Types of Taxes
“A citizen can hardly distinguish between a tax and a fine
except that the fine is generally much lighter” G K Chesterton
Learning Objectives
• Define the terms tax
• List and define different taxes that are levied by the
Zimbabwean government
• Identify the reasons affecting tax legislation
• Determine tax chargeable
• Determine tax rates to apply 2013 tax year
• Acquaint students with tax credits in the legislation
Introduction
• Taxes are pervasive and dynamic
• Econometric
changes
• Changes pose challenges for businesses and individuals
making tax planning important
• Cat and mouse chase between government and taxpayers
• Tax avoidance and in extreme cases tax evasion
Definition of Tax
• It is not a fine because it is not a penalty to deter bad
behavior
• It is not a user fee entitling one to a specific good or
service e.g. med aid contr/insurance
• What is it?
• an involuntary payment to support the cost of
government (central or local) by individuals or businesses
Why do governments need tax?
• Use by governments for its functions e.g. salary payments for civil
servants etc.
• Use for public amenities
• Redistribution
pensions to the elderly etc.
• Influence macroeconomic performance of the economy e.g. Investment
incentives attracts investment (contr pensions/RAF; POSB, Tax Reserve
certificates
• Modify patterns of consumption or behaviour within an economy e.g
excise on beer, carbon taxes
Discussion
• What effect will introduction of a tax on dividends
be on a shareholder?
• What effect will a high tax rate on salaries be on
employees?
Answer
• Sale of shares and investing elsewhere where returns are
more attractive. Effect on Stock Exchange Market prices
= shares drop in price /speculators buy
• Employees may leave work choose to be unemployed and
find some other form of survival.
• Choose to work less hrs.
• Be indifferent because source of satisfaction motive is not
in income but the work itself.
Good Tax system
• Sufficient to meet government needs
• Efficient to both taxpayer and government
• Economists do not agree on the meaning:
• One school feels its effect should be neutral on the free market and
not cause people to adjust economic behaviour as it distorts the
market
• Another school believes a system that influences a desired effect is
efficient e.g tax cuts to rejuvenate consumer spending and increased
pvt investments
Good tax system cont’d
• Fair = taking into account a person’s ability to pay.
People with the same ability should pay the same tax.
• Easy to administer for both taxpayers and govt.
• It should be easy to understand and clear
• It should not be costly for government to administer/
collect e.g. FDS introduced to cut down on admin
costs
Types of Taxes in Zimbabwe
• Income Tax
• A tax imposed on the periodic inflow of wealth resulting from a person’s
economic activities (employment, businesses etc) Income Tax Act
Chapter 23:06..
• Value Added Tax (VAT)
• A consumption tax. It is a tax on the estimated market value added to a
product or material at each stage of its manufacture or distribution,
ultimately passed on to the consumer.
23:12].
•
Types of Taxes cont’d
• Customs Duty
• tax levied on imported goods in terms of the
Customs and Excise Act [Chapter 23:02]
• Excise Duty(Chapter 23:02) This is an inland tax
imposed on the retail sale of specific goods produced
for sale or sold within the country eg. Fuel,
cigarettes, and alcohol or on specific services such as
hotel accommodation
Types of Taxes
• Special Excise Duty
• A Special Excise Duty is charged on change of ownership of
locally registered second-hand vehicles at a rate of 5% of the
value of the second-hand motor vehicle in terms of the
Customs and Excise Act [Chapter 23:02].
• Road Tolls
• Road Tolls were introduced on the major highways of
Zimbabwe on August 18, 2009 for the benefit of the Road
Fund for road maintenance and rehabilitation.
Types of Taxes cont’d
• Capital Gains Tax(Chapter 23:01)
• A tax (CGT) levied on the capital gain arising from
the disposal of a specified asset. Specified asset
means immovable property (e.g. land and
buildings) and any marketable security.
Other Types
• These taxes maybe found in taxes above:
• Withholding Tax is the amount withheld by the party making a payment (payer)
to another (payee) and remitted by the payer to the Zimbabwe Revenue
Authority (ZIMRA).
• PAYE a form of witholding tax deducted by payer from employee remuneration
• Presumptive Taxes
• Presumptive Tax legislation was introduced to broaden the revenue base in view
of the increase in informal business activities. Selected sectors of the economy
were targeted to ensure the participation of informal businesses in tax payment
in line with experiences of other developing countries e.g. hair saloons (taxable
income </= $6 000 p.a. )
IncomeTax in Zimbabwe
• Guided by Income Tax Act(Chpt 23:06)
• And Finance Act (Chpt23:04)
• Decided Court Cases
• Departmental Practices
Income Tax Act
• Takes precedence over accounting treatment of transactions if
they differ e.g. matching concept in accounting may differ with
tax treatment e.g Rent paid in advance will be a receipt in tax
in the year it is received even if it is for a future period outside
the tax year of receipt
• An advance payment for an insurance policy will be taken into
account on the tax yr of payment even if it might refer to the
following tax year.
• Profit on disposal of an asset not taxable unless if it qualifies
as a recoupment.
Departmental Practices
• . The Commissioner gives guidelines on how they
treat certain transactions These are not law and
therefore can be contested.
Decided Cases
• The Act sometimes does not define terms leaving
meaning unclear.
• Result might be different interpretations btwn
taxpayer and tax authorities.
• The Act offers grievance procedures:
• i) taxpayer can lodge an objection within 30 dys of
assessment or written notification of the assessment.
Decided Cases cont’d
• 2) If taxpayer still aggrieved should inform tax
authorities of intention to appeal to the Special
Court or High Court.
• 3. If taxpayer is still aggrieved after determination
by the HC can appeal to the highest court (Supreme
Court)
• 4. The CG can also appeal if aggrieved by a decision
of a lower court.
Decided Cases cont’d
• Judgements arrived at in court cases set precedents that is
they form a rule of law.
• A decision by a higher court is binding on the lower court
• Courts of the equal ranking are expected to follow their
previous decisions (if facts are similar)
• Zimbabwean tax law has similar roots with UK, Australian
and SA tax law and therefore decided cases in those countries
are sometimes applicable. (caution should be taken wording of
law might be different)
Administration of Taxes
• CG CEO for Zimra responsible:
• Assessing;
• Collecting;
• Accounting for revenue on behalf of the State (through M.
Finance)
• Various regional offices and ports found around the country
(check
carrying out mandate.
Means of obtaining records
• 1. Taxpayer files a return for assessment
• Every year 3-4 after the end of the tax year the CG
publishes a public notice inviting taxpayers to obtain a
return ITF 12 or ITF1A from the nearest office and
submit by a specified deadline to the taxpayers
assessment office (S37). For 2014 the public notice was
no 7 – for 2013 tax returns and deadline of submission is
30th May 2014
• The duty to file a return is the taxpayers
Cont’d
• Records are to be kept in the English language at
least for six years.
• 2. Taxpayer file a return through self assessment
• S37A specifies taxpayers who can file self assessments
• It includes Banks, Insurance Cos and those registered
under category C of the Value Added Tax (VAT Act)
Self Assessment
• Self assessment returns are to be furnished not later
than four months from the end of tax year (ITF
12C) i.e. not later than 30th April 2014
• A self assessment return constitute an assessment
on the due date or date of submission.
Failure to submit a return
• CG can estimate taxpayer’s income and issue an
assessment based on the estimate
• Penalties eg interest may be charged
• An amendment may be issued upon submission of a return.
• Where there are no proper records the estimate has to be
agreed by both CG and taxpayer
• Such an assessment is not subject to objection or appeal
Final Deduction System
• PAYE (S73,S74 arw Thirteenth Sch) to be deducted
from remuneration by employer and remitted to Zimra
by the 10th
withheld.
• PAYE paid by the end of the tax year should equate the
tax liability on the employee’s annual remuneration.
• Employers can make adjustments for taxpayer’s
allowable deductions and on entitled credits
Circumstance when remunerated
taxpayer s/d submit a return
• They have income from more than one employer
• Received income which was not subject to PAYE in
full or in part
• Received pension
• Changed employers
• Started or terminated employment
Obligation of taxpayr involved in
business(included a consultant)
• S72 requires taxpayer to make tax payments on
estimated T.I. quarterly . APDs as follows:
• 25 March 2014
• 25 June 2014
• 25 Sept
30%
• 20 Dec
35%
Secrecy
• In terms of S5 of ITA Zimra officials sworn to
secrecy.
• Can only divulge taxpayers affairs
• A) if they ordered to do so through a court order
• B) to another country with a double taxation
agreement Zimbabwe(only relevant information
given)
Why Secrecy?
• Protect taxpayer and therefore encourages taxpayer to share
information with Zimra.
• Why protection for taxpayer may?
• Involved in illegal activities
• Not want competitor /colleague/spouse to know for various
reasons
• Government departments also cannot get information from
Zimra e.g Zimra cannot report illegal activities to police.
Example
• Example1 (Individual)
• Mr Samuel is an employee for Magaba Pvt Ltd. For the
tax year 2014 he received a total of $40 000 in salaries for
the period 1 January to 31st
the age of 65yrs. He requires you to tell him how much
tax he should pay. Additional information for the tax year:
annual pension contributions $2 500; PAYE $9 760 ;
interest from Zimra tax reserve certificates $300 (Assume
these are the total receipts and payments for the tax year).
Answer
•
$
• Salary
40 000
• Interest
• Gross income
40 300
• Less exemptions (int)
• Income
40 000
• Less Deduction
• 1.Taxable Income
Answer cont’d
• 2) Rate
• Tax on 37 500 (progressive rates
•
$
• Up to 24000
=
4 800
• 13 500@30% =
4 050
• Total
8 850
• 3) Less credits:
• Elderly
(900)
• Tax chargeable
7 950
• Add 3% Aids levy
238.50
• Tax payable
8 188.50
• Less PAYE
(9 760.00)
• Tax payable
Example 2(Company)
• Magaba Pvt Ltd submits the following information for 2014
year
$
• Receipts from trading
95 915
• Allowable expenditure
17 234
• Receipts from local dividends
7 800
• Required to:
• Calculate tax payable by Magaba Pvt. Ltd. for the tax year ended
2014
Answer
•
$
• Receipts from trading
95 915
• Local dividends
7 800
•
103 715
• Less exemptions
(7 800)
• Income
• Less allowable deductions
(17 234)
• (1) Taxable Income
• (2) Rate
• Tax chargeable
19 670.25
• Add 3% aids levy
590.11
• Tax payable
20 260.36
• NB no credits for a company.
Determination of tax
• S 6 gives the mandate to levy, charge and collect tax from
income tax of a particular year.
• S7 spells out how income tax is calculated. 3 steps are spelt.
• Take the taxable income
• Apply a rate (could be a progressive or flat rate)
• Deduct any credits the taxpayer maybe entitled to.
• The resultant figure is tax chargeable.
Determination of taxable income
• This is done in 3 stages:
• Determine the gross income in terms of the Act (mainly
S8 and10,12)
• Deduct all exempt(S14 arw Third Sch) in terms of the
Act income from gross income = income
• Deduct from income all allowable deductions
• as provided for in the Act (mainly S15)
Apply the rate
• The tax year runs from 1 January to the 31st Dec of
the same year.
• rates of tax are fixed for ‘each year of assessment” the
Charging/ Finance Act (Chp 23:04).
• Some years more than one Finance Act may be passed
• Finance Act is the principal means the Income Tax
Act is amended.
Cont’d
• Policy matters relating to changes in the legislation
rest with the Minister who consults with the
Governor of the RBZ. Parliament promulgates the
bill for it to become law.
Cont’d
• A distinction should be drawn between ―Taxable
income from employment
from trade or investments
• Taxable income from employment – means any part
of the taxable income of a person other than a
company, trust or a pension fund, which consists of
remuneration as defined in the 13th Schedule of the
Taxes Act. 3% Aids levy is chargeable except in cases
specified under section 14(5) of the Finance Act.
Cont’d
• Taxable income from trade or investments – means
any part of the taxable income of a person other
than a company, trust or pension fund, which is
received by or accrues to him from any trade,
investment or other activity, but does not include
taxable income from employment. It is taxed at
25% plus 3% Aids levy (25.75%)
Rates of tax on employment
income
• Band ($)
rate(%) cumulative tax($)
• 0 – 3 000
0
0
• 3 001-12 000
20
1 800
• 12001-24 000
25
4 800
• 24001-60 000
30
15 600
• 60001-90 000
35
26 100
• 90001-120000
40
38 100
• 120 001 -240 000
45
• >240 000 50 ?
Rates of tax trade/investment
• Company, trust, deceased estate, income from trade
and investment
25% flat rate.
• Foreign dividends 20%
Credits
• Only the ones specified in the Charging Act apply.
• In terms of S5 of the FA a credit shall not exceed
the total income tax chargeable to “person” in the
tax year.
• No credit to company or trust on income tax
chargeable for the tax year
Types of credits
• 1. S 10 FA Elderly credit = 900
• Person attained 55yrs at the beginning of the tax
year
• Credit can be apportioned if period assessment
proportionate to period ( assessment less than a tax
year e.g. assessment to date of death or declared
insolvent
2. Blind Person’s (S11)
• Amount $900 to a blind person
• An amount not exhausted in assessment of blind person can be
deducted as credit from assessment of spouse if taxpayer is
married.
• To qualify taxpayer’s eyesight must be defective to do any work
requiring eyesight for more than half of the tax of assessment
(defined FA).
• A taxpayer married to an unemployed spouse will be granted
credit for the the spouse e.g if both of them blind = $900 + $900
Cont’d
• To be considered blind taxpayer must be unable to perform
any work for which eyesight is essential.
• 3. S 12 FA: Invalid appliances and medical expenses credit.
Important definitions:
• Invalid appliances
• a) spectacles/contact lenses
• b) Any special fitting to modify or adapt a motor car; bed,
bathroom for use by a person with a disability or defect
Cont’d
• c) Artificial limb, crutch
• d)Wheel chair or any mechanically propelled vehicle for
transporting a disabled person.
• Medical expenses =
• a) Cost incurred in relation to modification, hire,
purchase, repair or maintenance of any invalid appliance
for the taxpayer, spouse or any child
Cont’d
• b) Cost of the following-:
• Services rendered by a medical or dental practitioner to
tp, his spouse or his minor children
• Cost of prescriptions by medical or dental practitioner for
tp, his spouse or his minor children
• Treatment , tests (includes accomm
nursing home, clinic or similar institution for tp. His
spouse or his minor children
Cont’d
• iv) Conveyance by ambulance (could be air or otherwise) = tp, his
spouse or his minor children
• c) Costs of contributions to a medical aid paid by tp for tp, his
spouse and minor children.
• Credit granted = 50% of cost
• No credit to be allowed on medical expenses (exclude medical
contribution) if taxpayer was not ordinarily resident in Zim during
ty .
• Medical contributions will be allowed for a non resident.
Cont’d
• Costs incurred by t/p paid by deceased estate will
be deemed to have been incurred by the tp
immediately prior to date of death.
• No credit will be granted for medical expenses
incurred
or any source
4. Mentally/physically disabled
persons (S13 FA)
• Amount $900
• Granted to tp if t/p is mentally/physically disabled to a
substantial degree (at least 50%) (excludes blindness)
• Granted for tp’s child that is mentally/physically disabled
to a substantial degree (includes a child that is blind).
• If t/p married credit for a child granted to the husband
first and any unexhausted amount on the husband’s
income tax chargeable is granted to the spouse.
Cont’d
• Granted for a married tp if spouse disabled and
unemployed.
• Credit not granted to tp if he was not ordinarily
resident in Zim during the ty.
• No credit will be granted if the disability is
transitional or temporal (must be permanent)
Ordinarily resident
• to be ordinarily resident usually obvious. Tp has
• only residential property is in Zimbabwe
• and his business or employment is in Zimbabwe
• should have been resident in the country for at least
183 days in Zimbabwe in a full tax year.
Spouse
• will not include a husband:
• separated from a wife under a judicial order or written
agreement of separation or
• living apart from his wife and not wholly maintaining
his wife
• in a polygamous marriage other wives than the first wife
• will not include a wife (points one and two apply)
Definition Child
• includes a step child and lawfully adopted
• NB taking care of a relative child not qualify unless
lawfully adopted
Definition : minor child
• a child under 18 yrs of age and unmarried
• NB if child within the age and unmarried but has
moved out and living independently not qualify.
Conclusion
• To determine income tax chargeable the following
elements should be there:
• Taxable income
• Rate to be applied
• Credits if applicable.
