agreement without prejudice to
himself. The time of supply is the day after the last day of the ―cooling off period‖.

13.12.4 Lay bye ( s 8(2)(c))

The time of supply for lay bye sale is the date of delivery of the goods to the purchaser. If the
agreement is terminated or cancelled and the seller retains any amount paid by the purchaser, the
time of supply is the date the sale is cancelled. When the agreement is cancelled after delivery is
made, the seller must claim input tax on the amount not recovered from the purchaser.

13.12.5 Coin operated machines (s8(2)(d))

The time of supply is when the owner takes the coin out of the machine. In the case of the
recipient, the time of supply is when the coin is inserted into the machine. If the token does not
have a monetary value stated on it, the removal of the token from the machine is ignored since
VAT would have been accounted for when the token was sold.

13.12.6 Transfers to branches outside Zimbabwe (s 8(2)(e))

When goods or services are transferred by a registered operator to his independent branch or
main business located outside Zimbabwe, time of supply is the time the goods are delivered or
the service is performed as the case may be.

13.12.7 Rental agreement ( s 8(3)(a))

The time of supply for a rental agreement or successive supply is the time the rent becomes due
or when payment is received, whichever occurs first.

13.12.8 Periodic or continuous supplies ( s 8(3)(b))

VAT should be accounted for in the tax period any payment is received or when any invoice
relating to the certified work is issued, whichever is the earlier. VAT on the retention monies
should be accounted for in the tax period they become due or are paid to the operator.

13.12.9 Instalment credit agreement (s 8(3)(c)

Where goods are supplied under an instalment credit agreement VAT must be accounted for in
the tax period the goods are delivered or when any payment towards settlement is received by
the supplier, whichever occurs first. The full VAT becomes due notwithstanding the fact that
price is paid on instalment.

252
13.12.10 Fixed property (s 8(3)(d))

Fixed property refers to land (excluding farm land) plus improvements attached to the land (e.g.
buildings, dams etc.). It also covers share block companies.

VAT on fixed property is due on the date of property registration in a deeds registry or the date
any payment is made, whichever occurs first. The term ―any payment‖ refers to the actual
payment made i.e VAT is account only on the actual payment made and subsequent payments
VATABLE in the period in which they are settled. However, if the transfer is effected in a deeds
registry, then the registration date becomes the time of supply of the full amount due under the
contract. Note that VAT on fixed property is computed on the purchase price meaning that to the
extent an amount constitutes penalties on late payments that amount is exempted from VAT.

13.12.11 Fixed property (s 8(3)(e))

Where neither registration nor payment for the supply of fixed property occurs, the time of
supply becomes the date of signing the agreement of sale.

13.12.12 Acceptance of a bet (s 8(3)(f))

An acceptance of bet by a registered operator (e.g. soccer betting house) is a deemed supply
whose time of supply is whenever any payment in respect of such supply is received by the
supplier.

13.12.13 Winnings from a bet ( s 8(3)(g))

The time of supply for winnings from a bet is when any amount is paid out as a price or winning
by the supplier.

13.12.14 Supply where full consideration cannot be determined (s 8(4))

Where the goods are supplied under any agreement and the goods are appropriated by the
recipient in circumstances where the whole of the consideration is not determined, such a supply
shall be deemed to take place when and to the extent that any payment in terms of the agreement
is due or is received or an invoice relating to the supply is issued by the supplier or the recipient,
whichever is the earliest. In other words, the time of supply shall be the earliest of payment
being received, payment being due or an invoice being issued by either the supplier or the
recipient.

These rules do not apply to an instalment credit agreement or rental agreement

13.12.15 Deregistration (s 8(5)

Time of supply for assets deemed to be supplied when an operator ceases to trade is the day
prior to the cessation.

253
13.12.16 Change of use (s 8(6))

Where there is a change in use of goods or services, the time of supply is deemed to occur at the
time the goods or services are applied as contemplated, i.e at the time of change of use.

13.12.17 Fringe benefits (s8(7))

The time of supply of fringe benefits to employees is the date remuneration is determined for tax
(PAYE) purposes. Where the amount is not required to be included in remuneration its time of
supply becomes the end of the year.

13.12.18 Repossession(s8(8))

The time of that supply shall be deemed to be the day on which the goods are repossessed or,
where the debtor may under any law be reinstated in his rights and obligations under such
agreement, the day after the last day of any period during which the debtor may under such law
be so reinstated.

13.12.19 Importation of goods on behalf of a foreign principal (s8(9))

The time of supply is the time the tax payable on importation of the goods is paid by the agent.

13.13 General rule for value of supply (s9(2))

The value to be placed on any supply of goods or services shall be the value of the consideration
for such supply less so much of such value as represents tax. Also excluded from the
consideration is the value of any postage stamp. If tax is not accounted for separately from the
consideration, the tax element shall be the tax fraction of that consideration.

13.13.1 Consideration vs. Value (s 9(3))

Consideration is the amount of money inclusive of VAT. Value is an amount exclusive of VAT.
VAT on consideration is using the tax fraction (14.5/114.5) and at 14.5% on value. The value of
any consideration shall be to the extent that such consideration is expressed in money, the
amount of the money and where it is not expressed in money it is the open market value of that
consideration.

13.13.2 Connected persons (s9(4))

If goods or services are supplied for no value or at overstated or understated price, the value
shall be deemed to be the open market value. If a supply is between connected parties for no
consideration or for a consideration in money which is less than the open market value of the
supply, the consideration for the supply shall be equal to the open market value in the hands of
the recipient, if the recipient was not to be entitled to claim input tax in respect of that supply.

An operator and his employee are not connected parties.

254
13.13.3 Deregistration (s9 (5)

The value on which VAT will be computed on assets and stock on hand on date of deregistration
is the consideration in money equal to the lesser of the cost to the registered operator of the
acquisition, manufacture, assembly, construction or production of such goods or services and
open market value of the goods.

The definition of cost includes any tax charged on supplies to the registered operator of such
goods or services or of any components, materials or services utilised by him in such
manufacture, assembly, construction or production. If the goods or any right constituted trading
stock shall include the cost of the goods, the transportation or delivery of such goods or the
provision of such services in connection with the transfer of such goods or the provision of such
services as connected with transfer of goods to a main business or branch outside Zimbabwe. If
the goods or services were acquired between connected parties for no consideration or a
consideration less than open market value the cost shall be deemed to be the open market value
of the supply if the recipient is not entitled to input tax deduction

13.13.4 Instalment credit agreement (s9 (6))

VAT on instalment credit agreement is computed on the cash value of supply. Generally cash
value does not include finance charges and interest.

13.13.5 Change of use of business assets (s9 (7))

Where there is a change of use goods or services the amount to be used for purposes of
computing output tax is the consideration equal to the open market value of such supply.

13.13.6 Decreases in use of business assets (s9(8))

A decrease in use of business assets shall be deemed to be made for a consideration in money
determined using the following formula:

A x (B – C)

“A” is the lesser of cost and the open market value of the supply

“B” is the percentage of use or application of the goods or services for the purposes of making
taxable supplies prior to the change as applying in the previous 12 month period.

―C‖ is the percentage of use or application of goods or services for the purposes of making
taxable supplies during the 12 month period during which the decrease in use or application of
the goods or services is deemed to take place.

Where the change in use of application of goods or services (i.e. ―B‖ less ―C‖) does not exceed
10%, no adjustment is required (diminimus rule). In order for the adjustment to apply, the goods
or services must have qualified and allowed a deduction of input tax when they were acquired or
constructed.

255
The term ―cost‖ includes any tax forming part of cost of acquisition, manufacture, assembly,
construction or production of the said goods or services. Where the goods or services were
acquired for no consideration or a consideration less than open market value and supply is
between connected parties, the cost shall be deemed to be the open market value of the supply if
the recipient would not have been entitled to input tax deduction.

―Cost‖ in the case of goods acquired prior to 1 January 2004 would be the lesser of the original
cost including VAT or the open market value. In the case of a registered operator who is
required to make an adjustment of input tax or output tax as a result of reduction or increase use
of in capital goods, the cost is the lesser of cost and open market value.

13.13.7 Cancelled lay-bye agreement (s 9(9))

Where a lay-bye agreement is cancelled and the seller retains the deposit the consideration in
money for purposes of computing VAT for the supply shall be deemed to be an amount equal to
the amount retained or recovered.

13.13.8 Zero rated supplies to connected persons (s9 (10))

Where a supply of goods is charged with tax at the rate of zero per cent, the consideration in
money shall be the value of supply equal to the purchase price of those goods. However, where
the supply is between connected persons and the input tax was claimed by any other person, the
consideration in money for that supply shall be deemed to be an amount equal to the greater of
the purchase price of those goods to that supplier and the purchase price of those goods to that
other person. The purchase price of such goods shall not be reduced by any amount of input tax
incurred by the supplier or any other person where the supplier and that other person are
connected persons.

13.13.9 Fringe Benefits (s 9(11))

The consideration in money for the supply of fringe benefits by employer to its employee is an
amount equal to the cash equivalent of the benefit or advantage granted to the employee or
office holder as determined in accordance with s 8(1)(f) of the Income Tax Act. For example,
the deemed motoring benefits for a motor vehicle benefit (ZWL$144 000 p.a. for a motor
vehicle with an engine capacity exceeding 3000cc). Note that the VAT is equal to tax fraction of
the cash equivalent of the fringe benefit.

13.13.10 Subsidies, grants and transfer payments (s9 (12))

The consideration in money for a subsidy, grant or transfer received by an operator from any
public or local authority shall be deemed to be the amount of any payment so made by the
authority concerned to or on behalf of the registered operator. Note that the grant, subsidy or
transfer payment shall be inclusive of VAT. The VAT component is therefore the tax fraction
(14.5/114.5) of the consideration.

13.13.11 Repossession of goods (s 9(13))

The consideration for the repossession of goods under an instalment credit agreement is equal to
that portion of the original cash value of the goods which has not yet been recovered at the time
256
of the repossession. The term ―cash value‖ generally represents the cash price of the goods or
services excluding interest and finance charges. The VAT is the tax fraction of the cash value of
the outstanding balance from the debtor.

13.13.12 Acceptance of a bet (s 9(14))

The consideration in money for an acceptance of a bet is the amount that is received in respect of
the bet. Thus, the bet is inclusive of VAT and the VAT component is computed by multiplying
the consideration (the bet) by the tax fraction (14.5/114.5).

13.13.13 Winnings from a bet (s9 (15))

The consideration in money for winnings from a bet shall be deemed to be the amount that is
received as a prize or winnings. The VAT component is computed by multiplying that
consideration by the tax fraction (14.5/114.5).

13.13.14 Tokens, vouchers or stamps – unspecified goods (s9(16))

There are special rules for the sale of gift vouchers, milk tokens and the like. The supplier
should treat tokens, vouchers and stamps (excluding postage stamps) as a supply for VAT
purposes at the time a customer buys them. The law however recognises that it may be
impractical to return the VAT at the time when the customer buys a voucher. This applies to
Multi-Purpose Vouchers (MPVs) i.e. vouchers, tokens etc. on which the goods to be purchased
have not been specified. VAT will be due at the point of redemption i.e. when the underlying
goods or services are known and both the underlying time of supply can be identified. VAT will
be charged on the Face Value of the voucher. This is the time the customer actually exchanges
the voucher for the monetary value of the goods or services purchased. However, VAT will
apply at the time of issuance of the voucher if the amount initially paid for the voucher exceeds
the voucher, stamp or token monetary value. The voucher in this case is treated as money. The
VAT has to be accounted for, when the voucher is purchased, to the extent that the consideration
paid exceeds the vouchers‘ monetary value.

13.13.15 Tokens, vouchers or stamps – specified items (s9(17))

Sale or issue of tokens, vouchers or stamps (excluding postage stamps) etc. which entitle the
bearer on surrender thereof to the specified goods or services without any further charge (e.g.
milk coupons) attracts VAT at point of issue or sale of such vouchers, tokens etc. The
consideration for the supply is the amount paid for the tokens. There is no VAT at the point of
redemption or surrender of the tokens, etc. These vouchers are also referred to as Single Purpose
Vouchers (SPVs). However, a voucher that is free of charge does not fall under this definition.
Such voucher is a promotional instrument. It will be used as a discount voucher to ‗purchase‘ a
product with or without any additional cash payment and should therefore have no VAT
consequences when distributed.

257
13.13.16 Manufacturer‟s tokens, vouchers or stamps (s 9(18))

If a holder of a manufacturer discount or voucher buys goods or services from operator through
surrender of the voucher in exchange for goods or services, the consideration for the supply shall
be deemed to include the monetary value stated in the voucher.

The retailer has to charge VAT on the full price inclusive of the value of the discount or
voucher. With regard to cash-back promotions by manufacturers, for example where
manufacturers offer promotional discounts of a ―cashback‖ nature, the manufacturer should treat
the cash-back as a discount against his original sale and be able to adjust VAT accordingly.

13.13.17 Supply of entertainment (s9(19))

The VAT Act deems the supply of entertainment to be made at nil consideration as long as the
input tax in respect of that supply was denied as an input tax deduction.

13.13.18 Supply of medical and dental services (s 9(20))

The consideration for the supply of medical or dental services to members of a superannuation
scheme (e. g Medical Aid Society, pension etc.) is deemed to be nil. In other words a supply
made by superannuation fund of the core services is exempt from VAT.

13.13.19 Consideration – apportionment (s 9(21))

Where the consideration is for both taxable and non-taxable supplies it shall be apportioned. The
consideration of that supply is deemed to be that portion attributable to the taxable supply. The
Act has not stated how the apportionment should be undertaken. The method must be fair and
reasonable.

13.13.20 Importation by agent for a foreign principal (s 9(22))

Where a local agent imports goods into Zimbabwe on behalf of a foreign principal, the local
agent rather than the foreign principal, is entitled to claim an input tax deduction in respect of
the VAT paid on importation. The agent in turn is deemed to make a supply of goods to the
person who is the recipient of the supply by the foreign principal. The value of the deemed
supply is the value placed on the importation of goods for duty purposes. Accordingly the agent
may claim an input tax deduction and has to account for output tax of equal amounts.

13.13.21 Supplies for no consideration (s 9(23))

A supply for no consideration is deemed to be nil, unless the supply is between connected
persons and in such a case arm‘s length rules are invoked.

258
13.14 Zero rated supplies

Section 10 of the VAT Act has listed supplies of goods or services which are zero rated. For an
item to qualify for zero-rating it should be a supply that qualifies for VAT in terms of section 6
(1) of the VAT Act.

13.14.1 Zero rated goods (s 10(1))

The VAT Act provides for zero rating of certain supply of goods subject to the registered
operator obtaining and retaining such documentary proof substantiating his/her entitlement to
apply the zero rating as is acceptable to the Commissioner. The following are supply of goods
which are zero rated.

Exported movable goods (s 10(1) (a))

Export of movable goods by of way of a sale or instalment credit agreement is zero-rated.
Instalment credit agreement includes a hire purchase arrangement and a finance lease.

Goods used or consumed in respect of temporary imports (s 10(1) (b))

Goods supplied for use in repairing, renovating, modifying or treating of temporarily imported
goods are zero rated. The goods so supplied should be wrought into, affixed to, attached to or
otherwise form part of those other goods or should be consumable goods, become unusable or
worthless as a direct result of being used in that repair, renovation, modification or treatment
process, otherwise standard rating should apply. Also zero rated, is the supply of goods used in
the repair, reconditioning, and maintenance or cleaning of a foreign going aircraft.

Leasing of goods used in an export country (s 10(1) (c))

The supply of goods under an operating lease (a rental agreement) or charter party to a lessee
who uses such goods exclusively in a foreign country is zero rated. If the goods are partly used
in Zimbabwe standard rating should be applied. Zero rating would still apply even if the
payment for the supply is paid in Zimbabwe.

Leasing of goods used exclusively in particular sectors in an export country (s 10(1) (d))
Goods supplied under a rental, charter party or agreement and are used exclusively in any
commercial, industrial, fishing, mining, farming, financial or professional concern conducted in
an export country are zero rated. The payment for such supply must be made from that export
country. The supply standard rated if payment is made from Zimbabwe or from a country other
than the one the goods are used,

Disposal of a going concern (s 10(1) (e))

If the sale amounts to a transfer of a going concern (TOGC) for VAT purposes, e.g. because
assets and stock are also sold, the transaction is zero rated. The transfer of the business must be
to a person who will carry on the business as the transferor has done. It involves a supply to a
registered operator of a trade or of a part of a trade which is capable of separate operation. The
sale must represents the disposal of at least 51% of the trade or part of a trade. The following
conditions are necessary for zero rating to apply:

259
 Seller and purchase to be both registered
 The agreement the parties must be in writing
 The trade must be a going concern
 There must be a supply of an income-earning activity
 Assets necessary for carrying on the trade must also be disposed

Supply of gold to the RBZ or any bank (s 10(1) (f))

The supply of gold in bars, ingots, granules, or buttons to the Reserve Bank or any bank
registered under the Banking Act is zero rated. If the gold has undergone any further
manufacturing process other than the refining thereof or the manufacture or production of such
bars, ingots, granules, buttons etc. the supply is standard rated.

Certain prescribed goods (s 10(1) (g))

The VAT Act provides for zero rating of certain goods or services as are prescribed in
regulations, but subject to such conditions as may be prescribed therein as follows:

Agricultural goods
Supply of goods used or consumed for agricultural (inputs) purposes are zero rated. The
following are some of the goods used in farming activities which are zero rated:
 Animal feed
 Animal remedy
 Fertiliser
 Pesticide
 Plants
 Protective clothing: i.e. goods consisting of raincoats
 Seed: in a form used for cultivation.
 Tractors: used for agricultural purposes and parts thereof
 Equipment or machinery: items of agricultural equipment and machinery

Supply of certain food stuff

Generally, supply of certain foodstuffs is zero rated. The zero rating applies to all sales along the
distribution chain. Where, however such goods are supplied in the course of carrying out any
agreement for the furnishing or serving of any meal (e.g. in hotel or restaurant), refreshments,
cooked or prepared food or any drink, as the case may be, so as to be ready for immediate
consumption when so supplied zero rating shall not apply. The supply must be in original form
or raw state (e.g. as harvested), any mixture or processing of the specified zero rated products
results in the end product being subject to VAT at 14.5%.

Soya beans
Supply or sale of soya beans (whether broken or not i.e. seed or other) is zero rated.

Live animals
The Minister of Finance and Economic Development through SI285 repealed the following
items from the exemption list in terms of First Schedule of the VAT Regulation of 2003 (SI273
of 2003): ―(11) Supply of live animals of the following tariff codes 01.01; 01.02; 01.03 and
01.04.‖. This is with effect from the 31 st of December 2019. The SI removed ambiguity to the
260
treatment of live animals as stated. These are zero rated in terms SI172 of 2014 with effect from
1 January 2015, whilst the exemption provision which is now being repealed was enacted
through SI75 of 2010 effective 26th of March 2010. The contra fiscum rule would apply in
treating the items as zero rated during the time dual legislation applied.

Goods for disabled

The supply of goods (including invalid appliances) used by for disabled persons e.g. wheel
chairs, contact lenses, braille or reading material for the blind, is zero rated.

Other goods
Fixed charges on commercial & domestic electricity supply, the cost of fiscalised electronic
registers and/or fiscal memory devices and the supply of domestic electricity are zero rated.
However, the supply of electricity for industrial and commercial purposes is taxable at standard
rate.

Supplies to branches in export countries (s 10(1) (h))

The VAT Act provides for zero rating of goods supplied to or for the purposes of an operator‘s
branch or main business outside Zimbabwe. The branch or main business must be permanently
located in an export country and separately identifiable (independent) from the other branches. A
branch or main business is assumed to be independent when it is separately identified by
location, name or nature of business and one with an independent accounting system whether at
the branch or elsewhere.

Supply of gold coins by the Reserve Bank (s 10(1) (i))

The supply of gold coins issued by the RBZ or which remain in circulation is also zero-rated.

Drugs- medicines and allied substances

Supply of medicines and allied substances is zero rated.

13.14.2 Services that are zero rated (s 10(2))

Supply of certain services is zero rated subject to the operator obtaining and retaining
documentary proof substantiating his/her entitlement to apply the zero rating as is acceptable to
the Commissioner. :

International transportation of passengers or goods (s 10(2) (a))

The transportation of goods or passengers from a place outside Zimbabwe to another place
outside Zimbabwe; from a place in Zimbabwe to a place in an export country or from an export
country into Zimbabwe is zero rated. For outside of Zimbabwe transportation, both the point of
origin and point of destination of the transport must be outside Zimbabwe. It does not matter if
goods/passengers physically pass through Zimbabwe en-route to their destination. In all cases, to
be zero rated the operator must be responsible for the entire movement of the goods or
passengers.

Local air transport as part of international transport (s s10 (2) (b))

Transportation of passengers by air within Zimbabwe under international transport as defined in
the Carriage by Air Act is zero-rated. Such transportation must be contractually supplied by the
supplier of the international transport service. An example is when a passenger travels from
Victoria Falls to Harare in an international flight from Victoria Falls en route to Germany.
However, domestic air passenger transport including helicopter services is standard rated.

261
Local transport and ancillary transport services (s 10(2) (c))
The services of transporting goods including ancillary transport services from a place in
Zimbabwe to a place in Zimbabwe is zero-rated to the extent that the transport or ancillary
transport services are supplied by the same supplier as an integral part of his service of providing
the international transportation of goods as part of the same contract. Whilst the local transport
service (ancillary transport) must, in the contractual sense be provided by the supplier, the
supplier may not necessarily be the person who physically performs the service. He may
subcontract some or all of the services to other contractors. The sub- contractor‘s services may
be zero-rated or standard rated depending on the nature of services rendered.

Ancillary transport services ―means cargo inspection services, preparation of customs

documentation and storage of transported goods or goods to be transported.

Any ancillary services provided for the travel of passengers whether local or foreign travel is
standard rated e.g. ticketing service for domestic flight or international flight or for arranging of
the international or local transport of passengers.

Insurance premium charged for insuring the transportation of goods from Zimbabwe to overseas
or vice-versa including on local transport is exempted, but insurance commission on short
policies charged thereon is subject to VAT at 14.5%.

Transport and related services rendered directly to a foreigner (s 10(2) (e))

Transport services or ancillary transport services supplied directly in connection with the
exportation from or importation of goods into Zimbabwe or the movement of goods through
Zimbabwe from one export country to another export country is zero rated. The services should
be supplied directly to a person who is neither a Zimbabwean resident nor a registered operator.
Further, the services need not be rendered through an agent or another person; this serves as a
precondition for the rate of zero percent to apply.

Also zero rated are transport or ancillary services rendered to a non-resident exporting goods
from one export country to another via Zimbabwe and uses no Zimbabwean agent (goods in
transit).

Services in respect of land in export countries (s 10(2) (f))

Services supplied directly in connection with land or any improvement (attached to the land)
situated outside Zimbabwe are zero rated e.g. architectural, real estate and legal services. There
must be a direct link between services being provided and such land or improvement thereto.
The term ‗directly‘ implies that the link between the service provider and the described matter.
There must be no interposing agent.

Services in respect of movable property in export country etc. (s 10(2) (g))

The services rendered directly in connection with movable property situated in any export
country at the time the services are rendered is zero rated. Also zero rate the services supplied
directly in respect of goods temporarily imported. Similarly, if the repair materials become
worthless for anything else after the repair job, they are zero-rated. Anyone supplying goods or
services to a temporary import must keep a copy of the Temporary Import Entry form issued by
Customs. The repair, maintenance, cleaning or reconditioning of a foreign-going aircraft is a
supply subject to VAT at zero percent.

Services to a foreign going aircraft (s 10(2) (h))

The supply of services like handling, pilot-age, salvage or towage to a foreign going aircraft
while situated in Zimbabwe are zero rated. Also zero rated are services in connection with
262
operation or management of any foreign going aircraft and such other services as may be
prescribed in the VAT Regulations.

Services rendered to non- residents (s 10(2)(i))

The following services supplied to a person who is not a Zimbabwean resident and who is not a
registered operator are zero rated:

 Services of arranging for the supply of goods for use or consumption in any foreign going
aircraft and in accordance with an export incentive scheme.
 Services of arranging the supply of services in the repair, maintenance, cleaning,
reconditioning, pilot-age, management, etc. of any foreign going aircraft
 Services of arranging for the exportation of goods by tourists or by Zimbabwean residents
under a scheme approved by the relevant minister, or arranging the provision of services
contemplated in the above two paragraphs
 The transportation of goods or ancillary transport services within Zimbabwe.

Train operated by a non-resident and non- registered operator (10(2) (j))

The repair, maintenance, cleaning or reconditioning services of a railway train operated by non-
resident person and who is not a registered operator is zero rated.

Services physically rendered outside Zimbabwe (s 10(1) (k))

Services which are physically rendered outside Zimbabwe and supplied to person who utilises
such services in Zimbabwe are zero-rated. An example will be the supply of feasibility study in
South Africa for a mining activity in Zimbabwe. The zero rating does not include
telecommunication services rendered outside Zimbabwe and utilised in Zimbabwe.

Services to a non-resident (s 10(2) (l))

Services for the benefit of and contractually to a non-resident who is outside Zimbabwe when
services are rendered are zero rated, whether or not the services are supplied in Zimbabwe. Note
that a supply of any goods or services which are consumed locally by non-residents are not zero-
rated.

Services in connection with land or any improvement within Zimbabwe and movable property
situated in Zimbabwe at the time services are rendered are however standard rated. However,
zero rating applies where movable property is exported to the said non-resident after the services
have been performed on it.

Zero rating would also apply if the services are rendered for purpose of supplying the movable
property by the non-resident to a registered operator. Thus if a company in China exports its
machine to a Zimbabwean registered operator and engages the services of a Zimbabwean to
install the machine, the services of the Zimbabwean to the Chinese company are zero rated.

Zero rating does not extend to services in restraint of trade, to the extent that the carrying on of
that trade would have occurred within Zimbabwe.

In order for zero rating to apply, the services must be supplied under a contract with a non-
resident and must directly benefit a non-resident who is outside Zimbabwe at the time the
services are performed.

Services in respect of intellectual property rights (10(2) (m))

The supply of services comprising of filing, prosecution, granting, and maintenance, transfer,
assignment and incidental services in connection with the supply of intellectual property rights

263
(i.e. trademarks, patents, designs, copyrights, know how, trade secrets, and confidential
information) are zero rated, where and to the extent that those rights are for use outside
Zimbabwe. Where the rights are partially used in Zimbabwe, fees relating to the portion of rights
used in Zimbabwe is standard rated. This includes any payments for restraint of trade where and
to the extent that those rights are for use outside Zimbabwe.

Subsidies received by a welfare organisation (s 10(2) (n))

A payment in the form of a subsidy or grant accruing by reason of a deemed supply to a Private
Voluntary Organisations it is zero rated.

Independent branch in an export country (s 10(2) (o))

Services supplied to or for the purposes of an operator‘s branch or main business outside
Zimbabwe is zero rated. The branch or main business must be permanently located in an export
country and separately identifiable (independent) from the other branches.

Subsidies from the state (s 10(2) (p))

The payment so received from the public or local authority by the operator which is not for
specific services (payment not linked to services supplied by a third but merely to assist operator
covering its operational costs or capital expenditure) is called transfer payment. Transfer
payments are amounts paid out by the State for which it does not receive any goods or services
in return. These include subsidies for export incentive schemes, drought aid, or subsidies for the
prevention of soil erosion. Such payment is zero rated.

Services supplied by a designated tourist facility operator (s 10(2) (q)

The services supplied by an operator of a designated tourist facility (e.g. hotels, safari operators
etc.) to a person who is a non- resident of Zimbabwe and who is required under the Exchange
Control Act to pay for such services in foreign currency are zero rated. The following the
suppliers eligible to zero rating:
 The operator of a tourist facility designated as such in the First Schedule to the Tourism
(Designated Tourist Facilities) (Declaration and Registration) Regulations, 1996, published
in SI 106/1996;
 The owner of any place (other than a place where the owner resides) where persons are
provided, on the payment of a charge with residential accommodation, whether with or
without meals, commonly known as, but not limited to a ―boarding house‖ or ―back-
packers‖ lodge.
 The operator of a hunting safari.

The supply of accommodation to non-resident tourist is however standard rated.

13.14.3 Documentation to prove zero rating (s 10(3))

Where a rate of 0% has been applied, the registered operator shall obtain and retain such
documentary proof substantiating the registered operator‘s entitlement to apply the said rate
under that provision as is acceptable to the Commissioner. The operator should upon request by
the Commissioner furnish such documentation. The following are some of the documents
required to support zero rating:

 Tax invoice
 Debit and credit notes
 Agreement of sale
 Lease agreement
264
 Contract document
 Export documents bearing the stamp of the Authority at the point of exit; or
 Other receipts where applicable
 Any other documents acceptable to the Commissioner

13.15 Exempt Supplies

13.15.1 Financial services (s11 (a))

Supply of any financial services is exempt from VAT. However supply of gold coins by RBZ or
which remain in circulation is zero rated. Commission on short term insurance is standard rated.

Financial services include:

a) any service provided by a bank registered or required to be registered

b) any service provided by a building society registered or required to be registered
c) the exchange of banknotes or other currency of any country, other than collectors‘ items,
d) the provision of any deposit, loan or credit, including the provision of any guarantee,
indemnity, security or bond in respect of the performance of obligations related to a
deposit, loan or credit,
e) the issue or transfer of ownership of any share in a company or interest in a private business
corporation
f) services rendered by a registered insurer
g) the services of an actuary, insurance agent, insurance broker or fund administrator to the
extent that those services are rendered to or on behalf of a registered insurer or to or on
behalf of a registered pension fund

13.15.2 Donations by an association not for gain (s11 (b))

The supply by an association not for gain or a welfare organisation of any goods or services
which it receives as a donation is an exempt supply. The exemption also applies where the
organisation sells goods which it has manufactured if at least 80% of the value of the supply
consists of donated goods or services.

13.15.3 Supply of accommodation in a dwelling

The letting or hiring of accommodation in a dwelling is an exempt supply. Also exempt is the
right of use of accommodation of an employer or employer associate granted to an employee by
the operator. The right of occupation should be limited to the period of employment, term of
office, or other agreed period in terms of that employment contract.

13.15.4 Leasehold land (s11 (d))

The letting of leasehold land that is used to erect a dwelling or for existing dwellings is an
exempt supply. However, where the operator sales such leased land, the supply is standard rated.

265
13.15.5 Land outside Zimbabwe (s11(e ))

Selling or letting of land situated outside Zimbabwe together with any improvements thereon is
an exempt supply. However, any services rendered in respect of such sale or letting is
nonetheless zero rated.

13.15.6 Transportation of fare paying passengers (s 11(f))

The provision of local transport services of fare paying passengers accompanied by their
luggage travel by road or rail is an exempt supply. This covers broadly transport services of
commuter omnibus and intercity bus services, but not tourist bus transport (tour operator), game
drive etc. These are standard rated.

13.15.7 Educational services (s11(g))

Section 11 (g) of the Act exempts the supply of any educational or training services in respect of
pre-school, primary, secondary, university or technical education, including the education or
training of physically or mentally handicapped persons, in any institution which is registered
under any law administered by the Ministry responsible for education or higher education. It
does matter whether such education or training services are educational research or distance
learning. The educational and training services includes the provision to the institution‘s
students and students of fellow registered institutions of sporting facilities, accommodation,
hostel or canteen services as integral part of supply educational and training services.

However, the supply of goods e.g. uniforms, sale of books, farm produce unless specifically zero
rated or exempted in terms of the law, is standard rated. Also, standard rated is the provision of
sporting facilities, hire of venue or equipment, accommodation, hostel or canteen services to
third parties who are not students of the institution or fellow registered institutions. Hostel or
canteen services supplied to the institution or fellow registered institution‘s students if such
services are provided independently under a contract or other arrangement with the institution
attracts VAT at the current of 14.5%. The legislative provision does not provide for what
constitutes an independent contract, but this can be deduced from the dictionary meaning of
integral and independent. Collins online dictionary defines integral as something essential part
of the thing. The term independent according to online Cambridge English Dictionary means not
influenced or controlled in any way by other people, events, or things. An independent contract
or arrangement therefore is separately identifiable contract. Therefore, educational institutions
which run their own catering facility acting as the principal mainly for the benefit of their pupils
or students where the charge for those supplies is included in the tuition fee charged is exempt
from VAT on the catering services. If the catering facility operates as an independent branch or
under a third-party contract so that prices are charged separately from any tuition fees then VAT
at 14.5% is applicable.

Hostel or canteen services that are subsumed within the overall exempt supply of educational or
training services is free from VAT no matter the charge for such services are itemized separately
from the bare tuition fee. The services should be necessary for, subordinate and incidental to the
educational services. Therefore, a boarding school, university, collage etc. which provides
boarding facility will not be required to charge VAT on the boarding fee as long as the charge
for these facilities is contained in the same contract with tuition fees. However educational
institutions which provide hostel or canteen services on a separate invoice from the tuition
invoices, run the risk of being construed to have two separate contracts i.e. that of supply of
266
educational services and the supply of hostel or canteen services.

In other words, the following are not considered educational and training services for purposes
of s 11(2) (g) and thus subject to VAT:
 The provision of sporting facilities other than to own students or students of fellow
registered institutions
 The provision of accommodation other than to own students or students of fellow registered
institutions
 Outsourced hostel or canteen services
 The provision of hostel or canteen services other than to own students or students of fellow
registered institutions
 Any other services supplied by an institution to non-students
An educational institution that makes taxable supplies of more than ZWL$1,000,000 per annum
should be VAT registered in terms of s23 of the VAT Act and account for output tax on their
taxable supplies. Where it supplies both educational services and other taxable supplies it should
apportion input tax on common expenditure i.e. expenditure incurred in the production of
educational services and taxable supplies.

It appears institutions that are not registered with the ministry of education or Ministry
responsible for higher education would not qualify for the exemption since the section requires
the institution to be registered. VAT should also be collected on activities of recreational,
physical or sporting activities or disciplines in nature e.g. gym clubs as well as on vocational or
technical training provided by an employer to his employees and employees of an employer who
is a connected person in relation to that employer.

13.15.8 Medical services (s 11(h))

The supply of any medical services by any person or institution is exempt from VAT under s11
(h) of the VAT Act. Section 2 of the Medical Services Act defines medical services as ―services
supplied by an individual or institution; namely services supplied by a medical or dental
practitioner, accommodation, maintenance, nursing and treatment, including blood transfusions
and X-ray and laboratory examinations, tests and the like in or at a hospital, maternity-home,
nursing-home, sanatorium, surgery, clinic or similar institution, ambulance or air ambulance
services‖. On the other hand, the Law Insider dictionary defines medical services as ―care and
treatment provided by a licensed medical provider directed at preventing, diagnosing, treating,
or correcting a medical problem‖. The concept of diagnosis and treatment are central to the
provision of medical services. Therefore, individuals or institutions providing diagnosis e.g.
laboratories, treatment and care are contemplated for exemption by the legislature. Furthermore,
a common element between these two definitions is that the law does not discriminate between
medical services provided to animals (veterinary services) and medical services provided to
human beings. Section 11 (h) is strictly about the exemption of medical services and does not
cover supply of goods unless the goods are supplied as ancillary to the supply of medical
services such as the supply of food to patients. In other words, if the supply of the goods is
inextricably intertwined with the supply of medical services it is also covered under section 11
(h). The supply of goods consisting of medicines or allied substances (drugs) are zero rated by
s10 (1) (j) of the VAT Act e.g. dispensing of prescription by a registered pharmacist,
incontinence product etc. Also, zero rated is the supply of goods (invalid appliances) used by
disabled persons e.g. wheel chairs, contact lenses, braille or reading material for the blind, low
vision aids.

267
13.15.9 Employee organisation (s 11(i))

The supply of any goods or services by an employee organisation to any of its members to the
extent that the consideration for such supply consists of membership contributions is exempted.
Thus, if an employee organisation supplies goods or services to any of its members in return for
membership subscriptions it is not required to charge VAT e.g. membership subscriptions to a
trade union, NEC etc. made by members do not attract VAT.

13.15.10 Water supply

Water supply through a pipe for domestic use is exempt. However water supplied for industrial
and commercial purposes whether through a pipe or otherwise (bowsers or bottled water) is
standard rated.

13.15.11 Local authority rates

Property rates and supplementary charges charged by a local authority are exempt but other
charges are subject to VAT at 15 %. The following services supplied by local authority are
standard rated:

 The supply of water, provided supply of domestic water through pipe is exempt
 The drainage, removal or disposal of sewage or garbage services
 Goods or services supplied incidental to any of the above services
 Supply of goods or services of the same kind or are similar to taxable supplies of goods or
services by any other in the course or furtherance of that person‘s trade.

13.15.12 Agricultural equipment or machinery

Imports any of the following agricultural equipment or machinery is exempt from paying VAT:
 Agricultural or horticultural appliances
 Harvesting or threshing machinery, including straw or fodder bailers; grass or hay mowers;
machines for cleaning, sorting or grading eggs, fruit or other agricultural produce
 Tractors

13.15.13 Fuel and fuel products

A supply of fuel and fuel products by any person is exempt from VAT. This covers almost all
types of fuels and fuel products e.g. petrol, diesel, kerosene, leaded and unleaded fuel. Ethanol is
also an exempted good.

13.15.14 Protective clothing

Supply of protective clothing of the type that includes raincoats, gumboots and gloves are
exempt from VAT with effect from 1 February 2016, prior to this date they were zero rated.

13.15.15 Farm produces

Supply of farm produces generally, e.g. potatoes, tomatoes, vegetables are exempt from VAT
with effect from 1 February 2016, prior to this date they were generally zero rated.
268
13.15.16 Tobacco

The Minister has in terms of s78 of the VAT Act issued SI285 of 2019, also known as Value
Added Tax (General) (Amendment) Regulations, 2019 (No. 53) which has the effect of
removing unclear VAT treatment of supply of certain live animals. The said live animals are
currently zero rated and exempted at the same time. The SI also explicitly states the various
types of tobacco to be exempted. The provisions which is being repealed states VAT exemption
on ―Items of other tobacco not sold on the auction floors‖ without stating the types of such
tobacco. The supply of following types of tobacco is exempt from VAT with effect from the 31st
of December 2019.

Item Type pf tobacco

2401.10.10 - - - Flue cured, of the Virginia
2401.10.20 - - - Burley
2401.10.30 - - - Dark fired
2401.10.40 - - - Oriental
2401.10.50 - - - Sun cured
2401.10.90 - - - Other

13.16 Input tax

Input tax is the VAT charged by a VAT registered supplier on the operator‘s business purchases
e.g. on goods purchased for resale, raw materials, consumables, packing materials, capital goods
and general office equipment. Such goods or services must be acquired for purposes of
producing taxable supplies to qualify for an input tax deduction. Section 15(1) of the VAT Act
provides as follows:
―The tax payable by a registered operator shall be calculated by him in accordance with this
section in respect of each tax period during which he has carried on a trade in respect of which
he is registered or is required to be registered in terms of section twenty-three‖. Only persons
who carry on trade and are registered or are required to register as registered operator must
account for VAT.

13.16.1 Conditions for claiming input tax (s 15(2))

The following conditions must be satisfied in order for a registered operator to qualify for input
tax:

Possession of satisfactory evidence (s 15(2) (a)

Valid tax invoices or bills of entry are perquisite for claiming input tax. The tax invoice or debit
note or credit note must have been provided to the operator within the period he is required to
furnish a return or 12 months whichever is the longer period and held by him at the time that any
return in respect of that supply is furnished. This means that an operator is denied from claiming
input tax after 12 months from the date of supply of goods or services. Also, input tax is
claimable on a bill of entry or other Customs document held at the time of furnishing the return
or not more than 12 months from the date of supply.

269
It is important to note that the proviso to s15 (2) (a) was amended with effect from 1 January
2019 to give flexibility on the Commissioner to allow claims falling outside the 12 month
prescription period if there are justifiable grounds for failing to claim the input tax on time.

Valid invoice, credit or debit note not required (s 15(2) (b))

A tax invoice, credit or debit note may not need to be issued in cases where the value of supply
does not exceed ZWL$10 or where the Commissioner is satisfied that it is impractical to issue
such document.

Maintain records for second hand goods(s 15(2) (c))

The law also allows a registered operator to claim notional input tax on acquisition of second
hand goods. Sufficient records should however be maintained in respect of supply of second-
hand goods or a written contract has been kept in respect of a progressive supply in order for
input tax to be claimed.

Possession of bills of entry (s 15(2) (d))

An operator can only claim input tax in respect of importation of goods if a bill of entry or other
document prescribed in terms of the Customs Act in relation has been delivered in accordance
with that Act and is held by the registered operator making that deduction, or by his agent at the
time that any return in respect of that importation is furnished. An operator however cannot use
a bill of entry or other importation document to facilitate claim of input tax if such bill of entry
or document is older than 12 months from the date on which it was delivered to the registered
operator or his or her agent.

Maintain records (s 15(2) (d) (ii))

In addition to be in possession of necessary documentary evidence, the law also requires a
registered operator to maintain accounting records for at least six years and these must be kept
in English. This means that the Commissioner may still deny deduction of input tax if a tax
invoice, credit/debit note or bill of entry or Customs document has not been kept for six years.

Input tax must have been incurred

A registered operator cannot claim input tax unless VAT has been incurred by him. VAT need
not have been paid since it is claimable on invoice basis. Despite the above input tax on a bill of
entry is claimable on a cash basis. In other words the supplier should have paid the VAT on bills
of entry to claim input tax.

Claim must not be prohibited by the VAT Act

Notwithstanding the fact that all other conditions are met, there are certain expenses whose input
tax does not qualify for deduction e.g. expenditure on entertainment, cost of acquiring or hiring a
non-commercial vehicles (passenger motor vehicles), expenditure incurred by a superannuation
fund, non-business subscriptions and export tax incurred on unbeneficiated hides.

Must be a registered operator

Only persons who are registered operators are entitled to obtain a refund of input tax. End users
and non-registered operators are not entitled to claim VAT incurred by them on their purchases
or imports.

Goods or services to be used in a taxable activity

Goods or services must be used to produce taxable supplies (standard or zero rated supplies) if
input tax is to be claimed. Input tax incurred on non-business activities and shareholder activities
is non-deductible. Costs that aid shareholder activities are those costs associated with the share
structure or business structure.
270
13.16.2 Calculation of tax payable (s 15(3))

The amount of tax payable by the registered operator in respect of a tax period is calculated by
deducting from the total amount of output tax and refunds, if any received by the operator during
the tax period, any sum of input tax incurred. Any input tax that cannot be claimed in the tax
period can be claimed in a later tax period provided that it cannot be claimed after 12 months
from the date of supply.

The output tax to be off set against input tax in respect of supply of fixed property is computed
on the purchase price exclusive of finance charge and where the payments are made in
instalments, the output shall be computed on the payment made during the tax period. Where the
input tax for the period and credits from the previous tax period exceeds the output tax for the
period a refund shall be made to the period, provided the refund exceeds the refunded amount of
USD60.

13.16.3 Supplies on which input tax is claimable

The following are items on which an operator is entitled to claim input tax:

Local purchases of goods and services (s 15(3) (a) (i))

An operator is entitled to claim input tax in respect of the supply of goods and services made to
it during the tax period, which are not second hand goods. The input tax must have been
incurred by the operator on purchases of goods and services from another registered operator.

Acquisition of second hand (s 15(3) (a) (ii))

An operator is entitled to claim notional input tax in respect of second hand goods consisting of
fixed property, where stamp duty is payable. The claim can only be made once the stamp duty
has been paid in full. The operator needs to have paid the purchase price of the fixed property in
full to be able to claim the input tax. A proportion of the input tax can be claimed in such a case
i.e. input tax is claimed on a payment basis and not on invoice or accrual basis. The word
payment for purposes of this section means actual payment, it does not imply the creation of
credit for the purchase consideration, creation of loan account, novation etc. (ITC 1768 (1995)
66 SATC 151 (EC)). The input tax is computed as the tax fraction of the lesser of any
consideration in money given or the open market value of the fixed property. It may not exceed
the stamp duty, which is or would have been payable in respect of the acquisition.

Note that the notional input tax equal to stamp duty paid is only claimable where the operator
was not charged VAT on purchase of the second hand property. Where VAT was charged, input
tax claimable is the VAT charged and not stamp duty paid.

Imported goods (s 15(3) (a) (iv))

Input tax incurred on goods imported into Zimbabwe by the registered operator and invoiced or
paid, whichever is the earlier, during that tax period is subject to deduction.

Input tax on VAT on imported services

VAT registered operators are entitled to claim VAT incurred on imported services with effect
from 1 January 2020. Effective from this date the definition of input tax was amended to include
VAT paid on importation of services a registered operator. The services concerned should have
been acquired by a registered operator wholly for the purpose of consumption, use or supply in
the course of making taxable supplies. To the extent the services are acquired by the operator
partly in production of taxable supplies and some other purpose the only part of VAT on
imported services to be claimed is that which relates to production of taxable supplies. An

271
operator should to be in possession of an invoice and should have paid the tax to the ZIMRA to
qualify for the input tax claim. The invoice is not in the strict sense a tax invoice.

Betting winnings/prizes(s 15(3) (c))

An operator who runs a gambling business is entitled to claim input tax on betting winnings or
prizes paid out by him to winners. The input tax is computed by applying the tax fraction
(14.5/114.5) on the amount paid to the winner. The operator is also entitled to claim input tax on
bet placed with other registered operators.

Totalizator transactions or betting (s 15(3) (d))

A totalizator is entitled to claim input tax on any amount it pays for the benefit of the
Consolidated Revenue Fund i.e. to the government. The input tax is computed on the amount
paid by applying the tax fraction

Change of use of capital goods or services(s 15(3) (e))

A registered operator who changes the use of capital goods and services from making non-
taxable supplies to making taxable supplies or increases the extent of taxable use of capital
goods and services is allowed to make an adjustment of input tax to cater for the extent of the
increase in taxable use. The input tax is claimed in the tax period during which such increase is
deemed to take place using the following formula.

AxBxC

A is the tax fraction (14.5/114.5);

B is the lesser of the cost inclusive of VAT or open market value of the supply

C is the percentage of change in use of the goods or services for the purpose other than that of
making taxable supplies

If the supply is between connected party and the consideration in money given for the supply is
below the open market value of the supply, the value of the supply shall be open market value of
the supply.

Previously denied claim (s 15(3) (f))

An operator is entitled to claim input tax relating to supplies made to it in a previous tax period,
which it was denied for lack of necessary tax invoice, should it subsequently obtain the tax
invoice. In other words, if ZIMRA denied input tax claim because a registered operator did not
have a valid tax invoice or was not in possession of a tax invoice, the registered operator can still
claim the input tax once he obtains the correct invoice. The supplier should however not issue
more than one invoice for the same supply.

Change in use of goods or services (s 15(3) (g))

The Act provides for adjustments of input tax which arise as a result of change in the taxable use
of goods or services. It provides that where a registered operator initially acquired goods or
services in order to make taxable supplies and the actual taxable use of the goods turns out to be
greater than the initially contemplated, an adjustment to grant additional input tax should be
made in the tax period during which such increase is deemed to take place according to the
formula. The adjustment is computed using the following formula:

272
AxBxC

A is the tax fraction (14.5/114.5);

B is the lesser of the cost inclusive of VAT or open market value of the supply

C is the percentage of change in use of the goods or services for the purpose other than that of
making taxable supplies to making table supplies

The term ―cost‖ includes any tax forming part of cost of acquisition, manufacture, assembly,
construction or production of the said goods or services. Where the goods or services were
acquired for no consideration or a consideration less than open market value and supply is
between connected parties, the cost shall be deemed to be the open market value of the supply if
the recipient would not have been entitled to input tax deduction.

―Cost‖ in the case of goods acquired prior to 1 January 2004 would be the lesser of the original
cost including VAT or the open market value. In the case of a registered operator who is
required to make an adjustment of input tax or output tax as a result of reduction or increase use
of in capital goods, the cost is the lesser of cost and open market value.

Discounts, vouchers, tokens etc. (s 15(3) (h))

An operator is entitled to claim input tax in respect of any payment made by him during the tax
period as result of redemption of any discount voucher or token issued by him. The input tax is
computed using the tax fraction. Thus, upon redemption or surrender of the voucher or token an
operator to whom the voucher or token is surrendered (being the voucher or token previously
issued by him) is entitled to claim input tax component of the voucher or token.

Sale of property-in-possession (s15 (3) (i))

Where a lender who has advanced a loan to a borrower and upon default by such borrower the
lender exercises his right of recovery under the agreement by selling the property advanced as
security for the loan. It empowers the lender, being a registered operator to claim notional input
tax in relation to any sale by him of a property in possession i.e. the advanced security. The
notional input tax shall be the tax fraction (14.5/114.5) multiplied by the lesser of:

 The proceeds received (excluding VAT) from the sale of property less the amount paid by
the registered operator in respect of the acquisition of the property; or
 The amount of the un-recovered loan balance less amount paid by the registered operator
when acquiring the property.

Fiscalised registers (s15 (3) (k))

An operator is allowed to claim as input tax 50% of the cost of fiscalised electronic registers
acquired by it. The other 50% of the cost qualifies for capital allowances under the income tax
regime.

13.16.4 Input tax credit not claimed in period (s15 (4))

Any input tax deduction to which a registered operator is entitled to deduct is deductible against
the output tax applicable to that period or output tax of later periods. However the later period
should not be later than 12 months period from the date of supply.

Output tax on supply of fixed property is accounted for on the payment received. The term ―any
payment‖ refers to actual instalment made. This means that where payments are received in

273
instalments, only the payment that is received during the tax period is the one only subject to
VAT, and subsequent payments VATABLE in the period in which they are settled. However,
where the transfer is effected in a deeds registry, then the registration date becomes the time of
supply of the full amount due under the contract. Note that VAT on fixed property is computed
on the purchase price meaning that to the extent an amount constitutes penalties on late
payments that amount is exempted from VAT.

13.16.5 Accounting for output tax (s15 (5))

Output tax shall be attributable to a tax period in which a supply is made or is deemed to be
made by a registered operator. Where the supply is in respect of supply of fixed property, output
should be accounted to the extent to which the registered operator has received payment relating
to that purchase price, whether an existing obligation or an obligation which will arise in the
future, relating to the purchase price for that supply has been made during that tax period.

13.16.6 Excess input tax (s 15(6))

A registered operator is entitled to refund of input tax for the period together with any excess
credits brought forward from the previous exceed output tax for the period. The excess credits
for the previous tax period are amounts which could not be refunded in that earlier period
because they were less than the prescribed refund amount of ZWL$600.

13.16.7 Apportionment of Input Tax Credit (s 16(1))

Where input tax is exclusively attributable to taxable supplies, a trader is entitled to deduct it in
full from the output tax due on his taxable supplies. Conversely, where input tax is exclusively
attributable to exempt supplies, none of it is deductible. Where, however, a trader incurs input
tax on supplies (typically overheads) which are used, or to be used, by him in making both
taxable and exempt supplies, the input tax has to be apportioned. Only the portion of this
residual input tax which is apportioned to the taxable supplies is deductible: the balance,
apportioned to the exempt supplies, is not

This means that input tax must be apportionment where goods/services are acquired by an
operator for use in making both taxable and non-taxable supplies. Where the goods or services
so acquired are used at least 90% for the purposes of making taxable supplies, full input tax
credit may be granted (Diminimus Rule).
The Turnover-Based Method is applied as follows:

Total value of taxable supplies (excluding VAT) X input tax

Total value of all supplies during the tax period (excluding VAT)

Income or turnover arising from the following is excluded:

 The cash value of goods supplied under an instalment credit agreement

 Supplies of capital goods or services which have been used for trade purposes.
 The value of any goods or services supplied for which input tax deduction is always denied
e.g. income from sale of passenger motor vehicle.

The turnover basis must be used always unless the Commissioners General either approve or
direct the use of a different method. In order for the Commissioner to approve any method other
than the turnover method, he must be satisfied that the method fairly and reasonably represents

274
the extent to which goods or services are used or are to be used by the registered operator in
making taxable supplies.

13.17 Prohibited deductions (s 16 (2))

No matter all other conditions for claiming input VAT have been met, there are certain expenses
which registered operators cannot claim input tax on and these expenses are as follows:

13.17.1 Entertainment (s 16(2) (a))

No input tax credit is claimed ‗to the extent‘ that the goods/services are used in the provision of
entertainment. To the extent implies that where there is dual usage of the goods or services so
acquired input tax should be apportioned. The effect is to deny input tax claim on the proportion
of private usage.

‗Entertainment‘ includes the provision of any food, beverages, accommodation or recreation or

hospitality of any kind by a registered operator whether directly or indirectly to anyone in
connection with a trade carried on by him. A recreation or hospitality covers a trip to a theme
park or a recreation centre, a stay at a holiday resort, tickets to a show or theatre; and entry to
sporting activities/events. Refreshments such as tea, coffee and other beverages and snacks food
and other ingredients purchased in order to provide meals to staff, clients and business associates
constitutes entertainment expenditure.

Unless the expenditure is incurred by the business who is in the business of entertainment the
following are deemed entertainment on which input tax cannot be claimed:

 Food and other ingredients purchased in order to provide meals to staff, clients and business
associates. This includes year-end lunches and parties, hiring of venues for those functions,
as well as expenses incurred for the provision of complimentary staff refreshments (for
example tea, coffee and other beverages or snacks provided to staff).
 Business lunches or other entertainment of customers and clients in restaurants, theatres,
night clubs or sporting events.
 Goods and services acquired for providing employees with meals and beverages at
workplace canteens if the price charged by the employer does not cover the direct and
indirect costs of providing those benefits and facilities or is not equal to the market value of
such meals and beverages (for example catering services, furniture, equipment and utensils
used in kitchens, canteens and dining rooms).
 Beverages, meals, entertainment shows, amusements or other hospitality supplied to
customers and clients at product launches and promotional events.
 accommodation - e.g. hotels
 theatre and concert tickets
 sporting events and facilities
 entry to clubs and nightclubs
 free samples
 business gifts
 Christmas lunches and parties, including the hire of venues;
 entertainment of customers and clients in restaurants, theatres and night clubs

Entertainment does not extend to the following expenditure on which input tax is generally
claimed:

Entertainment business
275
Input tax incurred on goods or services acquired for purposes of supplying entertainment by an
operator who is in the business of entertaining clients for a consideration is deductible. The
operator must recover the direct and indirect costs of such supply. Supplies of entertainment to
be made for a consideration which covers all direct and indirect costs or is equal to the open
market value of the entertainment is subject to VAT at the standard rate for an operator who is
VAT registered.

Bona fide promotion

Entertainment does not cover bona fide promotion supplied by an operator in the ordinary course
of his trade to clients or customers. Thus, where an operator issues out promotional material for
no consideration the expenditure is incurred on account of the operator‘s business and the
operator is entitled to claim input tax as long as the promotion is used to make taxable supplies.
Promotional material in the nature of ―entertainment‖ however is denied input tax claim if the
operator does not normally supply those items in the ordinary course of the enterprise.

Donated food Leftovers

Entertainment does not include leftover food given for free to employees of an organisation or a
private voluntary organisation. The food must have been acquired by an operator for purposes of
making taxable supplies.

Goods/services acquired for entertainment

Entertainment does not include subsistence or allowance given to employee, office holder,
member or a partner. The allowance must be consumed or enjoyed by any partner, employee etc.
as personal subsistence in respect of any night spent by the person away from home on account
of the operator‘s duties.

Meals and refreshments supplied to passengers

Entertainment does not include meals and refreshments supplied to passengers whilst they are
being transported, as long as such meals/refreshments are part of or given in conjunction with
taxable transport service. Thus, input tax is claimable on meals provided to passengers boarding
a local airline or during a boat cruise. Whereas, input tax on meals and refreshments provided to
passengers e.g. road or rail transportation of fare-paying passengers is non-claimable. An
operator is entitled to deduct input tax on any VAT incurred on goods or services acquired for
the purposes of providing entertainment to any passenger or crew member as part of the supply
of international transportation.

Seminar meals or refreshments

This means that the organiser of a seminar or similar event to participants is entitled to deduct
input tax on meals and goods provided to participants. The seminar fee must cover the cost of
refreshments or meals.

Registered Public or Local Authorities

Entertainment does not include payment by a registered public or local authority to another
registered operator for the provision of sporting or recreational facilities to the public or goods
or services made by the authority for use in its trade.

Private Voluntary Organisations

Private Voluntary Organisations are allowed to claim input tax incurred on purchases of
goods/services. This implies that Private Voluntary Organisations can claim input tax on
entertainment goods/services not necessarily applied in the making of taxable supplies.

276
13.17.2 Non-business subscriptions or fees (s 16(2)(b))

Input tax is denied on subscription of social, sporting or recreational in nature e.g. subscriptions
for membership of gym, society, sports club etc. The term subscriptions include joining fee, life
membership fee or annual subscriptions, etc.

However VAT on subscriptions for business or professional concerns is claimable as input tax.

13.17.3 Superannuation Schemes (s 16(2)(c ))

A superannuation scheme includes a benefit fund e.g. medical aid society or Pension Fund. No
input tax .shall be deducted on purchases by such a scheme of goods/services for use in
providing 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.

13.17.4 Passenger Motor Vehicles (s 16(2)(d))

The claiming of input tax on cost of acquired or hired motor vehicle irrespective of the purpose
to which the vehicle was acquired is prohibited. This does not apply to vehicles used in the
production of taxable supplies i.e commercial vehicles. We consider the following as well:

Vehicles acquired by a motor dealer

Input tax is claimable on a vehicle acquired by a motor dealer in the ordinary course of its trade.
The motor car must be acquired by an operator exclusively for the purpose of making taxable
supplies in the ordinary course of trade that continuously or regularly supplies motor cars as
motor dealer .The term ―motor dealer‖ is not defined in the VAT Act. The vehicle must be
acquired by a motor dealer for purposes of resale or rental for the dealer to be entitled to
deduction of input tax and if the acquisition is for some other purposes input tax deduction will
be denied.

Demonstration vehicles
Input tax is claimable on a motor car that is acquired by a motor dealer for demonstration
purposes or for temporary use before making a taxable supply of that motor car, to be acquired
exclusively for the purpose of making a taxable supply. Therefore, provided the motor car is not
used for an exempt or private purpose before making a taxable supply, a motor dealer may
deduct input tax on such motor car acquired for demonstration purposes or used temporarily for
other purposes in the enterprise before being sold or leased to a third party. This proviso will not
apply if the motor car is used for an exempt purpose before making a taxable supply as the
definition of ―input tax‖ provides that a motor dealer will only be entitled to deduct input tax on
a motor car that is used, consumed or supplied in the course of making taxable supplies.

Vehicles accessories
Where accessories form part of the standard structure of a motor car (accessories fitted to the
motor car as it comes off the manufacturer‘s production line) regardless of whether they are
separately specified on the tax invoice or not input tax incurred on their acquisition is denied.
These include amongst others, the alarm, spare wheel, bull bar, gear lock, tow bar, tinted
windows, air conditioner, rubberising and spot lights. Whereas input tax is claimable on
accessories purchased and invoiced separately from the acquisition of the motor car and do not
form part of the standard structure of the motor car when it is supplied.

277
Vehicles modification
The VAT incurred by a registered operator on modifying a passenger motor vehicle, subsequent
to the acquisition of a motor car, may be deducted as input tax, but those made by the supplier
before the supply of the motor car, cannot be deducted as input tax. The converted motor car
should be used, consumed or supplied in the course of making taxable supplies if input tax
incurred on modification costs subsequent to the acquisition of the motor vehicle is to be
deducted.

Vehicles running expenses

VAT incurred on running expenses relating to the repair and maintenance of a motor car may be
deducted as input tax to the extent that the motor car is used, consumed or supplied in the course
of making taxable supplies.

13.17.5 Export tax on unbeneficiated items (s 16 (2) (d1))

An operator is denied from claiming as a deduction export tax on unbeneficiated chrome, hides,
platinum or raw diamonds.

13.17.6 Payments in Excess of USD/Bond note parity

A new paragraph 16 (2) (e) was inserted in the Act in 2019 which prohibits an amount that
results from the application of a rate of exchange in excess of the parity rate of one United States
dollar to a bond note unit, if the goods and services in question were acquired by such registered
operator in a legal tender other than foreign currency. The effect of this provision is to disallow
input tax claims in respect of excess payments made by registered operators after being supplied
with goods/services in USD (then at par with bond note and RTGS at the time) but then rated
upon payment in RTGS/bond notes to the supplier.

13.17.7 Repossessions of goods (s 16(3))

A repossession of goods previously supplied in terms of a suspensive sale from a defaulting

debtor constitutes a deemed supply. Where the debtor is a registered operator and the goods
were assets of his trade, he must account for output tax on the deemed supply. The creditor may
claim an input tax deduction in respect of the deemed supply. The debtor is not required to
account for output tax on the repossessed asset if he was denied input tax on the goods.

13.17.8 Prevention of a double claim (s 16(4))

Where an amount qualifies for a deduction under more than one provision of the Act, it shall
only be allowed a deduction once.

13.18 Adjustments for output and input taxes

The VAT Act sanctions output and input tax adjustments as result of change of use of goods or
services.

278
13.18.1 Change in use from taxable to non-taxable supplies (s 17(1))

Output tax adjustment is required where an operator bought, imported, produced, assembled or
manufactured any goods or services (including capital goods or services) for his/her business
and claimed input tax, but subsequently uses those goods or services for own use or in an
exempt activity. Internal use of goods or services by staff including directors is also deemed a
change of use requiring output tax adjustment. For example, a shareholder may use an asset that
belongs to the company privately.

The operator must therefore account for output tax at the time the goods or services are so
applied for the said activities by applying the tax fraction (14.5/114.5) to the open market value
of the relevant goods or services.

13.18.2 Reduction in taxable use of Capital Goods (s17(2))

An output tax adjustment is required where an operator bought, imported, produced, assembled
or manufactured capital goods for use in his business and claimed input tax, and later decides to
reduce the extend of use of the capital goods or completely remove them in his business.

The adjustment is deemed to take place on the last day of the registered operator‘s year of
assessment as defined in the Income Tax Act or 31 December where the operator is not income
tax registered taxpayer or any other date on which the registered operator draws up his annual
financial statements. The adjustment is computed as follows:

A x B x (C –D)

A is the tax fraction (14.5/114.5)

B is the lesser of cost (inclusive) and open market value of the goods or services

C represents the extent of taxable use of the goods or services at the time of the acquisition or in
the prior 12-month period

D is the extent of the taxable use of the goods or services during the current 12-month period

No adjustment is required if reduction in use of capital goods whose value excluding VAT cost
less than USD60 or in respect of goods or services which are not of a capital nature. If the
decrease in application is not more than 10% adjustment is also not required.

13.18.3 Supply of fringe benefits (s 17(3))

An employer who is a registered operator must account for output tax on provision of fringe
benefits to his employee. The supply is deemed made in the course of or in furtherance of the
employer‘s trade.

The output tax on taxable benefits is determined by applying the tax fraction (14.5/114.5) to the
deemed benefit. The benefit must be accounted for in the VAT return which falls within the tax
period the benefit is put through the payroll.

279
The registered operator is however not required to account for output tax on fringe benefits
under the following circumstances

 Fringe benefits ordinarily exempted in terms of the VAT Act e.g. supply of accommodation
by employer to its employees, provision of loans, provision of entertainment (free meals)
etc.

 Fringe benefits which are ordinarily zero rated e.g. basic food stuff (bread, sugar etc.).
 Fringe benefits not constituting either goods or services e.g. the granting of cash benefit.
 Fringe benefits provided by an employer providing only exempt supplies (e.g. banks,
insurance companies, schools etc.). Where the employer supplies both standard rate and
exempt supplies, output tax is applicable on the fringe benefits to the extent of standard
rated supplies.
 The supply of entertainment by an employer to its employees (include directors)

Right of use of company cars

An operator must account for output tax on vehicles it grants to its employees for private or
domestic use. It does not matter the vehicle is not a passenger motor. The output tax is computed
by multiplying the tax fraction on the following amounts

Engine Capacity cc Deemed Cost US$ per month Deemed cost

RTGS$ per month
Up tp 1500 300 4200
1501-2000 400 6000
2001-3000 600 9000
3001 and above 800 12000

The fringe benefits are deemed VAT inclusive. A registered operator should therefore compute
output tax by multiplying the fringe benefit by the tax fraction (14.5/114.5). For example, the
VAT due per month for provision of motor vehicle engine capacity 2700 cc is ZWL$9000 x
14.5/114.5 and multiplied by 2 for an operator on a two months tax period. Since the values
used for payroll are similar to those used for VAT purposes the two records must always agree.
Where the employer incurs airtime bill on account of an employee‘s private calls the VAT is the
VAT factor of the cost of airtime to employer inclusive of VAT.

Example

XYZ Limited sales his goods in US$ and its employees earn in this currency. XYZ Limited
grants its employees the right of use of the following vehicles and the employees are allowed to
drive the vehicles home:

Finance manage Toyota D4D 3200cc

Marketing manager Isuzu Double cab 3000 cc
Accountant Honda CRV 1800 cc

How much VAT must XYZ Limited remit to ZIMRA?

280
Vehicle Engine supply Vat factor Output tax
capacity value
Toyota D4D 3200 800 0.12663 101.31
Isuzu D/Cab 3000 600 0.12663 75.98
Honda CRV 1800 400 0.12663 50.66
227.95

13.18.4 Input tax adjustment (s 17(4))

Input tax adjustment is required on change in use of goods or services to produce taxable
supplies under following circumstances:

a) Change in use of goods or services acquired prior to the fixed date

b) Change in use of goods or services acquired after the fixed date
c) Change in use of second hand goods (fixed property)

Each of these is explained in detail below.

Goods acquired prior to the fixed date (1 January 2004)

An operator is entitled to claim input tax in respect of goods or services acquired or imported by
him or on goods which were manufactured, assembled, constructed or produced by him, prior
the fixed date (1 January 2004) which after that date are applied or used by the operator in the
production of taxable supplies. The input tax is computed using the following formula.

AxBxC

A is the tax fraction (14.5/114.5)

B is the lesser of cost (inclusive of VAT) and opened market value of the goods or services

C is the extent of the intended taxable use of the goods or services

The adjustment is subject to the following conditions:

 The goods or services should have been acquired or imported, manufactured, assembled,
constructed or produced before the fixed date and applied or used wholly for purposes other
than producing or making taxable supplies or.
 The goods should have been acquired in the course of an activity which was a trade or
would have been a trade had the VAT Act been applicable or
 Input tax deduction in respect of such goods or services would not have been denied by the
Act.

Example

EFF (Pvt) Ltd a construction company imported cement for $15,000 on 1 December 2003 for
use in its building projects. When VAT commenced on 1 January 2004, EFF (Pvt) Ltd registered
for VAT and used the cement 60% in its building projects. Advise the VAT implication of this
transaction.

EFF (Pvt) Ltd is entitled to claim input tax on the cement used in its building projects since the
building projects represent a taxable supply as follows:

281
14.5/114.5 x $15,000 x 80% = $1 520

Goods acquired after fixed date (1 January 2004)

A registered operator is entitled to an input tax adjustment after the fixed date in respect of:

 goods or services acquired or imported by him, provided the operator was charged tax in
respect of such supply or importation or
 goods that were manufactured, assembled, constructed or produced by him and tax has been
charged in respect of the supply of goods or services acquired by him for the purpose of
such manufacturing, assembling, construction or production; or
 goods or services supplied by him under a sale in execution of a debt or upon deregistration.

In all above cases no input tax should have been claimed by the registered in respect of or in
relation to such goods or services. Additionally, the goods or services should be applied in the
course of making taxable supplies after the fixed date. The adjustment is computed using the
following formula.

AxBxC

A is the tax fraction (14.5/114.5)

B is the lesser of cost (inclusive) and open market valuable of the goods or services.

C is the extent of the intended taxable use of the goods or services

Second hand goods acquired on or after the fixed date

Where second-hand goods (fixed property) situated in Zimbabwe have been supplied for a non-
taxable supply by a resident of Zimbabwe (including a member of partnership) under a sale on
or after the fixed date and no deduction of input tax has been made but subsequent to the fixed
date the goods or services are utilized by the person or the partnership wholly or partly for the
purpose of making taxable supplies, those goods or services shall be deemed to be supplied in
that tax period during which the goods or services are used to make taxable supplies. The
operator would then be entitled under s 17 (4) (c) to an input tax deduction following the
increase in use of second hand goods to produce taxable supplies.

This does not apply to supplies which are denied or would have been denied deduction input tax
such as passenger motor vehicles. The adjustment is computed as follows:

AxBxCxD

A is the tax fraction

B is the lesser of the original cost or open market value including any tax paid.

C is the percentage of intended use of the goods or services for making taxable supplies
expressed as a percentage of the total supplies.

D is the second hand goods which consist of fixed property and it represents the amount paid
divided by the total consideration in money expressed as a percentage.

Where a registered operator previously acquired goods from a connected person for a
consideration less than the open market value and the open market value was deemed as
consideration then ―B‖ shall be deemed to be the open market value.
282
Where the intended taxable use of the goods is at least 90% then the taxable use is deemed to be
100%.

Where the second-hand goods consist of fixed property on which stamp duty is payable or
would have been payable had no exemption provision been applicable in terms of any law, the
input tax adjustment so determined shall not exceed the amount of stamp duty, which is or
would have been payable in respect of such acquisition.

The input tax adjustment is granted only after such stamp duty has been paid. The input tax
claim is also made to the extent the person seeking to claim the adjustment has paid for the
goods. Thus, if only 50% of the price of the goods have been paid, then 50% of the input tax will
be claimed.

Example

PLC Limited a category C registered operator acquired a factory building on 1 August 2020
from a non-registered operator at cost of $100,000 and paid stamp duty amounting to $4500.
PLC Limited commenced using the building 80% for making taxable supplies and 20%
represented non-taxable supplies. The company paid $75 000.00 as down payment for the
building.

The market value of the property was $120,000.00.

How much input tax is PLC Limited entitled to claim?

Formula AxBxCxD

Input tax = 14.5/114.5 x 100 000.00 x 80/100 x 75 000/100 000

= $7,598

Notional input tax in respect of fixed property is restricted to the lesser of amount of stamp duty
paid and the amount of VAT due. Therefore the amount of input tax, in this case will be
$4,500.00

13.18.5 Increase in use of capital goods or services (s 17(5))

An input tax adjustment is required whenever there is an increase in the extent of use or
application of capital goods or services in the course of making taxable supplies. For example,
where a generator was being used only 60% in making taxable supplies and the use increase to
80%, an operator must claim further input tax. The adjustment computed as follows:

A x B x (C – D)

A is the tax fraction (14.5/114.5)

B is the lesser of cost (inclusive) and open market value of the goods or services

C is the extent of the taxable use of the goods or services in the current 12 –month period

D is the percentage of use of goods or services at the time of acquisition or in the prior 12-month
period.

283
Where the change in use of application of goods or services (i.e. ―C‖ less ―D‖) does not exceed
10%, no adjustment is required (diminimus rule). In order for the adjustment to apply, the goods
or services must have qualified and allowed a deduction of input tax when they were acquired or
constructed.

The term ―cost‖ includes any tax forming part of cost of acquisition, manufacture, assembly,
construction or production of the said goods or services. Where the goods or services were
acquired for no consideration or a consideration less than open market value and supply is
between connected parties, the cost shall be deemed to be the open market value of the supply if
the recipient would not have been entitled to input tax deduction.

Where a registered operator had previously made an input or output tax adjustment as a result of
a change in taxable usage of the goods or services the cost is the one used for such an adjustment

Adjustment is not required of change in use of capital goods or services not exceeding $60
excluding VAT. In the case of second hand goods (fixed property) originally acquired under a
non-taxable supply the amount of input tax is limited to stamp duty or transfer duty.

The adjustments are made on the last day of the registered operator‘s year of assessment during
which the increased use actually occurs.

13.18.6 Time of supply for capital goods adjustment (s 17(6))

The adjustments for reduction or increase in taxable use of capital goods are made on the last
day of the operator‘s year of assessment (as defined for income tax purposes) during which the
change occurs.

Where however a registered operator is not registered for income tax purposes the adjustment
shall be made on the last day of December and where the operator has a different year end the
adjustment shall be deemed to take place on such date.

13.18.7 12 months for capital goods adjustment (s 17(7))

The adjustments in change in use of capital goods shall be determined with reference to the
application or use of such goods or services during the 12 month period ending on the day any
reduction or increase in the extent of the application or use of such goods or services is deemed
by s17 (6) to have taken place:

Where however any goods or services are acquired, manufactured, assembled, constructed or
produced by a registered operator or are deemed under s17(4) to have been supplied to that
registered operator during such 12 month period, the adjustment shall be determined with
reference to the period ending on the day contemplated in s17(6) and commencing on the date
such goods or services are acquired, manufactured, assembled, constructed or produced by the
registered operator or are deemed to be supplied to the registered operator under s17(4).

Where however the period between the fixed date and the date contemplated in s17 (6) is less
than a 12 month period it shall, for the purposes of this section, be deemed to be a 12 month
period.

284
13.18.8 Adjustment of output tax (s 17(8))

An operator is required to make an output tax adjustment if after claiming notional input tax on
second hand goods and subsequent to such claim:

(a) that sale is cancelled; or

(b) the nature of that sale is fundamentally varied or altered; or
(c) the previously agreed consideration for that sale is reduced; or
(d) the second-hand goods or part of the second-hand goods sold are returned to the supplier;

Any of the said event should result in the input tax actually deducted in relation to such sale
exceeds the input tax properly deductible by the registered operator. The adjustment should be
made in the tax period during which the said event has occurred. The adjustment is made at the
rate time the notional input tax was claimed.

13.18.9 Going concern adjustment (s 18)

The VAT Act requires an adjustment for output to be made where a sale of a going concern
which was zero rated is subsequently used by the purchaser wholly or partly to carry on exempt
or non-taxable activities. The purchaser must account for output tax on that portion of the full
cost of acquiring the trade which relates to the intended non-taxable usage.

For purposes of calculating the tax the value of the supply shall be the full cost to the registered
operator of acquiring such trade or part thereof reduced by the ratio of the intended taxable use
to total taxable use or application of the trade. The value of supply shall not include the cost
assets which input tax deduction would be denied in terms of the VAT Act e.g. Passenger Motor
vehicles.

The 90 per cent/10 per cent rule

Where the intended use of such trade in the course of making taxable supplies is equal to no less
than 90 per cent (calculated on value) of the total intended use thereof, the trade may be
regarded as having been acquired wholly for the purpose of making taxable supplies. In such a
case the registered operator acquiring the business is not to be deemed to make such taxable
supply and does not ha

13.19 Pre-incorporation (s 19)

VAT is claimed on goods or services acquired prior to incorporation or in connection with the
incorporation of the company, subject to satisfying the following conditions:
 The goods or services should have been acquired for or behalf of the company or in
connection with its incorporation
 The person who acquired the goods or services should be fully reimbursed of his amount
 The goods or services were acquired for the purposes of trade and were not used for any
other purpose.

Section 19 shall not apply where:

(a) The supply of the goods or services by that person is a taxable supply. If it is a taxable
supply the person supplying will be a registered operator and he will therefore charge VAT
and issue a tax invoice. Where the supply is of second hand goods, which are non-taxable,
285
the company will not claim input tax. For example the acquisition of residential property
which is exempt from VAT.

(b) The goods or services were acquired more than six months prior to incorporation.

(c) No sufficient records or proof of entitlement to claim input tax, for example, no proof of
reimbursement or goods or services not related to the company‘s trade or used for making
exempt supplies.

13.20 Pre-registration

An operator is allowed to claim input tax on stock and consumables on hand on the date of
registration. The operator must provide the Commissioner with proof that tax was actually paid
on stocks and consumables on hand on the date of registration. Such stocks or consumables
should have been acquired not more than 6 months prior to the registration of the operator.

13.21 Tax invoices

A tax invoice is a document provided by a registered operator in terms of s 20 of the VAT Act.
An invoice on the other hand is a document notifying the purchaser of an obligation to make
payment in respect of a transaction. An invoice although it triggers output tax, it cannot be used
for purposes of claiming input tax, a function which can only be done by a tax invoice.

Every supplier who is a registered operator is required to issue to a valid tax invoice to a
recipient of goods or services within 30 days from the date of supply of such goods or services.
It is an offence to issue more than one tax invoice for a particular taxable supply or more than
one debit or credit note for a particular debit or credit adjustment to a taxable supply. If a tax
invoice in respect of a particular supply is lost, the supplier should upon request by the recipient
issue a copy tax invoice which should be clearly marked ―copy‖.

According to s20 (4) of the VAT Act a valid tax invoice is an invoice which has the following
features:

 the words ―tax invoice‖ shall be in a prominent place;

 the name, address and vat registration number of the supplier;
 the name and address of the recipient and if recipient is a registered operator, the vat
registration number of the recipient;
 an individual serialised number and the date upon which the tax invoice is issued;
 a description of the goods or services supplied;
 the quantity or volume of the goods or services supplied;
 price and vat charged

Where any one of the above features is missing the invoice is not valid and cannot be used for
purposes of claiming input tax. If for instance the supplier has given the recipient an invoice
which unfortunately has a quoted wrong VAT number of the recipient that invoice is also an
invalid tax invoice.

A registered operator is not obliged to issue a tax invoice for a supply whose total consideration
(VAT inclusive amount), which is in money, does not exceed ZWL$100.

In certain instances, it is acceptable not to issue a tax invoice, debit or credit note provided the
Commissioner is satisfied with alternative documentation which will serve as the tax invoice for
286
input tax purposes. The Commissioner must be satisfied that there are sufficient records
available to establish the relevant particulars of the supply, and that in the circumstances, it is
impractical to require a full tax invoice, debit or credit note to be issued.

Examples where a tax invoice may not be required are construction contracts, lease agreements
etc. The recipient should maintain sufficient records to enable the following particulars to be
ascertained:
 Name and address of supplier and; where the supplier is a natural person, his identity
number; where the supplier is not a natural person, the name and identity number of the
natural person representing the supplier in respect of the supply, and any legally allocated
registration number of the supplier.
 Date of acquisition or repossession
 Description of goods
 Quantity or volume of goods
 Consideration for the supply.

The criteria are as follows:

 The transactions in question must consist of a number of progressive taxable supplies made
by an operator in accordance with a written contract for a supply of services that provides
for a regular payment of a determinable amount.
 The recipient must be in possession of the contract document.
 The contract document must contain the supplier‘s name, address and VAT registration
number; or the supplier must have provided the recipient with supplementary document
setting out these details.
 The recipient must retain proof of payment of each regular amount in the form of bank
statements or paid cheques

If all the above criteria have been met, no tax invoice in relation to the taxable supply need be
issued, nor will the recipient have to hold a valid tax invoice in order to claim the relevant input
tax deduction.

13.22 Self-invoicing (s 20(2))

Self- invoicing is permitted under the VAT Act in circumstances where a supplier is unable to
issue a tax invoice, for example when the recipient of the supply is in control of determining the
quantity or quality of the supply, or is responsible for measuring or testing the goods sold by the
supplier. The recipient and not the supplier can issue a tax invoice for the supply, subject to the
recipient of supply obtaining an approval in writing from the Commissioner.

The conditions for self-invoicing are as follows:

 the commissioner must have granted prior approval for the issue of such a document; and
 supplier and recipient must agree in writing that the supplier shall not issue a tax invoice;
and
 the recipient should retain a copy and provide the supplier with the original document.

A registered operator seeking to apply self-invoice should provide to the Commissioner a

detailed description of its business operation and that of its supplier as well as the full
description of the nature of transaction on which it wishes to apply self –invoicing. The
Commissioner may also require an explanation of the existing invoicing procedure for the
287
transaction. The recipient is required to make an undertaking that it will comply with the
administrative requirements of self-invoicing and that it will obtain and retain the written
agreement from the supplier confirming that it will adopt the self-invoicing procedure and that
such supplier will not issue an invoice in respect of the same transaction.

13.23 Self-invoicing for re-possessed goods (s 20(3))

Self-invoicing is applied also to goods supplied under an instalment credit agreement which are
repossessed. The operator (creditor) is therefore required to create and furnish a tax invoice to
the debtor. Where the goods are repossessed from a non-registered operator (debtor), the creditor
is required to keep the following details:

 Name, address and ID. no. of the supplier (ID. no. of the representative person if it is a
company or close corporation)
 date of acquisition
 quantity or volume of goods
 proper description of the goods
 Consideration for the supply.

The recipient shall, within 30 days, create and furnish to the supplier, a document that contains
the particulars of a tax invoice. Such document shall be deemed to be a tax invoice provided by
the supplier.

13.24 Second hand goods (s 20 (7))

Second-hand goods‖ refers to goods which were previously owned and used, other than
animals; and gold coins issued by reserve bank of Zimbabwe and are in circulation. Although
input tax is claimed on the basis of a tax invoice, a registered operator who purchases second-
hand goods from a non-registered operator may be able to claim input tax provided the
following details are recorded:

 Name, address and ID. no. of the supplier (ID. no. of the representative person if it is a
company or close corporation)
 date of acquisition
 quantity or volume of goods
 proper description of the goods
 Consideration for the supply.

Similar details are required upon repossession of goods from a debtor. The rules shall not apply
however on value of supply or invoices not exceeding ZWL$10.

13.25 Electronic tax invoices

Electronic registers were introduced through SI 104 of 2010 and initially targeted at registered
operators in category C. Chapter 23:12 Value Added Tax (Fiscalised Recording of Taxable
Transactions) Regulations, 2010 required every retail registered operator in Category C to use a
fiscalised electronic register or and a non-fiscalised electronic register together with a fiscal
memory device for purposes of recording its transactions. Non-retail operators were required to
use an electronic signature device, a fiscalised electronic register or a non-fiscalised electronic
register together with a fiscal memory device.
288
With effect from 1 January 2017, the programme spreads to include registered operators in
Category A, B and D. Effectively all VAT registered operators are required to fiscalise their
transactions. This follows the Statutory Instrument 148 of 2016 published on the government
gazette of the 2 nd December 2016. The new statutory instrument amends SI104 of 2010.

13.26 Credit and debit notes (s 21(1))

Debit and credit notes are required to be issued where an event has the effect of altering the
original consideration agreed upon for a past taxable supply, after the tax invoice has already
been issued, i.e:

 A supply has been cancelled

 The nature of supply fundamentally varied or altered
 Agreed consideration for supply altered whether due to the offer of a discount or for any
other reason.
 The goods or services or part thereof have been returned to the supplier, including the
returning of a returnable container (e.g. return of defective goods and a return of containers).

Where the operator has under declared output tax, the excess amount (shortfall) shall be deemed
to be tax charged during that period. It is added to the output tax for the tax period during which
the registered operator discovers the anomaly. If the operator has overstated his output tax he
can either treat the overpayment as input tax for the tax period during which the registered
operator discovers the anomaly or reduce the amount of output tax for the tax period (by the
amount of the excess) during which the registered operator discovers the anomaly.

An adjustment is not required where the excess tax has been borne by a recipient of goods or
services who is not a registered operator, unless the amount of the excess tax has been repaid by
the supplier to the recipient, whether in cash or by way of a credit against any amount owing to
the supplier by the recipient.

A valid credit or debit note is a document which has the following features:

 the words ―debit/credit note‖ should be in a prominent place,

 supplier‘s name, address and vat number,
 recipient‘s name, address and vat number,
 date of issue
 tax invoice number and date to which the debit and credit note invoice relates
 reason for the credit /debit note
 difference in the value of supply and the resultant difference in the tax amount

It shall however not be lawful to issue more than one credit or debit note for the difference.
Where a replacement document is being issued it must clearly be marked ‗copy‘. A credit or
debit is not required to be issued where the adjustment in price is as a result of a discount being
granted for prompt payment and the terms of the prompt payment discount offer are clearly
stated on the face of the tax invoice.

A recipient of the supply is allowed to issue credit or debit notes in place of the supplier, but he
must agree with the supplier that he shall not issue another credit or debit note for the same
supply. A written approval from the Commissioner is required for the recipient to self-invoice.
289
The approval can be given only to the recipient or to recipients of specified class (is) of trade in
relation to a supply or supplies of a specified category. Where a recipient has self-invoiced, he
must provide the supplier with a copy of the document (credit or debit note) and retains another
copy. Any document issued by the supplier purporting to be credit or debit notes are invalid
once a recipient has been authorised to self-invoice.

Where it is impractical to issue a credit or debit note, and there are sufficient records available to
establish the particulars of the supply, the Commissioner has the discretion to waive the detailed
requirements of the credit or debit notes and may allow the registered operator not to issue any
of the documents.

If the Commissioner is satisfied that there are or will be sufficient records available to establish
the particulars of any supply or category of supplies and that it is impractical to issue a credit
note or debit note, he may waive the detailed requirements of the credit or debit notes or may
allow the registered operator not to issue a credit or debit note.

13.27 Bad debts (s 22)

13.27.1 General

An operator who has transferred debts on a non-recourse basis to a debtor who has failed to pay
the amount and the amount has been written off is entitled to claim input tax on the
irrecoverable debt by applying the tax fraction (14.5/114.5) on the value of the debt. Where part
of the price was not charged to VAT, the input tax adjustment shall be the proportionate
applicable on the debt charged to VAT.

The operator should have sold the goods or services on credit basis, issued an invoice, submitted
a return and declared output tax on the debt in question.

An operator who has been approved by the Commissioner to operate a cash basis accounting
system cannot claim input tax on irrecoverable debts because he does not account for the VAT
on the sale until he received payment.

The adjustment is granted subject to meeting the following conditions:

 The debt must belong to the operator

 Output tax must have been accounted for on the goods at standard rate i.e no adjustment is
required debts of zero rated and exempt supplies.
 The tax invoice or invoice relating to that debt must be made available
 Operator must prove to the satisfaction of Commissioner that debt is irrecoverable.

13.27.2 Instalment credit agreement (s 22 (1))

Input tax adjustment on bad debt incurred under an instalment credit agreement is restricted to
the VAT applicable to cash value of the irrecoverable debt. The term ―cash value‖ is defined
under s 2(1) of the VAT Act in relation to seller or lessor who is banker or financier and seller or
lessor who is a dealer. Where the seller or lessor is a banker or financier, the cash value is an
amount equal to or exceeding the sum of the cost to the banker or financier of the goods,
including any cost of erection, construction, assembly or installation of the goods borne by the
banker or financier and the VAT leviable in respect of such supply by the banker or financier.
For a dealer, an amount equal to or exceeding the price, including tax, at which the goods are

290
normally sold by him for cash or may normally be acquired from him for cash, including tax and
any charge, including tax, made by the seller or lessor in respect of the erection, construction,
assembly or installation of the goods if such charge is financed by the seller or lessor under the
instalment credit agreement. Generally cash value does not include finance charges and interest.
The bad debt in respect of the cash value is the balance of unpaid cash value of the debt.

Where an operator transfers debts on non-recourse under an instalment credit agreement at face
value he ceases to be the owner of those debts. He is prohibited from claiming input tax
adjustment on such debts. If the receivables are transferred at face value on a recourse basis
input tax deduction may be made; but only when an account receivable is transferred back to the
registered operator and to the extent that he has written off a portion of the consideration as
being irrecoverable. Input tax adjustment on irrecoverable debt under an instalment credit
agreement is prohibited if the operator has repossessed the goods.

13.27.3 Input tax on purchased debts (s 22 (2))

A registered operator who acquires debtors from another registered operator on non-recourse
basis may claim input tax deduction if the portion of the price paid for the debtors, subsequently
proves to be irrecoverable. The person whom he acquired the debts from should be a registered
operator, must have made a taxable supply for a consideration in money; and accounted for
output tax in respect of such a supply. The purchaser of the debts is thus allowed to claim input
tax on face value (excluding finance charges or collection costs) of the debts written off equal to
the tax fraction multiplied by that portion of the face value that is written off. The tax fraction
that is applicable is the one that was in force at the time the original taxable supply was deemed
to have been made.

13.27.4 Bad debts recovered (s22(3))

An output tax adjustment is required on recovered debts. Input tax should have been claimed
when the debt was written off. If part of the amount is settled the output tax shall be the
proportionate amount.

13.27.5 Long outstanding creditors (s 22(4))

Where an operator has not paid a supplier within 12 months of deducting input tax on a
supplier‘s invoice it should account for output tax on such invoice. The provision applies to an
operator who is required to account for tax payable on an invoice basis (not applicable to
operators on cash basis) and who has made a deduction of input tax on the supplier‘s invoice. In
the event that the operator eventually settles or makes the payment, it can again claim input tax.

13.28 Importation of goods (s12)

VAT is charged, levied and collected on the value of the importation of any goods into
Zimbabwe by any person on or after the fixed date. The responsibility for paying this tax lies
with the importer of goods at the time of importation.

13.28.1 Time of importation (s12(1))

Goods are deemed to be imported into Zimbabwe on the date on which the goods are, in terms
of section 36 of the Customs Act, deemed to be imported. However, goods are deemed to have
291
been imported into Zimbabwe on the date on which they are entered for home consumption.
Goods entering a warehouse licensed in terms of the Customs Act (bonded warehouse) are
regarded as not entered for home consumption and not subject to VAT. The VAT is due when
such goods leave the bonded warehouse to be entered for home consumption. Therefore, bonded
goods released for home use are liable to VAT at 14.5% and zero rated when released for
exportation.

13.28.2 Value of importation (s12(2))

The value of supply for goods on importation into Zimbabwe, which have been entered for home
consumption in terms of the Customs and Excise Act, shall be deemed to be the value for
customs duty purposes plus any Customs duty (but excludes surtax). Thus, VAT is applied on
the CIF (Cost, Insurance & Freight) value plus trade tax and excise (where applicable).

13.28.3 Exemption on importation (s12(3))

The VAT Act makes provision for VAT exemption of certain imported goods. The list includes
goods in respect of which a rebate of duty was granted in terms of the Customs and Excise Act.
They include:

 Goods imported under various rebates as provided for in the Customs and Excise Act.
 Goods imported and entered in terms of Part III (Conditional Entry) of the Customs Tariff
Handbook.
 Exports for repair and return which are personal items and not commercial.
 Goods imported by international relief organisations for free distribution to the need
 Goods for the exclusive use of foreign governments
 Goods for the exclusive use of foreign diplomatic missions and other international
representatives designated by the Minister responsible for foreign affairs
 For the exclusive use of the Head of State of Zimbabwe;
 For the exclusive use of the former Heads of State of Zimbabwe;
 For the exclusive use of the Government of Zimbabwe, covered by a Government Duty Free
Certificate issued by the Secretary of the relevant Ministry
 Goods imported, including packing containers, re-exported and thereafter returned or
brought back by the exporter or any other party, without having been subjected to any
process of manufacture or manipulation;
 Goods, including packing containers, produced or manufactured in Zimbabwe exported and
imported back by the exporter or any other party, without having been subjected to any
process of manufacture or manipulation, excluding excisable goods exported from a bonded
warehouse;
 Imported or locally manufactured articles, of a personal nature, sent abroad for processing or
repair, if they are exported under customs and excise supervision, retain their essential
character, are returned to the exporter, no change of ownership having taken place, and can
be identified on re-importation.
 Excisable goods exported from an excise warehouse and thereafter returned to or brought
back by the exporter, without having been subjected to any process of manufacture or
manipulation and without a permanent change in ownership having taken place;
 Used personal or household effects, including 1 motor vehicle, or motor cycle bequeathed to
persons residing in Zimbabwe
 Used property of a person normally resident in Zimbabwe who dies while temporarily
outside
292
 Bona fide unsolicited gifts the value of which does not exceed the equivalent of ZWL$ 750
per month, excluding goods contained in passengers‘ baggage, alcoholic beverages and
goods which are for commercial purposes consigned by natural persons abroad to natural
persons in Zimbabwe;
 Goods imported under any technical assistance agreement or in terms of an obligation under
any multilateral international agreement to which Zimbabwe is a party. The goods must not
be sold or disposed of to any party who is not entitled to any privileges, otherwise VAT
becomes payable.
 Goods temporarily admitted for processing, repair, cleaning, reconditioning or for the
manufacture of goods exclusively for export;
 Goods for processing, provided such goods do not become the property of the importer
 Goods for repair, cleaning or reconditioning, or parts for goods temporarily imported for
repair, cleaning or reconditioning
 Goods temporarily admitted for specific purposes
 Goods temporarily admitted subject to exportation in the same state;
 Travellers‘ cheques and bills of exchange, denominated in a foreign currency
 Publications and other advertising matter relating to fairs, exhibitions and tourism in foreign
countries.

13.28.4 VAT on goods imported through post (s12(4))

The Commissioner is empowered to enter into arrangement with the Postal Company for the
levying and collection of VAT on goods imported through Post Office, and share information
thereon.

13.28.5 Application of Customs and Excise Act rules (s12(5))

The provisions of the Customs Excise Act as they relate to the importation, transit and clearance
of any goods and the payment and recovery of duty shall apply, mutatis mutandis, as if enacted
in terms of the VAT Act. It does matter whether or not the said provisions apply for the purposes
of any duty levied in terms of the Customs Act.

13.29 Deferment of VAT on importation of goods(s12A)

VAT is not paid at the point of entry where the deferred payment facility applies in accordance
with s12A of the VAT Act. VAT will then be paid after expiry of such deferment period as
follows:

Value of Equipment (ZWL$) Deferment period (Days)

100,000 to 1,000,000 90
1,000,001 to 10,000,000 120
10,000,001 and above 180

The minimum amount from which an application for deferred of which will be considered
by the commissioner shall be $48,000. This was enacted through SI 285 of 2019 and to take
effect from 1 January 2020. Minimum value qualifying for VAT deferment has been
293
amended through SI 285 of 2019. The deferment facility applies to the importation of certain
capital good as follows:

 Plant and machinery used exclusively for mining purposes on a registered mining location as
defined in the Mines and Minerals Act [Chapter 21:05].
 Plant and machinery used exclusively for manufacturing or industrial purposes in or in
connection with a factory (including spare parts required for the purpose of maintaining or
refurbishing such plant, equipment or machinery).
 Plant and machinery used exclusively for agricultural purposes (including spare parts
required for the purpose of maintaining of refurbishing such plant, equipment or machinery)
 Plant and machinery used exclusively for the aviation industry (including spare parts
required for the purpose of maintaining or refurbishing aircraft and such plant, equipment or
machinery).
 Medical equipment

The deferment does not cover motor vehicles intended or adapted for use on the roads.

13.29.1 Application for deferment

An application for deferment of VAT shall be made in writing to the Commissioner and shall
include:

(a) the registered office address, and if different, the physical and postal addresses of the place
of business;
(b) full names, in the case of individuals, and in the case of a body corporate, the full corporate
name and a certified copy of the certificate of incorporation or partnership agreement as the
case may be;
(c) tax registration number, if applicable;
(d) banker‘s name and account number;
(e) a full description of the equipment or machinery in respect of which deferment of tax is
sought, including the country of origin, quantity, value and the amount of tax which
applicant wants to be deferred;
(f) A letter of understanding from the importer stating the intended use of the equipment, that
the equipment is for the exclusive use of the importer, that it is to be used exclusively for the
intended purpose and that he or she will make full payment at terms set by the
Commissioner;
(g) a letter from the Zimbabwe Investment Centre confirming the applicant‘s undertaking shall
be attached to the application as well as an undertaking from the importer to the effect that
the equipment or machinery will not be sold or otherwise disposed of in Zimbabwe without
prior permission of the Commissioner and the payment of such tax as may be due if the
equipment or machinery is to be used on a registered mining location or exclusively for
manufacturing or industrial purposes.

13.29.2 Deferment conditions.

The conditions for deferment are as follows:

(a) The value of the capital goods should meet the minimum deferment threshold
(b) The maximum period of deferment is authorised by the authority. However the importer
shall not transfer the authority to defer payment of the tax to any third party, dispose, alter
294
the use of or export any equipment or machinery without, or within a period specified by the
Commissioner.
(c) An applicant should lodge to ZIMRA a completed bill of entry declaration at the place of
entry where the deferment is processed and held in suspense until all tax is paid to the
Commissioner.
(d) No application for deferment of tax shall be made by the applicant for a motor vehicle
(e) The Commissioner shall not grant deferment of tax where the applicant has previously
defaulted in paying tax or any other taxes and duties due to the Authority in terms of the
Customs and Excise Act [Chapter 23:02].
(f) The Commissioner shall notify of his authority to defer in a general notice.
(g) The tax deferred shall be the debts due by the applicant to the State; and may be sued for and
recovered by action by the Commissioner in any court of competent jurisdiction.

The operator is prohibited from selling or re-exporting the said capital good before the expiry of
the period of the deferment, without having used them in the manner that qualified them for
deferment of payment of tax. VAT immediately becomes payable plus additional tax equal to
the deferred tax due and interest at the rate of 25% p.a. Similarly an operator who fails to pay the
deferred tax when it becomes due is liable to similar penalties. If, however the Commissioner is
satisfied that the disposal of the goods in question was not due to an intent to evade the
provisions of this section, he or she may waive the payment of the whole or such part of the
additional amount of tax payable as the Commissioner thinks fit.

Meanwhile, an operator cannot claim input tax on importations that are subject to VAT
deferment until the VAT has been paid.

The tax due, additional tax payable and interest shall, from the time when it should have been
paid, constitute a debt due to the State by the person concerned and shall, at any time after it
becomes due, be recoverable in a court of competent jurisdiction by proceedings in the name of
the Commissioner, and any goods in a bonded warehouse or in the custody of the Authority and
belonging to that person, and any goods afterwards imported or entered for export by the person
by whom the tax or additional tax is due, shall, while still under control of the Authority, be
subject to a lien for such debt and may be detained by the Authority until such debt is paid, and
the claims of the State shall have priority over the claims of all persons upon the said goods of
whatever nature and may be enforced by sale or other proceedings if the debt is not paid within
3 months after the date upon which it became due.

13.30 Imported services (s 13)

VAT is payable on the imported services by VAT operators and non-VAT operators is in
accordance with the provisions set out in s 6 (1) (c) of the VAT Act. The section provides for the
levying and collection of VAT on imported services that are utilised or consumed in Zimbabwe.
The term imported services as redefined with effect from 1 January 2019 under s2 (1) of the
VAT Act reads: ―… a supply of services that is made by a supplier who is not resident in
Zimbabwe or carries on business outside Zimbabwe to a recipient who is a resident of
Zimbabwe to the extent that such services are utilised or consumed in Zimbabwe;‖. Therefore
the recipient of the services must be a resident of Zimbabwe who acquires services from a non-
Zimbabwean resident (or from a Zimbabwean supplier who carries on business outside
Zimbabwe) and those services are utilized or consumed in Zimbabwe. The implication of the
amendment is that all businesses that import services as defined are required to account for VAT
on imported services, both suppliers of taxable and exempt supplies.

295
The supplier imported services must be foreign supplier, whilst the recipient must be local. A
local recipient includes a non-resident with a fixed place of business in Zimbabwe.

VAT on imported services has to be declared within 30 days of time of supply. The declaration
(VAT 9) must contain the calculation of the tax payable 14.5%. The return and payment should
be filed or remitted, whichever is the case within 30 days of time supply.

The time of supply for imported services is the time an invoice is issued by the supplier or
recipient in respect of the supply or the time any payment is made by the recipient in respect of
that supply, whichever time is the earlier. On the other hand, the value of imported services
shall be the value of the consideration for the supply or the open market value of the supply,
whichever is the greater. VAT is therefore 14.5% of the consideration. A barter or donation is
valued at the open market value of an item received or given away, whilst a supply for no
consideration has nil value, unless it is between connected persons.

VAT on imported services is inapplicable if the services so supplied would have zero rated or
exempted if they had been supplied in Zimbabwe. To the extent the services are utilised or
consumed outside Zimbabwe by a resident, VAT charge shall not apply.

13.31 Returns and payment of tax (s 28)

An operator is obliged to calculate the tax payable or refundable for each tax period and where
there is a payable remit the tax to ZIMRA by the 25th day of the month following the end of the
tax period. If the 25th falls on a public holiday or a weekend the return must be submitted before
such holiday or weekend. In the event of ceasing to be an operator before the end of such month,
the tax must be remitted the next day after he ceases to be an operator. There are penalties and
interest consequences for late payments.

A VAT return (VAT 7) is also required to be filed with ZIMRA by the 25th day of the month
following the end of each tax period, whether or not tax is payable. A late submitted VAT 7
attracts a civil penalty of $300 a day up to a maximum of 181 days‘ penalty. Meanwhile, a
special return (VAT 8) must be submitted to ZIMRA whenever there is a sale in execution of a
debt. The return is required whether or not the seller of the goods is VAT registered and should
be submitted by such seller within 30 days of the date of the sale. Where there is tax due on the
return it must be remitted to ZIMRA within the same timeframe.

The details required for the special return are as follows:

 Name, address and registration number, if any, of the seller

 Name, address and registration number, if any, of the debtor.
 Date of sale
 Description and quantity of goods sold
 Selling price and amount of tax charged
 Other particulars as may be required

The seller is also required to supply the debtor with a copy of the return and to avoid double
taxation the debtor shall not account for this transaction in its return.

In addition to any return required under any other provision of this Act, the Commissioner may
require any person, whether or not that person is a registered operator, to furnish on his own
behalf or as an agent or trustee, to the Commissioner such further or other return, in the
prescribed form as and when required by the Commissioner for the purposes of this Act.

296
13.32 Assessments (s31)

Assessments may be raised by the Commissioner if a non-registered operator erroneously

charges VAT or a registered operator incorrectly standard rate zero rated or exempt supplies.
The following are other circumstances where he Commissioner is entitled to raise an
assessment:
 Where an operator fails to submit a general return, a special return, other return or a return in
respect of imported services
 Where an operator submits an incorrect general return, special return, other return or a return
in respect of imported services.
 Where a person who in whatsoever manner fails to charge, collect or remit any tax to the
Commissioner.
 A non-registered operator who misrepresents himself to be a registered operator and charges
VAT i.e. when you submit a VAT return or charge VAT when you are not a registered
operator the law requires the Commissioner to assess you and collect VAT from you.
 Any registered operator who charges tax where the supply is zero-rated or where no tax is
chargeable.

In making such assessment the Commissioner is entitled to make an estimated of the taxable
supply i.e. the amount upon which the tax is payable. The assessment so made must be
communicated in writing to the taxpayer and must state the amount upon which tax is payable,
the amount of tax payable, the amount of any additional tax payable and the tax period, if any, in
relation to which the assessment is made.

Where the assessment is made on a seller (e.g. a person selling repossessed goods) a copy should
be also send to the owner of the goods and if the assessment in the name of the owner copy
assessment should also be send to the seller of the goods. Thus, a sale in execution of a debt, it is
important that both the seller and the owner of the goods are issued with the assessments.

The notice of assessment must provide the information to the effect that any objection to such
assessment shall be lodged or be sent so as to reach the Commissioner within 30 days after the
date of such notice.

13.33 Objections (s32)

The Commissioner shall notify any person to whom the assessment has been made, of his right
to lodge a written objection within 30 days. The objection should be in writing, stating the
grounds of the objection and be lodged with the Commissioner within 30 days of notice of
assessment, determination or decision of the Commissioner. The 30 day period includes working
days, weekends and public holidays.

The following are matters that can be objected to:

 Refusal by the Commissioner to register a person as an operator in terms of s23 (7) of the
Act.
 Cancellation or refusal to cancel a person‘s registration (ss 24(6) & (7) of the Act)
 Refusal by the Commissioner to refund VAT (s44(8) of the Act)
 Dissatisfaction with any assessment raised by the Commissioner (ss31; 66 or 67 of the Act)

297
 Issuance of a directive on a person deeming the different activities of that person to be one
activity for the purposes of VAT there by becoming eligible for registration - Section 52(3)
or (4) of the Act.
 Any decision of the Commissioner implementing or interpreting regulations made under s78
in connection with fiscalised electronic registers, and any assessments of amounts of tax due
arising from the operation of such registers.

The Commissioner has a right to reject any an objection which is not delivered at his office or
posted to him in sufficient time to reach him 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 he is satisfied that reasonable grounds exist for delay in lodging the
objection. However, the decision of the Commissioner in the exercise of this discretion is subject
to objection and appeal.

Upon receiving the objection, the Commissioner may alter any decision pursuant thereto, alter or
reduce any assessment pursuant thereto or disallow the objection. His action must be
communicated to the person upon whom the assessment has been made or to whom the decision
has been conveyed or to whom the reduction has been allowed, notice of the reduction, increase,
alteration or disallowance. If no communication is received by the person from the
Commissioner‘s within 3 months of the notice of objection or within such longer period as the
Commissioner and the person may agree, the objection is assumed disallowed.

13.34 Appeals to Fiscal Appeal Court (s33)

A person who is unhappy with the outcome of the objection has a right of appeal to the Fiscal
Appeal Court. The appeal should be in writing and be lodged with the Commissioner within 30
days of the Commissioner notice of the outcome of the objection or 3 months of filing an
objection to the Commissioner whichever is the shorter period. Where the Commissioner has
withdrawn a notice of assessment, the period shall be counted from the last communicated
notice.

The Commissioner may, on good cause shown, condone any delay in the lodging of any such
notice of appeal within the said period. Any decision of the Commissioner in the exercise of
this discretion shall be subject to objection and appeal.

Where the either the appellant or the Commissioner is unhappy with the outcome of in
proceedings before the Fiscal Appeal Court, he may lodge an appeal to the Supreme Court.

In order to ensure fair determination of the case, any member of the Fiscal Appeal Court shall
not solely on account of any liability imposed upon him under this Act be deemed to be
interested in any matter upon which he may be called upon to adjudicate thereunder.

13.35 Payment of tax pending appeal (s 36)

An objection or appeal does not automatically suspend obligation to pay but application can be
made to Commissioner for suspension (Metcash Trading Limited v Commissioner for SARS and
Another (2000) 62 SATC 84). Thus, the obligation to pay and the right to receive and recover
any tax, additional tax, penalty or interest chargeable shall not, unless the Commissioner so
directs, be suspended by any appeal or pending the decision of a court of law, but if any
assessment is altered on appeal or in conformity with any such decision or a decision by the
298
Commissioner to concede the appeal to the Fiscal Appeal Court or such court of law, a due
adjustment shall be made, amounts paid in excess being refunded with interest. The interest
shall be calculated from the date proved to the satisfaction of the Commissioner to be the date
on which such excess was received, and amounts short-paid being recoverable with penalty and
interest.

However, a taxpayer may request the Commissioner to suspend the payment of tax or a portion
thereof due under an assessment if the taxpayer intends to dispute or disputes the liability to pay
that tax.

13.36 Burden of proof (s37)

The burden of proof in tax appeal cases lies with the taxpayer whose rights are violated. The
onus is on a taxpayer in any objection to assessment against any decision of Commissioner or
the court to prove that any supply or importation is exempt from or not liable to any tax
chargeable or is zero rated or that any value upon which tax is chargeable or any amount of tax
chargeable is subject to any deduction or set-off or that any amount should be deducted as input
tax. The decision shall not be reversed or altered unless it is shown by the appellant that it is
wrong.

On the other hand, the CG is only required to prove his case on the balance of probabilities. He
is empowered to make assessment based on his best judgment in case he is not satisfied with any
return. This burden is excessive to the taxpayer because he is the one required to keep proper
records.

13.37 Payment of tax where taxpayer receives coupons or tokens

Where a registered operator instead receives payment of any amount of tax in respect of the
supply of goods or services in the form of a coupon or any instrument or token that, in the
opinion of the Commissioner, is exchangeable, whether directly or indirectly, for foreign
currency, that operator shall pay an amount of tax to the Commissioner in foreign currency
calculated on a valuation of that coupon, document or token which, in the opinion of the
Commissioner, represents a fair valuation of that coupon, document or token in foreign
currency. The Commissioner may, in the case of any coupon, instrument or token denominated
in units of weight, volume or other measure of a specified commodity, specify from time to time
by notice in the Gazette that a unit by weight, volume or other measure of that commodity shall
be deemed to be worth a specified amount of a foreign currency.

13.38 Payment of VAT in Foreign Currency (s38)

With effect from 1 January 2019, Section 38, VAT Act; ―Manner in which tax shall be paid‖
was amended by insertion of new subsection 4a which provides: (a) ―if the price for the taxable
supplies in question is paid for in a foreign currency, then the registered operator shall pay the
amount of the tax to the Commissioner in that foreign currency; (b) if the price for the taxable
supplies in question is paid for in legal tender other than foreign currency, then the registered
operator may pay the amount of the tax to the Commissioner in that legal tender or in a foreign
currency‖. Legal tender other than foreign currency means: bond notes and coins, or money
paid by means of an electronic transfer of funds through an account (other than a nostro foreign
currency account) with a banking institution.‖ Nostro foreign currency account ―means any
account designated in terms of Exchange Control Directive RT/120 of 2018, held with a
299
financial institution in Zimbabwe, in which money in the form of foreign currency is deposited
from offshore or domestic sources.‖

Section 38(8) of the VAT Act further states that: ―The Commissioner may require that any
registered operator who tenders payment of tax in a foreign currency other than the United
States dollar, to tender instead the equivalent amount of that tax in United States dollars, being
an amount obtained by applying the international cross rate of exchange of the first-mentioned
currency for the United States dollar prevailing on the day the tax concerned becomes due‖. This
implies the use of cross rates where a taxpayer has been paid for taxable supplies in foreign
currency other than United States dollar.

13.39 Input tax incurred in foreign currency

The provisions for the refund or claiming of input tax in foreign currency is contained in s38 (9)
of the VAT Act which provides that ―For the avoidance of doubt it is declared that all the
provisions of this Act shall apply, with such changes as may be necessary, to the payment in
foreign currency of tax in terms of subsection (4) in the same way as they apply to the payment
of tax in Zimbabwean currency. In particular, section 44 (―Refunds‖) shall apply so that any part
of tax paid in foreign currency that is required to be refunded shall be refunded in foreign
currency‖. It implies that the Commissioner shall be required to refund VAT in foreign currency
where the input tax has been incurred in foreign currency or in respect of excessive output tax
paid in foreign currency. Meanwhile, the input tax incurred in foreign currency shall be offset
against output tax denominated in foreign and that in RTGS shall be offset against output tax
denominated in RTGS, thereby separating the accounting of VAT accounting based on currency
of payment. Although ZIMRA is enjoined at law to pay refunds in foreign currency, refunds
may be difficult to get from ZIMRA as it will carry out rigorous audits before the amount is
refunded. Taxpayers should rather opt set off such refunds against other taxes in terms of section
34G of the Revenue Authority Act.

13.40 Penalty for failing to pay VAT in foreign currency (s38A)

The Finance Act, 2019 inserted after section 38A in the VAT Act which penalises the breach of
payment of VAT with effect from the 1st January. It reads: ―38A Civil penalty for breach of
section 38(4a): (1) As soon as it comes to the notice of the Commissioner that a registered
operator has failed to comply with section 38(4a), the Commissioner shall, having given the
operator a prior right of reply at least seven (7) days before the service of the order, serve upon
the operator notice of an assessment in terms of section 31 of double the amount of tax payable
in the foreign currency concerned, which shall be payable in the foreign currency concerned
(hereinafter called ―the primary civil penalty‖): Provided that if the amount assessed is in a
foreign currency other than the United States dollar, the registered operator may tender instead
the equivalent amount of that tax in United States dollars, being an amount obtained by applying
the international cross rate of exchange of the first-mentioned currency for the United States
dollar prevailing on the day the tax concerned becomes due. (2) A registered operator upon
whom the Commissioner has served a notice of assessment in terms of subsection (1) and who
fails without just cause to comply with the notice within the first seven (7) days of the period of
one hundred and eighty-one (181) days shall, if the registered operator continues to be in default,
be guilty of an offence and liable on conviction to a fine not exceeding level 10 or to
imprisonment for a period not exceeding six months or to both such fine and such imprisonment.
(3) The primary and secondary civil penalty shall be paid into and form part of the funds of the
Consolidated Revenue Fund‖. It implies a taxpayer will be required upon being served with
notice of assessment to a ‗Primary civil penalty‘ of 100% of the VAT that was supposed to be
paid in foreign currency in addition to such VAT. If amount assessed is in a foreign currency
300
other than the USD, registered operator may pay instead the equivalent amount of that tax in
USD. Equivalent amount is obtained by applying the international cross rate of exchange on the
date the tax becomes due. It appears if the taxpayer compiled and paid the tax in foreign
currency as required upon being served with but before the expiry of 7 days, the penalty would
not be levied. If taxpayer has failed to comply with the notice of assessment to pay primary civil
penalty shall within 7 days of being served with such notice be required liable to ‗Secondary
civil penalty‘ of - USD30 for each day he remains in default and if after 181 days from the 7th
day as aforesaid the default continues the operator can be prosecuted. If found guilty: fine up to
$2000 or imprisonment up to 6 months or both fine and imprisonment. Meanwhile section 38(7)
provides that ―If the Commissioner has reasonable grounds to believe that a registered operator
receives payment of any amount of tax in foreign currency in respect of the supply of goods or
services, and that the registered operator— (a) has prepared or maintained or authorised the
preparation or maintenance of any false books of account or other records, or falsified or
authorised the falsification of any books of account or records; or (b) has furnished a false return
or information; with the effect that payment to the Commissioner of any amount of tax in
foreign currency is avoided or postponed, the Commissioner may deem that all tax received by
that operator in respect of the supply of goods or services is received in foreign currency unless,
in respect of any particular transaction, such operator proves to the satisfaction of the
Commissioner that the tax received in respect of that transaction was received in Zimbabwean
currency‖:

13.41 Penalty and interest (s39)

The Act imposes a penalty (of up to 100%) and interest on VAT due which is paid late, in
addition to the tax due. Interest is computed from the first day of the month following the month
the tax was due. In other words, no interest is payable if tax is paid by the end of the month
when it is due and only payable if tax is paid on 1st of month following month in which tax was
due (or thereafter).

Other cases where penalty and interest accrues include:

 On improperly refunded and set offs VAT, and after notification the operator fails to pay the
refunded or set off amount within 30 days of such notification.
 On VAT due on a special return which is paid late i.e on sale in execution of debt.
 Where an operator has been charged additional tax as result of evading tax.
 On VAT due on imported services not paid to ZIMRA within 30 days of time of supply.

The Commissioner may however waive in whole or in part any penalty or interest payable where
he is satisfied that the failure on the part of the person concerned to pay tax within the required
period for normal returns and special returns did not result in any financial loss or did not benefit
such person financially and that there was not due to an intent to avoid or postpone liability for
the payment of the tax.

13.42 Recovery of tax (s40)- repealed

This section, empowering ZIMRA to attach taxpayers‘ properties for settlement of VAT
obligations was repealed with effect from 1 January 2019. The same provisions are now in Part
IIIA of the Revenue Authority Act, Chapter 23:11. It is important to point out that these
provisions had been there in the Revenue Authority Act before, but were simplified through the
2019 legislation.

301
13.43 VAT Refunds (s 44)

Input tax plus adjustments that exceeds output tax plus adjustments in any tax period is
refundable. This refund should be claimed within 6 years of the end of the relevant tax period to
be sanctioned by the Commissioner and it should exceed ZWL$60. Where the amount is less
than this amount it is carried forward to the next tax period.

A refund may also arise when tax, additional tax, penalty or interest was paid in excess of that
required by the law or when an operator has been refunded less than the amount properly
refundable to him. These refunds are granted by the Commissioner upon application by the
operator.

Sections 44(3) provides the commissioner shall not make the refund unless:
―(a) the claim for the refund of such excess amount of tax, additional tax, penalty or interest is
received by the Commissioner within 6 years after the date upon which payment of the amount
claimed to be refundable was made: Provided that if the Commissioner is satisfied that such
payment was made in accordance with the practice generally prevailing at the said date, no
refund shall be made unless the claim for any refund is received by the Commissioner within 6
months after that date…..‖

Notwithstanding the above provisions, no refund is granted if the refunded amount does not
exceed ZWL$60. Such amount shall be credited to the registered operator‘s account and be set
off against future output tax or refunded to the operator when aggregated with other refunds
exceed ZWL$60.

The Commissioner will also not grant a refund of tax as aforesaid if he ―is satisfied that any
amount of output tax claimed to be refundable to a registered operator will, if such amount has
been borne by any other person, in turn be refunded by the registered operator to such other
person‖. In other words, in order to avoid unjust enrichment the Commissioner will not grant an
operator a refund of overpaid output if such output tax was collected from its customers. The
refund will instead be made to such customer.

Whenever an operator‘s VAT registration is being cancelled, any amount determined to be

refundable to him in respect of this final tax period on cancellation of his registration for VAT
shall be refunded to him in full. The provision relating to carrying forward of ZWL$60 does not
apply as this also has to be refunded full.

The Commissioner may set off a VAT refund owed to the registered operator against VAT due,
income tax, PAYE, capital gains tax, customs duty, excise duty and other withholding taxes, etc.
due by the registered operator. Overpaid taxes under PAYE, capital gains tax, customs duty or
other tax heads can also be set off against VAT due. An application to ZIMRA is required for
purposes of set off.

The Commissioner can withhold VAT refund for a registered operator who failed to furnish a
return for any tax period as required under the VAT Act until such return has been furnished.
The relevant returns are ordinary returns, special returns and other returns. In the event that the
Commissioner refuse to make a refund, he may give a written notice of such refusal on request
by the registered operator.

13.44 Interest on delayed refunds (s45)

The Minister may direct that interest be paid at a rate prescribed in the Charging Act on delayed
refunds relating to excess input tax which has not been refunded within 30 days of the
302
Commissioner receiving the tax return or the tax refund application. The rate of the interest is
fixed at 25% p.a.

The interest is however not payable if the delay is due to a registered operator by reason of him
submitting incomplete or defective information in any material. Under such circumstances,
interest shall start to accrue from the date the registered operator rectifies the return and satisfies
the Commissioner that the incompleteness or defectiveness thereof does not affect the amount of
refund, or the date on which the Commissioner makes an assessment upon the registered
operator reflecting the amount properly refundable, whichever occurs first.

Interest is also not payable in situations where the Commissioner is prevented from determining
the amount refundable due to inability to gain access to the registered operator‘s books of
account. The Commissioner has on a reasonable time from the receipt of the tax return, made a
written or verbal request to the registered operator to access such books and records. Under such
circumstances the 30 day period of refund will be suspended from the date the letter is delivered
or posted, by registered mail or verbal request is made until the date on which such access is
granted.

13.45 Representative operators (s 47)

The VAT Act empowers the Commissioner to appoint certain persons to be representative
operators for purposes of performing the duties of the registered operator. However such
appointment does not relieve any Company, Public Authority, Local Authority, and body of
persons or any member of a Partnership of any liability, responsibility or duty imposed on him
by the Act. The following is a list of persons acting in a representative capacity:

 Company - public officer in terms of section 53 of the Income Tax Act

 Company in liquidation – liquidator
 Public Authority - person responsible for accounting for receipts and payments of moneys or
funds e.g. accountant.
 Local Authority - person responsible for accounting for receipts and payments of funds. e.g.
treasurer
 Corporate or Un-incorporated body - the treasurer or any person whose functions are
similar to the treasurer
 Legally disabled person - guardian, curator, or administrator
 Non-resident - person appointed agent or manager of any trade of such person in Zimbabwe.
 Deceased person - estate executor / administrator
 Insolvent person - estate trustee or administrator
 Trust Fund - fiduciary administrator

13.46 Power to appoint agent(s 48)

The VAT Act authorises the Commissioner to recover money from various sources including a
bank account. It‘s an action which sanctions ZIMRA to recover taxes without a court order. It
allows the Commissioner, if he thinks it necessary, to declare any person to be the agent of any
other person for purposes of tax collection. The person so appointed obligated by that
appointment to pay any amount of tax, additional tax, penalty, or interest due from any moneys
in any current account, deposit account, fixed deposit account or savings account or any other
moneys including pensions, salary, wages or any other remuneration, which may be held by him
for, or due by him to, the person whose agent he has been declared to be; or the person so
declared an agent receives as an intermediary from the other person, notwithstanding any
contrary provisions within any other law. Persons that can be appointed as agents include a
303
bank, a building society or savings bank, a partnership; any officer in the Civil Service or any
other person owing or in custody the taxpayer‘s money or property e. g debtor. The use of
‗include‘ in the definition of ‗person‘ shows that Parliament intended to interpret the word
broadly i.e. to give the Commissioner a wide scope in nominating any person to be an agent.

13.47 Liability of representative registered operators (s 49)

A representative registered operator is liable in his name for assessment on any moneys that is
under his control or in respect of transactions done by him in his representative capacity and be
liable for the payment of any tax, additional tax, penalty or interest on the assessment made. As
long as he has acted bona fide the assessments shall only shall be deemed made to him in his
representative capacity only. He is entitled to indemnification from the company of any tax,
additional tax, penalty or interest paid by him in his representative capacity. ZIMRA cannot
recover from him anything that exceeds the value of assets belonging to the person whom he
represents which may be in his possession or under his management, disposal or control. Thus,
any tax, additional tax, penalty or interest payable by a company shall only be recovered from
the company itself and not the representative taxpayer (public officer).

Where representative registered operator has paid any tax, additional tax, penalty or interest to
ZIMRA he shall be entitled to recover the amount so paid 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, an amount equal to the amount so paid.

An executor or administrator is entitled to indemnification of any tax, additional tax, penalty or

interest paid on behalf of the deceased person and such tax shall be recovered from the estate of
such deceased person or to retain out of any moneys of the estate of such deceased person that
may be in his possession or that may come to him as executor or administrator of such estate, an
amount equal to the amounts so paid.

A representative registered operator shall be personally liable for the payment of any tax,
additional tax, penalty or interest payable by him in his representative capacity, if, while the
amount thereof remains unpaid he has alienated, charged or disposed of any money received or
accrued in respect of which the tax is chargeable; or when he disposes of or parts with any fund
or money belonging to the person whom he represents which is in his possession or comes to
him after the tax, additional tax, penalty or interest has become payable, if such tax, additional
tax, penalty or interest could legally have been paid from or out of such fund or money.

A representative registered operator, other than a person representing a company, public

authority or local authority is required to notify ZIMRA within 30 days after becoming
responsible for performing duties under the VAT Act.

13.48 VAT Withholding tax (s50)

Certain persons known as VAT withholding tax agent are tasked with the responsibility to
collect VAT on supplies made to them which are subject to tax at 14.5%. The Commissioner is
empowered to appoint companies as withholding tax agents if he has any reason to believe that
the operators they are dealing with are not providing truthful VAT returns. The appointed
operator will be an agent until such a time as the Commissioner revokes the notice. The agent
will be tasked with the responsibilities of withholding a portion of the output tax as specified in
the charging Act and to remit amounts withheld by the 15th of the following month or any date
304
specified by the Commissioner. The amount of value added withholding tax to be withheld by a
value added withholding tax agent in terms of s50A of the principal Act shall be ⅔ of the output
tax to be paid to a specified operator with effect from the 1st of January, 2017. The Finance Act
2018 revised the rate downwards from 10% to 5% (one-third) of the value of taxable supplies,
with effect from 1 January 2018. The Commissioner may designate any person to be a value
added withholding tax agent provided that he may, at any time, revoke the appointment of a
value added withholding tax agent, if he deems it appropriate to do so. The amount so withheld
shall be credited to the account of the registered operator. The withholding tax does not relieve
the supplier of taxable supplies of the obligation to account for tax in accordance with the Act
and the regulations. Any value added withholding tax agent who fails to withhold or pay to the
Commissioner any amount of value added withholding tax shall be liable for the payment, not
later than the date on which payment should have been made if value added withholding tax had
been withheld, the amount of such value added withholding tax which he or she failed to
withhold or pay to the Commissioner and a further amount equal to such value added
withholding tax. Any person who fails to deduct VAT withholding tax or comply with
provisions relating to VAT withholding tax shall be ,guilty of an offence and liable to a fine not
exceeding level seven or to imprisonment for a period not exceeding twelve months or both such
fine and such imprisonment

13.49 Agents and auctioneers (s56)

If an agent who is a registered operator makes a supply on behalf of another operator, the agent
may issue a tax invoice or a credit or debit note relating to that supply as if the supply had been
made by him. His details may be reflected on the tax invoice or credit or debit note and the
principal may not also issue a tax invoice in respect of that same supply. Where an agent has
issued a tax invoice on the principal‘s behalf in respect of a supply made to another operator
(recipient), the recipient may claim the relevant input tax +6+deduction on the document issued
by the agent.

When a supply has been made to an agent acting on behalf of a principal, the agent‘s details may
be reflected on the tax invoice. The principal (being the recipient of the supply or importer – as
the case may be) may claim an input tax credit only if in possession of the tax invoice or bill of
entry concerned. This condition will be met if the agent holds the relevant original
documentation, as long as sufficient information is maintained to enable the details of the
principal to be determined.

If an operator makes a supply to an agent, that agent may ask to be provided with a tax invoice
in his/her own name (i.e. the agent‘s name). It is not a requirement for the agent who is acting as
recipient of the supply for the principal to be an operator in such a case.

Any goods imported into Zimbabwe by an agent (acting on behalf of the principal), is deemed to
be made by the principal and not by the agent. The bill of entry or other document prescribed in
terms of the Customs and Excise Act in relation to that importation may nevertheless be held by
such agent. Subject to certain proviso‘s section 56(1) deems the supply made by an agent on
behalf of a principal to have been made by the principal for purpose of the claiming of input
VAT by the principal.

305
13.50 Record keeping (s57)

An operator should maintain sufficient records for VAT purposes and such records should
always be available for scrutiny by the Commissioner within reasonable times. Reasonable time
means during working hours. The records that should be kept should be necessary for complying
with the Act and to prove to the Commissioner when necessary that the provisions of the Act
have been adhered to.

The following are some of the specific records that should be kept:

 A record of all goods and services supplied by or to the registered operator showing the
goods and services, and the suppliers or their agents, in sufficient detail to enable the goods
and services, and the suppliers or the agents to be readily identified by the Commissioner,
and all invoices, tax invoices, credit notes, debit notes, bank statements, deposit slips, stock
lists and paid cheques relating thereto
 Record of all importation of goods and documents relating thereto.
 The 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
 Any documentary proof supporting the registered operator‘s entitlement to claim zero rated
supplies.

The records must be retained by the registered operator for a period of six years from the date of
the last entry in any book and must be maintained in English. Accurate record keeping is
essential for successful tax planning. It also minimizes time spent on future assessments, re-
assessments, or audits. When records are kept it is easier to complete VAT, income tax and other
returns.

There is no prescription on whether the records should be manually or electronically kept. The
answer to this question is whatever works best for the operator. Where the books of accounts
are generated by the computer, they must however be retained in the form of a hard copy.

Where the records are kept in book form, they shall be retained by the registered operator for a
period of six years from the date of the last entry in any book. If not kept in book form, the
records must be retained and carefully preserved for a period of six years after the completion of
the transaction. The Commissioner is empowered to determine the form in which information
may be kept in lieu of retaining the original records or documents. However, this does not apply
to the original records of ledgers, cash books, journals and paid cheques.

13.51 Powers of entry, search, etc. (s 61)

The VAT Act authorises the Commissioner or his authorised officer, if he has reasonable
grounds for believing that it is necessary to do so for purposes of enforcing any tax under the
VAT Act at any reasonable time to enter into any place of business of a trader. After entering the
business premises the Commissioner or his authorised officer may require any person to produce
for inspection any book, record, statement, account, trade list or other document or file,
schedule, working paper or calculation relating to the determination of a taxpayer‘s income,
expenses or liability for tax. He may also 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 and/or take possession of any
document or other thing referred to in here as long as this is necessary for the purpose of any
306
examination, investigation, trial or inquiry. The Commissioner should however ensure the
information, documents or items so obtained are preserved, and retained until the conclusion of
the investigation, examination, trial or enquiry.

The section further empowers the Commissioner or his authorised to take down the name and
address of any person who is suspected to have committed VAT offence or of a person may be
able to supply information in connection with a suspected VAT offence. He may also pursue any
inquiry which may be deemed by him to be necessary to ascertain whether any provision of the
VAT Act is being complied with.

An operator whose documents or information are seized is entitled to examine and make extracts
from them during office hours or such further hours as the Commissioner may direct and under
the Commissioner‘s supervision.

Notwithstanding there is compliance by the Commissioner, the search and seizure provisions
will still be open to review by the court to determine whether they were correctly applied.

13.52 Additional tax in case of evasion (s66)

An additional tax is payable for deliberately evading the payment of tax or causing a refund to
be improperly paid. The additional tax may not exceed the tax evaded or the improperly
refunded amount, whichever the case applies. This is in addition to penalties and interest
chargeable under the VAT Act. The additional tax is determined by the Commissioner and shall
be paid by the registered operator within such period as the Commissioner may allow. Interest is
also payable on the additional tax which is not paid by the appointed date. The Commissioner is
also empowered also to prosecute the offender

13.53 Prices deemed to include tax (s 69)

Supplies made by a registered operator are deemed inclusive of VAT, whether or not the
registered operator has included tax in such price. This also applies any deposit payable to or
refundable by a registered operator in respect of a returnable container.

13.54 Prices advertised or quoted to include tax (s70)

Advertised prices and quotations by a registered operator should include VAT. An registered
operator is however not required to advertise or quote inclusive in respect of price tickets on
goods if the price inclusive of VAT is stated by way of a notice prominently displayed at all
entrances to the premises in which the trade is carried on and at all points in such premises
where payments are effected. Also, in cases where the Commissioner has approved other
method of displaying prices by any registered operator or class of registered operators

Conclusion

VAT is tax levied on supply of goods or services. All persons whose taxable turnover exceeds
ZWL$1, 000,000 per annum are required to be registered as VAT registered operators.
Registration entitles them to claim input tax incurred on goods or services are acquired by them
and are in turn required to collect VAT output on sales to their customers.

307
Chapter 14: Administrative aspects

14.1 Introduction

Taxpayers have rights and obligations in terms of the tax law. These obligations are enforced by
way of administrative powers entrusted on the Commissioner. The chapter look at these matters
in detail, but focusing only on income tax and capital gains tax administrative matters. Those
relating to VAT were covered in the previous chapter.

14.2 Taxpayer duties

14.2.1 Register as to pay tax

Every company is required to file with ZIMRA a copy of its memorandum and article of
association within 30 days of its incorporation or registration under any law. Copies of all
amendments thereto should also be filed within 30 days of the making of any such amendment.
The company which, without just cause, fails or refuses to comply with this requirement shall be
guilty of an offence and liable to a fine not exceeding level 4 or to imprisonment for a period
not exceeding 3 months or to both such fine and such imprisonment.

14.2.2 Pay taxes

Every person earning income other than income subject to employees‘ tax, should pay tax on
quarterly basis in advance of year end on 25 March, 25 June, 25 September and 20 December at
10%, 25%, 30% and 35% respectively of estimated annual tax liability. The estimates of tax
liability must closely correspond with an estimate of the actual annual tax bill. Persons required
to pay QPDs include sole traders or independent contractors, partners, non-executive directors,
trusts and companies, excluding persons whose receipts and accruals are exempt from tax.

In the event that a QPD is not paid on time or is understated, interest is chargeable at the rate of
25%. The Commissioner can however waive or reduce the interest on a QPD which is
understated by not more 10% margin of error or if he is satisfied that a person required to pay
provisional tax was, through special circumstances, unable to pay the whole or part of an
instalment of provisional tax payable by him.

The provisional tax is not a final tax. After the actual tax payable by a person has been
determined, the Commissioner will set off any amount of provisional tax paid against the actual
tax payable. Where there is an overpayment, the amount is set off against any other tax or
amount due and payable to the Commissioner by the taxpayer. If there is no such amount the
amount will be refunded to the person.

14.2.3 Keep or maintain records

Every person who derives income from trade and investment is required to keep proper books of
accounts including supporting documents i.e. ledgers, cash-books, journals, paid cheques, bank
statements and deposit slips, stock sheets, invoices, and all other books of accounts. The
information should be kept in English language and retained for a period of six years from the
date of the last entry therein unless otherwise authorised by a competent court or by the
Commissioner. A breach of this requirement is an offence and liable to a fine not exceeding
level seven ($400) or a fine equivalent to 10% of the person‘s taxable income, whichever is the
greater amount. Alternatively the person could be imprisoned for a period not exceeding three

308
months or be liable to both such fine (greater of 10% of the person‘s taxable income or $400)
and such imprisonment.

14.2.4 Appointment of a public officer and related duties (s 61)

Companies and employers, including a private business corporation (―PBC‖), should appoint a
resident person to act as its public officer within one month of its establishment. The public
officer‘s role is to represent the company, employer or a PBC in relation to all tax matters.
Everything that a public officer does shall be deemed to have been done by the company. He/she
should be a signatory to the bank account and be a resident.

In addition to the appointment of public officer, a company is required to state a place where its
correspondences with ZIMRA should be served or delivered. Any change of public officer or the
address should be notified to ZIMRA within 30 days of such change taking effect. If a company
fails to appoint a public officer or specifying its postal address, its agent, manager or
representative shall be liable to a penalty not exceeding level five for every day during which the
default continues. Interest is also chargeable on the penalty if it is not paid after it becomes due,
although under special circumstances, the Commissioner may extend the time for payment of the
penalty without charging interest.

Where a public officer is not named by a company, the Commissioner may designate the
managing director, director, secretary or any company officer to be the public officer of the
company. For a company under judicial management or in liquidation, judicial manager or the
liquidator shall be the public officer.

Every action taken against the company is served upon or taken against its public officer or in
his absence against any officer or person acting or appearing to act in the management of the
business or affairs of such company or as agent of such company. The role of the public officer
in terms of the Act is to collect, account for, or remit any taxes imposed on the business, and
could be personally liable for any willful failure to cause the company to pay the tax. Provided
that the company shall not be exonerated from any default because it has not appointed a public
officer.

14.2.5 Submission of returns (section 37)

Section 37 of the Act provides that the Commissioner must annually give public notice of the
persons who are required by him to furnish returns for assessment and such persons shall be
prescribed in such notice. The date of submission shall be within 30 days after the date of the
notice, or within such further time as the Commissioner may for good cause allow. The return
may be submitted by the person personally or in a representative capacity. The notice must also
state the places at which the prescribed forms may be obtained, and it shall be the duty of all
such persons, and of all persons required by this Act to furnish such returns, to apply for the
prescribed forms of returns. A person shall, however not be exonerated from paying penalty by
reason of not receiving the notice or the prescribe form not been delivered to him. The
Commissioner at his discretion may however make such prescribed forms to be delivered or sent
by registered or unregistered post to any person.

A company that has not been carrying on any trade or business (dormant company) for the full
year shall not be subject to penalty for failing to furnish a return. Its public officer or a director
or majority shareholder must however make a written and sworn declaration to the
Commissioner within 30 days of the public notice. The sworn declaration is made to cover all
returns, other than capital gains tax return which depends on whether there has been a disposal

309
or sale of a specified asset in the year of assessment. If sworn is not made the company shall be
liable for penalty applicable on non-submission of return.

A person whose income is purely in the nature of remuneration and such remuneration has
accounted for under the Final Deduction system dispense with the need to complete and submit
a return.

14.2.6 Self-assessment (section 37A)

Banks, insurance companies and VAT Category C registered operator are in terms of s 37A
required to furnish to ZIMRA a self-assessment return by 30 April of the following year for 31
December tax year of assessment or other period specified by the Commissioner in a public
notice.

A self-assessment implies a computation of person‘s own tax liability in accordance with s7 (2)
of the Act. The Commissioner‘s role is limited to audit and investigation. The system is enforced
by a system of penalties and interest.

The return (ITF 12 C) should be filed electronically and must be submitted even if there is no tax
payable. Interim returns may also be requested by the Commissioner. Meanwhile, the person
should also submit a Capital Gains Tax return in the event that there has been a disposal of a
specified asset during the year of assessment. The return is submitted in terms of section 37 of
the Act. Where the person is incapacitated his return shall be signed by the taxpayer‘s legal
representative. Where a return has not been submitted the Commissioner can appoint somebody
else to submit a return on behalf of the taxpayer. For failing to furnish a return the taxpayer is
liable to pay penalty notwithstanding the fact he has not received a notice to furnish the same or
the prescribed form. A penalty of $300 per day is chargeable, up to a maximum of $54,300 (181
days x $300).

The Commissioner may, having regard to the circumstances of any case extend the time for
submission without charging the penalty. A self-assessment return of income must be signed and
must also include a declaration that the return is complete and accurate. Where the return is
signed by any other person other than the taxpayer, it shall be assumed to have been signed by
the taxpayer unless the taxpayer can prove that such return was not made or signed by him or her
or on his or her behalf.

14.2.7 Submit further returns and information

In addition to the ordinary returns, section 39 of the ITA requires every person upon the request
of the Commissioner to furnish such returns or information in the form and at such time as may
be prescribed or as the Commissioner. Returns he may request include but not limited to returns
of all or any particular class of persons employed by him, and the earnings, salary, wages,
allowances, advantages, benefits or pensions, whether in money or otherwise, paid or allowed to
each person so employed.

14.2.8 Partners return

In terms of section 37 of the Act, partners must submit a joint tax return. The return must show
the joint return of income of partners and supported by the accounts as are necessary to show the
result of the operations of the partnership for each such year of assessment. Each partner shall be
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 partner has other income from
other sources he should submit a return of that income as well. In the event of default in
310
rendering the joint return each partner will be separately and individually liable to pay $300 a
day up to 181 days, afterwards he can face prosecution. This is notwithstanding that the partner
may also be liable to a similar fine on his other return.

14.3 Assessments

All assessments required to be made under this Act shall be made by the Commissioner or under
his direction. A taxpayer shall be entitled to receive a notice assessment and of the amount of tax
payable, where tax is payable. The notice should also contain information that where the
taxpayer has objection he/she should sent it to the Commissioner within thirty days after the date
of such notice.

14.3.1 Estimated assessments (section 45)

The Commissioner has the power to raise an estimated assessment when he has a reason to
believe that the collection of tax that will become due is in jeopardy, because a taxpayer has
failed to render a return, is about to leave the country before submitting a return, the taxpayer is
unable from any cause to submit an accurate return of his income or in other similar
circumstances. An estimated assessment can also be raised where there are no proper books of
accounts or record.

The Commissioner may agree with the taxpayer on an estimate of his taxable income or assessed
loss and once agreed the assessment shall not be subject to any objection or appeal. The
Commissioner may only vary the assessment where the taxpayer withholds information which if
it would have been known at the time of the estimate, would have resulted in an increase in his
taxable income or reduced assessed loss.

An estimated assessment does not relieve a taxpayer of a penalty or an interest for failure to
submit a return. He/she may also be required to pay an additional tax on misrepresented agreed
upon assessment.

14.3.2 Additional assessment (section 47)

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 excluded from tax or
where an expense was erroneously deducted or where any sum granted by way of credit should
not have been granted. The Commissioner will include such income or disallow such deduction
and call upon a taxpayer to pay the right tax. However, no additional assessment or tax shall be
raised or charged if;

a) The assessment was made in accordance with the practice prevailing or existing at the time
of assessment.
b) If six years have passed from the end of the relevant year of assessment, unless the
Commissioner considers it necessary because of fraud, misrepresentation or willful non-
disclosure of facts by a taxpayer.

An additional assessment cannot override the decision of the Commissioner in appeal case, i.e.
of reducing or altering an assessment following a taxpayer‘s objection. Additional tax may be
payable on an additional assessment. The Commissioner has a right to make an estimate when
raising an additional assessment.

311
14.3.3 Reduced assessment and refunds (section 48)

Where it is proved to the satisfaction of the Commissioner (―CG‖) that a taxpayer has paid tax in
excess of what is required by law, the CG shall issue an amended assessment to reduce the tax
chargeable and if necessary to refund the overpaid tax. However, no amended assessment shall
be raised if the assessment was made in accordance with the law existing at the time of
assessment and six years have passed since the date of the notice of assessment in question.

An amended assessment shall not be subject to appeal or objection.

The CG 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 late date. However, the CG is not liable to pay refund where the overpayment
was due to an incomplete or defective return or some other error of a taxpayer.

14.3.4 Amended assessment of loss (section 49)

If it is proved to the satisfaction of the CG that a tax payer‘s assessed loss for any year of
assessment is less than the amount which should be assessed loss for that year, the CG 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 or six years have passed since the date of the notice of assessment in question.

An amended assessment shall not be subject to an appeal or an objection.

14.3.5 Notice of assessment (section 51)

An assessment should contain features that are outlined in s 51 of the Act. According to s51 (2)
of the Act ‗the notice of assessment and the amount of tax payable shall be given to the taxpayer
assessed‟. There should be an assessment made on the taxpayer first before the principal amount
is required to be collected. The notice of assessment must state that any objection to the
assessment must be sent to the Commissioner within 30 days after the date of such notice. The
notice prescribe after the expiration of a period of 6 years from the date of its issue. There is no
notice of assessment required to be issued by the Commissioner for persons on self-assessment
and those whose income is processed through the final deduction

14.4 Additional tax / Penalties (section 46)

Section 46(1) provides for additional tax equal to 100% on the amount of tax that would have
been lost due to the offence, as follows:

a) Default in rendering a return in respect of any assessment. The additional tax shall be 100%
of tax chargeable in respect of his taxable income for that year of assessment; or an amount
equal to a fine of $400, whichever is the greater.
b) For omitting any amount which ought to have been included in a return, the additional tax
shall be 100% of the difference between the tax as calculated in respect income returned and
the tax properly chargeable in respect of his taxable income as per correct return.
c) For making any incorrect statement in any return rendered by him which results or would, if
accepted, result in the calculation of the tax at an amount which is less than the tax properly
chargeable, the additional tax is equal to the difference between the tax as calculated in
accordance with the return made by the taxpayer and the tax properly chargeable if the
incorrect statement had not been made.
312
d) If he fails to disclose in any return made by him any facts which should be disclosed and the
failure to disclose such facts results in the calculation of the tax at an amount which is less
than the tax properly chargeable , 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 in the granting of a credit
exceeding the credit to which he is entitled, an amount equal to the difference 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, omits or does any act on the additional tax shall be liable to pay the
additional tax plus 100% of the additional. This means that the penalty will be 200% in the case
of repeated offences.

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 as he may think fit.

The CG may, either before or after an assessment is issued, agree with the taxpayer on the
additional amount to be charged and the amount so agreed shall not be subject to any objection
and appeal. He may, either vary the agreed assessment if he subsequently discovers that the
taxpayer, at the time the additional amount was agreed, withheld information which could have
had an effect of him making a different decision.

14.5 Interest

A taxpayer who pays tax late will be obliged to pay interest on the tax that remains unpaid after
it becomes due. Interest is imposed on all tax heads at a rate of 25% p.a. calculated on the
simple interest basis. In special circumstances the Commissioner may extend the time for
payment of the tax without [necessarily] charging interest. The CG may remit the whole or any
part of interest charged where the person liable to pay the interest has given good reasons or
cause in writing. The interest is also chargeable on the penalty chargeable until it is discharged.

The interest is computed as follows:

I = [25% (D x P)] / 365 days

I is the interest
D is the delay period in days
P the principal amount due (the tax due)

Interest runs from the due date to the day before the date of actual payment.

14.6 Penalty for Late p a y m e n t o f t a x

The Commissioner is empowered to levy penalty for the late payment of tax i.e. 100% for PAYE
and withholding tax and 15% for capital gains related taxes. He however reserves the right to
reduce or a waive the penalty if he is satisfied that failure to pay the tax was not due to intent to
evade tax or was due some other justified cause and not in circumstances where tax evasion or
fraud is taking place or is suspected.

313
14.7 Interest on Penalty p a i d late

Where the penalty is not paid in full on the date on which the default has ceased, the Act has
provides for charging of interest on the penalty calculated at a rate to be fixed by the Minister by
statutory instrument. The Commissioner may however, waive in part or in full the interest
depending on the circumstances of the taxpayer. He may, under special circumstances, extend
the time for payment of the penalty without charging interest. The Finance Act 2018 has
however repealed the requirement to pay interest on penalty paid late with effect from 1 January
2018.

14.8 Penalty for late r eturns (section 35(2) RAA)

Any person who fails to submit a return-on the fixed date, or within any extension of that date
granted by the CG shall be liable for a civil penalty of not more than ZWL$300 for each day the
person remains in default, not exceeding a period of 181 days. If the person continues to be
in default after the 181 days he or she shall be guilty of an offence and liable, on conviction,
to a fine not exceeding level fourteen or to imprisonment for a period not exceeding five years
or to both such fine and such imprisonment.

The civil penalty shall constitute a debt due to the Authority by the person against whom it is
levied, and shall at any time after it becomes due, be recoverable in a court of
competent jurisdiction by proceedings instituted in the name of the Authority. The payment
of the civil penalty does not relieve the person of any criminal liability incurred through his or
her failure to make a return of tax nor shall the fact of any criminal liability having been
imposed upon him or her relieve him or her from any obligation to pay any penalty (section
35(4) RAA).

The Commissioner can waive the penalty as follows:

Delay days Remission Penalty %

0 to 10 days 100% 0% 1
11 to 20 days 75% 25%
21 to 30 days 50% 50%
31 to 60 days 25% 75%
61 to 181 days 0% 100%
1
Plus written warning

The returns which attract the civil penalty and their dates of submission are as follows:

Return Name of return Due date

Commissioner to advise through a public
ITF 1 Return of Income: individual from trade notice
Commissioner to advise through a public
notice Commissioner to advise through a
ITF 1A Return of Income: individual from trade public notice
Commissioner to advise through a public
ITF12 Return of Income: company notice
Self-Assessment return-individual and By 30th April following end of year of
ITF12C company assessment
ITF16 Reconciliation of payroll details (PAYE) By 31st January following end of year of
314
assessment
Return for the remittance of withholding Within 10 days of payment of paying the
REV5 taxes payee
By the 10th of the month following the end
Return for the remittance of Presumptive of the quarter e.g. 10th April for quarter 1
REV5A tax (Jan-Mar)
CGT1 Return for Capital Gains Tax Within 30 days of sale of specified asset
By 25th of the month following that of the
VAT7 Return for the remittance of VAT end of the tax period.

Note that remittance advices e.g. P2 and ITF12B are not subject to penalties.

EXAMPLE

XYZ (Pvt) Ltd submitted its ITF 12C for year end 31 December 2015 on 29 May 2016. Show
the penalty payable by XYZ (Pvt) Ltd for failing to comply, if any.

ANSWER

Delays (return was supposed to submitted on 30 April) 29 days

Remission % (21-30 days) 50%
Penalty (29 days x $300 x 50%) $4350

14.9 Fines and imprisonment (section 81)

Fines are imposed by the Commissioner for various offences as follows:

Making wilful false statement

A person who willfully makes a false statement or entry in a return, signs a false return, under-
reports, under-collects, or prepares false books of accounts or records is liable to a fine under
level eight or not more than two years in prison or to both such fine and imprisonment.

Refusal to furnish a return or document

A person who refuses or fails to furnish a return, any document, supply information, reply or
give evidence willfully is liable to a fine of not more than level seven or imprisonment of not
more than one year or to both such fine and imprisonment. A person who fails to keep books of
accounts in English or willfully to keep record of such books for a period of six years is liable to
a fine of not more than level seven or imprisonment for not more than one year, or to both the
fine and imprisonment.

Wilfully under reporting income

A person who willfully reports income in a return submitted by him or prepared by him on
behalf of another person or fails to disclose facts resulting in less tax being paid, is liable to a
fine of not more than level 7 or imprisonment for not more than 1 year or both the fine and
imprisonment.

Refusing to be investigated
A taxpayer who refuses to be subjected to an investigation by or hinders an authorized officer of
ZIMRA from discharging his duties is liable to a fine of not less than level 5 or imprisonment
for a period not exceeding six months or both imprisonment and fine.

315
Repeating an offence
A person who commits a similar offence is liable to a fine equal to level 14 or 12 months in
prison or to such a fine and imprisonment in addition, the conviction of a person for an offence
shall not exempt the person convicted from the payment of any tax, additional tax, penalty or
interest payable.

Fines are also levied for committing any of the following offences:
 For failing to pay or remit taxes on time to ZIMRA
 Obstruct an officer
 Register with ZIMRA
 Errors in returns
 Keep proper books of accounts or records
 Signing a false return, under-reports, under-collects,
 Prepares false books of accounts or records
 Refusal to furnish a return or document

Table of fines and offences

Level of offence Fine(ZWL$) Level of offence Fine($ZWL)

1-7 8-14
1 20 8 1,200
2 30 9 1,600
3 60 10 2,000
4 100 11 2,500
5 200 12 3,000
6 400 13 5,000
7 800 14 10,000

14.10 Representative taxpayers (section 53)

Certain persons are appointed representative taxpayers for purposes of recovering tax for
particular class of persons. The responsibility of the representative taxpayers is to represent
taxpayers, but this does not relieve the person represented from any liability on him by the Acts.

14.10.1 Representative taxpayer (section 53(1))

1. In respect of the income of a company, is the public officer of the company

2. In respect of income the subject of a trust, means the trustee,
3. For income possessed, disposed of, controlled or managed by and agent, is the agent
4. Income remitted or paid by a person in to a person temporarily or permanently absent from
Zimbabwe, is the person remitting or paying the income,
5. For income paid under a decree or order of a court or judge to receive or other person, is the
receiver or other person whether or not;
6. In respect income of a deceased person or the person subject to legal disability, is the
trustee.
7. In respect of the income of that person in any other year of assessment in respect of which a
return was not made to the satisfaction of the CG, is the trustee.
8. In respect of broadcasting or electronic commerce operator, a person in Zimbabwe
appointed by that company or entity or by the Commissioner as aforesaid (w.e f. 1 January
2020)

316
14.10.2 Liability of representative taxpayer (section 54)

A representative taxpayer can be assessed in his own name on the income he is a representative
taxpayer or which he has the management, receipt, disposal, remittance, payment or control,
provided such assessment can only be made upon him in his representative capacity only. The
assessment should also take into consideration any credit, deduction, exemption or right to
deduct a loss entitled to the taxpayer being represented. The tax payable on this assessment
shall, except for assessment served on the public officer of a company, be recoverable from the
representative taxpayer, but to the extent only of any assets belonging to the person whom he
represents which are in his possession or under his management, disposal or control. The tax
payable in respect of any assessment made upon a public officer of a company in his capacity as
such shall be recoverable from the company of which he is the public officer.

14.10.3 Right of representative taxpayer to indemnity (section 55)

Where a representative taxpayer has paid tax on behalf of a person he represent, he/she shall be
entitled to recover from that person 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.

14.10.4 Personal liability for company tax debts (section 56)

A company is personally liable for its debts. The directors and shareholders are in no way
whatsoever responsible for the company‘s debts. A liability is however imposed on a
representative taxpayer (public officer) who while the tax remains unpaid alienates, charges or
disposes of the income in respect of which the tax is chargeable; or disposes of or parts with any
fund or money which is in his possession or comes to him after the tax is payable when from or
out of such fund or money the tax could lawfully have been paid.

14.11 Powers of the Commissioner

14.11.1 Access to all public records (Section 40)

The Commissioner or his officer have the right to access all public records and inspect registers,
books accounts, record, return, etc. This is the right to access records held by POSB or public
service or in any government department, irrespective of any law to the contrary or
confidentiality provisions. The Commissioner or his officer shall, for no fee or charge, be
permitted to inspect for such purposes such registers, books accounts, records, returns, papers,
documents or proceedings and to take such notes and extracts as he may consider necessary.
Every officer in the Public Service shall, if required by the Commissioner, furnish to him in such
form and at such time as the Commissioner may require, such information from the registers,
books, accounts, records, returns, papers, documents or proceedings in his custody. The record
so obtained can be used as evidence in any court case dealing with tax issues. However, the
document cannot be used as evidence unless the taxpayer or accused has been given not less
than 10 days‘ written notice of the intention so to produce such document and an opportunity to
inspect the same and make a copy of it.

The Commissioner may in any legal proceedings relating to income tax also obtain and use as
evidence any transactions with any bank, including the Reserve Bank of Zimbabwe, the Post
Office Savings Bank and any savings bank relating to the accused person‘s spouse or his/her
minor children.

317
14.11.2 Powers of Search and seizure (section 34F RAA)

Section 34F of the Revenue Act grants the Commissioner and his officers powers to obtain
information on the administration of the various tax Acts. To this regard, the Commissioner at
his discretion may request any person to produce for examination by him or his officer, at such
time and place and as may be appointed by him, any deeds, plans, instruments, books, records,
accounts, trade lists, stock lists or any other document he deems necessary. This information can
be retained by the Commissioner or his officer for as long as they may be reasonably required
for any assessment or for any criminal or other proceedings under the Scheduled Act in question
or the Finance Act. However, where the information is one which is not required to be kept by
law, reasonable expenses necessarily incurred in producing the document or information must be
allowed to the taxpayer. The section also empowers Commissioner to request the taxpayer to
attend within reasonable time and place for interviewing or to take oath or otherwise. The person
so attending may be allowed by the Commissioner-General any reasonable expenses necessarily
incurred by such person in so attending. Where there are reasonable grounds for suspecting that
a taxpayer has committed a tax offence, an officer may request a warrant of search from the
magistrate. It does not matter whether or not the information, documents or things are likely to
be found or whether the premises specified in the application are likely to contain such
information, documents or things. The magistrate‘s warrant allows a ZIMRA official to exercise
any the following powers:

a) without previous notice, at any reasonable time during the day enter any premises
whatsoever and on such premises search for any moneys, valuables, deeds, plans,
instruments, books, records, accounts, trade lists, stock lists or documents.
b) in carrying out any such search, open or cause to be removed and opened any article in
which he or she suspects any moneys, valuables, deeds, plans, instruments, books, records,
accounts, trade lists, stock lists or documents to be contained.
c) seize any such deeds, plans, instruments, books, records, accounts, trade lists, stock lists or
documents as in his or her opinion may afford evidence which may be material to assessing
the liability of any person for any tax.
d) Retain any such deeds, plans, instruments, books, records, accounts, trade lists, stock lists or
documents for as long as they may be reasonably required for any assessment or for any
criminal or other proceedings under a Scheduled Act or the Finance Act.

14.11.3 Right to access to information, search and entry (section 44)

The Commissioner may require a taxpayer or another person to, within a reasonable period,
submit relevant material (whether orally or in writing). A request must be for the purposes of
determining or securing tax or for purposes of revenue estimation in relation to a taxpayer or
class of taxpayers. In his request the Commissioner is obliged to act lawfully, reasonably and in
a fair manner as well as acting within the relevant period specified by law or within reasonable
period. Right to access to information extend to information held by representative taxpayers,
agents (banks) and trustees in possession of property and in respect of any moneys, funds or
other assets which may be held by him for, or due by him to, any other person. He is
empowered to access all public records. The secrecy provisions of any other law cannot be
invoked to prevent disclosure to ZIMRA. The Commissioner or any of his appointed officers
can therefore enter or search the premises of any person, carry out an inspection of a print-out or
audit of any information, documents or things at any premises for purposes of getting
information and enforcing collection of tax. 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.

318
A taxpayer is allowed or reimbursed by the Commissioner the expenses of producing documents
which he is not required by law to keep. A person who is required to attend an examination has
the right to be accompanied by his accountant, lawyer or other adviser.

14.11.4 Appointment of tax collection agent (section 58)

The Commissioner may appoint any person as an agent of taxpayer in respect of the taxes due
by that taxpayer. Thus, the Commissioner may, if he thinks it necessary, declare any person to
be the agent of any other person, and the person so declared an agent shall be the agent of such
other person for the purposes of this Act, and, notwithstanding anything to the contrary
contained in any other law, may be required to pay any tax due from any moneys in any current
account, deposit account, fixed deposit account or savings account or from any other moneys,
including pensions, salary, wages or any other remuneration, which may be held by him for, or
due by him to, the person whose agent he has been declared to be.

A ―person‖ includes a bank, building society or savings bank, a partnership or any officer in the
Public service. The use of ‗include‘ in the definition of ‗person‘ shows that Parliament intended
to interpret the word broadly i.e. to give the Commissioner a wide scope in nominating any
person to be an agent. However, the Commissioner must communicate the decision in writing to
the person so nominated for appointment purposes. Until that is done, the Commissioner cannot
recover any tax from the person as agent for taxpayer.

It must also be noted on the other hand that once appointed, the agent is required by law to
furnish the Commissioner with information in respect of any moneys, 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 over all
property of any kind vested in or under the control or management of any agent or trustee as
long as the tax is due from the taxpayer and may attach or dispose of the agent or trustee‘s
property to enforce tax payment.

14.11.5 Recovery of tax (section 77 ITA & 33C RAA)

The Commissioner can recover taxes when they become due or payable by action in the court of
the magistrate having jurisdiction in respect of the person by whom tax has become payable,
irrespective of any enactment relating to magistrates courts. The collection measure is however
subject to the 6 year prescription rule. The tax so due or payable will be deemed to be a debt due
to the State and shall be payable to the Commissioner in the manner and at the place prescribed.

In the event that the person had transferred the amount or asset from which tax has become due
to a relation with the intention of avoiding paying tax, the Commissioner can attribute the tax
due as the fair market value of the asset on its date transfer to a relation or when the relation is
charged with the tax; whichever value is the greater. All transfers of assets made to a relation not
at arm‘s length within 1 year after the tax becomes due and payable can be set aside if in the
opinion of the Commissioner, the transfers were made with the intention of avoiding recovery of
the tax. A relation includes an individual‘s a near relative and the case of a company, means
another company which, in the Commissioner‘s opinion, is under the same or substantially the
same control or is a member of the same group of companies. If any taxes due and payable by a
partner are still outstanding after his assets in Zimbabwe, other than his interest in the assets of
the partnership, have been excused or taken in execution, such must be collected from the
partnership. However, the tax to be recovered from the partnership shall not exceed the value of
such partner‘s interest in the assets of the partnership. The Commissioner can also recover the
tax by liquidating assets which produced income from which the tax has become due.

319
The Commissioner is also able to institute proceedings for the sequestration order in terms of the
Insolvency Act just like any other creditor. The legislation is amended with effect from 1
January 2019 to make directors or persons who form new companies after abandoning the old
company because of tax debts liable for the tax debts of the old companies.

14.11.6 Power of sale in execution of attached property (Section 33 H RAA)

The Commissioner has not earlier than 3 days or more than 14 days of confirmation of a
provisional attachment order to sale the attached property through a public auction. He must
however give the taxpayer concerned not less than 48 hours written notice of the date and place
of the auction. During this period, a taxpayer may discharge the order by making a payment to
the Commissioner of the amount of the tax or duty, together with any penalty and interest due.
Where the taxpayer has made the payment, the Commissioner may waive the whole or any part
of the costs awarded in to him in terms of the final attachment order. He may also agree terms
for the payment of the amount of the tax or duty due by instalments, subject to him having the
right to recommence proceedings if the taxpayer fails to abide by those terms.

The offer for sale by public auction shall be subject to a reserve sufficient to cover the tax or
duty, together with any interest due and any expenses incurred in connection with the sale. The
Commissioner may however accept a bid that is below the reserve price as he deems adequate or
have the property be sold out of hand or appropriated to the State without compensation. The
sale proceeds shall be applied first in payment of the expenses incurred in connection with the
sale, then the tax or duty due, together with any penalty and interest due, costs awarded in
favour of the Commissioner by the final attachment order and the remaining balance is then
paid to the taxpayer.

14.12 Objection (section 62)

A taxpayer who is unhappy with a decision, an assessment of a determination of the CG has a

right of objection. An objection should be lodged with the CG and reach him within 30 days of
the date of assessment, decision or determination by the CG. It should be in writing and stating
the grounds of objection, otherwise it will be invalid. A taxpayer may only lodge his objection
after expiry of 30 days if he or she can prove to satisfaction of the CG that there exist reasonable
grounds for such a delay.

Upon receiving an objection, the Commissioner can reduce, alter, increase or disallow in whole
or in part the assessed tax or amend the assessment. Whatever he does, he should advise the
taxpayer of his decision. However, if the Commissioner has not responded within 3 months (90
days) after the date of objection, then the taxpayer should consider the objection disallowed. In
such case a taxpayer consider moving forward to another stage as if an objection has been
disallowed. If an objection is disallowed or where a taxpayer is dissatisfied with the decision or
deemed decision of the CG he may appeal to the Fiscal Court of Tax Appeals or High Court. If
no objection of an assessment, decision or determination is made or if made or if an objection is
made and accordingly adjusted, the assessment, decision or determination shall be regarded as
final and conclusive. However, no objection can be laid in respect of assessed loss determined
in respect of the previous tax year.

14.13 Burden of proof in tax cases (section 63)

The burden of proof in tax appeal cases lies on the taxpayer whose rights are violated. The onus
is on a taxpayer in any objection to assessment against any decision of the High Court or its
review or a decision of a tax tribunal, to prove that his or her assessment was excessive or
erroneous. On the other hand, the CG is only required to prove his case on the balance of
320
probabilities. The CG is empowered to make assessment based on his best judgment in case he
is not satisfied with a return of income for a year of income. This burden is excessive to the
taxpayer because he is the one required to keep proper records. He must prove that the
assessment made by the Commissioner is excessive by disproving or refuting the various
propositions of facts and law which the Commissioner has founded the assessment upon.

14.14 Appeals (section 65)

A taxpayer who is unhappy with the decision, assessment or determination may appeal against
such action to Fiscal Court of Tax Appeal or High Court. For an appeal to be valid, it must be in
writing and stating whether the appellant wishes to appeal to the High Court or the Court of
Special Tax Appeals/ Fiscal Court of Tax Appeals. Further, it should be lodged within 21 days
of the date of receiving the CG‘s objection decision and must include a statement of the reason
for the application. Meanwhile, a statement of appeal must be lodged with the Commissioner in
duplicate within 60 days of the date on which notice of appeal is given to the Commissioner.
The Commissioner reserves the right to reject an invalid appeal. The High Court or the Appeal
Court may however, on good cause being shown or by agreement of the parties extend the
period for lodging an appeal.

An appeal which does not meet these requirements is invalid and may not be entertained. The
High Court or the Fiscal Appeal Court may however, on good cause being shown or by
agreement of the parties extend the period for lodging an appeal. The appeal court, upon hearing
the case, it may order an assessment or determination under appeal to be amended, reduced,
withdrawn, confirmed or referred back to the CG for further investigation. The appeal court,
upon hearing the case, the may order an assessment or determination under appeal to be
amended, reduced, withdrawn, confirmed or referred back to the CG for further investigation.

The Appeal Court has all the powers of The High Court. The difference is that the person can
only be represented by a legal practitioner in the High Court, whereas in the Appeal Court
parties may also be representation by non-legal practitioner. However legal practitioners are
permitted in both courts. Any person representing a taxpayer should be appointed in writing,
while a person representing the Commissioner should be authorized by him.

A person who is dissatisfied with the decision of the Appeal Court may appeal to the Supreme
Court. The appeal to the Supreme Court can only be made on any grounds which involve a
question of law alone or with the special permission of the court on any ground which involve a
question of fact alone or involving a question of law and fact.

14.15 Appeal to the Supreme Court

A person who is not happy with the outcome of an appeal may appeal to the Supreme Court.
His/her appeal is limited to a decision made where it is clear that laws and regulations have been
improperly applied. It may also relate to a question of fact alone or question of mixed law and
fact, if consent has been granted by the High Court, the Special Court or with the leave of the
Supreme Court.

14.16 Payment of tax pending appeal (section 69)

Taxpayers must first make payment to ZIMRA on assessment and then to pursue their various
remedies against ZIMRA. Disputing a tax claim by a taxpayer does not automatically suspend
obligation to pay but application can be made to Commissioner for suspension (Metcash
Trading Limited v Commissioner for SARS and Another (2000) 62 SATC 84). The taxpayer can
321
however apply to the Commissioner to waive payment until the outcome of the objection or
appeal.

However, a taxpayer may request the Commissioner to suspend the payment of tax or a portion
thereof due under an assessment if the taxpayer intends to dispute or disputes the liability to pay
that tax. If the Commissioner decides not to grant the request for suspension of payment, a
taxpayer cannot object and appeal against such decision. However, the exercise of the power
granted to ZIMRA to approve or refuse a request for a suspension of payment constitutes
administrative action and is therefore reviewable by a court in terms of the principles of
administrative law.

14.17 Shamming of tax evaders

Section34 (A) (8) & (9) of the RAA outlaws the preservation of secrecy on matters of tax
evaders, by allowing their names to be published. A tax offender is defined as a person who is
convicted of a tax offence (―the offender‖) in respect of which all appeal or review proceedings
relating to the offence have, within the period allowed, been completed or not instituted (or,
having been instituted, have been abandoned). The following are the particulars of the taxpayer
to be published:

 the name and area of residence of the offender, and

 any particulars of the offence that the Commissioner General thinks fit; and
 the particulars of the fine or sentence imposed on the offender; and
 any other particulars in so far as they relate to a tax offence committed by the offender.

According to s34 (A) (9) ―tax offence‖ means smuggling or any other offence against any of the
following Acts:
 Betting and Totalizator Control Act [Chapter 10:02]
 Capital Gains Tax Act [Chapter 23:01]
 Customs and Excise Act [Chapter 23:02]
 Income Tax Act [Chapter 23:06]
 Income Tax (Transitional Period Provisions) Act [Chapter 23:07]
 Stamp Duties Act [Chapter 23:09]
 Tax Reserve Certificates Act [Chapter 23:10]
 Value Added Tax Act [Chapter 23:

14.18 Offsetting taxes

Taxpayers are allowed through s34D of the Revenue Authority Act to offset their tax obligations
with refunds from ZIMRA. It empowers Commissioner General to withhold taxpayer‘s refunds
for purposes of offsetting them against VAT, PAYE, Income tax, and etc. due from the taxpayer.

Conclusion

Taxpayers must know the extent of the Commissioner‘s powers in terms of the Income Tax Act.
This can only be done through an examination of the provisions relating to the relevant sections
of the Act. It must, however be noted that the Act has given the Commissioner generally wide
powers to enable all taxes due to be collected to the fiscus. However, sight must not be lost of
the taxpayer‘s safe havens in section 68 of the Constitution, section 3 of the Administrative
Justice Act and other provisions of the Act which ensure that the rights of the taxpayer are
properly observed.
322
Exam bank
1. Kona Maombi (17 marks =25.5 mins)
Kona Maombi is first year tax student. He is requiring assistance with the following questions.

a. List the 4 situations in which an employer is subject to penalties or imprisonment in relation

to pay as you earn issues (4 marks).
b. List any 4 types of assessments that may be made by ZIMRA (2 marks).
c. Briefly state the right to object of the taxpayer (in terms of time).(2 marks)
d. To whom may a person aggrieved by the outcome of an objection appeal to and within what
time period? (2 marks)
e. What is meant by Self-Assessment? When is Self-Assessment applicable? (2 marks)
f. The Income tax stipulates that an appeal against an assessment should state the grounds of
the appeal‖. With reference to the above statement, briefly explain what you understand by
the term ―grounds of appeal‖. (2 marks)
g. State the circumstances under which ZIMRA under the Income Tax Act may issue an
estimated assessment. (3 marks)

2. Prosper & Last (Pvt) Ltd (35 marks =52.5 mins)

You are Tadiwa Masikati of Prosper & Last (Pvt) Ltd. You have recently been appointed to act
for Hoya Ltd. You have had a telephone conversation with Isaac Doro, the new finance director
of Hoya Ltd. He informed you that, in the past, the company incurred a number of penalties and
interest charges due to the late payment of tax and late filing of corporation tax returns. Isaac has
requested that you write to him detailing the corporation tax obligations of the company and any
consequences for failing to meet them. In your letter to him you must:

(a) State the due dates for submitting corporation tax returns.
(b) State the due dates for the payment of corporation tax.
(c) State penalties for late submission of tax returns and how these may be avoided.
(d) Briefly explain the implications for tax not paid on the correct date.
(e) State the time limits for ZIMRA to open enquiries on corporation tax returns.
(f) Explain the dispute resolution procedure, pointing out the valid essentials of a valid
objection (4 marks)

3. Bullock (Pvt) Ltd (16 marks = 24 mins)

Bullock (Pvt) Ltd was incorporated in 2013 as manufacturer of ―plastic and metal containers‖
for the dairy industry in Zimbabwe and is a retail company which is experiencing significant
growth in demand of its products. The company has complied with the Indigenisation and
Empowerment Act, and is owned 21% by Mr Maringa (a resident) and 30% Yellow (Pvt) Ltd (a
local company) and 49% by Scorch (Pvt) Ltd, foreign company.

The following are its results for the year ended 31 December 2019.

Notes $
Turnover 800,000
Less cost of sales 500,000
Gross profit 300,000
Add Other Income 1 30,000
323
330,000
Less Operating costs 2 220,000
Net profit before tax 110,000
Tax 30,000
Net profit after tax 80,000
Dividend paid 3 50,000
Retained income 30,000

1. Other Income

Deposit interest received (net of WHT) 5,000

Rental from a Malawian fixed property 7,000
Dividend received from a local company 10,000
Dividends received from a Irish company 8,000

2. Operating costs.

Salaries and wages 141,000

Advertising costs 50,000

Donation 18,000
Traffic fines 4,000

Staff Christmas party 2,000

Client entertainment 3,000
220,000

3. The dividend was paid out on 20 December 2019.

Required

a) Briefly explain how a dividend from Irish should be treated (2 marks).

b) State how the dividend paid by the company to its shareholders will be treated for tax
purposes, show computation (6 marks)

c) Explain the basis of taxing rentals from fixed property in Zimbabwe and show how much
tax is due on rentals from Malawi property (2 marks).

d) Prepare the company‘s minimum taxable income for the year ended 31 December 2019 (6
marks).

4. Tasha Guni (12 marks=18 mins)

Tasha is a computer programmer. Until 28 February 2019 she was employed by Wan Computers
plc, since then she has worked independently from home (acting in the capacity of an MD).
Tasha's income for the year ended 31 December 2019 is $60,000. All of this relates to work
done for Wan Computers plc. Her expenditure for the year ended 31 December 2019 is as
follows:

a. The business proportion of light, heat and telephone for Tasha's home is $880.

324
b. Computer consumables were purchased on 6 April 2019 for $4,000.
c. Tasha purchased a motor car on 1 January 2019 for $15,000 with engine capacity of 2200cc
(capital allowances $2,500).
d. Motor expenses for the year ended 31 December 2019 amount to $5,200, of which 40%
relate to business use of the vehicle. The other 60% relate to private mileage. The expenses
were refunded by the company.

Required:

a) List eight factors that will indicate that a worker should be treated as an employee rather
than as self-employed. (4 marks)

b) Calculate the amount of taxable trading profits if Tasha is treated as self-employed during
2019 (4 marks).

c) Calculate the amount of Tasha's taxable earnings if she is treated as an employee during
2019. (4 marks)

5. Kutenda Maluku (23 marks =34.5 mins)

Kutenda Maluku, a widow aged 56, is employed as a mental health coordinator in the Ministry
of Health and Child Welfare. In October 2020 she was involved in an accident while travelling
to South Africa for a mental health seminar. The accident has caused her to be wheelchair
bound. Kutenda has approached you for assistance in computing her taxable income for the year
ended 31 December 2020.

Employment earnings and deductions for the year:

Compensation from NSSA for permanent injuries 12 000

Salary (PAYE $87,800) 284 000
Representation allowance 50 000
Housing allowance 56 000
Encashment of leave days 80 000
Bonus 70 000
Pension contributions 38 000
Retirement annuity fund contributions 50 000
Medical aid contributions 24 000
Travel allowance 90 000
Subscriptions to the Spinal Injuries Association 8 000
Widow‘s pension received 96 000
Medical shortfall 9 860

Kutenda had free use of a Government vehicle, a Volvo with an engine capacity of 2200cc,
during the course of the year.

Other income received:

Rental income and deductions in respect of a house being managed by a Real Estate:

Gross rent received 88 000

Estate agent‘s management fees 12 000
Repairs and maintenance 8 500

325
Rates and security 1 900
Construction of a lock up garage and driveway 54 000
Mortgage bond repayment 65 000
Interest paid on mortgage bond 22 000
Insurance premium for the property 7 000

Other investment income:

Interest received from Bankers‘ Acceptances with Zimbabwean Bank 45 000
Interest received from a Building Society 60 000
Dividends received from a Zimbabwean listed company (gross) 35 000

Required:

a) Identify those items of income in respect of which Kutenda Maluku‘s tax liability will be
satisfied by final withholding tax and state the rate of withholding tax applicable. (3 marks)

b) Compute Kutenda Maluku‘s taxable income from employment in respect of the tax year
ended 31 December 2020. (12 marks)

c) State and quantify the tax credits that Kutenda Maluku can claim against the tax payable by
her on this income. (2 marks)

d) Compute Kutenda Maluku‘s taxable business income in respect of the tax year ended 31
December 2020. (6 marks)

6. BabyToy (Pvt) Limited (14 marks =21 mins)

BabyToy (Pvt) Ltd manufactures toys and computer games for children. Its profit and loss
account for the year ended 31 December 2019 is as follows:
Note $000 $000
Sales 429 000
Less: Cost of sales 1 (367 530)
61 470
Add: Other income 2 400
61 870
Less: Expenses:
Remuneration 3 2,970
Professional fees 4 320
Entertainment expenses 5 660
Bad debts 6 1 700
Lease rental 7 160
Repairs and maintenance 8 1 080
Foreign exchange 9 (950)
Fines 10 180
Donations 11 3 360
Miscellaneous losses 12 100
Depreciation 1 560 (11 140)
Net profit before tax 50 730

Notes:

326
1. Cost of sales includes toys costing $380 000 donated to an approved orphanage on 13
September 2019. The normal selling price was $420 000.

2. Other income is in respect of rent derived from a property in Namibia and received in
Zimbabwe in July 2019

3. Remuneration includes:

 Entertainment allowance of $35 000 paid to the managing director and the general manager.
 Employees Provident Fund (EPF) contributions of $755,000 made by the company in
respect of its 10 employees.
 Cost of maintaining a holiday bungalow in Nyanga used by senior executives of the
company, $450 000

4. Professional fees comprise:

Registration of the company‘s new trademark 55 000

Legal fees on compensation claim by a dismissed employee 36 000
Non-trade debt collection expenses 17 000
Accounting and auditing fees 82 000
Income tax appeal (case lost) 90 000
Feasibility study for expansion of operations in Japan 40 000
320 000
5. Entertainment expenses comprise:

Entertainment of suppliers 400 000

Staff lunches and refreshments 80 000
Promotional gifts (own product i.e. computer games) 60 000
Subsidy for customer purchase* 120 000
660 000

* During the year, the company implemented a promotional campaign whereby customers are
allowed to buy an electronic toy at $1 for every computer game purchased. The actual cost to the
company was $5.

6. Provision for doubtful debts (trade)

Balance as at 1 January 2019 2 200 000

Add: Provision for the year 400 000
Less: Amount written off (900 000)
Balance as at 31 December 2019 1 700 000

7. Lease rental comprises the rental paid for three motor vehicles for use by the salesmen. The
salesmen are allowed to take the cars home. The lease rentals paid were as follows:

Year 2017 2018 2019

Honda CVR 20 000 20 000 70 000

Toyota Ipsum 10 000 20 000 60 000
Nissan Sunny 20 000 60 000 30 000
Total 50 000 100 000 160 000

8. Repairs and maintenance expenses comprise:

327
Replacement of office glass doors 260 000
Replacement of component parts of machinery 40 000
Cleaning and repainting of factory premises 300 000
Cost of office computers 480 000
1 080 000
9. Foreign exchange comprises:

Realised gain on payments made to trade creditors (1 400 000)

Unrealised loss on trade creditors 550 000
(950 000)

10. Fines for late payment submission of VAT returns 180 000

11. During the year, Baby Toy Ltd made the following donations:

Provision of a wheel chair to a disabled employee 85 000

Sponsoring a local cultural show approved by the Minister of Youth and Sport 280 000
Cash donation to the NUST for research contribution
Approved by Higher & Tertiary Education Minister 1 240 000
Donation of a painting to the National Art Gallery (market value) 650 000
Cash donation to a Public Private Partnership Fund 1 105 000

12. During the year, Toy Ltd incurred the following miscellaneous losses:

The shareholder‘s nephew who is employed as his shop assistant embezzled $30 000. The nephew
apologized for his misdeed and remained as the shop assistant.

The Managing director reported a loss of $70 000 to a snatch thief during her trip back from the
bank, having withdrawn $70 000 comprising $50 000 wages to pay her staff and $20 000 from her
personal savings for personal expenditure.

Required:

a) State, with brief explanations, whether or not the loss of cash under each of the
circumstances outlined in note 12 above are tax deductible (2 marks).

b) Compute the tax payable of BabyToy (Pvt) Ltd for the tax year ended 31 December 2019
(12 marks).

7. Crossfire Plc (19 marks =28.5 mins)

Crossfire Plc.is a manufacturer of machine tools. The following information is available for the
year ended 31 December 2018:

Trading profit

The tax adjusted trading profit for the year ended 31 December 2018 is $2,138,415. This figure
is before making any deductions required for:
 Interest payable
 Capital allowances.

328
 Any revenue expenditure that may have been debited to the company‘s capital expenditure
account in error and all other items listed below.

Interest payable

During the year ended 31 December 2018 Crossfire Plc. paid interest of $22,500. Interest of
$3,700 was accrued at 31 December 2018, with the corresponding accrual at 31 December 2017
being $4,200. The loan is used for trading purposes.

The company also incurred a loan interest expense of $6,800 in respect of a loan that was used
for non-trading purposes.

Capital expenditure account

The following items of expenditure have been debited to the capital expenditure account during
the year ended 31 December 2018:

 February 2018 Purchase of a second-hand freehold office building for $378,000. This figure
included $11,000 for a ventilation system and $12,000 for a lift. Both the ventilation system
and the lift are integral to the office building. During February 2018, Crossfire Plc. spent a
further $97,400 on repairs. The office building was not usable until these repairs were
carried out, and this fact was represented by a reduced purchase price.

 26 March 2018, purchase of machinery for $61,600. During March 2018 a further $7,700
was spent on building alterations that were necessary for the installation of the machinery.
The machinery will be used no more than 16 hours a day.

 August 2018, a payment of $41,200 for the construction of a new decorative wall around the
company‘s factory premises.
 27 August 2018, purchase of movable partition walls for $22,900. Crossfire PLC uses these
to divide up its open plan offices, and the partition walls are moved around on a regular
basis.

 18 November 2018, purchase of Double Cab car costing $24,000. This car is used only for
business purposes.

 28 January 2018 Purchase of a computer costing $2,500. This computer has an expected
working life of 5 years.
 December 2018, purchase of two motor cars each costing $17,300. One motor car is used by
the factory manager, and 60% of the mileage is for private journeys. The other motor car is
used as a pool car, mostly to transport staff.

Written down value

On 1 January 2018 the tax written down value of plant and machinery was $87,800.

Property income

Since 1 February 2018 Crossfire Plc. has let out a freehold office building that is surplus to
requirements. On that date the tenant paid the company $78,800, consisting of a premium of
$68,000 for the grant of a six-year lease, and the advance payment of three months‘ rent.

329
Interest receivable

Crossfire Plc. made a loan for non-trading purposes on 1 May 2018. Loan interest of $9,800 was
received on 31 October 2018, and $3,100 was accrued at 31 December 2018.
The company also received bank interest of $2,600 during the year ended 31 December 2018.
The bank deposits are held for non-trading purposes.

Disposal of office building

On 20 February 2018 Crossfire Plc. sold a freehold office building for $872,000. The office
building had been purchased on 13 June 2014 for $396,200 (including legal fees). During June
2015 the office building was extended at a cost of $146,000, and during the same month the
company spent $48,000 replacing part of the office building roof following a fire. Crossfire Plc.
incurred legal fees of $28,400 in connection with the disposal.

Quarterly instalment payments

Crossfire Plc. makes quarterly instalment payments in respect of its corporation tax liability. The
first three instalment payments for the year ended 31 December 2018 totaled $398,200.

Please note that during the year (2018) Crossfire paid its income tax for the three QPDs in
foreign currency, in the last QPD which was paid on 22 December 2018, was paid in RTGS
following the government directive to separate foreign currency accounts (bank accounts) and
RTGS accounts.

Required

a) Comment on the income tax implications of Crossfire paying its Fourth quarter QPD in
RTGS. (4 marks)

b) Comment on the tax treatment of each of expenditure items (second hand freehold office
building). (3 marks)

c) State how each of the items shown under ―disposal of office building‖ would be treated for
tax purposes (4 marks).

d) Calculate Crossfire Plc.‘s corporation tax liability for the year ended 31 December 2018. (10
marks)

e) Based on the projection, calculate the final quarterly instalment payment that will have to be
made by Crossfire Plc. for the year ended 31 December 2018, and state when this will be
due. (2 marks)

8. Board Markers (Pty) Ltd (25 marks =35 mins)

Board Markers (Pty) Ltd commenced board marker manufacturing business in Zimbabwe in
2012. The company has a 31 December tax year end. During the current year it made a net profit
before tax amounting to $456,800.

On 30 October 2019, the company acquired a machinery from India for $447,000, before
customs duty and VAT, to augment the existing plant. The machine was released on 2

330
November 2019 from a Customs and Excise bonded warehouse. The customs duty payable
thereon was $145,800 and VAT chargeable was $88,920. Upon settlement on 2 November 2019,
it incurred a foreign currency exchange loss of $3,000.

In a bid to increase presence of its products in the Far East, Board Markers (Pty) Ltd incurred
the following marketing expenses (the expenses were deductible in arriving at the net profit):
Sales monitoring equipment 5,550
Advertisement in Singapore (local paper) 8,000
Participating in Indian Trade Far 56,000
Exhibiting of its goods on Japan Auction floor 23,450

Included in the net profit is $6,000 loss from disposal of an Isuzu double cab used by the
company finance manager, for $280,000. The car originally cost US$42,000 when purchased in
2017. On the same day, it purchased a new car for $370,000 to be used by the company‘s sales
manager.

The following is the breakdown the company‘s sales units by market, actual 2019 and forecast
2020:

Far
Local East SADC region Total
Sales 2019 460 230 40 730
Forecast sales 2020 400 200 340 940

Following the rationalization of its operations, the finance director of Board Markers (Pty) Ltd
predicated a surge in taxable income to $746,667 in 2019 and by 2% p.a. from 2019 onwards.

Board Markers (Pty) Ltd deducted the following in the computation of its net profit:

Fine for dumping defective manufactured goods 10,000

Valuation of warehouse for insurance 33,000
New manufacturing license 59,000
Advertising for share offer 1,000
Debt collection expenses 7,000

Bad debts re salary advance to deceased employee 2,000

Provision for bad debts 15,000

Voluntary annuity paid to former employee 8,000
Tax health check conducted by local accounting firm 12,000
Subscriptions for payroll and accounting packages 3,000

The company is tax compliant, up to 1 December 2019 it had paid provisional tax amounting to
$79,900.

Required:

a) Comment of sale of motor vehicle in Zimbabwean Dollar when its acquisition was in United
States Dollar and compute recoupment if any. (4 marks)
b) Calculate the fourth provisional tax payment that Board Markers (Pty) Ltd has to make for
the 2019 year of assessment to avoid any liability for interest and state when it should be
paid (2 marks).

331
c) Briefly explain the income tax provisions relating to Far East expenditure stated above (3
marks).

d) Compute the provisional tax to be paid in 2019, clearly stating when the tax should be paid
(4 marks).

e) Compute the taxable income and tax payable by Board Markers (Pty) Ltd for the 2019 year
of assessment (12 marks).

9. Tax Matrix (Pvt) Ltd (15 Marks 22.5 mins)

You are a first year intern at Matrix Tax School one of the leading tax schools in Zimbabwe.
One of its client, Tax Matrix (Pvt) Ltd (TM) has brought the following queries for your attention
which they need assistance with:

Query 1:

TM has just recently entered an arrangement with Matrix Advisory Services Ltd (MAS) a sister
company in Zambia for a staff exchange programme, where the companies would second
employees to each other over an agreed period of time.

In terms of the agreement, TM will send two employees to work for MAS in Zambia from 1
March 2019 up to 30 June 2019. During the employees stay in Zambia, MAS will be responsible
for paying all their salaries and related benefits.

MAS will second two of their employees to TM in Harare from 1 March 2019 to 30 June 2019.
During this period TM will be responsible for paying their salaries and related benefits.

Mr. Moyo the Associate Director at TM has requested for advice in respect of the income tax
implications to the affected employees of the above proposed employee exchange program.

Query 2:

In the month of July 2019 TM hosted an employee fun day to celebrate its 5th anniversary.
During the celebration ceremony all employees received grocery hampers as a thank you for all
the wonderful years of service to TM. The human resources manager is not sure whether these
hampers constitute gross income in terms of the income tax act in the hands of the employees
since there was no actual transfer of money to the employees. He is therefore requesting your
advice on the above matter.

You are required to write a memorandum to your manager for the attention of TM, your
memorandum should address tax implications arise from the queries

10. Drake Group (23 marks =34.5 mins)

Drake Group is a computer chip manufacturing company in Zimbabwe. The group is comprised
of, Drake Ltd and Drake 2. Drake Ltd has 60% voting rights in Drake 2. Drake 2 generated a
loss of $75,000 (net of deductible expenses, but before recoupment) in the year to 31 December
2020. Drake Ltd generated a profit of $105,000 for the same period. On the 29 December 2020
the board of Drake Ltd made a resolution to rationalize its operations, accordingly it made an
agreement to dispose all Drake 2 assets to Drake Ltd.
332
The following was extracted from the books of Drake 2 for the year of assessment 2019:

Acquired in the year Qualifying Cost ITV Market value

31 December

Industrial building (constructed 2018) 2,000,000 1,000,000 2,300,000

Production plant 450,000 nil 564,000
Computers 15,000 nil 16,500
Commercial vehicles 2019 120,000 90,000 102,000

The following expenses were deductible in arriving at Drake Ltd profits

1. The company had a cash loss of $45,000 as a result of embezzlement by a shop assistant. The
MD reported a loss of $25,500 to a snatch thief during her trip back from the bank, having
withdrawn $25,500 comprising $15,000 wages to pay her staff and $10,000 from her personal
savings for personal expenditure.
2. Drake Ltd removal costs include the following:
Transport cost to relocate Drake 2 fixed assets (see below) ……….......................... 7 500
Removal of rubbish from Drake Ltd premises …...................................................... 3 000

The transport cost to relocate the Drake 2 assets to the new premises was paid on 1 June
2020.

3. The following legal and miscellaneous were incurred and deductible in arriving at Drake Ltd
profits:

Site investigation for new building 12,700

Drafting and registering a mortgage on the new building 1,500
Drafting purchase agreement for the new building 3,000
Filing a lawsuit against a supplier for breach of contract 3,500
Annual audit fee 9,000
Lease of Isuzu Double cab used by Finance Manager (ignore VAT) 122,500
Amortization 43,000
Golf club membership dues for the MD to entertain suppliers 2,000

Required

a. Explain the group relationship that must exist in order for two or more companies to form a
group for capital gains purposes. (2 marks)

b. State the time limit for transferor and transferee to make a joint election to transfer the
capital gain on disposal of specified asset and explain why such an election will be
beneficial (3 marks)

c. Briefly explain how the taxes can be avoided on sale of assets by Drake 2 to Drake Ltd. You
are also required to compute Drake 2 income tax and capital gains tax as if measures to
avoid tax has not been made (14 marks)

d. Briefly explain the income tax provisions relating to trafficking of shares with assessed loss,
the loss expiry provisions and whether Drake Ltd can utilise Drake 2‘s assessed loss (4
marks).
333
e. State, with brief explanations, whether or not the loss of cash under each of the
circumstances outlined above is an allowable deduction in computing the adjusted income of
the business (3 marks).

f. Under what other circumstances is loss resulting from theft disallowed (3 mark).

g. State, with brief explanations, whether or not the removal costs under each of the
circumstances outlined above is an allowable deduction in computing the adjusted income of
the business (2 marks).

h. Compute Drake Ltd‘s minimum taxable income ( 8 marks)

11. HR Consultants (15 marks=22.5 mins)

Nyasha and Nancy commenced partnership, trading as HR Consultant, on 1 June 2018. Nancy
has vast experience in HR issues having been employed by various companies as human
resources practitioner home and abroad. Nyasha is a former trade unionist and has a bachelor of
administration. When they formed the partnership it was agreed that Nyasha will take a third of
the partnership profits, while Nancy will take the remainder. For extra roles as an administrator
Nyasha will be paid annual salary of $12,000, Nancy takes no salary but enjoys unlimited use of
the partnership vehicle whose cost of maintenance and fuel to the partnership is $9,000 p.a. The
vehicle, whose engine capacity is 2700 cc, is used 20% for partnership business by Nancy.

The partnership has one employee, Miranda, who commenced employment with the partnership
after graduating from the University of Science and Technology (Nust). She joined the
partnership on 2 August 2018 at annual salary of $15,000.

Owing to irreconcilable differences with Nyasha, Nancy decided to quit the partnership on 1
June 2019 and Miranda was introduced as a new partner on that date. From 1 June 2019, the
profits are apportioned between Nyasha and Miranda as follows:
Annual salary, $ Balance, %
Nyasha 37,000 60
Miranda 34,000 40

On that date Nyasha gave up the car, when she made the decision to take a salary

The pre-capital allowances annual profits of the partnership amounted to $275,000.

Capital additions and disposals in the two-year period were as follows:

1 May 2018 IT equipment purchased 6,000

10 June 2018 Office furniture purchased 3,500
23 June 2018 Isuzu KB (for use by Miranda) purchased 45,000
17 May 2019 Ford Mondeo purchased (for Nyasha) 172,500

The Isuzu which was being used by Miranda was involved in an accident and was sold as scrape
on 3 January 2019 for $38,000; the profit on its disposal amounting to $5,600 is incorporated in
pre-capital allowances profits stated above.

For purposes of determining the partners‘ taxable income expenditure should be apportioned on
time basis.

334
The following items which were incurred after 1 June 2019 have not been incorporated into the
pre-capital allowance profit stated above:

a) The partnership paid $40,000 to Nyasha as a voluntary payment on 31 July 2019

b) Partnership made contributions on behalf of the partners to a registered Provident Pension
fund i.e. $98, 000 for Nyasha and $88, 000 for Miranda.
c) Partnership made contributions on behalf of the partners to CIMAS medical aid society i.e.
$1,800 for Nyasha and $2,050 for Miranda.
d) In October 2019 Miranda attended a trade mission in USA, which was approved by
Minister of Finance; the mission cost $89, 000 and was paid for by the partnership.
e) The partnership paid $600 for Nyasha‘s life policy ceded to the partnership, $780 for joint
life policy of Nyasha and Miranda, $500 for Miranda‘s separate and $900 for public
liability policy.

The partnership has no capital allowance policy.

Required

a. Compute partnership joint taxable income for the tax year ending 31 December 2019 (8
marks)

b. Compute tax payable by partners for the year ending 31 December 2019 ( 7 marks)

12. Sakurai Farm (Pvt) Limited (10 marks=15 mins)

Sakurai Farm has been farming in Mutepatepa for the last couple of years. During the current
year the area was seriously affected by drought and Sakurai Farm was forced to sale 102
livestock. Being 50 cows sold for $15,000 and 52 oxen sold for $14,500. These figures are
already incorporated in the annual net profit figure of $60,000. On 30 December 2019 when the
pastures improved the Sakura Farm purchased 30 cows, 40 tollies, 34 heifers and 16 calves, for
$10,200 in order to replace those depleted by drought. The cost of these livestock was
incorporated in the profit figure stated above.

Stock on hand at the beginning of the year is as follows:

Herd Number FSV ($ each) PPV ($ each)

Heifers 200 200
Tollies 100 190
Oxen 95 180
Bulls 5 750
Cows 130 195
Calves 110 100

During the year 10 calves were born, 15 calves became heifers and 5 of them became tollies, 3
tollies became oxen.

The ACCL of the farm is 610 livestock and the total livestock expenses for the year amounted to
$60,000.

Sakurai (Pvt) Ltd claimed depreciation amounting to $5,500 in respect of the following capital
expenditure incurred during the 2019 year of assessment:

335
Standby power generator 6,500
Tractor 45,500
Dam 30,000

The cost of the foundation for the standby generator amounts to $500 and is not included in the
cost of $6,500. The foundation is regarded as being integrated with the generator and its useful
life is limited to that of the generator. The generator was purchased on 1 December 2019 and
brought into use on 1 January 2020 once the foundation had been laid.

The dam was incomplete as at year end.

The company minimises its tax benefits:

Required:

a) Prepare a livestock reconciliation account for the year end 31 December 2019. Note, stock
valuation is not required (3 marks)

b) Calculate the taxable income by Sakurai Farm for the year ended 31 December 2019 (7
marks)

13. GAAP Poultry Group (GPG) (10 marks=15 mins)

GAAP Poultry Group (GPG) is contemplating disposing Green Farm together with the
improvements thereon for purposes of raising capital to finance group operations. Green Farm is
a wholly owned subsidiary of GPG. The group has identified a buyer who is willing to buy the
assets of Green Farm (Pvt) Ltd and the price has been agreed at $1.7 million, broken down as
follows:

Asset Cost Income Tax Market

value values
Farm school July 2015 100,000 8,500 150,000
Tobacco barns Feb 2015 300,000 Nil 400,000
Fencing bought April 2015 40,000 Nil 50,000
Communal dam May 2017 200,000 Nil 300,000
Farm Jan 2015 120,000 n/a 800,000

Decision to dispose is being made on 1 February 2019

Required:

a) State any tax relief available if the assets were to be sold within the group (3 marks)

b) Calculate the income tax payable by Green Farm, in the absence of any tax dispensations on
the disposal of the business assets (2 marks).

c) Calculate the Capital Gains tax payable by Green Farm, in the absence of any tax
dispensations on the disposal of the business assets (5 marks)

14. Charles Carling (15 marks = 22.5 mins)

336
Charles Carling, a widower, aged 53, was diagnosed with a terminal illness on 24 February
2019. He decided to prepare well for his fate and move into a retirement home at Athol Evans
Hospital in Harare.

On 15 March 2019, Charles sold his entire shareholding of 30 000 shares in Cahoots Holdings, a
listed company. The shares were quoted at $45 a share on the date of sale and had been
purchased as follows:
Number of shares Date purchased Total cost
15 000 23 April 2014 150,000
15 000 28 July 2015 375,000
.
Charles paid a stock brokerage commission of 1·5% on the consideration amount in connection
with this transaction.

On 31 March 2019, Charles further disposed of his 20 000 shares in Muhute Group Limited, an
unquoted company. He sold 10 000 of these shares for $100,000 and donated the other 10 000
shares to Hope Alive children‘s home for the terminally ill children. The 20 000 shares had all
been purchased on 25 May 2015 for $80,000.

On 10 April 2019, Charles sold his residential house in Mabelreign, Harare for $830,000 and
immediately purchased his retirement home at Athol Evans Hospital for $500,000. The
Mabelreign house had been acquired on 19 May 2016 for $250,000 and Charles had effected
improvements to the property at a cost of $45,000 in January 2017.

Charles incurred the following expenses in connection with the disposal of the Mabelreign
property:

Estate agent‘s commission 43,000

Transfer fees 6,450

Required:

a) Calculate the applicable withholding tax payable by Charles on all his disposals (3 marks).

b) Calculate Charles‘s capital gains tax payable/ (refundable) as a result of the disposal of the
shares (5 marks).

c) Calculate the tax payable/ (refundable) by Charles in connection with the sale of his
principal private residence on the assumption that he minimises his tax liability (7 marks).

15. JMO Limited (15 marks = 22.5 mins)

JMO Limited has been operating a manufacturing business in Zimbabwe since 1945. However
due to the harsh economic environment in Zimbabwe exacerbated by gazetting of SI 33 of 2019
through the Presidential Powers (Temporary Measures), the company was unable to continue in
business. It closed its business on 20 April 2019 after securing a buyer of its only asset, the
manufacturing building situated in Workington area in Harare. This building was constructed in
2011 for US$ 500,000 when JMO Limited relocated from Gweru in that year. Its lawyers have
drafted a sale agreement showing US$ 800,000 as the selling price for the manufacturing
building. The agreement was concluded on 22 May 2019 after the buyer agreed to settle this
amount as follows:

337
50 % in 2019
40% in 2020
10% in 2021

Over the years JMO Limited‘s strategy has always been to minimize its payments to the
Zimbabwe Revenue Authority and wishes to continue with this policy as long it does not result
in breaching country laws.

The company reports its transactions in the functional currency which is the Zimbabwe dollar
and transactions in foreign currency are converted using the interbank bank rate. The interbank
rate on date of agreement (22 May 2019) was ZWL$ 3.5 to US$ 1.

You are required to:

a) Advise JMO limited on the currency of remittance its taxes to ZIMRA. (3 Marks).
b) Compute capital allowances claimed to date and the Income Tax value (ITV) of the asset as
31 December 2018 (4 marks)
c) Compute JMO Limited‘s income tax arising from the disposal of its manufacturing building
(5 marks )
d) Compute JMO Limited‘s capital gains tax liability if any (3 marks)

16. Lawson (Pvt) Limited (19 marks=28.5 mins)

Lawson (Pvt) Limited has two branches, in Gweru and Harare. The Gweru branch generated a
profit of $75,000 (net of deductible expenses) in the year to 31December 2018. The Harare
branch generated a profit of $105,000 for the same period. On the 29 December 2018, Lawson
(Pvt) limited decided to close Gweru Branch due to viability problems, when it opened another
branch in Asipindale, Harare, and moved all the Gweru equipment which it could not sale.

The following was extracted from the books of Gweru branch for the year of assessment 2018:

Acquired in the year Qualifying Cost ITV

31 December

Industrial building 2014 2,000,000 nil

Production plant 2014 450,000 nil
Computers 2015 15,000 3,750
Commercial vehicles 2017 120,000 90,000

Lawson (Pvt) Limited acquired a new production plant for $647,000 after disposing the existing
plant for $550,000 on 30 December 2018. Upon settlement, Lawson incurred a foreign currency
exchange loss of $3,000 which was taken to expense in the next financial year.

338
Lawson realised $2,900,000 from the sale of Gweru industrial building. It used $1,500,000 of
the proceeds to purchase another industrial building in Asipindale. It paid the conveyancer
$190,000 for facilitating the sale of this property.

On 2 June 2018 Harare branch‘s finished goods warehouse which was acquired in 2016 at a cost
of $800,000 was destroyed by fire. The branch had the building insured against fire, accordingly
on 6 October 2018 the branch received $950,000 from its insurers and is contemplating using
$750,000 towards construction of similar building, which is due to be completed by 2 January
2019.

Required:

a) Briefly explain the tax treatment of proceeds from disposal of Harare branch‘s finished
goods warehouse (3 marks).

b) Compute Lawson (Pvt) Limited‘s minimum income tax liability for the year ended 31
December (7 marks)

c) Compute Lawson (Pvt) Limited‘s capital gains withholding tax and state when it should be
remitted to ZIMRA. (3 marks)

d) Compute capital gains tax payable by Lawson (Pvt) Limited, if any, taking into account the
withholding tax you computed in b) above (6 marks)

17. Mr. Shiri (15 makes= 22.5 mins)

Mr. Shiri left his employment in December 2018 to set up his own business as a computer and
IT consultant. He commenced trading in January 2019 through a limited company called Bird
Computers Ltd and he is the sole director. Mr. Shiri has provided you with the following
financial information about the company:
The company‘s turnover in period January to November 2019 was as follows:
Jan $3,500 Jul $7,200
Feb $4,500 Aug $7,300
Mar $6,000 Sept $7,800
Apr $6,500 Oct $7,900
May $7,800 Nov $8,200 (estimate)
June $6,600

Mr. Shiri instructed an accountancy practice to prepare a business plan for the company and the
invoice for this was issued in December 2018 in the sum of $500 plus $75 VAT. Mr. Shiri was
subsequently reimbursed by the company. The company purchased a computer in January 2019
for $2,000 plus $300 VAT for use in the consultancy business.

Mr. Shiri advised ZIMRA in January 2019 that the company had commenced trading but has not
registered for VAT, believing that this will be dealt with at the end of the first years‘ trading.
The company works mainly for private individuals and small businesses, which pay on
completion of the work. A couple of larger clients have requested VAT invoices. The company
has therefore issued two invoices in August showing VAT amounts of $750 and $900, although
these do not show any VAT number. The company intends to pay this VAT to ZIMRA once the
company‘s VAT position is settled.
One of these customers has advised Mr. Shiri that the company‘s procedures in relation to VAT
are incorrect and Mr. Shiri has asked for a meeting with you to discuss the company‘s VAT
position.
339
Required:

a) Briefly explain how VAT incurred prior to incorporation and prior to registration is treated
(4 marks)
b) State the company‘s effective date of VAT registration and calculate the estimated net VAT
due to 30 November 2019. (8)
c) Calculate the estimated amount of any potential penalties in relation to the failure to register
for VAT, on the assumption that the company notifies ZIMRA of its liability to register at
the end of November 2019 ( 3 marks)

18. VATEX (Pvt) Ltd (16 marks=24 mins)

VATEX Ltd is a category ‗C‘ VAT vendor (accounts for VAT on a monthly basis). Included in
its July 2016 operations were the following transactions:

a) A machine was acquired on 10 July in terms of a suspensive sale agreement. In terms of the
agreement VATEX is required to pay a deposit of $10 000 and 60 monthly instalments of $2
000. The interest component of the total payments is $33 100. Amounts do not include
VAT.
b) A machine was leased on 10 July in terms of a finance lease. In terms of the lease a monthly
rental of $5 000 is payable for 48 months. Had VATEX purchased the asset, the cash cost
would have been $93,800.
c) In April 2017 VATEX acquired goods from Z Malaya (Pvt) Ltd for $57 000 (including
VAT). Malaya informed VATEX (in July 2018) that it is writing of its claim in respect of
the debt owed to it.
d) VATEX acquired a motor car, engine capacity 3200 cc, for $39,000 on 1 July. The use of
the motor car was given to a senior employee as a fringe benefit.
e) On 1 July it acquired a racing bicycle for $2,500 and gave it to a retiring employee (a keen
cyclist) as a long service award in recognition of 35 years of service.

All the figures are stated inclusive of any applicable VAT, unless otherwise stated.

Required:

a) What is the difference between the cash basis and the invoice basis of accounting for VAT,
and which one would you recommend? (4 marks)
b) List the main accounting records which must be kept for VAT purposes by registered
operators (2 marks)
c) What is the civil penalty which may be charged for failing to use a fiscalised register? (1
mark)
d) Calculate the input tax and/or output tax in respect of each of the above transactions for July
2018 (6 marks).
e) State any 3 items of expenditure which are disqualified from input tax credit (3 marks)

340
Answers
1. Kona Maombi
a) Situations in which employer is subject to penalties or imprisonment.

 Failure to withhold employees‘ tax.

 Failure without just cause to comply with any directive issued to him by the Commissioner.
 Failure to keep any records.
 Failure to apply to the Commissioner for registration as an employer.
 Failure to notify the Commissioner of any change of his address

b) 4 types of assessment that may be made by ZIMRA.

 Estimated assessment
 Amended assessment
 Additional assessment
 Reduced assessment

c) Objection of the taxpayer

A taxpayer has a right to object to an assessment, decision or determination made by the

Commissioner. He however cannot object an agreed upon assessment. An objection must be
made within 30 days of the assessment, decision or determination of the Commissioner.

d) Appeal

A taxpayer may appeal to the Fiscal Court of Appeal. Instead of appealing to the Fiscal Court of
Appeal the taxpayer may opt to appeal to the High Court. The appeal must be lodged within 21
days of the date of receiving the CG‘s objection decision.

e) Self-Assessment

A self-assessment is a system where a taxpayer determines own tax liability and pay the tax
according to that assessment. A registered bank, insurance company and VAT category C
operators (operators with annual turnover of at least $1,000,000 per annum) must prepare and
submit a self-assessment return.

f) Grounds of appeal

The term grounds of appeal mean the reasons supporting the tax appeal, which is the reference
tax legislation supporting the appeal or any relevant tax re-computations.

g) Issuing of an advance assessment.

 When a taxpayer is unable from any source to submit a return

 Where a taxpayer is about to leave the country before submitting a return
 When a taxpayer has not kept accounting records
 When the Commissioner is not happy with an assessment submitted by the taxpayer

341
2. Prosper & Last (Pvt) Limited
a) A Corporation Tax return (ITF12C) is required by 30th April for those on self-assessment
(e.g. banks, insurance and Category C VAT registered operators) and subject to the date to
be advised by the Commissioner through a public notice for those not on self-assessment.
The return will then be required within 30 days of the public notice.

b) The tax is paid on quarterly basis during the year of accounts , as follows:

1st QPD due on 25 March

2nd QPD due on 25 June
3rd QPD due on 25 September
4th QPD due on 20 December

c) Failure to submit a return after a notice is issued by the Commissioner or by 30 April for
those on self-assessment or within a reasonable period result in the person being liable to a
penalty of $300 a day up to a maximum of 181 days‘ penalty ($54,300). If a return remains
outstanding after 181 days, prosecution may be instituted in addition to the payment of any
penalty levied

A fine equal to level 7 or 1 year in prison, or both such fine and imprisonment may also be
levied.

The implications can be avoided if there is a reasonable excuse for failure to submit the
returns by the due date. If the company is unable to produce final figures for the return by
the due date, it may be possible, in exceptional cases to avoid a late filing penalty by
submitting an estimated return which is then amended when final figures are available.

d) Interest is charged on tax paid late at a rate of 25% per annum for each day tax is
outstanding. The Commissioner may however, waive payment of interest where there are
justified reasons for failing to pay tax.

e) An enquiry can be re-opened within 6 years of the issue of an assessment. During this
period, the Commissioner may reopen the assessment or call upon a taxpayer to submit
further information on his income and expenditure relating to the issued assessment. After
this period, the Commissioner can only call back an assessment, if a taxpayer has
deliberately or fraudulently filed a tax return with the intention of evading tax.

f) Dispute resolution procedure

The following is the procedure for tax appeal.

 Formally object to the Commissioner‘s assessment, decision or determination within 30

days of date of notice of assessment, decision or determination.
 The objection will be heard by the Commissioner who will then issue a determination.
 If dissatisfied, seek full rehearing from the Fiscal Court of Tax Appeals or High Court.
 The Appeal to the Fiscal Tax Appeal or High Court must be in writing and must be lodged
within 21 days of the CG‘s objection.
 If dissatisfied with the determination in the High Court or the Fiscal Court of Tax Appeal,
an appeal can be made to the Supreme Court
 All appeals to the Supreme Court can only be made on a point which involve a question of
law alone with the leave of the High Court judge or Fiscal Court of Tax Appeal President,
342
on grounds of appeal which involves a question of fact alone or a question of mixed law and
fact.
 However, tax payment must be made pending tax appeal outcome.

g) An objection must have the following essentials to be valid:

 must be made in writing for review

 must state the grounds of the objection clearly
 must be made within 30 days from the date of service of notice
 must file the notice to the CG

I trust the above provide details of Hoya Limited‘s income tax obligations relating to filing of
returns and paying of tax. Should you have any queries, please do not hesitate to get in touch.

3. Bullock (Pvt) Ltd

a) Dividend from an Irish Company is deemed to be from a Zimbabwean source and is taxed at
20%

b) Dividend paid to:

 Mr Maringa a resident of Zimbabwe is subject to 15% withholding tax.

 A dividend paid to Yellow (Pvt) Ltd is exempt from withholding tax. Dividend paid by a
local company to another local company is exempt from tax
 Dividend paid to Scorch (Pvt) Ltd is subject to 15% withholding tax

c) Computation of withholding tax

Shareholder % Dividend Rate Withholding

Tax
Mr Maringa 21 21% x $50 000=$10 15% 1,575
500
Yellow (Pvt) Ltd 30 30% x $50 000 =$15 N/A -
000
Scorch (Pvt) Ltd 49 49% x $50 000 =$24 15% 3 ,675
500

d) Rental income is taxed based on the place where the property is situated. Rental income
from Malawi property is not taxed in Zimbabwe since the property is not situated in
Zimbabwe

e) Computation of tax payable

Net profit before tax 110 000

Less
Deposit interest received 5 000
Rental from Malawi property 7 000
Dividend from a local source (exempt) 10 000
Dividend from Irish Company (taxed separately) 8 000
(30 000)
Add
Salaries and wages -
343
Advertising cost -
Donation 18 000
Traffic fines 4 000
Staff Christmas party 2 000
Client entertainment 3 000
27 000
Taxable income 107 000
Tax thereon @ 25.75% 27,553

4. Tasha Guni
a. Factors indicating a person is an employee:

 Entitlement to fringe benefits

 Under the control of the employer
 Established starting and finishing working times
 Paid based on time worked as opposed to output
 Governed by the Labour Act
 Employer is vicariously liable for the faults of the employee
 Employee is supplied with detailed instructions and working tools
 Employee is entitled to sick leave and holiday pay

b. Tax payable as a self-employed

Gross income 60 000

Less
Light, heat and telephone 880
Computer Consumables 4 000
Capital Allowances 2 500
Motor Vehicle expenses (5 200 x 40%) 2 080 (9 460)
Taxable income 50 540
Tax Thereon @ 25.75% 13 014

c. Tax payable as an employee

Salary 60 000
Use of own vehicle ($5,200 x 60% ) 3 120
Taxable income 63 120
Tax on $63,120 x 30% - $4,740 14 196
Add 3% Aids Levy 425
Total 14 622

Note: Assumed that the vehicle was bought by the business.

5. Kutenda Maluku
a) Incomes to be satisfied by final withholding tax

344
Withholding tax is final on dividend and local financial institution interest. The following are
therefore incomes that are satisfied by a final withholding tax.

 Interest received from Bankers‘ Acceptances with a Zimbabwean Bank

 Interest received from a Building Society
 Dividends received from Zimbabwean listed company

The rate of withholding tax on all of the above incomes is 15%. However, where interest is
received from a fixed deposit account (a deposit with tenure of at least 90 days); the rate is
reduced to 5% and exempt if the tenure of the deposit is at least 12 months.

b) Computation of Kutenda Maluku‘s employment and other taxable income

Compensation from NSSA (exempt) -

Salary 284 000
Representation allowance -
Housing allowance -
Leave days 80 000
Bonus 70 000
Less Bonus exemption (10 000)
Pension contribution (38 000)
Retirement annuity fund ($54 000-$38 000) (16 000)
Travel allowance (exempt) -
Subscriptions to the Spinal Injuries Association (not a professional Association) -
Widow‘s pension (exempt) -
Motoring benefit (exempt) -
Loan from employment (exempt) -
Taxable income 370 000

Comments:

Generally Civil servants are exempted on the value of any benefit or allowances granted to them
by the State. Also, representation allowances and entertainment allowances are granted to full
time employees of the state are exempted from tax. Travel allowances granted to members of
public service commission and to permanent secretaries, deputy services and other members of
public service are also exempted.

c) Tax credits that Kutenda can claim

 Elderly credit 9 000

 Disability credit 9 000

 Medical shortfall ($9 860 x 50%) 4 930

d) Computation of business tax liability

Gross rent 88 000

Elderly person exemption (30 000)
Estate agent‘s fees (12 000)
Repairs (8 500)

345
Rates and security (1 900)
Mortgage bond repayment -
Interest paid on mortgage bond (22 000)
Insurance premium (7 000)
Wear & tear on garage and driveway ($54 000×2.5%) (1 350)
Taxable income 5 250

6. BabyToy(Pvt) Limited
a) Loss of cash

Cash embezzled of $30 000 by the shop Assistant is not deductible for two reasons. The fact that
no action was taken to either recover or dismiss the shop Assistant because of their relationship
with the shop owner are the reasons for disallowing the amount as tax deductible. Also the shop
assistant still maintains his job position with the employer.

Loss of cash by the MD is allowed. It is a risk inseparable from carrying on of trade. The
amount would have been disallowed if it occurred as result of the acts of the MD. The personal
cash of the MD, also lost in the process, would not be deducted because that is a private loss.

b) Taxable income

Net Profit per amounts 50 730 000

Rent from property (400 000)

Add Back
Donation to an approved orphanage (allowable) -
Depreciation 1 560 000
Entertainment allowance 35 000
Excess pension contribution (755 000 - 43 200 x 10) 323 000
Holiday home (entertainment) 450 000
Registration of company trademark 55 000
Legal expenses- dismissed employee 0
Non-trade collection expenses 17 000
Accounting fees 0
Income tax appeal (case should be won or partial won) 90 000
Feasibility study (marketing research- double deduction) (40 000)
Entertainment of suppliers 400 000
Staff lunch and refreshments 80 000
Promotional gifts (marketing) 0
Subsidy for customer purchase (marketing) 0
Bad debts 1 700 000
Actual bad debts- amounts written (900 000)

Rentals: Honda CVR (110 000 - $80,000) 30 000

Rentals: Toyota Ipsum (90 000 – 80 000) 10 000
Rentals: Nissan Sunny ($110 000- $80 000) 30 000
Replacement of office glass doors- repairs 0
Replacement of component parts of machinery (repair) 0
Cleaning & repainting of factory premises (repair) 0
Cost of office computers (asset) 480 000
Wear & tear computers ($480 000 x 10%) (48 000)

346
Realised gain on creditors 0
Unrealized loss on trade creditors 550 000
Fines 180 000
Donations: provision of wheel chair 85 000
Sponsoring local cultural show 280 000
Cash donation to NUST ($1 240 000- $800 000) 440 000
Painting to the National Art 650 000
Public Private Partnership fund ($1 105 000- $400 000) 705 000
Shop assistant embezzlement 30 000
Loss to snatching MD (company money) 0
Loss to snatching MD (personal savings) 20 000 7 212 000
Taxable income 57 542 000
Tax liability @ 25.75% 14 817 070

7. Crossfire Plc
a) Implications of Crossfire paying its QPDs in RTGS

- Section 4 A (1) (c) of the Finance Act Chapter 23.04 requires companies whose taxable
income is earned, received or accrued, in foreign currency to pay taxes in foreign currency.
- Up to 15 October 2018 the main currency in use in Zimbabwe was the United States Dollars,
therefore the three QPDs for Crossfire were paid in United States Dollars.
- On 15 October 2018 the government separated nostro accounts and RTGS accounts.
- From 15 October 2018 to 22 February 2019 US$ and RTGS were trading on 1:1 basis.
- Although the RTGS and US$ were trading on 1: 1 basis, Crossfire should have paid its taxes
in US$ because it was trading in foreign currency.
- Zimra may refund Crossfire the fourth QPD which was paid in RTGS and demand US$
payment.
- This QPD will be deemed paid late and interest on late QPD is 10% per annum (25% with
effect from 1 January 2020).

b) Treatment of cost incurred on second hand building

 A lift constitutes an article. An article includes a movable asset with an independent identity,
despite it being an integral part of a building. We believe the lift is capable of being
mounted or demounted and for this reason it cannot constitute part of the building or the
building. Articles qualify for wear & tear at the rate of 10%.

 As for the ventilation system such it lacks an independent identity to a building to which it is
attached or forms part of, hence it ceases to qualify as an article. We believe it is an item
which is so integrated into a building that it loses its own separate identity.

 An initial repair to property i.e repairs incurred on the property prior to its being used is an
improvement. The cost is capitalised to form part of the building for purposes of capital
allowances.

 The aggregate cost of the building is therefore $463,400 ($378,000 -$12,000 +97,400). The
cost of the lift $12,000 is treated as a movable asset.

c) Disposal of office building

347
Recoupment on office building: Note where the selling price of an asset is more than its original
cost recoupment is equal to capital allowances previously claimed. This is computed as follows:

Office building ($396,000 x 2.5% x 4 years) = $39,600

Improvement ($146,000 x 2.5% x 3 years) = $10,950
Replacing a roof (capital nature $48,000 x 2.5% x 3 years) $3,600
Total = $54,150

Cost of replacing the roof is an expenditure which can be classified as an improvement.

The legal fees of $28,400 in connection with the disposal are considered selling expenses. These
costs are deductible under Capital Gains Tax Act where they are incurred on the disposal of a
specified asset. For this reason they are non-deductible under the Income Tax Act.

d) Corporation tax liability

Adjusted trading profit 2,138,415

Interest paid (22,500 – 4,200 accounted for last year) (18,300)
Accrued interest (3,700)
Interest for non-trading purposes 0
Wear & tear freehold office building ($463,400 x 2.5%) (11,585)
Wear & tear on lift ($12,000 x 10%) (1,200)
Wear & tear machinery (69,300 x 17.5%) (12,128)
Wear & tear on decorative wall ($41,200 x 5%) (2,060)
Wear & tear on movable partions ($22,900 x 10%) (2,290)
Wear & tear Double cab ($10,000 x 20%) (2,000)
Wear & tear computer ($2,500 x 10%) (250)
Wear & tear Factory manager‘s car ($10,000 x 20%) (2,000)
Wear & tear Pool car ($10,000 x 20%) (2,000)
Wear & tear plant and machinery ($87,800 x 10%) (8,780)
Lease premium 68,000
Rental advance 10,800
Interest receivable ($9,800 +$3,100) 12,900
Bank interest (exempt) 0
Recoupment on office building 54,150
Taxable income 2,217,972
Tax liability (25.75% x 2 217 972) 571 128

e) Quarterly instalment payment

The 4th QPD is equal to $214,415($398,200 x 35/65). It must be remitted to ZIMRA by the 20th
of December 2018.

8. Board Markers (Pvt) Ltd

a) Sale in Zimbabwe dollar for vehicle acquired in United States Dollar

- SI 33 of 2019 converted United States balances of assets and liabilities into Zimbabwe
dollar on one to one basis with effect from 22 February 2019.

348
- Such balance of assets and liabilities will remain fixed on a one to one basis from 22
February and thereafter.
- Therefore cost base and ITV of the motor vehicle are deemed stated in Zimbabwe dollar
- Recoupment will be calculated based on converted values and the selling price in Zimbabwe
dollar.
- On PMV selling price is restricted because it qualifies on a deemed cost.

Recoupment

ITV as at 1 Jan 2019 (10,000 x 80 % x 80%) 6 400

Less deemed selling price 10 000
Recoupment 3 600
Deemed Selling price $10,000/ $42,000 x $280,000 $66 667

Note however deemed selling price is restricted to deemed cost.

b) Fourth QPD
4th quarterly payment $79,900 x 35/65 = $43 023
The tax must be remitted to ZIMRA by the 20th December 2019.

c) Far East expenditure

Expenditure for seeking export market or marketing product outside Zimbabwe is called export
market development expenditure. The expenditure qualifies for a double deduction i.e $2 for a
$1 incurred.

All Far East expenses are export market development expenses except sales monitoring
equipment which is capital nature expenditure.

d) QPDs for 2019

Estimated Taxable income 746,667

Tax @ 15% (volume of exports are at least 51%) 112 000

1st QPD 25 March 2019 $112 000 x 10% 11 200

2nd QPD 25 June 2019 $112 000 x 25% 28 000
3rd QPD 25 September 2019 $112 000 x 30% 33 600
4th QPD 20 December 2019 $112 000 x 35% 39 200

e) Taxable income and tax payable

Net profit before tax 456 800

Machine from India
Wear & tear ($447,000 + $145 800 + $3 000) 10% (59 580)
Sales Monitoring equipment 5 550
Wear & tear monitoring equipment ($5,550 x 10%) (555)
Advert to Singapore (8000)

Participating in India Trade fair (56,000)

Exhibiting goods in Japan (23 450)
Loss on disposal of Isuzu 6,000
Recoupment – Isuzu (see (a) above) 3 600
Dumping fine 10,000
349
Valuation for insurance -
New licence 59 000
Advertising for share offer 1 000
Debt collection expenses -
Bad debts- salary advance 2 000
Provision for bad debts 15,000
Annuity ($8,000 -$4000) 4 000
Tax health check -
Payroll and accounting packages -
Wear and tear – new car ($80,000 x 20%) (16 000)
Taxable income 399 365
Tax @ 20% 79 873

Machine India
Cost 447,000
Customs duty 145,800
VAT (Recoverable) -
Exchange loss 3 000
595 800
Note

The company only meets the first threshold of export manufacturing company (30%- 40%) in
2018. Therefore it will qualify for a reduced income tax rate in that year of 20%.

9. Tax Matrix (Pvt) Ltd

From: [email protected] 1/2

To: [email protected] 1/2

Subject: Tax implications of employee secondment and funny day expenditure 1

1. Employee Secondment

1.1 The question at hand is to determine the source of the affected employee‘s income during
their time of secondment. 1
1.2 In terms of the gross income definition income is taxed in Zimbabwe if it from a source or
deemed source within Zimbabwe. 1
1.3 The true source of employment income is the place where the services for which the salary
is paid have been rendered as held in the COT v Shein 1958 14 SATC 12. 1
1.4 In respect of TM employees seconded to Zambia the true source of the salaries paid to them
between March and June is Zambia, where they rendered the employment services. 1
1.5 However, in terms of s12 (1) (c) income from services rendered outside Zimbabwe during a
period of temporary absence from Zimbabwe are deemed to be from a source within
Zimbabwe. 1
1.6 The two employees are going to be temporarily absent from Zimbabwe since their period of
stay in Zambia will be 4 months which is less than 183 days in aggregate. 1
1.7 Therefore, the salaries earned by the two employees whilst in Zambia will be deemed to be
from a source within Zimbabwe and therefore taxable in Zimbabwe. 1

350
1.8 Given the rule above the true source of the salaries earned by the two employees from
Zambia during their stay in Harare will be Zimbabwe. 1
1.9 Therefore, their salaries from March to June will be taxable in Zimbabwe. 1

2. Funny day expenditure

2.1 The question at hand is to determine whether the grocery hampers given to microwaves
employees constitute gross income in their hands. 1
2.2 In CIR V Lategan 1926 it was held that amount includes anything with a money value.
2.3 In this case the monetary value of the groceries given to the employees is determinable since
Microwave would have incurred a cost in acquiring the groceries. 1
2.4 Also with reference to sect 8 (1) (f) any awards granted by an employer to employees would
constitute gross income in the hands of the employees. 1
2.5 Therefore, the monetary value of the groceries would constitute gross income in the hands of
the employees.1

10. Drake Group

a) Group relationship

A capital gains tax group exists when one company is controlled by another. A company is
deemed controlled when its majority voting shares (at least 50% is controlled by another party).
(2)

b) Time limit for election

The election must be made at the time of submitting a return for assessment of capital gains
(1.5).

The election will save the transferor of capital gains tax on assets transferred, since the assets
will be transferred at base cost making neither gain nor loss (1.5).

c) Taxes to be saved by making an election

The transferor and transferee must elect to transfer assets at ITV to avoid tax on recoupment (2).
The transferor and transferee must also elect to transfer specified assets at base cost to avoid
capital gains tax (2).

Income tax

Item Amount Marks

1
Industrial building ($2,000 000 x 50%) 1,000,000

Production plant ($450 000 x 100%) 450,000 1

Computers ($15,000 x 100%) 15,000 1
Commercial vehicles (102 000 – 90,000) 12,000 1
Recoupment 1,477,000
Less Loss (75,000) 1
Taxable income 1,402,000
Tax liability at 24.72% 346,574 1

351
Capital Gains tax

Item Amount Amount Marks

½
Industrial building 2.300,000

Less Recoupment (1,000,000) 1

1,300,000 1
Less Deductions 1
Original cost 2,000,000 ½
Less capital allowance (1,000,000) ½
1,000,000
Add inflation $2,000,000 x 3years x 2.5% 150,000 (1.150,000) 1
Capital gain 150,000
Capital gains tax liability @ 20% 30,000 1

d) Assessed losses

 Assessed losses belong to a person and cannot be utilized by another person.(1)

 Where there is a change in control the Commissioner may not permit the carrying forward or
inheritance of assessed losses unless it can be shown that the change in control was not
motivated by the existence of assessed losses. (1)
 Assessed losses can be carried forward and deducted against future income, but such losses
will expire after 6 years and would not be used when they expire. (1)
 Drake 2 and Drake Ltd are under the same control and Drake Ltd can inherit Drake 2
assessed losses, unless the change is motivated by existence of assessed losses. (1)

e) Loss of cash

 Loss of cash as a result of embezzlement by a shop assistant is expenditure inseparable

from carrying on of a business. It is deductible (1)
 The loss of cash by MD is also deductible. It is also on inherent business expense, unless it
occurred as a result of a theft by the MD (1).
 The loss of his/her money is non-deductible, being a private expenditure (1).

f) Disallowed theft/loss

 A loss or embezzlement resulting from the acts of the shareholder or by someone in the
position of a proprietor (1).
 Loss or theft not ordinarily incurred in the bona fide carrying on of a business e.g. theft by
external auditors etc (1).
 Loss by junior staff where the junior is neither reprimanded nor the loss is reported to the
police

g) Removal Costs

 Transportation of fixed assets is expenditure of a capital nature and non-deductible (1)

 Removal of rubbish is expenditure of revenue nature which is tax deductible (1).

352
h) Computation of minimum taxable income for Drake ltd

Item Amount Marks

Net profit 105,000 ½
Cash loss-shop assistant 0 ½
Wage to pay staff stolen 0 ½
Personal cash of MD stolen 10,000 ½
Transport of fixed assets 7,500 ½
SIA removal cost on fixed assets ($7,500 x 25%) (1,875) ½
Removal of rubbish 0 ½
Site investigation for new building 12,700 ½
Drafting and registering mortgage 1,500 ½
Drafting purchase agreement 3,000 ½
Supplier breaching a contract 0 ½
Annual audit fee 0 ½
Lease of Isuzu (PMV 122,500-100,000) 22,500 1
Amortization 43,000 ½
Golf club subs-entertainment 2,000 ½
Taxable income 195,325

11. HR Consultants
a) Computation of joint partners taxable income
Jan- Jun-
Year May Dec

Pre-capital allowances net profit 275,000

W&T IT: Equipment purchased W1 (5650 x 10%) (565)

W&T: Office furniture purchased W2 (3296 x 10%) (330)

(16
Ford Mondeo (80 000 x 20%) ,000)

Scrapping Allowance (389)

Profit on disposal (5,600)

Joint taxable income 252,116 110,882 141,234

(86
Pension contributions(43 200+43 200) 400)

Medical expenses for partners (1800 +2050) (3,850)

Nyasha ceded life policy -non deductible -

Joint lives of Nyasha &Miranda- non deductible -

Miranda separate policy (500)

Public liability (900)

353
(1
Nyasha: Ex-graita payment restricted to $ 1 600 - 600)
47
Joint partnership income 110,882 984

b) Computation partners‘ tax payable

Miran
Details Total Nyasha Nancy da

Share of profits Jan-May 110,882 36,961 73,921

Share of profits Jun-Dec 138,984 83,390 55,594

Nyasha's salary (12000 x 5/12) 5,000 5,000

Nancy use of car ($9,000 x 20% x 5/12) 750 750

Nyasha's salary (37000 x 7/12) Jun-Dec 21,583 21,583

Miranda's salary (34000 x 7/12) Jun-Dec 19,833 19,833

Medical expenses 3,850 1,800 2,050

Miranda separate life policy 500 500

Trade convention restricted (share (20 (12
according to ratio) 000) - 000) (8,000)
281 64 69
Taxable income 382 146,934 471 ,977
70 16,
Tax thereon @ 25% 346 36,734 118 17 494

Less Medical aid credit (1,925) - (900) (1,025)

68 15 16
421 36,734 218 469

Add 3% Aids levy 2053 1,102 457 494

70, 15
Tax payable 474 37,836 ,675 16,963

W1 IT Equipment

ITV as at 1 Jan 2018(6000-6000 x 7/12 x 10%) 5,650

Note: Wear & Tear is apportioned in the first year of commencing business since equipment
was purchased during the year.

W2 Office Equipment: ITV as at 1 Jan 2017 (3500-3500 x 7/12 x 10%) 3,296

W3 Motor Vehicle: ITV as at 1 Jan 2017 (10000-10000 x 7/12 x 20%) 8,833

W4 Recoupment Deemed selling price (10000/45 x 38000) 8,444

Less ITV 8,833
Scrapping Allowance 389

354
12. Sakurai Farm

a) Livestock reconciliation

Details Heifers Tollies Oxen Bulls Cows Calves Total

Open stock 200 100 95 5 130 110 640

Sales (52) (50) (102)

Purchases 34 40 30 16 120
Births 10 10

Promotion in 15 5 3 23

Promotion out (3) (20) (23)

Total 249 142 46 5 110 116 668

b) Taxable income

Net profit
60,000
Less 2/3 of enforced sales (1032 x 2/3)
(688)
Restock relief (W2)
(2,635)
Standby power generator (granted allowance the year in which first used)
0
SIA Tractor ($45,500 x 25%)
(11,375)
Dam (amount incurred in the year is claimed even incomplete)
(30,000)
Depreciation
5,500
Taxable income
20,802

W1 Enforced sales

Sales
50 cows 15,000
52 oxen 14,500
Income 29,500
Less cost of sales
50 cows x 195 9,750
52 Oxen x 180 9,360
Direct costs 9,358 28,468
Taxable income 1,032
Direct costs = $60,000 x 102x 2/ (64 0 +668) = $9,358

355
W2 Restocking

AxB = $10,200/2 x 62/120 = $2,635

2xC

A = $10,200
B = (610- (668 -120) = 62
C = 120

13. GAAP Poultry Group

a) Disposal of assets within the group will save the transferor of the following:

Any tax on recoupment that could arise will be avoided when the assets are transferred at ITV.
Any tax on capital gain that could arise will be avoided when the assets are transferred at base
cost.

The above tax reliefs will only be granted where assets are transferred between related parties,
upon election, under a scheme of reconstruction, merger or similar business combinations.

b) Income tax payable by Green Farm, in the absence of any tax dispensations

Recoupment
Selling
Item price ITV P/Recoup Allowance A/Recoup

*School 15,000 8,500 6,500 1,500 1,500

Tobacco 400,000 - 400,000 300,000 300,000

Fencing Non recoupable 40,000

Dam Non recoupable 200,000 ………

Total 541,500 301,500

Tax thereon @ 25.75% 77,636

*Note that a school has a deemed cost of $10,000. Hence deemed selling price is 10,000/10000
x 150,000

c) Capital Gains tax payable by Green Farm

Gross capital amount

Farm school 150,000
Tobacco barns 400,000
Communal dam 300,000
Farm 800,000
1,650,000
Less recoupment (301,500)
1,348,500
Deductions
Farm school 100,000
356
Tobacco barns 300,000
Communal dam 200,000
Farm 120,000
(501,500)
Inflation
100000 x 2.5% x5 12,500
300000 x 2.5% x5 37,500
200000 x 2.5% x 3 15,000
120000 x 2.5% x 5 15,000 298,500
Capital gain 1,050,000
Tax thereon @ 20% 210,000
Withholding tax 247,500
Tax payable/ (refundable) ($1,650,000 x 15%) (37,500)

14. Charles Carling

a) Calculation of the withholding tax payable

Proceeds from listed shares ($30 000 x 45) 1,350,000

Withholding tax at 1% 13,500
Proceeds from unlisted shares 100,000
Withholding tax at 5% 5,000

b) Calculation of capital gains tax on the disposal of the shares

Proceeds from unlisted shares 100,000

Donated shares (deemed sale) 100,000
Gross capital amount 200,000
Capital gains tax (200 000 x 5%) 10, 000

SI 33 of 2019 converted United States dollars balances of assets and liabilities into RTGS$ on a
one to one basis. This has the effect of overstating Capital gains tax if the restated US$ values
are to be compared to the RTGS$ proceeds from the sale of specified assets. To minimize tax
burden the Finance Act (N0 2) of 2019 provides that Capital gains tax of specified assets
acquired after I February 2009 and sold after 22 February 2019 shall be 5% of the proceeds.

c) Capital gain and applicable tax in connection with the disposal of principal private residence

Proceeds from the sale of immovable property 830 000

Less: Roll over (A x (B-C)/ D (500,000 / 830,000 x 830 000) 500 000
Capital gains 330 000

Capital gains tax liability @ 5% 16 500

Less withholding tax ($830,000 x 15%) (124 500)
Amount refundable (108 000)

Where:

A is the amount used to purchase another PPR

B is the capital amount
C is the sum of deductions
D is the proceeds of sale from the PPR
357
In this case the capital amount is the same as the gross proceeds (gross capital amount) and for
specified assets acquired after 1 February 2009 and sold after 22 February 2019 there no costs.
Therefore C is equal nil.

15. Lawson (Pvt) Limited

a) Tax treatment of disposal of Harare warehouse

Recoupment on destruction of an asset shall not be included in gross income if a taxpayer

satisfies the Commissioner that:

 It has purchased or constructed or will purchase or construct, within a period of 18 months

from the date of damaged an asset of similar nature
 Such further asset has been or will be brought into use within a period of 3 years from date
of destruction of original asset
 Recoupment, however applicable to the amount not expended shall be taxed

a) Minimum tax liability

Gweru Harare Total
Net profit 75,000 105,000
180,000
Recoupment: Industrial building ($2m x 100%) 2,000,000
2,000,000
Recoupment: Plant ($450,000 x 100%) 450,000
450,000
Recoupment: Warehouse (see workings) 16,842
16,842
Wear & tear (including accelerated w&t)
(108,750)
SIA
(161,750)
Taxable income
2,376,342

Tax liability @ 25.75%

611,908

W1: Recoupment on Harare warehouse

Recoupment ($800,000 x 5% x 2 years) 80,000
Less Replacement relief ($750,000/$950,000 x $80,000)
(63,158)
Taxable recoupment 16,842

W2: Capital allowances

Item Cost Rate SIA Wear &tear

New industrial building 1,500,000 5% 75,000

New plant 647,000 25% 161,750

Commercial vehicles transferred 120,000 25% 30,000

358
Computers 15,000 25% - 3,750

2,282,000 161,750 108,750

New Harare warehouse allowances will be granted in the year in which it is put into use i.e 2018

b) Capital gains withholding tax

Item Proceeds Rate Withholding tax

Industrial building 2,900,000 15% 435,000
Warehouse 950,000 15% 142,500
3,850,000 577,500

The withholding tax must be remitted to ZIMRA within 3 working days of paying the seller
proceeds from sale of a specified asset

Gross capital
Industrial building
2,900,000
Warehouse
950,000

3,850,000
Less Recoupment ($2,000,000 +$80,000)
2,080,000

1,770,000
Less Deduction
Industrial building 2,000,000
Warehouse 800,000
Less Capital allowances ($2,000,000 + $80,000) (2,080,000)

Inflation
2,000,000 x 2.5% x 5 years 250,000
800,000 x 2.5% x 3 years 60,000
Selling 190,000
1,220,000
Capital gain
550,000
Less Replacement relief industrial building ($1, 5m/$2,9m x $460,000)
(237,931)
Less Repair relief (750,000/950,000 x $90,000)
(71,053)
Capital gain
241,016

Tax @ 20%
48,203
Less withholding
577,500
Tax refund
529,297
359
Workings
Industrial building capital gain = $2,900,000-2,000,000-250,000-$190,000 =$460,000
Warehouse capital gain = $950,000-800,000-$60,000 = $90,000

16. Mr. Shiri

a) Pre-incorporation and pre-registration VAT

Pre-incorporation expenses

Input tax incurred on goods or services paid prior to incorporation acquired on behalf of the
operator which are reimbursed to the person by the company can be claimed. The goods or
services must have been acquired no more than six months prior to the date of incorporation of
the company and the company must hold sufficient records to establish the particulars relating to
the deduction to be made.

Pre-registration

Input tax incurred prior to registration is non-claimable. The only exception is in respect of
inventory and consumable held by the taxpayer at time of registration.

b) Registration and estimated net VAT

A person must register for VAT when his/her expected taxable turnover in any 12 months period
exceeded $60,000. The company exceeded this limit at the end of October 2016. The company
should have notified its liability to register ZIMRA by 30 November 2018 and been registered
with effect from 1 December 2018.

A person may also be required to register if he/she anticipate that his/her turnover will in the
next 12 months exceed $1,000,000. From end of March 2018, it is clear that the business will
likely to surpass the $1,000,000 threshold in the next 12 months commencing that month. There
is a guaranteed $5,000 monthly turnover, which has continued to peak and showing no signs of
dropping. Mr. Shiri should have notified ZIMRA on its liability to register by 30 April 2018 and
been registered with effect from 1 May 2018. On the basis of this assumption the net tax due to
ZIMRA is as follows:

Calculation of net tax due

Output tax Amount Rate Tax Comment
May $7,800 15% $1,170
June $6,600 15% $990
Jul $7,200 15% $1,080
Aug $7,300 15% $1,095
Sept $7,800 15% $1,170
Oct $7,900 15% $1,185
Nov $8,200 15% $1,230
Input tax
Computer $2,000 Pre-registration
Business plan $500 Pre-registration
Net due $7,920

c) Penalties

360
ZIMRA may back date registration to 1 May 2018 and charge penalty of 100% on the tax due
from that date until date of registration. Interest is also charged on this tax.

The company is liable to a level seven ($400) fine for failing to register by 1 May 2018. The
company is also liable to a penalty in relation to the issue of invoices showing an amount
attributable to VAT whilst an unauthorized VAT registered operator.

Tutorial note: It is also an offence to issue an invoice showing VAT when one is not a registered
operator.

17. VATEX (Pvt) Ltd

a) Cash basis and invoice basis

 Under invoice basis, VAT is accounted for on the basis of invoices being issued or received
 Under cash basis, VAT is accounted only to the extend payment is received or made
 Cash basis is applicable to public authorities, local authorities and associations not operating
for gain
 Invoice basis allows an operator to claim VAT before making payments to creditors.
 Invoice basis is administrative efficient than cash basis, because VAT is accounted on fewer
invoices rather than on a number of payments
 Cash basis is good for cash flow management and good for operators with more debtors
than creditors

b) Documents to be kept

Tax invoices, credit note, debit notices, books of accounts generally, ledger etc.

c) Civil penalty for failing to use a fiscalised register

Every Category C operator (operator with annual turnover exceeding $240,000) must fiscalise.
An operator who fails to comply is liable to a civil penalty of $25/day per point of sale, for each
day the taxpayer remains in default up to a period of 181 days

d) Output tax and input tax

Item Amount Rate Tax

Machine on suspensive sale (cash value= 60x $2000 + $10000-
33100) -96,900 14.5% (14,535)

Machine on finance lease (based on cash cost) -93,800 14.5/114.5 (12,235)

Bad debts written off by Malaya (claw back of input tax) 57,000 14.5/114.5 7,435

Cost of purchasing a Passenger Motor vehicle -39,000 denied -

Passenger motor vehicle ($4,800 x 14.5/114.5 x 1/12) 4,800 14.5/114.5 52

Bicycle (entertainment) -2,500 denied -

Tax payable/(refundable) (19,283)

361
e) Items on which input tax is cannot be claimed

 Provision of food, drink or accommodation supplied to a taxable person, his agents or

employees.
 Entertainment expenses
 Purchase or hiring of passenger motor vehicles other than as stock in trade
 Cost of goods or services used by the registered operator for the purposes of an exempt
activity or for personal use
 Cost of goods and services for which the registered trader does not have a valid VAT
invoice.
 Social or recreational subscriptions.

362
363