A

GUIDE
TO
ZIMBABWE
TAXATION
2018 EDITION

Study Text

Author: P. Nyatanga Grad ICSA, ACCA, BSc

A Guide To Zimbabwe Taxation i

 A GUIDE TO ZIMBABWE
TAXATION

2018 EDITION

Fifth Edition
By

PARTSON NYATANGA
BSc. (Hons) Applied Accounting (UK), Grad CIS & ACCA

© P. Nyatanga, 2018
All rights reserved. No part of this publication may be produced, stored in retrieval
system, or transmitted in any form or by any means, electronic, mechanical,
photocopying, recording or otherwise, without the prior permission of the copyright
owner.

ISBN: 978-0-7994 6268-7

Disclaimer
Whilst every effort has been made to ensure that the information published in this
work is accurate, the author and publisher take no responsibility for any loss or
damage suffered by any person as a result of reliance upon the information
contained therein. If professional advice or other expert assistance
is required, the services of a competent professional person should be sought.

A Guide to Zimbabwe Taxation i

 PREFACE TO THE FIFTH EDITION
This book is designed to help practitioners, finance professionals, businesses, organisations
and students at large to tackle tax matters.

The book incorporates all tax amendments as promulgated in the FA 2017, and can be used
as a handbook of reference when preparing tax returns or when preparing for exams for
2017 Tax Year. The textbook includes practical examples and practice questions with
answers making studying trouble-free. Reference has been made to local and foreign tax
cases to illustrate certain concepts and principles.

The comprehensive study text specifically embraces the curricula of the following examining
boards:

o Institute of Chartered Secretaries and Administrators in Zimbabwe (CIS);

o Institute of Administration and Commerce (IAC);
o Institute of Business and Accounting Studies (IBAS);
o Southern African Association of Accountants (SAAA);

Over the years I that have been teaching taxation I noticed that the subject is a challenge to
many students. This seems to substantiate an assertion by the famous physicist, Albert
Einstein who claimed that “the hardest thing to understand is income tax.” Very few
students appreciate the technical terms of the subject and also the way principles are
brought about in the legal jargon.

It has thus been the passion of the author to come up with a concise yet comprehensive
study text that will go a long way in ensuring higher pass rates. The book has been written in
a clear-cut style to ensure that users will easily grasp the tax concepts. The author adopted
a unique approach in which chapters are tailored into a general framework for computation
of tax liability. The contents of this book are principally based on Zimbabwe tax statues (as
amended) relevant to the 2017 Tax Year.

All names of individuals and organisations stated are fictitious and not real names. If any of
the names used match that of existent individual/s or organisation/s, it is merely by
coincidence.

Direct quotations from the statutes and examples are written in italics. Tax cases are written
in bold ink. Where the word Act is mentioned in topics other than, Estate duty, Capital Gains
Tax, VAT, it refers to the Income Tax Act.

Partson Nyatanga

ii A Guide to Zimbabwe Taxation

 FIFTH EDITION PUBLISHED BY:

PARTSON NYATANGA

Phone: +263 773 625 247

http://www.facebook.com/aguidetozimbabwetaxation
Email: taxguidezim@gmail.com

Printed and bound in Harare.

Cover design done by Edenta Graphix (Pvt) Ltd

ABOUT THE AUTHOR

Partson Nyatanga is a holder of BSc. Honours (Applied Accounting), CIS & ACCA
qualifications, with a passion for tax. He has worked for several companies including
an accounting firm. He is a tax consultant and has been teaching taxation for more
than seven years as a freelancer.

DEDICATION
This book is dedicated to my mother Molyne, who instilled in me the importance of
hard work.

“People often say death and taxes are the same, but this is wrong.
Death is a taxable event, but taxes never die”
Author- Unknown.

A Guide to Zimbabwe Taxation iii

 ACKNOWLEDGEMENTS
The author would like to express heartfelt gratitude to the following whose contributions
made this work successful:

o First and foremost, the Almighty God for giving me potency, vision and aptitude to put
together this book.
o My family for bearing with me when I was committed to this project.
o The Institute of Chartered Secretaries & Administrators in Zimbabwe (ICSAZ) for
permission to reproduce past exam papers.
o The Southern Africa Association of Accountants (SAAA) for permission to reproduce
past exam papers.

iv A Guide to Zimbabwe Taxation

AUTHOR‟S REMARKS TO STUDENTS

Partson Nyatanga
The motivation to author this text stemmed from the writer‘s passion to come up with
an ingenuous guidebook which is easier to understand and which goes a long way
assisting a plethora of tax law students. Because of this very passion, the author
designed the book in a peculiar style, putting emphasis on the framework for
computing tax liability. Taxation is a subject with involves computations, and as such
demands some mathematical skills. Many students have no problem with this
aspect, but their major challenge is to apply tax principles which they would have
learnt to a practical question or scenario.

The author would want to draw the students to the following key aspects:

1. Source of law- tax is a law subject; two key sources are applicable to this
subject; namely legislation and case law. Tax principles discussed in this text
emanates from tax statutes, e.g. Income Tax Act and case law. Sections of
those statutes which support important tax principles are highlighted
throughout the text. It is important for a student of tax law to study the
highlighted sections even from the acts. For principles derived from case law,
you need to, at least know applicable cases supporting those principles.

2. Examples- take time to study examples given in this text and pay particular
attention to how principles are applied to a practical question.

3. Exam tips- the author has included sections highlighted: ‗exam tips!‘ take
note of those sections and make sure you know those key principles by your
fingertips.

4. The tax framework- The tax frameworks given in this text are summaries of
crucial tax principles. Make sure you acquaint yourself with relevant sections
of the acts as highlighted in the text.

A Guide to Zimbabwe Taxation v

5. Having a questioning mind- when tackling a tax question, ask yourself,
‗which particular section of the tax Act could apply to this question?‘ Try to
substantiate your answers with relevant sections from the tax acts.

6. Practice- the old adage ‗Practice makes perfect‘ applies to all studies in
general and to tax subject in particular. Give yourself enough time to practice
typical exam questions. Make use of end of chapter questions, practice them.
I suggest you give yourself half your time to complete the syllabus and half to
revise. Revise a lot of exam questions, (where possible, under timed
conditions) before you sit for your final exam.

7. Relevant tax figures and tax rates- it‘s very surprising some students get to
sit for their final exams not knowing some relevant tax figures, e.g. tax free
threshold of employment income, bonus free threshold, and also not knowing
rates of tax applicable to certain tax payers for the tax year concerned. You
need to be thorough on this one as a starting point.

8. Tax technical articles- The author frequently publish technical articles which
are emailed to tax students free of charge. Technical articles are exam
oriented tips on certain areas of tax curriculum make sure you subscribe to
this service. Write to taxguidezim@gmail.com to be added to author‘s mailing
list. Inform other students so that they benefit also.

vi A Guide to Zimbabwe Taxation

 TABLE OF CONTENTS
Chapter Page
Preface to the fifth edition...……………………....…………..……...….....…………....iii
Acknowledgements……………...………………………………………………………....iv
Author‘s note to students.............................................................................................v
Abreviations...............................................................................................................viii

1. Introduction to Taxation…………………….…….…...…………..………………..…1
2. The Finance Act…......…………………...............……….……………………….....41
3. Individuals - Employment Income………………………..…………………….…....48
4. Pensions and Benefit Funds………………………………..………………….….....75
5. Capital allowances….............................................................................................81
6. Corporates - Trade and Investment Income…………...........................................93
7. Individuals - Trade and Investment Income….............…..…………….……........121
8. Partnerships……………………………………………………...…………….……..129
9. Farmers…………………………………………………,………...…………………..136
10. Miners……………………………………………………………………………......149
11. Leasing…………………………………………………………………………...….161
12. Deceased Estates and Trusts………………………………………...…………...166
13. Hire Purchase and Suspensive sales……………………………………….....…169
14. Withholding Taxes and Presumptive Taxes………………………..…………….176
15. Double Taxation Agreements………………………………….....………….....…196
16. Estate Duty……………………………………………………….............................210
17. Capital Gains Tax……………………………………………………………….…..218
18. Value added tax…………………………………………………..…………………236
19. Tax avoidance and Tax Evasion……………………………………….………….269
20. Fiscal Incentives………………………………………………………………....….275
21. Administration of Tax Law……………………………………....……………..…..282
22. Answers to practice questions………………………………………………...…...299

A Guide to Zimbabwe Taxation vii

 ABBREVIATIONS

CGTA Capital Gains Tax Act, [Chapter 23:01]

CHARGING Act Finance Act, [Chapter 23:04]
CIR Commissioner of Inland Revenue, South Africa
CIT Collector of Income Tax, Botswana
COT Commissioner of Taxes, Zimbabwe
COMMISSIONER Commissioner-General of the Zimbabwe Revenue Authority.
DTA Double Taxation Agreements
EDA Estate Duty Act, [Chapter 23;03]
FA Finance Act, [Chapter 23:04]
FC of T Federal Commissioner of Taxation (Australia)
IRC Inland Revenue Commissioner (United Kingdom)
ITA Income Tax Act, [Chapter 23:06]
ITC Income Tax Case (South Africa)
SI Statutory Instrument
SIR As for CIR (South Africa)
VATA Value Added Tax Act, [Chapter 23:12]
ZIMRA Zimbabwe Revenue Authority

viii A Guide to Zimbabwe Taxation

 1
INTRODUCTION TO TAXATION

Chapter Outline

1.1 What is Tax?

1.2 Levy of Tax
1.3 Source of Zimbabwe tax law
1.4 Key definitions
1.5 Meaning of ‗ordinary residence‘
1.6 General framework for determination of tax payable
1.7 Gross income
1.8 Source of income
1.9 Deemed sources
1.10 Deemed accruals
1.11 Receipt of capital nature
1.12 Exemption from tax
1.13 Allowable deductions
1.14 Prohibited deductions
1.15 Tax credits
1.16 Principles of a good tax system
1.17 Chapter Round-up
1.18 Practice questions

1.1 What is Tax?

Tax is an involuntary amount paid by a person to the government to which the person is
under its governance. Tax is collected from every able- bodied person for the benefit of the
government fund, which in Zimbabwe is called the Consolidated Revenue Fund.

1.1.1 Basis of Taxation

A country can adopt either a source based (territorial) or a residence based tax approach.
Zimbabwe uses a source based tax system.

A country that adopts source based tax system levy taxes only on income, capital, property
etc. that emanates within the boundaries of its borders or that is deemed to be from within its
boundaries.

A residence based tax approach is adopted by a country that seeks to levy tax on income,
capital; property etc. accruing to it‘s the residents regardless of its source.

The source of income is a very important concept in Zimbabwean taxation.

A Guide to Zimbabwe Taxation 1

1.1.2 Classification of taxes

a) Direct or Indirect taxes

Direct taxes are paid by individuals/organisations on which tax is levied. The tax is actually
borne by the individual or company and it is the same individual or company which is liable
to pay that tax. An example of direct tax is corporation tax.

Indirect tax is borne by someone other than the person responsible for paying it to the tax
authority. The tax is often included in the price of a commodity. Indirect tax simply means
that the taxpayer indirectly pays tax to the authority when they pay for a commodity; an
example of indirect tax is VAT.

b) Regressive ,progressive and proportional taxes

Regressive tax is where a flat rate of tax is levied on taxpayers regardless of their incomes.
In terms of individual income and wealth, a regressive tax imposes a greater burden of tax (
relative to resources) on the poor than on the rich there is an inverse relationship between
the tax rate and the taxpayer‘s ability to pay as measured by assets and income.

Progressive tax on the other hand is a tax in which the tax rate increases as the income
increases. In Zimbabwe progressive taxes are applied in levying employment income. The
tax rate increases from zero to marginal tax rate (i.e. the highest tax rate) as income
increases in bands.

A tax is proportional if all taxpayers pay the same share of taxes. Taxes which are subject to
a fixed rate are examples of proportional taxes. In Zimbabwe, corporate tax is levied at a flat
rate of 25%, meaning all corporates no matter how different their taxable income, contribute
the same proportion to the government coffers.

c) Administrative classification of tax

Taxes can be classified according to their relevant statutes meant to collect taxes from
different fraternities for instance:

 Income tax- tax on incomes

 Capital gain tax-tax on capital gains
 Import duty- tax on imported goods, etc.

1.2 Levy of tax

The authority to levy and collect tax stems from legislation. Acts of parliament are issued by
the government meant to provide guidelines on the taxability of certain amounts. Zimbabwe
Revenue Authority (ZIMRA) is a statutory body established by the Revenue Authority Act
(Chapter 23:16) with a mandate of enforcing the provisions of the tax statutes.

ZIMRA is responsible for assessing, collecting and accounting for revenue on behalf of the
state thorough the Ministry of Finance. The following are the revenue heads which are
administered by ZIMRA:

2 A Guide to Zimbabwe Taxation

  Customs Duty- levied on imported goods in terms of the Customs and Excise Act
(Chapter 23: 02)
 Excise Duty- levied on specified locally manufactured goods.
 Income Tax- levied on income earned from trade and investment.
 Pay As You Earn (PAYE) – levied on income earned from employment.
 Presumptive taxes- it‘s a concept of taxation on which income tax is based on
average income instead of actual income.
 Value Added Tax- levied on consumption of goods and services.
 Road Tolls- fees levied for the use of roads.
 Capital Gains Tax (CGT) – levied on sale of immovable properties and marketable
securities.
 Surtax- levied on imported vehicles older than five years.

ZIMRA is headed by the Commissioner General who have the responsibility of interpreting
and administering the ITA and other tax statutes.

Various Acts of Parliament in respect to tax were enacted as basis for the collection of such
tax. Besides Acts of Parliament, Statutory Instruments are passed which has the same way
legal authority as Acts of Parliament. The following acts will particularly be covered in this
text:

 Income Tax Act , Chapter 23:06

 Finance Act, Chapter 23:04
 Capital Gains Tax Act, Chapter 23:01
 Value Added Tax Act, Chapter 23:12
 Estate Duty Act, Chapter 23:05, etc.

No one is immune to tax. The FA is referred to as the charging act, in other tax legislation.
Rates of tax and revision thereto are gazetted by the Honourable Finance Minister and
stipulated in the FA. At the end of every year the Honourable Finance Minister pronounces
the national budget in which new amendments to the acts are made. All amendments to the
Acts are compiled in the FA. Amendments can involve repealing of some existing provisions
or additions of new provisions to the statutes.

1.2.1 Why are taxes levied?

a) Raising of revenue for the government

The major source of income for the state is through taxes. Government spending is
financed by taxpayers‘ money. A government needs money to provide public goods such
as security, social welfare, education, etc.

b) To regulate the economy

Government may use taxation as an instrument to drive economic objectives of a
country. Fiscal policy, for instance, is employed to control money supply. Taxation is
used under fiscal policy to withdraw money from the economy.

A Guide to Zimbabwe Taxation 3

c) To discourage the consumption of demerit goods

Some goods like tobacco poses health problems to consumers, as such the government
would want to reduce the consumption of such goods by imposing some taxes on such
goods. Excise duties are examples of such taxes.

d) To control international trade

The aim of the government is to maintain favourable balance of payments. A healthy
balance of payment is achieved when a country exports more than it imports. Therefore,
a country may seek to reduce imports by imposing taxes on imports (custom duties/
tariffs).

e) To promote economic growth

Reduction of imports does not only achieve favourable balance of payments. Where
imports are reduced, demand for domestic goods will surge thereby promoting the
growth of local companies which in turn lead to reduction of unemployment levels.

f) To prevent dumping of goods

‗Dumping‘ is a term that explains a situation where cheaper substandard goods are
produced in other countries and exported into the country thereby reducing significantly
the demand for local goods. Dumping is a big challenge to the economy as it destroys
local industries as their output become uncompetitive.

Government may seek to protect local industries by introducing tariffs so as to make the
foreign goods expensive compared to local goods.

1.3 Source of Zimbabwe tax law

1.3.1 Common law

The common law source of Zimbabwean laws is the Roman-Dutch law. This is a fusion of
Roman and Dutch laws. These laws were brought with our former colonisers when they
entered Zimbabwe. These are unwritten laws, unlike Acts of parliament, but whose principles
are important and are applied similarly in all countries which recognise Roman-Dutch as
their common law, example being South Africa. Because we have countries with the same
common law as us, making reference to cases decided in those jurisdictions are is
permissible, when dealing with similar cases in Zimbabwe.

1.3.2 Legislation
An Act of parliament also known as legislation is a primary source of law. Primary meaning it
is law that is created for the first time. An Act of parliament begins as a proposal that is put in
motion in the Parliament and goes through all reading stages before becoming a bill. Once
the bill is signed by the President of the Republic of Zimbabwe, it becomes law with effect
from the date of commencement. This is the central area of the study of taxation in
Zimbabwe.

Delegated legislation is that legislation not created by parliamentary process, but whose
creation is delegated to certain organisations or group of people who are empowered to do

4 A Guide to Zimbabwe Taxation

so. The law making process may be delegated for the reasons that the laws which intent to
be created are very much technical that necessitates to place the work in the hands of
specialists. Examples of delegated legislation are Statutory Instruments, Regulations, Bye-
laws etc. Zimra issues out statutory instruments from time to time and these have the same
authority as Acts of parliament.

The provisions of Acts of parliament will be changed from time to time, to suit the changing
environment. Changes may take the following forms:
- Repeal- that is when a certain provision is deleted from the Act, it will no longer be
effective.
- Substitution – that is when a new provision is added to the act and substitutes an
existing provision.
- Amendment- that is when an existing provision is altered its meaning but it is retained
in the Act.

All these changes will be included in the revised Finance Act of the relevant tax year.

1.3.3 Case law

A case law refers to a decided court case and once decided by the High Court or Supreme
Court, such a decision will automatically form part of our law. Another name for case law is
judicial precedent. A decided court case set a precedent which is used as point of reference
in future similar cases. Various cases will be referred to in this text to expound certain tax
principles.

Readers should realise the importance of precedents. Legislation alone can never cover a
wide variety of circumstances which arise; hence the courts rely significantly on decided
court cases, some of which were adjudicated in foreign lands. Although the rulings of foreign
courts are not binding on Zimbabwean courts, the ancestry of the acts encourages our
courts to accord considerable persuasive value to judgements given on similar cases in
those countries.

There are certain important tax principles of our tax system which were deliberately left
undefined in legislation, the reasons being:
i. Coming up with a universal definition which covers all circumstances is not practical,
and;
ii. The principles being very important in taxation, leaving them undefined will enable
courts to decide each case according to its facts and circumstances. This will prevent
a lot of contention and court challenges.

The following key principles will rely principally on case law:

- Gross income principles- meaning of source of income, ―amount‖, ―received‖,

―accrued‖, ―in favour of...‖, ―capital nature.‖
- General deduction principles- ―for the purpose of trade‖, ―in the production of
income‖, ―capital nature.‖

A Guide to Zimbabwe Taxation 5

1.4 Key definitions

1.4.1 Person
Section 2 of the ITA defines a person as including the following:
- A company;
- Body of persons (not being a partnership)
- A local or like authority;
- A deceased or insolvent estate; and
- In relation to income the subject of trust to which no beneficiary is entitled, the trust.

The definition of a person is one of inclusive definitions. Inclusive definitions include the
ordinary meaning of a word in its day to day usage in the definition; thus the word person
primarily refers to an individual (i.e. a natural person.) and then includes all others as
specified above. The definition of person however specifically excludes a partnership.
Students should note that there is no residential qualification for a person in this definition.
Every person where ever resident, falls within the ambit of the act. The question of taxability
of income in receipt by a person depends on whether the said income is from a Zimbabwean
source or deemed to be from a Zimbabwean source. It is important to note at this stage that
only those meeting the definition of person are taxpayers.

1.4.2 Definition of an associate

An associate is a person other than an employee who acts on directions, suggesting or
wishes of another person, whether or not the persons are in business relationship even
though such directions, wishes or suggestions are communicated to the first-mentioned
person.

The ITA specifically mentions the following persons as associates:

a) A near relative of a person, unless the Commissioner is satisfied that neither person
acted according the direction, suggestions, or wishes of the other.
b) A partner of a person, unless the Commissioner is satisfied that neither person acted
according the direction, suggestions, or wishes of the other.
c) A partnership, in which a person is a partner, is the person controls more than fifty per
cent or more of the rights of the partnership.
d) The trustee of a trust under which a person or an associate of a person benefits or may
benefits.
e) A company which is controlled by a person, either alone or altogether with one or more
persons.
f) Where a person is in a partnership, a partner who controls more than fifty per centum of
the partnership rights.
g) Where a person is a trustee, any other person who benefits from under the trust.
h) Where a person is a company, a person who controls the company together with other
companies which are controlled by that person.

1.4.3 Permanent establishment

A Permanent Establishment is a fixed place of business through which the business of a

company is wholly or partly carried on.

6 A Guide to Zimbabwe Taxation

A company has a permanent establishment in Zimbabwe if:

a) It has a fixed place of business through which it carries wholly or partly its business
b) An agent is acting on behalf of the company and habitually concludes contracts in the
name of the company, for the transfer of ownership or right of use of the property and
for the provision of services to the company.
c) A company is not considered to have a permanent establishment in Zimbabwe by
reason of the fact that it carries business in Zimbabwe through an agent of
independent status.

A fixed place of business includes;

 A place of management
 A branch
 An office
 A factory
 A workshop
 An installation or structure for exploration of natural resources
 A mine or a gas or oil well, a quarry or any other place for exploration of natural
resources
 A building site or construction or installation project

1.4.4 Special economic zones

Special Economic Zones means any part of Zimbabwe declared in terms of the Special
Economic Zones Act [Chapter 14:34].

1.4.5 Licensed Investor

"Investment licence" means an investment licence issued in terms of the Special Economic
Zones Act [Chapter 14:34] (No.7 of 2017), to a licensed investor with a qualifying degree of
export-orientation.

"qualifying degree of export-orientation" , as characterising a licensed investor, means that

the licensed investor exports all of its goods and services;".

1.5 Meaning of “ordinary residence”

The term ―ordinary residence‖ is alluded to in Zimbabwe tax legislation, but the phase was
not defined therein. Decided court cases in Zimbabwe and other jurisdiction are expedient in
this regard. The residence of a taxpayer is crucial in our tax system and has implication in
determination of the tax liability of taxpayers under various tax heads, example being
withholding taxes.

a) Residence of an individual
In the case of Cohen v CIR 1946 AD 174, it was concluded that while a person can be
resident in more than one country, the person can only be ordinary resident in one
country. It was decided that a person is ordinarily resident in the country to which he
would naturally and as a matter of course return from his wanderings. In other case of
CIR v Kuttel 1992 (3) SA 242 (A), it was concluded that ‗a person is ―ordinarily
resident‖ where he has his usual or principal residence, that is, what may be described

A Guide to Zimbabwe Taxation 7

 as his real home‘, thus the country where his usual principal residence (real home) is
located.

b) Residence of a company
Several factors are considered in determining the residence of a juristic person such as:
 Country of incorporation
 Place of effective management

A company incorporated in Zimbabwe is deemed ordinarily resident in Zimbabwe,

excluded is a company incorporated elsewhere with headquarters outside Zimbabwe,
unless the company operates in Zimbabwe. The place of effective management is the
place where the day-to-day activities of the business take place. It is where the executive
directors and management carry out the daily activities of the business. It is not solely
the place where company is controlled from, for instance, the place where the directors
of the company meets to manage and control the overall business operation.

c) Residence of a partnership
A partnership is not a legal person, thus the residence of a partnership is determined by
the residence of the individuals forming the partnership. A partnership is ordinarily
resident in Zimbabwe if the at least one of the partners is ordinary resident in Zimbabwe.

d) Residence of trust

The trust is resident in Zimbabwe if the person who forms the trust or the trustee is resident
in Zimbabwe.

Determination of residence status

Taxpayer Residence determined by
Individual Determined by nationality, physical presence and fixed place of
abode. The mode of life of the taxpayer.

Company Determined by the place of effective management and control

is situated.
Trusts If the trustee or the person who formed the trust is ordinarily
resident in Zimbabwe
Partnership If one of the partners is ordinarily resident in Zimbabwe the
partnership is deemed ordinarily resident.

1.6 General framework for computing tax payable

Section 7 of the ITA provides a basis for calculating tax liability of a taxpayer. Appropriate
rates of taxes as fixed by the Charging Act, i.e. the Finance Act, should be used. Before
applying the rates, one should compute what is termed as the taxable income. The
provisions of the Income Tax Act give guidance of arriving at the taxable income.

Framework for computing tax payable:

Gross Income [Sect 8; Sect 10 & Sect 12 of ITA] xxx

Less: Exempt Income [Sect 14 as read with 3rd Schedule, ITA] (xxx)

8 A Guide to Zimbabwe Taxation

Income xxx
Less: Allowable deductions [Sect 15 & Sect 16, ITA] (xxx)
Taxable Income xxx
Apply tax rates (FA)
Gross tax xxx
Less: Tax Credits (FA) (xxx)
Add: Aids Levy (at 3% of net tax) xxx
Tax liability xxx
Less: Tax paid in advance / Provisional tax (xxx)
Tax Payable or Refundable xxx/ (xxx)

The subsequent topics will be structured in line with the above framework. The components
of the above framework will be explained in the subsections which follow.

1.7 Gross Income

Section 8(1) of the ITA 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 (not being any
amount included in ―gross income‖ by virtue of any of the following paragraphs of this
definition) so received or accrued which is proved by the taxpayer to be to be of capital
nature.

The term gross income is very crucial in tax law. It is the starting point in the determination of
tax liability of a taxpayer. The above definition given in the act provides a basis for the
determination of what should, and what should not, be included in a person‘s taxable
income. From the definition of gross income given in the ITA, the following terms are the
pillars of the principle ‗gross income‘:

- total amount
- received by
- accrued to or in favour of a person
- in any year of assessment
- from a source within or deemed to be within Zimbabwe
- receipts or accrual should not be of capital nature,

The definition of gross income gives a general formula of what should be included in the
income of a taxpayer. Section 8 of the ITA furthermore identifies specific items which fall in
the definition regardless of whether they are of revenue or capital nature. These specific
items will be covered in the later chapters accordingly.

1.7.1 Meaning of „amount‟.

A Guide to Zimbabwe Taxation 9

Section 2 of the ITA, defines an amount as money or any other property corporeal or
incorporeal, having an ascertainable monetary value.

The calculation of gross income must begin with a review of the total amount which includes
non-monetary items having an ascertainable monetary value, see, Commissioner for
Inland Revenue v Butcher Bros (PTY) Ltd. Not only did the sections of the Act referred to,
gives a conclusive meaning of the term, decided court cases provides persuasive authority
as to the meaning of the term ‗amount‘. For instance the views expressed by
GREGOROWSKI, J., in the case of De Beers Consolidated Mines v Commissioner for
Inland Revenue (1922, W.L.D. 184). … the taxpayer‘s income for taxation purposes
included not only the cash which he had received or which had accrued to him, but the value
of every other form of property which he had received or which had accrued to him, including
debts and rights of action.

1.7.2 Meaning of „received‟

An amount received by a taxpayer in any year of assessment forms part of his taxable
income.
a) In commissioner for South African Revenue Service v Cape Consumers (Pty) ltd 61
SATC 91, the phrase ―received by‖ was held to connote a receipt by or accrual to a
taxpayer on his own behalf and for his own benefit.
b) In addition to the ordinary meaning of ‗received‘ a taxpayer can be said to have received
an amount even if it is not paid to him personally but to his agent, or if it is banked on his
behalf. The amount must, however, be one to which the taxpayer has a legal claim. A
person does not ‗receive‘ money which, for example, has been stolen: COT v G (1981)
43. Nor does he ‗receive‘ in the sense used in the Act, money which has been lent to
him, as held in CIR v Genn & Co (Pvt) Ltd (1955)
c) In ITC 675 (1949), the court held that, since deposits received from purchasers of day-
old chicks to be delivered in future were not refundable at the instance of the depositor
represented income in the hands of the seller.
d) In PYOTT LTD v COMMISSIONER FOR INLAND REVENUE 13 SATC 121 (A) – 1944
it was held that the amount received for the containers (deposit) constituted cash which
was not subject to any reduction or discounting and therefore had to be included in the
gross income of the taxpayer company at its full value.

1.7.3 Meaning of „accrued‟

An amount is said to have accrued to a person if the person becomes unconditionally

entitled to the amount in the year of assessment. The term ‗accrual‘ is complex and difficult
to interpret. Decided court cases helps to bring about principles with regard to the concept of
accrual.

A prominent case of reference in tax law is probably that of Lategan v Commissioner of

Inland Revenue (1926). The summary of this case is that, Lategan a wine farmer, in May
1920, entered into an agreement under which he disposed of the wine he had made during
the year of assessment ended 30 June 1920, for the sum of £5924. Of the sum, £3500 were
payable prior to 30 June of that year, and the balance was payable in instalments after that

10 A Guide to Zimbabwe Taxation

date. In his assessment of the appellant, the Commissioner of Inland Revenue included in
the determination of appellant‘s taxable income for the year ended 30 June, 1920, the whole
amount of £5924 for which the wine was sold. On appeal to the special court for the Cape
Province, the court upheld the assessment made that it was correct, holding that the
instalment payable after the close of the year of assessment had accrued to the appellant
within that year.

In the above case, the word accrued was held to mean ―to whom it has become entitled‖.
In other words amounts that are due but remain unpaid are assessable. For a person to be
entitled to an amount, he must acquire the legal right to receive payment. In other words, the
person must be in a position to enforce payment in the courts of law if the payment remains
outstanding.

In the meaning of accrued was amplified in Mooi V Secretary For Inland Revenue 34
SATC 1 (A) - 1972, the court had to add the word ―unconditionally‖ to the phrase ―become
entitled‖. An amount is said to have accrued to person if it becomes unconditionally entitled
to him.

In Commissioner For Inland Revenue v Witwatersrand Association Of Racing Clubs 23

SATC 380 (A) - 1960 the phrase ―in favour of” was held to mean 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.

1.7.4 Accrued or received

Income may accrue in one year and be received in another, this will likely pose a challenge
as to which year of assessment the income should be taxed? The phrases: …the total
amount received by or accrued to…in any year of assessment… from the definition of gross
income in the Act suggest that income is taxed on the earlier of date of receipt or accrual.

The principle above gives the Commissioner the right to levy tax in any year. This was
recognised in the principle of CIR v Delfos (1933). It should be noted, however, that the
Commissioner does not have an unrestricted power to choose the year of assessment. On
the basis of the views expressed in Silverglen v SIR (1968), it is submitted that where
accruals are disclosed he is bound to use the accruals basis, in which event the receipts
basis will be applied only in cases of earlier non-disclosure of accrual, as in the case of
Maguire v COT.

1.7.5 Year of assessment

Means a period of 12 months beginning on the 1st of January in any year and includes any
period within such a year of assessment. For the periods before 1st April 1997 a year of
assessment is a period of twelve months beginning on the 1st of April of any year.

1.8 Source of income

The Act itself contains no definition of ‗source‘. The courts apply a two pronged test to
determine source of income, namely;

A Guide to Zimbabwe Taxation 11

a) The originating cause of income - That is to say the activities of the taxpayer which has
resulted in him earning income. If the place where the activities leading to accrual of
income can be identified then the source of such income can be determined. The source
of income is the location of the originating cause as held in Commissioner for Inland
Revenue V Lever Brothers & Unilever Ltd 14 SATC 1 (A) – 1946.
b) The geographic cause of income – the quarter whence income comes from can be
explained as the place where operations resulting in income are carried out.

The source concept can be difficult to interpret yet it is a key concept in Zimbabwe taxation.
It is imperative to understand income first before we endeavour to understand the source of
such income.

The test laid down by Watermeyer, CJ, in CIR v Lever brothers and Unilever Ltd (1946) is
authoritative, namely that;

― the source of receipts , received as income, is not the quarter whence they come but the
originating cause of their being received as income and that this originating cause is the
work the taxpayer does to earn them, the quid pro quo, which he gives in return for which he
receives them. The work which he does may be a business which he carries on, or an
enterprise which he undertakes, or an activity which he engages in and it may take the form
of personal exertion, mental or physical, or it may take the form of employment of capital
either by using it to earn income or by letting its use to someone else.‘‘

It will be unfair and still dangerous to apply a blanket principle in determining the source of
income. It is probably an impossible task to formulate a definition which would furnish a
universal test for determining when an amount ‗is received from a source within Zimbabwe‘.
The Legislation, which was probably aware of the difficulty in defining the term ‗source‘, gave
no definition for it. Consequently, it is for the courts to decide on the particular facts of each
case whether ‗gross income‘ has or has not been received or accrued from a source within
Zimbabwe.

From the inference drawn from the judgment of the case of CIR v Lever brothers,
Watermeyer, CJ, attempted to distinguish various dynamics which cause income to be
earned these include:

 Personal exertion-mental; or
 Personal exertion – physical (equivalent to rendering of services); or
 Employment of capital (own use); or
 Letting use of capital to someone else; or
 A business which a taxpayer carries on

1.8.1 Royalties

The source of income is the place where the intellectual property was created. As held in the
case of Millin v CIR (1928), the facts were that Mrs. Millin wrote books in South Africa which
were published in England under contracts negotiated there. The court held that, since the
exercise of her wit and labor had produced the royalties, and since these had been
exercised in South Africa, the source of the royalties was South Africa. The contention that
the source was London, were her copyright had been employed, was rejected.

12 A Guide to Zimbabwe Taxation

The same principle applies to income from patent rights, and other similar accruals from
intellectual property of a taxpayer.

1.8.2 Trademarks and „know how‟

The true source is the country where the recipient carries on the activity, or employs the
asset, giving rise to such income. Trademarks are an exception to all other forms of
intellectual property as in the case of ITC 1491 (1991). The principle derived from the case is
that there is no difference between the letting of movable assets and the grant of the right to
use a trademark and secret formula. The source of income is hence, the activity of the one
who employs the use of the trademark or secret formula.

1.8.3 Services rendered under an employment contract

Where services are rendered in an employment contract, the source of income is the place
where such services are rendered. This has been held in the case of COT v Shein (1958)
FC, and other long line of special court cases.

1.8.4 Directors‟ fees

The courts have set a precedent that the source of income for directors‘ fees is where the
head office of the company to which the director renders his services is located. Thus, if the
head office is located in Zimbabwe then the directors‘ fee is from a Zimbabwean source. See
the case of ITC 106 (1927).

If however, the director renders his services in the capacity of an employee, i.e. earning a
salary then the source of such income is determined by the place where the services are
rendered.

1.8.5 Services rendered in the course of carrying of business or trade.

The principle for rendering of service stands that the place where the services are rendered
is the source of income.

1.8.6 Sale of shares

The originating cause of income derived from the sale of shares is the buying and selling of
shares, thus the place where the shares were traded. The principal case is that of
Commissioner for Inland Revenue V Black, 21 SATC 226.

The background of the case:

Black resided in Johannesburg and carried on business there as a stockbroker in

partnership with others. Black‘s firm carried on arbitrage business on joint account with a
firm of London brokers, but otherwise did not job in shares on its own account. Black himself
carried on a private business, separate from the firm‘s business, of speculating in shares on
the Johannesburg stock market. Black had also entered into an arrangement with the
London firm whereby the latter purchased and sold shares on his behalf on the London stock
market. The purpose of such dealing in shares was to make a profit on the resale thereof,

A Guide to Zimbabwe Taxation 13

but, in accordance with the arrangements between it and Black, the London firm was entitled
to deal in shares on his account without his authorization.

During the tax year in question Black made a net profit of £1,694 on the share dealings in
London and during the same time made a net profit of £2,808 by speculation on the
Johannesburg market.

In assessing Black for income tax and super tax the Commissioner included the sum of
£1,694 in Black‘s income. To this assessment Black objected and, upon his objection being
overruled, appealed on the grounds:

The special court for hearing income tax appeal upheld his appeal. The Commissioner of
taxes appealed to the Appellate division against the decision of the first court, the later court
dismissed the appeal with costs.

Thus, it was held by the courts that the basic and real reason, or originating cause, for
the receipt of the income was the buying and selling of the shares, which took place
in London, and that, therefore, the income consisting of the profit on such sales was
derived from a source located in London.

1.8.7 Income derived from trade

There are two tests that can be applied to determine the source of income from trade,
namely, the place where the contract is concluded and the situs of control. The place where
the contract has been made does not provide a universal and decisive test, See Smith &
Co. v Greenwood, 8 T.C. at 203-4. Another test applied in the English courts for
determining the same question is the situs of control that is, the place where trade is
controlled. See San Paulo (Brazilian) Rly Co. Ltd v Carter, [1896] A.C. 31 and Ogilvie v
Kitton, 5 T.C. 338.

These decisions are applicable in determining the source of income derived from trade. For
the foregoing reasons, the originating causes of income are the dominant factors of the
trade, namely, the selling of commodities and the control of the trade and these factors are
located at the place at which they occur.

1.8.8 Business operations- profits

The source of profits from business operations is the place where the operations are being
carried out if the business operations extend beyond one country, then the source of profits
is the country of dominant activities.

Where the business profits arise from trading activities which extend beyond one country the
source of profits is taken to be the country in which the goods are sold. The principal case of
reference is probably an Australian case that of, Commissioner of Taxation of Western
Australia v Murray Limited, 42 C.L.R. 332. The taxpayer was a company buying soft
goods in London and selling them in Western Australia, tax being payable on ‗all profits
made in Western Australia‘. In deciding that certain sums were included in such profits the
High Court of Australia said, ‗In our opinion the place where the whole profit of such a
business is made is where the goods are sold‘

14 A Guide to Zimbabwe Taxation

1.8.9 Dividends

The source of income for dividends as held in the case of Boyd v CIR (1951) is the country
in which the company from which dividends are paid is incorporated.

In an Australian case, Nathan v F.C. of Taxes (25, C.L.R. 183), the Court decided that the
source of dividends received by a shareholder in a company was the business carried on by
the company which earned the money out of which dividends were paid. Thus, the Court
seems to have brushed aside the legal idea of a company being a separate persona distinct
from its shareholders and to have dealt with the shareholder as if he were a partner in the
activities of the company, thus deriving his income from the same source as that from which
the company derived its income.

1.8.10 Annuities

The source of an annuity, in the case of contractual annuity, is the place where the contract
was concluded: Boyd v CIR (1951).

In the case of a will trust, the source of an annuity is the place where the will is executed,
regardless of the source of the trust income from which the annuity is paid: ITC 826 (1956).

1.8.11 Interest

Interest income is derived from the letting of use of capital to another person. The principle
which was laid down in the case of Dunn & Co. and Overseas Trust Corp Ltd. v C.I.R,
1926 A.D is that: in determining the source of income based on capital, regard must be
made to the place where the capital which produced the profits is employed.

The source of interest is the place where the credit was granted or the place where the
capital producing the interest was employed. As held in the case of CIR v Lever bros and
another (1946), the source of income is what the lender does to earn interest, which is the
provision of credit and where this act is done is the source of interest.

The source of interest which is not earned from a loan or credit granted is the place where
the capital was employed.

1.8.12 Rentals

The source of rental income from immovable property, such as building, is the place in which
the property is located. An important principle applied here is that, the source of income of
‗an ordinary business based upon capital‘ is the place where the capital which produced the
profits is employed. Thus, the country in which the property is situated is the place in which
the owner of such property has employed his capital.

In the case of movables, the general rule may vary according to circumstances. In most
instances, the source of rentals will be the country in which the owner of the hired assets
carries on business.

There are other instances where the country where the asset is used by the customer may
constitute the source of rentals as held in the case of, COT v British United Shoe
Machinery (Pty) Ltd (1964) 26 SATC 163. It should, however, be imperative to note that,

A Guide to Zimbabwe Taxation 15

the nature of property and the existence of long leases, e.g. from five to ten years, is crucial
for the purpose of determining source.

1.8.13 Partnership profits

The source of partnership profits is the place where the partner renders his services to earn
the partnership income, CIR v EPSTEIN, 1954.

Background of the case

Epstein, who carried on business in Johannesburg as an agent of foreign firms, had entered
into an agreement with a partnership carrying on business in Argentina under which Epstein
and the partnership were associated in the purchase of asbestos in the South Africa and its
sale by the partnership in Argentina.

Under the terms of the arrangement concluded, the partnership in Argentina found
purchasers of asbestos in that country and then notified Epstein the quantity and quality of
asbestos required the price which could be paid for it, and the producer who should be
approached to supply it.

Then Epstein would approach the producer designated and ascertained from him the
quantity of the required quality available and its price f.o.b. This information was cabled to
the partnership, which then concluded a sale in its own name to the prospective purchaser,
on terms based upon this information. On the conclusion of this sale by the partnership, its
particulars were advised by cable to Epstein who was instructed to conclude a purchase
from the producer in his own name on the terms and conditions quoted.

The Commissioner for Inland Revenue having included in Epstein‘s taxable income the
amounts received by him from these transactions during the years of assessment ended
30th June, 1946, and 30th June, 1947, Epstein appealed against the assessments made
upon him. It was held, that as the amounts received by Epstein constituted the return
to him for the work and services rendered by him within South Africa, they had been
received by him from a source within South Africa and had rightly been included in
his assessments.

1.9 Deemed Sources

1.9.1 Contract for the sale of goods :Sect 12(1)(a)

A contract for the sale of goods, made and concluded in Zimbabwe is deemed to be from
Zimbabwean source regardless of the fact that the goods in question might not even pass
through Zimbabwe.

1.9.2 Income derived from rendering of services: Sect 12(1)(b)

Any income earned by a person during the year of assessment as a result of services
rendered by him in Zimbabwe is deemed to be from Zimbabwean source. A person can
render services in the course of employment or in carrying on of a trade. Trade is defined in
section 2 of the Act as including any profession, trade, business, activity, calling, occupation

16 A Guide to Zimbabwe Taxation

or venture, including the letting of any property, carried on, engaged in or followed for the
purposes of producing income.

It does not matter where the funds or recompense for the services rendered comes from,
what is important is the fact that the services producing the income have been performed in
Zimbabwe.

Illustration
Joh Ray is an American citizen who works for SMG Mining Ltd; during 2017 tax year he was
transferred to work for Zimbabwean branch. He is paid from America.

This means, for the time he is working in Zimbabwe he will be taxable in Zimbabwe.

1.9.3 Income from services rendered by an employee during period of temporary

absence from Zimbabwe: Sect 12(1)(c)

An ordinary resident of Zimbabwe, who receives income by way of remuneration for services
rendered outside Zimbabwe as an employee, is deemed to have received the income from a
source within Zimbabwe, if the said income is received during a period of temporary absence
from Zimbabwe.

A period of temporary absence is a period not exceeding 183 days in aggregate during a
year of assessment. In literal sense, it is a period less than six months. This section
specifically includes a director in the definition of an employee.

Illustration
During 2017 tax year Mr. Majuru worked 3 months Botswana, one month in Zambia, and
three weeks in South Africa.

The aggregate total months worked does not exceed 6 months (183 days) in 2017 tax year;
hence all of his income he earned outside Zimbabwe is taxable in Zimbabwe.

1.9.4 Services rendered to Zimbabwe government: Sect 12(1)(d)

Remuneration paid to a government official who is an ordinary Zimbabwean resident is

deemed to be from a Zimbabwean source regardless of the place where the services are
rendered. An exception is services rendered to the Zimbabwe government by a person who
is not a resident of Zimbabwe.

Illustration
Mr. Magwenzi works for Zimbabwean Embassy to China; he is an ordinary resident of
Zimbabwe.

Mr. Magwenzi works for Zimbabwe government though he renders his services in China.
Because he is an ordinary Zimbabwe resident, he is taxable in Zimbabwe reason being he
works for Zimbabwe government.

A Guide to Zimbabwe Taxation 17

1.9.5 Services rendered: Pension and Annuities: Sect 12(1)(e)

An amount received by a person in the form of a pension or an annuity for services rendered
in Zimbabwe from wherever source, is deemed to be from a source within Zimbabwe.

Illustration
Mrs. Gomba worked in Zimbabwe for 30 years before retiring. Her employer was an Indian
company with operations in Zimbabwe. On retirement she started to receive her pension
from India.

Mrs. Gomba is taxable on her pension reason being she acquired the right to her pension by
rendering services in Zimbabwe, hence Zimbabwe is deemed to be source of her pension.
She is therefore taxable in Zimbabwe.

1.9.6 Interest and dividends: Sect 12(2)

Foreign dividends and interest received by a person in any year of assessment is deemed to
be from Zimbabwe. The dividends or interest should be received or accrue or deemed to
have accrued to the recipient at the time he is an ordinary resident of Zimbabwe.

Illustration
Mr. Patrick is a Zimbabwean resident, during 2017 he received dividend from UK.

The dividend is taxable in Zimbabwe because he received it at the time he is an ordinary

resident of Zimbabwe. What matters is: the recipient should be an ordinary resident of
Zimbabwe at the time of receipt.

Summary notes on foreign dividends and interests

 Dividends are not to be offset against any assessed loss in the tax year.
 Dividends are taxed at 20% no Aids Levy is chargeable on dividends
 Interest is taxed at the normal rate of 25%.plus 3% Aids Levy
 Amounts must be included in gross income as total amount (gross) including any tax
paid in a foreign country. No deduction is granted against dividend and interest income.
 Double taxation relief may need to be granted taxpayers

1.9.7 Annuities: Sect 12 (3)

An annuity received from outside Zimbabwe is deemed to be from a source within Zimbabwe
if the right to the annuity was acquired by the annuitant at the time he was an ordinary
resident of Zimbabwe. The right to the annuity should have been acquired by payment of a
sum of money or have been acquired by way of a disposal of an asset by the annuitant or by
both means.

1.9.8 Income derived from intellectual property: Sect 12(4)

18 A Guide to Zimbabwe Taxation

Intellectual property is an incorporeal property created by a person by way of employing his
mental exertion or his intellect, Patents, trademarks, copyrights or secret formula provides
examples of such property.

Income derived from the use of such property, granting the permission of use of such
property or the imparting of knowledge in Zimbabwe, is deemed to be from a source within
Zimbabwe, regardless of where exactly the payment is coming from,

1.9.9 Recoupments: Sect 12(5)

Recoveries of capital allowances outside Zimbabwe which would have qualified otherwise as
income under section 8(1) (i) and (j) is deemed to be from a source within Zimbabwe. Thus a
sale of a fixed asset outside Zimbabwe attracts tax.

1.10 Deemed accruals

1.10.1 Income not paid over [S10 (1)]

Income is deemed to have accrued to a taxpayer even though it has; been invested,
accumulated or otherwise capitalized by him; or not been actually paid to him, but remaining
due and payable to him; or has been credited to an account or reinvested or accumulated or
capitalized or otherwise dealt with in his name or on his behalf.

1.10.2 Partnership income [S10(2)]

Income accruing to a partnership is deemed to be accruing to the partners in

proportional to their agreed profit sharing ratios.

Enlightenment!
Remember the definition of person specifically excludes a partnership. A partnership is not a
taxable entity. The partners who make up the partnership are however, taxable. Each
partner is liable to tax on his or her share of income immediately whenever income accrues
to the partnership.

1.10.3 Income accruing to a minor child [S 10 (3)]

Income accruing to a minor child from a donation, settlement or other disposition made by
one of his parents is taxable in that parent‘s hands. A minor child is a child under the age of
18 years and unmarried. However, if a minor child receives income in his own right, such as
wages for services rendered, he, and not his parent, is taxable on such income.

1.10.4 Cross donations [S 10 (4)]

If a parent makes a donation to a child of another parent, and if the parent of the child to
whom a donation is made; or his spouse or near relative makes a reciprocal donation to the
child of the first parent the donations are taxable in the hands of the parents.

A Guide to Zimbabwe Taxation 19

1.10.5 Income postponed by stipulation of maker of donation, settlement or other
disposition [S 10 (5)]

To curb tax avoidance, this section is meant to restraint an attempt by a taxpayer, who
makes a donation (commonly to a trust) for the purpose of divesting himself of the right to
the income from the donated assets but at the same time withholding such income from the
donated assets from the beneficiaries until the happening of some event. The withheld
income is deemed to remain that of the donor if:
- The donor (or near relative) has power to control the ultimate devolution of the income;
or
- any of the funds or income could devolve or be lent to the donor (or his spouse, or one of
their deceased estates, or a company controlled by any of them

1.10.6 Income accruing by the rights and power retained by maker of donation or
other disposition [S 10 (6]

If a donor reserves to himself the right to confer the income from a donation, settlement or
disposition on some other person, he is taxable on income arising from the donation, for so
long he retains that power.

1.10.7 Amounts accruing in the year of assessment and which are payable after the
last day of the end of year of assessment.[ S 10 (7)]

Where a taxpayer becomes entitled to any amount which is payable after the last day of the
year of assessment, the amount shall be deemed to have accrued to him in the year of
assessment. This section provides the basis for taxing income that is receivable by way of
installments such as hire purchase agreements and credit sales which will be covered in
latter chapters.

Enlightenment!
Because of the hardship imposed on a taxpayer, section 17 & 18 of the ITA is meant to
alleviate the burden by granting the taxpayer an allowance (Suspensive sale allowance)
which is calculated based on outstanding debtors. See chapter on Hire purchase.

1.11 Receipt of capital nature (Common law principles)

The definition of gross income specifically excludes amounts proved by the taxpayer to be
capital in nature. Also expenditures and losses to the extent to which they are capital in
nature are not allowable as deductions.

Legislation did not give the meaning of ‗capital nature‘. Reliance is thus placed on decided
court cases so as to decipher the meaning of the phrase. Over the years the courts
endeavored to give meaning to the phrase ―capital nature‖ but without easy. Disputes over
the meaning of ―capital receipts‖ or ―capital expenditure‖ spilled into courts since time
immemorial, because of different circumstances involved in each case, it made it difficult for
courts to come up with a decisive interpretation for the phrase ―capital nature‖. As a result of

20 A Guide to Zimbabwe Taxation

the unique circumstances in each case, in the judgment of New State Areas Ltd v
Commissioner for Inland Revenue 1946 AD 610 at 627 it was concluded that: the true
nature of each transaction must be examined and that each case must be decided on
its own facts and circumstances.

1.11.1 The tests applied by courts

The courts over time applied the following test to determine the nature of the transactions.

a) Fruit Versus Tree Analogy

Where an amount represents income from the disposal of the income producing asset (ie
the tree), the amount is of a capital nature. However, where an amount represents the
fruit of the tree, such amount is not of a capital nature as held in Visser v CIR SATC 271
(TPD) – 1936. The tree-fruit analogy is a useful guide but it is important to note that, the
court, in that case, cautioned that what is tree to one person could be fruit to the other.

b) Fortuitous nature of the receipt or accrual

The receipts or accruals bear the imprint of revenue if they are not fortuitous, but
designedly sought for and worked for (CIR v Pick ’n Pay Employee Share Purchase
Trust).

c) The „filling a hole‟ test

A test which is sometimes applied when the receipt or accrual represents compensation
is to ask whether the compensation was designed to fill a hole in the taxpayer‘s profits,
or whether it was intended to fill a hole in his assets (Burmah Steamship Co Ltd v IRC)

If the compensation is in respect of filling a hole in assets, it will in addition be necessary

to determine whether the asset is of a capital or revenue nature.

Compensation received in respect of the loss or sterilization of a fixed capital asset is of

a capital nature.

d) Capital is held with an element of permanency

Vos J stated in Bloch v SIR that:

„Capital is that which is held with an element of permanency and with the object that it
should produce an economic utility for the holder‘.

e) Fixed Versus Floating Capital

Where an amount is received from the disposal of fixed capital it is regarded as of a
capital nature whereas if it is received from the disposal of floating capital, is not of a
capital nature as held in CIR v George Forest Timber Co Ltd 1 SATC 20 23-24. Innes
CJ, the presiding judge on the mentioned case, in distinguishing fixed and floating capital
said:

A Guide to Zimbabwe Taxation 21

 ―I take the substantial difference to be that floating capital is consumed or disappears in
the very process of production, while fixed capital does not; though it produces fresh
wealth, it remains intact‖

Watermeyer C, J in yet another case: New State Areas Ltd v CIR 1946 AD 610, stated:

“When the capital employed in a business is frequently changing its form from money to
goods and vice versa (e.g., the purchase and sale of stock by a merchant or the
purchase of raw material by a manufacturer for the purpose of conversion to a
manufactured article), and this is done for the purpose of making a profit, then the capital
so employed is floating capital.‖

f) Scheme of profit making

Profit made in a ‗profit making scheme‘ is revenue and is subject to income tax. A profit
making scheme is a scheme entered into with the primary intention of making a profit. In
Overseas Trust Corporation, Limited v Commissioner for Inland Revenue (1926,
A.D. 444) 3 INNES, C.J. ruled that ―a gain made by an operation of business in carrying
out a scheme for profit making then it is revenue derived from capital productively
employed, and must be income.‖

It should be mentioned at this stage that, over the years the ―profit-making scheme‖ test
is the test most often applied. Determining whether a taxpayer carried out a scheme of
profit making or not, requires that two questions be answered. The questions are:
i. Did the taxpayer objectively conduct a business? (objective test)
ii. Was it the objective of the taxpayer to conduct business? (subjective test)

For one to be said to have carried out or to be carrying out a business, there should be
some continuity of the activities involved, the continuity test applies well to individuals
and not to companies, as held in Overseas Trust Corporation, Limited v
Commissioner for Inland Revenue (1926, A.D. 444) 3. The company‘s objects as
detailed in its memorandum, serves the purpose of determining whether it carries a
business of a nature under contention.

An important factor to be answered in order to answer the two questions above is to

consider the intention of the taxpayer, as has been long held in memorial landmark
rulings in the past.

Summary of objective factors that should be considered in determining intention

of taxpayer

 Circumstances surrounding the acquisition or sell of property-

 The nature of the taxpayer‘s occupation
 The continuity of activities
 Period of holding unto the asset- short holding period indicated speculative motives,
thus scheme of profit making. Long holding period suggests that the asset is held for
investment (capital).
 Documentary evidence- correspondence, agreement etc.
 The ability of a taxpayer‘s financial resources to accommodate taxpayer‘s professed
intention

22 A Guide to Zimbabwe Taxation

1.11.2 Intention

a) Single intention
An intention of a taxpayer both at the time of acquisition of an asset or at the time of
disposal of that asset is important, in determining the nature of receipt as held in
Elandsheuwel Farming (Edms) Bpk v Sekretaris van Binnelandse Inkomste 1978
(1) SA 101 (A).

Wessels JA in his judgment in CIR vs. Stott[1923] (3) SATC 253 ruled that an important
factor that makes receipts from the sale of assets to be of a capital or revenue is the
intention with which the said asset was first acquired.

b) Multiple intention
Where a taxpayer has mixed intentions when an asset is acquired, for example he will
rent the asset out and receive rental income (which is not of a capital nature), but
dispose of it when he receives a good offer (which proceeds will be of a capital nature).

As a general rule, where there is mixed intention the dominant intention is important in
determining the nature of receipts. See, COT v Levy.

c) Change of intention
Although a taxpayer might have obtained an asset to keep it as an investment (ie as
capital), it does not follow that when he or she disposes of it, the proceeds will always be
of a capital nature. The reason is that a change of intention might have occurred, as was
stated in Natal Estates Ltd v SIR 1975 4 SA 177 (A) 202-203:

―From the totality of the facts one has to enquire whether it can be said that the owner
had crossed the Rubicon and gone over to a business, or embarked upon a scheme, of
selling such land for profit, using the land as his stock-in trade.‖

However an important caution was given in the case of John Bell and Co (Pty) Ltd
v SIR 1976 4 SA 177 were it was held that: a mere change of intention to dispose of an
asset hitherto held as a capital does not per se subject the resultant profit to tax.

The decisive question is whether the taxpayer crossed the Rubicon in disposing of the
asset.

1.11.2 Forms of capital receipts

Forms of capital receipts Explanation as to why a receipt is capital in

nature
Inheritance- proceeds from disposal of - Receipt is fortuitous, not designedly sought
inheritance for and worked for.
Receipts under restraint of trade contract - Receipt represents proceeds from disposal of
a right to earn income. That right is linked to
income earning structure, hence capital.

A Guide to Zimbabwe Taxation 23

Gambling receipts- e.g. Lotto winnings - The receipts is fortuitous
Damages and compensations receipts - Receipt meant to fill a hole. ‗Filling the hole in
for a fixed asset. an asset test‖
Compensation received for impairment - Receipt linked to income producing structure.
of taxpayer‘s business
Gifts given to an employee by an - Fortuitous, not designedly sought for and
employer (not connected with worked for.
employment, e.g. wedding gift

1.12 Exemptions income from tax [3rd Schedule to the ITA]

To be deducted from gross income, are amounts that otherwise meet the definition of gross
income but which are specifically stated in the revenue statutes to be exempt from tax.
Section 14 of the ITA as read with the Third Schedule, stipulates such amounts. The FA
specifies some absolute amounts which are exempt as pronounced by Honorable Finance
Minister in the annual national budget. Some income enjoy full exemption some only partial,
e.g. bonuses.

Exempt income can be categorized in two ways:

a) By the identity of the recipient, or

b) By nature of income.

1.12.1 Exemptions based on identity of recipient

Income accruing to the following recipients is immune to tax;

a) Government owned bodies (para. 1)

Specifically mentioned are the receipts and accruals of
- Local authorities
- Reserve Bank of Zimbabwe
- Zimbabwe Asset Management Corporation (Private) Limited (ZAMCO), a wholly
owned company of the Reserve Bank of Zimbabwe.
- Zambezi River Authorities, and
- Natural Resources Board, and
- The Post Office Saving Bank, etc.

b) Non-profit sharing bodies (para.2)

The receipts and accruals of—

- Agricultural, mining and commercial institutions or societies not operating for the
private pecuniary profit or gain of the members; benefit funds;
- Building societies;
- Income from Mortgage Finance- With effect from 1 January 2016, in addition to
building societies, receipts by financial institutions attributable to mortgage finance for
residential accommodation are exempt from income tax.
- Insurance and Pension housing fund- With effect from 1 January 2016, receipts and
accruals of the fund are exempt from tax.

24 A Guide to Zimbabwe Taxation

 - Investor Protection Fund- With effect from 1 January 2016 , receipts and accruals of
the fund are exempt from tax.
- Clubs, societies, institutes and associations organized and operated solely for social
welfare, civic improvement, pleasure, recreation or the advancement or control of any
profession or trade or other similar purposes if such receipts or accruals, whether
current or accumulated, may not be divided amongst or credited to or ensure to the
benefit of any member or shareholder other than by way of remuneration for services
rendered;
- Ecclesiastical, charitable and educational institutions of a public character, consisting
of:
 consisting of donations, tithes, offerings or other contributions by the
members of the institutions concerned, and any other receipts or
accruals that are not receipts and accruals of income from trade or
investment activities of that institution.
 That is receipts and accruals of income from trade or investment by
any company of which that institution is the sole or principal member.
- Employees saving schemes or funds approved by the Commissioner;
- Friendly, benefit or medical aid societies;
- Funds established by the Treasury in terms of section 30 of the Public Finance
Management Act [Chapter 22:19];
- Pension funds, until such date as the Minister may specify by notice in the Gazette;
- Any statutory corporation which is declared by the Minister, by notice in the Gazette,
to be exempt from income tax; Provided that the Minister may limit any such
declaration to such of the statutory corporation
- Receipts and accruals as he may specify in the notice;
- Trusts of a public character.
- The Deposit Protection Fund established in terms of section 66 of the Banking Act
[Chapter 24:20].

c) International government organization (para.3)

The following specified international and financial organizations and approved government
agencies are exempt from tax on their receipts and accruals.

- 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 referred to in the African Development Bank
(Membership of Zimbabwe) Act [Chapter 22:01];
- The African Development Fund referred to in the African Development Fund
(Zimbabwe) Act[Chapter 22:02];
- The South African Reserve Bank;

A Guide to Zimbabwe Taxation 25

 - 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;
- Any person who—
i. is entitled to an exemption in respect of such receipts or accruals in terms of
any agreement entered into by the Government of Zimbabwe with any other
government or organization; and
ii. is approved by the Minister by notice in a statutory instrument; to the extent
provided in the agreement concerned;
- Any bank or other financial institution outside Zimbabwe in connection with a loan or
other facility granted to the Reserve Bank of Zimbabwe in terms of paragraph (m) of
subsection (1) of section 9 of the Reserve Bank of Zimbabwe Act [Chapter 22:10];
- Any company which has as its principal object the provision of venture capital for
development purposes and which is approved by the Minister by statutory
instrument.

d) Individuals (Para 4)
a) The president of Zimbabwe- any amount paid to the president by way of a salary or
emoluments is exempt from tax. This includes salary paid to domestic workers of the
President as long as such salary is paid out of the president‘s salary.

b) Senior government officials -any allowance paid to Ministers, Deputy Ministers,

Members of Parliament, and Speaker of Parliament is not taxable. This includes the
value of benefit granted to them, such as, grant of quarters, residence, furniture or
motor vehicle.

c) Civil servants- any person who is a full time employee of the Government is not
taxable on allowances paid to him in the course of his employment.

d) Any gratuity payable to a judge of the Supreme Court or the High Court in terms of
his conditions of service.

e) An allowance payable to a chief or headman in his capacity as chief or headman;

f) A scholarship, bursary, payment in respect of tuition fees or other educational

allowance to a student receiving instruction at a school, college or university, but not
including an amount accruing to the student by way of remuneration for services
rendered or to be rendered by the student or a near relative of the student;

g) A monthly personal allowance payable to a councillor, in his capacity as a councillor,

in terms of section 112 of the Urban Councils Act [Chapter 29:15]

h) The value of an allowance in respect of accommodation and transport, or the value of

the grant of quarters or a residence to any member of staff of a mission hospital or
rural clinic. The clinic must be owned by a religious organisation or rural district
council.

1.12.2 Exemptions based on nature of income

26 A Guide to Zimbabwe Taxation

a) A bonus or a performance related award accruing to a person to the extent that the
amount does not exceed one thousand United States Dollars.

b) The first ten thousand United States dollars or one-third, whichever is the greater, of
the amount of any severance pay, gratuity or similar benefit, other than a pension or
cash in lieu of leave, which is paid to an employee on the cessation of his or her
employment, where his or her employment has ceased due to retrenchment under a
scheme approved by the Minister responsible labour or Public Service.

c) A scholarship, bursary, payment in respect of tuition fees or other educational

allowance to a student receiving instruction at a school, college or university, but not
including an amount accruing to the student by way of remuneration for services
rendered or to be rendered by the student or a near relative of the student;

d) A reward paid to a person by the Commissioner-General in terms of section 34B of

the Revenue Authority Act [Chapter 23:11];

e) An amount accruing by way of a;

- War disability pension
- War widow pension
- A pension in terms of the Old Age Pensions Act [Chapter 332 of 1974]

f) An amount paid as compensation or benefit to any person or his dependents for

injury, disablement or death due to employment.
g) A pension paid to an elderly, which is paid out of an approved pension fund or from a
Consolidated Revenue Fund.
h) An amount accruing by way of a benefit in respect of the injury, sickness or death of
a person which is paid to the person or his dependants or deceased estate—
i. from a benefit fund; or
ii. in terms of a policy of insurance covering accident, sickness or
death; or
iii. by a medical aid society.

i) The value of medical treatment or of travelling to obtain such treatment which is

provided by an employer for an employee or the dependant of an employee, whether
provided in kind, by direct payment, by refund or in any other manner whatsoever.
Also the amount of any contributions paid to a medical aid society by an employer on
behalf of his employees
j) An amount received by or accrued to or in favour of a person by way of a dividend
from a company which is incorporated in Zimbabwe and is charged or chargeable to
income tax. Excluded from exemption are deemed dividends in terms of Section
26(2) and Section 28(2) of the ITA. This deemed dividend refers to interest costs on
an amount of loan exceeding debt to equity ratio of 3:1,thin capitalisation principle.

k) Amount accruing by way of interest paid on:

 Savings certificate issued in terms of any law;

A Guide to Zimbabwe Taxation 27

  A sum deposited in the Post Office Savings Bank of Zimbabwe;

 Any tax reserve certificate issued in terms of the Tax Reserve Certificates Act

 A loan raised by the State subject to the condition that interest on the loan
shall be exempt from income tax;

 A loan raised by the State which is declared by the Minister, by statutory

instrument, to be exempt from income tax;

 Any loan made by the European Investment Bank established by Article 129
of the Treaty establishing

 The European Economic Community;

 Any lo ..an to the Infrastructure Development Bank of Zimbabwe established

by section 3 of the Infrastructure Development Bank of Zimbabwe Act made
by an institutional shareholder as defined in that Act who is not ordinarily
resident in Zimbabwe;

 Class ―C‖ permanent shares as defined in the Building Societies

 Any so called ―agricultural bond‖ issued by the Agricultural Finance

Corporation and a consortium of commercial banks. any bond issued by the
Reserve Bank of Zimbabwe on behalf of the National Fuel Investments
Company (Private ) Limited. [Subparagraph inserted by Act 18 of 2000]

 Any ―agricultural bond‖ issued by a consortium of commercial banks led by

Syfrets Corporate and Merchant Bank (Sybank) for the purpose of advancing
the proceeds to support the beneficiaries of the resettlement programme
which commenced under the terms of the Land Acquisition Act.

 Any deposit with a financial institution or on banker‘s acceptances and other

discounted instruments accruing to a taxpayer who is of or over the age of
fifty five years, in respect of the first three thousand United States dollars
accruing to the taxpayer in the year of assessment concerned; or

 Any ―Diaspora Bond‖ issued by the Commercial Bank of Zimbabwe (CBZ).

 Any interest accruing to a person from which resident tax on interest is

required to be withheld.

 Interest earned on loans to small scale miners – with effect from 1 January
2016, interest accruing from loans to small scale gold miners is exempt from
tax.

28 A Guide to Zimbabwe Taxation

  With effect from 1 January 2017, Interest received from fixed term deposits
with tenure of 12 months.
 An amount by way of interest received by or accrued to or in favour of a
person who, at the time the interest accrues, is not ordinarily resident and
does not carry on business within Zimbabwe—

i. on so much of any loan made to a person carrying on mining

operations or undertaking prospecting or exploratory works for the
purpose of acquiring rights to mine minerals as is used by the person
in carrying on or undertaking such operations or works in Zimbabwe;
and
ii. on any loan to the State or any company all the shares of which are
owned by the State; and
iii. on any loan to a local authority; and
iv. on any loan to a statutory corporation; and

l) Alimony, (maintenance)
m) An amount accruing by way of sale of traditional beer.
n) Amounts paid by the state to an exporter of goods in a scheme of export
development.
o) The receipts and accruals of an industrial park developer, to the extent that they
accrue directly from the operation of his industrial park for the first five years of
his operation.
p) 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.
q) Interest earned on approved loans to Statutory Corporations is exempt from
income tax retrospectively, from 1 February 2010.
r) With effect from 1 November 2015, the 15th Schedule to the Income Tax Act is
amended to exempt from Shareholders‘ Tax, deemed dividends arising as a
result of exceeding the debt to equity ratio of 3:1.
s) The exemption will be enjoyed provided that the Minister would have certified that
the company so exceeding the debt to equity ratio conducts business that
benefits the State.
t) A premium paid by the Reserve Bank of Zimbabwe on receipts of earnings by
exporters and on remittances from abroad received by individuals resident in
Zimbabwe, being receipts or remittances channelled through any authorised
dealer in terms of the Exchange Control Act [Chapter 22:05].".

1.13 Allowable deductions [Section 15]

These are amounts that the Commissioner would allow to be deducted from the gross
income so as to arrive at the taxable income. Section 15 of the ITA provides the basis for the
deductibility of certain amounts. The act gives a general deduction formula in respect of any
amounts that relates to income earned; and also specific deduction formula in respect of
specific amounts, as guidance to the deductions to be applied.

A Guide to Zimbabwe Taxation 29

1.13.1 General deduction formula

Section 15 (2) (a) defines amounts to be allowed as;

Expenditure and losses to the extent to which they are incurred for the purposes of trade or
in the production of the income except to the extent to which they are expenditure or losses
of a capital nature;

The following terms from the definition provides the basis for the determination of the
deductibility of certain amounts:
- Expenditure and losses
- For the purpose of trade, or
- Production of income
- Except that they are expenditure or losses of capital nature

a) Expenditure and losses

To be deductible from gross income are expenditure and /or losses incurred by the
taxpayer in the year of assessment to the extent that such expenditure or loss was
incurred in course of production of the taxpayer income which is being assessed.

b) For the purpose of trade

Trade has been defined in section 2 as, ―includes any profession, trade, business,
activity, calling, occupation or venture, including the letting of any property, carried on,
engaged in or followed for the purposes of producing income as defined in subsection (1)
of section eight and anything done for the purpose of producing such income.‖

Decided court cases also confer persuasive authority as to the meaning of the phrase as
in the case of Forth Conservancy Board v I.R.C., [1931] A.C. at 545. A trade is carried
on where a person habitually and as a matter of contract supplies money‘s worth for full
money payment. Another case of reference is that of Brighton College v Marriott,
[1925] 1 K.B. 312.

The following are tests, among others applied by courts to establish whether a taxpayer
carried a trade

 Artificial or contrived structures-a trade must involve genuine activities that a

taxpayer does.
 Financial or other risks involved- A taxpayer has to risk something with the object of
making profit.
 The profit motive-the primary motive of undertaking a trade should be to make profit
 Continuity of the activities-although not very important in the case of a company, the
principle is important in the case of an individual.
 Active business, NOT passive- a trade results in active income not passive income
such as interest or dividend.

c) In the production of income

30 A Guide to Zimbabwe Taxation

 Though the phrase, ‗in the production of income‘ seem to be comprehended in the
phrase, for the purpose of trade‘, there are instances in which the phrase will be of help.
A case in point is when an expenditure is incurred but could be contended as fitting the
definition of trade, but the substance of it being that it was incurred in the production of
income

For an expenditure fit in the meaning of ―in the production of income‖ the expenditure
should be closely connected the income earning activity of the taxpayer. The test
postulated is to enquire whether the purpose of the expenditure is to produce income
and if so was it necessary for the performance of the act or even attached to it by chance
and was the expense so closely connected with the income earned that it may be
regarded as part of the cost of performing it. See, Port Elizabeth Electric Tramway
Company Ltd V Commissioner for Inland Revenue 8 SATC 13.

The following factors should characterise the expenditure to qualify as

expenditure “incurred in the production of income”:
 Must be a necessary expense in order to perform the income earning activity
 Must be attached to it by chance
 Must be bone fide incurred for its more efficient performance
 There must be a distinction from the acts that produce income and the expenses
that arise from those acts.
 Expenditure must not be incurred as a result of taxpayer‘s negligence
 Expenses incurred which is not related to the income may not be deducted e.g.
dividend income is exempt (Not income) so can‘t get a deduction

d) Expenditure and losses of capital nature.

In same way accruals of capital nature are generally not included in taxable income, so
expenditure and losses, to the extent that they are of capital nature are not deductible for
tax purposes.

Distinguishing between capital and revenue expenditure is not a mean task. The capital-
revenue distinction is surrounded with complexities, as such a principle that each and
every case should be determined on its own facts and circumstances has been
adopted over the years; courts are known apply, among others, the following tests, in
order to decipher the nature of expenditure.

1. Income-earning structure v income-earning operations test

Expenditure incurred in establishing or improving or adding to the income earning
structure which is capital in nature. Expenditure incurred in performing income
earning operations is revenue in nature as stated by Watermeyer, CJ, in New State
Areas Ltd v CIR 1946 AD 610 at 620-621.

2. Expenditure incurred in creating or acquiring an income producing concern,

machine or structure
This is an important test. As summarised above expenditure linked to establishing or
improving an income earning structure is capital nature, whilst expenditure linked to
income earning operations is revenue in nature. See, CIR v George Forest Timber
Co Ltd 1924 AD 516.

A Guide to Zimbabwe Taxation 31

 However, the above should be applied with caution, as In SIR v Cadac Engineering
Works (Pty) Ltd Ogilvie Thompson JA stated the following:

‗In my judgment, the mere circumstance that a payment has neither created a new
asset nor made any addition to any existing asset is not necessarily conclusive in
favour of such payment being a revenue expense.‘

3. Expenditure incurred in creating an enduring benefit or advantage to a

taxpayer
Expenditure incurred so that the taxpayer can enjoy a lasting flow of economic
benefits is capital in nature. See, British Insulated & Helsby Cables Ltd v
Atherton [1926] AC 205.

4. Recurrence nature of expenditure/ “once and for all” test

Usually revenue expenditure is recurrent, examples include; monthly service fees for
a satellite tracking system for motor vehicles, monthly payments to an armed-
response company, salary costs etc. Capital expenditure is usually incurred ―once
and for all‖.

In Nchanga Consolidated Copper Mines Ltd v COT 1962 (1) SA 381) it stated:

―Expenditure incurred once and for all is usually expenditure of creating or acquiring
an income producing concern (capital nature). Recurrent expenditure is normally
linked to income producing operations.‖

See also, Vallambrosa Rubber Co v Farmer 1910 SC 519

5. Expenditure on Fixed or floating capital

Expenditure on floating capital is revenue; expenditure on fixed capital is capital in
nature. In New State Areas Ltd v CIR 1946 AD 610 at 620-621 Watermeyer CJ
stated:

―When the capital employed in a business is frequently changing its form from money
to goods and vice versa (e.g., the purchase and sale of stock by a merchant or the
purchase of raw material by a manufacturer for the purpose of conversion to a
manufactured article), and this is done for the purpose of making a profit, then the
capital so employed is floating capital.‖

In CIR v George Forest Timber Co Ltd 1 SATC 20 23-24 it was held:

Capital, it should be remembered, may be either fixed or floating. I take the

substantial difference to be that floating capital is consumed or disappears in the very
process of production, while fixed capital does not; though it produces fresh wealth, it
remains intact.

32 A Guide to Zimbabwe Taxation

 Forms of capital Explanation why expenditure is of capital
expenditure nature
Purchase of a fixed - Expenditure linked to an income earning structure,
asset/shares - Expenditure on acquiring an income producing
asset
Improvement, addition or - Expenditure on improving or addition to an income
alteration to fixed asset earning asset.
Installation cost of fixed asset - Expenditure linked to an income earning structure
Goodwill - Expenditure on acquiring an income-earning asset
or structure or asset.
Advertisement of share offer - Expenditure linked to income earning structure
Permanent signs/ signage - Expenditure linked to an income earning structure.
- Permanency.
Advertisement billboards - Expenditure on income earning structure,
Permanency
Acquisition of water rights - Expenditure incurred in creating an enduring benefit
Restraint of trade payments - Expenditure incurred on acquiring a right to earn
income, connected to income earning structure
Joint life policy for partnerships - Expenditure in protecting income earning structure
Company formation expenses - Expenditure linked to income earning structure.
New business license - Expenditure incurred in acquiring an income
producing asset.
Entrance fee - Once-off
Underpinning of building - Improving or addition to an income earning asset.
Felling a tree threating to affect - Expenditure for protection of capital assets, once-off
buildings.
Paving around buildings, dura - Improving or addition to an income earning asset.
walls & neon signs
Interest incurred on a loan - Expenditure linked to an income producing asset
utilised to acquire a capital
asset.
Plan drawing cost, architect fees - Expenditure in creating an income producing asset

1.13.2 Specific deduction formula

Section 15(2) of the ITA, paragraph (b) to (ll), stipulates specific deduction and explains how
they should be treated. These specific deductions will be dealt with in latter chapters
appropriately.

1.14 Prohibited Deductions [Section 16]

Though it automatically infers that any other deductions which do not meet the definition of
allowable deduction as per section 15 of the Act are disallowable, the Act specifically cited
certain expenditures that are prohibited to be deducted under section 16.

These specifically prohibited deductions will be discussed in the subsequent chapters

accordingly.

1.15 Tax credits

A tax credit is a relief awarded to a taxpayer, on his assessed tax liability. Tax credits are
given to a taxpayer on the grounds that they, to some extend suffer certain disadvantages in

A Guide to Zimbabwe Taxation 33

life. Tax credits are stipulated in the FA and revised therein from time to time as may be
gazetted by the Honourable Finance Minister.

a) Elderly persons
An elderly person is a person who is 55 years of age and above. A credit of USD 75 per
month or USD 900 per annum is applicable for 2017 tax year. To be eligible for the credit
a taxpayer should have attained the age prior to the commencement of the year of
assessment. The credit is apportioned on a time basis if the period of assessment is
less than twelve months.

b) Disabled persons
A credit of USD 75 per month or USD 900 per annum is applicable to a taxpayer who is
either mentally or physically disabled to the satisfaction of the Commissioner that he or
she is disabled to a substantial degree. A blind person is not regarded as disabled for the
purpose under this credit. The credit is NOT apportioned if the period of assessment is
less than a year. If the taxpayer who is not a married woman has a child, who is mentally
or physically disabled to the satisfaction of the Commissioner he or she can claim the
same credit against his tax liability.

Exam tips!
 The disability should be of permanent nature, i.e. certified by a competent doctor
to be permanent.
 The taxpayer can claim a credit if himself, his spouse or child is disabled.
 The credit cannot be claimed if the taxpayer was not at any time during the period
of assessment, ordinarily resident in Zimbabwe.
 The credit is granted in respect of each child of a taxpayer who is mentally or
physically disabled.
 A child includes a step child and lawfully adopted child.

c) Blind persons
A credit of USD 75 per month or USD 900 per annum is awarded to a taxpayer who is
blind or whose spouse is blind. Any portion that is not utilised by a married blind person
is allowed as deduction against the tax liability of his or her spouse. The credit is NOT
apportioned nor does it apply to a taxpayer‘s blind child.

d) Medical expenses and invalid appliances

A credit to the tune of fifty per centum of amounts of medical expenses incurred by a
taxpayer in the year of assessment is deducted against his tax liability.

Medical expenses means;

i. the sum of any payments made for the purchase, hire, repair, modification or
maintenance of any invalid appliance or fitting which the Commissioner is
satisfied is necessary for use by a tax-payer or his spouse or any child or the
taxpayer as consequence of any mental or physical defect or disability; and
ii. the sum of any payments made for—
- services rendered to a taxpayer, his spouse and minor children or one
or more of them by a medical or dental practitioner; and

34 A Guide to Zimbabwe Taxation

 - drugs and medicines supplied to a taxpayer, his spouse and minor
children or one or more of them on the prescription of a medical or
dental practitioner; and
- the accommodation, maintenance, nursing and treatment, including
blood transfusions and X-ray and laboratory examinations, tests and
the like, of a taxpayer, his spouse and minor children or one or more
of them in or at a hospital, maternity-home, nursing-home, sanatorium.
surgery, clinic or similar institution; and
- the conveyance by ambulance, including an air ambulance, of a
taxpayer, his spouse and minor children or one or more of them; and

iii. Contributions to Medical Aid Societies

Contributions made by the taxpayer for himself, or for the benefit of his
spouse or minor child, are allowed as a credit against his tax liability to the
tune of fifty per centum of the amounts contributed.

Invalid appliance includes;

- a wheelchair or any mechanically propelled vehicle which is specially
designed and constructed for the carriage of one person, being a
person suffering from a physical defect or disability; or
- any artificial limb, leg callipers or crutch; or
- any special fitting for the modification or adaptation of a motor vehicle,
bed, bathroom or toilet to enable its use by a person suffering from a
physical defect or disability; or
- spectacles or contact lenses;

Exam tips!

 The credit can only be claimed by a taxpayer who has ordinarily been
resident in Zimbabwe during the period of assessment.
 A taxpayer is not granted a credit where, he or his spouse, or minor child is
entitled to refund from whatever source.
 Medical contributions need not the ordinary residence qualification.
 Medical expenses or contributions paid on behalf of the taxpayer cannot
stand as a credit.
 A child includes a step child and lawfully adopted child.

a) Concession for elderly persons

A person who has attained the age of 55 years prior to the beginning of the year of
assessment enjoys the following exemption on amounts accruing or received by
them by way of:

 Rental income, in respect of the first $3000 accruing to the taxpayer in the year of
assessment concerned.
 Interest received on banker‘s acceptances and other discounted instruments
traded by financial institutions, in respect of the first US 3000 accruing to the
taxpayer in the year of assessment concerned.

A Guide to Zimbabwe Taxation 35

  The first US 3000 of interest accruing to an elderly person in respect of a deposit
with a financial institution.
 Sale of marketable security, in respect of the first US $1 800, accruing to a
person in the year of assessment concerned. (Exempted from Capital Gains
Tax).
 Benefit arising on disposal of a motor vehicle to an elderly by his employer at
below the market price is fully exempt..
 A pension receipt from the Consolidated Revenue Fund (government pension) or
an approved pension fund.

1.16 Principles of a good tax system

The following tax principles should govern, a good tax system:

i. Vertical equity principle – every member of state should contribute towards
the burden of tax in accordance with his ability.
ii. Horizontal equity principle- taxpayers in the same economic circumstances
should receive equivalent tax treatments.
iii. Certainty- the tax which an individual is bound to pay ought to be exact, and
not arbitrary. The amount, timing and manner of payment should be known.
iv. Simplicity – the tax legislation must be in simple language and easily
understood by the subjects.
v. Tax neutrality or efficiency principle – tax should act as resource allocation by
assuring that economic decisions are diverted to best location.
vi. Flexibility – tax system should be able to accommodate changes in business,
technology and markets.
vii. Effectiveness – is essentially the capacity of the tax system to achieve its
objectives. Thus a tax system should be able to generate revenue.
viii. Consistence and coherence – transactions with the same commercial results
should have the same tax result.

1.17 Chapter Round-up

- Tax is an involuntary amount levied on amounts accruing to or received by any
person.
- Gross income is defined by the following keys terms according to the ITA: Total
amount, received by, accrued to or in favour of, from a source within Zimbabwe; and
deemed to be from a Zimbabwean source.
- Zimbabwe‘s tax system is source based. Thus, the concept of source is central to
Zimbabwe taxation. A two pronged test is applied to determine the source of income
which is: originating cause of income and geographical cause of income.
- Certain income is exempt from tax. Section 14 of the ITA, as read with the 3rd
Schedule, stipulate such income. Exempt income can be identified with the recipient
or by its nature.
- Deductions are certain expenses which the taxman would allow to reduce taxable
income.

36 A Guide to Zimbabwe Taxation

 - General deduction formula stipulates that only expenditure and losses which are
incurred for the purpose of trade and in the production of income should be allowed.
Expenditure and losses of capital nature should be excluded.
- Section 15 of the ITA, also provides specific deductions that could be allowed against
income.
- A tax credit is a relief awarded to a taxpayer on his assessed tax liability. The
following tax credit are provided in the FA; Blind person, Elderly person, Disability
and Medical expenses (including contributions to medical aid societies).

1.18 Practice questions

Section A: Multiple choice questions

1. During the year ended 31 December 2017, Ron contributed a total of US$5 000 to a
medical aid society in Zimbabwe and his employer reimbursed him US$2 000 of this
amount. In addition, during the year, he incurred US$6 000 of costs in respect of his son
who was hospitalised. US$4 800 of these costs -upwere paid by the medical aid society.

Ron is not ordinarily resident in Zimbabwe.

What is the amount of Ron‘s total tax credit for 2017 in respect of medical expenses?

A US$5 500
B US$1 500
C US$2 100
D US$4 200

(ACCA June 2016)

2. The definition of a person includes:

i. A company
ii. A trust
iii. A deceased estate

Which statement is/ is true?

A (i) only
B (i) and (ii) only
C (i) and (iii) only
D (iii) only

3. Section 2 of the Income Tax Act defines a person as including a company, a local
authority, deceased and insolvent estate but excluding a partnership. Which of the
following is the implication of the definition in relation to partnerships?

A Income from a partnership is exempt from tax

B The partners forming a partnership are the ones taxable on partnership income.
C A partnership should not remit tax returns

A Guide to Zimbabwe Taxation 37

 D A partnership has no tax obligations like other persons named in the above definition

4. Mr Jones is an accountant with a local company. During the year ended 31 December
2017 he earned the following amounts:

Dividends from South Africa $1000

Salary (earned during his Botswana posting for 4 months) $1500
Zimbabwe salary $2000
Bonus (not received by year end) $600

What is his total gross income for the year ended 31 December 2017?
A $2 600
B $5 100
C $3 600
D $4 100

5. Which transaction is of capital nature?

i. Acquisition of shares so as to sell them when they appreciate in value
ii. Disposal of a manufacturing building
iii. Purchase of raw materials for manufacturing purposes

A (i) and (ii) only

B (ii) only
C (i), (ii) and (iii)
D (ii) and (iii)

6. Why are taxes levied?

A To raise revenue for the state
B To discourage trade
C To control prices
D To reduce consumption of foreign made goods

7. Which of the following is exempt by nature of income?

A Salary and allowance paid to the president

B Scholarship or bursary paid to a student
C Amount accruing to a parastatal entity
D Compensation paid to a person as a result of injury, sickness or death at work.

8. Which of the following is an exemption applicable to individuals?

A Maintenance (Alimony)
B Dividend from local companies
C Interest from financial institution
D Salary paid to a civil servant

9. James and John are in partnership in which James as a managing partner has 70% of
the controlling shares. The wives of the two both work for the partnership. The

38 A Guide to Zimbabwe Taxation

 partnership owns a company, J& J transporters (Pvt) Ltd. Which of the following is NOT
deemed to be an associate of John, according to Income Tax Act?

A James
B The partnership
C J&J Transporters (Pvt) Ltd
D James wife

10. Which of the following credits is not apportioned?

A Elderly person
B Disability
C Medical aid contribution
D Medical expenses

11. Which of the following is NOT a direct tax?

A PAYE
B Presumptive tax
C VAT
D Road tolls

12. Magogo and Munetsi are in partnership sharing profits and losses in the ratio 2:1
respectively. During the year of assessment ended 31 December 2017 the partnership
made a profit $150 000 after deducting the following:
- A salary to Magogo $5000
- Interest on Capital to Magogo $10 000, Munetsi $8 000

What is the total taxable income of Magogo?

A $15000
B $100 000
C $84 667
D $115 000

13. Which of the following is a deduction to income in respect of employment income of

individuals?

A Pension contribution
B Insurance contributions
C Medical Aid contribution
D Contribution to an accident benefit fund.

14. Which of the following is NOT an invalid appliance?

i. Wheel chair
ii. Artificial limp
iii. Modifications to a toilet or bathroom to enable use by a disabled person
iv. Spectacles

A Guide to Zimbabwe Taxation 39

 A (i), (ii) and (iii)
B (iii) only
C All
D None

15. Which of the following are examples of the purpose of taxation in a modern economy?
(ACCA adapt)

(1) To generate revenue for public services

(2) To reward hard work
(3) To reduce the income gap between the rich and the poor
(4) To encourage marriage and family life

A 1 and 2
B 3 and 4
C 1 and 3
D 2 and 4
Section B: Structured questions
Question 1
a) Describe the main purpose of taxation in a modern economy and outline three basic
principles that a good tax system should be guided by. (5 marks)
b) Explain the difference between direct and indirect taxation, giving one example of each
(2 marks)
c) Using case law were possible explain the meaning of the following:
i. Source
ii. Accrued to
iii. Total amount
iv. Received by
v. Person [10]

40 A Guide to Zimbabwe Taxation

 2

THE FINANCE ACT

Chapter Outline
2.1 Introduction
2.2 Income tax
2.3 Capital Gains Tax
2.4 Excise duty on second hand vehicles
2.5 Value Added Tax
2.6 Estate Duty
2.7 Presumptive taxes
2.8 Licence tariffs
2.9 Stamp duties
2.10 Small to Medium Enterprises (SME‘S)
2.11 Standard scales of fines

2.1 Introduction

The FA is the revenue statute responsible for setting rates and amounts of tax each year. It
is commonly known as the Charging Act. The contents of this Act are revised each year
through debates in parliament. All other tax statutes refer to the FA for rate on which an
amount should be charged. Amendments to the FA are issued out each year, which also
contains amendments of other statues.

2.2 Income tax

2.2.1 Individual rates of tax on employment income

INCOME BANDS US$ TAXABLE INCOME US$ RATE OF TAX (%)
0 to 3 600 3 600 0
3 601 to 18 000 14 400 20
18 001 to 36 000 18 000 25
36 001 to 60 000 24 000 30
60 001 to 120 000 60 000 35
120 001 to 180 000 60 000 40
180 000 to 240 000 120 000 45
240 000 and above - 50

2.2.2 Rates of tax on business income

INCOME ACCRUING TO: RATE OF TAX (%)
Individual from trade & Investments 25

A Guide to Zimbabwe Taxation 41

 Company or Trust 25
Pension Fund 15
Licensed Investor:
First 5 Years 0
After First 5 Years 25
Holder of special mining lease 15
Manufacturing companies which exports output:
Companies exporting (30 -40)% 20%
Companies exporting (41 -50)% 17.5%
Companies exporting more than 50% 15%
Trust or Company derived from mining activities 25
A person engaged in a BOOT or BOT arrangements:
First 5 years 0
Second five years 15
Industrial park developer:
First 5 years of operation 0
After first 5 years of operation 25
Taxable income of operator of a tourist facility in approved
tourist development zone:
First five years 0
After first 5 years 25
Dividends of a company incorporated outside Zimbabwe 20
Aids Levy 3

2.2.3 Tax credits

The following tax credits are applicable for 2017 tax year of assessment.
 Blind person US $900 per annum
 Elderly persons US $900 per annum
 Disability person US$900 per annum

2.2.4 Exempt income on individuals

 Bonus free threshold US $1000 for 2017 tax year
 Retrenchment package exemption for 2017 is 1/3 of retrenchment package with a
minimum of US $10 000 and a maximum of US $ 20 000 (i.e. exemption
applicable to a retrenchment package of US $60 000).

2.2.5 Concession available to elderly people

The following concession was made available to income accruing to elderly persons:

 Exemption from Income Tax of the first US$3 000.00 per annum on rental income
 Exemption from Income Tax of the first US$3 000.00 per annum on income
earned from bankers acceptances
 Exemption from Income Tax of the first US$3 000.00 per annum on income
earned from interest on deposits with financial institutions.
 Entitled to an elderly persons‘ credit of US$900.00 per annum.
 Pension received from a pension fund or the Consolidated Revenue Fund is
exempt from Income Tax.

42 A Guide to Zimbabwe Taxation

  Where an employer disposes of a motor vehicle to an employee whether on
termination of employment or otherwise, the benefit is exempt from tax.

The following concessions are available in respect to Capital Gains Tax

 The full amount arising from the disposal of a Principal Private Residence (PPR)
by persons who are 55 years or above on the date of the sale is exempt from
Capital Gains Tax.
 The first US$1 800.00 that accrues on the sale of any unlisted marketable
security is exempt

2.2.6 Employment benefits

Motoring benefit
The deemed cost to the employer of providing an employee the use of a motor
vehicle is as follows:

Engine Capacity Deemed cost per annum

Less than 1500 cc 3600
1501 -2000 cc 4800
2001 – 3000 cc 7200
3001 cc and above 9600

The benefit is applied proportionally if the period of use is less than a year.

2.2.7 Capital allowances

The deemed costs in respect of assets for 2017 tax year are as follows: (See chapter 5)

ASSET DEEMED COST $

Passenger motor vehicle 10 000
Staff housing – general 25 000
Farm staff housing 10 000
Housing for Staff employed @ mine 50 000
school, hospital, etc.
Mine School 50 000
Hospital , clinic or nursing home 50 000
Director‘s house – Mining 10 000

2.2.8 Withholding taxes

See chapter 14, section 14.11.

2.2.9 Informal traders

Vehicle Usage Classification Rate per month
Driving school training 100
Class 4
Class 1& 2 130
Goods: carrying capacity +10 to less than 20 200
tonnes
Goods: carrying capacity 20 tonnes+ 500

A Guide to Zimbabwe Taxation 43

 8 – 14 40

Commuter omnibus 15 – 24 45
25 – 36 70
Commuter omnibus 37+ 100
Taxicabs Maximum 7 25
OTHERS
Hair dressing salons $10 per chair
Cross-border traders 10% of VDP of goods
imported
Restaurant or bottle store 75
operator
Cottage industry operators 75
Informal traders 10% of rent paid by
informal trader
Small scale miners 0% of the value of
minerals or stones
sold.
WATER BORNE VESSELS
Type of operator Size of vessel (no Rate per month
of people)
Fishing rigs 80
Commercial water-borne 1-5 60
Vessels
6 – 15 100
16- 25 200
26 – 49 350
50 and above 450

2.3 Capital gains

2.3.1 Rates of capital gains tax

Specified assets acquired prior to 1 February 2010 5%

(Capital gain is the proceeds on disposal of such specified asset)

Specified asset acquired after 1 February 2010 20%

Inflation allowance 2.5%

2.3.2 Rates of capital gain withholding tax

Specified Asset Rate of tax (%)

Immovable property –acquired after 1 February 2009 15
Immovable property acquired before 1 February 2009* 5
Listed marketable security * 1
Unlisted marketable security 5

44 A Guide to Zimbabwe Taxation

 In all the above cases the rate of withholding tax is applied to the gross proceeds
realised on disposal of the specified asset.

* Withholding tax will be a final tax.

2.4 Rates of Special Excise Duty on Second Hand on second hand motor vehicles

Special Excise Duty on the sale of second hand motor vehicles will now be based on the
number of years the vehicle has been in use and the relevant vehicles engine capacity. In
general, the lesser the number of years a vehicle has been in use, the more the fixed
amount of Special Excise duty would be payable.

Age of vehicle (years)

Engine 0-4 5-10 11-15 11-20 Above 20
capacity Excise duty payable (US $)
1000cc 300 150 75 50 50
1001-1500 400 200 100 75 50
1501-2000 500 250 150 100 50
2001-2500 600 300 200 150 50
2501-3000 600 400 200 150 50
3001-3500 600 400 200 150 50
+ 3500 600 400 200 150 50

2.5 Value Added Tax

2.5.1 Value added tax threshold

Beginning 1February 2010, upon reaching a turnover of $60 000 per annum a supplier is
required to register for VAT purposes.

2.5.2 Rates of Value Added Tax

Standard rated supplies 15%

Zero rated supplies 0%
Supply of cellular telecommunication services 15%

2.6 Estate duty

The rate of tax on dutiable amount is 20%

2.7 Presumptive taxes

See chapter 14, section 14.12.2

A Guide to Zimbabwe Taxation 45

2.8 Licence Tariffs

LICENCES ISSUED UNDER MISCELLANEOUS ACTS

$
1. Pool promoter of a pool betting business promoted within Zimbabwe 100.00
2. Representative of the promoter of a pool betting business promoted
outside Zimbabwe 100.00
3. Copper dealer 10.00
4. Casino licence, other than a temporary casino licence 2000.00
5. Temporary casino licence 500.00

2.9 Stamp duties

Stamp duty is levied on bonds, broker‘s note, cheques, policies of insurance, and
registration in deeds registry, on the acquisition of immovable asset.

2.10 Small to Medium Enterprises (SME‟S)

Small to Medium Enterprises (SME‘s) enjoy certain tax incentives for instance they are
allowed to apply a SIA structure of 50% in the first year & accelerated wear & tear in the next
two years unlike other businesses with a SIA structure of 25% each year for four years. It is
therefore important to be able to distinguish whether a business is SME or not. There are
three factors that should be taken into account to determine the size of an entity, which are:
average number of full time staff, turnover and value of assets.

Points are given to these factors as shown in the table below. If the sum of points for all the
three factors is nine or less, then such business is a Small to Medium Enterprise.

POINTS FACTORS

Turnover per annum Average no. of Value of assets

staff in full-time (Excluding immovable
employment property)
4 $1 000 001 and above More than 75 2 000 001 and above
3 500 000 to 1 000 000 41 -75 1 000 001 to 2 000 000
2 50 000 to less than 6 -40 50 001 to 1 000 000
500 000
1 Less than 50 000 5 or less Less than 50 000

Illustration

Supposed an entity employs 50 full time staff, has a turnover of average $600 000 per
annum and the gross value of assets being $1.5m. The sum of points for all three factors is
(3+ 3+ 3).= 9 points. The entity is a mall to medium enterprise.

46 A Guide to Zimbabwe Taxation

2.11 Standard scale of fines

Level of fine Monetary Amount (US$)

1 10
2 15
3 30
4 100
5 200
6 300
7 400
8 500
9 600
10 700
11 1000
12 2000
13 3000
14 5 000

A Guide to Zimbabwe Taxation 47

 3
EMPLOYMENT INCOME

Chapter Outline

3.1 Introduction
3.2 Gross income
3.3 Exempt income
3.4 Allowable deductions
3.5 Prohibited deductions
3.6 Tax credits
3.7 Calculation of tax liability under FDS
3.8 Chapter Round-up
3.9 Practice Questions

3.1 Introduction

Paragraph 3 of the Thirteenth Schedule to the ITA reads:

Every employer (whether or not he has registered as an employer in terms of subparagraph

(1) of paragraph 2) who pays or becomes liable to pay any amount by way of remuneration
to any employee shall, unless the Commissioner has granted authority to the contrary,
withhold from that amount by way of employees‘ tax an amount which shall be determined in
accordance with such tax deduction tables as may be prescribed or as is provided in
subparagraph …, in respect of the liability for income tax of that employee, and shall pay the
amount so withheld to the Commissioner on the tenth day of the month following, or within
such longer period not exceeding seven days as the Commissioner may for good cause
allow, after the end of the month during which the amount was withheld or, in the case of a
person who ceases to be an employer before the end of such month, on the following day
after the day on which he or she ceases to be an employer.

The 13th Schedule to the ITA, gives the basis for taxing employment income. Thus, every
employer is required to withhold part of the remuneration payable to his or her employee as
is equivalent to the tax liability of such employee. The employee tax as referred to in the
above paragraph is known as PAYE.

Employers are required under the same paragraph of the 13th Schedule to register with
Zimra within 14 days of becoming an employer. On the same token, employers are required
to notify the Commissioner of any changes of his or her business address or on ceasing to
be an employer within the same period. On registration, employers are given a Business
Partner Number which should be quoted on all returns submitted to Zimra.

It is the employer who has the responsibility of calculating, the tax liability of his employees
and remitting such amounts to Zimra on or before the tenth day of the month following the

48 A Guide to Zimbabwe Taxation

month of deduction. Thus, the due date of PAYE withheld, say in the month of February, is
the 10th of March.

To make assessment easy, every employer is required to maintain records of remuneration

paid and PAYE withheld, in respect of each employee for each year of assessment. The
employer will furnish the Commissioner, within 30 days after the end of year of assessment,
a return (ITF 16) showing: name and address of each employee, total remuneration paid and
PAYE withheld.

Summary duties of employer

 To register with Zimra within 14 days of becoming employer
 To notify the Commissioner of any changes within 14 days of such change, for instance
ceasing to be employer.
 To calculate, withhold & remit employee tax on or before the 10th day of the following
month
 To keep a record of all remuneration, tax deducted as well as personal details for each of
his employees for a minimum of six years.
 To issue tax certificates (P6 form) to employees leaving employment
 To file returns with Zimra on or before the 10th day of the month following the month of
payment and within 30 days from end of year of assessment (ITF 16 return).

3.1.1 Definition of terms

a) An employer means any person (excluding any person not acting as a principal or
any person or class of persons specified by the Commissioner, but including any
person acting in a fiduciary capacity or in his capacity as a trustee of an insolvent or
deceased estate or an administrator of a benefit fund, pension fund, provident fund,
retirement annuity fund or any other fund) who pays or is liable to pay to any
employee any amount by way of remuneration, and any person responsible for the
payment of any amount by way of remuneration to any employee under any law or
out of public funds (including the funds of any statutory corporation or undertaking of
the State) or out of moneys appropriated by Act of Parliament. (Thirteenth Schedule,
paragraph 1)

Also the representative of an employer meets the definition of employer. A

representative of an employer can mean, in the case of a company- a public officer of
such company; in the case of a trust- a trustee, etc.

b) An employee means an individual to whom remuneration is paid or payable at an

annual rate that is more than the tax free threshold as specified in the FA, in respect
of the year of assessment concerned.

The term employee excludes a director except where the Act specifically cites to the
contrary.

c) Remuneration means any amount of income which is paid or payable to any person
by way of any salary, leave pay, allowance, wage, overtime pay, bonus, gratuity,
commission, fee, emolument, pension, superannuation allowance, retiring allowance,

A Guide to Zimbabwe Taxation 49

 stipend or commutation of a pension or an annuity, whether in cash or otherwise and
whether or not in respect of services rendered

The following items were also included in the definition of remuneration:

- Terminal benefits (Payment on termination of employment, whether paid as
compensation or otherwise.)
- Pensions receipt from a pension or benefit fund, received on winding up or
withdrawal from a pension fund.
- Benefits paid during the course of employment.

3.1.2 Establishing whether an employer-employee relationship exists

The distinction between an employee and a self-employed person or a consultant is

important in law, particularly, tax law because:
- Employment income is taxed at different rates to business income
- Filing of returns and remittance of tax obligations differ between business income
and employment income.

Where it happens that there is a contention as to whether an individual is an employee or a

self-employed person, the courts apply a three-pronged test. The tests are:

- Control test
- Integration test
- Economic reality test (multiple test)

a) Control test
The test will involve considering the amount of control that one has over the other. If the
degree of control is high it indicates a master-servant relationship, hence there is an
employer-employee relationship. When the degree of control is small the relation is
considered that of self-employed-customer relationship.

b) Integration test
The control test may not be sufficient to establish the nature of relationship between two
people for instance where one is hired to provide a service which is highly technical and
the hirer has no skills in that area, such hires normally exercise a high degree of
independence in executing their mandates. an integration test , tests the extent to which
the individual is integrated into the business of the alleged employer. If the work done by
the individual is an integral part of the alleged employer then the individual is an
employee, if however the work done is not an integral part, then the individual is self-
employed.

c) Economic reality test (multiple test)

The court may apply several tests to determine whether an employer-employee
relationship exists. The following are some of the factors considered:
- The regularity and method of payment: employees are paid regularly, directly into
their bank accounts.
- The regularity of hours of work- employees work for regular stipulated hours of work.
Stipulated starting and knock-off times.

50 A Guide to Zimbabwe Taxation

 - The ability to delegate all the work. If an individual is able to delegate all the work to a
subordinate, this would be an indication of self-employment. An employee has to do
the work that he has been employed to do, and cannot pass it over to someone else.
- Whether the person is obliged to be present, even if there is no work to be done (
independent contractors only report to work if actually required, and chooses to)
- Leave entitlement- employees are entitled to a leave whilst self-employment people
have no leave entitlement.
- Whether the person is bound to an exclusive relationship with one employer (a self-
employed contract can enter into contracts with several contractors)
- Whether the person can bear the financial risk for bad workmanship (an independent
contract is at financial risk for poor workmanship, employees are paid despite poor
performance/slow markets).

3.1.3 PAYE and FDS

Pay As You Earn (PAYE) is a system that was introduced in 1966. Under the PAYE system,
all employers administered the collection of employee tax, but at the end of the tax year, the
tax department would assess the same PAYE to account for income tax variance. The
system resulted in the duplication of similar processes and a lot of resources were therefore
tied up in assessing the final tax liabilities.

The Final Deduction System (FDS) was introduced with effect from 1 January 2000 to
overcome the problems associated with the PAYE system.
The Commissioner – General of Zimra may direct any employer who pays out remuneration
to employees to be on FDS. Thus, FDS did not come as a replacement of the old PAYE
system, but both systems are working at the same time, some employers using FDS and
others, PAYE. FDS is most appropriate to employers with computerised payroll system,
though that cannot be the basis of the Commissioner for directing an employer to be on
FDS.

FDS aims at ensuring that PAYE to be withheld in any year of assessment is the same as
the final Income Tax Liability for the employee concerned. In addition, under this system, the
employee whose income consists solely of employment income will not submit returns after
the end of the year if employed by one employer during the year.

Employees whose employer is on FDS need not submit returns to Zimra, provided that they
have been in continuous employment with the same employer for the whole year.

Employees who should submit returns to Zimra on their own are those who have:
 Terminated employment during the year of assessment.
 Changed employment during the year.
 Worked part-time at the same time being fully employed by another employer.
 Started employment during the course of the year.
 Received pension.
 Received income which is not subject to PAYE.
 Are executors of deceased estates,

A Guide to Zimbabwe Taxation 51

In all the above stated cases, the employer should issue employee tax certificates (P6
Forms), to such employees to enable them to complete income tax returns.

3.1.3 PAYE and FDS Compared

CATEGORY PAYE FDS

Assessment Obligation rested with Obligation rests with the employer
Zimra
Granting of Credits Credits granted only by The credit is granted by employer
the Commissioner where appropriate.
Refunds Refunds for overpaid tax Refunds awarded by the
only awarded by the employer by reducing the
Commissioner. following month‘s PAYE.

3.1.4 Advantages of FDS over PAYE

a) Accuracy is achieved in calculating PAYE, as the system calculates the correct
amount of tax at a given time.
b) Tax refunds are done promptly, within the payroll system therefore allowing
employees to use their resources as the year progresses.
c) Deduction and credits are allowed as they are claimed during the year
d) Reduction of visits to the tax offices and reduced tax returns. This creates savings in
resources from both the Revenue Authority and the employee perspectives.

3.1.5 Framework for computing tax liability for employment income

Gross income (Remuneration) xxx

Less: exempt income (xxx)
Income xxx
Less: Allowable deductions (xxx)
Taxable income xxx
Apply tax rates @ sliding scales
Gross tax xxx
Less: Credits (xxx)
xxx
Add: 3% Aids levy xxx
Less: PAYE withheld during the year (xxx)
Tax payable / (refund) xxx /(xxx)

3.2. Gross income

For employment income, remuneration is what constitutes gross income to an employee.
Remuneration has been defined in paragraph 3.1.1 to include, (besides salary and
overtime), benefit received under employment, terminal benefits and pension receipts.

3.2.1 Contractual amounts received during course of employment

52 A Guide to Zimbabwe Taxation

a) Bonus
Bonus or performance related awards are taxable on employees. The maximum exemption
of USD 1000 is provided by the Act on the aggregate of bonuses or performance related
award received by an employee during 2017 tax year.

b) Gifts and voluntary payments

Gifts and voluntary payments made by an employer to an employee are items of capital
nature.

c) Golden handshakes and Golden Hellos

A golden handshake is a payment made to an employee as inducement to stay with the

company, whilst a golden hello is a payment made to person as inducement to join a
company. Both payments are taxable in the hands of the employee.

d) Gambling, Prizes and incentives

Gabling receipts are of capital nature, unless such receipts are won by a professional
gambler. A prize generally is a receipt of capital nature, an exception is a prize won as a
result of employment which is however, taxed, for instance, employee of the year award.

e) Restraint of trade

Amounts paid to a person to restrain such person from carrying out his or her trade,
profession or imparting of knowledge is of capital nature. It is not taxable in the hands of
recipient nor is it deductible in the hands of the payer.

3.2.2 Terminal Benefits

a) Cash in lieu of leave (CIL)

This is a payment in compensation of leave days accrued but not taken. Such payment is
gross income to the employee and is taxable. Usually CIL is paid on termination of
employment where cessation of the contract renders it impossible for the employee to take
his or her accrued leave days.

b) Cash in lieu of notice

Sometimes employers terminate contracts of their employees without giving them notice.
Labour laws in many jurisdictions compel employers to give their employees notice before
terminating their employment except for circumstances which necessitates discharge. Were
an employer contravenes this requirement, then the employer is obliged to pay an employee
amounts due to the employee for the notice period that was due to the employee.

Cash in lieu of notice is taxable in full an as when is received.

c) Gratuity
This is a payment made in honour of an employee‘s loyalty to the employer. Gratuity is
usually paid to long serving employees. Gratuity is taxable in full, unless it is paid together
with a retrenchment package to which it is part, in such circumstance an exemption applies.

A Guide to Zimbabwe Taxation 53

d) Commutation of amounts due under employment contract
Where an employer terminates the services of the employee before the expiry of the contract
and pays the amount due under the contract for the remaining period this is subject to PAYE
as and when it is paid.

e) Retrenchment Pay
When an employer seeks to make redundant his employees, such employer should draft a
proposed retrenchment package which is submitted to the Minister responsible for Labour or
Social Welfare for approval. Retrenchment package is gross income in the hands of an
employee. Only approved retrenchment package qualifies for exemption.

Retrenchment package includes Severance pay, Gratuity and any other payments
associated with redundancy, but specifically excludes Cash In lieu of Leave and Pension
receipts.

One third of the retrenchment package is exempt subject to a minimum of USD 10 000, and
to a maximum of a retrenchment package of USD 60 000 (i.e. maximum exemption of USD
20 000) for 2017 tax year.

Example
Chipo, Sarah and Chinedu were retrenched during the year and they received $9 000, $24
800 and $61 000 respectively. Calculate the exemptions attributable to each of them.

Solution
Chipo Sarah Chinedu
Note $ $ $
Retrenchment package 9 000 24 800 61 000
Less: exemption 1 (9 000) (10 000) (20 000)
Taxable amount - 14 800 41 000

Notes

1. Chipo received an amount already below the minimum exemption of $10 000, thus the
whole amount is not taxable. On the same note, Sarah‘s exemption of (1/3 *24 800) $ 8267
is below the minimum, thus an exemption of $10 000, is applicable. Chinedu‘s one third of
package is above limit hence a maximum exemption is applicable.

54 A Guide to Zimbabwe Taxation

Example

Tinotenda aged 61 was retrenched on 31 August 2017. His retrenchment package of $70
000 was made up as follows:

Note

Severance pay 33 000

Passage benefit 1 14 000
Leave pay 8 000
Long service award 15 000
Total 70 000

Notes
1. The benefit was a relocation allowance paid to Tinotenda to allow him to relocate to
Zambia his home country.

Required
Calculate the exempt portion of the package

Solution

$
Retrenchment package
Severance pay 33 000
Passage benefit (exempt) 0
Leave pay (not part of package) 0
Long service award 15 000
Total package 48 000
Exemption (1/3) 16 000

3.2.3 Fringe Benefits

A fringe benefit is a payment made by an employer to an employee or a director of a

company in the course of employment over and above the employee‘s contractual
entitlements. It can be paid in cash or in kind. Where no cash is paid by the employer, the
value of the benefit is taxable. Valuation of a benefit for tax purpose is generally based on
the cost to the employer for providing the benefit, except for housing and furniture
benefit which is valued in reference to the value to the employee.

a) Passage benefit
Passage benefit is journey undertaken by an employee, his spouse or child or one or more
of them the cost of which is borne by the employer. The journey undertaken should be in
connection with taking up or termination of employment or any other journey made by an
employee, his spouse and children or one or more of them in so far as that journey is not
made for the purpose of a business transaction of the employer.

A Guide to Zimbabwe Taxation 55

An employee‘s first journey on taking up employment and a first journey on
termination of employment are exempted.

Passage benefit is apportioned on time or usage basis if the journey is undertaken for dual
purposes.

Example
Mr Sadombo, who works for Alisto Engineering as a production manager, went to a business
trip to Brazil in May 2017. He was accompanied by his wife and son. He incurred the
following expenses:

Hotel bookings and meals $2 500

Wife‘s touring $500
Paid for jumping castles for his son $120

Mr Sadombo spends 3/5 of his time in Brazil doing the business of his employer.

Calculate Mr Sadombo‘s passage benefit.

Solution
$
Hotel bookings and meals $2 500*2/5 1 000
Wife‘s touring 500
Son‘s jumping castles 120
Taxable benefit 1620

b) Housing benefit
If an employer grants to an employee free use of a house, the benefit is taxable in the hands
of the employee. The benefit shall be valued according to open market rentals for a house
that is located within a municipal area, if the house is not within the municipal area the
benefit is measured as, the greater of 12.5% of the employee‘s salary or 7% of the cost of
construction. If your conditions of service require you to stay in a company house, there is no
benefit to you.

Members or staffs of a mission hospital or rural clinic are exempted on accommodation

allowance, transport allowance and the value of quarters or residence. For the purpose of
the exemption, a mission hospital or rural clinic is private hospital or rural clinic owned,
operated or sponsored by a religious body or a rural district council.

c) Furniture benefit
In the case where an employee is granted free use of furniture, the value of the benefit is
deemed to be 8% of the cost of furniture. Usually, the benefit is granted together with the
housing benefit.

56 A Guide to Zimbabwe Taxation

Example
George Mukarati is a finance manager with Matombo Quaries Pvt) Ltd, beginning April 2017
he was granted a benefit of staying in his employer‘s house in Greendale suburbs. The
rentals for similar houses average $750 per month. George‘s employer deducts $100 for
accommodation from his monthly earnings. Just before George occupied the house his
employer furnished it for a total cost of $3 600. The house was constructed for $56 000.
Calculate George‘s taxable benefit for the year ended 31 December 2017.

Solution $
Housing benefit (750-100)*9 5 850
Furniture benefit (8%*3 600) 288
Total taxable benefit 6 138

#Note: Since the house is within municipal area, the open market rentals are the only
relevant information for valuation of the benefit.

.
d) School fees benefit
Where the employer pays school fees for the employee‘s children, the cost of the fees
payable becomes taxable in the hands of the employee. In cases where the employer is a
school and the employee‘s child is admitted or enrolled at the school without paying school
fees or pays fees that are less than those paid by other students attending school, the
foregone fees become taxable benefit in hands of the employee. In addition any school fees
discounts or reductions granted because of the employer-employee relationship become
taxable benefits in the hands of the employee.

Where the employer is a school and the children of the employee are enrolled at the school,
the taxable benefit in respect of forgone or subsidised fees to the employee has to be valued
at its cost to the employer. This benefit is in respect of the waiver of the whole of any portion
of tuition fees, levies and boarding fees that would otherwise be payable by a member of
staff (teaching or non-teaching) for any child which is a student of that school or another
school is gross income in the hands of the employee. With effect from 1 January 2014, half
of such benefit is exempt to the employee. The exemption applies to only three children of
the taxpayer.

Example
Artwell is a teacher with Havana Private Primary School. He has 4 children learning at the
school and the school offers education to his children free of charge. School fees and levies
paid by other pupil‘s amounts to $1,300 per child per term. Artwell is on $1,000 monthly
salary. Compute his 2017 taxable income.

Solution
$
Salary 1 000*12 12 000
School fees benefit 1300*3*4 15 600
Less: exemption: 1300*3*3*50% (5 850)
Taxable income 21 750

A Guide to Zimbabwe Taxation 57

e) Motoring benefit
Where an employee is granted free use of a car, the benefit is measured based on the
deemed cost to the employer in reference to the engine capacity of the car. The benefit
arises where an employee use the vehicle for private purpose

The following are the deemed cost in respect of the year of assessment

Engine Capacity Deemed cost per annum US$

Less than 1500 cc 3 600
1501 -2000 cc 4 800
2001 – 3000 cc 7 200
3001 cc and above 9 600

Where the period of use of the vehicle is less than a year, the deemed cost is reduced
proportionately.

f) Sale of a motor vehicle to an employee

If an employer sale a motor vehicle to an employee, whether during or on termination of
employment, the benefit to the employee is determined by the following formula:

A – B, where,

A represents the market value of the motor vehicle:

B represents the cost at which the employee acquired the motor vehicle:

If the motor vehicle was acquired before the 1st of January 2010, the cost represented by B
in the formula shall be the final balance shown on the balances of the employer‘s books.

Note#. Take note that no benefit arises if the motor vehicle is disposed to an employee who
is above 55 years of age.

Example
Mrs Olivia joined Fire Engineers (Pvt) Ltd beginning of April 2017 as an Production manager,
she is entitled to a company car Mazda BT-50, engine capacity 3 100cc, and a monthly
salary of $1 800. At the end of the year the employer purchased a new vehicle for her and
gave her the option to purchase the Mazda BT-50 car for $5 000, the market value of the car
is $15 000. She took the option. Show her taxable benefit for the 2017 tax year.

Solution
Salary (1800*9) 16 200
Motoring benefit (9 600*9/12) 7 200
Purchase of a motor vehicle (15000 -5000) 10 000
Taxable income 33 400

g) Interest benefit

58 A Guide to Zimbabwe Taxation

An interest benefit arises if an employee is granted an interest free loan or a loan on which
interest is charged below the prevailing market rates.

The benefit is calculated by multiplying the loan amount by following formula;

(LIBOR + 5%) - A

Where,
LIBOR means London Inter -Bank Offered Rates; and
A is the rate of interest being paid to the employer.

No benefit arises if the loan extended to the employee does not exceed USD 100. A Loan
extended to an employee for educational or technical training or medical expenses for
the employee, spouse or children is however, exempt from tax.

Exam tips!
The following types of loans are tax exempted:
 loans which are below $100,
 loans used on education of employee or his/her family,
 loans used on technical education of employee or his/her family,
 loan used on medical costs of an employee or his/her family,
 loans with an interest rate above Libor + 5%.

Example

Mr Manjoro a marketing manager with Telkom Communications P/L was given a loan of $10
000 in beginning of April 2017. Mr Manjoro is supposed to pay back the loan together with
interest at the end of the year. He was being charged an annual interest rate of 3%. Libor is
2.5%. Calculate his taxable benefit for the year 2017.

Solution
Interest benefit (5+2.5-3) %*10 000*9/12 = $337.50

h) Share options
An amount received by an employee on sale of shares offered to an employee pursuant to
a share option scheme by his or her employer is gross income. The income is calculated by
the following formula:
A-(B+C)

Where—

A represents the value of shares at the time of exercise of the share option scheme;

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

A Guide to Zimbabwe Taxation 59

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

(D - E) x B
E

Where—

D is the figure for the All-items Consumer Price Index issued by the Central Statistics Office
at the time the employee exercises the share option;

E is the figure for the All-items Consumer Price Index issued by the Central Statistics Office
at the time when the shares were offered to the employees pursuant to a share option
scheme.

Note#. The share option benefit is tax exempt where the employee share ownership scheme
or trust has been approved by ZIMRA.

Example
Dakarai was granted 10 000 shares under an employer share option plan at 60 cents a
share. The market value per share was 100 cents on the date of exercise. The inflation
indexes were 1.3% and 1.75% on the date of share offer and exercise, respectively.
Calculate her taxable income?

Solution
A-(B+C) = 100- {60 + (60 x (1.75-1.3)/1.3)} = 19.2c x 10 000 = $1 920

i) Entertainment allowance
Any amount received by way of entertainment allowance which is paid to a person by his or
her employer is taxable in the hands of the employee to the extent that such amounts are
not expended on the business of the employer.

Example
Marvis was paid an entertainment allowance of $15 000 in 2017 tax year. She used $10 000
for her beauty enhancement. The rest she used towards the business of employer. What is
her taxable allowance?

Solution
Marvis is taxed on $10 000 which she did not used for the business of employer.

j) Export Processing Zones employees

Employees of licensed investors enjoy a benefit of being exempted on their benefits. The
exemption is partial and is limited to 50% of the total taxable income (inclusive of the
benefits) of an employee. A licensed investor is a taxpayer who manufacturers and exports
at least 80% of his produce and is a holder of an export license issued by the Ministry of
Industry and Commerce.

60 A Guide to Zimbabwe Taxation

 Example
John Garufu works for Havena P/L a local company operating in agriculture sector and is
a licensed investor. During the year ended 31 December 2017 he received the following
amounts:
$
Salary 42 000
School fees paid by his employer for his son 5 000
Airtime 2 000

In addition Mr Garufu stayed in a company house in Marlborough; monthly rentals in the

area are $800.
He was allocated a BT50 engine capacity 3200 cc, at the beginning of the year.

Calculate his taxable income for the year of assessment.

Solution
Total benefits:
School fees 5 000
Airtime allowance 2 000
Motoring benefits 9 600
Housing benefits (800*12) 9 600
Total 26 200

Salary 42 000
Total benefits 26 200
Total taxable income before exemption 68 200
Less exemption the lessor of (50%*68 200) & 26200 (26 200)
Taxable income 42 000

k) Subsidized or free meals

Where the employer provides subsidised meals to employees, the benefit is exempt in the
hands of the employee. The benefit is the cost to the employer reduced by amounts
recovered from an employee. If the employer runs a canteen as part of his business there is
no benefit in the hands of the employees. Where the meals are acquired from outside the
business of the employer, the benefit is taxable.

l) Other benefits
All other benefits which accrue to an employee, with the exception of medical aid and
medical expenses paid on behalf of the employee by the employer, are taxable.

These include:-
- Use of telephone and cell phone.
- The provision of domestic workers including gardeners.
- The provision of security services
- The provision of clothing with the exception of protective clothing

A Guide to Zimbabwe Taxation 61

- Fuel coupons - Taxable in the hands of employees if given to employees who are not
enjoying a taxable motoring benefit.

3.2.4 Pension receipts

Pension receipts can be paid as a result of an employee reaching pensionable age or
because an employee has withdrawn from a pension or benefit fund in the year of
assessment.

a) Pension received on retirement

On retirement a person would start to receive regular amounts known as pension
commutation. A pension commutation is included in gross income of an individual and
taxed as received. Only portions of pension contributions that were not allowed as
deduction will escape tax.

Where a lump sum is paid on retirement, 1/3 the pension entitlement is exempt, the
exempt part is known as pension commutation. A pension commutation is a receipt of
capital nature.

Example

Mushonga retired on 30 September 2017 at the age of 65 years and received the following:

Lump sum $40 000

Monthly pension beginning October 2017 $200

Mushonga‘s estimated life expectancy is 10 years; during his tenure a total of $4 000 of his
pension contributions was not allowed as deduction.

Calculate his taxable income.

Solution

Pension entitlement $40 000+ 120*$200 = $64 000

Commutation 1/3*64 000 $21 333

Portion of contribution disallowed (4 000/120 months) =$33.33 per month.

Lump sum receipt 40 000

Less: exemption (21 333)
Monthly pension 3*(200-33.33) 500
Taxable income 19 167

b) Pension received on withdrawal from a pension fund

A person is said to have withdrawn from a pension or benefit fund or any other fund if the
person dies, resigns from employment, or if the employee is made redundant or if the

62 A Guide to Zimbabwe Taxation

 employer closes down his business. On withdrawal a person will be entitled to a refund of his
pension contribution, by way of a lump sum receipt. A lump sum receipt is taxed at the
highest marginal rate, i.e. at 50%.

Example

Mr Makumbe who had served his employer for 5 years resigned with effect from 30 June
2017. He received a lump sum pension of $15 000, he used $5 000 to purchase an annuity
on retirement. You are informed that during his last three years of employment, $5 000 of his
pension contributions was not allowed as a deduction. Calculate his tax liability [5]

Solution

Lump sum receipt 15 000

Less: retirement annuity (5 000)
Less: pension contribution not allowed (5 000)
Taxable income 5 000
Tax @ 50% 2 500

# Note: The disallowed portion of contributions of $5000 is deducted in full since the
pension is paid once-off

3.3 Exemptions
The following exemptions are applicable to individuals for amounts received from either as
employment income or not.
- Salary or allowances paid to the President of Zimbabwe and to domestic workers of the
president to the extent that the salary is paid by him from his salary.
- Allowances paid to a member of parliament and the minister.
- Allowances paid to civil servants.
- Allowances paid to the chief or village headman.
- Receipt of a scholarship or bursary.
- Allowance paid to the councillor.
- Bonus or any performance related award, in respect of the first US $1000.
- Retrenchment package, in respect of a third of such package to a minimum of US$10 000
and a maximum of US $20 000. (i.e. the ceiling of retrenchment package is US $60 000)
- A scholarship paid to a student, as long as it is not payment for services rendered.
- The value of medical treatment or of travelling to obtain such treatment which is provided
by an employer for an employee or the dependant of an employee, whether provided in
kind, by direct payment, by refund or in any other manner whatsoever.
- The amount of any contributions paid to a medical aid society by an employer on behalf of
his employee.
- Compensation for injury at work paid by an employer.
- An amount accruing by way of a benefit in respect of the injury, sickness or death of a
person which is paid to the person or his dependants or deceased estate from a benefit
fund; or in terms of a policy of insurance covering accident, sickness or death; or by a
medical aid society.

A Guide to Zimbabwe Taxation 63

- Any amount received by way of an entertainment allowance to the extent that it is
expended on the business of the employer.
- A pension received by an elderly person from the Consolidated Revenue Fund or any
approved pension fund.
- An award, compensations or benefit paid to an employee, his or her dependant or his
estate under:
 Under War Victims Compensation Act for personal injury, disablement or death.
 In terms of Wankie Disaster Relief Fund to you or to your dependants
 In terms of any law for an employee‘s personal injury, even if paid as
compensation for the loss of a taxpayer's ability to earn income in the future.

3.4 Allowable deductions

3.4.1 Pension contributions

An amount in respect of contributions made in the year of assessment to a benefit or an
approved pension fund or the Consolidated Revenue Fund.

Pension contribution, in most cases, is 7.5% of an individual‘s salary or emoluments. If the

pension contributed is not given, apply 7.5% to the person‘s salary.

The maximum contributions allowable for 2017 tax year are $5400 and $2700 for
contribution to pension and retirement annuity funds respectively.

3.4.2 Arrears contributions

Arrears contributions are contributions made by an employee in respect of past service with
his or her employer to a pension fund established by the employer.
The maximum allowable contribution is 8% of the person‘s annual salary or $1800,
whichever is greater.

3.4.3 NSSA

NSSA is a form of pension. 3.5% of a person‘s gross salary is deducted as NSSA, to a

maximum monthly salary of US $700 for 2017 tax year. Thus for a person earning more than
$700 will contribute $24.5 per month or $294 per annum.

The aggregated maximum permissible deduction in respect of pension contributions (i.e.

Pension, benefit, arrears pension and NSSA), is $5400 per annum for 2017 tax year. The
order of allowability being: pension contributions, areas contribution, RAF and NSSA.

3.4.4 Subscriptions

Any subscription paid during the year of assessment by the taxpayer in respect of his
continued membership in any period to any business, trade, technical or professional
association, is allowed as a deduction, examples include subscriptions paid to CIS, ACCA

64 A Guide to Zimbabwe Taxation

etc. Subscription to sporting or recreational clubs are not allowed, also not allowed are
subscription paid by students to professional bodies.

3.4.5 Tradesman tools

The costs of tradesman‘s tools are allowed in full on purchase and on replacement (if in
terms of the employment contract). Only qualified tradesmen such as journeymen are
eligible for such deductions. Trainee and apprentices do not qualify for this deduction.

3.5 Prohibited deduction

The following deductions are not allowed with respect to employment income.
- The cost incurred by any taxpayer in the maintenance of himself, his family or
establishment. Examples of such expenses include:
 Funeral contributions
 Loan repayments

3.6 Tax credits

The following credits are applicable for 2017 tax year.

- Blind person - US $ 900 per annum.

- Elderly person – US $900 per annum
- Disability credit – US $900 per annum.
- Medical expenses - 50 % of the cost incurred
- Contribution to a Medical Aid – 50% of amounts of contributions made.
(See discussion on tax credits in chapter 1.)

3.7 Calculation of employee‟s tax liability under FDS

To calculate an employee‘s tax liability under FDS an employer should group an employee‘s
earnings in three categories, namely:

A - Monthly or regular earnings such as basic salary.

B - Annual or irregular earnings such as holiday allowance or Cash In Lieu of Leave (CIL)

C- Earnings which contains non-taxable portions e.g. Bonus

The main distinguishing feature of FDS is that it bases on accumulated earnings when
calculating tax.

There are two main methods under FDS, which are,

a) Averaging method, and

b) Forecasting method.

a) The Averaging method

A Guide to Zimbabwe Taxation 65

Example 1

Mr Magondo had the following earnings after deductions in 2017: $1500 in the first three
months, $1800 for the next two months and $1900 for the next two months. Calculate his
PAYE for the month of July, if his accumulated tax up to June is $1 700.

Solution

Total earnings to July (1500*3) + (1800*2) + (1900*2) = $11 900

Average monthly earnings 11900/7 =$1 700

Tax on average monthly earnings = $290 (Calculated on monthly tax tables)

Accumulated tax for 7 months should be (290*7*1.03) 2 090.90

Less: accumulated tax up to June (1 700)
Net tax to be paid in July 2090.90

b) Forecasting method

Example 2

Using the same facts as in example 1, except that Mr Magondo received $5 000 CIL in July.
Calculate his tax liability for the month of July.

Total regular earnings up to July 11 900

Projected to December 11 900*12/7 20 400
Annual tax is thus (from annual tax tables) 3 480(1)
Add: CIL 5 000
Total projected earnings 25 400
Annual tax is thus (from annual tax tables) 4 730 (2)
Tax on CIL (2) –(1) 1 250

Total regular earnings up to July 11 900

Average monthly tax 1 700 = (11 900/7 months) 290 (Calculated on monthly tax tables)
Accumulated tax for 7 month should be (290*7*1.03) 2 090.30
Add tax on CIL 1 250.00
Total tax 3 340.30
Less: Accumulated tax up to June (1 700.00)
Net tax payable in July 1 640.30

Example 3
Mr Mandangu resigned from employment on 31 August 2017. The following accumulated
figures are provided:

Salary 80 000

66 A Guide to Zimbabwe Taxation

Pension contributions 3 500
Professional subscriptions 450
Medical aid 1200
PAYE & Aids Levy 22 245

He was paid CIL and bonus of 10 000 and 7000 respectively on leaving.

Calculate his tax liability for the month of August.

Solution
Salary 80 000
Less: Pension contribution 3 500
Professional subs 450 (3 950)
Taxable income 76 050
Tax on accumulated income (note 1) 26 617.5
Projected income (12/8*76050) 114 075
Tax projected income (annual tax tables) 33 506.25(a)
Add: Bonus (7 000- 1000) 6 000
: CIL 10 000
Total annual income 130 075
Tax on annual income (annual tax tables) 39 610 (b)
Tax on bonus and CIL (b) – (a) 6 103.75
Total tax due to date 32 721.50
Less medical aid credit 1200*50% (600)
32 121.50
Aids Levy (3%*32 121.5)) 363.65
Tax to date of leaving 33 085.15
Less: Accumulated tax (22 245)
PAYE payable in August 10 340.15

Note 1
Taxable Income accumulated to August 76 050
Average monthly income (76 050/8) 9 506.25
Monthly tax (monthly tax tables) 3 327.19
Tax for 8 months (3 327.19*8) 26 617.5

3.8 Administrative responsibilities under PAYE tax head

- Every business person who becomes an employer is required to apply to the
Commissioner General for registration within 14 days of becoming an employer.
- The employer will be given the relevant tax deduction tables and informed of his/her
obligations as an employer. Some of the obligations include:
- Calculation and deduction of PAYE in accordance with the tax deduction tables
- Remittance of PAYE to ZIMRA within 10 days after the end of the month during
which the amount was withheld

A Guide to Zimbabwe Taxation 67

 - Keeping accounting records for a period of at least six (6) years.
- Submission of the ITF 16 return which contains details on annual earnings,
deductions, credits and PAYE for each employee within 30 days after the end of the
year.
- You will note that failure to withhold any amounts which you are required to withhold
renders you liable to the amounts due as well as penalties and interest.

3.9 Chapter Round-up

- Gross income with respect to employment activities is constituted of salaries and
allowances including fringe benefits payable during the course of employment;
terminal benefits and pension receipts (whether paid on retirement or on withdrawal
from a pension fund).
- Fringe benefits are generally taxable on the basis of the cost to the employer except
for housing and furniture benefit which is valued based on the value to the employee.
- Retrenchment package received by an employee is taxed subject to an exemption of
a third of such package. To be eligible for the exemption a retrenchment package
should be approved by the Minister responsible for Labour and Social welfare.
Retrenchment package constitute severance pay and gratuity but specifically
excludes Cash in lieu of leave and pension receipts.
- Certain expenses suffered by employees are allowed as a deduction, these are
pension contributions, NSSA and tradesman‘s tools. Allowable deductions have an
effect of reducing income that will be subject to tax.
- Taxable income is taxed according to sliding scale rates of tax (tax bands) provided
each year in the FA (revised).
- Credits are available to eligible employees, examples of credits are: blind person,
disability, medical expenses, medical contributions and elderly persons. Credits have
an effect of setting off tax liability of a person.
- Individuals whose employers are on FDS need not render returns. The following
employees should however, render returns:
o Employees who have terminated employment
o Employees who have started employment or changed employment
o Received pension
Exam tips!

1. Examiners usually set questions on individual income which includes employment and
non-employment income. You should be able to separate employment and business
income and compute tax liability separately, unless, a question requires you to compute
taxable income.
2. Certain incomes are taxed at their own rates like lump sum pension receipt which is
taxed at marginal rate (i.e. the highest rate in the tax brackets), such incomes should be
separated and tax liability be computed separately.

3.10 Practice questions

Section A: Multiple choice questions

1. How many days‘ time should a person register with Zimra on becoming an employer?

68 A Guide to Zimbabwe Taxation

 A 14 days
B 30 days
C 10 days
D 15 days

2. Mrs Lingu was given a company house in Marlborough in the beginning of the year by
her employer; she paid monthly rentals of $200. The market rentals for the similar
houses are $600 per month. The cost to the employer of maintaining the house is $250
per month. What is the taxable housing benefit to the Mrs Lingu?

A $2 400
B $4 800
C $3 000
D $7 200

3. Mr John received a loan of $5000 from his employer on 1 March 2017. He used 40% of
the amount to purchase drugs for medicating his son, the other amount he used to
purchase building materials for his house. He was also given a car on the same date,
engine capacity 3300cc. What is the total taxable benefit to Mr John? Libor is 1.5%.

A $8 195
B $9 795
C $11 000
D $8 162.5

4. Mapuranga was retrenched during the year ending 31 December 2017. He received the
following amounts:
Severance pay $15 000
Long service award $4 000
Pension lump sum $10 000
Cash in lieu of leave $1 200

What is Mapuranga‘ s taxable amount of his retrenchment pay.

A $9000
B $12667
C $20200
D $19000

5. Mango, Ralph and Joyce were retrenched during the year ended 31 December 2017
receiving $9000, $54000 and $72000 respectively as retrenchment packages. What is
their total exemption?

A $30 000
B $47 000
C $35 000
D $60 000

A Guide to Zimbabwe Taxation 69

6. The following details relate to Mrs Mutamba for the year ended 31 December 2017.
Taxable employment income $32 000
PAYE withheld $4 000

What is the total tax payable by Mrs Mutamba?

A $7800
B $8034
C $2571.4
D $4000

7. Which of the following is NOT taxable to employees:

i. Passage benefit to the extend used for private purposes
ii. Entertainment allowance paid to an employee which is expended on company
guests
iii. Motor vehicle disposed to an employee at below the market value
iv. Retrenchment pay below $10 000.

A (i) and (ii)

B (ii) only
C (iv) only
D (ii) and (iv)

8. The following expenses were suffered by an employee during the tax year ended 31
December 2017.
$
NSSA 350
Pension Fund 6000
Medical Aid contribution 240
Subscription to professional association 300

What are the total deductions claimable?

A $5400
B $5700
C $5940
D $6290

9. Which of the following is NOT a characteristic of an employee?

i. Has no independence in execution of his or her work
ii. Receives remuneration fixed by employer
iii. Is entitled to leave
iv. Is paid fees to which he or she has the power to charge.

A (i) only
B (ii) only
C (iii) only
D (iv) only

70 A Guide to Zimbabwe Taxation

10. Which of the following benefits are valued on the basis of cost to the employer?
i. Housing
ii. Motoring
iii. Passage
iv. Furniture

A (ii) only
B All of them
C (ii) and (iii) only
D (i) and (iv) only

11. The following statements are with regard to Pay As You Earn (PAYE) and Final
Deduction System (FDS)
i. The advantage of FDS over PAYE is refunds are done promptly
ii. Under FDS, credits and deductions are claimed during the year and need not
wait for assessment
iii. Under PAYE the obligation of assessment rests with the employer.

Which of the above statement/s is are not true?

A (i) only
B (iii) only
C (i) and (ii) only
D None

12. Stephen James went on a business trip to Germany the cost of the trip was paid by his
employer. He was doing business for 10 days but he extended his stay by a further 5
days. He was accompanied by his wife and son and they incurred the following:
$
Air fare (Wife & son 1 200) 3 200
Hotel and meals 1 800
Wife‘s touring 600
Jumping castles for the son 400
6 000
What is the amount for passage benefit taxable to Stephen James?

A $6000
B $2 600
C $2667
D $4000

13. On 31 March 2017, Nothando received a loan of US$9 000 from her employer. The
interest payable on the loan was 2% per year. Nothando used US$6 000 of the loan to
start a small business and the balance to pay for her medical expenses. (ACCA adapt)

What is the value of Nothando‘s taxable benefit in respect of the loan for the year ended
31 December 2017?

A Guide to Zimbabwe Taxation 71

 Note: You should assume that the LIBOR rate was 1·5% throughout 2017.

A US$405
B US$304
C US$270
D US$203

14. Jeff‘s employer calculated the income tax due on his remuneration under the pay as you
earn (PAYE) system after taking into account the following expenses incurred by Jeff
during the year ended 31 December 2017:
US$
Professional subscriptions 800
Medical aid contributions 3 000

What is the effect of these expenses on the operation of PAYE on Jeff‘s remuneration
from employment for the year ended 31 December 2017? (ACCA adapt)

A They result in allowable deductions of US$3 800

B They result in an allowable deduction of US$800 and a tax credit of US$3 000
C They result in tax credits of US$3 800
D They result in an allowable deduction of US$800 and a tax credit of US$1 500

15. Tsitsi is an employee and contributes US$300 monthly to a retirement annuity fund
(RAF). She also pays the maximum amount towards her National Social Security
Authority (NSSA) monthly contributions. What is the total amount of Tsitsi‘s allowable
deductions from employment income in respect of her retirement annuity fund (RAF) and
National Social Security Authority (NSSA) contributions for the year ended 31 December
2017? (ACCA Adapt)

A US$5 400
B US$2 994
C US$3 894
D US$3 600

Section B: Structured questions

Question 1

a) State the legislative provision in respect of payment of Pay As You Earn according to the
13th Schedule to the ITA. [5]
b) List the tax concession enjoyed by elderly persons on income accruing to them. [6]
c) What is a P6 Form, explain the purpose of a P6 Form and illustrate persons who should
complete the form. [5]
d) Explain how a person, who has been employed by several employers in one tax year, is
taxed? [4]

Question 2
a) What is ‗Final Deduction System‘ (FDS) [2]

72 A Guide to Zimbabwe Taxation

b) Compare and contrast FDS and PAYE system [4]
c) Below are the earnings of Mr G Gonyora, an auditor, up to the month of July 2017. He is
aged 61 years and has a blind spouse:

$
Basic salary 23 000
Pension contribution 3 000
NSSA 100
Subscription to a local football club 25
Subscription to PAAB (annual) 250
Medical aid contributions 120
Cumulative tax plus Aids Levy 4 476.30
He is entitled to free use of a motor vehicle, engine capacity 2100 cc

Calculate Mr Gonyora‘s tax liability for the month of January assuming an FDS is
employed. [16]

Question 3

Stephen Margolis is ordinarily resident in Zimbabwe and is 60 years old. When he

returned home from Bangladesh, he was employed by Price Waterhouse Coopers,
which is based in Harare, as an information systems audit manager. The following
details relates to his employment in the tax year ended 31 December 2017.

Salary 24 000
Bonus 5 200
Cost of living allowance 1 600
Refund from medical aid society 600
Cell phone allowance 800
Cash in lieu of leave 4000
Expenses
Doctor‘s consultation fees 1800
Contribution to Old Mutual RAF 3 000
Contribution to CIMAS 3 600
Contribution to First Mutual Pension Fund 3 900

Additional information provided by the employer

1. The employer provided him with a well-furnished company house in September,

however, according to Harare Rent Board the Market rentals of the property was $600
per month, according to the employer the cost of the upkeep of the house was $200 per
month. Stephen paid $250 per month to his employer.
2. In March the employer provided him with a free use of a car with engine capacity 3200
cc. however, the motor vehicle was used 80% for private use during the tax year.
3. The employer provided him with a loan of $10 000 at 4% interest charge to complete the
construction of his Marlborough house during the tax year. Libor 1.5%

A Guide to Zimbabwe Taxation 73

4. According to the employer, the cell phone was used 40% for the employer‘s business
during the year.
5. On 31 December 2017, the employer sold him the car which he had been using during
the year for $ 3 000, the market value of the car was $ 7 000.

Requirements

Calculate Stephen Margolis‘ tax liability from employment for the year ended 31
December 2017. (20 marks)

74 A Guide to Zimbabwe Taxation

 4
PENSIONS AND BENEFIT FUNDS

Chapter outline

4.1 Introduction
4.2 Definition of terms
4.3 Pension on retirement
4.4 Lump sum payment from a Benefit Fund
4.5 Lump sum payment from a Pension Fund
4.6 Lump sum payment from an Unapproved Fund
4.7 NSSA pension scheme
4.8 Pension contributions
4.9 Chapter Round-up

4.1 Introduction
Usually people who work contribute part of their earnings to a pension fund so as to secure
an income for themselves or their beneficiaries on retirement. Generally a pension
contribution is based on 7.5% of a person‘s salary though some contributes even more. On
retirement an annuity will begin to be paid to the member of a pension fund. In certain
circumstances, a lump sum is paid first, and then followed with a series of pension annuity.
However, not all people receive their pension on retirement; some may get back the fruits of
their contribution because of their withdrawal from a pension fund or the winding up of a
pension fund.

Pension receipts are taxable in the hands of the beneficiary. To determine the taxability of
such receipts, the source of the pension should be identified as either one of these funds:
Benefit Fund, Pension Fund and Unapproved Fund. Receipts from a Retirement Annuity
Fund are not taxable since contribution to a retirement fund is not allowable as a deduction.

1 July, 1960 is an important date with regard to pensions. This is the date when pension
laws were amended. As such pension or benefit funds are classified into three:
- Old Fund – pension or benefit funds established before 1 July, 1960 whose rules have
not changed.
- Semi- old Fund - pension or benefit fund established prior to 1 July, 1960 whose rules
have changed.
- New Fund – pension or benefit fund established on or after 1 July, 1960.

4.2 Definition of terms

- Pension fund means a fund registered or provisionally registered as a pension fund
under the Pension and Provident Funds Act [Chapter 24:09]; or a fund established by
any law for the purpose of providing, amongst other things, annuities or pensions on
superannuation or on retirement.

A Guide to Zimbabwe Taxation 75

- Benefit fund means a fund registered or provisionally registered as a provident fund
under the Pension and Provident Funds Act [Chapter 24:09]; other than pension fund or
a medical aid society.

A benefit should be approved by the Commissioner on his satisfaction that such fund is a
permanent fund that is established for the purpose of providing sickness, accident or
unemployment benefits for its members; or benefits for the widows, children, dependants
or nominees of deceased members.

- Unapproved fund means a fund or scheme established by an employer for the purpose
of providing pensions, annuities, terminal benefits or similar benefits for his employees or
the widows, children, dependants or nominees of deceased employees or for all or any
of these purposes, which is not a pension fund or a benefit fund.

- Part 1 beneficiary means a person who is a member of a benefit fund.

- Part 2 beneficiary means a person who is a member of a Pension fund.

- Part 3 beneficiary means a person who is member of an unapproved fund.

4.3 Pension receipts on retirement

Pension receipts upon retirement which is from source or a deemed source in Zimbabwe
is subject to tax. Pension received by an elderly person from the Consolidated Revenue
Fund or from an approved pension fund is however exempt from tax.

4.4 Lump sum receipt from a Benefit fund

a) Old Fund
If a payment is made from an old fund, (a fund established before 1 July, 1960) the
whole amount is not taxable.

b) Semi-old fund
The taxable amount for lump sum payment received by a taxpayer from a fund which
was established before 1 July, 1960, is calculated as follows:

Lump sum received xxx

Less: the greater of amount that would have been received has the rules not
changed and US $1 800 (xxx)
Less: Amount used to purchase a retirement annuity (xxx)
Less: Amounts transferred to a benefit or pension fund (xxx)
Taxable income xxx
Tax @ highest marginal rate xxx

c) New fund
Lump sum payment received from a benefit fund that was established after 1 July, 1960
or whose member joined after that date, is taxable as follows.

76 A Guide to Zimbabwe Taxation

 Lump sum payment xxx
Less: $1 800
Less: Amount used to purchase a retirement annuity (xxx)
Less: Amounts transferred to a pension fund (xxx)
Taxable income xxx
Tax @ highest marginal rate xxx

4.5 Lump sum receipt from a pension fund

a) Old fund

If a payment is made from an old fund, (a fund established before 1 July, 1960) the
whole amount is not taxable.

b) Semi-old fund
The taxable amount for lump sum payment received by a taxpayer from a pension
fund which was established before 1 July, 1960, or which the member joined before
that date the rules of which has changed, is calculated as follows:

Lump sum payment xxx

Less: $1 800
Less: amounts that would have been received had the rules not changed (xxx)
Less: Amount used to purchase a retirement annuity (xxx)
Less: Amounts transferred to a pension fund (xxx)
Taxable income xxx
Tax @ highest marginal rate

c) New fund

If a lump sum payment is made from a new fund to a Part II beneficiary or from a fund
with changed or unchanged rules to a Part II beneficiary who became a member of the
fund on or after the 1st July, 1960, or from the Consolidated Revenue Fund to a Part II
beneficiary to whom a pensions law of Zimbabwe did not apply before the 1st July, 1960
the taxable amount is calculated as follows:

Lump sum payment xxx

Less: $1 800
Less: Amount used to purchase a retirement annuity (xxx)
Less: Amounts transferred to a pension fund (xxx)
Taxable income xxx
Tax @ highest marginal rate xxx

4.6 Lump sum receipt from an unapproved fund

A receipt by reason of withdrawal from a pension fund which is not an approved fund is not
taxable.

A Guide to Zimbabwe Taxation 77

4.7 Pension contributions
The Act authorises, and place limitations on, the deductions of the amounts of contributions:

4.7.1 Employer contribution to benefit of funds

a) In respect of each member who joined the fund on or after 1 April 1958 the annual
deduction is restricted to US $1 500.
b) There is no restriction with respect to contributions by members of the fund who
joined before 1958.

4.7.2 Employers contributions to pension funds

a) In the case of any member who joined the fund on or before 1 July 1960, there is no
restriction on the amount of deduction. Thus the whole amount of contribution is
allowed.
b) In the case of a member who joined the fund on or after 1 July 1960, the rules of
which has changed, the amount of deduction to be allowed is restricted to the
amount that would have been contributed had the rules not changed or the amounts
that would have been allowed had the member joined after 1 July 1960. If the
amount of contribution does not exceed the above amounts, then deduction is
allowed on the amounts of contribution.
c) In the case of contributions made by members who joined on or after 1 July 1960,
the, deduction is restricted to $5400 per member.

4.7.3 Employers‟ lump sum contribution to pension funds

The amount of contribution is allowed in full but the Commissioner may direct that the
deduction be spread over such years as he determines.

4.7.4 Members‟ contributions to pension funds

a) Members who joined pension funds before 1 July 1960; there is no restriction to the
contributions.
b) In the case of members who joined after 1 July 1960, contributions are limited to
$5400 per annum.
c) Contributions by members to retirement annuity funds are restricted to $2 700 per
annum.
d) Arrears contribution by members of pension fund is restricted to 8% of aggregate of
annual emoluments or $1 800, whichever is greater.
e) Contributions to NSSA are restricted to 3.5% of gross salary, applicable only to a
maximum salary of $700 per month.
f) The aggregate maximum allowed contribution to all of the above is $5 400 per
employee per year.

4.8 Chapter Round-up

- Pension contribution is generally 7.5% of a person‘s gross salary, though some
contribute even more.
- A pension receipt can be as a result of retirement or withdrawal from a pension fund
(pension refund).

78 A Guide to Zimbabwe Taxation

- Pension Fund, Benefit Fund, Retirement Annuity Fund (RAF) and Unapproved Pension
Fund are all sorts of funds in which pension receipts can be identified with for tax
purposes.
- Any part of pension contribution which has been disallowed as a deduction is not taxable
on subsequent receipt of the pension by a taxpayer; it is a receipt of capital nature.
- Where a lump sum is received by a taxpayer, 1/3 of his pension entitlement shall be
exempted from the lump sum as it is a pension commutation.

4.9 Practice questions

Section A: Multiple choice questions

1. Nursery (Private) Ltd commenced business operations on 1 July 2017 and employs five
full-time employees. The monthly payroll is as follows:
US$
Employee 1 (aged 67) 1 000
Employee 2 (aged 72) 850
Employee 3 750
Employee 4 600
Employee 5 500
Gross 3 700

What is the total amount of National Social Security Authority (NSSA) contributions
payable by Nursery (Private) Ltd for the year ended 31 December 2017?

A US$777
B US$1 554
C US$672
D US$378

2. Peter is employed and earns a gross monthly salary of US$6 000 during the year ended
31 December 2017. He contributed 5% of his monthly salary towards a registered
retirement annuity fund. On 1 June 2017, Peter became a member of a pension fund into
which he contributed 7·5% of his monthly salary in addition to his payments to the
registered retirement annuity fund. This pension fund had not yet registered with the
Commissioner of Insurance, Pension and Provident Funds as at 31 December 2017.

What is the amount of Peter‘s allowable deductions in respect of his contributions to the
pension funds for the year ended 31 December 2017?

A US $5 400
B US $3 600
C US $2 700
D US $6 750

A Guide to Zimbabwe Taxation 79

3. What is the maximum allowable contribution for arrears pension contribution?
A $2700
B $5400
C $1800
D $700

4. John was paid the following in a certain month:

Salary 1 200
Transport allowances 350
Housing allowance 400
Representation allowance 500

What is John‘s amount of pension contribution in that month?

A $90.00
B $146.25
C $183.75
D $127.50

5. Miss Mega resigned from her employment with Peach & tree (Pvt) Ltd and received a
lump sum refund of $24 000. She had been working for her employer for the past 10
years. During her time with Peach & Tree a total of $4 200 of her contribution was
disallowed as deduction. She transferred $10 000 to Old Mutual Retirement Annuity
Fund. What is her taxable income?

A $9 800
B $8 000
C $19 800
D $14 000

6. Ted resigned from his government post during the year ended 31 December 2017. At the
same time, he withdrew US$40 000 from his government pension fund as a refund of his
pension fund contributions made in earlier years. A total of US$8 000 of his original
contributions to the pension fund were disallowed for tax deduction when made. (ACCA
Adapt)

Ted‘s taxable income from employment amounted to US$125 000 for the year ended 31
December 2017.

What is the tax payable on Ted‘s refund of pension fund contributions in the year ended
31 December 2017?

A US$14 400
B US$14 832
C US$18 000
D US$18 540

80 A Guide to Zimbabwe Taxation

 5
CAPITAL ALLOWANCES

Chapter outline

5.1 Introduction
5.2 Capital expenditure – specific assets
5.3 The Taxman versus the Accountant
5.4 Capital allowances
5.5 Recoupment
5.6 Summary
5.7 Practice questions

5.1 Introduction
Capital expenditure gives rise to an asset (whether tangible or intangible), which is – in true
sense - an entity capable of generating income. Generally, capital expenditure is not
allowable as a deduction, but however, section 15(2)(c), authorises the deduction of the cost
of various assets. Capital allowance represents the loss of value of an asset due to use,
wear and tear, etc. capital allowances replaces depreciation that is applied by an accountant
in arriving at net profit. The taxman disregards depreciation and applies capital allowances
for the determination of taxable income.

5.2 Capital expenditure – specific assets

Assets do not qualify for capital allowances alike. The fourth schedule provides the
guidelines as to which class a certain asset falls, and capital allowances that are applicable.
Generally capital expenditure includes expenditure on:
- Acquisition of fixed assets (including the cost of bringing it into its useful state)
- The improvements or alteration of fixed assets
- The construction of fixed assets, etc.

This paragraph details the criteria for qualification of expenditure on specific assets.

5.2.1 Commercial building

It is any building the erection of which was commenced on or after the 1st of April, 1975, and
which is used to the extent of at least ninety per centum of the floor area for the purposes of
trade or in the production of income.

The following do not qualify:

- Buildings covered by other definitions namely, farm improvements, industrial buildings,
staff housing and tobacco barns.
- A building which is not a hotel as defined in the Tourism Act [Chapter 14:20] or a block of
flats, apartments or similar residential units which is occupied more than ten per centum
of its floor area for residential purposes.

A Guide to Zimbabwe Taxation 81

- Flats or apartments owned by companies, partnerships or associations, the
shareholders, partners or members of which have the right of occupation.

5.2.2 Farm improvement

A farm improvement is;

- Any building or structure or work of a permanent nature, including any water furrow,
which is used in the carrying on of farming operations, but does not include—
a) any building, structure or work of a permanent nature which qualifies for special
deductions of farmers i.e. 7th Schedule allowances (see the chapter on farming),
b) staff housing or any dwelling used by the taxpayer as the homestead of himself
and his family; or purchased or constructed after the year of assessment
beginning on the 1st April,1979; or
c) a tobacco barn;

- Any permanent building the erection of which was commenced on or after the 1st April,
1988, used for the purposes of a school; or a hospital, nursing home or clinic, in
connection with taxpayer‘s farming operations.

5.2.3 Industrial building

a) Is a building used specifically, for the following purposes:
- Any building which contains 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 as any other building mentioned above and
which, in the opinion of the Commissioner, suffers depreciation by reason of the
operation of machinery.
- Any building which suffers depreciation by reason of the use of chemicals, corrosives,
furnaces etc.
- Any building erected and used mainly for the purpose of carrying out industrial research
or scientific experiments in manufacturing.
- Any building used mainly for a hotel business in respect of which a hotel liquor licence or
casino licence, not being a temporary licence, has been issued, and includes ancillary
buildings, structures and works of a permanent nature like swimming pool, golf course,
tennis court, etc.
- A warehouse in use mainly for the storage of raw materials which are to be used by the
taxpayer for the manufacture of other goods, consumables used by the taxpayer and
finished goods manufactured by the taxpayer.
- Any building in use mainly for the purposes of a trade which consists in the distribution of
hydro-carbon oils by pipeline;
- Staff welfare buildings, e.g. canteens but excluding any building used mainly as a
dwelling-house, retail shop or showroom or for the storage of goods or materials;
- Any works for the prevention of pollution;
- Any building erected and used mainly for the purpose of international data capture
operations and additionally, or alternatively, for the assembly of computers;
- Any toll-road or toll-bridge declared in terms of the Toll-roads Act [Chapter 13:13];

82 A Guide to Zimbabwe Taxation

b) Includes any fencing surrounding the buildings or permanent sealing of the ground area
surrounding such building like car parks, courtyards and driveways.

5.2.4 Passenger motor vehicle

Is any motor vehicle propelled by mechanical or electrical power and intended or adapted for
use or capable of being used on roads mainly for the conveyance of passengers, including
an estate car, station wagon, van or similar vehicle but excluding any vehicle—

- Which is used wholly or almost wholly for the conveyance of passengers for gain; or by a
person operating a hotel for the conveyance of guests; or
- Which has seating accommodation for fifteen or more passengers, excluding the driver
of the vehicle; or
- Which was purchased by the taxpayer for the purpose of being leased to a particular
person and has been so leased under a finance lease.

The cost of a passenger motor vehicle is restricted to US $10 000 for 2017 tax year

5.2.5 Staff housing

Is any permanent building used by the taxpayer for the purposes of his trade wholly or
mainly for the housing of his employees. A staff housing does not include ,in the case of any
such building the erection of which was commenced on or after the 1st January, 2010, any
building comprising or incorporating any residential unit the cost of which exceeds US$25
000.

5.2.6 Railway lines

Includes the rails, sleepers and equipment pertaining thereto of any railway track but does
not include ballast, embankments, bridges, culverts and other railway constructions.

5.2.7 Tobacco barn

It is a building used for the purpose of curing tobacco.

5.2.8 Machinery, articles, implements or utensils

The Act does not give specific definitions of the above terms. The terms cover all other
assets that could be employed by a taxpayer in the furtherance of trade and production of
income. Examples of such assets are; computers, equipment, etc.

With effect from 1 January 2016 the definition of machinery, articles, implements and
utensils include tangible or intangible property in the form of computer software that is
acquired by a taxpayer for use by him in his trade.

Computer software means any set of machine-readable instructions that directs a computer
processor to perform specific operations.

Taxpayers can now claim capital allowances (S.I.A) on cost of acquisition or development of
software over four years.

A Guide to Zimbabwe Taxation 83

5.3 The Taxman and Accountant compared
The taxman disregards expenses recognised by an accountant in respect of assets and
replaces such expenses with his own allowances. The following tables give a comparison of
terms, in respect of assets, used by the accountant and the taxman.

Taxman Accountant
Capital Allowance e.g. SIA, W&T Depreciation e.g. Straight line or Reducing
Balance.
Income Tax Value (ITV) Net Book Value (NBV)
Scrapping Allowance Loss on disposal
Recoupment Profit on disposal

5.4 Capital Allowances

The taxman allows certain deductions in respect of assets defined in the above paragraphs,
which are: Special Initial Allowance, Wear & Tear and scrapping allowances.

5.4.1 Special Initial Allowance (S.I.A)

Beginning 1 January, 2011, SIA is calculated at rate of 25% of capital expenditure incurred
by the taxpayer in any year of assessment, on construction, addition, alteration or purchase
of the assets discussed above, as the case may be.

Special Initial Allowance is granted to a taxpayer upon election, the election of which is
binding. If SIA is elected, it should be applied to an asset throughout the asset‘s useful life.
S.I.A is granted at a rate of 25% of cost in the year of first use. The subsequent three years,
an allowance known as accelerated wear and tear is charged at a rate of 25% on cost.

Small and Medium Enterprises (SME) are an exception were S.I.A is charged at a rate of
50% in the first year and 25% in each of the succeeding two years. Such Special Initial
Allowances is not granted on improvements or additions to assets.

With effect from 1 January 2017, SIA is charged at a rate of 100% in the case of a licensed
investor who is a holder of an investment licence.

Special initial allowance shall be allowed in respect of half of the capital expenditure incurred
in the purchase of any fiscalised electronic register whose purchase qualifies for relief in
terms of section 15(3)(k) of the VATA .

Important notes on S.I.A:

 Is charged in the first year an asset is brought into use.

 The rate is applied on the cost of an asset, i.e. straight line basis
 Is never apportioned on either time or usage basis.
 Is never granted on a commercial building unless it is constructed on a growth point.
 Is never granted on purchased immovable assets.
 Is granted on purchased movable property whether purchased new or second hand.
 Is never granted on assets acquired through donation or inheritance.

84 A Guide to Zimbabwe Taxation

 No S.I.A is granted to a lessor on a finance lease.
 No S.I.A is granted where the asset is used less than 90% for the purpose of trade.

5.4.2 Wear & Tear (W&T)

Wear & Tear is the main form of capital allowance granted on assets unless the assets
qualify for SIA. Wear & Tear is calculated at a rate of 10% per annum on movable assets
and a rate of 5% per annum on immovable assets, unless if a specific rate applies.

Important notes on Wear & Tear:

 Is granted where no S.I.A is elected.
 Is calculated based on cost on immovable assets.
 Is calculated based on reducing balance for movable assets.
 It is never apportioned on immovable assets
 Is apportioned on movable assets on time or usage basis.
 A commercial building is an exception with a rate of 2.5% on cost

The following rates of Wear & Tear apply to assets:

 Movable assets in general 10%

 Motor vehicles 20%
 Televisions 20%
 Computers 10%
 Machinery (working 24 hours a day) 25%
 Machinery (working 2 shifts a day) 17.5%
 Graders 25%
 Bicycles 25%
 Motor vehicles used on rough roads 25%
 Legal books and other textbooks 33.33%
 Photocopying equipment 20%

Notional Wear and Tear

It is wear & tear charged on an asset from the date of purchase to the date it is introduced
into the business of the new owner. If an asset was used somewhere before, wear & tear
should be calculated so as to arrive at the estimated cost of an asset at the date it is first
introduced into business by the new owner.

Example
Jakaranda (Pvt) Ltd acquired a commercial truck on 10 January 2017 from Mutamba P/ L
which was to be used for delivery of its products. The truck had been acquired by Mutamba
P/L on 1 February 2015 for $140 000, the previous owner had claimed wear and tear.
Calculate capital allowances in respect of the truck for the year ended 31 December 2017.

Solution

A Guide to Zimbabwe Taxation 85

Notional wear & tear
Year 2015 (20% * 140 000) *11/12 25 667
Year 2016 (20%* (140 000 -25 667) 22 867
Total 48 534

ITV on 1 January 2017 is (140 000 – 48 534) 91 466

Year 2017 Wear & Tear (20% * 91466) 18 293

5.4.3 Scrapping Allowance

It is the amount by which the Income Tax Value of an asset exceeds its sales proceeds.
Scrapping allowance is the equivalence of accountant‘s loss on disposal of an asset.
Scrapping allowance is limited to the cost of an asset. It is in granted only were assets so
scrapped belongs to the taxpayer. The allowance is apportioned if the asset was used for
dual purposes.

The following formula is used were an asset was used for dual purposes:

A *B/ C

Where, A represents potential scrapping allowance

B represents wear and tear for the purpose of trade

C represents total wear and tear

Example

AB Insurance Brokers (Pvt) Ltd acquired a Mazda Familiar for its Accountant for $ 9 000 two
years ago. The car was sold during the current year for $1000. The company had elected for
SIA in the year of acquisition. The Accountant, however, used the car 80% for the business
of the employer. Calculate scrapping allowance on disposal of the car.

Solution

Year 1: S.I.A 25% * 9 000 $2 250

Year 2: Accelerated W& T 25% * 9000 $2 250
Year 3: Accelerated W& T 25% * 9000 $2 250
Total 6 750

ITV ($9 000 –$ 6750) $ 2 250

Scrapping allowance ($2 250 – $1 000)* 80% $ 1 000

86 A Guide to Zimbabwe Taxation

5.5 Recoupment
Recoupment in accounting terms represents a profit on disposal of an asset. It is income in
terms of section 8 (1) (j) and is taxable. Recoupment to the taxman is recovery of capital
allowances previously lost in respect of use of an asset. Thus, recoupment is calculated as:
sales proceeds less Income Tax Value (ITV) of an asset. Since recoupment is ‗recovery‘, it is
therefore limited to the capital allowances previously granted. Recoupment is the lesser of
capital allowances granted in the life of an asset and the amount by which the sale proceeds
of an asset exceeds its Income Tax Value.

If the cost of an asset was restricted for the purposes of calculating capital allowances, the
sales proceeds should be restricted proportionally as follows:

Deemed Selling price = Deemed cost ×Actual selling price

Actual cost

Example
Masawara Ltd acquired an S Class Mercedes Benz for its Operations Director for $22 000
on 30 September 2016. On 10 July 2017, the company sold the car for $18 000. The
company had elected for S.I.A on purchase of the car. Calculate recoupment to be taxed in
the hands of Masawara Ltd.

Solution

Year 2016: S.I.A 25%* $10 000 $2 500

Year 2017: S.I.A 25% *$10 000 $2 500

ITV ($10 000 - $5 000) $5 000

Deemed selling price: 10 000 * 18 000

22 000
= $8181.82

Recoupment = ($8181.82 - $5000) $3181.82

5.5.1 Recoupment on damage of an asset

Where recoupment arises on damage of an asset, and the sale proceeds are receivable
through insurance policy, the whole amount will not be taxable provided the taxpayer
satisfies the Commissioner that:

a) Within a period of 18 months from the date of damage or destruction he has purchased
or constructed a similar asset thereof.
b) Such asset has been or will be brought into use within a period of 3 years from the date
the original asset was damaged or disposed.

Example

A Guide to Zimbabwe Taxation 87

MTC Communications had its factory building destroyed by fire on 3 March 2017. The
Income Tax Value of the building at the date of destruction was $152 000, the company
received compensation of $230 000 from Eagle Insurance on 5 July 2017.

Calculate recoupment, if any, to be taxed in the hands of MTC Communications in 2017 on

the following assumptions:

a) That the building was not replaced

b) That the building was replaced by February 2018 at a cost of 210 000 and brought into
use in May 2018.

c) That the construction of a building was completed on 3 April 2019.

Solution

a) Recoupment: ($230 000 – $152 000) = $78 000, the whole amount of $78 000 is taxed
since the building was not replaced.

b) Recoupment: ($230 000 - $152 000)* 20 000/230 000 = $6 782.61, recoupment

calculated to the extent of amounts not expended.

c) The whole amount of recoupment, i.e. (230 000 -152 000) = $78 000, will be taxed in full
since the construction exceeded 18 months.

5.5.2 Recoupment on a scheme of reconstruction

There is no recoupment in the hands of the transferor if an asset is transferred;
- Between spouses
- Between firms under the same control
- Where a foreign firm is wound up and its shares are transferred to a new company
incorporated in Zimbabwe.

The parties to the transfer of assets should elect to transfer the assets at their Income Tax
Values (ITV) even though the assets are actually sold at more than their ITV‘s. By making an
election, the transferor will escape potential tax on recoupment.

5.6 Chapter Round-up

- Capital expenditure is prohibited and does not qualify for deduction, however, capital
allowances are allowed.
- Capital expenditure is classified into the following classes: Commercial building,
Industrial building, Farm improvements, Staff housing, Passenger Motor Vehicles,
machinery and implements, etc.
- Capital expenditure is expenditure on acquisition, construction, addition, alteration to an
asset. Capital allowances are thus claimed against capital expenditure.
- An entity may claim either S.I.A or W& T. Qualifying assets would be charged on S.I.A,
assets that do not qualify for S.I.A will automatically be charged a Wear and Tear
allowance.

88 A Guide to Zimbabwe Taxation

- Recoupment is the equivalence of accountant‘s profit on disposal; recoupment is,
however, restricted to capital allowances previously granted.
- Scrapping allowance is the equivalence of accountant‘s loss on disposal; it is restricted
to the cost of an asset.
- An asset whose cost has been restricted (deemed cost) shall have its selling price be
proportionally restricted when calculating recoupment.
- Recoupment on damage of an asset is not taxable if certain conditions are met as
provided in paragraph 5.5.1
- Where assets are transferred between related entities, i.e. between spouses or between
firms under the same control no recoupment arises as the parties will elect to transfer the
assets at their income tax values.

Exam tips!
 It is important to correctly classify an asset, identify any restrictions that may
apply to that asset and to determine the capital allowances that should be
claimed on the asset (S.I.A or W&T).
 Most examination questions provide a detail of assets in an entity‘s asset register
showing Cost, date of acquisition & ITV details, at the beginning of the year. It is
important that you test whether the asset has been subject to SIA, by calculating
anew an asset‘s ITV considering the number of years it has been in use. If the
ITV you would have worked assuming SIA does not tally with that at the
beginning of the year then apply W&T at the appropriate rate.

5.7 Practice questions

Section A: Multiple choice questions

1. What is the rate of W&T for motor vehicles?

A 10%
B 25%
C 20%
D 5%

2. Which of the following is not a characteristic of an industrial building?

i. Building which was created on or after 1st of April 1975
ii. Building containing or used for the of operating machinery
iii. A warehouse used for storage of raw materials which are to be used for
manufacture of other goods.
iv. Staff welfare building.

A (i) and (ii)

B (iii) only
C (i) only
D (iii) and (iv)

3. Jac & Co. purchased a Toyota corolla for its Accountant for $22 000 in 2015. The car
was sold in July 2017 for $15 000 assuming the car qualified for SIA what is the
recoupment?

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 A $4 000
B $1 818
C $1 800
D $818

4. A & B Co. had the following assets in its asset register on 1 January 2017.
Cost Date purchased ITV
Motor vehicle 50 000 Jan 2016 40 000
Manufacturing Building 130 000 Mar 2015 65 000
Shop building 170 000 Jan 2017 N/A

What is total capital allowance chargeable?

A 44 750
B 23 000
C 87 500
D 83 000

Question 5, 6 &7 are based on the information below

FDE Ltd constructed/ purchased the following assets during 2017 tax year:
$
Factory building 200 000
Plant & Machinery 110 000
Office building 120 000
Furniture & Equipment 60 000
Commercial vehicles 50 000
Three passenger vehicles 80 000

5. What is the amount of SIA chargeable on immovable properties?

A $53 000
B $30 000
C $80 000
D $50 000

6. Using the same information in question what is the total capital allowances in respect of
motor vehicles.
A $27 500
B $20 000
C $32 500
D $26 000

7. What are total capital allowances chargeable on all of the above assets?
A $155 000
B $105 000
C $115 500
D $142 500

90 A Guide to Zimbabwe Taxation

8. Dublin Co. (Pvt) Ltd purchased a payroll system and incurred cost as follows:
$
Purchase price 120 000
Installation cost 40 000
Training of new staff 10 000

What is the maximum allowance claimable in 2017 by Dublin Co?

A $170 000
B $40 000
C $50 000
D $42 500

9. The fourth schedule to the Income Tax Act classifies certain assets into categories such
as Commercial buildings, Industrial buildings, Staff housing, Passenger Motor Vehicle
etc. During the year Jambwa holdings incurred the following capital expenditure:

- Constructed a block of flats for its staff residence $165 000

- Constructed a manufacturing building $230 000
- Constructed a warehouse for storage of manufactured goods $35 000
- Purchased two haulage trucks $105 000
- Constructed an administration block $85 000

How many categories will these assets fall into for tax purposes?

A two
B three
C four
D five

10. The following are some of the characteristics of Special Initial Allowance
i. SIA applies to half of the purchase cost of a fiscalised electronic register.
ii. SIA structure for SMEs is 50% in the first year and then 25% for each of the next
two years.
iii. Is granted on purchased immovable property
iv. Is not granted to an asset used for less than 90% for the purpose of trade.

Which of the above statement/s is are true?

A (i) and (ii) only

B (i), (ii) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iv) only

Section B: Structured questions

Question 1

A Guide to Zimbabwe Taxation 91

KLM (Private) Limited is a Zimbabwean incorporated company based in Lytton industrial
area. The company is in the business of manufacturing various plastic products. On 1
January 2017, the following assets were shown in its asset register:

Assets Cost ($) Year acquired Month Income Tax Value (ITV) ($)

Industrial land 500 000 2014 January 500 000

Delivery truck 10 000 2016 July 9 000

Computers 4 000 2014 January 1000

Warehouse 50 000 2016 January 48 750

Factory building 200 000 2014 February 170 000

Mercedes Benz 20 000 2016 December 7 500

Industrial machinery 30 000 2016 March 22 500

Additional information

1. The company disposed the existing machinery for $ 24 000 on 30 June 2017 and
replaced it with a new machinery which was bought for $ 50 000. The cost of bringing the
machinery to its useful state was incurred as follows:
- Import duty (Beitbridge border post) $2 500
- Installation $ 1 500
- Alteration of the factory building so as to fit the new machinery $ 2 000

2. The company bought a Nissan Primera for the finance director on 20 February 2017, for
$14 000.
3. The delivery truck was involved in an accident on 30 October 2017, the insurance
company paid the company $9 000 in compensation. The directors have since found a
similar tuck for replacement.

Required

Calculate the maximum allowances and income to be included in the computation of tax
liability for KLM. [20 marks]

92 A Guide to Zimbabwe Taxation

 6
BUSINESS INCOME- CORPORATES

Chapter outline

6.1 Introduction
6.2 Gross income
6.3 Exempt income
6.4 Allowable deductions
6.5 Prohibited deductions
6.6 Provisional tax
6.7 Chapter Round-up
6.8 Practice Questions

6.1 Introduction
Corporate is a general term for an entity whether incorporated or not that carries on trade or
investments activities with a purpose of making a profit. Corporates includes companies
incorporated under various statutes; such corporates are taxed on income accruing to them
from their trade or investments activities.

6.1.1 Framework for the determination of tax liability for corporates

Net profit as per accounts xxx

Add: Tax income xxx

Disallowable deductions xxx
Other income (investment income, e.g. Interest) xxx xxx
xxx

Less: Exempt income xxx

Accounting income xxx
Allowable deductions xxx (xxx)
Taxable income xxx
Tax @ 25% xxx
Add: 3% Aids Levy xxx
Tax liability xxx
Less: Cumulative QPD‘s paid (xxx)
Tax payable / refundable xxx/ (xxx)

6.1.2 The Taxman and the Accountant

Corporates are, in most circumstances, organised entities with established accounting
systems. Corporates prepares financial statements at the end of an accounting year with the
figure of net profit representing net income earned by such entity. However, accounting
concepts applied by an accountant, in arriving at net profit differs from that of the taxman in
arriving at taxable income. As such net profit does not always equal taxable income.

A Guide to Zimbabwe Taxation 93

The difference between net profit and taxable income is caused by two items: temporal
difference and permanent differences. Temporal differences are caused by items which are
taken into account by both accountant and taxman but in different periods. Permanent
differences involve items which are taken into account by either one of them and yet
disregarded by another.

a) Temporal differences
The taxman uses receipt or accrual basis, whilst the accountant uses an accrual basis.
Examples include;
- Income included in taxable income in a period later than covered by the income
statement.
- Interest collected in advance may be taxable in the period which it is received but for
accounting purposes credit may be taken only in latter days when it is earned.
- Expenses or losses included in the income statement but not deductible from income for
tax purposes until a later date, e.g. provision for doubtful debts.
- Expenses or losses deducted from income for tax purposes in a period earlier than the
period in which they are charged in the income statement, e.g. research and
development cost can be deducted in full for tax purposes but amortised over a period of
the life of the project for accounting purposes.

b) Permanent differences
These differences arise as a result of one (an accountant or taxman) including an item
and the other not including the item at all. Examples include;
- Exempt income – income that is taken into account by an accountant but excluded by
the tax man. An example of such income is dividends from Zimbabwean source.
- Deductions – some expenses are accounted for by an accountant but are disallowed
by the taxman, e.g. charitable donations and fines.

6.1.3 Tax income versus accounting income

There are certain amounts which are income according to accounting principles but which
are not income to the taxman an example is exempt income such as dividend paid by a local
company. Another category of accounting income is one which the taxman disregards but
replaces with his own income (tax income); in other words the taxman does not disagree
about its nature but disagree on how to arrive at the amount of such income is an example is
profit on disposal which has its tax substitute (recoupment). Accounting income should be
subtracted from net profit figure and replace it with tax income.

6.1.4 Accounting dates

An accounting year of a corporate can start and end at any time of the year yet a tax year
ends on the 31st of December of each year. It therefore means tax accounts are prepared to
coincide with the tax year. The Commissioner may, on written application, grant permission
to use a different twelve-month period as the year of assessment and this shall be called a
‗substituted year of assessment‘.

Where the year of assessment for a taxpayer changes from an ordinary year of assessment
to a substituted year of assessment to an ordinary year of assessment or from one

94 A Guide to Zimbabwe Taxation

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 as assessment

6.2 Gross income

6.2.1 Income from trade

Net profit is the major income for corporates from there trading activities. Computation of
taxable income involves reconciliation of net profit figure by adjusting for both the permanent
and temporal differences.

6.2.2 Other specific income for corporates

a) Trading stock: Sect 8(1)(h)

Trading stock is defined in section 2 of the Act as including goods and other property,
including livestock, which are acquired, manufactured, produced, bred, constructed or
improved in the ordinary course of trade for the purpose of disposal in the ordinary
course of trade. Also included in the definition are:
- Partially manufactured goods.
- Consumables like advertising, packaging or other materials used in the disposal
of goods in the ordinary course of trade.
- Goods acquired by a taxpayer not in the ordinary course of trade but incorporated
in the trade by him or her.

To be included in gross income is the value of trading stock:

- At hand at the end of the year (i.e. closing stock).

- Has been taken by the taxpayer for domestic or private consumption.
- Has been donated by the taxpayer to some other person.
- Has been attached in pursuance of an order of court.
- Has been disposed in pursuance of an order of court or has been disposed on
winding up of a business.

The Second Schedule to the ITA gives guidance to valuation of trading stock. However, the
taxpayer can elect on one of the following methods:

a) The cost price, (which includes the cost of freight, insurance and duty and other
expenses incurred in bringing the trading stock to hand; or
b) The replacement cost; or
c) The market value.

b) Recoupment from capital expenditure

See chapter 10, paragraph 10.2.1

c) Recoupment general (sect 8(1)(j) )

A Guide to Zimbabwe Taxation 95

See chapter 5, paragraph 5.5.

d) Concession from creditors (sect 8 (1)(k))

Any amount accruing to a taxpayer as a result of a concession or any other
arrangement, whether be it a compromise or otherwise, which result in a liability of the
taxpayer being extinguished in respect of expenses allowed as a deduction by such
taxpayer is gross income. Provided that:
- The liability has not arisen as a result of the taxpayer‘s business having been wound
up or declared insolvent.
- For a concession is in respect of assets ranking for capital allowances – the benefit
should not exceed the allowances so granted.

Example

Mambo Logistics (Pvt) Ltd is in financial difficulty, last year the company purchased
goods worth $64 000, the company included this amount in its last year cost of sales.
The company had not paid the amount up until the end November of 2017 when its
creditor offered the company to pay $0.80 per each $1 owed in full settlement of its
debts. The directors of Mambo Logistics decided to take the offer and immediately made
a payment according to the offer in full settlement. Show the amount taxable in the
hands of Mambo Logistics.

Solution

Concession from creditor $0.20*64 000 = $12 800

e) Recoupments of rentals, premium, etc. applied against the purchase price (sect
8(1)(l))
Recoupment may arise where a tenant subsequently acquires ownership of property with
the price of which is reduced by the rentals so paid. The same principle applies if the
purchase price is reduced by premium paid or lease improvements effected by the
taxpayer. If no consideration is paid by the taxpayer, an amount deemed by the
Commissioner as the fair and reasonable value of property.

The recoupment is taxable (if election is made) in six equal instalments beginning the
year in which the taxpayer acquires the property.

Example
Maputi Express occupied an industrial property in Lytton industrial area in June 2016, the
company paid $6000 as lease premium, and monthly rental as per lease agreement is
$3 500. At the end of October 2017, the company entered into contract to purchase the
property from its landlord for $340 000. The landlord agreed to deduct 80% of all
payments made by Maputi from the purchase price, express from the date of inception of
their lease agreement. Show the minimum amounts taxable in the hands of Maputi
Express.

Solution
Lease premium 6 000

96 A Guide to Zimbabwe Taxation

 Lease rentals paid to date $3500*17 months = 59 500
Total payment to date 65 500

Recoupment 80%*65500 = $52 400

Spread over 6 years = 52400/6yrs = $8 733 taxable each year.

f) Grants and Subsidies (sect 8(1)(m))

A taxpayer who receives a grant or subsidy in respect of expenditure incurred by him
shall include such grant or subsidy in his gross income. A grant or subsidy can, for
instance, be paid by government in recognition of contribution made by a taxpayer to the
welfare public at large. Only income grants are taxable, grant related to acquisition or
construction of a fixed asset is however not taxable. An example is a grant paid to a
person who incurred expenditure on purchasing of drugs for public hospitals.

Example
During the year ABB Mining commenced mining operations in Chegutu area; the
company had discovered large coal reserves and would like to exploit the mineral. If the
company succeed in its exploits, the alternative source of energy is expected to benefit
nearby industries. The government has keen interest on the investment of the company
and as such gave the company the following subsidies;
Cost before subsidy % of subsidy
Cost of mining license 120 000 30
Interest on loan 20

At the beginning of the year 2017, the company acquired a $2 million loan from a local
bank; the loan was used 60% for constructing mine buildings and the rest to pay
salaries. Interest is 20% per annum straight line; show the amount taxable to ABB Mining
for 2017 tax year.

Solution $
Mining lease 30%*120 000 (not taxable-capital nature) -
Interest on loan 20%*2000000*60% (not taxable-capital nature) -
Interest on loan 20%*2 000 000*40%*20% 32 000
Total taxable amount 32 000

g) Designated Area Grant scheme (sect 8(1)(n)

An amount accruing in terms of the above stated scheme should be included in gross
income.

6.2.3 Investment Income

a) Interest and dividends

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 Foreign interest and dividends received or accruing to a taxpayer who is an ordinary
resident of Zimbabwe at the time of receipt or accrual, from a source outside Zimbabwe
is taxable. Foreign dividends are taxed at 20% whilst interest is taxed at 25% foreign
interest and dividends which have been subject to tax in the source country will be
granted a relief known as double taxation relief, where double taxation agreements exist
between such country and Zimbabwe. (See chapter 14)

Interest and dividends from within Zimbabwe are gross income. However, dividends paid
by a company incorporated in Zimbabwe which is itself a taxpayer, is exempt. Interest
from a financial institution which has been subject to withholding tax is also exempt from
tax.

Example
Makoni Investments (Pvt) Ltd received the following investment income during the year.

Dividends from OK Zimbabwe Ltd 135 000

Interest from Barclays Zimbabwe 40 000
Interest from Standard Bank South Africa 25 000
Interest from Debentures in Zimplow Limited 36 000

Show the table income of the company?

Solution
Dividends from OK Zimbabwe (exempt) -
Interest from Barclays Zimbabwe (exempt) -
Interest from Standard Bank 25 000
Interest from debentures 36 000
Taxable income 61 000

#Note withholding tax on interest and dividend is final

b) Property income
Some corporates are in property business realising income in the form of rentals. Such
rentals are gross income, taxed after deducting expenses such as rates and cost of
maintaining the property.

6.2.4 Other special incomes

a) Enforced sales of livestock – see chapter on farming
b) Sale of mining claims – see chapter on mining
c) Suspensive sales – see chapter on hire purchase

6.3 Exempt income of corporates

The following exemptions are applicable to corporates:

6.3.1 Interest

98 A Guide to Zimbabwe Taxation

Any amount accruing by way of interest from organization such as POSB, class ‗C‘
permanent shares from building societies, etc. as defined in paragraph 10(1) of the 3rd
Schedule is exempt.

Interest accruing to a resident company which has been subjected to Resident Tax on
Interest is also exempt.

6.3.2 Dividends
Any dividend paid by a company incorporated in Zimbabwe that pays tax is exempt.

6.3.3 Tax holiday

Certain organisations enjoys a period at which they are taxed their earnings at zero per
centum. The period is known as a tax holiday. Examples of such organisations are Industrial
park developers; organisations operating in tourist development zones etc. see chapter 18:
Fiscal incentives.

6.4 Allowable deductions

The general deduction formula as defined in the Act gives the basis of the deductibility of
certain items. To be deducted is expenditure and losses to the extent that they have been
incurred for the purpose of trade and production of income excluding items of capital nature.
The formula was discussed in earlier chapters.

Also, an important principle is that the taxman recognises expenditure on cash basis not on
accrual.

6.4.1 Specific deductible expenditure for corporates

a) Repairs :Sect 15(2)(b)

Repairs are deductible if incurred on assets used by the taxpayer in course of
furtherance of his trade or on assets let by him.

b) Capital allowances: Sect 15(2)(c)

See chapter 5.

c) Expenditure to acquire a right to use someone else property: Sect 15(2) (d)-(e)
To be allowed as deductions are expenditure incurred by a taxpayer who is a tenant on;
rentals, lease premiums and lease improvement. Lease premium and lease
improvements are spread over the lease period or 10 years, whichever is less. See
chapter 11: leasing.

d) Capital redemption allowance: Sect 15(2)(f)

See chapter on Mining.

e) Bad debts: Sect15(2)(g)

To be allowed as deductions are bad debts incurred by a taxpayer in the year of
assessment. The following conditions must be in place for the debt to be allowable:
- The debt must be proved to the satisfaction of the Commissioner to be bad; and

A Guide to Zimbabwe Taxation 99

 - The debt should have been included in the taxpayer‘s income either in the current or
previous year.

Example

Honeycomb Ltd has an expenditure figure of $28 000 in its accounts, the amount is in
respect of its debtors for sales made during the year. The amount is broken down as
follows:

Insolvent debtor 18 000

5% provision 5 000
Acquired together with a subsidiary 5 000
Total 28 000

Show the amount allowable as deduction

Solution $

Insolvent debtor 18 000

Provision for bad debts -
Acquired with subsidiary -
Total deductible expenditure 18 000

f) Contributions to medical aid and pension funds by employers: Sect 15(2)(j)

Contribution made by employers to medical aid societies for the benefits of their
employees or dependents of the employees is deductible. Contribution to medical aid
societies made by employers on behalf of employees is deductible to the employer
subject to the following limits:

Type of pension fund Limit per employee per annum

Registered pension fund $5400
Retirement annuity fund Disallowed
NSSA 3.5% of $700*12=$294
Benefit fund $1500

Example
Marks engineering contributes monthly to a registered pension fund on behalf of each of
its 10 members of staff.

The monthly salaries of the staffs and employer contributions are detailed below:

Number of staff Grade Monthly salary for each Employer‘s pension

staff $ contribution per each
employee
1 D1 1800 600
2 C1 1200 500
4 C2 800 400
2 B1 650 250

100 A Guide to Zimbabwe Taxation

 1 B2 600 200
Show the amount for pension contribution on behalf of employees which is deductible in
the hands of Marks Engineering.

Solution $
D1 staff 1*450(max) 450
C1 staff 2*450 (max) 900
C2 staff 4*400 1 600
B1 staff 2*250 500
B2 staff 1*200 200
Total deductible 3 650

g) Expenditure in respect of sale of land and / or standing crops or timber: Sect 15(2)(k-l)
See chapter on farming.

h) Research and experiments: Sect 15(2)(m- n)

Expenditure incurred by the taxpayer on carrying out research and experiments in
relation to his trade is deductible. To be excluded is research and experiment
expenditure of capital nature.

If the taxpayer incurs joint research and experiments cost with another, the amount to be
deducted should be proportional to the contribution made by the taxpayer.

i) Contribution to a scientific or educational institution: Sect 15(2)(o)

Any sums contributed to a scientific or education body of public character for industrial
research or experiments in connection of the taxpayer‘s trade is deductible. Institutions
of public character includes; universities, polytechnic colleges, etc.

j) Grant or bursary: Sect 15(2) (p)

Any amount paid by a taxpayer in the form of grant, bursary or scholarship to a person
who is not connected to the taxpayer, is deductible. A person not connected to the
taxpayer, is defined as a person who is not;
- A taxpayer‘s spouse or near relative of the taxpayer.
- In the case of a company- a person who controls the company or spouse or near
relative of such person or a near relative of the spouse of such person.
- In the case of a company- a director of the company or the spouse or near relative or
nominee of a director of the company or near relative or nominee of the spouse of a
director of the company.

k) Ex-gratia payments: Sect 15(2) (q)

This is a payment by a taxpayer, whether as an annuity, allowance or pension, to a
former employee, the dependent of former employee or a former partner as a result of
retirement due to ill-health, infirmity or old age or as a result of death of the former
partner of employee.

The following are the maximum permissible deductions for 2017 tax year.
- Former employee – US $500
- Former partner – US $200

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 - Dependant of former partner - $200

l) Donations: Sect 15(2) (r)

Generally charitable donations are not allowable as a deductions, except the following:
i. Donation to the National Scholarship Fund; or
ii. Donations to the National Bursary Fund; or
iii. Donation to a charitable trust administered by a minister responsible for health
and minister responsible for social welfare; or
iv. Donation to a research institution approved by the minister of Higher and Tertiary
Education to a maximum of US$100 000; or
v. Donation to the state which is approved by the Minister of Education for:
- the purchase of educational equipment for a school operated by the State, a
local authority or a religious organization; or
- the construction, extension or maintenance of a school operated by the State,
a local authority or a religious organization; 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 permissible deduction is US$100 000.

vi. Donation to the state which is approved by the Minister of Health for:
- the purchase of medical equipment for a hospital operated by the State, a
local authority or a religious organisation; or
- the construction, extension or maintenance of a hospital operated by the
State, a local authority or a religious organisation; or
- the procurement of drugs, including anti-retroviral drugs, to be used in a
hospital operated by the State, a local authority or a religious organisation.
The maximum permissible deduction in respect of such donation is US $ 100
000.

vii. Donation to a Private Partnership Fund – maximum of US$50 000.

viii. Donation to a Destitute Homeless Persons Rehabilitation Fund – maximum of
US$50 000 is applicable for 2017 tax year.

m) Membership subscriptions: Sect 15(2)(s)

A taxpayer who makes contributions to a trade, technical or professional association in
the year of assessment is allowed to deduct such contributions. Contributions made on
behalf of employees‘ continual membership are also deductible.

Entrance fees or admission fee are of a capital nature and are not allowable as a
deduction.

n) Preproduction expenditure: Sect 15(2)(t)

Preproduction expenditure is allowed as deduction in the year in which business
commences production, provided that:
- The expenditure was incurred by the taxpayer in the course of establishing a
business, in not more than 18 months prior to commencement the said business;

102 A Guide to Zimbabwe Taxation

 - Would have been allowed as a deduction had it been incurred after beginning the
business; and
- Is claimed as a deduction in the year of assessment in which the business
commences.

Example
Mandikudza has worked for 20 years as an IT programmer with several companies. At
the beginning of the year 2017, he left his employment to set-up his IT Consultancy firm
The costs incurred in connection with the business set-up are detailed below:
Date US$
Market research costs 31 March 2017 3 500
Business consultancy costs 5 April 2017 5 800
Stock procurement 25 July 2017 60 000
Office furniture and equipment 25 July 2017 30 000
Wages 31 July 2017 2 300
Shop rent 1 July 2017 3 000
104 600
Mandikudza started business in October the same year.

Show the treatment of the above cost on commencement of his business.

Solution
The set-up costs are pre-production costs and are allowed as deduction provided that
they are not of capital nature.

Calculation of pre-production costs

$
Market research costs – allowable 3 500
Business consultancy costs – allowable 5 800
Stock procurement – allowable 60 000
Office furniture and equipment – capital in nature –
Wages – allowable 2 300
Shop rent – allowable 3 000

74 600

o) Opening trading stock: Sect 15(2)(u)

The value of opening stock for the year of assessment concerned is allowed as
deduction. The Act recognises opening stock as the value of closing stock in the
previous year of assessment which was not disposed or which was attached in
pursuance of an order of court.

p) Trading stock acquired or brought to hand otherwise than in the ordinary course of trade:
Sect 15(2)(v)
To be allowed as deduction is the value of trading stock acquired by a taxpayer during
the year of assessment other than in the ordinary course of trade. The value of stock

A Guide to Zimbabwe Taxation 103

 shall be what the Commissioner deems to be the fair and reasonable value. The value of
such stock, except in the case of inheritance, shall not exceed the amount which would
have been allowed as a deduction to the person from whom the stock was acquired had
it been sold by such person in the ordinary course of trade.

Where stock is inherited from a deceased estate, the value of such stock shall be the
value attached to it for estate duty purposes.

q) Trade missions and conventions: Sect 15(2)(w)

The cost of attending conventions and trade missions, which are connected with the
taxpayer‘s trade, is allowed as deduction subject to the following:
- The allowance is restricted to US$ 2500 for 2017 tax year, per annum for not more
than one convention or trade mission;
- If the convention or mission overlaps into another year, deduction is allowed in the
year in which the events ends
- If the person attending is a member of a partnership and the partnership bears the
expense, each partner is allowed to deduct an amount not more than $2500 per one
visit.

Example
Mr Mangure is a corporate affairs manager with Angletton Investments (Pvt) Ltd, during
2017 year, he attended a seminar in Germany the cost to the employer was $8 600, he
also attended the 2017 Zimbabwe International Trade Fair (ZITF) at a cost of $3 700.
What is the amount deductible in the hands of Angletton Investments (Pvt) Ltd in respect
of the expenses for trade fairs?

Solution
Trade fair cost allowable $2 500
#Note# deduction is only allowed for the first trade mission attended max permissible
deduction is $2 500 per person.

r) Post-graduate courses S: Sect 15 (2)(x)

A taxpayer, who is a specified professional person can claim a deduction of an amount
not exceeding $5 000 in respect of attending a post-graduate course for the purpose of
improving his qualifications or knowledge for carrying on his profession in Zimbabwe.
The cost to be allowed as a deduction includes the cost of the journey to and from, and
course attendance fees.

A specified professional person is defined in the Act as referring to a registered dental

practitioner, registered medical practitioner, registered surgeon, registered architect,
registered engineer, school or university or State educational institution teacher,
registered land surveyor and a registered quantity surveyor.

The following conditions are however attached:

104 A Guide to Zimbabwe Taxation

  The appropriate controlling body must certify that it approves the course as being
suitable for the purpose of improving his qualifications or knowledge of that
person for carrying on his profession in Zimbabwe.
 The specified professional person must have practised his profession in
Zimbabwe for a continuous period of not less than 3 years immediately prior to
his attending the course.

s) Co-operatives: Sect 15(2)(y)

This section applies to co-operative companies registered as such under the Companies
Act [Chapter 24:03] which are exclusively in the business of farming or in agribusiness.
Co-operative companies are allowed to deduct the following:

- Any amount distributed during the year of assessment by way of discounts, rebates
or bonuses granted by the company or society to shareholders, members or other
persons in respect of amounts paid or payable by or to them on account of their
transactions with the company or society.
- An amount calculated at the rate of one dollar for each dollar by which the taxable
income of such company or society, before the deduction of any allowance in term of
this subparagraph, is less than five hundred United States dollars.
- If the Commissioner is in the opinion that company or society and one or more other
cooperative agricultural companies or co-operative societies are under the
management or control of the same persons, the deduction allowable shall not
exceed the amount determined by the following formula:

A/( A + B* C)
Where:

A represents the taxable income of the company or society before the deduction of
any allowance in terms of this subparagraph;

B represents the total of the taxable income of such other companies or societies
before the deduction of any allowance in terms of this subparagraph;

C represents the amount that would have been calculated in terms of this
subparagraph if such amount had been calculated on the total of the taxable
incomes, before the deduction of any allowances in terms of this subparagraph, of
the company or society and such other companies or societies;

Note that no deduction is allowed to the extent that it exceeds a taxable income of the
company or society calculated before the deduction of any allowance discussed under this
paragraph.

t) Farmers: Sect 15(2)(z)

See chapter 9 on Farming.

u) Legal cost of income tax appeal: Sect 15(2)(aa – bb)

A Guide to Zimbabwe Taxation 105

 Legal cost incurred by a taxpayer in pursuit of an appeal to either the High Court or the
Supreme Court is allowed as a deduction, provided that:
i) Such appeal was allowed in full by the responsible court; and
ii) The Special court, High Court or Supreme Court, as the case may be, directs that
such cost should be allowed as a deduction.

v) Expenditure not yet incurred: Sect 15(2)(cc)

This section is an apparent divergence to the principle of deductibility of expenses.
Expenses which will be incurred after the end of the year of assessment ,but which
directly relate to gross income to be received after the year of assessment, in respect of
services rendered or goods to be delivered, shall be allowed as a deduction subject to
the following:
i) The amount of allowance will be at the discretion of the Commissioner;
ii) Expenditure of capital nature is ignored;
iii) The current expenditure which would have been claimable in the current year‘s
income, is set off against the allowance;
iv) Any allowances granted must be brought back into income in the following year.

w) Export market development expenditure: Sect 15(2)(gg)

A taxpayer is allowed to deduct expenditure in respect of export- market development
together with an amount equal to 100% of such expenditure. In other words export
market development expenditure qualifies for a double deduction.

Export- market development expenditure means expenditure, not being expenditure of a

capital nature that is proved to the satisfaction of the Commissioner to have been
incurred wholly or exclusively for the purpose of seeking opportunities for the export of
goods from Zimbabwe or of creating or increasing the demand for such exports.

The expenditure includes:

i) Research into, or the obtaining of information relating to, markets outside
Zimbabwe;
ii) Research into the packaging or presentation of goods for sale outside Zimbabwe;
iii) Advertising goods outside Zimbabwe or otherwise securing publicity outside
Zimbabwe for goods;
iv) Soliciting business outside Zimbabwe or participating in trade fairs;
v) Investigating or preparing information, designs, estimates or other material for the
purpose of submitting tenders for the sale or supply of goods outside Zimbabwe;
vi) Bringing prospective buyers to Zimbabwe from outside Zimbabwe;
vii) Providing samples of goods to persons outside Zimbabwe.

With effect from 1 January 2016 foreign agents fees not exceeding 5% of the value of
the exports based on Free on board (FOB) will be exempt from withholding tax.

Example
McBowells Ltd is a company engaged in the manufacture of blankets for local and export
market; the company incurred the following marketing expenses in 2017 tax year.
$
Newspaper advertisements 1 200

106 A Guide to Zimbabwe Taxation

 Erecting billboards in major roads in Harare CBD 12 000
Cost of samples sent to Malawi 3 000
Payment for a right to advertise in bays of sports stadiums 15 000
Research expenses in exploring Botswana market 23 000

Show the amount deductible in the hands of the company.

Solution $
Newspaper adverts 1 200
Billboards (capital nature) -
Samples (3 000*2)# 6 000
Right to advertise in bays (capital nature) -
Market research expenses (23 000*2) # 46 000
Total deductible expenses 53 200

# These expenses are export market development expenditure and qualify for a double
deduction.

x) Share ownership schemes: Sect 15(2)(jj)

To be allowed as a deducted is an amount representing the fair value of any stock,
shares, debentures, units or other interest paid or given by the taxpayer to an employee
of the taxpayer or for the benefit of an employee of the taxpayer pursuant to an approved
employee share ownership scheme or trust.

Employees are exempted from any benefit arising as a result of disposing of their
interest in the employee share ownership scheme, by sale or redemption of shares so
held under the employee share ownership scheme.

Example
ZBB Bank granted its 10 senior managers 100 shares each through its employee-share
ownership scheme. The nominal value of the shares is $2.00 each and the current
market value of each share is $10. Show the amount which is deductible to ZBB Bank.

Solution
The fair value of shares is deductible= $10*10*100 = $10 000.00

y) Maintenance expenditure incurred on local authority: Section 15(2)(kk)

To be allowed as a deduction is expenditure incurred by the taxpayer on maintaining the
following amenities owned and managed by a local authority: buildings; roads; bridges;
sanitation works; water works; public parks; any other utility, amenity or item of
infrastructure approved by the Minister responsible for local government.

Such expenditure is allowed to a maximum of US$50 000, for 2017 tax year.

A Guide to Zimbabwe Taxation 107

 Example
FBC bank recently incurred the following expenses as part of its corporate social
responsibility.

Donation to Harare Mayor Christmas fund $12 000

Maintenance of roads in Harare CBD $20 000
Refurbishment of Harare City Library $24 000
Donation to Harare City football club $10 000

What total amount is deductible to FBC Bank in respect of the above expenditure?

Solution
Donation to Harare Mayor Christmas fund (a) 12 000
Maintenance of roads in Harare CBD 20 000
Refurbishment of Library 24000
Donation to football club (b) -
Total 56 000
Maximum permissible 50 000

Notes
a) Donation to Mayor Christmas fund qualifies because that is a fund raising
programme the proceeds of which are normally used for maintenance of amenities
b) Donation to a football club does not qualify because the amounts so donated are not
used for maintenance of local authority facilities.

y) Cost of indigenisation and empowerment: Section 15(2)(ll)

The following cost incurred by a taxpayer in respect of indigenisation and economic
empowerment are tax deductible:
- Any contribution 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 Empowerment Act [Chapter 14:33].
- The value of shares of a corporate taxpayer that are lent in the year of assessment to
an indigenisation partner of the taxpayer pursuant to a corporate vendor-financed
loan; the deduction will be spread over the tenure of the loan.
- 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
an indigenous partner;

Example
Platinum Unlimited is a foreign company operating in Zimbabwe. The company is
engaged in mining of platinum in Zvishavane area. The shareholders of the company
disposed of 20% of their shareholding to Mushunje Minerals (Pvt) Ltd, a local mining
company, in order to comply with the Indigenisation laws of the country.

108 A Guide to Zimbabwe Taxation

 The market value of the shares disposed was $120million. The two companies agreed
that the shares were to be paid over 10 years in equal annual instalments. During 2017
tax year the company incurred the following expenses:

- Donation to community share ownership trust $5 000 000

- Donation to Premier soccer league $500 000

Show the total amount deductible to the Platinum Unlimited.

Solution $m
Shares loaned (120m/10) 12
Donation to community share ownership trust 5
Donation to premier soccer league -
Total allowable deductions 17

z) Lump sum contribution to a pension fund (mm)

With effect from 1 January 2017, lump sum contributions by employers to pension funds
will be treated as a tax deductible expense. This is on the basis of:

 An actuarial certificate confirming the required contribution level is required from

the employing organisation to qualify for tax exemption.
 A certificate by the Minister confirming that the lump sum contribution will result
in increased benefits to the members of such pension fund.

aa) Hire purchase transactions and instalment-credit sales: Section 17 and 18

Contracts in which goods are sold under Hire Purchase or Instalment-credit sales have
special deductions allowed in respect of amount outstanding at year end. Though the
whole purchase price of a commodity is deemed to have accrued in the year of sale, the
Commissioner allows certain amounts as deductions in recognition that the taxpayer has
not received the whole amount. The allowance is calculated according to the provisions
of Section 17 and 18 of the ITA. See chapter 13.

6.4.2 Losses

a) Exchange losses: Sect 15(1)

If expenditure is incurred in a currency other than Zimbabwean currency, the amount to
be allowed as deduction is the amount actually paid in Zimbabwean currency.
Exchanges losses that may arise owing to variation in exchange rates are therefore
indirectly allowed as a deduction.
If the incurring of the liability and the payment occur in different years of assessment the
adjustment is made in the later year.

Example
BB Auctioneers (Pvt) Ltd purchased inventory worth 200 000 Pula, from Botswana, in
March 2017, the supplier allowed the company to pay the outstanding debt after two
months. In May, the company paid its outstanding debt in full.

A Guide to Zimbabwe Taxation 109

 Exchange rates Pulas /$1
March 2017 8 pula =$1
May 2017 6 pula = $1

Solution
Inventory value at date of purchase 200 000/8 $25 000
Exchange loss* 1 667
Inventory value at date of payment 200 000/7.5 26 667

The deductible amount is 26 667 which includes exchange loss.

*Exchange loss, the Pula has appreciated in value and so BB Actioners has to part with
more dollars on settlement of its debt.

Show the amounts deductible in the hands of BB Actioners (Pvt) Ltd.

b) Assessed losses: Sect 15(3)

Assessed loss is defined in section 2 of the Act, as an amount by which allowable
deductions as permitted by the same Act exceeds income. An assessed loss is carried
forward to future years for a maximum of six years.

The following conditions apply:

1) No assessed losses shall be deductible in respect of a taxpayer who has been

declared insolvent or who has assigned his property for the benefit of creditors.
2) If there is a change in the shareholding of a company with an assessed loss or a
company which controls any company with an assessed loss, and the Commissioner
is of opinion that such change has been effected to take advantage of the assessed
loss, no allowance should be deducted.
3) Where a company incorporated under Companies Act is converted into a Private
Business Corporation or vice versa, and the Commissioner is satisfied that such
conversion was not effected solely for the purpose of taking advantage of an
assessed loss, such loss is allowed as a deduction.
4) Mining companies engaged in mining operations in different locations, are not
allowed to set of assessed loss in one location against income of other locations,
unless the miner submits for approval of the Commissioner, a breakdown showing
the extent to which such assessed loss is attributable to each of the locations
concerned.
5) Where in respect of any amount, a deduction would but for this subsection be
allowable under more than one provision, the taxpayer shall elect under which one of
those provisions he wishes to claim such amount as a deduction.
6) No assessed loss is deductible more than once if it could be allowed by any of the
provisions of the Act.

110 A Guide to Zimbabwe Taxation

 7) No assessed loss attributable to a petroleum operator shall be allowed as a
deduction in respect to income accruing to him other than petroleum business.
8) No assessed loss shall be allowable in respect of income accruing by way of interest
payable by, bank, discount house or finance house or building society.
9) No assessed loss attributable to a holder of special mining lease in respect of income
accruing to him other than from special mining lease operation.
10) No assessed loss attributable to business operations carried on by a taxpayer shall
be allowable as a deduction from income received by or accruing to him under a
contract of employment.
11) Taxpayers who are engaged in mining activities are an exception, any assessed loss
being carried forward indefinitely.

Example

Mano (Pvt) Ltd has the following results reported in its four consecutive financial years:

Year 1 Year 2 Year 3 Year 4

Profits/ (loss) (20 000) 13 000 (2 300) 15 000

Show the taxable income or assessed loss for each year.

Solution

Year 1 Year 2 Year 3 Year 4

$ $ $ $
Profits or loss reported (20 000) 13 000 (2 300) 15 000
Less: assessed losses utilised - --- (13 000) (7 000) (9 300)
Taxable income/ assessed loss (20 000) - (9 300) 5 700

6.5 Prohibited deductions: Sect 16 of ITA

There are certain specific deductions which are prohibited by the Act.
a) Cost of incurred by a taxpayer in maintaining himself, his family or his establishment.

Examples: cost incurred by a taxpayer on food, school fees, clothing of himself or his
family.

b) Private expenses- which includes the cost of travelling between his home and the
place at which he carries on a trade and, in the case of a taxpayer who carries on
two or more trades which are distinct in nature, between the places at which such
trades are carried on.

c) Any loss or expense which is recoverable from an insurance contract or indemnity.

Example: ABC ltd has its car accident damaged; the value of the car at date of
damage was $15000. The company received $10 000 only from Eagle insurance.
The loss claimable as deduction is only $5000 (unrecovered)

A Guide to Zimbabwe Taxation 111

d) Tax levied upon the income of a taxpayer or interest on overdue tax payable thereon.

What this paragraph simply means is that no tax on other tax head can be claimed
against another tax head, for instance, VAT, PAYE, penalty and interest on overdue
tax suffered by a taxpayer cannot be allowed as deduction.

e) Transfers to reserves – profit which has been transferred to reserves is not

deductible.

An example is a transfer to a general reserve. In corporate accounting transfers to

reserves which are made from profit and loss account are common. Such transfers
are not expenditures fit for deduction but are merely appropriation of profits.

f) Expenditure or loss including assessed losses, incurred in the production of income

which is exempt from tax.

g) Contribution made by a 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, except to the extent permitted in the sixth
schedule.
Only contributions to funds approved or registered in accordance with laid down
procedures are deductible, subject to imposed limits. For pension limits go to chapter
on employment income and refresh your knowledge.

h) Interest which might have been earned on any capital employed in trade.

An example of this expense is is an opportunity cost as a result of opportunity lost

(interest that might have been earned) when capital is tied up, say in stocks or
debtors.

i) The rent of, or cost of repairs to, any premises not occupied for the purposes of
trade, or any dwelling house or domestic premises, except such part thereof as may
be occupied for the purposes of trade.

Exam tip! This is a commonly examined area.

j) Cost of securing sole selling rights. This is also known as restraint of trade.
Expenditure incurred by a taxpayer in a restraint of trade contract is not deductible.

An example is when company A pays Company B a certain sum of money so that

company B sells only A‘s products. Company A cannot claim as deduction the
expenditure suffered.

k) An amount in excess of US $10 000, for 2017 tax year, paid for leasing a passenger
motor vehicle.

112 A Guide to Zimbabwe Taxation

 This reason for this limitation is obviously that it is not rationale for a person to incur
more in hiring a car (PMV) than he could have spent in buying the car outright.
Remember the deemed cost of a PMV is $10 000.

l) The cost of any shares awarded by a company to an employee or director.

m) Any expenditure incurred by any taxpayer on entertainment whether directly or by the

provision of any allowance to any employee including a director to incur expenditure
or entertainment on behalf of the taxpayer.

This is a commonly examined area, expenditures incurred on say, Christmas parties

or Christmas hampers is not allowable to the employer.

n) Expenditure incurred in the production of any income arising from stocks or shares of
any company.

o) Expenditure incurred in the production of income consisting of interest payable by a

bank, finance house , discount house or building society on any loan or deposit with
such institutions.

p) Provisions for anticipated or contingent losses or expenditure.

It is accepted accounting practice of deducting provisions as expenses, examples of

provisions are: provisions for depreciations, provisions for bad debts, provisions for
refunds to customers. Such provisions are prohibited under this paragraph. The
reason being, there are not expenses actually incurred.

q) Expenditure incurred in earning foreign dividends.

r) Mining Royalties - With effect from 1 January 2016, royalties paid during the year of
assessment will no longer be tax deductible.

Section 16(2) prohibits a deduction which is not a deduction in respect of expenditure or

loss.

6.6 Provisional tax

Corporates are required to pay provisional tax. A provisional tax is an estimate of tax
which a taxpayer is liable to pay. Section 72, requires corporates to pay and submit
returns of provisional tax quarterly, and referred to as Quarterly Payments Dates
(QPD‘s). The following are the due dates for provisional tax for each quarter:

Quarter Due date Percentage of tax payable

1 25 March 10
2 25 June 25
3 25 September 30
4 20 December 35

A Guide to Zimbabwe Taxation 113

For the purpose of calculating provisional tax, a taxpayer should estimate his or her annual
taxable income and then calculate estimated tax. Provisional tax for each quarter is thus a
percentage of the estimated tax as shown in the above table. Estimated annual taxable
income for each quarter is obtained by projecting the actual taxable income up to that
quarter to the year end. Where revision is done to the taxable income in any quarter an
adjustment should be made to provisional tax paid in the previous quarter and any shortfall
is paid in the quarter of revision. Under payment of provisional tax is penalised, however, the
Commissioner may waive interest under circumstances where the taxpayer fails to forecast
profits within a 10% margin of error or when he is satisfied that a person who is required to
pay provisional tax failed to do so due to special circumstances.

On assessment any provisional tax paid will be set off as a credit against any tax liability of
the taxpayer and a refund is made to the taxpayer were provisional tax paid exceeds his tax
liability.

With effect from 1 January 2017, the Commissioner General may on application by a tax
payer who qualifies to be a Small to Medium Enterprise permit a tax payer to pay
provisional tax on a monthly basis.

Example 1

ALG Water Ltd, had an estimated taxable income of 320 000 throughout 2017 tax year.
Show the amount payable in its third QPD and the due date.

Solution

Estimated annual tax = 25.75%*320 000 = $32 400

Instalment (3rd QPD) 30%*32 400 = $9 720, payable on or before 25 September.

Example 2

XYZ paid $23 700.55 at its first QPD of 2017 tax year. Assuming the annual projected
taxable income of the company did not change. What is the amount that the company should
pay in its third QPD?

Solution

1st QPD - instalment is 10%

3rd QPD – instalment is 30%

Amount payable in 3rd QPD = 30/10*23 700.55 = $71 101.65*

*The calculation involved simple direct proportion.

114 A Guide to Zimbabwe Taxation

EXAM TIPS!!

HOW TO ATTACK A CORPORATE TAX QUESTION

1. Always start with figure for net profit (if given)

2. Taxable income is arrived at by reconciling net profit figure (add back expenses not
deductible, and deduct from net profit income not taxable). Most students make a mistake of
deducting expenses which were already deducted in arriving at net profit figure. You only
need to make adjustments for amounts that demands different treatment for tax purposes.

3. Always show all the items detailed in additional information in your computations, if the
items have no tax effect just put a zero (0)

6.7 Chapter Round-up

- Gross income for corporates is constituted of trading profits and investment income like
dividends.

- The accountant and the taxman differ in their approach, and hence their tax figures also
differ. An Accountant applies accounting principles yet the taxman applies legal
provisions.
- Starting with the accountant‘s net profit, the taxman makes some adjustments to the
profit figure so as to arrive at the figure for taxable income. Adjustments involve
reversing items of income and expenditure treated according to accounting principles but
which differ with the provision of tax law. The taxman would then substitute those items
with his own ‗items‘.
- Corporates are required to pay provisional tax (QPD‘s) based on estimated annual
income, the provisional tax paid is credited against tax liability on subsequent
assessment.
- Allowable deductions are expenditure and losses to the extent that they are incurred for
the purpose of trade and production of income.
- Provisional tax paid during a tax year is credited against tax liability upon assessment.
- Corporates are taxed at 25% plus 3% aids levy.

6.8 Practice questions

Section A: Multiple choice questions

1. O Limited was incorporated on 20 November 2014 and commenced business operations
on 5 January 2017. The company incurred the following expenses between 20
November 2014 and 4 January 2017:

US$

Stationery 5 000
Repairs and maintenance 40 000
Purchase of 10 motor cycles 20 000
65 000

A Guide to Zimbabwe Taxation 115

 What is the maximum amount of tax deduction which O Limited can claim in respect of
the above expenses for the year ended 31 December 2017?

A US$50 000
B US$45 000
C US$65 000
D US$49 000

2. Which of the following is not gross income?

A The value of trading stock at hand at the beginning of the year

B Trading stock donated
C Trading stock attached in pursuance of an order of court
D Trading stock taken by a taxpayer for private consumption

3. What is the maximum amount allowable as deduction for a gratuitous payment to a

former employee?

A $200
B $500
C $300
D $1000

4. Which of the following donations has a maximum ceiling of $50 000.

A Donation to Ministry of Health

B Donation to charitable trusts
C Donation to Private Partnership Fund
D Donation to Higher and Tertiary Ministry

5. Which of the following is/ are true about pre-production expenses?

i. Is claimable if incurred in not more than 18 months prior to commencement of
trade
ii. Is claimed as deduction in the first year of operations
iii. Is claimable as deduction regardless of their nature (capital or revenue)

A (i) only
B (i) and (ii)
C All
D (ii) and (iii)

6. ABC Ltd incurred the following expenses in connection with its employees.

Christmas Party $18 000

Attendance at a trade mission by Operations director $5 000
Subscriptions to professional institutes for senior management $2 300

What are the total deductible expenses for ABC Ltd?

116 A Guide to Zimbabwe Taxation

 A $25 300
B $4 800
C $22 800
D $7 300

7. Matimba (Pvt) Ltd had the following estimated taxable income for the three quarters of
2015. What is provisional tax payable in respect of those three quarters?

Quarter Taxable income $

Q1 36 000
Q2 80 000
Q3 105 000

A $55 250
B $56 908
C $13 775
D $14 188

8. Which of the following expenditure does not give rise to temporal differences?

A Rent not yet paid

B Research and development costs
C Fines and penalties
D Depreciation

9. ABG Ltd had purchased goods for $120 000 and a commercial vehicle for $80 000 from
Magnum Suppliers last year. The commercial vehicle has been subject to W&T since
then. ABG Ltd is facing serious cash flow challenges as result Magnum offered ABG a
concession that it should now pay $ 0.60 for every dollar that ABG owes Magnum. ABG
was happy with the offer and immediately transferred the balance in full settlement.

What amount for gross income should ABG show in its tax accounts in respect of the
concession?

A $40 000
B $96 000
C $48 000
D $76 800

10. MBN Exporters is a company that manufactures and exports clothes to several African
countries. During the year the company incurred the following expenditure.

Advertising for goods outside Zimbabwe $40 000

Purchase of a shop building in Botswana $180 000
Lease premium for renting of shops $ 144 000
Cost of samples sent to Namibia $ 36 000
720 000

A Guide to Zimbabwe Taxation 117

 What are the total deductible expenses in 2017 year of assessment?

A $720 000
B $328 000
C $540 000
D $252 000

11. Magogi Building Contractors incurred the following expenses in 2017 year of
assessment:

i. Renovated a Harare Municipal library $62 000

ii. Renovated a ward of Harare Hospital $115 000
iii. During the year the company engaged C&T Actuarial Consultants to value their
pension fund, the consultants advised them to invest an additional $50 000 to the
pension fund so as to make the earnings of those retiring beginning 2017 to be
palatable.

What is the total deduction claimable by Magogi Building Contractors?

A $200 000
B $227 000
C $150 000
D $212 000

Section B: Structured questions

Question 1

a) Explain the registration requirements for tax purposes of a newly incorporated company
[3 marks]
b) State the return used for the remittance of provisional tax (QPD‘s) [1 mark]
c) What is a timing difference? [3 marks]

Question 2
Ruwani Enterprises P/L is a company in the business of manufacturing domestic and office
furniture for both local and export markets. The following financial statements were
submitted to Zimra for assessment for tax year end 31 December 2017.

Note $
Gross profit 3 000 000
Other income
Export incentive bonus 40 000
Interest from commercial bank (net) 10 000
Dividends: OK Zimbabwe Ltd 15 000
Profit on disposal of Mercedes Benz 2 2 000

Less: expenses

118 A Guide to Zimbabwe Taxation

Administration expenses 3 239 500
Distribution expenses 4 420 000
Other expenses 5 132 500
Repairs and maintenance 280 000
Miscellaneous 6 87 000
Bad debts 72 000
Donations 7 100 000
Net profit 1 736 000

Additional information

1. The company had the following assets in its asset register as at 1 January 2017.

ASSET DATE ACQUIRED / COST ($)

CONSTRUCTED
Freehold land 1 March 2012 80 000
Manufacturing building 1 March 2012 85 000
Administration block 10 September 2013 70 000
Computer equipment June 2014 18 000
5 Passenger Motor Vehicles August 2015 70 000
Commercial vehicles 1 April 2014 60 000
Staff bus 30 November 2015 45 000

The manufacturing building was acquired together with the business stand, the
administration block was however, constructed. The company had a policy of claiming
maximum capital allowances possible on fixed assets.

2. A Mercedes Benz with a book value $6 000 was involved in an accident on 31 October
2017. The company received $8000 as compensation from Zimnat Insurance Company. The
car was bought for $15 000. The Mercedes Benz is one of the passenger motor vehicles,
two of the Passenger Motor Vehicle were bought for $14000 each and the other two cars
were bought for $27 000.

3. Administration expenses

$
Extension of administration building 43 000
Depreciation 72 000
General repairs and maintenance 7 500
General entertainment costs 15 000
Salaries and wages 102 000

239 500

4. Distribution costs
$
Selling and marketing 192 000
VAT 102 000
Cost of sending sample to a potential customer in Botswana 56 000

A Guide to Zimbabwe Taxation 119

Other distribution cost 70 000

5. Other expenses
$
Ex-gratia payments (to 10 former employees) 41 000
HR manager trade convention costs 20 000
Interest on loan: the loan was used on extension of Administration block 35 000
Cash stolen by cashier 36 500
132 500
5. Miscellaneous
$

Penalty on breaching customs procedures 12 000

Legal cost of being sued by a customer 33 400
Interest charged on overdue PAYE 16 000
Repairs to CEO‘s Borrowdale house 25 600
87 000

6. Donations
$
Chief executive‘s wedding 20 000
National scholarship fund 80 000
100 000
Required
Calculate minimum tax liability for Ruwani P/ L for the year ended 31 December 2017.[30
marks.

120 A Guide to Zimbabwe Taxation

 7
BUSINESS INCOME - INDIVIDUALS
Chapter outline

7.1 Introduction
7.2 Gross income & allowable deductions
7.3 Exemptions
7.4 Provisional tax
7.5 Self- assessment
7.6 Tax credits
7.7 Chapter Round-up
7.8 Practice questions

7.1 Introduction
Income accruing from trade or investment activities to an individual is taxable as if the
individual is a company. Individuals may be working in a professional capacity or as a
consultant or independent contractor, whatever the case may be, will be required to
complete returns and pay provisional tax by the due dates of QPD‘s.

Individuals are taxed at a rate of 25% on business income. Form ITF 12 A is the return
completed by individuals.

7.2 Gross income & allowable deductions

Individuals in receipt of business income are taxed just like corporates. A business activity is
an activity undertaken by a person with the intention of making a profit or generating income.
a business activity could be a trade, profession, occupation or the letting of property to
produce income. The following are some of the factors taken into account by courts in
distinguishing a business from a hobby:
- frequency of transactions
- commercial character of the activities
- characteristics or quality of the property dealt in
- commercial character of the activities, and
- the existence of legal relationships.

Investment income is income derived by a person from letting use of property ( corporeal or
incorporeal), examples of investment income are:

- Dividends
- Interest from financial institutions
- Rents from movable or immovable properties.
- Royalties, etc.
Most of investment incomes are subject to withholding taxes at source. withholding tax
on dividends and interest is final, which makes the net amounts exempt in the hands of
the recipient.

7.2.1 Forms of business and investment income

A Guide to Zimbabwe Taxation 121

a) Trading profit
An individual should detail in his return net profit earned by him and allowed
deductions including assessed losses, if any. The taxpayer is supposed to attach
accounts to the returns furnished by him.

b) Rent
Where the taxpayer is a landlord in receipt of rent, such income should be included in
his gross income for assessment. The rent is taxed after deducting from it expenses
incurred in the course of production of the income. Deductible expenses include:
- Rates paid for the property,
- Insurance costs,
- Repairs, and
- Other expenses related to property concerned.

c) Local interest
Local interest from financial institution is exempt in the hands of the recipient
because it would have been subject to a withholding tax at source. The withholding
tax charged on interest paid by a financial institution is a final tax.

The following interests are exempt in the hands of the recipient:

- interest on DIASPORA bond issued by the Commercial Bank of Zimbabwe
(CBZ)
- Interest paid on a loan raised by the state on condition that interest is
exempted.
- Interest paid on class C permanent shares issued by a building society.
- interest from a POSB account
- Interest paid on ZIMRA tax reserve certificates.
- Interest paid on loan to Infrastructure Development Bank of Zimbabwe by an
institutional shareholder who is not ordinarily resident in Zimbabwe.

d) Foreign Interest
See chapter 6. A taxpayer will claim a double taxation relief if there exists a Double
Taxation Agreement between the source country and Zimbabwe. Foreign interest
received by a taxpayer in the year of assessment at the time the taxpayer is
ordinarily resident in resident is taxable in Zimbabwe.

e) Dividend paid by a local company

Dividend paid to a trust, individual or partnership is taxable in the hands of such
recipients. It is only exempt in the hands of an individual, partnership or trust if a
withholding tax has been deducted from it at source. The withholding is a final tax.
Dividend paid by a resident company to a local company a pension fund, a benefit
fund or a medical aid society is exempt in the hands of the receiving company. The
paying company need not withhold tax from that dividend.

f) Foreign dividends
See chapter 6. Again a taxpayer will claim a double taxation relief if there is a Double
Taxation Agreement (DTA) between the source country and Zimbabwe.

122 A Guide to Zimbabwe Taxation

 g) Income of minor children
When taxpayer‘s minor child (i.e. below 18 years), is in receipt of income in his or her
capacity, such income is deemed to have accrued in favour of the parent and should
be included in his or her assessment. Income accruing or received by a minor child
may be in the form of a donation from the parent or a cross donation, see chapter 1,
paragraph 1.9.3.

Another instance is where a child had inherited property or some other income
generating assets that warranties a flow of income to the child.

h) Annuities Sect 8(1)(a)

An annuity is an annual payment that is made in perpetuity for the life of grantee or
for a limited period …. ‖. See, ITC 826 (1956) 21 SATC 189.The following are the
characteristics of an annuity:
- claimable from another person or body
- must be a fixed annual amount (which can be divided into monthly or weekly
payments)
- must be repetitive for a period ITC 761 (1952) 19 SATC 103

i. Purchased annuity

For a purchased annuity only interest content is taxable if there was no tax
deduction or credit allowed at or during time of payment of contributions. The
following formula is useful in calculation of taxable portion of an annuity:

I= P*N-A
N
Where,
I = interest on an annuity
P = annual payments
N= number of annual payments expected
A= purchase price of annuity (excluding amounts not allowed as deductions)

Note# amounts received after N years are taxable in full.

Example
Mrs Silvia Bhiza became entitled to receive an amount of $700 per annum in 2017 from an
annuity purchased by her husband 8 years ago from Old Mutual Zimbabwe Ltd for $5000.
She is expected to receive the amount for the next 10 years. Calculate the taxable portion of
the annuity.

Solution
Interest portion= 700*10 – 5000
10
= $200

ii. Annuity from legacy

A Guide to Zimbabwe Taxation 123

 An annuity which is received on legacy is taxable in full.

iii. Annuity received for services rendered

An annuity received for services rendered is taxable in full, unless parts of the
contributions were disallowed as a deduction for tax purposes. If it is that
case, the disallowed portion should be excluded from the annuity.

i) Royalties
Royalties is income derived by a person from rights such as copyrights, patents,
trademark etc. Such rights are called intellectual property. Royalties paid to a non-
resident is subject to withholding tax at source. Royalties are deemed to be from
Zimbabwean source if the property generating royalties have been created in
Zimbabwe. What matters is: where the owner of property has exercised his or her
wits and labours in creating the property regardless where the property is used to,
commercialised or published. An exception is income from a trademark which is
deemed to be from Zimbabwe if the trademark is being exploited in Zimbabwe.

j) Other income from profession

Certain professionals such as lawyers, accountants and medical doctors are in public
practices. They generate income in the form of fees, commissions etc. Such income
is of business nature. Such professionals are supposed to apply tax principles for
business in complying with their tax obligations. Professionals can deduct qualifying
business expenses against their income.

7.3 Exemptions
Exemption apply the same for individuals, see chapter 1 and 5.

If an individual is an elderly the following exemptions apply;

- Rental income, in respect of the first $3000 accruing to the taxpayer in the year of
assessment concerned.
- Interest received on banker‘s acceptances and other discounted instruments traded
by financial institutions, in respect of the first US 3000 earned.
- Interest in respect of the first $3000 earned from a deposit with a financial institution.

Other exemptions:

- Interest from a POSB account or Zimbabwe Revenue Authority tax reserve

certificates.
- Interest on class C permanent shares issued by building societies.
- Dividend received from a Zimbabwean company which is chargeable to tax on its
profits.
- Dividend paid to an individual, partnership or trust which has been subject to
withholding tax at source.
- Interest on DIASPORA bond issued by the Commercial Bank of Zimbabwe (CBZ)
- Interest paid on a loan raised by the state on condition that interest is exempted
- Interest received by a non-resident not carrying business in Zimbabwe on a loan
granted to a building society or to a person carrying out mining operations, to the
state or local authority and statutory corporation.

124 A Guide to Zimbabwe Taxation

7.4 Provisional tax
Individuals in receipt of business income are required to submit returns and payment of
provisional tax according to Quarterly Payment Dates. Failure to comply with the
provision will result in the Commissioner estimating the provisional tax on behalf of the
taxpayer, the tax of which will be final. The taxpayer could suffer penalties as
consequences.

7.5 Self-assessment
The Commissioner may appoint certain persons who are in receipt of income from trade
and / or investment to be on self-assessment. The Commissioner will specify such
persons or class of persons by way of a public notice. Such specified persons will be
called specified taxpayers. Specified taxpayers are required to:
- Furnish the Commissioner-General with a self-assessment return (ITF 12C) reflecting
such information as may be required for the calculation of tax payable in respect of
that year not later than four months from the end of the tax year concerned i.e. by
30th of April of every year.
- Calculate the amounts of such tax payable and pay the tax to the Commissioner-
General or calculate the amount of any refund due to the taxpayer.

A specified taxpayer who is legally incapacitated shall have his return of income and
declaration as to the accuracy and completeness of the return signed by his legal
representative.

7.6 Tax credits

Individuals in receipt of income from trade and investment activities will claim tax credits
as appropriate against their tax liability, examples of credits include elderly credit.

7.7 Chapter Round-up

- Individuals in receipt of income from trade and/ or investment activities are taxed at
business rates.
- Business income is taxed at 25%, the same principles of gross income and allowable
deductions apply.
- Certain taxpayers are classified as on self-assessment, such taxpayers are required to
furnish the Commissioner with tax returns together with the tax payable by the fourth
month after tax year end.
- Individuals in receipt of business income are required to pay provisional tax (QPD‘s).

- When calculating tax liability for individuals in receipt investment income, care should be
taken to apply the correct rates, for instance, interest is calculated at 25% while
dividends taxed at 20%.
- Where individuals are eligible for tax credit, such credits should be claimed as
appropriate against an individual‘s tax liability.

7.8 Practice questions

Section A: Multiple choice questions

A Guide to Zimbabwe Taxation 125

1. Patrick received the following amounts during the year ended 31 December 2017.
Dividends from OK Zimbabwe 3 000
Interest from CBZ Bank 2 400
Consultancy fees 5 000

What is Patrick‘s taxable income?

A $5400
B $10400
C $7400
D $8000

2. Mrs Irvine purchased an annuity from Old Mutual P/L for $10 000 5 years ago. She
received $2000 in 2017 and is to receive the same amount annually for the next 9 years.
What is her taxable income in 2017?

A $2 000
B $1 000
C $20 000
D $10 000

3. What is the return that should be completed by an individual in receipt of business

income?
A ITF A
B ITF12B
C P2
D ITF 16

4. Mr Elder is 59 years old. During the year he received the following amounts:
i. Dividends from a Zimbabwean company 10 000
ii. Rentals from properties in Bulawayo 6 000
iii. Lump sum pension 15 000
iv. Interest from Standard Chartered Bank 20 000

What is his total taxable income?

A $10 000
B $6 000
C $25 000
D $30 000

Section B: Structured Questions

Question 1

Mr Mandivamba is an IT consultant, running a flourishing consultancy business in Harare.

During the year ended 31 December 2017, Mr Mandivamba who is 57 years old brought the
following details of his earnings and expenses.

126 A Guide to Zimbabwe Taxation

 Income $
Consultation fees 72 400
Gross rental income from a block flat in Mutare 61 300
Interest from Barclays Zimbabwe 22 000
Dividends from OK Zimbabwe Ltd 1 300
Proceeds from Betting in Africa Lotto 1 500

Expenses
Rates paid to Mutare Municipality 13 200
Legal costs of suit by a client 700
Medical expenses 14 000
Tax paid during the year 2 130

Required
a) Advise Mr Mandivamba on the exemptions, if any, that are applicable to his earnings
which he could capitalise on [5]
b) Calculate Mr Mandivamba‘s tax liability for the year ended 31 December 2017 [15]

Question 2

Dr Magawa, 56, is a specialist optician who runs his private practice in Newlands, Harare.
He brought the following financial information for the year ended 31 December 2017
pertaining to his surgery.

Notes $

Income:-
Consultation fees 25 000
Admission fees 128 000
Treatment fees 40 000
Directors fees 1 7 000
Dividends (gross) 2 8 000
Royalties 3 800
Interest from commercial Bank 4 1 200
Debenture interest 5 3 000
Part-time salary from Harare Hospital 6 6 500
Rent 7 12 000
Sale of spectacles 1 700
Expenses:-
Water and electricity 900
Salaries 13 000
Contribution to pension fund 8 12 000
Locum paid to staff 1 800
Fuel 2 460
Professional indemnity insurance 700
Fire insurance 560

A Guide to Zimbabwe Taxation 127

Additional notes:-

1. Dr Magawa is a non-executive director of Health Services Board. The amounts paid to

him during the year were net of withholding tax.
2. Dr Magawa owns shares in several local companies
3. Dr Magawa authored a book titled; Health Eyes, the book was written three years ago, in
Zimbabwe and published in South Africa and the United Kingdom. Royalties received by
him as shown above is in US$ after conversion.
4. The interest was earned from CBZ bank from his Cashplus Savings Account
5. Dr Magawa bought debentures in one of the local insurance firms
6. Dr Magawa is engaged on part-time basis with Harare Hospital
7. Dr Magawa, owns a flat in Harare CBD, he earn rentals of $1 000 monthly.
8. Dr Magawa employs two junior doctors of which he contributes $500 monthly on behalf
of each of them to an approved pension fund.
9. Dr Magawa operates from his house, the house was constructed for a total cost of $80
000
10. During the year, Dr Magawa bought two Mazda Camry for his two junior doctors for 12
000. Dr Magawa drives a Toyota land cruiser, the car was bought 5 years ago and it has
nil ITV. Information of the car use as extracted from the log book is as follows:
Mileage
Private 8 700
Business 26 100
Total 34 800

Only Dr Magawa is allocated fuel.

11. The surgery has the following assets as at 1 January 2017.

Cost ITV
$ $
Computers 14 000 7 000
Scan equipment 8 000 7 200
Bedding equipment 5 600 1 400
EyeD Optical software 3 000 750

Required
a) Indicate the amount exempt in the hands of doctor Magawa (5 marks)
b) Show withholding tax that should have been or was deducted at source in respect of
his investment income ( 5 marks)
c) Calculate minimum taxable income and tax liability of Dr Magawa‘s practice for the
year ended 31 December 2017 (10 marks)

128 A Guide to Zimbabwe Taxation

 8
PARTNERSHIP INCOME
Chapter outline

8.1 Introduction
8.2 Accrual of partnership income
8.3 Source of partnership Income
8.4 Partnership changes
8.5 Returns and assessments
8.6 Allowable deductions
8.7 Chapter round-up
8.8 Practice questions

8.1 Introduction
A partnership is an organisation formed by at least two and not more than twenty people
who agree to contribute something to a common business with the object of making a profit.
A partnership is not a legal persona; section 2 of the Act specifically excludes a partnership
from the definition of a person. As such a partnership is not a taxpayer on its own. Partners
are taxed on their share of partnership profits and on income earned from employment with
the partnership.

Business income should be separated from employment income. Business income is taxed
at a rate of 25% whilst employment income is taxed on sliding scales.

8.2 Accrual of Partnership Income

Section 10(2) of the ITA stipulates that income received by or accrued to or in favour of a
partnership in any period ending on an accounting date shall be deemed to be income
received by or accrued to or in favour of the partners on such accounting date in the
proportions in which the partners agree to share the profits of the partnership as at such
date.

On the accounting date, the partners determine their joint taxable income, the next thing to
be done is to share the joint taxable income between or among themselves in accordance
with their agreed profit sharing ratios. To the individual's taxable income is now added all the
income that he would have received or accrued to him in his individual capacity. Basically, a
partner at this stage, in determining his taxable income, will have his taxable income
calculated as per the income tax computations of individuals.

Partners‘ share of joint profits of a partnership accrues only on the accounting date, i.e. the
date to which partnership accounts for the year are drawn.

8.3 Source of partnership income

The source of partnership income is where the partner has rendered his services to produce
the partnership income, CIR v Epstein, 1954. See chapter 1, paragraph 1.8.13

8.4 Returns and assessments

A Guide to Zimbabwe Taxation 129

Section 37(15) of the ITA requires persons carrying on any trade in partnership to submit a
joint return, supported by accounts to show the results for the year of assessment.

Section 51(5) of the ITA, however, provides for separate assessments to be made on each
partner. Each partner is therefore liable to tax only on his individual capacity in terms of this
section. Each partner is separately and individually liable for the rendering of the joint return,
but the partners shall be liable to tax only in their separate individual capacities.

8.5 Partnership changes

Partnership changes may arise as a result of death, resignation; change in partnership profit
sharing ratios or introduction a new partner. A new partnership is deemed to have been
created from the effective date of such change. Accounts are prepared in order to show the
results of the operations of the partnership for the period from the last accounting date to the
date of the death of the partner.

In the case of death of a partner, the surviving partner/s needs not return his share of profits
accrued as a result of the production of accounts to the date of death of a partner until the
date to which the accounts would have been prepared had the partner not died.

Example
Kuda and Petros are in partnership, they are professional accountants in public practice
sharing profits equally. On 1 July 2017 the partners agreed to change the profit sharing
ratios to Kuda 3: Petros 1. Petros got a full-time job elsewhere so he accepted a lessor
share of the partnership income.

The following is the extract of their accounts for 2017 tax year.

Amounts accrue evenly throughout the year.

$
Net profit for the year 60 000
After debiting the following:

Depreciation of office building 4000

RAF contributions: Kuda 3000
Petros 3000
Medicals aid contribution: Kuda 5000
Annual subscription to ICAZ: Kuda 500
Petros 500

In addition the partners incurred the following expanse on their own during the year:

Kuda incurred $800 medical expenses shortfall when his daughter was ill in March 2016.
Petros incurred 300 medical expenses in September.

The partnership owns an office building bought two years ago for $40 000.

Required:-

130 A Guide to Zimbabwe Taxation

Calculate the tax liabilities of the partners for the year showing how they tax periods are split
in the 2017 tax year.

8.6 Allowable deductions

Expenses that are incurred by the partnership for the benefit of the partner are allowable in
the hands of the partnership and taxable in the hands of the partner who is benefiting.
However, expenses like premiums for joint life policies and partner drawings are not
allowable.

8.6.1 Passage benefits

Where a partnership bears the cost of a travelling by a partner on a trip other than to pursue
the business of the partnership; such cost is considered as disbursement of partnership
profit, and such cost is allowable in the hands of the partnership but taxed in the partner‘s
hands.

8.6.2 Attendance at trade conventions

Expenditure incurred by a partnership in respect of not more than one convention attended
by a member of such partnership shall be allowed to the partnership up to a maximum of US
$2500 per partner for not more than one such convention attended.

8.6.3 Ex-gratia payments to a former partner or dependent of a former partner

S15(2)(q)
Amounts paid to a former partner who would have retired due to ill-health, old age or infirmity
is allowed to the partnership up to a maximum of US $200.

8.6.4 Medical Aid Contribution

Where a partnership bears the cost of contribution to a medical aid society in respect of the
partners, such contribution is allowable deduction in the hands of the partnership. The
partners‘ are taxed on the contribution paid by the partnership on their behalf. The partners
can also claim a credit in respect of those amounts, but the amounts do not qualify for
exemption as specified in the 3rd Schedule.

8.6.5 Subscriptions
Subscription to a sport, professional or trade association paid by a partnership on behalf of
the partner is allowed to the partnership and taxable in the hands of the partner. A partner
can claim a deduction in respect of the amount.

8.6.6 Private expenditure

Private expenditure incurred by a partner and paid by the partnership is allowed as a
deduction to the partnership and taxed in the hands of the partner.

8.6.7 Insurance premiums

Insurance premiums paid by a partnership for insuring of its assets is a business expense
and allowable. However insurance premiums paid to cover the life of partners is treated
differently as follows:

A Guide to Zimbabwe Taxation 131

8.6.7.1 Joint survivorship policy
If a partnership takes out a joint survivorship policy to cover the joint lives of the partners,
and where the partnership is the beneficiary, premiums paid in respect of that policy is not
an allowable deduction in the hands of the partnership.

8.6.7.2 Separate life policies for partners

Where a partnership pays premiums for separate policies covering the partners, such an
expense is allowed as a deduction in the hands of the partnership provided that the partners
are the beneficiaries of those policies. The benefiting partner is taxable on the premiums
paid on his behalf.

Where partners take separate life policies for their lives and the partnership is the
beneficiary, such premiums are not allowable to the partnership even though the partnership
pays for the premiums.

Ceded partners‘ policies are policies which were originally taken by partners for their benefit
but have been surrendered to the partnership. it then means the polies now benefit the
partnership. Such policies are not allowable in the hands of the partnerships.

8.6.8 Summary of allowable deductions

EXPENDITURE TREATMENT IN THE TREATMENT IN THE
HANDS OF HANDS OF THE
PARTNERSHIP PARTNER
1) Partner‗s salary Allowable Taxable

2) Joint life policies Not allowable Not taxable

3) Partner‗s life policy – Not allowable Not taxable

partnership is the beneficiary.
4) Partner‗s life policy – partner is Allowable Taxable
the beneficiary.

5) Partner‗s life policy – ceded to Not allowable Not taxable

the partnership.
6) Partners interest on Capital Allowable Taxable

7) Drawings Not allowable Not Taxable

8) Interest on drawings Taxable Non-deductible

9) Rents payable to a partner Allowable Taxable

10) Sports subscriptions Allowable Taxable

11) Other Club subscriptions Allowable Not taxable if

substantially
patronised by business
and
professional persons

132 A Guide to Zimbabwe Taxation

12) Medical aid contributions Allowable Taxable.
Grant credit
13) Voluntary payments to Allowable to a maximum Tax the full amount
former partner or dependant of $500 per former partner
thereof who has resigned from and $200 per
the partnership because of ill- dependant(s)
health, infirmity or old age of one former partner.
14) Partner‗s private use of a Allowable Taxable
motor vehicle
15) Passage benefits – Allowable Not Taxable
partner‗s business trip where he
uses the opportunity to take a
holiday after the business
16) Passage benefits – Allowable Taxable
partnership bears the cost of a
holiday for a partner.
17) Retirement annuity fund Allowable Taxable and,
contributions Allow deduction up
$2,700

8.7 Chapter Round-up

- A partnership is not a legal person; as such it cannot be taxed in its own right.
- Partnership income is taxed in the hands of the partners forming the partnership.
- Usually partners are in receipt of both business and employment income in respect of
their involvement with the partnership business, separation of business income from
employment income is thus crucial in computation of partnership tax liability.
- Partners should submit a joint return supported by accounts of their partnership business
with each partner being however, separately liable for the rendering of the joint return.
- Partners are however, separately assessed, hence each partner is individually liable to
tax.
- Expenses paid by the partnership for the benefit of the partners are deductible to the
partnership and taxable in the hands of the partners.
- Expenses in respect of partners but which benefit the partnership are not deductible to
the partnership and are non-taxable to the partners; examples include joint and ceded
life policies.
- Attendance to a trade mission is allowed to the partnership up to a maximum of $2500
per each partner for not more than one trade mission.

8.8 Practice questions

Section A: Multiple Choice Questions

1. Which of the following expenses are not deducible against partnership income?

A Partners‘ subscription to professional bodies

B Joint survivorship policy premiums
C Rent for partnership which is payable to one of the partners
D Fire insurance premium to cover partnership assets

A Guide to Zimbabwe Taxation 133

2. John is a partner in the firm John & Jeche Legal Practitioners. During the year ended 31
December 2017, the partnership made a total taxable income of $125 000. John‘s share
is 2/5.

The partnership made the following payment on behalf of John:

- Subscription to Men Lawyers Association of Zimbabwe $800
- Contribution to pension fund $6 200
- Contribution to medical Aid Society $700

What is John‘s total taxable income for 2017 year?

A $50 700
B $56 900
C $43 700
D $51 500

Section B: Structured questions

Question 1

a) Explain the statutory requirements for the submission of returns by partners. [3]
b) Explain how partners are assessed for tax on income accruing from their partnership
business? [3]

Question 2

Shorai and Shamiso are in partnership for the past four years sharing profits and losses in
the ratio 2:4 respectively. The main business of the partnership is the manufacture of farm
implements, the following are the activities of the partnership for the 2017 tax year.

Gross profit 400 000

Rental income from block of flats 40 000
Foreign interest 30 000
Dividends: O K Mart 10 000
480 000
Less: Expenses
Depreciation of assets 20 000
Medical aid: employees 12 000
: Partners: Shorai 2 000 and Shamiso 4000 6 000
Insurance: for assets 4 200
: Life of Shamiso 3 000
Donation to destitute homeless person‘s fund 52 000
Loss on sale of generator 1 000
Pension contribution: employees 15 000
: Partners: Shorai 5600 and Shamiso 5 400 11 000
Shorai‘s attendance of trade mission connected to the partnership‘s business 3 200
Salary and wages: employees 20 000

134 A Guide to Zimbabwe Taxation

VAT 3 800
Net profit 328 800

Additional information
a) The partnership owned the following assets as at 1 January 2017

Assets Original cost $ Date purchased Income Tax Value

$
1/1/17
Machinery 20 000 May 2015 5 000
Furniture & Equipment 10 000 August 2015 5 000
Delivery trucks 42 000 February 2012 nil
Merc Benz 14 000 October 2016 7 500
Computers 4 000 January 2014 2 400

2. During the year, the partnership acquired a Ford Ranger single cab for Shamiso for 17
000, the car was used 30% for private purposes.

3. The generator was sold for $3000; it was fully depreciated for tax purposes.

4. The income statement of the partnership reflected a profit of $ 328 800 after debiting
expenses of $ 151 200 for 2017 tax year.

Required

a) Calculate the partnership minimum taxable income for the tax year ended 31 December
2017. [16]
b) Calculate the partners‘ taxable income for the year ended 31 December 2017 [4]

A Guide to Zimbabwe Taxation 135

 9
FARMERS

Chapter outline
9.1 Introduction
9.2 Valuation of trading stock
9.3 Gross income for farmers
9.4 Relief from enforced sales
9.5 Allowable deductions
9.6 Livestock reconciliation
9.7 Livestock trading account
9.8 Timber
9.9 Orchards and vineyards
9.10 Tobacco Levy
9.11 Chapter round-up
9.12 Practice questions

9.1 Introduction
The assessment of farmers for tax purpose does not differ greatly from other business.
There are, however, special provisions applicable exclusively to farmers with regard to;
valuation of stock, items constituting gross income and certain deductions.

A farmer is defined in section 2(1) of the ITA as any person who derives income from
pastoral, agricultural or other farming activities, including any person who derives income
from the letting of a farm used for such purposes.

9.2 Valuation of farm trading stock

Farm trading stock includes:
a) Livestock acquired or bred by a farmer for the purposes or in the carrying on of his
farming operations; and
b) Crops and other produce produced or partially produced by a farmer in the carrying
on of his farming operations.

Farming involves rearing of livestock and growing of crops, fruits, timber, and other plants
growing from the soil. The Act specifically provides guidance for the valuation of different
forms of farm trading stock.

9.2.1 Livestock
The Act does not specifically define the term ―livestock‖, but the Commissioner however;
accept, for example, chinchillas, crocodiles as falling within such meaning. Game animals
would need to be under some control of the farmer to constitute his ‗trading stock‘.

Livestock is divided into stud livestock and ordinary livestock. Stud livestock is livestock
acquired and kept by a farmer for breeding purposes, whilst ordinary livestock includes all
non-stud livestock born on the farm and any purchased for non-study purposes.

136 A Guide to Zimbabwe Taxation

There are three methods of valuation in respect of livestock, which are: Purchase Price
Value (PPV), Fixed Standard Value (FSV) and Cost and Maintenance Value (CMV).

a) Purchase Price Value is the cost at which the animal was acquired by the farmer.
This valuation method is applicable to stud livestock only.

b) Fixed Standard Value is valuation method in which a farmer fix, with the approval of
the Commissioner, the standard values which shall be applicable to animals in each
class of his livestock. Fixed Standard Value is applicable for both ordinary and stud
livestock. If the Commissioner does not approve the values fixed by the farmer, then
the Commissioner shall fix such standard values.

In the case of stud livestock, the cost of an animal shall be the Fixed Standard Value,
for an animal which cost less than US$150.00. The FSV shall be US$150.00 for an
animal which cost UD$150.00 or more; however the farmer may elect the actual cost
as the FSV.

It should be noted that the method and determination of the values are both related
to ‗classes‘ of livestock, chosen by the farmer and approved by the Commissioner.
Secondly, once an election has been made and the fixed standard values have been
accepted:
i) The Commissioner has no power to unilaterally alter it; and
ii) While the farmer may alter it he may do so only with the Commissioner‘s
approval.

c) Cost and Maintenance Value takes into account the cost of acquiring an animal or of
breeding the animal, as the case may be added to the cost of maintaining the animal
up to the end of the year of assessment. Maintenance cost of an animal includes the
cost of labour, feedstuff, dips, etc. This method is, however, rarely used in practice.

Ordinary livestock is valued according to Fixed Standard Value (FSV) or Cost and
Maintenance Value (CMV), whichever the farmer elects in his first return of income.

9.2.2 Crops and other stock valuation (2nd Sch para. 12(b) )
Crops and other farming trading stock, such as unutilised consumables (e.g. fertiliser, fuel,
and chemicals) are valued by an amount determined by the Commissioner to be the fair and
reasonable value.

9.3 Gross income specifically for farmers

Farming is a business; as such farmers prepare accounts just like any other business
organisation. Net profit shown in their accounts represents net income which should be
adjusted to arrive at taxable income, also to be taken into account, are provisions in the tax
statutes which applies to farmers. These specific provisions will be discussed in the sections
that follow.

9.3.1 Trading stock not disposed of at year end: Sect 8(1)(h)

A Guide to Zimbabwe Taxation 137

The value of closing stock of a farmer that has not been disposed at year end should be
included in his return as income.

Where livestock has been acquired by a person without payment of a consideration, for
instance, by way of inheritance or donation, the following treatment should be made.

If the heir or donee merely sells the livestock without conducting farming operations with
them the proceeds are of capital nature. If he however, commences farming, or introduces
them into existing farming operations the livestock will be treated as follows:

- In the case of donation, the value of the livestock is deducted, the deduction of which is
restricted to the amount which would have been deductible in the donor‘s hands, i.e.
donor‘s FSV.
- In the case of inheritance, the value of livestock as attached for estate duty purposes is
deductible.

The value of such livestock as is acquired not by payment of a consideration will

automatically be included in closing stock if not disposed during the year. The farmer will
have to adopt FSVs subject to approval by the Commissioner. If the farmer had incorporated
the livestock into the existing farm, then he will simply use the existing FSVs.

9.3.2 Stock disposed other than by way of sale

Farm trading stock which has been donated or consumed by the farmer or which has been
disposed otherwise than by sale in the ordinary course of trade is to be brought into gross
income. The stock is included in gross income at its fair and reasonable value, i.e. at cost.
Livestock is valued at its fixed standard value, (FSV).

9.3.3 Growing crops disposed together with the land

Where farm land is sold, or donated with crops growing on it; the market value of such crops
is taxable, provided that such crops were grown with the intention of sale. However, no tax is
levied on the market value of crops which were growing on land which has been inherited or
received as a gift by a new owner who eventually disposes the land with standing crops.

9.4 Relief from enforced sales

A farmer who is forced to dispose his livestock due to drought, epidemic disease or
compulsory acquisition of land is allowed to spread the taxable income arising from such
sales over three years.

a) Drought or epidemic diseases relief

A farmer who raises or possesses livestock in a drought-stricken area or an epidemic area
and is driven by stress of the drought conditions or the epidemic disease, as the case may
be, to dispose of his livestock during the period of the drought or the epidemic disease, he
may elect to allocate the taxable income over three years beginning the year in which the
livestock are sold.

The following points are to be noted with regard to drought or epidemic disease relief:

138 A Guide to Zimbabwe Taxation

 - Drought or epidemic disease means a period specified by the responsible Minister as
drought stricken or epidemic area.
- Period of drought and precise drought-stricken farms are all proclaimed by a
Statutory Instrument through the Government Gazette.
- To spread the taxable income, the taxpayer must make an election to that effect,
which becomes binding.
- The Commissioner would accept all livestock sales effected during the drought
proclaimed period or epidemic disease are forced through stress of drought or
epidemic disease and accordingly rank for relief.

The taxable income from drought sales is determined as follows:-

Proceeds from drought sales XX

Less:
Cost of sales (number of sold * fixed standard value) (XX)
Livestock direct expenses (total no. sold * livestock expenses/average stock) (XX)
Taxable income from drought sales XX

*Average stock = (opening stock + closing stock) / 2

*Livestock direct expenses include expenses directly related to livestock like, feed, dosage
etc.

b) Compulsory acquisition of land

A farmer who, as a result of compulsory acquisition of his farm or part of his farm for
resettlement purposes in terms of the Land Acquisition Act [Chapter 20:10], is forced to
dispose of his livestock may elect to spread the taxable income from such sales over three
years, beginning the day of his disposal.

A farmer who retains grazers as a result of compulsory acquisition of land is deemed to have
disposed them for the purpose of calculating the relief.

9.5 Allowable deductions

Most deductions which a farmer can claim are common with most corporate organisations.
However, farmers enjoy special deductions which will be discussed below.

9.5.1 Opening stock :Sect 15(2)(h)

The value of farm trading stock at the beginning of the year is allowed as a deduction, i.e.
the opening stock. Opening stock is defined as the value of stock which has been included
as gross income in the previous year of assessment or which would have been included had
he been liable for tax.

In the case of inherited livestock, it is deducted at the fair market price for which the
valuation in the estate concerned will be used.

9.5.2 Restocking allowance (Para 6, Seventh Schedule)

A farmer, who wishes to restock livestock depleted by drought or epidemic diseases, is
allowed to deduct half of the cost of livestock purchased. The allowance is an additional

A Guide to Zimbabwe Taxation 139

deduction, since the cost of livestock purchases is deducted in the livestock trading account.
The allowance is restricted to the number of livestock that has to be purchased up to the
assessed carrying capacity of land, (ACCL), i.e. livestock purchased over and above the
ACCL does not qualify for the allowance.

Restocking allowances is calculated by the following formula:

AxB
2C
Where:-

A represents the cost of the livestock purchased;

B represents the difference between livestock at hand immediately before purchase and
ACCL;
C represents the number of livestock purchased.

Example
Mr Francis, a farmer in Chegutu area has recently purchased 700 sheep for $28 000 in order
to replenish a herd of sheep he was forced to sell due to an epidemic disease last year. The
number of sheep immediately before the purchase were, 2400 and the carrying capacity of
land is assessed to be 3 000 sheep. Calculate restocking allowance [5 marks].

Solution
Restocking allowance: 28000* (3000 -2400)

2* 700

= $ 12 000

9.5.2 Capital allowances

9.5.2.1 General
Farmers are entitled to capital allowances under the fourth schedule in respect of capital
expenditure incurred by them. The assets qualifying for capital allowances under the fourth
schedule include; movables (plant, equipment, motor vehicles etc.); farm staff housing,
permanent roads, water furrows and farm improvements.

Farm improvement is defined as:

Any building or structure or work of a permanent nature, including any water furrow, which is
used in the carrying on of farming operations, but does not include staff housing used by the
taxpayer or his family; a building or work of permanent nature referred to in paragraph 2 of
seventh schedule and a tobacco ban.

Also included is any permanent building the erection of which was commenced on or after
the 1st April, 1988, used for the purposes of—
(i) A school; or
(ii) A hospital, nursing home or clinic; in connection with taxpayer‘s farming operations.

140 A Guide to Zimbabwe Taxation

Examples of farm improvement
 Sheds
 Permanent roads
 Bridges
 Cattle, sheep, horses pens
 Dip tanks
 Water furrows
 Canals

9.5.2.2 Seventh schedule paragraph 2 allowances

The schedule allows a 100% deduction of expenditure incurred by a farmer on;

a) The stumping and clearing of lands;

b) Works for the prevention of soil erosion;
c) The sinking of boreholes and wells;
d) Aerial and geophysical surveys;
e) Any water conservation work and any amounts paid by him towards the cost of any
water conservation work done by any other person for which such farmer has
become liable in terms of the Natural Resources Act [Chapter 20:13];
f) Fencing.

Water conservation work means any reservoir, weir, dam or embankment constructed for the
impounding of water.

Capital expenditure which qualifies under the fourth schedule does not qualify under the
seventh schedule. Assets falling under the seventh schedule have the following qualifying
requirements;

- Have to be constructed, erected, etc. by the taxpayer and do not rank for deduction if
they are purchased with an existing farm;
- Rank for deduction in full,
- Do not suffer recoupment on disposal; Fourth schedule allowances are recoupable.

9.6 Livestock reconciliation

Livestock reconciliation is prepared to compute the number of closing stock of livestock in
each category of livestock for valuation purposes.

Sample reconciliation

Details Bulls Oxen Cows Tollies Heifers Calves Total

Opening Balance X X X X X X X
Purchases X X X X X X X
Births - - - - - X -
Promotion in X X X X X X X
Sub-total X X X X X X X
Promotion out (X) (X) (X) (X) (X) (X) (X)

A Guide to Zimbabwe Taxation 141

Sales (X) (X) (X) (X) (X) (X) (X)
Deaths (X) (X) (X) (X) (X) (X) (X)
Closing stock X X X X X X X
FSV/ PPV X X X X X X X
Value X X X X X X X

Example
Miss Mandengu is a Bindura livestock farmer. She has provided the following details
concerning her livestock.
On 1 January 2017 she had the following animals at her farm: 2 bulls, 35 cows, 12 calves, 8
tollies, 17 oxen and 23 heifers.

During the year the following stock movements were recorded:

1 bull, 3 cows and 10 heifers were purchased during the year. 20 calves were born during
the year. 7 heifers grew into cows, 4 tollies became oxen, 11 calves became tollies and 7
calves became heifers. 1 bull died due to black leg. 2 oxen were slaughtered during the
year. 3 cows, 9 oxen and 6 heifers were sold during the year. The bull was purchased for
$800.

The company had the following standard values for its stock.

Livestock Cows Oxen Heifers Tollies Calves

Fixed standard value 320 400 250 200 80
(FSV) $

Calculate the value of closing stock of Miss Mandengu‘s livestock at 31 December 2017 .

Solution
Details Bulls Oxen Cows Heifers Tollies Calves Total
Opening balance 2 17 35 23 8 12 97
Purchases 1 - 3 10 - - 14
Births - - - - - 20 20
Promotion- in - 4 7 12 11 -
Subtotal 3 21 45 45 19 22 131
Promotion-out - - - 7 4 18 29
Sales - 9 3 6 - -
Deaths 1 2 - - - - 3
Closing stock 2 10 42 32 15 4 99
PPV/ FSV ($) 800 400 320 250 200 80

Value of closing stock = 2*$800+ 10*$400 + 42* $320 + 32* $250 + 15* $200 +4*$80
= $ 30 360

9.7 Livestock trading account

A livestock trading account is prepared in the same way like a trading account of any
business. The trading accounting shows the movement of livestock, it has items such as
sales, purchases, opening and closing stock. Even if a farmer does not make any sale, he or

142 A Guide to Zimbabwe Taxation

she may realised a gross income as a result of increase in the value of his livestock due to
natural grow over the tax period.

Example
Mr Madinda is an A1 Farmer in Bindura area. He had the following livestock at the beginning
of 2017 year:

Livestock Opening stock Closing stock Fixed Standard Value

category
Bulls 5 8 1 200
Cows 65 74 450
Heifers 40 30 400
Oxen 80 95 600
Calves 50 76 150

17 animals were sold for $13 600 and 3 bulls were purchased during the year for a total of
$3 200. All other changes were as a result of stock movement with categories.

Show Mr Madinda‘s livestock trading account for the year ended 31 December 2017.

Solution
Workings: Opening stock= 5*1200+65*450+40*400+80*600+50*150 = $106 750
Closing stock = 8*1200 +74*450+30*400+95*600+76*150 = $123 300

$
Sales 13 600
Less: Cost of sales:
Opening stock 106 750
Add: Purchases 3 200 109 950
Less: Closing stock 123 300 (13 350)
Gross profit 29 950

9.8 Timber growing

A farmer who establishes a timber plantation is assessed in the same way as any other
farmer growing of crops like maize or tobacco. Timber usually takes a long time before
reaching maturity; hence it might take several years before it is sold. The cost of planting is
carried forward to future years until the timber is sold. To be added to the cost of planting, is
a fixed percentage, i.e. 5% each year. At the time of sale, the proportion of accumulated cost
with respect of timber sold is deducted from the proceeds realised to arrive at the taxable
income. Working expenditure will be deducted in full in each year it is incurred. This
includes ground preparation, planting costs, cultivation, maintenance and establishments of
fire-breaks.

Another method is that the farmer may elect to accumulate working expenditure and carry it
forward until such time as the cutting of timber for sale is commenced, and at the stage to
claim a proportion of the accumulated expenditure each year in relation to the volume of
timber sold.

A Guide to Zimbabwe Taxation 143

A further method, is when a farmer elects to carry forward the cost of planting until the timber
reaches maturity (though maintenance cost, and forth and seventh schedule capital
allowances remain deductible on a current basis). Such planting costs are escalated by 5%,
called the ‗fixed percentage‘, and the amount of the fixed percentage is treated as income for
the year. Once timber sales has commenced a proportionate part of the aggregate of the
planting cost and accumulated fixed percentage is deductible.

9.9 Orchards and vine yards

The following rules apply to a farmer who is engaged in fruit growing or viticulture for the
purpose of deriving income therefrom:
a) Capital allowances as defined under the forth schedule of the ITA as well as Seventh
Schedule allowances are deductible as incurred.
b) Planting and upkeep cost of orchards and vineyards and all other allowances as
defined under paragraph 2 of section 15 is carried forward until the orchard or
vineyard become productive.
c) A farmer is required to submit an estimate in the first year of assessment, of the
number of years the orchard or vine yard is expected to be productive the
Commissioner may accept the estimate or determine an estimate if he disagree with
the estimate submitted by the farmer.
d) The farmer shall spread the carried forward expenditure in equal amounts over the
estimate of productive years until the carried forward expenditure has been allowed.
e) A farmer shall cease to claim a deduction in respect of carried forward expenditure
when he ceases to maintain or keep up the orchard or vineyard.
f) When an orchard or vineyard is uprooted and replanted, it should be treated as a
new orchard for the purposes of the provisions discussed above. The balance of
carried forward expenditure as discussed above not yet claimed should be claimed in
full in the year in which the orchard is uprooted.
g) If an orchard is transferred for a valuable consideration, the transferor and the
transferee shall submit a statement showing the amount attributed to the cost of
planting and upkeep. The transferor shall, upon election, treat such amount as
recoupment and should include it in his taxable income. The recoupment is limited to
the cost of planting and upkeep so carried forward.
h) The above provision apply only to orchards or vineyard established on or after 1 April
1956.

9.10 Tobacco levy

Tobacco levy is charged at a rate of 1.5% of the tobacco sold at an auction floor, from either
the buyer or seller of tobacco. Tobacco levy is a form of withholding tax collected by an
auctioneer on behalf of tax authorities. An auctioneer is a person who owns an auctioneer
floor and who is a holder of a license issued under the Tobacco Marketing and Levy Act.

The following points relate to the Tobacco levy;

- The levy is charged on the price of tobacco sold on an auction floor and also recovered
from the buyer of tobacco before relinquishing possession of any auction tobacco sold to
a buyer on his auction floor.
- The auctioneer is responsible for withholding the levy and remitting it to the tax
authorities‘ failure will render the auctioneer personally liable for the levy.

144 A Guide to Zimbabwe Taxation

- Tobacco levy not paid attracts a penalty as well as interest at a rate of 35% p.a.
calculated from the date the levy was due.
- The Commissioner will make a refund if an amount paid for tobacco levy is in excess of
the amount that should have been paid.
- With effect from the 1st January 2017, the levy on tobacco sellers is introduced at the
rate of 1,5 cents per dollar on the selling price.
- The tobacco levy for buyers remains at 1,5 cents for each dollar.
- Tobacco levies will continue to be remitted on a daily basis.
- The definition of auction floors has been amended to include contract farmers effective
from 1 February 2010.
- With effect from 1 January 2017, tobacco merchants are required to file returns on a
weekly basis instead of on a daily basis.

9.11 Chapter Round-up

- Farming includes pastoral, agricultural, growing of timber, growing of orchards and /
or vineyard and also the letting of a farm for farming purposes.
- Livestock can be divided into Stud (for breeding purposes) and ordinary livestock.
- There are three methods for valuing livestock namely: Purchase Price Value (PPV),
Fixed Standard Value (FSV) and Cost &Maintenance Value (CMV). CMV is the least
popular method.
- PPV is most suitable for stud livestock, while FSV is suitable for ordinary livestock.
- Livestock which has been consumed, donated or disposed of other than by way of
sale by the farmer is taxed in the hands of the farmer.
- Taxable income arising from enforced sale of livestock due to drought or epidemic
disease is spread over three years, upon election by the farmer.
- An allowance known as restocking allowance calculated as 50% of the purchase cost
of livestock meant to restock herd following enforced sales is available to farmers.
The allowance applies to animals so purchased to the extent that the number of
livestock after purchase will not exceed the Assessed Carrying Capacity of Land
(ACCL)
- The Seventh Schedule to the ITA stipulates certain capital expenditure which stands
for a 100% deduction in the year incurred.
- Timber growers are allowed 5% of the cost of planting which is added to the cost of
planting yearly till the maturity of the timber.
- Tobacco levy is a form of withholding tax levied on buyers of tobacco which has been
sold on an Auction Floor.
-

9.12 Practice questions

Section A: Multiple choice questions

1. Which of the following methods are most appropriate for the following groups of animals:
Stud livestock Ordinary livestock
A Purchase Price Value Fixed Standard Value
B Fixed Standard Value Cost Maintenance Value
C Purchase Price Value Fixed Standard Value
D Cost Maintenance Value Fixed Standard Value

A Guide to Zimbabwe Taxation 145

2. Anderson is a farmer in Chegutu area; during the year ended 31 December 2017 he
received 100 cattle under the will of his late uncle and immediately incorporated the
animals into his business. At what value are the animals accounted for:

A Market value
B Fixed Standard Value
C Fair value
D Value for estate duty purpose

3. Mrs Anesu recently purchased 700 sheep for $28 000 in order to replenish a herd of
sheep she was forced to sale due to epidemic disease last year. The number of sheep
immediately before the purchase was 2400 and the carrying capacity of land is assessed
at 3000. What is restocking allowance?

A $14000
B $12000
C $28000
D $24000

4. Which of the following expenditure is not a special allowance of paragraph 2, seventh

schedule of the Income Tax Act?

A Permanent farm roads

B Sinking of boreholes
C Dam construction
D Fencing

5. Which of the following is not gross income to a farmer?

A Livestock rationed
B Opening stock of livestock
C Donated livestock
D Stock attached by order of court.

Section B: Structured Questions

Question 1

a) Using the relevant sections of the ITA, explain the treatment and valuation of the
following:
i. Inherited livestock
ii. Donated livestock
iii. Livestock consumed by the farmer [6 marks]
b) What fiscal incentives are available to farmers? [ 4 marks]

Question 2

146 A Guide to Zimbabwe Taxation

Mr Dawson inherited a farm from his uncle in Marondera area on 1 January 2017. The
following were assets and livestock inherited by him at the valuation for estate duty
purposes:

1. Livestock
Herd $
10 Heifers 4 000
20 Bulls 16 000
40 Calves 10 000
100 Cows 60 000
200 Oxen 120 000
370 210 000

Assets
Land $200 000
Dams $180 000
Farm improvement $120 000
Farm shed $ 25 000
Irrigation equipment $ 30 000
Fencing $10 000

2. The following stock movements occurred on the farm during the year ended 31
December 2017.
2 Tollies and 3 bulls were stolen by cattle rustles
16 calves were born.
40 oxen were sold to Marondera abattoirs for $40 000
8 Heifers became cows.
15 calves became Tollies.

3 The following information relates to his farming operations:

Income
Notes $
Livestock sales 1 40 000
Sale of soya beans 400 000
Sale of tobacco 60 000
Profit from sale of irrigation equipment 2 4000
Subsidy on building a dam 4 500

Expenditure
Cost of building a dam 50 000
Interest on loan acquired to build a dam 1200
Salaries and wages 38 500
Dipping chemicals 4 000
Livestock feed 8 000
Construction of permanent road 20 000
Combine harvester 15 000
Sinking of boreholes 5 000

A Guide to Zimbabwe Taxation 147

Other tax deductible farm expenses 4 200

Notes

1. During the year the Ministry of Mines and Mining Development listed part of the farm for
mining activities. Mr Dawson had to sale part his livestock so as to cope with a reduced
carrying capacity of the land.

2. The irrigation equipment had a book value of 14 000 and an ITV of 10 500.

3. The Commissioner General approved the following values for different classes of
livestock:

Livestock Bulls Oxen Cows Heifers Tollies Calves

FSV ($) 500 450 350 300 250 80

Required

a) Prepare a livestock reconciliation to determine the value of livestock at 31 December

2017.

b) Calculate Mr Dawson‘s minimum tax liability for the year ended 31 December 2017.

148 A Guide to Zimbabwe Taxation

 10

MINERS

Chapter outline

10.1 Introduction
10.2 Gross income for miners
10.3 Capital expenditure
10.4 Life of a mine
10.5 Capital Redemption Allowance
10.6 Methods of calculating Capital Redemption Allowance
10.7 Renewal or replacement of buildings
10.8 Change of ownership of a mine
10.9 Other deduction allowable to miners
10.10 Royalties payable
10.11 Assessed losses
10.12 Depletion fees
10.13 Restriction available to miners
10.14 Chapter Round-up
10.15 Practice questions

10.1 Introduction
A miner is taxed in the same way as any other business entity. However, a miner differs from
other traders on claiming capital allowances. In the case of Miners, a single allowance
known as Capital Redemption Allowance replaces other allowances such as: S.I.A, W& T,
lease premium, lease improvements and preproduction expenses. Another difference arises
from the treatment of assessed losses. Miners are eligible to carry over assessed losses
indefinitely.

Section 2, of the Act defines mining as:

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 in conjunction with operations referred to in
paragraph by the person carrying on those operations; and
c) Such 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
Commissioner may determine to be mining operations for the purposes of this Act;.

10.2 Gross income specifically for miners

10.2.1 Recoupment
Miners are taxed on recoupment from capital expenditure suffered by them to the tune of the
amount realised on sale of an asset. In other words, recoupment is not restricted to capital
allowances previously granted on an asset as is the case of other business.

A Guide to Zimbabwe Taxation 149

However, the full ‗recoupment rule‘ does not apply in the following circumstances:
a) The sale of an asset which has been subject of a replacement;
b) The recovery (usually by way of insurance proceeds) in respect of damage to or
destruction of an asset.
c) Where an asset which has been sold has been subject to restriction of its cost, the
Commissioner will accept the apportionment of proceeds for recoupment purposes.

10.3 Capital expenditure

An important concept in mining is that of Capital Redemption Allowance referred to in the

above paragraph. Understanding what constitute capital expenditure is crucial in the
computation of capital redemption allowance.

Capital expenditure for mining purposes is expenditure incurred on:

a) Acquisition or construction of buildings, works or equipment, motor vehicles etc. used

for mining purposes;
b) Includes any premium or consideration in the nature of a premium paid for the use of
buildings, works, equipment or land;
c) Shaft sinking;
d) Preproduction expenses or expenses incurred in the period of non-production on
preliminary surveys, bore-holes, development, general administration and
management, including any interest payable on loans utilized for mining purposes;
e) Permanent building used for the purpose of a school or a hospital.

A school qualifies as a mine school if it can be proved to the satisfaction of the

Commissioner that at least 50% of the students‘ enrolled at such school are children of the
parents working at the mine. On the same token, a hospital, nursing home or clinic qualifies
for capital expenditure if at least 50% of persons receiving treatments are workers at the
mine.

The following are the restrictions placed on assets included in the definition of capital
expenditure.

Asset Restricted to (US $)

Staff housing for directors or used by a person who controls 10 000
the company, in case of a mine owned by not more than four
individuals.
Passenger motor vehicle 10 000
Staff housing for people employed at school, hospital, nursing 50 000
home or clinic.
Hospital, school, nursing home or clinic. 50 000

10.4 Life of a mine

The estimate of a life of a mine is provided as follows:

150 A Guide to Zimbabwe Taxation

- Zinc or lead mine, ten years;
- Iron mine, 5 years; and
- Any other mine, 20 years.

10.5 Capital Redemption Allowance

Capital Redemption Allowance is an allowance for capital expenditure as defined earlier,
incurred by a miner. The allowance replaces capital allowances as defined under 4th
schedule, lease premium, lease improvements and preproduction expenses.

Capital expenditure incurred in a particular year is commonly referred to as Current Capital

Expenditure (CCE) for that year. The balance that remains after the capital expenditure has
been applied in the computation of Capital Redemption Allowance is referred to as
Unredeemed Balance of Capital Expenditure, (UBCE).

Pre-production expenditure or expenditure incurred in the period of non-production (both

revenue and capital expenditure, (e.g. on shaft sinking, administration cost, etc.) forms the
Unredeemed Balance of Capital Expenditure when production commences.

10.6 Alternative methods for Capital Redemption Allowance

10.6.1 New mine basis (Para. 4(4) & 4(8) , 5th Schedule)
A new mine is defined as any mine that commences operations after the beginning of year of
assessment including a mine that had been previously in production and had closed down
and had subsequently reopened and commenced operations.

A miner who conducts operations in a new mine may elect to deduct, in the year of
assessment in which production commences, both the current capital expenditure and
unredeemed balance of capital expenditure.

The allowance is calculated as follows:

UBCE xxx
Less: Recoupment (xxx)
Add: CCE xxx
CRA xxx

Where, UBCE stands for Unredeemed Balance of Capital Expenditure

CCE stands for Current Capital Expenditure, and
CRA stands for Capital Redemption Allowance

CRA= UBCE – Recoupment + CCE.

A Guide to Zimbabwe Taxation 151

10.6.2 Life of a mine basis (para.2, 5th Schedule)
Under this method a miner is required to submit annually a statement giving an estimate of
the life of a mine based on the estimates of ore reserves supported by calculations showing
how the estimates where arrived at. When separate and distinct mining operations are
carried on in mines that are not contiguous, the Capital Redemption allowance shall be
computed separately according to the approved estimated life of each such mine.

The allowance is calculated as following:

CRA = UBCE- RE +CCE

LOM

Where, CRA stands for Capital Redemption Allowance;

UBCE stands for Unredeemed Balance of Capital Expenditure;
CCE stands for Current Capital Expenditure
RE stands for recoupment of capital expenditure
LOM stands for Life of Mine.

Example

Chrome Processors P/L is chrome mine located in Zvishavane area. For 2017 tax year it had
the following details:

Unredeemed balance of capital expenditure $210 000

Capital expenditure incurred during the year $70 000

A grader sold during the year 15 000

Calculate Capital redemption allowance based on life of a mine.

Solution

Capital redemption allowance = 210 000 -15 000 + 70 000

20 years
= $13 250

10.6.3 Mixed basis (Para. 4(2) and 4(3), 5th Schedule)

Under the paragraphs referred above, Capital Redemption Allowance is calculated by
applying the concept both of the first two methods. Under this method, the miner is required
to furnish the Commissioner with an estimate of the life of mine

The allowance is calculated as follows:

CRA = UBCE- RE + CCE

LOM

152 A Guide to Zimbabwe Taxation

Where, CRA stands for Capital Redemption Allowance;
UBCE stands for Unredeemed Balance of Capital Expenditure;
CCE stands for Current Capital Expenditure
RE stands for recoupment of capital expenditure
LOM stands for Life of Mine.

Example
Assuming the same details as in previous example, calculate Capital Redemption
Allowance.

Solution

CRA = 210 000- 15 000 + 70 0000

20 Years

= 9750 + 70 000

= $79 750

10.7 Renewal or replacement of buildings (para.6 of 5th Schedule)

A taxpayer carrying on mining operation is allowed, upon election (the election of which shall
be binding) to deduct expenditure incurred during the year of assessment on renewal or
replacement of buildings, works or equipment to a maximum of US $10 000. In the case of a
mine owned, tributed or leased by a company under the control of not more than four
individuals, renewal or replacement expenditure is limited to US $1 500.

10.8 Change of ownership of a mine

Where a person carrying on mining operations, transfers the ownership of a mine to another,
both the transferor and the transferee shall furnish the Commissioner with a joint statement
as to the proportion of the consideration paid, pertaining to the assets ranking for deduction.
If no consideration is paid, the statement should show the value given for each asset ranking
for deduction.

If the Commissioner is satisfied, he shall allow the value declared as capital redemption in
the hands of the transferee or and the value as recoupment in the hands of the transferor. If
the Commissioner is not satisfied with the statement, he shall determine the value of assets
transferred for the purpose of calculation of Capital Redemption Allowance and recoupment
in the hands of transferee and transferor respectively.

10.8.1 Reconstruction, mergers, etc.

Where ownership of a mine is transferred from one company to another in the course of
furtherance of a scheme of reconstruction of a group of companies or a merger, the Act
permits, upon election by both the transferor and transferee, that the assets be transferred at
their ‗tax value‘, regardless of the actual consideration. The effect is that there will be no
recoupment in the hands of the transferor in respect of the assets transferred, where the
transferor company had already claimed CRA in full. Recoupment will only arise if the
transferee company dispose of the assets outside the group.

A Guide to Zimbabwe Taxation 153

10.8.2 Transfer between spouses
If ownership of a mine is transferred from a husband to his wife, or vice versa, an election
similar to that discussed in the above paragraph is available. The effect is that no
recoupment is suffered by the transferor, but is postponed until such a time the transferee
sells the assets to someone else.

10.9 Other deductions allowable to miners

To be allowed as a deduction with respect to mining operations is expenditure on surveys,
boreholes, trenches, pits 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, together with any other expenditure (other than capital expenditure which
qualifies for Capital Redemption Allowance,)

The taxpayer may elect (the election of which becomes binding) that the expenditure be
allowed in the year of assessment or be carried forward to subsequent years against future
income from mining operations.

10.10 Mining royalties

A mining royalty is levied on the fair market value of the mineral, that is to say the price
expected to be fetched from the market. With effect from 1 January 2017, royalties paid
during the year of assessment will no longer be tax deductible.

The exporter of minerals (in most cases, the Minerals Marketing Corporation) is responsible
for collecting the royalty and remitting to Zimra. The due date for remittance is the 10th day of
the month following the month in which the proceeds from which the royalties were deducted
are received. Royalties not remitted timeously attracts an interest.

For rates of royalties, see paragraph 2.9 on chapter 2.

10.11 Assessed losses

Miners are allowed indefinite carry-over of assessed losses to future years where there may
be taxable income.

10.12 Depletion Fees

A depletion fee at a rate of between 2.5% to 5% on the ―gross value of the proceeds of the
sale of any minerals‖ will now be payable to the Consolidated Revenue Fund with effect from
1 January 2017.

Gross value of the proceeds of the sale of minerals‖ means the full value of such proceeds
before any deduction by the MMCZ, including any deduction that the MMCZ would have
been entitled to make.

10.13 Restrictions to miners

10.13.1 Thin Capitalisation (Sect. 16(1)(q)

Expenditure incurred by a local branch or subsidiary of a foreign company or by a local
company or its subsidiary in servicing debt contracted in connection with the production of

154 A Guide to Zimbabwe Taxation

income is disallowed to the extent that the debt causes the person to exceed a debt to equity
ratio of 3:1. The excess is deemed to be a dividend subject to withholding tax.

Example
Gregory Zimbabwe Ltd is a mining company operating from Kadoma area, with its head
office located in Brussels, Belgium. During the current year the Zimbabwean subsidiary
received a loan of $ 300 000 at 10% interest per annum. Gregory Zimbabwe showed the
following details in its statement of financial position.

50 000 $1 ordinary shares 50 000

Retained profit 30 000

Calculate the interest deduction to be allowed to Gregory Zimbabwe.

Solution

Equity (50 000 + 30 000) $ 80 000

Qualifying debt is thus 80 000* 3 $240 000

Allowable interest 10% * 240 000 $24 000

Note # a withholding tax is levied on (10 %*( 300 000 -240 000) $ 6 000, that is interest on
excess loan which is deemed to be a dividend.

10.13.2 General administration and management fees

a) To be prohibited as a deduction is general administration and management fees paid

by a local branch or subsidiary of a foreign company engaged in mining operations.
The restriction is in respect of expenditure incurred prior to the commencement of
trade or the production of income or during any period of non-production, as share of
head office expenses. The excess of 0.75% of the amount determined by the
following formula is disregarded:

A-(B + C)

Where,

A - Represents the total expenditure that qualifies for deduction.

A Guide to Zimbabwe Taxation 155

 B- Represents the expenditure on general administration and management paid
outside Zimbabwe by such local branch or subsidiary, whether or not such
expenditure was incurred by the head office of that foreign company.

C- Capital Redemption Allowance qualifying for a deduction.

b) In the case of such expenditure as incurred after commencement of production to the

extent that it exceeds 1% of the above formula, is prohibited.

10.13.3 Ring fencing

Where a miner operates his business from two different mining locations, each mine is
assessed separately. No deductions in respect of one mine location are claimable to
another, this can only be done if the Commissioner is satisfied that the mining operations
conducted on the mining locations are inseparable or substantially interdependent.

10.14 Duty to furnish further information (Sect 39(2a & 2b))

With effect from 1 January 2017 a new section 39 (2a) is introduced which provides for
persons deriving income from mining operations to furnish returns for details of all
expenditure incurred in connection with mining operations regardless of whether or not
the operations are conducted under a mining lease.

With effect from 1 January 2017 persons involved in mining operations shall provide
details of debts contracted in respect of mining operations including debt to equity ratio in
connection with mining operations.

A local branch or subsidiary of a foreign company or a local company or subsidiary of a

local company involved in mining operations is with effect from 1 January 2017 required
to furnish details of expenditure incurred in servicing any debts incurred in respect of
mining operations. Details of other expenditure including dividends and profits shall be
furnished to the Commissioner.

A new section 39(2b) is further introduced and provides for the Commissioner to avail
information to the Minister or the Governor of the Reserve Bank regarding compliance by
taxpayers with mining regulations and foreign exchange regulations governing mining
operations.

With effect from 1 January 2017 penalties and fines are extended to cover persons
involved in mining operations who fail to disclose information as provided above.

10.14 Chapter round-up

- A distinctive concept in mining is that of an allowance known as Capital Redemption
Allowance. This allowance replaces other allowances like S.I.A, W& T, lease premium,
lease improvements and preproduction expenses.
- Miners are allowed a 100% deduction of capital expenditure through the Capital
Redemption Allowance. It is imperative to understand what constitute capital expenditure
in mining before an attempt is made of computing the Capital Redemption Allowance.
- Capital expenditure is expenditure on:

156 A Guide to Zimbabwe Taxation

  Acquisition , construction or addition to fixed assets for mining
purposes
 Shaft sinking
 Preproduction expenses
 Leasing cost on equipment or works used for mining purposes
 Mine school, hospital, nursing home or clinic
- Capital Redemption Allowance can be claimed using any one of these three methods:
New mine basis, Life of a mine and Mixed basis.
- Recoupment for mining purposes is taken as the proceeds realised when an asset is
disposed. An exception to this general rule is where asset was subject to replacement or
renewal expenditure; or where an asset‘s proceeds are by way of insurance proceeds
and finally where an asset‘s cost was subject to restriction, the sales proceeds will be
proportioned.
- Assessed losses in mining are carried over indefinitely.
- Ring fencing is an anti- avoidance concept where set –off of deductions of one mine
location against income of another mine location is prohibited unless the operations of
the mining locations are indistinct in nature or inseparable.
- Borrowing cost of a mine operation in Zimbabwe in respect of a loan secured from a
parent company situated outside Zimbabwe is limited to a debt which does not exceed a
debt to equity of 3:1
- Miners are taxed at a rate of 25% of their net income. Holders of a special mining lease
are taxed at 15%. Beginning 1 January 2017 AIDS LEVY on mining income is now
applicable.

10.15 Practice questions

Section A: Multiple choice questions

1. Which of the following is NOT capital expenditure for mining purposes?

i. Shaft sinking
ii. Acquisition or construction of buildings, works etc.
iii. Mine school
iv. Preliminary surveys

A (i) only
B (ii) only
C (iv) only
D None

2. Mi Xhing Mining Company incurred the following expenditure:

- Purchase of five passenger motor vehicles $124 000
- Construction of a mine school $104 000
- Three housing units for the teachers $210 000
- Renewal and replacement of equipment $15 000

What is the total amount qualifying for capital expenditure for the calculation of
Capital Redemption Allowance.

A Guide to Zimbabwe Taxation 157

 A $260 000
B $315 000
C $453 000
D $185 000

3. Miami mining company is a Zimbabwean subsidiary of Miami Holdings Singapore. At

the beginning of the year 2017, the company obtained a loan of $1 200 000 at 15%
interest per annum from its head office. Its equity at the beginning of the year is
$380 000. What is the amount of deductible interest
to Miami mining company for the 2017 tax year?

A $57 000
B $180 000
C $123 000
D $171 000

4. The following details is given for a diamond mining company :

Unredeemed balance of capital expenditure $156 000

Current capital expenditure $224 000
Recoupment $46 000

What is the amount for Capital redemption allowance calculated on mixed basis?

A $334 000
B $16 700
C $229 500
D $19 000

Section B: Structured questions

Questions 1
a) Explain how the treatment of assessed losses and recoupment of mining concern
differs from other taxpayers. [4 marks]
b) What is ring fencing and thin capitalisation in respect of taxation of mining
companies? [4 marks]
c) What specific fiscal incentives are available to miners.[2 marks]
d) At what rate of tax are special mining leases levied [2 marks]

Question 2
Zhang Zhi is a platinum mining company operating in Lower Gweru. The company is
owned by 3 three directors, one of which, Mr Zhuwei is based in Zimbabwe with full time
responsibility with the company. The other directors are based in China. The company
showed the following details for the year ended 31 December 2017.

158 A Guide to Zimbabwe Taxation

 Note $

Income
Sales of platinum ore 2 436 000
Sale of mining claims 200 000
Profit from sale of front-end loader 1 15 300
Interest from Tetrad Investment Bank 10 000

Expenses

Management and administration expenses 450 000

Interest payable to parent company 2 150 000

Depreciation 120 000

Lease expenses 6 10 000

Management fees payable to a parent company 2 24 000

Crushing of platinum ore 134 000

Renewal and replacement 14 000

Net profit 1 904 300

Additional information

1. Zhang Zhii (Pvt) Ltd sold a front-end loader on 1 October 2017, the truck had a book
value of $14 700.
2. Zhang Zhii (Pvt) Ltd is a subsidiary of Zhang Zhii Mining China and the Zimbabwean
mining company borrowed an amount of $1500 000 at 10% interest per annum at the
beginning of the year. The loan was meant to expand the mine operations, Zhang Zhii
Zimbabwe also paid $24 000 to the parent company for expertise hired for sinking of
mine shaft.
3. At 31 December 2017 , the company had the following balance sheet extract;
Issued share capital 120 000
Retained profit 60 000
Loan from Zhang Zhii China 1500 000

4. The company incurred the following capital expenditure during the year ended 31
December 2017.

Clinic built 80 000

Mine equipment 20 000
House of mine nurse 50 000
House of a director 24 000
Mercedes Benz 26 000
30 tonnes haulage truck 60 000

A Guide to Zimbabwe Taxation 159

 Prospecting expenses 13 000
5. The unredeemed balance of capital expenditure at the beginning of the year was $600
000 and the life of the mine was agreed to be 8 year at 1 January 2017. The company
had elected to claim capital redemption allowance on a life of mine basis.
6. The company signed a lease agreement with JK Mining Solutions for the use of a
Crimping machine, the company paid a lump sum amount of $10 000 and rentals of $1
500 per month payable in arrears beginning April 2017. Only the lump sum was included
in the accounts.

Required

a) Calculate Capital redemption allowance for the year ended 31 December 2017. [5 marks]

b) Calculate the taxable income of Zhang Zhii for the year ended 31 December 2017. [15
marks]

160 A Guide to Zimbabwe Taxation

 11

LEASING

Chapter outline

11.1 Introduction
11.2 Types of leases
11.3 Lease Premium
11.4 Lease improvements
11.5 Passenger Motor Vehicle
11.6 Capital Allowances
11.7 Recoupments in leasing
11.8 Chapter Round-up
11.9 Practice Questions

11.1 Introduction
A lease is a contract in which a person (lessor) grants the use, or right of use of property to
another person (lessee) for a consideration in the form of rentals. Usually the requirement is
that the lessee pays a deposit on inception of the lease known as lease premium and
thereafter he should pay monthly rentals. Leasing arrangements cover many types of
property such as motor vehicles, office equipment, aeroplanes, buildings and toll roads.

11.2 Types of leases

There are two forms of leases namely;
- Finance lease, and
- Operating lease.

11.2.1 Finance lease

A Finance lease is a lease agreement that transfer all the risks and rewards incidental to
ownership of an asset to the lessee. The following features are prevalent in a Finance
Lease:
- The lessee has usually a purchase option at the end of the lease;
- The lease period is at least 75% of the asset‘s useful life.
- The leased asset is of a specialised nature such that only the lessee can use it
without major modification being made.
- The lease period is usually for a considerable period.

11.2.2 Operating lease

An operating lease is best defined as a lease which is not a finance lease.

The distinction between finance and operating lease is not very important for tax purposes;
however the following points are worth noting:

A Guide to Zimbabwe Taxation 161

 - Under both finance and operating lease the lessee is allowed a deduction of lease
payments (rentals) made.
- The lessor is taxable on the lease rentals and other forms of consideration payable to
him by the lessee.
- The lessee does not qualify for capital allowances, since he does not own the asset.
- The deduction of lease rentals for passenger motor vehicle is restricted to US$10
000.

11.3 Lease premium

A lease premium is a consideration payable by a lessee, usually at the inception of the
lease, over and above the rentals as a once off payment. A premium is paid for the right of
use of someone‘s asset (movable or immovable), patent, trademark, copyright, secret
formula or the imparting of knowledge directly or indirectly connected with the use of assets
under lease.

11.3.1 Treatment in the hands of lessor

Lease premium is gross income in the hands of the lessor and is taxed in full in the year of
receipt or accrual.

Example 1
P Ltd entered into a lease agreement with Finance Solutions Ltd for the lease of a factory
building. Under the lease agreement P Ltd was required to pay a once-off payment of $2 400
at the inception of the lease on 1 March 2017. Show the tax effect on Finance Solutions Ltd
for the year ended 31 December 2017.

Solution
The whole amount of $2 400 is gross income in the hands of Finance Solutions Ltd and
therefore taxed in full in 2017.

11.3.2 Treatment in the hands of lessee

Lease premium is spread over the lease period or 10 years, whichever is lesser. If there is
no period stated in the lease, the premium is spread over ten years.

If lease premium is paid in respect of the use of an asset, which is used for both private and
business use, the Commissioner only accepts the proportion equivalent to business use.

Example

Assuming the same facts as in example 1 above, show the tax effect on P Ltd for the year
ended 31 December 2017.

Solution

#Note# Lease period is not stated so it is deemed to be 10 years.

$ 2 400 * 10 months
120 months

162 A Guide to Zimbabwe Taxation

 =$200

11.4 Lease improvements

Usually a lease contract includes an arrangement where a lessee agrees to build or
construct an immovable asset or building. The business of the lessee may necessitate him
to put up a structure or effect some modification to existing buildings. Such a structure is
called lease improvements. The lease improvement is gross income to the lessor and an
allowable deduction in the hands of the lessee.

11.4.1 Treatment in the hands of the lessor

The lessor is taxed on the value of improvements as per agreement but is spread over the
lease period or 10 years whichever is shorter, commencing on the date the improvements
were completed.

The following special points apply:

- If no amount is stipulated in the agreement, the improvement is valued to an amount

which the Commissioner deems to be the fair and reasonable value.
- The lease improvement is spread over the shorter of unexpired lease period or 10
years. Unexpired lease period is the lease period less the period of construction.
- Where the lease period is varied prior to completion, the period for such agreement
shall be deemed to be the initial period.
- Where the agreement is silent on the lease period use 10 years.
- Where the value of improvements is varied prior to completion of the building, the
actual amended value qualifies.
- If an agreement states a minimum value of the improvements, its value shall be the
higher of the minimum value stated and the actual cost incurred.
- Where the value of improvements is varied after completion of the building, only the
original value qualifies.
- If the lease requires the erection of a building to a stated minimum value, the amount
of benefit is the fair and reasonable value.

11.4.2 Treatment in hands of the lessee

The cost of lease improvement borne by the lessee is a business expense and an allowable
deduction to him. The cost actually incurred by the lessee is spread over the shorter of
unexpired lease period, and ten years. Unexpired lease period, to the lessee, is the lease
period less the period of construction and period between completion of the building and its
occupation for the purpose of trade.

The following special points apply:

- A lessee is allowed a deduction from the date the property is occupied for the
purpose of trade and production of income.
- A lessee is allowed a deduction on the value per agreement but this is spread over
the unexpired lease period or 10 years whichever is lesser.

A Guide to Zimbabwe Taxation 163

 - Where the value of improvement is not stated in the agreement the actual cost of the
improvements will be taken as a business expense in his hands. However, where the
value is stated, deduction should not exceed the value stated.
- Where no variation is effected to the agreement and the building costs are more than
the value per agreement, but it meets specifications or it is a specific building then
the actual cost of the building will be allowable, provided they amend the agreement.
If not the value per agreement is used.
- Where the agreement is silent on the lease period use 10 years.
- Where the value of improvements is varied prior to completion of the building, the
actual amended value qualifies.
- Where the value of improvements is varied after completion of the building, only the
original value qualifies.

11.5 Passenger Motor Vehicles

The cost incurred in respect of leasing a Passenger Motor Vehicle is restricted to US$10
000, beginning 2010 year of assessment.

11.6 Treatment of Capital Allowances under Lease agreements

Capital allowances (S.I.A or wear & tear) can be elected as an alternative to lease
improvement allowance on buildings or improvements erected by the lessee, as follows:

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

- The lessee can choose to claim SIA or wear & tear

- The lessor shall not be granted SIA or wear & tear until sometime as the property is
relent to some other tenant and rent is thus receivable for the building

2. Where the obligation is in terms of the lease

- The lessee can claim wear & tear or SIA if elected as an alternative lease
improvements allowances
- Lessor Wear and Tear only because to the lessee improvements were not
constructed by him.

3. Where the obligation is in terms of the lease and the cost exceeded the stipulated
amount:

- Lessee can claim SIA or wear & tear on the whole or stipulated part is an alternative
to lease improvement allowances or on the excess if the lease improvement
allowances has been claimed.
- Lessor can claim wear & tear on the stipulated amount and only on excess when the
property is

164 A Guide to Zimbabwe Taxation

11.7 Recoupment in leasing Sect 8(1)(l)
Where a lessee subsequently acquires property he has previously held under a lease, the
payments made by him under the contract such as, lease premium, rentals and the cost of
improvements, as may be used to reduce the purchase price is deemed to be recoupment.

Such amounts which the lessee has claimed as a deduction, which may be used to reduce
the purchase price of property on subsequent acquisition shall be included in gross income
in the year the property is acquired. The lessee may however, elect to spread the
recoupment over six years.

If the lessee disposes of the property before including all the instalments, the balance of
instalments still outstanding should be claimed in full in the year the asset is disposed.

11.8 Chapter Round-up

- There are two types of leases which are finance lease and operation lease. A lease is a
finance lease if the risk and rewards incidental to ownership is transferred to the lessee
together with the asset. An operating lease is a lease which is not a finance lease. The
distinction between the two leases is however not important for tax purposes.
- A lease period is deemed to be 10 years if the lease agreement does not state the lease
period or if the lease period agreed exceeds 10 years.
- A lease premium is gross income in the hands of the lessor and is thus taxed in full in the
year of receipt or accrual. A lease premium is however a deduction to the lessee and is
spread over the lease period or 10 years whichever is less.
- A lease improvement is gross income to the lessor and is spread over the unexpired
lease period or ten years whichever is less. The unexpired lease period for the lessor is
the lease period less the period of construction.
- Lease improvement is an allowable deduction in the hands of the lessee and is spread
over the unexpired lease period or 10 years whichever is less. The unexpired lease
period, for the lessee, is the lease period less the period of construction and the period of
non-use before occupation by the lessee.
- The following special points apply in respect of lease improvements:
 If no amount is stipulated in the agreement, the improvement is valued to an
amount which the Commissioner deems to be the fair and reasonable value.
 Where the lease period may be varied prior to completion, the period for such
agreement shall be deemed to be the initial period.
 Where the agreement is silent on the lease period use 10 years.
 Where the value of improvements is varied prior to completion of the building, the
actual amended value qualifies.
 Where the value of improvements is varied after completion of the building, only
the original value qualifies.
 If the lease requires the erection of a building to a stated minimum value, the
amount of benefit is the fair and reasonable value.
- Where a lessee subsequently acquired the asset he has been leasing, and the lessor
allows the amounts paid by the lessee such as lease rentals, lease premium or lease
improvements to reduce the price of the asset. Such amounts, as are allowed to

A Guide to Zimbabwe Taxation 165

 reduce the consideration to be paid for the asset, are recoupment in the hands of the
lessee. Where the lessee elects, such recoupment is spread over six years.

11.9 Practice questions

Section A: Multiple Choice questions

1. George Matani entered into a lease agreement to rent a commercial property for a period
of 12 years. The lease period could be renewed for another 5 years. George Matani is
required to erect a building which is expected to take 1.5 years to complete.

What is the lease period to which the cost of improvement will be spread?

A 10.5 years
B 10 years
C 12 years
D 8.5 years

2. Sepe Ltd entered into a lease agreement with Bob Ltd in which the company is required
to pay a deposit of $10 000 at the commencement of the lease term on 1 January 2017.
Additionally Sepe Ltd started construction immediately and completed after 6 months for
a total cost of $200 000. The building was approved by the landlord. What are the
mounts deductible against Sepe Ltd‘s income for 2017?

Lease premium $ Lease improvement $

A 1000 10 526
B 833 16 667
C 1000 11 500
D 10 000 16 667

3. Using information in question 2. What are the amounts taxable in Bob Ltd books for 2017
tax year?

Lease premium $ Lease improvement $

A 1000 10 000
B 10 000 10 526
C 833 10 000
D 10000 8 696

Question 4 & 5
Munashe P/L entered into a lease agreement at the beginning of 2017 to rent a commercial
property with the City of Harare. The agreement was as follows:

Lease term 5 years (could be amended to 10 years)

Lease premium $30 000
Lease rentals (annual) $80 000

166 A Guide to Zimbabwe Taxation

Munashe P/L sublet part of the property to tenants for $4 000 per month beginning
September 2017. Munashe P/L generated total income of $100 000 excluding rentals from
tenants.

4. What is the total amount deductible to Munashe in respect of the lease agreement?
A $110 000
B $82 500
C $12 500
D $86 000

5. What is the total taxable income of Munashe P/L?

A $4 000
B $16 000
C $30 000
D $103 500

Section B: Structured questions

Question 1

Nyasha P/L is a duly incorporated company in Zimbabwe specialising in car rentals and
safaris. On 1 January 2017, the company entered into a lease agreement with Properties Ltd
for a property situated in Harare CBD. In terms of the lease agreement signed, the following
terms were to be implemented by Nyasha P/L:

1. Lump sum payment of $30 000 was payable upon signing the lease agreement.

2. Rentals of $1500 were payable in advance starting 1 January 2017.

3. Nyasha P/L was requested to erect a building to the value of $200 000 to specified
plan.

After six month Nyasha P/L completed the building at a cost of $180 000. The building was
approved by the lessor to have met the agreed specification, but an expert advised that the
building was worth $220 000. Nyasha P/L however, occupied the building on 1 September
2017 .

Required

a) Show the amounts that are deductible in the hands of Nyasha P/L in respect of the lease
agreement. [10]

b) Show the amounts that are taxable in the hands of Properties Ltd [8]

c) Assuming that Properties Ltd agree to sell the property being leased to Nyasha P/L on 31
December 2017 for a consideration of $230 000 and that 60% the total expenditure incurred
by Nyasha Ltd with respect to the lease, will be offset part of the consideration.

i. Explain the tax implication of that arrangement on both parties to the lease. [4]
ii. Compute the figure for recoupment ,if any, to be taxed in the hands Nyasha P/L [6]

A Guide to Zimbabwe Taxation 167

Question 2 (ACCA adapt)

Z Limited owns a plot of undeveloped commercial land in Harare on which it intends to

construct an industrial building. Due to cash flow constraints, Z Limited entered into a 20-
year lease agreement with Evergreen Panel Beaters (Private) Limited (EPB) for the
development of the commercial land. The terms of the lease agreement are as follows:

(1) EPB to construct an industrial building and a security wall on the commercial land at a
cost of not less than US$150 000 for the building and US$50 000 for the wall.

(2) EPB to make use of the property for the duration of the lease agreement subject to
payment of a monthly rent of US$8 000 and a one-off premium of US$60 000.

(3) The lease agreement was signed on 1 January 2017, on which date the rent and
premium were also duly paid. The construction of the building and the security wall
commenced soon after the signing of the lease agreement. The agreed construction period
was three months.

(4) The industrial building and the security wall were constructed within the agreed cost and
timeframe and brought into use by EPB on 1 May 2017.

EPB obtained a loan of US$100 000 on 1 February 2017 from a bank in order to be able to
complete the construction of the industrial building and the security wall. The interest rate on
the loan is 20% per annum.

EPB paid a total of US$28 000 in provisional tax for the year ended 31 December 2017. The
accountant had calculated the taxable income for the year ended 31 December 2017 at
US$280 000 without taking into account the lease agreement provisions and the bank loan.

Required:

(a) Calculate the adjusted taxable income and tax payable by Evergreen Panel Beaters
(Private) Limited for the year ended 31 December 2017.

Note: You should indicate by the use of zero (0) any amounts for which no adjustment is
required. (8 marks)

(b) Calculate the amounts to be included in the gross income of Z Limited in connection with
the lease agreement for the year ended 31 December 2017. (2 marks)

168 A Guide to Zimbabwe Taxation

 12

DECEASED ESTATES AND TRUSTS

Chapter outline

12.1 Introduction
12.2 Deceased estates – Business & Investment income
12.3 Deceased estates – Employment income
12.4 Trusts in general
12.5 Identity of trust income
12.6 Residence of trusts
12.7 Chapter Round-up
12.8 Practice questions

12.1 Introduction

Section 2 of the ITA defines a deceased estate as a person (legal persona) and as such
constitutes a taxpayer. When a person dies, another person comes into being – the estate of
‗Mr So and So‘. The death of a person does not end the obligation to be taxed; the taxman
would follow a person even under his or her grave. This is amazing display of ‗lack of morals‘
by the taxman.

A deceased estate commences its existences consisting of the property of the deceased
person, which is administered by an executor. The duty of the executor is to manage the
distribution of the assets of the estate to the heir. The executor would draw up a liquidation
account which has to be approved by the Master of High Court. Where the deceased had left
a will, the distribution to the heir will be easy. Estate duty is levied on the value of property of
the deceased (see chapter 16). Income derived from the assets of the estate is taxed under
the ITA; we are concerned with the taxability of income in this chapter.

The death of a person during a tax year will result in the creation of two tax periods: pre-
death period (from the beginning of the year of assessment to the date of death and the
post-death period (from the date of death to the tax year end).

An estate is deemed to be ordinarily resident in Zimbabwe if the deceased was ordinarily

resident in Zimbabwe at the time of death.

12.2 Deceased estates – Business and Investment Income

Income which had accrued prior to death is taxed in the hands of the person who had died.
Income which however accrues in the post death period has to be assigned to someone for
it to be taxed. The following principles are thus crucial in determining ‗in whose hands
income should be taxed‘:

a) Where a specific asset is left to a specific individual (ascertained beneficiary)

The ITA defines an ascertained beneficiary as:

A Guide to Zimbabwe Taxation 169

…a person named or identified in the will of the deceased person who by reason of the will,
acquires on the death of the deceased person an immediate certain right to claim the
present or future enjoyment of the income so received or accruing.

By virtue of the definition, an ascertained beneficiary will acquire a right to income

immediately after the death of the deceased person. As such, an ascertained beneficiary is
taxable on whatever income deriving from an asset bequeathed to him or her from the date
of death and onwards.

b) Residue income
Where assets have been distributed to an ascertained beneficiary, the remaining assets
which is not distributed forms a ‗residue‘, an income derived from such assets is taxed in the
hands of the deceased estate. ‗Residue‘ sometimes arise where there is no an ascertained
beneficiary, for instance a clause in the will saying; ‗…the residue of my estate to my wife‘. In
that circumstance the wife in question is not an ascertained beneficiary, as such income
deriving from the ‗residue assets‘ is taxed on the deceased estate. The wife will only be
taxable on income produced by such assets after their distribution to her. The same principle
applies when it is difficult to identify beneficiaries to the estate.

c) Where a will provides for the whole estate to go to a specific individual

The supposed beneficiary will only be taxed on income produced by the assets in the estate
form the date the estate is transferred to him or her. Any income arising in the period from
death to the date immediately before transfer of the estate is taxed in the hands of the
deceased person.

d) Usufruct arrangement
A usufruct is a variation to an ordinary will a beneficiary is given a right to income deriving
from an asset but not to inheritance of the asset itself. Thus for instance, a father may leave
a farm to his son but granting a life usufruct to the widow. The usufructuary is generally liable
immediately on the post-death income.

e) Income subject to a trust

Where the will provides that the estate shall be transferred to a trust, say for the benefit of
minor children, the transfer of which will be made on attaining majority age. The trust created
will be liable to tax immediately after the death of the deceased.

Example

Mr Masocha died on 4 March 2017, his will specifically bequeathed to his mother a sum of
$40 000 and to his son an industrial building in Msasa industrial area. The rest of the estate
was to be shared equally between the testator‘s son and daughter. The executer of the
estate distributed these to the son and the daughter on 1 August 2017. The executor‘s first
and final distribution account was confirmed by the Master on 1 December 2017. Show how
income which accrued in the post-death period will be assessed.

Solution

170 A Guide to Zimbabwe Taxation

- The son is taxable on rentals from the industrial building from 5 March 2017, being the
day after the death of Mr Masocha.
- The estate is taxable on income accruing in the period 5 March 2017 to 31 July 2017 .
- The son and daughter are taxable on any income accruing from assets transferred to
them from 1 August to 31 December 2017 (year-end).
- The estate is taxable on an income accruing from the assets in ‗residue‘ from 1 August to
31 December 2017.
- The mother incurs no tax liability on cash bequeathed to her.
- The son and daughter are taxable on income from any further assets transferred to them
from 1 December 2017 to 31 December 2017.

12.3 Deceased estates – Employment income

Where a deceased person who was in receipt of employment income dies during a tax year,
his or her income may be taxed in (a) pre-death period or (b) post death period and (c) may
not be taxed at all. The following principles are crucial:

- Any amount which accrues in the pre-death period is taxable in the assessment to date
of death. This includes salary earned, a bonus already voted, and contractual
commissions due at that stage.
- Amounts accruing after death and which are taxable in the assessment for the post-
death period are those to which the deceased had a right to, and which would have been
taxable in his hands had they accrued during his lifetime. These include leave pay under
a contract of employment, and contractual commissions falling due after date of death.
- Amounts accruing after death which are not taxable (in either period) are those to which
the deceased had no right, such as non-contractual leave pay, a bonus voted after death
and directors‘ fees as are not fixed in the company articles of association.

12.4 Trusts in general

In terms of section 2 of the ITA, a trust is a person, for tax purposes, only ‗in relation to
income to which no beneficiary is entitled‘. It thus means, a trust is not taxed on its own right,
it is seen as merely a conduit pipe. It will only be taxable where it has income which has not
been distributed to any beneficiary.

There are generally two types of trusts, namely testamentary and inter vivos trust. A
testamentary is a trust or estate that is generally created on the day a person dies. All
testamentary trusts are personal trusts. The terms of the trust are established by the will or
by court order in relation to the deceased individual's estate. It is also known as a will trust.

An inter vivos trust is a trust that is not a testamentary trust. If the assets are not distributed
to the beneficiaries according to the terms of the will, the testamentary trust may become an
inter vivos trust.

Trust income is taxable either in the hands of the beneficiary or the trust itself. The taxability
of income in the hands of a beneficiary depends on whether he has a vested right to income.

There are three types of vested rights namely:

A Guide to Zimbabwe Taxation 171

a) Clear vested right – this is where income has to be paid to a beneficiary and the trustee
having no discretion on the matter. Such income accrues to the beneficiary and by
nature, will be taxable in his hands.
b) Again a vested right - This is where a trustee, though having a discretion over the
amount to be distributed, any undistributed amount is nevertheless accumulated for the
beneficiary. The beneficiary is again, taxable on the income.
c) Delay in the vesting of right – this is where the beneficiary‘s enjoyment of the income is
entirely at the discretion of the trustee. In such circumstances, the trust is taxable on the
undistributed income and the beneficiary is taxable only on amounts distributed to him.

12.5 Identity of trust income

Trust income retains its identity in the hands of the beneficiary. This is known as the ‗conduit
pipe‘ principle. Annuities are however, an exception to this general rule. Annuities are
taxable regardless of whether any of the trust income from which they are paid is exempt.

12.6 Residence of trust

A trust is deemed to be ordinarily resident in Zimbabwe if:

- Part of the income is from a source in Zimbabwe or the trustee is ordinarily resident in
Zimbabwe; and
- The person who created the trust was ordinarily resident in Zimbabwe at the time he
made the trust instrument (i.e. the will or deed of donation).

Example

Mr Takudzwa, a Zimbabwean resident died on 31 March 2017 and was survived by his son
Tendai (13 years) and his wife. He had several investments in properties, shares and
debentures both in and outside Zimbabwe. The residue of his estate was left upon a trust.
The trust created in terms of the will provided that the trust‘ accumulated income and capital
was to be paid to his son when he attains the age of twenty-five years. Beven & Co. Legal
Practitioners were appointed as trustee. The trustee was to take 20% of the net income each
year as consideration of their service. An annuity of $1 000 per month was to be paid to his
widow until the estate is transferred to the son. The son was to receive each year, amounts
sufficient for his education and his maintenance.

The following is the trust account for the period 1April 2017 to 31 December 2017.

Income $
Zimbabwe dividends 16 000
Foreign dividends 10 000
Rentals from Zimbabwe properties 15 000
Debentures in Transvaal Meats (Botswana) 23 000

Expenses
Annuity to the Mrs Takudzwa 9 000
School fees for Tendai 6 000

172 A Guide to Zimbabwe Taxation

Maintenance of Tendai 4 000
Net income 45 000

Required

Show how income is assessed in the hands of each part concerned.

Solution
$
Trust net income 45 000
Less exempt income: Zimbabwe dividends 16 000
29 000
Add: proportion of deductions disallowable (16000/64000 *19 000) 4750
Taxable income of trust 24 250

Tendai is taxable on the distribution of maintenance and education of $10 000.

The widow is taxable on the annuity distributed to her.

Notes

The income of the son will be taxed in the hands of Mrs Takudzwa since he is a minor.

If the annuity can be identified with the income from which it is paid from, say interest, the
annuity will be taxable at 25.75 % (i.e. rate for interest, including Aids Levy).

12..7 Chapter round-up

- When a person dies, another person comes into existence, known as the deceased
estate.
- An ascertained beneficiary becomes taxable immediately after the death of the deceased
on whatever income deriving from the assets bequeathed to him.
- ‗Residue income‘ is taxed in the hands of the deceased estate.
- Amounts accruing in the post-death period will be taxed only if the deceased had a right
to the income had the income been paid before death.
- There are two types of trusts namely; Testamentary (Will trust) and Inter vivos trust.
- The income of a trust retains its identity when being taxed in the hands of the
beneficiary. A trust merely acts as a conduit pipe.
- A trust is only a person for tax purposes (and as such taxable) if it has income the
subject of which there is no beneficiary.

12..8 Practice questions

Question 1

a) Explain the two types of trusts. [2 marks]

b) What does it mean to have a vested right [ 2 marks]

A Guide to Zimbabwe Taxation 173

c) Define an ascertained beneficiary [2 marks]

Question 2

Mr Mangoro was a Chief Operating Officer of a manufacturing company Sunlight

Investments (Pvt) Ltd. Mr Mangoro died on 30 June 2017 and the residue of his estate was
left upon a Trust. The residue was ascertained on 31 October 2017. The trust assets
comprise of property and investments and the accounts showed the following income net
after deducting allowable expenses.

Income $

Zimbabwe company dividends 10 000

Foreign rentals 30 000

Zimbabwe interest 20 000
Foreign interest 15 000

Additional information:-

1) Mr Mangoro was ordinarily resident in Zimbabwe and his will was executed in Zimbabwe.
2) The will provided that:
a) Mr Ngundu be paid $6 000 per annum out of the trust income.
b) The testators‘ son, Zhou, a Zimbabwean resident be paid 40% of the trust
income remaining after the payment of the annuity.
c) After the death of Ngundu and Zhou the sum of, the trust capital and
accumulated income be paid to Mr Mbudzi.

Required
Advise with calculations, who is assessable on the trust income? [12 marks]

Question 3

Mr Mapuranga, who has been a resident of Zimbabwe throughout his life, died on 20
October 2017 at the age of forty-two years. At the time of his death he was employed by
Wild Goose (Private) Limited.

The following is relevant information for the period 1 January 2017 to 20 October 2017:

Gross monthly salary 35 000

Pension contribution per month 1 200
NSSA contribution per month 150
Contribution to CIMAS (medical aid) per month 200
Interest from debentures in Food Processors (Pvt) Ltd 3 600
Royalties from Longman Publishers Zimbabwe 2 100
Rentals from properties in Botswana 6 000

174 A Guide to Zimbabwe Taxation

The executer of Mr Mapuranga‘s estate received the following amounts between 21 October
2017 and 31 December 2017 .

Rental from properties in Botswana 2 100

Cash in lieu of leave 16 000
Bonus voted on 30 November 2017 62 000

Required

Calculate the taxable income in relation to the above income of Mr Mapuranga, identifying it
with the respective taxpayer. [15 marks]

A Guide to Zimbabwe Taxation 175

 13

HIRE PURCHASE AND SUSPENSIVE SALES

Chapter outline

13.1 Introduction
13.2 Movable property
13.3 Immovable property
13.4 Suspensive sales
13.5 Chapter Round-up
13.6 Practice questions

13.1 Introduction
A hire purchase is a contract of sale in which a buyer settles the purchase price by way of
instalments; ownership is transferred upon payment of the last instalment. Although
ownership is delayed, all risks and rewards incidental to ownership is transferred
immediately upon payment of a deposit.

Hire purchase is a form of suspensive sales. Section 17 of the ITA defines a suspensive sale
as, in the case of movable property the ownership shall pass or, in the case of immovable
property transfer shall be affected from the seller to the buyer upon or after receipt by the
seller of the whole or a certain portion of the purchase price.

The full purchase price is deemed to have accrued in the year of assessment in which the
contract is signed, in terms of Section 10(7) of the ITA. Thus, the full purchase price
excluding interest charges which accrue on a yield basis is deemed to have accrued to the
seller on the date the agreement is signed. A substantial proportion of the purchase price
may not be due and payable in the year of assessment while the full cost would be
deductible mismatching gross income and deductions. The mismatch is corrected by an
allowance, called Hire Purchase Allowance.

13.2 Sale of movable property

Tax computation on sale of movable property is similar to that of a cash sale, except that a
Hire Purchase Allowance is calculated and deducted in the year of assessment in which the
sale is made. In the following year, a new allowance is calculated; allowance for the previous
year is brought into gross income in the current year.

Hire purchase allowance is calculated by the following formula:

Hire Purchase Allowance = Gross profit x Outstanding debtors

Selling price

176 A Guide to Zimbabwe Taxation

The figure for outstanding debtors represents net debtors at year end after allowing for bad
debts and all instalments received. The selling price excludes Value Added Tax and finance
charges.

The debtors allowance will not be allowed when a taxpayer sells his debts on cessation of
trade since there are no amounts outstanding at the end of the current year for which the
allowance may be granted (ITC 748 (1952) 18 SATC 316). Where, debts are not sold but
retained by the taxpayer the allowance will be allowed even though the business would have
been sold.

Example
AB Refrigeration manufactures fridges at a cost of $480 and sells them at a price of $600 on
a hire purchase basis. 20% of the selling price is paid as deposit on signing the agreement
and balance in equal instalments over 24 months. On 1 March 2017, the company sold 10
such fridges. Calculate the tax effect of the sale on AB Refrigeration for the year ended 31
December 2017.

Solution

Gross profit percentage = (600 – 480)/ 600 *100%

= 20%

Outstanding debtors = Total sales value (10* 600) 6 000

Less: deposit 20%* 6000 (1 200)
4 800
Less: instalments paid (4800/24 *10) (2000)
2 800

Hire Purchase Allowance = 20% * 2 800

= $560

13.3 Sale of immovable property

Immovable property such as land is taxed under income tax if the holder of such property is
in the business of acquiring and developing the property for sale. Usually, before land is
sold, expenditure is incurred on roads, water, sewerages etc. for the developing of land.
Development cost incurred prior to reaching selling stage is capitalised (i.e. are added to the
cost of sales).
In the case of sale of an immovable asset the Hire Purchase allowance is calculated as
follows;

D x [E-(F+G)]
E

Where, D represents outstanding debtors at year end;

E represents the sales value of the immovable asset;

A Guide to Zimbabwe Taxation 177

 F represents the cost of acquiring the immovable asset; and

G represents development cost of the property.

Example

B & B Properties is a property developer. On 1 January 2017, the company acquired a

business stand for $15 000. The company incurred the following expenses: road
construction $2 100, water reticulation and connection $ 1400, surveys $1100. On 1 July
2017, B & B Properties sold the stand for $25 000 payable as follows: a deposit of $10 000
and the balance over 24 equal instalments. Calculate the allowance that B & B can claim
against its 2017 taxable income.

Solution

Outstanding debtors = selling price $25 000

Less: Deposit (10 000)

Less: Instalment paid (25000 -10 000)/24*6 (3 750)

11 250

Hire purchase allowance = 11 250* (25000-[15 000+2100+1400+1100])

25 000

= $2430

13.4 Suspensive sales

A credit sale is a contract of sale in which the purchase price is settled at a later date by
instalments or not. A credit sale differs from a hire purchase in that the ownership of goods
passes to the buyer on signing the contract. Just like a hire purchase arrangement, a
taxpayer who sells his goods on credit terms is allowed to deduct a debtors allowance which
is calculated as in 13.2 above.

13.5 Chapter Round-up

- A hire purchase is a contract of sale in which the ownership of a good passes to the
buyer upon payment (by the buyer) of the last instalment.
- Where goods are sold under a hire purchase or a credit sale, the purchase price is
deemed to have accrued to the seller in the year of agreement. However, the taxman
would allow an amount in cognisance of the difficulty faced by the seller in that part of
the sales value is not receivable in the current tax period.
- A hire purchase allowance is calculated as: the percentage margin multiplied by
outstanding debtors.
- A hire purchase allowance deducted in this current year is gross income in the
subsequent year.
- A credit sale is similar to a hire purchase contract and is treated in the same way for tax
purposes but differs in that the ownership of the good passes to the buyer on signing the
agreement
13.6 Practice questions

178 A Guide to Zimbabwe Taxation

Question 1

a) What is a Hire Purchase Agreement; distinguish it from a credit sale. [3 marks]

b) Explain with the aid of relevant sections of the tax statues, the treatment of goods sold
under a hire-purchase agreement. [5 marks]
c) What are tax implication of repossession of goods previously sold under hire purchase
by a seller [2 marks]

Question 2

Coolmix (Pvt) Ltd is a Zimbabwean incorporated company that manufactures and sells a
single type of refrigerators. During the year ended 31 December 2017, the company had the
following details in its books of accounts:

Selling price per unit $450

Manufacturing cost per unit $270

Number of units sold 20

The refrigerators are sold on hire purchase on the following terms: A deposit of 40% of the
purchase price is paid on date of sell and the remainder is paid over 24 equal monthly
instalments.

The refrigerators were sold as follows: 5 were sold on 1March 2017, 10 on 30 June 2017
and the other 5 on 1 September 2017.

Required

Calculate the taxable income for Coolmix (Pvt) Ltd for the year ended;

a) 31 December 2017 [12 marks]

b) 31 December 2018 [8 marks]

A Guide to Zimbabwe Taxation 179

 14

WITHHOLDING AND PRESUMPTIVE TAXES

Chapter outline

14.1 Introduction
14.2 Non-resident Shareholders tax
14.3 Resident Shareholders tax
14.4 Resident tax on interest
14.5 Non-resident tax on fees
14.6 Non-resident tax on remittance
14.7 Non-resident tax on royalties
14.8 Withholding tax on non-executive directors‘ fees
14.9 Withholding tax on contracts
14.10 Other forms of withholding taxes
14.11 Summary of withholding taxes
14.12 Presumptive taxes
14.13 Chapter Round-up
14.14 Practice Questions

14.1 Introduction
A withholding tax is tax levied at source. The system goes like this; a person (known as the
paying officer), or his agent who has the obligation to pay someone certain amounts is
required to withhold part of the amount which is the tax liability and remit the amount to the
tax authorities. The recipient of income will receive the net amount and has no tax
responsibility, unless the paying officer or his agent defaults. Certain incomes, whose nature
renders them inherently susceptible to evasion, are subjected to withholding taxes.

Withholding taxes are generally applied to interest, royalties, management fees, non-
executive directors‘ fees, remittances etc.

14.2 Non-resident shareholders tax (NRST)

Non-resident shareholders tax is tax levied on dividend accruing to a person who is non-
resident of Zimbabwe. Required to withheld tax is every company that distributes a dividend
to:
- A person, other than a company, a pension fund, a benefit fund or a medical aid
society, who is not ordinarily resident in Zimbabwe; or
- A partnership which is not ordinarily resident in Zimbabwe; or
- A foreign company; or
- A foreign life insurance company, in respect of any shareholding determined by the
Commissioner as having been acquired from funds other than those arising from the
life insurance business in Zimbabwe of that foreign life insurance company;

180 A Guide to Zimbabwe Taxation

The NRST is 10% or 15% of gross dividend paid by a listed company or unlisted company
respectively. A lower rate applies to a paying company, provided that there is a double
taxation treaty (DTA) in place between Zimbabwe and the non-resident company‘s country
of resident. (See chapter 15)

For the purpose of Non-resident shareholders tax, a dividend is income distributed by a

company to its members as return of capital invested by them. The following distributions are
however excluded from the definition of dividends:
- Any amount so distributed by a building society which is not distributed as a dividend in
respect of—
 In the case of the Central African Building Society, a paid-up permanent
share—class ―A‖; and
 In the case of the Founders Building Society, an ordinary permanent fully
paid-up share; and
 In the case of the Beverley Building Society, a foundation fully paid-up share
or class ―A‖ share and
- Any bonus shares; and
- Any amount so distributed which, in the opinion of the Commissioner, is a return of the
amount received by the company for its shares; and
- Any amount so distributed by the Industrial Development Corporation of Zimbabwe,
Limited, in respect of its issued share capital; and.
- Any amount so distributed by the Zimbabwe Development Bank established by section 3
of the Zimbabwe Development Bank Act [Chapter 24:14]; and
- Any amount so distributed to the International Finance Corporation referred to in the
International Financial Organizations Act [Chapter 22:09]; and
- Any amount so distributed by a licensed investor which arises from his operations in an
export processing zone; and
- Any amount so distributed which, in the opinion of the Commissioner, is a return of an
amount contributed to the capital of a private business corporation by a member;
- Any amount so distributed by an industrial park developer which arises from the
operation of his industrial park.

A dividend is deemed to have been distributed to when it is paid to shareholder, credited to

his account or so dealt with that he becomes entitled to the dividend, whichever comes first.

Where a company establishes to the satisfaction of the Commissioner that, during the
relevant accounting year, its receipts from sources outside Zimbabwe exceeded fifteen per
centum of its total receipts, the amount of any dividend shall be deemed to be the amount
determined in accordance with the formula:

AxB
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

A Guide to Zimbabwe Taxation 181

Receipts include both capital and revenue receipts, but not borrowings, share or debentures
receipts.

Once NRST is withheld, the payer must give the shareholder a withholding tax certificate
showing:
- the gross amount of the dividend; and
- any reduction of dividend for the purpose of computing NRST
- the amount of the non-resident shareholders‘ tax withheld

14.2.1 An agent to withhold tax

Every agent who receives on behalf of a shareholder a dividend from which non-resident
shareholders‘ tax has not been withheld by the company distributing the dividend, shall
withhold non-resident shareholders‘ tax from that dividend and shall pay the amount withheld
to the Commissioner within thirty days of the date of receipt of the dividend.

A person shall be deemed to be the agent of a shareholder and to have received a dividend
on behalf of that shareholder if—
- that person‘s address appears in the share register of the company as the registered
address of the shareholder; and
- the warrant or cheque in payment of the dividend distributable to the shareholder is
delivered at that person‘s address:

Provided that any person so deemed to be the agent of a shareholder shall, as regards such
shareholder and in respect of any income received by or accruing to or in favour of the
shareholder, have and exercise all the powers, duties and responsibilities of an agent for a
taxpayer absent from Zimbabwe.

An agent shall furnish a shareholder with a certificate as discussed above, failure of which
will render an agent guilt of an offence and liable to a fine not exceeding level five or to
imprisonment for a period not exceeding three months or to both such fine and such
imprisonment. If it is proved that the agent‘s conduct was wilful, he shall be liable to a fine
not exceeding level seven or to imprisonment for a period not exceeding one year or to both
such fine and such imprisonment.

The payment of the NRST tax by a company or agent shall be accompanied by a return.

A NRST which is overpaid or which is in respect of any dividend which is subsequently

rescinded with the approval of the minister for the purpose of complying with any exchange
controls shall be refunded. Also refunded is NRST in respect of any dividend to the extent
that it has subsequently been utilized to import essential goods into Zimbabwe in
accordance with concessions allowed or permission granted by the Minister in terms of any
enactment.

A shareholder whom a dividend has been distributed from which non-resident shareholders‘
tax has not been withheld shall pay to the Commissioner the tax that should have been
withheld.

182 A Guide to Zimbabwe Taxation

Non-resident Shareholder‘s Tax is due within 30 days of the date of distribution

A company or an agent in Zimbabwe, who fails to withhold or to pay the Commissioner any
amount of non-resident shareholders‘ tax, shall be personally liable for the payment that
should have been made together with a penalty equal to 100% of the tax liability. Interest is
also applicable on the tax liability remaining outstanding at a rate of 35% per annum,
calculated from the due date to the date payment is made.

14.3 Resident Shareholders Tax (RST)

Every company, ordinarily resident in Zimbabwe, which distributes a dividend to a person,
other than a statutory corporation, a company limited by shares, a private business
corporation, a pension fund, a benefit fund or a medical aid society, who is ordinarily resident
in Zimbabwe; or a partnership which is ordinarily resident in Zimbabwe; shall withhold
resident shareholders‘ tax from that dividend.

RST is taxed at a rate of 10% and 15% on listed securities and non-listed securities
respectively. A company is deemed to be ordinarily resident in Zimbabwe if its central
management and control is situated in Zimbabwe. A partnership is deemed ordinarily
resident when at least a partner is a resident of Zimbabwe.

14.3.1 Nominees to withhold tax not deducted by company

A nominee is a person who holds shares on which a dividend is paid directly or indirectly on
behalf of someone. Nominees who receive a dividend from which RST is not deducted shall
deduct the RST and shall pay the amount to the Commissioner within 10 days of receipt of
that dividend.
Where a nominee has deducted a RST, he shall provide the shareholder with a certificate
showing;
- the gross amount of the dividend; and
- the amount, if any, of tax previously deducted; and
- the amount of the resident shareholders‘ tax withheld.
A nominee who fails to provide a shareholder with the certificate shall be guilt of an offence
and liable to a fine not exceeding level five or to imprisonment for a period not exceeding
three months or to both such fine and such imprisonment.

Resident Shareholder‘s Tax is payable within 10 days of the date of distribution.

A company or a nominee, who falls to withhold or to pay the Commissioner any amount of
resident shareholders‘ tax, shall be personally liable for the payment that should have been
made together with a penalty equal to 100% of the tax liability. Interest is also applicable on
the tax liability remaining outstanding at a rate of 35% per annum, calculated from the due
date to the date payment is made.

14.3.2 Refund of resident shareholders‟ tax

The Commissioner shall authorise a refund of RST where the aggregate of dividend from a
local source and interest does not exceed certain threshold. The refund is calculated as
follows:

Shareholders above 55 years of age Shareholders below 55 years of age

A Guide to Zimbabwe Taxation 183

 Aggregate dividend & interest Refund Aggregate dividend & interest Refund
($) % ($) %
Up to 600 100 Up to 480 100
601 – 720 75 481 – 600 75
721 – 840 50 601 – 720 50
841 – 960 25 721 – 840 25

The refund is reduced proportionally if the period of assessment is less than a year. The
Commissioner shall not authorize refund of RST in unless the claim is made within six years
of the date of payment of the tax.

14.4 Resident tax on interest (RSI)

Resident tax on interest is levied on interest from a source within Zimbabwe payable by a
financial institution. A financial institution include, any registered banking institution or any
building society or the Reserve Bank of Zimbabwe; or a company acting as trustee or
manager of a unit trust scheme registered an asset manager and a collective investment
scheme. Every financial institution that pays interest is therefore required to withheld
resident tax on interest and pay the amount withheld to the Commissioner on or before the
10th day of the month following the month of deduction.

For the purpose of RTI, the words interest means any amount from a source within
Zimbabwe payable by a financial institution on a loan or deposit. Included on the definition of
interest for RTI is:

- A dividend distributed by a building society in respect of any share other than a share.
- Income from Treasury bills;
- Income from banker‘s acceptances and other discounted instruments traded by financial
instruments.

The definition of interest however does not include:

a) Interest payable to another financial institution,

b) Interest payable to a holder of moneylender‘s license as per Money lending and rates
of interest Act.
c) Interest payable to an insurer in terms of the Insurance Act (Chapter 24:07)
d) Interest payable to a person whose receipts and accruals are tax exempt, e.g.
interest payable to charitable organizations, trust of public, educational institution etc.
e) Interest which is tax exempt in terms of the ITA, e.g. POSB interest.
f) Interest paid on Building Society class ‗C‘ shares.

RTI is levied at a rate of 15% is Interest earned from a local financial institution by a resident
is taxed at 15%. With effect from 1 January 2017, the rate is reduced to 5% if the interest is
earned on a fixed term deposit. No tax is levied on interest paid to a non-resident. With effect
from 2010 non –resident tax on interest was repealed.

14.4.1 An agent to withhold tax

184 A Guide to Zimbabwe Taxation

An agent who receives interest on behalf of a person, a partnership or a company ordinarily
resident in Zimbabwe, from which resident tax on interest has not been deducted, shall
withhold resident tax on interest from that interest and pay the amount to the Commissioner.

An agent shall provide a certificate showing;

- the name of the financial institution that paid the interest; and
- the amount of the interest; and
- the amount of the residents‘ tax on interest withheld.

Resident Tax on Interest is payable within 10 days of the date of payment.

A financial institution or agent which fails to withhold or pay to the Commissioner any amount
of resident tax on interest shall be liable for an amount of resident tax on interest together
with an amount equal to 100% of such amount. Interest is also calculated on late payment of
resident tax on interest from the date the interest should have been paid to the date payment
is made.

The Commissioner would authorise a refund of tax of the amount overpaid if it is proved to
his satisfaction that the taxpayer has been charged tax in excess of what should have been
properly chargeable. The claim for refund should be made within six years from the date
payment is made.

14.5 Non-resident tax on fees

Non-resident tax on fees is tax levied on fees payable by a payer (a person or partnership or
a statutory corporation) to a person who is a non-resident of Zimbabwe. The tax is levied at
a rate of 15% of gross fees paid.

For the purpose of Non-resident tax on fees, fees is defined as any amount from a source
within Zimbabwe payable in respect of any services of a technical, managerial,
administrative or consultative nature. However, amounts received for the following are
specifically excluded from the definition of fees:

- Services rendered to an individual unconnected with his business affairs; or

- Services rendered in the course of employment by any person in his capacity as an
employee; or
- Education or technical training; or
- The repair of goods outside Zimbabwe; or
- Services rendered to a licensed investor in respect of his operations in an export
processing zone;
- Services rendered to an industrial park developer in respect of the operation of his
industrial park.

Fees shall be deemed to be from a source within Zimbabwe if the payer is a person who or
partnership which is ordinarily resident in Zimbabwe. A partnership shall be deemed to be
ordinarily resident in Zimbabwe if at least one member of such partnership is ordinarily
resident in Zimbabwe. In determining whether or not non-residents‘ tax on fees should be
withheld, the question as to whether or not the payer is a person or partnership ordinarily

A Guide to Zimbabwe Taxation 185

resident in Zimbabwe; or the payee is a non-resident person shall be decided by reference
to the date on which the fees are paid by the payer.

Fees shall be deemed to be paid to the payee if they are credited to his account or so dealt
with that the conditions under which he is entitled to them are fulfilled, whichever occurs first.

Where non-resident tax on fees is withheld, the payer shall provide the payee with a
certificate showing:
- The amount of the fee; and
- The amount of non-resident tax on fees withheld.

With effect from 1 January 2015 foreign agents fees not exceeding 5% of the value of the
exports based on free on board prices (FOB) will exempt from withholding tax.

14.5.1 Agents to withhold non-resident tax on fees

Where an agent receives fees on behalf of a non-resident payee from which non-resident tax
on fees has not been withheld; the agent shall withhold non-resident tax on fees and pay the
amount to the Commissioner.

The agent shall provide the payee with a certificate showing:

- The name of the Payer
- The amount of fee
- The amount of non-resident tax on fees withheld.

An agent who fails to provide a payee of fees with a certificate shall be guilty of an offence
and liable to a fine not exceeding level five or to imprisonment for a period not exceeding
three months or to both such fine and such imprisonment.

A person shall be deemed to be an agent of a payee and to have received fees on behalf of
that payee, if:

- that person‘s address appears in the payer‘s records as the address of the payee; and
- the warrant or cheque in payment of the fees is delivered at that person‘s address

Non-Resident Tax on Fees is payable within 10 days of the date of payment

A payer or an agent in Zimbabwe who fails to withhold or pay to the Commissioner any
amount of non-residents‘ tax on fees shall be personally liable for the payment to the
Commissioner, not later than the date on which payment should have been made the
amount of non-residents‘ tax on fees together with an amount equal to 100% of such
amount.

Payment of non-resident tax on fees shall be accompanied by a return in the form

prescribed.

14.6 Non-resident tax on remittances

Non-resident tax on remittances is tax levied on amounts transferred from Zimbabwe to
another country in respect of allocable expenditure. Allocable expenditure is expenditure of a
technical, managerial, administrative or consultative nature incurred outside Zimbabwe by a

186 A Guide to Zimbabwe Taxation

non-resident person in connection with or allocable to the carrying on by him of any trade
within Zimbabwe.

Non-resident tax on remittances is levied at a rate of 15% of gross amounts so transferred.

Thus every non-resident person who conducts business in Zimbabwe, who effects any
remittance in respect of allocable expenditure shall pay non-resident tax on remittance to the
Commissioner within 10 days of the date of remittance.

Payment of non-resident tax on remittance shall be accompanied by a return in the

prescribed form.

14.7 Non-resident tax on royalties

Non-resident tax on royalties is tax levied on royalties payable to a non-resident person,
partnership or a foreign company. Royalties is defined in the Act to mean 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, any patented article, trade
mark, design or model, plan, secret formula or process, or for the use of, or the right to use,
industrial, commercial or scientific equipment, or for information concerning industrial,
commercial or scientific experience.

Royalties however does not include any amounts payable by way of:
- any project which is specified for the purposes of this subparagraph by the Minister of
notice in a statutory instrument; or
- any project which is the subject of any agreement entered into by the Government of
Zimbabwe with any other government or international organization in terms of which any
person is entitled to exemption from tax in respect of such amount.

Royalties shall be deemed to be from a source within Zimbabwe if: the payer is a person
who or a partnership which is ordinarily resident in Zimbabwe; or they are payable by virtue
of the use in Zimbabwe or the grant of permission to use in Zimbabwe of any property.

Every payer of royalties is required to withheld non-resident tax on royalties from such
royalties and pay the amount to the Commissioner within 10 days of the date of payment or
within such further period as the Commissioner may, for good cause allow.

A payer shall furnish the payee with a certificate showing:

- The amount of royalties; and
- The amount of non-resident tax on royalties withheld.

14.7.1 Agents to withhold tax

An agent who receives royalties on behalf of a payee from which non-resident tax on
royalties has not been deducted shall withhold the tax and remit to the Commissioner within
10 days of the date of payment of royalties.

A Guide to Zimbabwe Taxation 187

An agent who withholds non-resident tax on royalties shall furnish the payee with a
certificate showing:

- The name of the payer

- The amount of royalties; and
- The non-resident tax on royalties withheld.

A person is deemed to be an agent of the payee and have received royalties on behalf of the
payee if that person‘s address appears in the payer‘s records as the address of the payee;
and the warrant or cheque in payment of the royalties is delivered at that person‘s address.

A payer or agent who fails to withhold or pay non-resident tax on royalties shall be
personally liable for the amount of non-resident tax that should have been paid together with
an amount equal to 100% of such amount.

14.8 Withholding tax on non-executive directors‟ fees

Non-executive directors‘ are levied on fees payable to them at a rate of 20% of such fees.
Non-executive directors are directors who have no executive responsibility in the company in
which they are employed. Non-executive directors are not full time employees as compared
to the executive directors; they are paid fees for their contribution to the board. Thus, every
payer of non-executive directors‘ fees shall withhold tax on the fees and pay the amount to
the Commissioner within 10 days of the date of payment.

Non-executive directors‘ fees means any remuneration paid to a director by a corporate

body but excludes remuneration covered under employee tax.

Where tax is withheld, the payer shall furnish the payee with a certificate showing:
- The amount of non-executive directors fees paid; and
- The amount of tax on non-executive directors‘ fee withheld.

An agent who receives non-executive directors‘ fees on behalf of someone, from which the
tax in respect of such fees has not been withheld, shall withhold the tax and pay to the
Commissioner. Where the agent withholds tax on non-executive directors‘ fees, he shall
provide a certificate showing:
- The name of the payer
- The amount of non-executive directors fees paid;
- The amount of tax withheld.

Payment of tax on non-executive directors‘ fees shall be accompanied by an appropriate

return.

Failure by a payer or agent to withhold tax renders them personally liable for the payment to
the Commissioner, an amount of tax which should have been paid together with an amount
equal to 100% of such tax.

The Commissioner would refund a taxpayer an amount of tax on non-executive directors‘

fees paid in excess of the proper amount if it can be proved to the satisfaction of the
Commissioner that the said taxpayer has been over charged.

188 A Guide to Zimbabwe Taxation

14.9 Withholding tax on contracts (Section 80)
A contract, for the purpose of withholding tax means, a contract in terms of which the state,
statutory corporation, or quasi-government institution or registered taxpayer is obliged to pay
one or more person amounts exceeding one thousand United States dollars. However, the
definition of contract does not include:
- an agreement for the settlement of a delictual claim against the State or a statutory
corporation;
- an employment contract; or
- 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 (other than a
contract for the sale, letting or hire of immovable property), in which the seller or supplier
is dealing in the course of business and the purchaser or user is not;
- payments for the supply of electricity, water or telephone services to an operator;
- Payments for the supply of farm produce and livestock t farmers, excluding payments for
farm produce to persons who buy for resale, i.e. retailers or wholesalers.

Every paying officer who has the obligation to pay someone under a contract shall withheld
tax at a rate of 10% of the amount paid, unless the payee furnishes the payer with a tax
clearance certificate. The amount withheld should be paid to the Commissioner by the 10th
day of the month following the month that in which payment is made.

Where the paying officer has withheld the tax he shall furnish the payee with a certificate
showing the amount of tax withheld. The Commissioner is of practice of crediting the amount
of withholding tax levied against the income tax liability of such payee upon assessment.

For the purpose of withholding tax on contract: Payments 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..

14.10 Withholding tax on non-resident entertainers and artists (Section 80 B)

A contractor of services to a non-resident artist or entertainer or an employee of such

contractor is required to withhold 15% of the amount payable under the contract and shall
pay the amount so withheld to the Commissioner on or before the 10th day of the month
following that in which payment is made.

The Commissioner shall retain the amount so withheld until an assessment is made.

A contractor means a contractor of services of any payee who is a non-resident entertainer

or artist contracted to perform in Zimbabwe.

Payment means payment by cash, barter, set-off, crediting a director‘s loan account,
intercompany debits or credits or by other settlement of obligations whatsoever and in any
form.

14.11 Other forms of withholding tax

a) Property or insurance commission tax

A Guide to Zimbabwe Taxation 189

A principal who pays a commission to a freelance agent shall withhold a tax from such
commission and shall pay the amount to the Commissioner on or before the 10th day of the
month following the month of payment. Withholding tax on property or insurance is levied at
a rate of 20% of the amount of commission paid.

A commission means an amount paid or payable by an insurer or estate agent to a freelance

agent in respect of any act done by that agent on its behalf as an insurance agent, insurance
broker or property negotiator.

An estate agent means a person who is a registered estate agent in terms of the Estate
Agents Act [Chapter 27:05]

A freelance agent means:

- An insurance agent who is not registered as an employee by an insurer; or
- An insurance broker who is not registered as an employee by an insurer to the extent
that any commission earned by the broker is payable by the insurer;
- A property negotiator who is not registered as an employee by an estate agent to whom
a commission is paid by an estate agent, whether on its own account or on behalf of any
party to the sale or lease of immovable property.

Where property or insurance commission tax is withheld, the payer should furnish the payee
with a certificate showing: the amount of commission and the amount of property or
insurance tax withheld.

The payment of property or insurance commission tax shall be accompanied with an

appropriate return.

b) Automated financial transaction tax

Wherever a customer of a financial institution withdraws or effect a debit from an automated

teller machine, the financial institution shall pay an automated financial transaction tax to the
Commissioner. The tax is calculated at a rate of 10% of the amount withdrawn and is
payable not later than the 10th day of the month following the month of deduction.

A financial institution that has paid an automated financial transaction tax is allowed to
recover the tax from customer by debiting the customer‘s account or by other means. A
payment of an automated financial transaction tax should be accompanied by an appropriate
tax return.

A financial institution means; a registered bank, registered building society, finance house
and discount house.

c) Intermediate money transfer tax

The tax is levied on a transaction in which a financial institution mediates the transfer of
money between two or more persons. Intermediate money transfer tax is levied at a rate of
5% and is payable on or before the 10th day following the month of the transaction.

190 A Guide to Zimbabwe Taxation

A financial institution, for the purpose of the tax, means a registered bank, building society,
Reserve Bank of Zimbabwe, POSB, Zimbabwe Development Bank, a postal company
licensed under the Postal & Telecommunication Act [Chapter 12:05] , a successor of the
Agricultural Finance Corporation and any mobile banking service.

A mobile banking service means a service that allows customers to financial institution or a
telecommunication service operator to transfer money or perform a financial transaction over
a mobile device such as a mobile telephone for which the telephone operator receives a
commission.

Financial institutions that have paid an intermediate money transfer tax shall recovery the tax
from either the person on whose account the transaction was effected.

Financial institutions that fail to pay an intermediate money transfer tax shall be liable to pay
the tax together with an additional tax (penalty) equal to 15% of such tax. If a taxpayer
proves to the Commissioner that he has been charged tax in excess of the amount properly
chargeable, Commissioner will authorise a refund.

14.12 Summary of withholding taxes

WITHHOLDING TAX DUE DATE

RATE OF TAX
RESIDENTS NON-
RESIDENTS
Dividends- Listed 10% (a) 10%(b) a)Due within 10
entities days of the date of
distribution.
b)Due within 30
days of the date of
distribution
Dividends – non-listed 15% (c) 15% (d) c) Due within 10
entities days of date of
distribution.
d) Due within 30
days of date of
distribution.
Interest earned from 15% - Due by the 10th day
financial institutions – of the month
short term. following the month
of expense.
Interest earned from 5% - Due by the 10th day
financial institutions – of the month
fixed term following the month
of expense
Fees and royalties - 15% Due by the 10th day
of the month
following the month
of expense
Contract of sale / 10% - By the 10th day of
service the month
following month of

A Guide to Zimbabwe Taxation 191

 payment.
Non-executive 20% - Within 10 days of
directors fees payment
Remittances to non- - 15% Within 10 days of
residents payment
Property or insurance 20% - Due by the 10th day
commission of the month
following the month
of payment.

14.13 Presumptive taxes

Presumptive tax is levied on informal traders, small scale miners, transport operators, hair
salons and operators of waterborne vessels, etc. The tax is calculated on the basis of
presumed income. A presumptive tax is a tax on a base that tax authorities and not the
taxpayer determine.

14.13.1 Definition of terms

a) Cottage industry means any of the following trades or industries whether or not they
are based in or conducted from the residential premises of the operator. Examples
include:
- furniture-making or upholstery;
- metal fabrication;
- any other cottage industry that the Minister may, by notice in a statutory instrument,
prescribe;

Furniture making and upholstery means the manufacture for profit of furniture or
the fitting of furniture with padding, springs, webbing or covering for profit.

b) Hairdressing salon means a commercial establishment in which any one or more

hairdressers carry on their occupation or business.
c) Informal trader means an individual who :
- Carries on a trade for his own account from which he derives a gross income of
less than six thousand United States dollars or such other amount as the
Minister may prescribe by notice in the Gazette.
- Has not, in the most recent year of assessment for which he could have done so,
furnished a return.
- A hawker or street vendor; and
- A person who sells articles at a place commonly known as a ―people‘s market‖ or
a ―flea market‖; and
- A person who manufactures or processes any articles in or from residential
premises.

d) Cross-border trader means a person who imports commercial goods into Zimbabwe
with the intention of carrying on any trade in those goods, but does not, subject to
paragraph 13C, include any person registered as an operator in terms of the VATA.

14.13.2 Presumptive taxes

Vehicle Usage Classification Rate per month

192 A Guide to Zimbabwe Taxation

 Driving school training 100
Class 4
Class 1& 2 130
Goods: carrying capacity +10 to less than 20 200
tonnes
Goods: carrying capacity 20 tonnes+ 500

8 – 14 40

Commuter omnibus 15 – 24 45
25 – 36 70
Commuter omnibus 37+ 100
Taxicabs Maximum 7 25
OTHERS
Hair dressing salons $10 per chair
Cross-border traders 10% of VDP of goods
imported
Restaurant or bottle store 75
operator
Cottage industry operators 75
Informal traders 10% of rent paid by
informal trader
Small scale miners 0% of the value of
minerals or stones
sold.
WATER BORNE VESSELS
Type of operator Size of vessel (no Rate per month
of people)
Fishing rigs 80
Commercial water-borne 1-5 60
Vessels
6 – 15 100
16- 25 200
26 – 49 350
50 and above 450

With effect from 1st January 2017 Zimbabwe National Road Administration (ZINARA) is
appointed as an agent for the collection of presumptive taxes from operators of commuter
omnibuses, taxicabs, haulage trucks and driving schools.

The tax will be collected at the point of licence renewal, and operators can only renew their
motor vehicle licences only when they are compliant with their presumptive tax obligations.

14.14 Chapter Round-up

- Withholding tax is tax levied at source. A payer (a person responsible for making a
payment to another) withholds tax on sum payable to a payee and remits the tax to the
tax authorities.

A Guide to Zimbabwe Taxation 193

- Withholding tax is levied on dividends and interest, whether paid to a resident or to a
non-resident.
- Withholding tax is also levied on amounts paid to non-residents in the form of royalties,
fees and remittances.
- Other forms of withholding taxes include, intermediate money transfer tax, automated
financial transaction tax, tobacco levy and property and insurance commission tax.
- Presumptive taxes are taxes levied on informal traders, like hairdressers, taxi cabs
operators etc. the tax is levied on the basis of presumed income.

14.15 Practice questions

Section A: Multiple choice questions

1. Farai received the following dividend income (net) during the year ended 31 December
2017:

Source Amount (US$)

A company listed on the Zimbabwe Stock Exchange (ZSE) 3 000
An unlisted company 1 800

How much tax was withheld at source in total from Farai‘s dividend income in 2017?

A US$651
B US$570
C US$729
D US$630

2. ABC Ltd earned the following interest for the year ended 31 December 2017.

Standard Chartered Bank $4 000 gross

CBZ Fixed term deposit $10 000 gross

What is the amount of withholding tax?

A $2 100
B $1 100
C $7 000
D $1 400

3. What is the due date for remittance of withholding tax on non-executive director‘s fees?

A 30 days
B 10 days of payment
C 10th day of month following the month of payment
D 15 days

4. Under what circumstance is a tax clearance certificate is required?

A Payment for supply of electricity, water etc.

194 A Guide to Zimbabwe Taxation

 B Payment for supply for farm produce
C Payments for a supply exceeding $1 000
D Payment of remuneration for services rendered.

5. What are the rates for withholding tax on contracts and Non-resident tax on remittances?
Contracts Non-resident tax on remittances
A 10% 10%
B 15% 20%
C 15% 15%
D 10% 15%

6. What is the presumptive tax on taxi cabs per quarter?

A $100
B $500
C $600
D $300

7. Joel Maguta earned the following income:

Fees and royalties $8000 net

Non-executive director‘s fees $15 000 net

What is the withholding tax deducted at source?

A $5 750
B $5 162
C $4 059
D $4 200

Section B: Structured questions

Question 1
a) Illustrate the statutory requirements regarding the deduction of 10% withholding tax on
amounts payable under contracts for the supply of goods and services. [10 marks]
b) State the three exclusion of the 10% withholding tax [3 marks]
c) State the requirements for obtaining a tax clearance certificate. [5 marks]

A Guide to Zimbabwe Taxation 195

 15
DOUBLE TAXATION AGREEMENTS

Chapter outline

15.1 Introduction
15.2 Double Taxation Agreements (DTA
15.3 Definition of a person
15.4 Determination of residence status
15.5 The concept of Permanent Establishment (PE)
15.6 Taxation of income & capital
15.7 Elimination of double taxation
15.8 Unilateral Provision for elimination of double taxation
15.9 Mutual agreements
15.10 Chapter Round-up
15.11 Practice questions

15.1 Introduction
Where individuals or enterprises participate in cross-border transactions, they are regularly
subject to tax in different jurisdictions. Cross-border transactions may give taxing rights to
both contracting states involved, giving rise to double taxation.

Juridical double taxation is where the same taxpayer is taxed on the same income in two
different states. Economic double taxation means the inclusion, by more than one state‘s tax
administration, of the same income in the tax base when the income is in the hands of
different taxpayers. Transfer pricing cases are the best example of economic double
taxation. Juridical double taxation is mainly linked to the fact that most jurisdictions levy tax
on the worldwide income of their residents and certain activities that are closely connected to
the territory of their state (i.e., taxation of non-residents).

Zimbabwe uses a territorial approach to taxation but section twelve (deemed sources) of the
ITA seek to tax certain income derived outside Zimbabwe which might have been subjected
to tax in the source country.

Double taxation can be avoided unilaterally if one of the states involved surrenders its taxing
right. In this regard, a residence state often allows a credit for the tax levied in the source
state up to an amount equal to its own tax charge. In contrast, some countries avoid double
taxation by exempting income deriving from foreign sources and capital situated abroad.

15.2 Double taxation agreements (DTA‟s)

Because of the burden that is imposed on the taxpayer due to double taxation, countries
seeking to mitigate the burden of double taxation would enter into tax treaties. The primary
purpose of tax treaties is to eliminate double taxation as an obstacle to international trade

196 A Guide to Zimbabwe Taxation

and investment; thereby, promoting the development of economic relations between
countries.

Though every tax treaty is subject to negotiations between the two Contracting States, the
majority of tax treaties are fairly similar. This is because the negotiations between the
Contracting States are generally based on the OECD Model Convention and amendments
tailored to their particular economic interests. The OECD Model is for developing countries
while the UN Model is for developed countries. The OECD Model is thus relevant for the
study of Zimbabwe taxation. It should be comprehended by a tax student that the OECD
Model Convention is not legally binding but rather, a point of reference typically relied upon
to achieve, inter alia, the abovementioned objectives.

The fundamental principle underlying the entire OECD Model Convention is that the
allocation of taxing rights stems from the substantive economic nexus of the income and
capital. The OECD Model Convention attempts to specify wherever possible a single rule for
each situation. However, it at times does provide leeway to Contracting States. Indeed, while
Contracting States will usually incorporate the substantive principles of the Model into their
treaties, certain flexibility remains; for example, with respect to reduced rates of withholding
tax and by which method double taxation is avoided. The OECD Model Convention also
mentions alternative or additional provisions for some cases.

15.3 Definition of a person (Article 1)

The OECD Model Convention defines a person as including an individual a company and
any other body of persons. Persons who qualify for treaty benefits are those who are
residents of one or both contracting states.

Identifying persons who are eligible for treaty benefits is crucial for the application of this
model tax convention. Individuals are generally rather straightforward in this context as they
are so clearly ―persons‖. Nevertheless, some issues for treaty entitlement can arise due to
different domestic systems for taxing families, some countries would tax family members as
individuals and some would tax the individuals in their family units. In that case, there may
well be a mismatch between the domestic laws of the two contracting States. The two
contracting States would have to agree, however, whether a claim for treaty benefits should
be made by the family unit as a whole or whether it should be made by the separate
individuals within the family unit.

Companies again are straight forward; a ―company‖ is taken generally to mean any body
corporate and any entity that is treated as a body corporate for tax purposes. Reliance has
to be placed on domestic laws of contracting laws as to the definition of ‗company‘.

‗Any other body of persons‘ gives a wide meaning of the term ‗person‘. This seems to cover
all other structures which are recognised as legal personalities by the domestic laws of the
contracting states. Since laws of different countries differ a lot; there is likelihood that a
structure could be treated as a legal person in one contracting state but not as a person in
the other. The convention attempt to solve such an issue by applying this principle: if such a
structure has legal personality according to the civil law under which it is created, there is no
doubt that it is a ―person‖ for treaty purposes and, therefore, potentially able to claim treaty
benefits.

A Guide to Zimbabwe Taxation 197

15.4 Determination of residence status (Article 4)

The OECD Model Convention defines a resident of a contraction state as any person who,
under the laws of that State, is liable to tax therein by reason of his domicile, residence,
place of management or any other criterion of a similar nature, and also includes that State
and any political subdivision or local authority thereof.

The term resident does not include any person who is liable to tax in that State in respect
only of income from sources in that State or capital situated therein.

The following further points provide further clarification where, by virtue of the definition, a
person is deemed to be a resident of both contracting states:

a) He shall be deemed to be a resident only of the State in which he has a permanent

home available to him; if he has a permanent home available to him in both States, he
shall be deemed to be a resident only of the State with which his personal and economic
relations are closer (centre of vital interests);
b) If the State in which he has his centre of vital interests cannot be determined, or if he has
not a permanent home available to him in either State, he shall be deemed to be a
resident only of the State in which he has an habitual abode;
c) If he has an habitual abode in both States or in neither of them, he shall be deemed to
be a resident only of the State of which he is a national;
d) If he is a national of both States or of neither of them, the competent authorities of the
Contracting States shall settle the question by mutual agreement.

Where by reason of the above definition, a person other than an individual is found to be a
resident of both Contracting States, then it shall be deemed to be a resident only of the
State in which its place of effective management is situated.

15.5 The concept of permanent establishment (Article 5)

The concept of permanent establishment is crucial in international taxation. A non-resident

taxpayer in receipt of income or capital from a source country will not be taxable unless there
is a Permanent Establishment (PE). The existence of a PE is thus a threshold for taxation by
the source country. Tax treaties define the meaning of a PE in different ways, depending on
the type of activities.

Access to reliable information is critical to the determination of whether a PE or fixed base

exists. Useful sources of information include local business registration offices, regulatory
approval agencies (as in the case of insurance, professional regulation, banking and
financial services, etc.), local agencies that issue building permits, and resident corporations
that make payments to non-resident taxpayers or receive payments from non-resident
taxpayers (as in the case of subcontractors).Where the length of physical presence of
individuals is relevant, the dates of entry and/or exit stamped in the passport may be a
source of evidence.

15.5.1 Fixed place of business

OECD Model Conventions defines the term permanent establishment to mean ―a fixed place
of business through which the business of an enterprise is wholly or partly carried on‖. A

198 A Guide to Zimbabwe Taxation

fixed place of business is thus clearly the core of the concept of PE. It generally refers to a
specific geographical location that is used to carry on business. Each geographical location
is treated separately unless the place constitute a ―coherent whole commercially and
geographically‖. The place of business must have a certain degree of permanency, that is to
say, if it is not of a purely temporary nature.

The following is a list of examples for fixed place of business: a place of management, a
branch, an office, a factory, a workshop, a mine, an oil or gas well, a quarry or any other
place of extraction of natural resources.

15.5.2 Construction business

A resident taxpayer in the business of construction who builds buildings, roads, canals, etc.
will be rendering service to the owner of the building or roads. Such rendering of service is a
permanent establishment. The OECD convention provides that a PE encompasses a
building site, a construction, assembly or installation project or supervisory activities in
connection therewith, but only if such site, project or activities last more than 12 months.

In determining how long the site, project or activity has existed, no account is taken of the
time previously spent by the contractor concerned on other sites or projects which are totally
unconnected with it. In other words, a non-resident taxpayer may spend eleven months on
each unconnected building site without having a PE. Where the nature of the construction is
such that the contractor‘s activities has to be relocated continuously, as the project
progresses, performed at each spot are treated as part of a single project and the project is
regarded as a PE.

15.5.3 Furnishing of services for more than 183 days

Services rendered, including consultancy services by an enterprise, constitute a PE, but only
if activities of that nature continue (for the same or a connected project) within a contracting
state for a period or periods aggregating more than 183 days in any 12-month period.

A similar physical presence test applies to independent personal services under Article 14 of
the United Nations Model Convention. In the case of entertainers and sportspersons,
however, there is no specific time requirement (Article 17). Therefore, any performance of
entertainment or athletic activities in the source country is sufficient to give the source
country the right to tax.

15.5.4 Collection of insurance premiums or insurance of risks

A non-resident enterprise is deemed to have a PE if it collects insurance premiums in the

source country or insures risks situated in the source country through a person other than an
independent agent. The activity of collecting premiums or the location of the risks alone
gives rise to a PE. There is no requirement of a fixed place of business or any time
requirement. This is a deviation from the core notion of PE as they require neither ―a place of
business‖ nor ―any degree of permanence‖ in the source country.

15.5.5 A non-resident enterprise carrying on business through an agent

Where an enterprise does not carry on business directly in the source country but through an
agent, such agent is a PE. An agent constitute a PE if the agent is dependent and has

A Guide to Zimbabwe Taxation 199

authority to conclude contracts on behalf of the non-resident enterprise and habitually
exercises that authority in the source country, or if the agent has no authority to conclude
contracts, but habitually maintains in the source country a stock of goods or merchandise
from which he regularly delivers goods or merchandise on behalf of the non-resident
enterprise. Merely having employees or agents present in the source country does not give
rise to a PE.

The activities of an independent agent do not constitute a PE. An independent status is not
available when the activities of an agent are carried out wholly or almost wholly on behalf of
the non-resident enterprise, and there is no arm‘s length relationship between the agent and
the non-resident enterprise.

15.5.6 Exclusion from the meaning of Permanent Establishment

The following are specifically excluded from the definition of Permanent Establishment:

a) the use of facilities solely for the purpose of storage, display or delivery of goods or
merchandise belonging to the enterprise;
b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely
for the purpose of storage, display or delivery;
c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely
for the purpose of processing by another enterprise;
d) the maintenance of a fixed place of business solely for the purpose of purchasing goods
or merchandise or of collecting information, for the enterprise;
e) the maintenance of a fixed place of business solely for the purpose of carrying on, for the
enterprise, any other activity of a preparatory or auxiliary character;
f) the maintenance of a fixed place of business solely for any combination of activities
mentioned in subparagraphs a) to e), provided that the overall activity of the fixed place
of business resulting from this combination is of a preparatory or auxiliary character.

15.6 Taxation of income and capital

OECD Model Taxation Convention provides guidance for the taxability of cross border flows
of certain income and capital. Income or capitals which flows between contracting states
might give taxing rights to both countries, hence giving rise to double taxation.

a) Immovable property (Article 6)

Income derived by a resident of a Contracting State from immovable property situated in the
other Contracting State may be taxed in that other State. The income should have been
derived from direct use of the property, the letting of the property or use in any other form.
The term "immovable property" shall have the meaning which it has under the law of the
Contracting State in which the property in question is situated.

b) Business profits (Article 7)

Business profits are generally taxable in the state where the business is resident. However
where a business derives profits from another state such profits may be taxed in such other
state provided that the business is carried out in the other state through a permanent
establishment. The other state will tax profits attributed to the permanent establishment only.

200 A Guide to Zimbabwe Taxation

In determining profits attributed to a permanent establishment, consideration should be
taken of the profits that could have been earned by such permanent establishment had it
been operating as an independent entity. Also, there shall be allowed as deductions
expenses which are incurred for the purposes of the permanent establishment, including
executive and general administrative expenses so incurred, whether in the State in which the
permanent establishment is situated or elsewhere.

c) Shipping, inland waterways transport and air transport (Article 8)

Profits from the operation of ships or aircraft in an international traffic shall be taxable only in
the Contracting State in which the place of effective management of the enterprise is
situated. The same principle applies to boats engaged in inland waterways transport,
however, if place of effective management of a shipping enterprise or of an inland waterways
transport enterprise is aboard a ship or boat, then it shall be deemed to be situated in the
Contracting State in which the home harbour of the ship or boat is situated

d) Associated enterprises (Article 9)

Enterprises are said to be associated if an enterprise in one contracting state participates
directly or indirectly in the management, control or capital of an enterprise of the other
Contracting State, or the same persons participate directly or indirectly in the management,
control or capital of enterprises in two contracting states.

In either case above, if conditions are imposed between the two enterprises in their
commercial or financial relations which differ from those which would be made between
independent enterprises, then any profits which would, but for those conditions, have
accrued to one of the enterprises, but, by reason of those conditions, have not so accrued,
may be included in the profits of that enterprise and taxed accordingly.

e) Dividends (Article 10)

Dividends paid by a company which is a resident of a Contracting State to a resident of the

other Contracting State may be taxed in that other State. However, such dividends may also
be taxed in the Contracting State of which the company paying dividends is resident. Where
the beneficiary owner of a dividend is a resident of the other contracting state, the tax so
charged shall not exceed:

- 5 per cent of the gross amount of the dividends if the beneficial owner is a company
(other than a partnership) which holds directly at least 25 per cent of the capital of the
company paying the dividends;
- 15 per cent of the gross amount of the dividends in all other cases.

f) Interest (Article 11)

Interest arising in a Contracting State and paid to a resident of the other Contracting State
may be taxed in that other State. However, such interest may also be taxed in the
Contracting State in which it arises and according to the laws of that State, subject to DTA‘s
that exist between the contracting states.

A Guide to Zimbabwe Taxation 201

Interest is deemed to arise in a Contracting State when the payer is a resident of that State.
Where, however, the person paying the interest, whether he is a resident of a Contracting
State or not, has in a Contracting State a permanent establishment in connection with which
the indebtedness on which the interest is paid was incurred, and such interest is borne by
such permanent establishment, then such interest shall be deemed to arise in the State in
which the permanent establishment is situated.

g) Royalties (Article 12)

Royalties arising in a Contracting State and beneficially owned by a resident of the other
Contracting State shall be taxable only in that other State. If the beneficial owner of the
royalties, being a resident of a Contracting State in which the payer of royalties is situated,
carries on business in the other Contracting State in which the royalties arise through a
permanent establishment situated therein and the right or property in respect of which the
royalties are paid is effectively connected with such permanent establishment.

h) Capital gains (Article 13)

Capital gains arising from the disposal of immovable property of a contracting state which is
situated in another contracting state may be taxable in another contracting state. Gains from
the alienation of movable property forming part of the business property of a permanent
establishment which an enterprise of a Contracting State has in the other Contracting State,
including such gains from the alienation of such a permanent establishment (alone or with
the whole enterprise), may be taxed in that other State.

Where gains arise from the disposal of ships or aircraft in international transport as
discussed in paragraph see above shall be taxable only in the Contracting State in which the
place of effective management of the enterprise is situated.

i) Employment income (Article 15; 18 & 19)

Where a person, being a resident of one contracting state renders services in other
contracting state, income so derived is taxable in the other contracting state. Employment
income is however, taxed in the country of residence if:

- The recipient is present in the other State for a period or periods not exceeding in the
aggregate 183 days in any twelve month period commencing or ending in the fiscal year
concerned, and
- The remuneration is paid by, or on behalf of, an employer who is not a resident of the
other State, and
- The remuneration is not borne by a permanent establishment or the employer.

Remuneration paid in a contracting state in to a non-resident of such state in respect of

government service to that state, local government or a political subdivision of his resident
state is taxed only in the resident state. Such remuneration will only be taxed in the source
country if the services are rendered in that State and the individual is a resident of that State
and that he did not become a resident of that State solely for the purpose of rendering his
services.

202 A Guide to Zimbabwe Taxation

The same principle applies to pension paid to a resident of a contracting state in respect of
past government service rendered in the other state.

j) Directors‘ fees (Article 16)

Directors' fees and other similar payments derived by a resident of a Contracting
State in his capacity as a member of the board of directors of a company which is a resident
of the other Contracting State may be taxed in that other State.

k) Artistes and sportsmen (Article 17)

The Article provides that income derived by a resident of a Contracting State as an

entertainer, such as a theatre, motion picture, radio or television artiste, or a musician, or as
a sportsman, from his personal activities as such exercised in the other Contracting State,
may be taxed in that other State.

Income in respect of personal activities exercised by an entertainer or a sportsman in his

capacity as such which accrues not to the entertainer or sportsman himself but to another
person, that income may, be taxed in the Contracting State in which the activities of the
entertainer or sportsman are exercised.

l) Students (Article 20)

A student who is a resident of a contracting state, solely for the purpose of his education or
training, but being a resident of other contracting state immediately before visiting a the first
Contracting State; who receives for the purpose of his maintenance, education or training
shall not be taxed in the first mentioned state, provided that such payments arise from
sources outside that State.

m) Other income (Article 21)

Income not dealt with in the previously discussed articles as may accrue to a resident of one
contracting state being derived from another contracting state, shall be taxable in the state
where the taxpayer is resident. However, the principle does not apply to income deriving
from immovable property (other than immovable property discussed under article 6) which is
connected to a permanent establishment situated in the source country.

n) Taxation of capital (Article 22)

Capital represented by immovable property as defined in Article 6, owned by a resident of a

Contracting State and situated in the other Contracting State, may be taxed in that other
State. Capital represented by movable property forming part of the business property of a
permanent establishment which an enterprise of a Contracting State has in the other
Contracting State may be taxed in that other State.

Capital represented by ships and aircraft operated in international traffic and by boats
engaged in inland waterways transport, and by movable property pertaining to the operation
of such ships, aircraft and boats, shall be taxable only in the Contracting State in which the
place of effective management of the enterprise is situated.

All other elements of capital of a resident of a Contracting State shall be taxable only in that
state.

A Guide to Zimbabwe Taxation 203

15.7 Elimination of double taxation

There are two methods of elimination of double taxation, which are:

1. Exemption method - exempting foreign income from domestic taxation.

2. Credit method - granting a credit for foreign taxes.

Since the beginning of tax treaties, contracting states would solve the problem of double
taxation through distribution of taxable earnings between themselves by allocating the tax
right to only one state, making these earnings tax exempt in the other.

With the exemption method the country of residence leaves the taxing right solely with the
source country, giving that country the responsibility to tax the source income according to
its own tax rules and rates. With the credit method, the residence country gets a subsidiary
tax right which will have its effect when the source country levies a lower tax than the
country of residence, because then an additional amount of tax needs to be paid on the
worldwide income.

Countries using the exemption method reserve this mainly for ―active income‖ such as
business profits (through permanent establishments) and employment income, while they
use the credit method for ―passive income‖ such as interest, dividends and royalties.

The country of residence will exercise its taxation rights on income earned by the taxpayer
(whether sourced in foreign land or locally). Thus, the taxpayer is taxed on the total income
and is then granted a double taxation relief as a credit against his or her tax liability.

15.7.1 Exemption method (OECD Convention, Article 23A)

There are two methods for calculating double taxation relief under the exemption method
which are: Full exemption and exemption with progression.

a) Full exemption method

With the ―full exemption‖, the resident country simply omits the foreign income of a taxpayer
from its own taxation and only imposes tax on the domestic income.

Example 1
Anesu Rukuni is a Jazz musician resident in Zimbabwe. During the year Anesu earned a
total income of $150 000, of which $50 000 was earned from shows held in Singapore with
rest having been sourced in Zimbabwe. Zimbabwean tax rates are 25% for income up to
$100 000 and a rate of 30% applies to income that exceeds $100 000. Singapore has a flat
tax rate of tax which is 25%.

Calculate the total tax liability of Anesu Rukuni and tax relief that he is entitled to.

Solution

Step1: Tax burden without elimination of double taxation

$
Zimbabwe tax on worldwide income ($100 000 + $50 000) *30% 45 000

204 A Guide to Zimbabwe Taxation

Tax levied in source country ($50 000*25%) 12 500
Total tax suffered 57 500

Step 2: Tax burden with double taxation eliminated

Zimbabwe tax (domestic income) $100 000* 25% 25 000

Tax levied in foreign country $50 000*25% 12 500
Total tax liability 37 500

Double taxation relief is $57 500 - $37 500 $20 000

b) Exemption with progression

With the ―exemption with progression‖, the home country, will takes into account the
exempted foreign income to determine the rate of tax to be applied on domestic income.

Example 2

Assume the same facts as in example 1.

Calculate the total tax liability of Anesu Rukuni and tax relief he is entitled to.

Solution

Step 1: Tax burden without elimination of double taxation

$
Zimbabwe tax on worldwide income ($100 000 + $50 000) *30% 45 000
Tax levied in source country $50 000*25% 12 500
Total tax suffered 57 500

Step 2: Tax burden with elimination of double taxation

$
Zimbabwe tax (domestic income) $100 000 * 30% 30 000
Tax levied in source country $50 000* 25% 12 500
Total tax liability 42 500

Double taxation relief $57 500 – $42 500 $15 000

15.7.2 Credit method (OECD Convention Article 23B)

There are two credit methods in practice which are Full Credit and Ordinary credit.

a) Full Credit method

With the ―full credit‖, the home country simply allows a deduction of the foreign-source tax
from the tax calculated on worldwide income:

Example 3

Assume the same facts as in example 1.

A Guide to Zimbabwe Taxation 205

Calculate the total tax liability of Anesu Rukuni and the double taxation relief.

Solution
Step 1: tax burden without double taxation elimination
$
Zimbabwe tax (world-wide income) $150 000 * 30% 45 000
Tax levied in foreign country $50 000* 25% 12 500
Total tax burden suffered 57 500
Tax credit (foreign tax suffered) (12 500)
Tax liability 45 000

b) Ordinary credit method

With the ―ordinary credit‖, the home country, also allows a deduction of the foreign-source
tax from the tax calculated on the worldwide income, but not more than the proportion of tax
that would be attributable to the foreign income had it been generated in the home country.
Thus a domestic rate of tax is applied to the foreign income, the amount of tax arrived as
such is compared with the tax levied in the foreign country, the lesser of the two will be the
credit. This is the most popular credit method. Zimbabwe applies an ordinary credit method
to eliminate or mitigate double taxation to its residents.

Example 4
Assuming the same facts as in example 1, except that Zimbabwe imposes a 20% flat rate of
tax on income.
Calculate total tax liability for Anesu Rukuni and the tax relief applicable to him.

Solution
$
Zimbabwe tax (world-wide income) $150 000 * 20% 30 000
Tax levied in foreign country $50 000* 25% 12 500
Total tax burden suffered 42 500
Tax credit (foreign tax suffered, subject to limit) # (10 000)
Tax liability 32 500

#Tax on foreign income at Zimbabwean rate 20% *50 000 $10 000

206 A Guide to Zimbabwe Taxation

15.8 Unilateral provisions for the elimination of double taxation (Sect 93 of ITA)

Zimbabwe will grant a relief where a resident or non-resident who is deemed to have derived
income from Zimbabwe ( by virtue of section 12 of the ITA –deemed sources) proves to the
satisfaction of the Commissioner that he has suffered tax on the same income in the source
country which has not signed a tax treaty with Zimbabwe. The amount of tax suffered in the
source country is used to reduce the tax charged on income from Zimbabwe.

The Act however, had specified the following income to qualify for that relief:
- Income for services rendered to the state
- Income deriving from intellectual property being employed in Zimbabwe, e.g. patents,
trademark, etc.

Schedule of double taxation rates for withholding taxes

Recipient‟s Dividends Royalties Remittances Fees Interest (b)

country of
residence
Standard Listed 10% 15% 15% 15% N/A
rates where
there is no Unlisted 15%
DTA
Botswana 5% /10% (e) 10% 15% 10% 10%
Bulgaria 10% (a) 10% 15% 10% 10%
Canada 10% (a) 10% 15% 10% 10%
France 10% (a) 10% 15% 10% 15%
Germany 10% (a) 7.5% 15% 7.5% 10%
Malaysia 10% (a) 10% 15% 10% 10%
Mauritius 10% (a) 15% 15% 0 /15% (c) 10%
Netherlands 10% (a) 10% 0% /15% (c) 10% 10%
Norway 15% 10% 15% 10% 10%
Poland 10% 10% 15% 15% 10%
South Africa 15% 15% 15% 15% (d) 10%
Sweden 15% 10% 15% 10% 10%
United 5% 10% 15% 10% 10%
kingdom

Notes

a) Only on shareholding or voting power, by a company, of at least 25%; otherwise the

rates default to standard.
b) Currently there is no withholding tax on interest.
c) Both rates are specified. No clause on technical fees. Should default to treatment of
business profits. We are aware that ZIMRA is not concurring on treatment and taxing at
full rate.
d) Certain interpretations suggest that these should not be subject to tax in Zimbabwe
provided that the provider of the services does not have a Permanent Establishment
(‗PE‖) in Zimbabwe and such amounts are taxed in South Africa. ZIMRA not presently
concurring.

A Guide to Zimbabwe Taxation 207

e) The rate is 5% only if the beneficial owner is a company (other than a partnership) which
holds directly at least 25% of the capital of the company paying the dividends. In other
instances the rate defaults to 10%.

15.9 Mutual Agreements Procedure (MAP) (Article 25)

The MAP article in tax conventions allows designated representatives (the ―competent
authorities‖) from the governments of the contracting states to interact with the intent to
resolve international tax disputes. These disputes involve cases of double taxation (juridical
and economic) as well as inconsistencies in the interpretation and application of a
convention.

The MAP article in most conventions does not compel competent authorities actually to
reach an agreement and resolve their tax disputes. They are obliged only to use their best
endeavours to reach an agreement. Unfortunately, on occasion competent authorities are
unable to come to an agreement. Reasons for unresolved double taxation range from
restrictions imposed by domestic law on the tax administration‘s ability to compromise to
stalemates on economic issues such as valuations.

15.10 Chapter round-up

- When individuals and enterprises participate in cross-border transactions they may be

subjected to tax twice.
- Double taxation is an obstacle to international trade and investment
- Contracting states that seek to mitigate the burden of double taxation on its residents
may enter into tax treaties.
- Negotiations between contracting states are generally based on the OECD Model
Convention (for developing countries) and UN Model Convention (for developed
countries).
- A tax Convention gives guidance for contracting states to facilitate their negotiations but
has no power such as that of law.
- The concept of ‗Permanent Establishment‘ is crucial in international tax. A non-resident
who derives income from a state is only taxable in that state only if such income is
derived through a Permanent Establishment.
- There are two methods for the elimination of double taxation, namely, Exemption method
and Credit method.
- Under the Exemption method – foreign income is excluded from tax computation in the
home country.
- Under a credit method – a taxpayer is taxed on the world-wide income but granted a
credit equivalent to the foreign tax suffered.
- Where there is no a treaty agreement between contracting states, the country of
residence may grant a relief to a taxpayer based on its unilateral provisions.

15.11 Practice questions

Question 1

a) With the aid of relevant sections of the ITA, explain what could possibly cause a double
taxation upon a taxpayer. [ 5 marks]

208 A Guide to Zimbabwe Taxation

b) What is a Permanent Establishment, of what importance is that concept in international
tax? [3 marks].
c) Why is it important for contracting states to sign tax treaties? [2 marks]

Question 2
Munotida is a Zimbabwean resident with several investments outside the country. During the
year he received the following income:

$
Foreign interest: Gross 1200: Net 900
Foreign dividends: Gross 2 400: Net 1 600

Required
Calculate Munotida‘s tax liability [6 marks]

A Guide to Zimbabwe Taxation 209

 16

ESTATE DUTY
Chapter outline

16.1 Introduction
16.2 Gross estate
16.3 Valuation of an estate
16.4 Allowable deductions
16.5 Administrative issues
16.6 Chapter Round-up
16.7 Practice questions

16.1 Introduction
Estate duty is levied on the estate of every deceased person who was ordinarily resident in
Zimbabwe at the time of death. Estate duty is levied on worldwide estate of a deceased
person, what is important is that the deceased was ordinary resident in Zimbabwe at the
time of death. Foreign assets acquired prior to 1January 1967 and assets acquired prior to
the deceased becoming ordinary resident in Zimbabwe are however excluded.

Estate duty is calculated on the basis of the following framework:

Gross estate xxx

Less: Allowable deductions (xxx)
Dutiable amount xxx
Duty @ appropriate rate xxx

16.2 Gross estate

The estate of a deceased person consists of property which was acquired on or after 1
January 1967 and deemed property.

16.2.1 Property
Property for estate duty purposes means:
- Any right in or to property, movable or immovable, corporeal or incorporeal, and include:
a) Any fiduciary, usufructuary or other like interest in property (including a right
to an annuity charged upon property) held by the deceased immediately prior
to his death; and
b) Any right to an annuity (other than a right to an annuity charged upon any
property) enjoyed by the deceased immediately prior his death.
- Immovable property situated in Zimbabwe.
- Any movable property physically situated in Zimbabwe;
- Any limited interest in any such immovable or movable property;
- Any debt which is secured upon immovable property by bond registered in Zimbabwe;
- Any debt recoverable or right of action enforceable in the courts of Zimbabwe;

210 A Guide to Zimbabwe Taxation

- Any stocks or shares in any company and any stocks of the Government or of any
corporation or local authority within Zimbabwe.
- Where the deceased was ordinarily resident in Zimbabwe at the time of his death, any
stocks.

Where the deceased was not ordinary resident in Zimbabwe at the date of death, the
following are not included in the definition of property.

- Any right in immovable property situate outside Zimbabwe; or

- Any right in movable property physically situate outside Zimbabwe; or
- Any debt not recoverable or right of action not enforceable in the courts of Zimbabwe; or
- Any goodwill, licence, patent, design, trade mark, service mark, copyright or other similar
right not registered or enforceable in Zimbabwe or attaching to any trade, business or
profession in Zimbabwe; or
- Any stocks or shares held by him in a body corporate which is not a company; or
- Any rights to any income derived from any stocks, shares, debts not recovered from
Zimbabwe and intangible property like patents, trademark, copyright etc.

16.2.2 Deemed property

Deemed property of the deceased includes:
- Insurance policies- the general rule is that the proceeds of all insurance policies on the
life of the deceased are dutiable regardless of whether or not the ownership of the policy
was in the name of the deceased and regardless of to whom the proceeds are payable.
There are however exceptions to the general rule:
(a) Policies the proceeds of which are registered ante-nuptial or post nuptial
contract to the surviving spouse or child of the deceased.
(b) Policies owned by the third party which have been effected to cover an
obligation arising from the death of the deceased. An example is the
proceeds of a policy used to meet the obligation of a partner to purchase
his deceased partner‘s shares.
(c) Policies taken out by the deceased person but disposed of by him for full
value at the time of disposal.
(d) Policies taken out by a person other than the deceased before 1 January
1967.
(e) Policies taken out before 1 January 1967 where someone other than the
deceased has paid the premiums or part thereof, pro rata.
(f) The proceeds of a policy which, in the opinion of the Master, was taken
out by the deceased for the purpose of paying duty, to the extent that
such proceeds do not exceed duty payable.

- Donations mortis causa -

- Donation inter vivos made before 1 January 1967-
- Property not otherwise included in the estate which the deceased was entitled to dispose
of.

A Guide to Zimbabwe Taxation 211

16.3 Valuation of an estate
The value of property for estate duty purposes is calculated as follows:

a) Property sold
Property other than shares in a company not quoted on the Stock Exchange, which is
sold in the course of liquidation of the estate, the sale price is taken to be the value of
that property.

b) Limited interest
Fiduciary, usufructuary or other like interest, held by the deceased as at the date of
death and which cease at the date of death is calculated as follows:

c) Annuity charged upon property

The value of an annuity charged upon property is calculated at an annual amount of
the annuity capitalised at 9% over the expectation of life of the person who succeeds
to the annuity or, if it terminates, over the expectation of life of the owner of the
property upon which it is charged.

d) Annuities not charged upon property

The value of an annuity which is not charged upon property is calculated at the
annual amount of the annuity capitalised at 9% over the expectation of life of the
person who succeeds to the annuity. If the annuity terminates, however, it has no
dutiable value since no person benefits from it.

e) Donations
In the case of donations, the subject matter of the donation is to be valued in the
same manner as any other property. Where the donee sold the subject matter of
donation for full consideration before the death of the donor, then the amount of the
consideration is to be the value of the donation.

f) Ownership of property subject to usufruct or like interest

Where the deceased enjoyed a right of ownership in property subject to a usufruct or
other like interest the property will be included in the estate valuation reduced by the
value of limited interest calculated as follows:
i) in the case of a usufructuary interest, by capitalizing at 9% of the annual value of
the right of enjoyment of the property subject to such usufructuary interest over
the expectation of life of the person entitled to such interest or, if such right of
enjoyment is to be held for a lesser period than the life of such person, over such
lesser period;
(1) in the case of an annuity charged upon the property, by capitalizing at 9% of
the amount of the annuity over the expectation of life of the person entitled to
such annuity or, if it is to be held for a lesser period than the life of such
person, over such lesser period;
(2) in the case of any other interest, by capitalizing at nine per centum such
amount as the Master may consider reasonable as representing the annual
net yield of such interest over the expectation of life of the person entitled to
such interest or, if such interest is to be held for a lesser period than the life of
such person, over such lesser period.

212 A Guide to Zimbabwe Taxation

 g) Unquoted shares
The value of shares of a company not quoted on the stock exchange is determined
by sworn valuation of some impartial person appointed by the Master. By convention
this valuation is usually carried out by auditors, accountants or bookkeeper to the
company.

h) Any other property

In the case of any other property the value is as determined by sworn valuation by
some impartial person appointed by the Master. The Master has a panel of valuers
whose valuation are acceptable to him.

16.4 Allowable deductions

Estate duty is levied on dutiable amount, which is arrived at after deducting from the gross
property the following deductions:

a) Funeral and death-bed expenses

These include hospital charges, doctor‘s fees, chemist‘s charges, nursing expenses
etc. which will be allowed in full. However, the master will not allow the costs of
removal of the body from one country to another nor will he allow the cost of a
tombstone or other memorial.

b) Debts

Debts due by the deceased persons ordinarily resident in Zimbabwe are allowed as
deductions, including income tax up to date of death, but subject to the following:

- The debt must have been discharged from property liable to duty.
- The debt incurred by the deceased after 1 January 1967 is not allowed as a
deduction if it is due to a company in which the deceased held shares acquired
by him before 1 January 1967 and the valuation of the shares has taken into
account any restrictive provision in the Articles of the company.

c) Cost of administration
Such costs include;
- The costs of valuations;
- The costs of providing security by the executor;
- The cost of advertising for claims and advertising the executer‘s account
- The executor‘s remuneration
- The Master‘s fees
- The cost of transfer of property to the heirs
- The cost of realisation of assets sold
- The taxed cost of litigation in which the estate may have been involved.

The cost of administration of property which does not constitute estate will not be
allowed. Also, not allowed as deduction, is the cost incurred in the management and
control of any income accruing to the estate after the date of death.

A Guide to Zimbabwe Taxation 213

d) Expenditure incurred in carrying out the Master‘s requirements
This expenditure relate mainly to the cost of valuation of property in which the
deceased had a limited interest or property donated by the deceased.

e) Property not situate in Zimbabwe

Rights in or to property situate outside Zimbabwe will be allowed as a deduction if the
deceased acquired them:
- Before he became ordinarily resident in Zimbabwe for the first time; or
- after he became ordinarily resident in Zimbabwe for the first time, by inheritance
or by a donation if at the date of the donation the donor was a person (other than
a company) not ordinarily resident in Zimbabwe; or
- out of the profits and proceeds of any such property proved to the satisfaction of
the Master to have been so acquired.

The above paragraph applies to immigrants to Zimbabwe who, either at the time they
first did so were possessed of assets outside Zimbabwe or who received a donation
of assets after becoming residents of Zimbabwe, a donation of which was made by a
person who is not ordinarily resident in Zimbabwe.

f) Debts due to persons resident outside Zimbabwe

Where the deceased had debts due to persons outside Zimbabwe, the debts are
claimable as a deduction to the extent the assets owned by the deceased outside
Zimbabwe are not sufficient to meet such debts.

g) Value of any interest in property which has been included as property

Where the deceased had an interest in property, which has been included as
property, the interest of which ceases on his death, such interest is allowed as a
deduction from his property.

h) Charitable bequests and donations

Donation or bequest for charitable, educational or ecclesiastical purposes falls into
two categories:
i. Donations or bequest to a person or public institution within Zimbabwe
subject to the following conditions:
- The amount or value must be devoted wholly to charitable educational or
ecclesiastical purposes.
- The purpose must be for public nature;
- The purpose must be within Zimbabwe.

ii. Donations or bequest to public institution which, in terms of the Act must
comply with the following:
- Must be domiciled within Zimbabwe
- It must be for the advancement of science or art or of a charitable,
educational or ecclesiastical nature;
- It must devote the amounts or value of the donation or bequest to
purposes of such a nature within Zimbabwe.

214 A Guide to Zimbabwe Taxation

i) Improvements made by the owner of property subject to limited interest
Where a usufructuary, fiduciary or other like interest ceases upon the death the
property, over which the interest was held, is valued as at the date of death for
purposes of calculating the value of the interest ceasing. If the owner of the property
or ultimate beneficiary has effected improvements to the property during the lifetime
of the deceased and with his consent, which enhanced its value, the amount by
which the value was enhanced may be deducted.

j) Donation of a right to the use or occupation of property

Where a deceased person has donated the right to the use or occupation of property,
and that donation is included as deemed property, it becomes deductible because
the property itself will have been included in the estate at full value, i.e. without
reference to the right of use or occupation.

k) Books, pictures, statuary or other objects

If the deceased has lent to the government, local authority or any charitable
institution, under a notarial deed, books or objects of art or shares in a body
corporate which represent an interest in books, pictures, statuary or other objects of
art for a period not less than 50 years; the value of such objects should be deducted.
l) Deemed property included in share valuations
If the proceeds of the insurance policies and/ or donations accruing to a company in
which the deceased held shares are taken into account in valuing the shares, such
proceeds are deductible.

m) Receipt from a pension or benefit fund

Any amount as included in the estate of a person for estate duty purposes as
represents receipts from the Consolidated Revenue Fund (paid from the government
coffers) or by any fund which, in the year of assessment in which the deceased dies,
is approved by the Commissioner as a benefit fund or registered under the Pension
and Provident Fund Act [Chapter24:09].

n) Proceeds of insurance policies where the deceased left a surviving spouse

If the proceeds of an insurance policy are included in the estate for duty purposes
and the deceased is survived by his or her spouse, such proceeds may be deducted
from gross estate. The deduction must first be applied to proceeds which accrue to
the surviving spouse and any remainder to other proceeds pro rata.

o) The value of family house (PPR)

A family house is defined as covering a dwelling which is proved to the satisfaction of
the Master;
- To have been the sole or main residence of that person and additionally, or
alternatively, his spouse, throughout the period that he owned it; or
- To have been the sole or main residence of that person and additionally, or
alternatively, his spouse, for a period of four years or more immediately before
the date of his death, or such shorter period immediately before the date of his
death as the Master considers reasonable; or
- To have been registered by that person as the sole or main residence of himself
and additionally, or alternatively, his spouse even though he was prevented from

A Guide to Zimbabwe Taxation 215

 residing in it consequence of his employment or for such other cause as the
Master considers reasonable.

A family home includes any land which surrounds or is adjacent to the dwelling and
does not exceed two hectares; it also includes complimentary building like garages,
storerooms, etc.

p) Family motor vehicle

The value of one motor vehicle which is acceptable by the Master as a family vehicle
is allowed as a deduction from the gross estate of the deceased.

16.5 Administrative issues

The Master of High Court is responsible for the administration of the EDA.

16.5.1 Rendering of returns

The Executor of estate is responsible to render returns to the Master of High Court
disclosing the amount claimed by the person submitting the return to represent the dutiable
amount of the estate together with full particulars regarding:

- The property of the deceased as at the date of his death;

- Property which is deemed to be property of the deceased as at that date;
- Any deduction claimed in terms of section five.

The Master may adjust such value or amount and determine the dutiable amount if he is of
the opinion that the amount claimed to represent the dutiable amount as disclosed in the
return does not represent the correct dutiable amount or is dissatisfied with any value at
which any property is shown in any such return or sworn valuation.

16.5.2 Supply of information

The Master may call upon any person to furnish him with such information as he may require
and to produce for examination by the Master or by any person appointed by him for that
purpose, at such time and place as may be appointed by the Master. The Master may, by
notice in writing, require any person whom the Master may deem able to supply information,
to attend at a time and place to be named by the Master for the purpose of being examined
on oath respecting any transactions or matters affecting any estate; and any person so
attending may be allowed by the Master any reasonable expenses necessarily incurred by
such person in so attending.

16.6 Chapter Round-up

- Estate duty is levied on the estate of the deceased person who was ordinarily resident of
Zimbabwe at the time of death.
- Property for estate duty purposes includes immovable property, movable property, debts
due to the deceased, shares and stocks, interest in property, proceeds from insurance
properties, etc.
- Foreign assets acquired prior to 1 January 1967 and assets acquired prior to the
deceased becoming ordinary resident in Zimbabwe are excluded.

216 A Guide to Zimbabwe Taxation

- Donations made in 5 years or less prior to the death of the deceased is taxed in the
estate of such deceased person unless the donor survives the donee.
- Certain deductions are allowed against gross estate. Examples include death-bed
expenses, liquidation expenses, Master‘s costs etc.

16.7 Practice questions

Question1
a) Explain the estate duty treatment of non-Zimbabwean property. [4 marks]
b) Explain the principal duties of an executer of a deceased estate. [5 marks]
c) Explain the treatment of debts owed by the deceased to persons not resident in
Zimbabwe. [3marks]

Question 2
Mr Diehard became ordinarily resident in Zimbabwe beginning of March 2015. On 1 July
2017 he died at Avenues Clinic after a short illness and was survived by his wife and a son,
Ashleen.

The following details are relevant:

Diehard‘s assets at the time of his death

Notes $
Principal Private Residence 250 000
Industrial stand 450 000
Toyota land cruiser 1 25 000
Mercedes Benz 30 000
Bank deposit 50 000
Cash in hand 3 000
Shares in old mutual 40 000
Block of flats 2 340 000

The executer of the late Diehard‘s estate received the following amounts between 20 July
2017 and 31 December 2017, the date the final distribution account for the late diehard was
approved by the Master of High Court.

i. Lump sum from a matured policy $140 000

ii. Lump sum from a pension fund $80 000, paid as a death benefit.

Diehard had donated a Mitsubishi twin cab to his cousin Peter in 2012, worth $14 000.

Notes

1. The Master of High Court accepted the Toyota Land cruiser as a family car.
2. Mr Diehard acquired the block of flats were situated in 2013, the block of flats are
situated in Francistown, Botswana

Required
Calculate the dutiable amount in respect of Mr Diehard estate (20 marks)

A Guide to Zimbabwe Taxation 217

 17
CAPITAL GAINS TAX

Chapter outline

17.1 Introduction
17.2 Gross capital amount
17.3 Exemptions
17.4 Allowable deductions
17.5 Damage or destruction of a specified asset
17.6 Fair market price of an asset
17.7 Reconstruction, mergers, etc.
17.8 Transfer of specified assets between spouses
17.9 Transfer of individual‘s immovable asset
17.10 Suspensive sale
17.11 Principal Private Residence
17.12 Roll over relief (general)
17.13 Capital gains withholding tax
17.14 Administration of the Act
17.15 Summary
17.16 Practice questions

17.1 Introduction

A capital gain arises when a specified asset is disposed. A specified asset, for capital
gain tax purposes, means:
 an immovable property or
 a marketable security or
 any right or title to property whether tangible or intangible that is registered or
required to be registered in terms of:
o The Mines and Minerals Act [Chapter 21:05]. Or
o The Patents Act [Chapter 26:03]; or
o The Trade Marks Act [Chapter 26:04]; or
o The Industrial Designs Act [Chapter 26:02]; or
o The Copyright and Neighbouring Rights [Chapter 26:05];
o The Brands Act [Chapter 19:05]; or
o The Geographical Indications Act [Chapter 26:06]; or
o The Integrated Circuit Layout-Designs Act [Chapter 26:07] Act (No. 18 of
2001)

The CGTA is the authority for the levy of accruals of capital nature which are specifically
excluded from gross income for income tax purposes, covered under the ITA.

Immovable property includes assets like land and buildings whilst marketable security
means any bond capable of being sold in a share market or exchange; or any debenture,
share or stock; or right possessed by reason of a person‘s participation in any unit trust.

218 A Guide to Zimbabwe Taxation

17.1.1 Framework for computing capital gain / loss

The following is a template for the calculation of capital gain or loss:

Gross Capital amount xxx

Less: Exemptions (xxx)
Capital amount xxx
Less: Allowable deductions (xxx)
Capital gain / loss xxx/ (xxx)

Capital gains tax is levied at a rate of 20% of capital gain for assets acquired on or after 1
February 2009. For assets acquired before 1 February 2009, a rate of 5% is charged on the
capital gain. For assets acquired before 1 February 2009, capital gain is equivalent to the
amount realised on sale or disposal of such assets. Thus, the framework discussed in the
above paragraph does not apply to assets acquired before 1 February 2009.

17.2 Gross Capital Amount

Gross capital amount means 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 Zimbabwe from sale on or after the 1st August,
1981, of specified assets excluding any amount so received or accrued which is proved by
the Commissioner to be gross income as defined in the ITA, i.e. recoupment.

Where an asset is disposed, say, outside Zimbabwe for a price in foreign currency, the gross
capital amount is deemed to be the consideration expressed in Zimbabwean currency
according to the prevailing exchange rates at the time of disposal. Where a disposal and
subsequent receipt of the consideration occurs in different years of assessment, effect is
made in the year in which the amount accrued.

Example 1
An immovable property was acquired for $80 000, capital allowances of $45 000 had been
granted to the date of disposal of which proceeds of $90 000 were received.

Calculate a figure for gross capital amount for the property.

Solution
$
Sales proceeds 90 000
Less: recoupment (W1) (45 000)
Gross capital amount 45 000

W1 $
Sales proceeds 90 000
Less: ITV (80 000 - 45 000) 35 000
Potential recoupment 55 000
Capital allowance granted 45 000
Actual recoupment is therefore 45 000

A Guide to Zimbabwe Taxation 219

17.2.1 Deemed accruals
An amount, for capital gains purposes is deemed to have accrued when it:
- has been invested, accumulated or otherwise capitalized by him; or
- 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.

Note that, where gross capital amount accrues in favour of a partnership, the amount is
deemed to have accrued to the partners in their profit sharing ratios.

17.2.2 Deemed disposals

The following are the circumstances in which an asset is deemed to have been disposed:

a) Disposal other than by way of sale.

Where a person disposes of a specified asset otherwise than by way of sale such
disposal shall be deemed to be a sale and an amount which, in the opinion of the
Commissioner, is equal to the fair market price of such asset at the time of disposal
shall be deemed to have accrued to such person at such time. An example of such
disposal is a donation.

b) Expropriation of an asset
Where a specified asset is expropriated such specified asset shall be deemed to
have been sold for an amount equal to the amount paid by way of compensation for
the expropriation of such specified asset.

c) Disposal by way of execution of a court order

Where a specified asset is sold in execution of the order of a court, the amount for
which it was sold shall be deemed to have accrued to the person on whose behalf it
was sold.

d) Maturity or redemption of a specified asset

Where an amount accrues by reason of maturity or redemption of a specified asset,
such as the maturing of a quoted bond which had been purchased at a discount, the
asset is deemed to have been sold for that amount.

e) Transfer of a right under a deed of sale

Where a person transfers to another person his rights under a deed of sale in respect
of passing of ownership of a specified asset which is the subject of the deed of sale,
he shall be deemed to have sold the specified asset to that other person for an
amount equal to the whole amount received by or accruing to him as a result of the
transfer.

f) Transfer of a right to a stand

A person is deemed to have sold a specified asset if he or she disposes rights to a
stand, residential, commercial or industrial. Whether or not his or her title to the stand
is not registered is not important. The value of such disposal is deemed to be the
amount received or accruing to the person who transfers the right stand.

220 A Guide to Zimbabwe Taxation

 g) Relinquishing of a membership interest in a condominium (Co-operative)
A person who relinquishes his or her membership interest in a co-operative in favour
of another person shall be deemed to have sold a specified asset to that other
person for an amount equal to the whole amount received or accruing to him or her
upon relinquishment.

A condominium means a company, partnership or other association of persons that

owns immovable properties including flats, apartments or units of residential
accommodation the members of which have a right of occupation by virtue of their
membership.

17.3 Exemptions (s 10)

Receipt and accruals which are exempt from the tax include the following:

a) Receipts and accruals of bodies, whose receipts and accruals are exempt from
income tax according to the 3rd Schedule to the ITA, see chapter 1, paragraph 1.10.1
(a); (b) and (c). However, receipts of local authorities and Zambezi River Authority
are not exempt.
b) Amounts received or accrued on realization or distribution by the executor of a
deceased estate of a specified asset forming part of such estate. This exempts
deceased estates from capital gains tax in the post-death period.
c) Proceeds on sale of marketable securities being bonds or stock in respect of loans to
the Government, local authority or statutory corporations. The sale of marketable
security includes redemptions of such securities and is thus exempted.
d) Amounts accruing on sale of specified assets by a person carrying on life insurance
business.
e) Amounts received or accrued on sale of any shares in Zimbabwe Development Bank
by an institutional investor who is not ordinarily resident in Zimbabwe.
f) An amount received by a petroleum operator on sale of an immovable property used
for the purpose of petroleum operations to another petroleum operator.
g) The receipts and accruals of a licensed investor from sale of a specified asset
forming the whole or part of the investment to which his investment licence relates.
h) The receipts and accruals of an industrial park developer from the sale of a specified
asset that forms part of or is connected with his industrial park.
i) Amounts received by or accruing to an employee from sale or disposal of his shares
or interest in an approved employee share ownership trust where such sale or
disposal is to the trust.
j) Amounts received by a person on sale of his or her principal private residence by a
person who at the date of disposal is 55 years old or more.
k) Amounts received by or accruing to a person who is of or over the age of fifty-five
years on the sale of any marketable security, other than a marketable security in
respect of the first one thousand eight hundred United States dollars received by or
accruing to him or her in the year of assessment.
l) Any amounts already withheld as a withholding tax.
m) Any amounts accruing to a person who is a holder of capital gains tax clearance
certificate

A Guide to Zimbabwe Taxation 221

 n) Market price of shares sold to an indigenisation partner - disposals of shares under
an indigenisation scheme are exempt from CGT. The exemption is restricted to the
amount by which the fair market price of shares sold to an indigenisation partner or
community share ownership trust or scheme exceeds the actual price at which those
shares were sold‖
o) With effect from 1 January 2017, donation of housing units to any local authority,
approved employee share ownership trust or community share ownership trust or
scheme is now exempt.

17.4 Allowable deductions (s 11)

a) Cost of acquisition or construction of a specified asset
The cost incurred by a taxpayer on acquisition or construction of a specified asset is
allowed against the capital amount of that asset. The cost should, however, exclude
any amounts allowed as deduction for income tax purposes, i.e. capital allowances
previously granted.

b) Inherited assets
Where a taxpayer has disposed a specified asset which has been acquired by way of
inheritance, the taxpayer shall be deemed to have incurred expenditure on such
acquisition to an amount which is equal to the amount at which the specified asset
was valued in the deceased estate concerned.

c) Other acquisitions
Where a person disposing of a specified asset acquired otherwise by way of
purchase or inheritance, the amount to be deducted shall be determine by reference
to the date the act was introduced:
- Prior to 1 August 1981: the fair market value at the time the asset was acquired;
- On or after 1 August 1981: any amount included in respect of such asset, for
income tax or capital gains tax purposes, in the hands of the person from whom it
was acquired.

d) Expenditure on addition, alteration or improvements

Where a taxpayer has incurred expenditure on addition to, alteration or
improvements on immovable property, such expenditure is allowed as a deduction to
the extent that it has not be allowed for income tax purposes.

In the case of sale of shares in a company which owns immovable property any
expenditure incurred personally, by the seller of the shares on additions or alteration
to the property, is deemed to be expenditure incurred by him on additions to the
shares.

e) Inflation allowance
An inflation allowance, calculated at a rate of 2.5% per annum of the cost of a
specified asset as well as the cost of addition to such assets, shall be allowed as a
deduction. The allowance is calculated for each calendar year it remains outstanding.

Example 2

222 A Guide to Zimbabwe Taxation

 Mr Mubango bought a flat in Belvedere on 2 February 2015 for $120 000. In March
2016 he effected improvements at a cost of $30 000. He sold the property in October
2017. Calculate the inflation allowance in respect of the flat for capital gains
purposes.

Solution

Inflation allowance
Cost (120 000*2.5%*3 years) $9 000
Improvements (30 000 * 2.5%*2 years) $1 500
Total $10 500

f) Selling expenses
Selling expenses incurred by a person which arise directly with the disposal of a
specified asset are deductible.

g) Bad debts

Amount of debts due to a taxpayer, which can be proved to the satisfaction of the
Commissioner to be bad, shall be allowed as a deduction. The debts should have been
included in the taxpayer‘s capital amount in the current or previous year of assessment.

h) Cost of appeal
The cost of a successful tax appeal to the High Court or the Special Court which
have been allowed in full or to a substantial degree is allowed as a deduction. The
cost of appeal should not have been recovered from whatever source.

i) Minimum capital gains

Where the capital gain remaining after taking into account all deductions does not
exceed fifty United States Dollars (USD 50), the whole amount of capital gain is
deducted so that no taxable gain remains.

j) Assessed capital losses

Also to be allowed as a deduction is assessed capital losses in respect of a previous
disposal of specified asset. Assessed capital losses are deductible subject to
conditions similar to those discussed under 6.4.2 (b).

k) Circumstances in which no deduction may be made

No deductions shall be made in respect of specified assets which are exempt from
Capital Gains Tax.

17.5 Damage or destruction of an asset (Section 13)

Where amounts accrue to a person in respect of damage to or destruction of a specified
asset, commonly insurance recoveries in respect of buildings which have been damaged or
destroyed, capital gains tax consequences arise as follows:

A Guide to Zimbabwe Taxation 223

If the recovery does not exceed the sum of the original cost and the cost of
improvements, or additions to the asset, such asset is not deemed to have been sold
but the proceeds received as are not expended on acquisition or repair of the
property will reduce the sum of costs referred to above.

Where a specified asset is damaged or destroyed and the Commissioner is satisfied that the
whole or part of the amount in respect of such damage or destruction has been or will be
expended within two years from the date on which the specified asset was damaged or
destroyed, on the purchase of a further specified asset of a like nature in replacement of the
damaged or destroyed specified asset; or the repair of the specified asset, where the
specified asset was damaged, no capital gain arises in respect of amount so expended.

Tax treatments on damage to a specified asset

 Where proceeds received does not exceed the sum of costs of acquisition or
construction and costs of additions or improvement to the property- the property is not
deemed sold. No capital gain arises.
 Where the amount received as compensation is not expended on repair or replacement
of damaged property, the compensation so received will reduce the cost of the property.
The adjusted cost will stand for deduction on subsequent disposal. Inflation allowance is
applied on the adjusted cost on subsequent disposal
 Where part of the proceeds are not expended on acquiring or construction of a similar
property or on repair of damaged property, the sum not expended will reduce the cost of
the property to give an adjusted cost. The adjusted cost will stand for deduction on
subsequent disposal. Inflation allowance is charged on the adjusted cost on subsequent
disposal.

17.6 Fair market price of an asset

Where a person purchases a specified asset at a price in excess of the fair market price, or
where he sell the specified asset at less than the fair market price, Commissioner may, for
the purpose of determining the capital gain or assessed loss of such purchaser or seller,
determine the fair market price at which such purchase or sale shall be taken into account.

17.7 Reconstructions, mergers, etc.

a) Companies under the same control

If the transfer of a specified asset is effected from one company to another under the same
control, 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.

Where a transfer is effected from a company incorporated under the Companies Act
[Chapter 24:03] to a private business corporation into which the company has been
converted in terms of the Private Business Corporations Act [Chapter 24:11]; or vice versa,
the transferor or transferee may elect to use the ‗tax values‘ for tax purposes regardless of
the actual consideration, no capital gains tax arises on such ‗internal‘ transfers.

b) Share swaps

224 A Guide to Zimbabwe Taxation

Where a marketable security such as shares, issued by a company involved in a scheme of
reconstruction as above, is exchanged for no cash consideration for shares, etc., issued by
another company, any shareholder concerned may make an election to transfer the
securities at their ‗tax values‘, thus escaping a potential tax liability.

c) Winding up of a foreign company

There is a further deferment provision though it covers a rare occurrence. It favours a foreign
company , which has carried on its principal business in Zimbabwe, and which is about to be
wound up in order to transfer all of its assets and operation to another company (local or
foreign), the sole consideration being proportionate issue of shares in the latter solely to
members of the former. By election the assets may be transferred, and shares exchanged,
without liability arising at the time.

17.8 Transfer between spouses

Where ownership is transferred between husband and wife, they may elect, regardless of
the actual price, to use a figure for tax purposes the effect of which is that no capital gains
tax arises on such transfer. The principle applies also to a person who transfers a principal
private residence to a 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.

17.9 Transfer of individual‟s immovable property.

Where an individual transfers an immovable asset to a company controlled by him, the
parties may elect, regardless of the actual price, to use a figure for tax purposes the effect of
which is that no capital gains tax arise on such transfer. If the asset is subsequently sold
otherwise than under the same control, the capital gain or loss in the hands of the seller shall
be calculated as if the property had at all times remained in the hands of the first transferor.

The above provision applies where the Commissioner is satisfied that:

- the immovable property was previously used by the individual for the purposes of his
trade; and
- the company will continue to use the immovable property for the purposes of its trade;
and
- the individual controls the company, whether through holding a majority of the company‘s
shares or otherwise.

17.10 Suspensive sale

If a taxpayer disposes of specified assets under a suspensive sale agreement in which the
consideration is payable in instalments, an allowance similar to that discussed under 13.3 is
allowed against the capital amount realised. The allowance is determined by the following
formula:

A x (B- C)
D

A represents an amount deemed to have accrued under the agreement which is outstanding
at year end.

A Guide to Zimbabwe Taxation 225

B represents the capital amount deemed to have accrued under the agreement.

C represents the aggregate sums deductible with respect to specified assets as discussed
under allowable deductions.

D represents total sales value of the specified asset so disposed.

Example 3

Mr Naison Mbengu sold his property during the year ended 31 December 2017 for $120 000,
the property was built at a cost of 80 000 in May 2015. The property was sold with the
following conditions:

a) 50% deposit was to be paid on the date of sale.

b) 25% of the selling price to be paid in two years

c) The transfer of the property to the buyer will only occur upon full payment of the purchase
price.

Calculate the capital gains for Mr Naison Mbengu for the three years.

Solution
$
Gross capital amount 120 000
Less: Cost (80 000)
Inflation allowance (2.5% * 80 000*3years) (6 000)
Capital gains 34 000

2017
Allowance = (120 000- 60 000)* (120 000-86 000)
120 000

= $17 000

Capital gain 34 000

Less: Hire Purchase Allowance (17 000)
Capital gain taxable 17 000

2018
Outstanding debtors at year end 120 000-50%*120 000-25%*120 000 $30 000

Hire Purchase Allowance = 30 000*34 000

120 000

= $8500
$
Allowance b/f from previous year 17 000
Allowance for the year (8 500)

226 A Guide to Zimbabwe Taxation

Taxable capital gains 8 500

2019
Outstanding debtors $120 000 -50%*120 000-25%*120 000-25%*120 000 =Nil
Allowance is therefore nil.
$
Allowance b/f 8 500
Allowance for the year -----
Taxable capital gains 8 500

An allowance so deducted shall be included by the taxpayer as capital amount in the

following year of assessment. Where such agreement is ceded or otherwise disposed of by
the taxpayer the allowance discussed above shall not be allowed.

17.11 Principal private residence (PPR)

A principal private residence means a dwelling of the taxpayer which is proved to the
satisfaction of the Commissioner to:
- to have been that individual‘s sole or main residence throughout the period that he
owned it; or
- to have been that individual‘s sole or main residence for a period of four years or
more immediately before the date of its sale, or for such shorter period immediately
before the date of its sale as the Commissioner considers reasonable in all the
circumstances; or
- to have been regarded by that individual as his sole or main residence, even though
he was prevented from residing in it as consequent of his employment

A principal private residence includes property owned by a taxpayer which surrounds or is

adjacent or is used with the individual concerned primarily for private or domestic purposes
in association with the dwelling referred to above. Thus land such as gardens and grounds
surrounding the dwelling, and associated buildings such as garages, storerooms, staff
quarters are taken as PPR. There is, however a statutory limit of two hectares on the size of
surrounding land.

17.11.1 Roll-over relief

Where a taxpayer disposes of a PPR and part of the consideration received is used to
purchase another PPR the capital gain on disposal shall be reduced in proportion to the
amount of consideration expended. In other words, the part of consideration as is used on
the acquisition of a similar PPR is not subjected to tax. The following formula is used to
calculate the amount to be reduced from the capital gain:

AxB
C
A represents an amount of consideration expended on the acquisition of a similar PPR
B represents the capital gain (as calculated)
C represents the total consideration received on disposal of an asset

A Guide to Zimbabwe Taxation 227

Where the amount expended on acquisition of a new PPR is greater than the consideration
received or accrued on disposal of an old PPR, the whole of the capital gain is not taxed.

Rollover relief also applies where a residential stand is disposed and the consideration is
used to acquire another residential stand. The roll-over principle discussed above applies
where the taxpayer has made an election to that effect.

Where an elderly person disposes a PPR, no capital gains arise.

Example 4
Mrs Graham sold her Marlborough house in June 2017 for $140 000. She had bought the
house in 2014 for $60 000, she built a swimming pool for $15000 in 2016 and a garage for
$16000 in February 2017. She bought another house in Greendale for $120 000. Calculate
the roll-over relief to be allowed to Mrs Graham.

Solution

Gross capital amount 140 000

Less: Cost (60 000)
Inflation allowance ($60 000* 2.5%*4 years) (6000)
Swimming pool (15 000)
Inflation allowance ($15000*2.5%* 2 years) (750)
Garage (16 000)
Inflation allowance (16 000*2.5%*1 year) (400)
Capital gain 41 850

Roll-over relief = $120 000*41 850

$140 000

= $ 35 871

17.12 Roll-over relief (general)

A taxpayer may elect that, where a capital gain has been received by or accrued to him in
respect of a sale by him an immovable property previously used for the purpose of trade and
that the Commissioner is satisfied that before the end of year of assessment next following
sale, an amount equal to whole or part of the consideration received or accrued has been
expended on the purchase or construction of another immovable property to be used for the
purpose of trade, that:
- No capital gain shall be charged to tax where amount expended is equal or greater to the
consideration.

228 A Guide to Zimbabwe Taxation

- Where part of the consideration is expended on the purchase or acquisition of another
asset the capital gain to be taxed is determined after deducting an amount calculate by
the following formula:

AxB
C
A represents part of the consideration expended
B represents the capital gain
C represents the total amount of consideration received or accrued.

17.13 Capital gains withholding tax

Capital gains withholding tax is levied by depositaries, agents or payee as follows:

SPECIFIED ASSET DATE ACQUIRED WITHHOLDING TAX

Immovable asset After 1 February 2009 15% of the price of the
property
Immovable asset Before 1 February 2009 5% *
Listed security Prior to 31 July 2009 5%
Listed security W.E.F 1 August 2009 1%*
Non-listed security Prior to 1 September 2009 10%
Non-listed security W.E.F 1 September 2009 5%

* Withholding tax will be the final tax.

Capital gains withholding tax is due for submission not later than the third working day from
the date when payment has been received. Where the depository fails to withhold the tax
and pays over the whole amount to an agent, then the agent assumes the same
responsibility.

No capital Gains Withholding tax is levied on disposal of exempt specified assets.

17.14 Administration of the Act

Capital gains tax is payable within 30 days of the date of sale of the specified asset.

17.14.1 Registration of depositaries

A depositary who is in the course of business, e.g. property agent, need to apply for a
registration certificate with Zimra as a depositary, within thirty days after he commences that
business. The application must be made in writing and must be accompanied by the
person‘s personal details, and in the case of a company a certificate of incorporation,
memorandum of association and articles of association, business address and the nature
and extend of business as a depositary. A depositary who fails to observe this requirement
shall be guilty of an offence and liable to a fine not exceeding level 3 or to imprisonment for a
period not exceeding one month or to both such fine and such imprisonment.

17.14..2 Tax returns

A Guide to Zimbabwe Taxation 229

A depositary, who may be a conveyance, legal practitioner, estate agent, stock broker,
financial institution or any person, who performs the functions of a depositary, shall furnish
the Commissioner with a return on or before the last day of every month. The following
details must be shown:
- all sales of specified assets which the person has concluded or negotiated on behalf of
any other person; and
- all amounts of capital gains withholding tax the person has withheld.

The functions of a depositary include selling, on behalf of any party, an immovable

property or marketable security and paying whole or part of the price to the seller.
Included in the definition of a depositary is, a building society, the sheriff or Master of
High Court and a stock broker

A depositary, in the consequences of sale of a specified asset is required to withhold a

capital gains withholding tax before paying the amount to the payee concerned. Where a
depositary withholds tax, he should furnish the payee with a certificate showing:
a) the depositary‘s name and address; and
b) the payee‘s name and address; and
c) particulars of the property sold; and
d) the amount of capital gains withholding tax that has been withheld.

An agent who receives from a depositary, an amount representing the whole or part of the
price of a specified asset on behalf of a payee, shall withhold a capital withholding tax where
the tax has not been withheld by a depositary. The agent shall provide the payee with a
certificate showing the same details as those on a certificate issued by a depositary himself.
A person shall be deemed to be an agent of the payee if:
- That person‘s address appears as the address of the payee in the records of the
depositary who paid the amount; and
- The warrant, cheque or draft in payment of the amount is delivered at that person‘s
address.

A depositary or an agent of payee or a payee shall pay to the Commissioner an amount of

capital gains withholding tax, not later than 3 working days from the date the payment was
received.

No capital gains withholding tax shall be deducted from an amount received by a payee if
the payee concerned possesses a clearance certificate. The Commissioner shall issue a
clearance certificate if he satisfied that no capital gains tax is likely to be payable in respect
of the sale or that any capital gains tax so payable is likely to be less than the capital gains
withholding tax required to be withheld; and adequate arrangements have been or will be
made for the payment of any capital gains tax payable in respect of the sale.

17.14..3 Penalties, refunds and credits

Any depositary who fails to withhold or pay the Commissioner any Capital Gains Withholding
Tax shall be personally liable for the whole amount .Penalty for non-payment is 15% of tax

230 A Guide to Zimbabwe Taxation

due. [transfer not yet effected]. If transfer had already been effected the penalty is 100% of
tax due.

The Commissioner shall refund any person if he is of the opinion that such person has been
levied tax in excess of should have been properly chargeable. A claim for refund should be
made within six years from the date on which tax was paid.

Capital Gains Withholding Tax previously levied is granted as a credit against capital gains
liability arising on subsequent assessment. Any excess paid by a taxpayer will be refunded.

17.14.4 Capital Gains clearance certificate

A capital gains tax clearance certificate is issued by Zimra to certain persons who qualify for
an exemption of Capital Gains Tax. The following supporting documents should be furnished
to Zimra before a certificate is issued out:

- Completed CGT 1 form

- Agreement of sale for the property in question.
- Agreement of sale for the new property where partial or full roll-over is claimed.
- Deed of transfer/title deeds for the specified property.
- Receipts as proof of expenditure incurred on additions, alterations and
improvements to the specified asset.
- Letter of undertaking to pay withholding tax where client is represented by a
depositary.
- Receipt for payment of CGT/Withholding Tax.
- Copy of marriage certificate where the transfer is between spouses.
- Where the transfer is between companies under the same control: special board
resolution signed by the Company Secretary or Chairman; agreements of the
proposed mergers or reconstruction; organogram for the organisation; and share
register of the company; and CR 14
- Where the transfer is from an individual to a company under his control: CR 14 and
share register of the company.

17.15 Chapter Round-up

- Capital gains tax is tax levied on gains realised on disposal of a specified asset. A
specified asset is an immovable asset and a marketable security (share, bond or
debenture capable of being traded at a stock exchange).
- Gross capital amount is the proceeds or deemed proceeds received on disposal of a
specified asset. Gross capital amount excludes any recoupment realised for income tax
purposes.
- Inflation allowance is calculated at a rate of 2.5% of the cost of an asset (including cost
of addition) for each calendar year the asset remains outstanding.
- Where the specified asset is damaged or destroyed and amounts are received as
compensation, such asset is deemed to have been sold.
- Where amounts are received as compensation for damage or destruction of an asset,
and the Commissioner is satisfied that the whole or part of the amount so received has
been or will be expended within two years from the date on which the specified asset

A Guide to Zimbabwe Taxation 231

 was damaged or destroyed, on the purchase of a further specified asset of a like nature
in replacement of the damaged or destroyed specified asset; or the repair of the
specified asset, where the specified asset was damaged, the asset shall not be deemed
to have been sold as aforesaid in respect of amounts so expended.
- Transfer of an asset between spouses or companies under the same control does not
give rise to capital gains tax if the parties to the transfer elect to transfer such assets at
their tax values. The same principle applies where assets are transferred by an individual
to a company he controls.
- Where specified assets are disposed and the consideration is settled by way of
instalments an allowance similar to that in hire purchase should be allowed against
capital gain.
- A roll-over relief is granted where part or all of the consideration on sale of a specified
asset is used to purchase or construct a similar asset.
- Capital gains withholding tax of (15% for immovable property, 5% for non-listed security
& 1% for listed security) is levied on the proceeds and collected by a depositary or an
agent and remitted to Zimra.

17.16 Practice questions

Section A: Multiple choice questions

1. During 2017, Chipo sold the following shares:

1. Shares in A Limited, a company listed on the Zimbabwe Stock Exchange (ZSE)

for total proceeds of US$ 35 000. The shares had originally cost US$17 500
when purchased on 1 March 2011

2. Shares acquired in Grey Limited, an unlisted company for total proceeds of

US$31 500. The shares had originally cost US$18 000 when purchased in June
2012.

What is Chipo‘s final capital gains tax liability in connection with the disposal of these
shares?

A US$1 925
B US$2 600
C US$5 225
D US$ 2510

2. S Limited‘s industrial building was completely destroyed by a fire in March 2017. The
industrial building was constructed at a cost of US$70 000 and brought into use on 25
April 2019.

S Limited‘s insurance company paid them compensation of US$60 000 in April 2017 in
respect of the destruction of the building.

What is the amount of capital gains tax payable by S Limited for the year ended 31
December 2017?

232 A Guide to Zimbabwe Taxation

 A US$0
B US$3 000
C US$9 000
D US$2 000

3. Which of the following is NOT a deemed disposal under the Capital Gains Tax Act?

A Disposal by an execution of a will

B Expropriation of an asset
C Maturity or redemption of an asset
D Donation of a specified asset

4. Mr Donald acquired the following properties in January 2012:

Farm land 800 000
Farm building 400 000

What is inflation allowance if he disposed of the property in 2017?

5. Mrs Sibanda had the following investments:

Shares in ZSE listed company $40 000

Shares in Nyiombo investments non-listed $20 000

The shares in both companies were acquired in 2012. She disposed her investments in
July 2017. What is withholding tax chargeable?

A $3000
B $1400
C $4000
D $2400

6. Mr James purchased a house in waterfalls for $60 000 in 2012. He sold it for $80 000 in
2017 and used the proceeds to purchase a similar house in Houghton park for $70 000.
What is the roll-over relief amount?
A $10 000
B $70 000
C $9 625
D $17 500

Section B: Structured questions

Question 1
a) Capital Gains Tax Act deems certain receipts and accruals to be gross capital amount for
capital gains purposes. State such five circumstances and how the amount is determined in
each case for capital gains tax purposes [5]

A Guide to Zimbabwe Taxation 233

Question 2
Mapango Unlimited is a company in the business of timber operating from Marondera town.
On 2 February 2017, the Minister of transport wrote to the company directors that the
ministry was constructing a railway line which will pass through the company premises;
hence some of its properties will inevitably be affected and will face demolition.

The following is a schedule of the affected assets.

ASSET COST DATE OF I.T.V MARKET

ACQUISITION/ VALUE
CONSTRUCTION
¾ of land 240 000 1/1/2014 - 300 000
Administration 60 000 1/6/2014 20 000 80 000
building
Ware house 75 000 1/1/2015 37 500 45 000
Timber 40 000 02/02/2016 30 000 45 000
treatment stalls

Government made an offer to pay a compensation for the affected assets that is equivalent
to their market values.

Additional information
1. The directors of Mapango Unlimited believed that the business, as a going concern had
been materially affected so they decided to sale remaining assets as follows:
Selling price $
¼ of land (remaining) (original cost $80 000) 90 000
1000 shares of $1.00 each in Timbers P/L (acquired 1/1/2015) 3 000

2. The company donated the showroom to a local Football club, Marondera FC, the show
room had a market value of $30 000. The showroom which was acquired in 2015, had a
cost and ITV of 24 000 and 16 000 respectively.
3. Last year Mapango Unlimited sold one of its properties in Rusape, capital loss in respect
of that sale was assessed to be $12 000.
4. On 31 October the Government credited Mapango Ltd with the total agreed
consideration less $60 000 .The amount was paid to Zimra as a withholding tax.

Required
a) At what rate of withholding tax the government should have calculated the withholding
tax for Mapango Unlimited. Calculate the correct withholding tax for the company.
[5 marks]
b) Calculate capital gains tax liability for Mapango Unlimited for the year ended 31
December 2017. [15 marks]

Question 3
Pekkins purchased a Principal Private Residence in Glen Lorne for $300 000 on 1 February
2014 and immediately made the following improvements:

234 A Guide to Zimbabwe Taxation

 a) Additional bedroom wing on 29 February 2016 for $50 000
b) Staff cottage on 30 April 2016 for $20 000
c) Driveway on 24 May 2016 for $25 000.
d) Dura wall with electric fence on 31 May 2016 for $30 000
e) Electric gate on 28 February 2017 for $15 000.
f) Swimming pool for $40 000 on 30 August 2017.

He sold the PPR for $1 000 000 on the 24th of December 2017 and purchased another PPR
in Mandara for $700 000.

Required
a) Calculate the capital gains tax payable by Pekkins on the sale of the specified
assets.
b) Suppose he elected for roll-over, calculate tax payable if any. [22 marks]

A Guide to Zimbabwe Taxation 235

 18

VALUE ADDED TAX

Chapter outline

18.1 Introduction
18.2 Registration of suppliers
18.3 Tax periods
18.4 Deemed supplies
18.5 Value of supplies
18.6 Time of supply
18.7 Standard rated supplies
18.8 Zero rated supplies
18.9 Exempt supplies
18.10 VAT on Imports
18.11 Imported services
18.12 VAT on fringe benefits
18.13 Input tax
18.14 Pre-incorporation VAT
18.15 Export VAT
18.16 Accounting documents
18.17 Returns and assessment
18.18 Payment of taxes
18.19 VAT deferment
18.20 Adjustments and other matters
18.21 Fixed property transactions
18.22 Fiscalised electronic registers
18.23 VAT Withholding taxes
18.24 Administrative issues
18.25 Chapter Round-up
18.26 Practice questions

18.1 Introduction
Valued added tax (VAT) is tax levied on the supply of goods and services, including imports.
VAT is a form of consumption tax, i.e. levied on consumers. VAT is levied on each stage of
the value chain; only registered operators are refunded VAT suffered on inputs supplied to
them. VAT is triggered by a supply of goods or services in the course of furtherance of a
trade. VAT is also chargeable on importation of goods and services.

Trade is defined as:

- In the case of any registered operator, other than a local authority, any trade or activity
which is carried on continuously or regularly by any person in Zimbabwe or partly in
Zimbabwe in which goods or services are supplied to any other person for a
consideration; or
- The supply of goods or service by any Public authority, e.g. Zesa, Telone etc.

236 A Guide to Zimbabwe Taxation

- In the case of a local authority, the supply of water, supply of services like refuse
removal or disposal of garbage, including the supply of goods or services incidental to
those discussed above.

18.2 Registration of suppliers

18.2.1 Compulsory registration

The registration threshold for a supplier is an annual supply of $60 000. A taxpayer who
achieves that threshold for supplies made by him in the previous 12 months is required to
register within 30 days from the date he becomes eligible.

Again, a taxpayer is required to make a futuristic test as to whether he is eligible to register

for VAT. Thus, a taxpayer who believes that he is likely to achieve the above threshold in 12
months is required to apply for VAT registration. For instance, a taxpayer, who achieve, say,
a monthly supply of $5 000, should apply for VAT registration.

A taxpayer should satisfy the Commissioner that such threshold will be achieved not as a
result of:
- any cessation of, or any substantial and permanent reduction in the size or scale of, any
trade carried on by that person; or
- the replacement of any plant or other capital asset used in any trade carried on by that
person; or
- abnormal circumstances of a temporary nature.

A taxpayer who fails to register for VAT will attract a fine not exceeding US$30 for every day
the taxpayer remains unregistered. The penalty is calculated from the first day a taxpayer is
due for registration up to 181 days. If after 181 days the taxpayer remains in default, he shall
be liable, on conviction, to a fine not exceeding level seven or to imprisonment not
exceeding twelve months or to such fine and such imprisonment.

18.2.2.1 VAT Registration Moratorium

With effect from the 1st January, 2017, and for a period of 6 months ending on the 30thJune,
2017, any person liable to VAT registration but who failed to apply timeously for registration
before the 1st January, 2017, will not be subject to any penalties for failure to do so,
including the charging of tax deemed to be payable from the date when the Commissioner
deems the person to have become liable for registration. This moratorium applies to persons
whose taxable supplies are between US$60 000 and US$ 240 000 per annum prior to
registration and who have applied voluntarily.

18.2.2 Voluntary registration

A taxpayer whose turnover is less than the $60 000 threshold can apply for a voluntarily
registration. The Commissioner may however refuse registration unless the following
conditions are met:
- Must have a fixed address,
- Must have a bank account for business purposes
- Must keep proper books of accounts relating to trade carried by him
- Must have performed his duties under the Sales Act without defaulting.

A Guide to Zimbabwe Taxation 237

18.2.3 Cancellation of registration
An operator may apply for cancellation of registration if the value of taxable supplies falls
below the $60 000 limit, in any consecutive period of 12 months. The Commissioner may
deregister an operator if:
- The business closes down and will not commence again within the next 12 months; or
- The business never actually commenced or will not commence within the next 12
months; or
- The operator was voluntarily registered but can no longer meet the set conditions.

An operator is required to notify Zimra in writing within 21 days of its intention to cease trade
or of the changed circumstances warranting deregistration. Deregistration will be effected on
the last day of the operator‘s tax period. Upon deregistration, an operator should surrender
the registration certificate and pay all outstanding VAT liabilities.

18.2.3.1 Implication of cancellation of registration

- All goods and services at hand immediately before cancellation of registration are
assumed (deemed) sold by the registered operator.
- This means that the registered operator has to pay VAT on such goods/services even
before they have been disposed of. The goods include trading stock and assets.
- Services include real rights in those goods, such as trademarks or copyrights.
- The value of the goods or services is the lower of cost or open market value.
- Cost includes tax (VAT) paid on their acquisition by the registered operator.
- The reason why an registered operator has to pay VAT on assets on hand at cessation
of trade is that he would have been allowed to claim input tax at their acquisition.
- It therefore means that no VAT would be due on goods where VAT paid on their
acquisition was denied as input tax. An example would be equipment for the canteen
that offers free staff meals.
- Where the registered operator dies and the business is managed by a trustee or
executor, the business assets are not deemed sold, hence no VAT would be due at the
time of death.

18.2.4 Responsibilities of a registered operator

A registered person is obliged to comply with the following requirements of the VAT Act:
- Keep accounting records for a period of at least six years after the tax period to
which they relate
- Complete and submit VAT returns as per requirement
- Calculate and remit the VAT due to the Commissioner General of ZIMRA on or
before the due date
- Issue tax invoices, debit notes or credit notes within 30 days from the date of
supply.
- Account for VAT if one sells or retains stock or assets when one ceases to be
registered for VAT
- Advise the Commissioner General of any changes in business details
- Ensure that all prices quoted include VAT, where applicable.
- Advise the Commissioner of any changes in business details, such as change of
address, addition of new partner, cessation of trade etc, within 21 days.

238 A Guide to Zimbabwe Taxation

 - Provide any business records as and when requested by the Commissioner to
do so.

18.3 Tax periods

Upon registration, an operator is allocated a tax period. A tax period is a regular interval for
which a registered operator is required to submit returns and account for VAT. There are
four tax periods, under which a registered operator can submit his/ her returns, namely,
category A, B, C and D.

i. Category A – Registered operators in this category are required to submit

returns for each of the two monthly periods ending on the last day of:
January, March, May, July, September and November.

ii. Category B – Registered operators allocated to this category are required to

submit returns for each of two monthly periods ending on the last day of:
February, April, June, August, October and December.

iii. Category C – Registered operators under this category are required to

submit returns at the end of each month. An operator with a turnover
(excluding VAT) amounting to US$240 000 p.a. is required to have this one-
month tax period. A registered operator who apply to the Commissioner to be
allocated a one-month tax period or who is likely to exceed that amount in the
period of twelve months beginning on the first day of any such month. An
operator who has repeatedly defaulted in performing any of his obligations as
a registered operator is also likely to be placed in this category.

iv. Category D – Certain registered operators carrying on seasonal activities

may apply for this tax period. These include:
- Any registered operator whose trade consists solely of farming activities
- The activities of any such branch, division or separate trade consist solely
of agricultural, pastoral or other farming activities and activities of that kind
are not carried on in any other branch, division or separate trade of the
registered operator or the association not for gain.
- Any trade, branch or division of an association not for gain, which is
treated as a separate person for registration purposes and whose
activities consists solely of farming activities provided that any other
trades, branches or division of such association not for gain do not consist
of farming activities.
- The total turnover (excluding VAT) of such registered operator, from all
farming activities does not exceed or is not likely to exceed $120 000 p.a.
- The registered operator may not have been allocated a one –month tax
period (Category C)
-
18.3.1 Change of tax periods

The Zimbabwe Revenue Authority may, on application by the registered operator, approve a
change of tax period from either one of the two-month tax period to the other (that is from
Category A to B, or vice versa) or from Category D to Category A, B, or C. The first return

A Guide to Zimbabwe Taxation 239

after the change should not include any period for which a return has previously been made.
The effect of this is that an irregular period for the return is made for the change-over period.

18.4 Deemed supplies

The Act has specified circumstances where an operator may be required to declare a supply
even though no actual sale of goods or services has taken place. These are called deemed
supplies. The following are some of these:
- Goods sold by an auctioneer to recover debts,
- Short-term insurance claims that have been paid in connection with the enterprise (for
example, insurance pay out received for damaged or stolen stock (indemnity insurance)
- Repossession of goods sold under a credit agreement,
- Subsidies or grants from a local or public authority used in making taxable supplies,
- A disposal of a business due to death, liquidation or sequestration of an operator,
- Disposal of a business as a going concern.
- Transfer of goods or services by a registered operator to a branch situated outside
Zimbabwe, this applies to a branch which maintains an independent accounting system.
- Where goods, originally sold under a hire purchase or credit instalment are repossessed,
such repossession is deemed to be a supply made by a debtor to the person who is
exercising his right of repossession.
- Betting – where a person bet an amount on an outcome of a race or any other event, a
supply of a service is deemed to be made by a person with whom a bet is placed.
- Where goods are imported by an agent (who is a registered operator) on behalf of a
principal is deemed to a supply made by the agent.

18.5 Value of supply

The value of supply is a consideration in the form of money received, excluding VATA
Supply not expressed in monetary terms, e.g. barter or donation is valued at the open
market value of an item received or given away. Where a supply is made for no
consideration, the value of supply is nil, unless the supply is between connected parties and
the goods or services are supplied for a nil consideration, the value of supply is determined
as follows;
- If the recipient can claim input tax – the value of supply is the consideration,
- If the recipient cannot claim input tax – the value of supply is the open market value.

18.6 Time of supply

The time of supply determines the tax period a transaction will fall in. The general rule of the
time of supply is the earlier of the time an invoice or the time any payment is received. The
following are some exceptions:

18.6.1 Connected parties

In the case of connected parties, goods are supplied when they are made available to the
customer and services are supplied when they are performed.

18.6.2 Successive supply

The tax point for a successive or continuous supply (e.g. audit services), is the earlier of the
receipt of a payment for the supply or the issue of a tax invoice.

240 A Guide to Zimbabwe Taxation

18.6.3 Coin operated machines
For the recipient of the service, the time of supply is deemed to be the time the coin is
inserted in the machine and for the supply of a service, the time supply is the time when the
coins are removed from the machine.

18.6.4 Construction contracts

Where goods or services are supplied in the construction, repair, improvement, erection,
manufacture, assembly or alteration of goods are supplied under any agreement or law
which provides for the consideration for that supply to become due and payable in
instalments or periodically in relation to the progressive nature of the work those goods or
services shall be deemed to be successively supplied. The tax point for such supply is the
earliest of receipt of any payment for the stage reached or the issuing of a tax invoice.

18.6.5 Instalment credit

Where goods are supplied under an instalment credit agreement, in which the consideration
for the supply is payable in instalments, the tax point is the earliest of receipt or the issue of
a tax invoice relating to that payment.

18.6.6 Fixed property

Where a fixed property or a real right in property is supplied under a sale agreement, the tax
point is the date of agreement, provided that no consideration has been paid or the property
has not yet been transferred.

18.6.7 Other supplies

The following rules apply:
- Betting – the time of supply is the time when payment is received by the supplier for the
supply.
- The supply by a debtor on subsequent repossession of goods sold under instalment
credit – the time of supply is deemed to be the day on which the goods are repossessed.
- Supply under a lay-bye sale – time of supply is the date goods are delivered, if the
agreement is cancelled, time of supply is the date the agreement is cancelled.

18.7 Standard supplies

Transactions are classified as either taxable or exempt, for VAT purposes. Taxable supplies
are standard rated or zero rated. Generally, every supply is taxed at the standard rate, i.e. at
15%. A registered operator is entitled to claim input tax suffered by him on goods or services
acquired by him in the course of furtherance of his trade for the production of taxable
supplies.

18.8 Zero rated supplies

Zero rated supplies are taxed at 0%. A supplier of zero rated items must register as an
operator so as to be eligible to claim any input tax that may be suffered by him. The
registration requirements as discussed before apply the same for such suppliers. The
following are examples of zero rated supplies:

18.8.1 Exported movable goods

A Guide to Zimbabwe Taxation 241

Movable goods that are supplied under a sale agreement credit agreement are charged to
tax at zero rate, provided that they are sold to an export country or having been exported.

18.8.2 Repairs or renovations

Goods supplied in the course of renovating, repairing or modifying of any foreign going
aircraft or to goods temporarily imported into Zimbabwe is charged VAT at zero per cent.

18.8.3 Goods supplied under a rental agreement

The leasing of goods in an export country under a rental agreement, charter party or
agreement for chartering is zero rated. The goods must be used exclusively in an export
country. The goods are also zero rated if they are used by such lessee or other person
exclusively in a commercial, financial, industrial, mining, farming fishing or professional
concern conducted in an export country.

18.8.4 Sale of a business as a going concern

A supply to a registered operator of a trade or part of a trade, as a going concern, is zero
rated. The supplier and the recipient should have agreed in writing that such trade is
disposed as a going concern.

18.8.5 Supply to the Reserve Bank of Zimbabwe

The supply of gold in the form of bars, blank coins, ingots, buttons, wire, plate or granules or
in solution, which has not undergone any manufacturing process other than the refining
thereof or the manufacture or production of such bars, blank coins, ingots, buttons, wire,
plate, granules or solution; to the Reserve Bank of Zimbabwe or any bank registered under
the banking act is zero rated.

18.8.6 International transportation of goods and passengers

The supply of transport services of passengers and goods from a place outside Zimbabwe to
another place outside Zimbabwe; or from a place in Zimbabwe to a place in an export
country; or from a place in an export country to a place in Zimbabwe is zero rated.

18.8.7 Local air transport as part of international transport

The transportation of goods or passengers by aircraft from within Zimbabwe to a destination
within Zimbabwe is zero rated.

18.8.8 Ancillary transport services

The supply of transport services or ancillary transport service directly in connection with the
export of goods outside Zimbabwe or the import of goods into Zimbabwe to a non-resident of
Zimbabwe and who is not a registered operator, is zero rated.

Ancillary transport services means cargo inspection services, preparation of customs

documentation and storage of transported goods or goods to be transported.

18.8.9 Certain basic foodstuff

Supply of certain basic foodstuff, i.e. food for human consumption, are zero rated, provided
that they are not supplied for immediate consumption or as part of standard rated supply.

242 A Guide to Zimbabwe Taxation

Thus, operators supplying food in the course of catering (hotels, restaurant or take-away)
are standard rated.

The following are some of the zero rated foodstuffs:

- Uncooked meat, poultry and edible meat offal, which is not put up in bottles or tins, nut
not including any uncooked bacon, ham, polony, sausages or meat.
- Uncooked fish and shellfish, whether fresh, chilled, frozen, dried or smoked, but not put
in bottles or tins.
- Milk and milk products – milk and cream. Not concentrated, not containing added sugar
or other sweetening matter.
- Butter and other fats and oils derived from milk and milk products.
- Maize (corn) floor, cereal and pellets of maize, groats meal, grain sorghum, wheat and
meslin flour, rice in the husk (paddy or rough), husked rice, semi-milled or wholly milled
rice, whether or not polished, broken rice.
- Bird‘s eggs in shells, fresh, preserved or cooked.
- Vegetables – potatoes, tomatoes, onions cabbages, lettuce, carrots, mushrooms, olives
parsley, peppers, dried vegetables etc.
- Fresh fruits which are not dried, preserved or otherwise prepared not put in bottles or tins
– bananas, pineapples, avocados, guavas, orangs, grapefruits, etc.
- Tea whether or not flavoured.
- Soya-bean oils, groundnut oils, sunflower oil and other fixed vegetable oils.
- Margarine , excluding liquid margarine
- Food preparation of flour, maize meal, starch or malt extract- mahewu.
- Bread, pastry cakes, biscuits and other bakers ware.
- White Sugar- In 2017, white sugar was categorized as zero rated retrospectively from 1
February 2010.
- Nuts, groundnuts and other seed whether or not mixed together, ground-nut butter
(peanut butter).
- Homogenised composite infant food preparations
- Table salt and coarse salt.
- Soya Bean Crude Oil – In order to alleviate the costs associated with importation of
crude oil, thereby enhancing local refining of cooking oil, it is proposed to zero rate and
suspend customs duty on imported soya bean crude oil.

18.8.10 Farming products

The supply of the following goods which are used or consumed for agricultural purposes are
zero rated.

- Animal remedy – animal vaccines or medicines used for treatment, cure or maintenance
of livestock. Livestock includes poultry, fish or wild animals, including wild birds.
- Fertilisers, pesticides, herbicides and chemicals
- Plants- goods consisting of living trees and other plants. Bulbs, roots, cuttings and
similar plant products in any form used for cultivation.
- Seed in a form used for cultivation.
- Tractors used for agricultural purposes and parts thereof.
- Agricultural equipment or machinery.

A Guide to Zimbabwe Taxation 243

18.8.12 Goods for use by disabled persons
The following supply of goods for use by disabled person is zero rated:
- Printed books, brochures, leaf-lets and similar printed matter, whether or not in single
sheet.
- Newspapers, journals and periodicals, whether or not illustrated or containing advertising
material.
- Maps and hydro graphic or similar charts of all kinds, including atlases, wall maps,
topographical plans and globes, which are printed.
- Typewriters, and word processing machines
- Motor vehicles and motor vehicles parts specially adapted for use by disabled persons.
- Contact lenses, spectacles lenses, optical fibre cables, sheets and plates, etc.
- Artificial parts of the body like, artificial teeth, artificial legs, hearing aids, crutches,
surgical belts and trusses.
- Frames for mounting spectacles, goggles, etc.
- Wrist watches, pockets watches any other watches including stop watches.

18.8.12 Supply to a branch or subsidiary in an export country

Where goods are supplied to a branch or subsidiary, situated in an export country, such
supply is zero rated. The supply must have been made by a public authority or Private
Voluntary Organisation, where the goods supplied are similar to other taxable supplies as
may be supplied by a person other than that public authority.

18.8.13 Supply of medicines

Where goods supplied consist of medicines or allied substances within the meaning of the
Medicines and Allied Substances Control Act [Chapter 15:05], such supply is zero rated.

18.8.14 Local diamond sales

With effect from 1st January 2017, local sales of rough diamonds are zero rated to
encourage beneficiation/ value addition.

18.9 Exempt supplies

The following supplies are exempt from VAT:

a) Supply of any financial services

Financial services are services supplied by a banking institution, building society,
insurance company, insurance broker, agent or actuary, etc. With effect from lst
September, 2017, financial services, which are exempt exclude:

- the supply of short-term insurance; and

- the supply of financial services other than the supply of short-term insurance
which, but for this paragraph, would be charged with tax at the rate of zero
per centum.

b) Donated goods/ services

Where goods or services are supplied by a non-profit making association, the goods
of which were donated to it is an exempt supply. If goods are manufactured by the

244 A Guide to Zimbabwe Taxation

 association, an exemption applies provided that at least 80% of the goods used in
making or manufacturing such other goods consists of donated goods.

c) Supply of accommodation

The letting and hiring of residential accommodation, i.e. houses, flats etc. is an
exempt supply. Also exempt is the supply of a residential accommodation to an
employee by an employer where the recipient is entitled to occupy the
accommodation as a benefit of his office or employment and his right thereto is
limited to the period of his employment or the term of his office or a period agreed
upon by the supplier and the recipient.

A dwelling means any building, premises, structure or any other place, or any part
thereof, used predominantly as a place of residence or abode of any natural person
or which is intended for use as a place of residence or abode of any natural person,
together with any appurtenances or structure belonging thereto and enjoyed
therewith, but does not include a commercial rental establishment.

d) Supply of leasehold land

The supply of land under a lease agreement for the purpose of accommodation in a
dwelling erected or to be erected on the land is exempt. The supply of land under a
sale agreement is however, not exempt.

e) Supply of land together with improvements

The supply of land together with any improvements situated outside Zimbabwe,
whether by way or sale or lease is exempt from VAT.

f) Supply of transportation services

The supply of transport service to a fare-paying passenger together with his or her
personal effects by railway or road is exempt from tax.

g) The supply of educational training services

The supply of educational training services by any registered institution which offers,
primary, secondary, tertiary education or technical education including training of
physically or mentally handicapped is exempt from VAT.

h) Medical supplies
The supply of medical services by any person or institution is exempt.

i) Fuel
j) Domestic electricity
k) Water supplied through a pipe for domestic use
l) Rates charged by a local authority
m) Fuel and fuel products
n) The supply of goods and services to his Excellency the President of the Republic of
Zimbabwe
o) Commission charges on tobacco sales at auction floors.
p) Revenue arising from the operation of a temporary casino licence

A Guide to Zimbabwe Taxation 245

 q) Supply by employee organisations
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 exempt. Employee organisations includes employee associations,
clubs etc.

18.10 VAT on importation of goods

Value Added Tax is levied on imports. The rate to be applied depends on the category in
which the goods are classified. For instance, standard rated goods are taxed at 15%. On
importation of certain capital goods or equipment VAT may be deferred for a minimum
period of ninety days. The value to be attached on imported goods is determined by the
value attached to such goods for import duty purposes (VDP) plus the duty charged
excluding surtax.

Example
On the 16th of May 2017, the company imported 100 machines from India through
Beitbridge and were put in the bonded warehouse. The value for customs purposes was $8
000 each and the rate of duty was 40% and VAT 15% respectively. Calculate value for duty
purposes. Show duty and VAT payable to Zimra for the year.

Solution

Value of 100 machines is 100*8 000 = $800 000

Duty = $800 000 *40% = $320 000

VAT 15%* (800 000 +320 000) = $168 000

18.10.1 VAT exemption on imports

a) Goods imported by international relief organisations for free distribution among
persons in need.
b) Goods for the exclusive use of:-
- Governments other than the Government of Zimbabwe;
- foreign diplomatic missions and other international representatives designated by
the Minister responsible for foreign affairs;
- the Head of State of Zimbabwe;
- the former Heads of State of Zimbabwe;
- the Government of Zimbabwe, covered by a Government Duty Free Certificate
issued by the Secretary of the Ministry concerned;
c) Personal effects and sporting and recreational equipment, new or used of residents
returning into Zimbabwe and non-residents for their own use during their stay in
Zimbabwe.
d) Goods imported into Zimbabwe by residents or non-residents with a value of not
more than the traveller‘s rebate which is two hundred and fifty dollars.
e) Personal and household effects including one motor vehicle but excluding industrial,
commercial or agricultural plant, alcoholic beverages and tobacco goods property of
an immigrant, including a returning resident of Zimbabwe after an absence of two

246 A Guide to Zimbabwe Taxation

 years or more, and members of his family, imported for his own use on change of his
residence to Zimbabwe. Provided that the said goods are not disposed of within a
period of two years as from the date of entry.
f) Containers temporarily imported; human remains; goods which in the opinion of the
Commissioner are of no commercial value; goods imported under an international
carnet.
g) Goods forwarded free of charge to private voluntary organisation or religious
organisation.
h) Goods passing through the country to an export country
i) Goods brought back by an exporter having been previously manufactured in
Zimbabwe or imported into Zimbabwe without having been subjected modification or
manipulation.
j) Spare parts and goods imported by Air Zimbabwe (Private) Limited.

18.11 Imported services

Imported services means a supply of services that is made by a supplier who is resident 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 otherwise than for the
purpose of making taxable supplies.

It is the recipient of the services who is resident in Zimbabwe who has the responsibility of
accounting for VAT on the supply made to him and payment the VAT to ZIMRA. VAT on
imported service is a form of output tax.

The date of the supply is deemed to take place at the time an invoice is issued or payment is
made, whichever is earlier. The value to be placed on the supply is the higher of the
consideration for the supply or the open market value of the supply.

Where a person caries out an activity outside Zimbabwe which are not his ordinary business
activities, and in the course of carrying those activities, services are rendered to him, which if
they have been rendered to a person resident in Zimbabwe would have qualified as imported
services, such services will be treated as imported services at VAT is charged as
appropriate.

VAT is not chargeable on imported services under the following circumstances:

 If the supply had been treated as an ordinary supply of goods or services and VAT
would have been already charged.
 If the supply would have been categorised as an exempt or zero rated supply had it
been made in Zimbabwe.
 The supply of the services was not meant to provide taxable supplies, e.g. supply of
services of entertainment nature.

Example
During the month of September 2, 2017, the directors of Bingo (Private) limited hired a
foreign company Chipps (Private) Limited to provide professional services of administration
nature and Chipps (Private) Limited issued an invoice dated 30 September 2017 for $50 000
and the Zimbabwe company made payment on 6 November 2017 for the services.

A Guide to Zimbabwe Taxation 247

Required:-
Which company should account for VAT payable to ZIMRA and calculate the VAT payable
by the responsible company. By what date should the VAT be accounted for? Specify the
type of services provided by the company?

Solution
Bingo (Private) Limited should account for VAT. VAT payable is 15%*50 000 =$7 500
VAT should be accounted for by 30 September. The service is an imported service.

18.12 Fringe Benefits – Motoring (Sect 17(3) of VATA)

Where an employer provides motor vehicle for use to its employees as a benefit, VAT is
chargeable on the deemed motoring benefit at the standard rate. The benefit is valued
based on the deemed cost in the hands of the employer in relation with the engine capacity
of the car. The principle applies to any benefit which is granted by an employer to an
employee which is in the form of a good or service, provides such goods or services are do
not fall in the categories of exempt or zero rated supplies or are of entertainment nature.

Example

ABC Ltd is a VAT category C registered operator, at the beginning of 2017 tax year the
company acquired the following passenger vehicles used by its senior management team:
show the VAT implication of the purchase of the passenger vehicle in the first tax period of
2017.

Cost US$

Two Toyota double cab vehicles, engine capacity 3200cc 90 000

Three Nissan sedan vehicles, engine capacity 2000cc 35 000
One Mazda sedan vehicle, engine capacity 1300cc 8 000
133 000
Solution
VAT output tax:
Toyota double cab 2*9 600*15/115*1/12 = 209
Nissan sedan 3*4 800*15/115*1/12 = 157
Mazda sedan 3 600*15/115*1/12 = 39
Total output tax 405

18.13 Input tax

Input tax is VAT suffered by a registered operator, as charged upon him by any supplier on
taxable supplies supplied to such registered operator, or VAT payable by such registered
operator on importation of goods by him.

Input tax is also defined as the tax fraction applicable to a consideration deemed to be for
the supply, where goods previously sold under a credit instalment agreement are
repossessed. Note that, where goods are repossessed as discussed above, a supply is

248 A Guide to Zimbabwe Taxation

deemed to have been made by a debtor to the person exercising his right of possession. A
tax fraction is determined by the following formula:

r/(100 + r), where r is the rate of VAT, i.e. standard rate (15%)

Only registered operators are eligible to claim input tax.

18.13.1 Conditions for claiming input tax

Input tax suffered by a registered operator is claimable subject to the following conditions:

- An operator must be a holder of a valid tax invoice, credit note, or debit note in respect of
a supply made to him. Input tax is claimable within the tax period or 12 months from the
date of the supply, whichever is longer. If the operator does not receive an invoice within
such period or have not claimed the tax he will forfeit the claim.
- The bill of entry or other documents required in terms of the Customs Act for the
importation of goods which has been delivered and is held by the registered operator
making the claim or by his agent at the time that any return in respect of that importation
is furnished. With effect from 1 January 2017, the time period within which a Bill of Entry
can be used to claim input tax has been limited to twelve months.
- Sufficient records are maintained.
- An operator who gets a refund is the one who was charged and paid input tax, unless
the supply was for second hand items by a non-registered operator.

18.13.2 Permissible deduction of input tax

a) Non-registered persons
A non –registered person cannot claim input tax suffered.

b) Exempt supplies
Taxpayers cannot claim input tax on exempt supplies.

c) Input tax appropriation

Where goods or services acquired or imported by a registered operator partly for
consumption and partly for use in course of making taxable supplies, input tax in respect
of such goods acquired or imported cannot be claimed in full. In such circumstances, an
operator should claim a proportion of input tax equivalent to the proportion of goods
which are used in making taxable supplies. However, where the proportion of goods
used in making taxable supplies is at least 90%, the operator will have to claim the full
input tax suffered.

d) Goods or services acquired for entertainment purposes

Input tax suffered on goods or services acquired by a registered operator to the extent
that those goods or services are acquired for the purposes of entertainment, is not
allowed as an input tax. Entertainment means the provision of any food, beverages,
accommodation, entertainment, amusement, 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 Guide to Zimbabwe Taxation 249

 The following are exceptions to the general rule:
- meals or refreshments supplied by operators of transport
- registered operators in such business of supplying entertainment
- Meals or refreshments by organizers of seminars and similar events subject to costs
being covered by entrance fees or admission fees.
- Where goods are supplied by a local authority for the purpose of providing sporting or
recreational facilities or public amenities to the public.
- Where goods or services are acquired by a Private Voluntary Organisation for the
purpose of making its taxable supplies.

k) Fees or subscriptions
Input tax incurred in respect of fees or subscriptions paid by a registered operator for his
continual membership to any club, association or society of a sporting, social or
recreational nature is not deductible as an input tax. The operator is however entitled to
claim VAT incurred by him on subscriptions to membership of trade association or
professional body, as long as membership relates to taxable supplies made by the
registered operator.

d) Medical services
Input tax suffered on any goods or services acquired by a registered operator, who is a
medical society or a benefit fund, for the purpose of a supply by such operator of any
medical or dental services or services directly connected with such medical or dental
services or of any goods necessary for or subordinate or incidental to the supply of any
such services may not be claimed. In addition, input tax may not be claimed in respect of
any payment or request for reimbursement of expenses incurred by members covered
under a scheme in respect of medical and dental services.

e) Passenger Motor Vehicle

Input tax suffered by a registered operator on acquisition, importation or hiring of a
passenger motor vehicle is not deductible.

VAT incurred on acquisition of the vehicles specially excluded under the definition of
PMV is claimable, as long it is used in the making of taxable supplies. The operator can
also claim VAT incurred by him on the PMV running expenses i.e. repairs, maintenance
and insurance, including the modification or installation costs incurred on the PMV after it
is delivered.

A motor vehicle acquired by the registered operator for demonstration purposes or for
temporary use prior to a taxable supply by such registered operator shall be deemed to
be acquired exclusively for the purpose of making a taxable supply. A motor dealer is
also allowed to claim VAT incurred on vehicles acquired in the ordinary course of his
trade.

18.14 Pre-incorporation VAT (Section 19 of VATA)

Section 19 of the Value Added Tax Act [Chapter 23:10] allows registered operators to claim
input tax on goods or services acquired before incorporation.

250 A Guide to Zimbabwe Taxation

The following are conditions to be met for input tax to be claimed:

 VAT should have been charged in connection with pre-incorporation expenses of the
company, or
 VAT should have been charged to the purchaser at the acquisition of the goods or
services on behalf of the company prior to its incorporation.
 The company must have reimbursed the whole amount paid by the purchaser
referred to above.
 The goods or services should be for the purpose of trade and the company should
not have been for any other purpose.

However input tax is not claimable where:

Input tax shall not be claimed in respect of any such goods or services where:

 The supply of such goods or services by that person is a taxable supply. If it is a

taxable supply, the person supplying the goods or services should be a registered
operator who will be required to charge VAT and issue a tax invoice.
 The goods or services were acquired more than six months prior to incorporation of
the company receiving the goods or services.
 There are no sufficient records or proof of entitlement to claim input tax, for instance,
proof of reimbursement or proof that goods or services are related to the company‘s
trade.

18.15 Export VAT

a) Unbeneficiated chrome

The export of unbeneficiated chrome attracts a VAT at a rate of 20% of the value of
such chrome, the tax is payable by the supplier. Unbeneficiated chrome means
chrome ore and fines which have not been subjected to smelting, crushing, milling
and washing to remove waste material.

b) Unbeneficiated Platinum and Rough Diamonds

With effect from 1st January 2017, a 15% VAT on exports will be levied on exports of
unbeneficiated platinum and rough diamonds.
With effect from 1 January 2017 collection of VAT on unbeneficiated platinum has
been deferred to 1 January 2018.

c) Unprocessed hides

a. With effect from 1st January 2017 unprocessed hides will be levied an export
b. tax of $0,75 per kg.

18.16 Accounting documents

A Guide to Zimbabwe Taxation 251

18.16.1 Tax invoices (Sec 20(4))
A registered operator making a taxable supply to a recipient shall furnish such recipient with
a tax invoice within 30 days of such supply. The following points are notable:
- It is not lawful to issue more than one tax invoice for each taxable supply.
- The supplier or recipient should be in a position to provide a copy, marked ‗copy‘ in the
event that the original invoice is lost
- Where goods previously sold under a hire purchase agreement are repossessed, and
that both the recipient and supplier under the deemed supply are registered operators,
the recipient shall create and furnish a document with particulars of an invoice to the
supplier.

Particulars of a tax invoice

A tax invoice must contain the following particulars:

- The words ―tax invoice‖ clearly shown

- Name address and registration number of the supplier
- Name and address of the recipient
- Individual‘s serialised number and date of issue
- Description of goods or services supplied
- The quantity or volume of goods or services supplied
- The value of the supply, the amount of tax charged and the consideration for the supply.

A recipient, who is a registered operator, of taxable supplies made to him by a supplier who
is also a registered operator, may create a document purporting to be an invoice and
containing the features of a tax invoice as discussed above, that document is deemed to be
an invoice provided by the supplier.

With effect from 1 January 2017, taxpayers will be penalised for failure by suppliers to issue
VAT invoices with prescribed features.

18.16.2 Debit and credit notes

Generally, where goods supplied are returned to a supplier, a credit note may be issued by
the supplier to the recipient or such recipient may issue his or her supplier with a debit note
to show that amounts payable to the supplier will be reduced.

For VAT purposes, a debit or credit note may be issued under the following circumstances:
- The supply has been cancelled
- The nature of supply has been cancelled; or
- The previously agreed consideration for that supply has been altered by agreement with
the recipient (including a discount).
- Where part of, or all of the goods or services supplied are returned to the supplier
(including returnable containers).

However, a debit or credit note may not be issued unless the supplier has issued a tax
invoice and tax charged is incorrect or the supplier has furnished a return in which the
correct amount of output tax was accounted.

Particulars of a credit or debit note

252 A Guide to Zimbabwe Taxation

A debit or credit note must contain the following particulars:

- The words ―credit note‖ or ―debit note‖ clearly shown.

- The name, address and registration number of the registered operator
- The name and address of the recipient
- The date on which the credit note or debit note was issued
- A brief explanation of the circumstances giving rise to the issuing of a credit or debit
note.
- Any referencing to identify transaction which gave rise to the credit or debit being issued.

The following special points apply to credit note or debit notes:

- It shall not be lawful to issue more than one credit note or debit note for the amount of
the excess.
- Where the original credit note or debit note is lost, the supplier or recipient, as the case
may be, may provide a copy clearly marked ‗copy‘.
- A supplier shall not provide the recipient with a credit note where the adjustment in the
consideration for the supply as shown on the invoice arises from a cash discount being
taken by the recipient.
- Where a recipient, who is a registered operator, creates a document purporting to be a
credit note or debit note in respect of a supply of goods or services made to the recipient
by the supplier such document shall be deemed to be a credit or debit note , whatever
the case may be . The document must have the same features as discussed above.

18.17 Returns and payments

Every registered operator is required to submit VAT return together with the payment on or
before the 25th day of the month following the relevant tax period. Where this date falls on a
Saturday or Sunday or public holiday, the return and payment must reach Zimra on the last
working day before the 25th. Late submission will attract a penalty a well as interest. Penalty
is 100% of the tax liability and interest is calculated at a rate of 10% per annum.

18.17.1 Special returns

A special return is furnished where goods are deemed to have been supplied under the
circumstances in which goods or services manufactured, constructed or acquired by a
person are sold by another person so as to satisfy the debt owed by the first person. The
special return should be furnished within 30 days after the date of sale. The return should
reflect the following details:
- The name and address of the seller and, if registered operator, his registration number.
- The name and address of the person whose goods are sold, his registration number, if
registered.
- The date of sale
- The description and quantity of goods sold.
- The selling price of the goods and amount of tax charged in respect of the supply of
goods under the sale.
- Any other particulars as may be required by the Commissioner.

A Guide to Zimbabwe Taxation 253

The Commissioner may require any person, whether or not he is registered, to furnish on his
own behalf or as an agent or trustee, other returns or further returns as and when required
by the Commissioner.

18.18 Payment of tax and refunds

18.18.1 Penalties and interest

A VAT operator who fails to pay VAT in time will be guilty of an offence and is liable for a
penalty equal to 100% of the VAT liability, together with such tax liability. Interest is
calculated at a rate of 10% per annum. Interest is calculated for each day the tax liability
remains outstanding up to the day before the day of payment.

18.18.2 Recovery of tax

The Commissioner is mandated to recover, through the courts, any amount of tax, additional
tax, penalty or interest that a taxpayer fails to pay. The Commissioner may institute
proceedings for the sequestration of the estate of any person for the purpose of such
proceedings, who is deemed to be the creditor in respect of any tax payable.

18.18.3 Refunds of tax

The Commissioner will authorise a refund where tax payable by a registered operator
exceeds the amount properly chargeable according to the provisions of the VAT act, or
where a refund already made to the registered operator is less than the refund that should
have been made. A refund will be made to the extent that the amount was not used to settle
any tax liabilities of the taxpayer. However, where a refund arises as a result of cancellation
by a registered operator of his registration, the refund will be made in full.

The following conditions should be satisfied for a refund to made:

- A registered operator shall make an application to the Commissioner in respect of the
excess tax paid.
- the Commissioner shall not make a refund unless the claim for the refund is made within
six years after the end of the said tax period;

18.19 VAT Deferment

Deferment of VAT is an officially sanctioned temporary postponement of paying VAT on
importation of specified goods of capital nature and medical equipment approved by the
Minister in consultation with Minister of Health. The goods should have been imported for
own use by the importer and the VAT amount to be deferred should be at least $4 800.

The period upon which VAT will be deferred is extended with effect from 1 January 2017 and
shall depend on the value of capital equipment imported into the country as follows;

Value of Equipment (US$) Deferment Period (Days)

100 000 - 1 000 000 90
1 000 001- 10 000 000 120
Above 10 000 000 180

How to apply for a deferment

254 A Guide to Zimbabwe Taxation

- The application should be in writing quoting your business partner number (BP) and
should be submitted to your nearest ZIMRA office
- Specify the goods on which deferment is being applied for and the industry which you
operate under.
- For medical equipment Ministry`s approval should be attached.
- Copy of the invoice as proof of goods imported and value of such good should be
attached.
- Specify the period for deferment you require which should not be more than three
months
- Declare that the goods are for own use and will not be disposed of even after deferment
period without notifying the Commissioner.

Qualifying goods of capital nature

i. Specific prescribed plant, machinery or equipment used exclusively for:

- Mining purposes on a registered mining location as defined in the Mines and
Minerals Act[Chapter 21:05]; or
- Manufacturing or industrial purposes in, on or in connection with a factory
(including spare parts required for the purpose of maintaining or refurbishing such
plant, equipment or machinery);
- Agricultural purposes (including spare parts required for the purpose of
maintaining of refurbishing such plant, equipment or machinery);
- The aviation industry (including spare parts required for the purpose of
maintaining or refurbishing aircraft and such plant, equipment or machinery);
ii. Equipment and / machinery for use in medical sector.
Note that goods of a capital nature do not cover motor vehicles intended or adapted for
use on roads or capable of being so used. The goods are prescribed by the Minister of
Finance in consultation with the Minister responsible for that particular industry.

Deferred debts which are not settled on due date may result in the VAT deferment facility
being stopped or withdrawn. Deferred VAT debts may also be subject to interest and
penalty charges.

18.20 Adjustments and other matters

18.20.1 Change of use of goods and/or services (Sect 17(1))

Where goods or services are acquired by a registered operator on which an input tax has
been suffered and claimed, and the taxpayer change the use of goods from being a taxable
supply or from making taxable supply to private use. The taxpayer should nevertheless
include the goods in his computation of his output tax as if he had applied the goods for the
purpose indicated at the time of acquisition.

Example

TRD Mining (Pvt) Ltd imported 10 machines worth $8 000 each in March 2017. In June the
company sold 8 of the machines to local mining companies at a price of $14000 each, the

A Guide to Zimbabwe Taxation 255

remaining two machines were taken by two of the directors of the company for their private
use. Show the VAT implication of the donation of the two machines to the directors.

Solution

VAT output tax $

Sales (15/115/14 000 *8) 14 609

Adjustment: add VAT on change of use (15/115*14 000*2) 3 652

Less: Input tax

Importation (15*8000*10) (12 000)

Tax payable 6 261

18.20.2 Change of use of capital goods Sect 17(2)

Where there is a reduction of percentage use of capital goods and adjustment is necessary
where the operator was initially allowed to claim input tax. Adjustment is however, not
necessary where cost of goods is less than $60. Time of supply: Shall be deemed to be 31
December of that particular year of assessment.

Formula for adjustment : A *(B-C) is applied.

A is the lesser of cost or OMV, B is initial taxable use and C is the current taxable use

Time of supply shall be deemed to be 31 December of that particular year of assessment.

18.20.3 Bad debts written off

Where a taxable supply is made by a registered operator, and part of the consideration is not
recoverable from his debtors, the amount not recovered should be adjusted. The adjustment
involves reducing the tax component of the whole supply by a tax component of bad debts.
The point is, the operator would not have collected VAT on the amount which is now bad, so
an adjustment on output tax should be made.

Example

MNL (Pvt) Ltd, sold goods worth $40 000 (VAT inclusive) during a particular month, a
customer who had purchased $4 000 worth of goods was declared bankrupt and the
possibility of recovering the amount from the customer is slim. Show the adjustment that
should be made.

Solution

Output tax $

Sales (15/15*40 000 5 217

Less: bad debts (15/115*4000) (522)

256 A Guide to Zimbabwe Taxation

18.20.4 Bad debt recovered
Tax component on bad debts is reduced from output tax. Where a taxpayer recovers a debt
which was previously written off as bad, of which an adjustment had been made, such
taxpayer should make a further adjustment to reverse the previous adjust of a bad debt. Tax
on bad debt which has been recovered should be treated as a new supply made by the
operator and should be added to the output tax.

18.20.5 Goods acquired prior to fixed date –Sect 17(4) (a)

Input tax adjustment will be made if goods are eventually utilised to make taxable supplies.
The following formula: A * B * C is applied:

A represents a tax fraction,

B lesser of cost or OMV and,
C percentage or ratio of intended use to total supply;
Where C is equal to or more than 90%, such percentage shall be deemed to be 100%..

18.20.6 Goods acquired after fixed date- S17(4)(b)

This section applies to new VAT registrants or those registered operators who would have
been deemed by section 7(2) (cessation of trade)to have made a supply and input tax has
previously been denied or not claimed.

a) Where goods or services have been acquired by a person on or after the fixed date
and tax has been charged in respect of the supply; or
b) Goods have been produced by a person on or after the fixed date and tax has been
charged in respect of the supply of goods or services acquired by him for the purpose
of production; or
c) When such goods or services are subsequent to the fixed date applied in any tax
period by that person wholly or partly for use in the course of making taxable supplies

Such goods or services shall be deemed to be supplied in that tax period to that person and
an input tax credit shall be deducted in terms of S15(3).

The input tax deduction in terms of S15(3) shall be determined in accordance with the
following formula:
A*B*C , where –

A = the tax fraction

B= represents the lesser of Cost (including tax) and the OMV
C= represents the ratio of intended taxable usage to total intended use of goods immediately
after the supply.

Where ratio is equal to or more than 90%, such percentage shall be deemed to be 100%.

18.20.7 Other adjustments

A Guide to Zimbabwe Taxation 257

A taxpayer is supposed to make an adjustment by way of including in his output tax, tax
components for amounts which were previously accounted for, for the purpose of input tax,
under the following circumstances:

 The operator had returned part or all of his goods so purchased by him to a supplier
 The purchase made by an operator has been cancelled
 The previously agreed consideration has been reduced

18.20.8 Acquisition as a going concern

Where a trade or part of a trade has been supplied by a registered operator as a going
concern to another registered operator who had acquired such trade or part of trade wholly
or partly for a purpose other than for consumption, use or supply in the course of making
taxable supplies; such trade, part, goods or services, as the case may be, shall be deemed
to have been supplied by him by way of a taxable supply by him in the course of his trade.

Where the intended use of such trade, part, goods or services, as the case may be, in the
course of making taxable supplies is equal to not less than ninety per centum of the total
intended use of such trade, part, goods or services, as the case may be, the trade, part,
goods or services concerned may for the purposes of this Act be regarded as having been
acquired wholly for the purpose of consumption, use or supply in the course of making
taxable supplies.

18.21 Fixed property transactions

Fixed property means land, together with improvements affixed thereto, any share in a
company, which confers a right to, or an interest in the use of immovable property. It does
not include farmland.

The following provisions relate to fixed property transaction.

1. If the seller is a registered operator, VAT is chargeable on the supply of both
residential and commercial properties.
2. If seller is a registered operator who sales a commercial property used for making
both exempt and taxable supplies and was allowed part of the input tax:
a) Will account for output tax on the sale;
b) Will be allowed an adjustment of input tax previously not claimed.
3. If the sale is by way of instalments, output tax will be accounted for as and when
payment is received.
4. If the transaction is between registered operators and the sale qualifies as a sale of a
going concern, the sale may be zero-rated
5. If the seller is a non-registered operator, no VAT is chargeable on the transaction.

If the purchaser is a registered operator and acquires a fixed property from a non-registered
operator, notional input tax may be claimed but only where stamp/transfer duty was paid or
is payable.
 Notional input tax will be restricted to transfer/stamp duty.
 Only claimable where the transfer/stamp duty has been paid.

18.22 Fiscalised electronic registers

258 A Guide to Zimbabwe Taxation

Statutory Instrument 104 of 2010 on Fiscalised Electronic Registers was gazetted with effect
from 1 July 2011 (effective application date1 October 2010). The regulations require every
registered operator in Category C as defined in the VAT Act to acquire a fiscalised electronic
register or a non fiscalised electronic register which has a fiscal memory device. Non-
retailers have an additional option to use an electronic signature device. The electronic
register and the fiscal memory devices will be acquired from approved suppliers and entities
have onerous backup requirements including the requirement for an uninterrupted power
supply capable of running for eight hours.

In the event of a device failure or power failure ZIMRA is required to be notified and the
situation rectified. A fiscalised electronic register will have the following essential features:

- A screen on which the customer can see simultaneously displayed the input being
made by the till operator
- It must incorporate a backup master audit facility
- It must incorporate or be capable of being upgraded to incorporate a feature enabling
the fiscalised electronic register to be linked to an input facility operated by ZIMRA or
any other network facility
- It must be capable of retaining a fiscal memory of total daily sales, total VAT charged
and total sales for at least three years.
- it must be capable of printing sales slips for the customer

Some of the permitted devices are designed to be stand-alone (i.e. for those who do not
already have an electronic till or a point of sale facility) and others may be integrated where
possible with an existing accounting system. 50% of the cost of acquisition of fiscalised
electronic registers shall be claimed as input VAT and with effect from 1 October 2011, 50%
of the remaining cost will rank for capital allowances.

With effect from 1 January 2017, the VAT Act (Chapter 23:12) is amended in order to allow
clients to lodge objections against the assessment or decisions made in respect of fiscal
regulations.

18.23 VAT withholding tax (Section 50A of VATA)

With effect from 1 January 2017, the Commissioner is empowered to appoint withholding tax
agents in respect of VAT for any registered operators whom he believes has not been
complying with filing of VAT returns or has not been submitting truthful returns. The
Commissioner specifies VAT registered operators who will be appointed withholding tax
agents; these are called ‗specified operators‘. Specified operators will withhold tax on output
tax of operators who purchases goods or services from them. Value Added Tax shall be
withheld on payments for the supply of standard rated supplies only and not on exempt and
zero rated supplies.

The amount to be withheld is two-thirds of the full output tax of an operator. The withheld
amount is due on or before the 15th day of the following month. The agent must issue the
supplier with a withholding tax certificate which must show the amount paid, the amount of
tax withheld from the payment, the invoice number. In cases where payment of the supply is
made in instalments, the tax shall be withheld on the output tax on each instalment. A
schedule of the amounts withheld by various agents must be attached to the VAT return.

A Guide to Zimbabwe Taxation 259

VAT Withholding Tax certificates obtained from withholding agents should be kept for six
years like all other records. The Zimra Commissioner General shall set off or refund any
excess credits if all tax heads are up to date. The refund shall be processed through the
normal VAT refund processing system already in place.

Example
ABC Ltd, a specified VAT withholding tax agent made the following payments during the
month of July 2017:
Purchases from B Ltd 46 000
Stationery from C Ltd 23 000
Cleaning materials from D Ltd 17 250

Required
Show the amount to be withheld from each supplier by ABC Ltd on making payments.

Solution
Name of Supplier VAT charged Withholding tax amount
B Ltd 15/115* 46 000= 6000 2/3*6 000 = 4 000
C Ltd 15/115*23 000= 3 000 2/3*3 000 = 2 000
D Ltd 15/115*17250= 2 250 2/3* 2 250 = 1 500

18.24 Administrative issues

18.24.1 Records
Every registered operator shall keep and retain books of accounts and records, whether in
the form of print-out or other retrievable form, so as to enable him to comply with the
statutory requirements as well as to enable the Commissioner to monitor compliance. The
records shall be kept for a period of six years from the date of last entry in the books. Such
books of accounts, records and documents shall be open for inspection by an official acting
in under the authority of the Commissioner. The following documents or records shall be
kept in particular:
- A record of all goods or services supplied by or to the registered operator showing
the goods and services, and the detail of suppliers and their agents. Documents to
be retained include, tax invoices, credit notes, debit notes, bank statements, deposit
slips, stock sheets and paid cheques.
- A record of all importation of goods and documents relating to importations.
- A charts and codes of account, the accounting instruction manuals and the system
and programme documentation which describe the accounting system used in each
tax period in the supply of goods and services; and
- Documentary proof where a rate of 0% has been applied by a registered operator.

18.24.2 Summary of administrative responsibilities under VAT tax head

- Any person who carries on trade in taxable supplies and whose annual taxable
turnover exceeds or is likely to exceed US$60 000.00 must apply to register for VAT
on Form VAT1. Responsibilities upon registration include:
- Keeping accounting records for a period of at least six (6) years after the tax period
to which the period relates.

260 A Guide to Zimbabwe Taxation

 - Completing and submitting VAT returns even if you do not owe ZIMRA. ZIMRA will
advise you of the frequency of submitting the returns though most clients submit
returns either monthly or after every two months.
- Calculating and remitting the VAT due to the Commissioner on or before the due
date.
- With effect from 1st January 2013, the due date for the submission of VAT returns
and payment has been extended from the 20th to the 25th of the month following the
end of the tax period.
- Issuing tax invoices for any taxable supply whose value is more than US$10.00.
- Record transactions electronically. With effect from 1st of October 2012,
- All registered operators are also expected to comply with fiscalisation regulations.
This is a requirement where registered operators under category ―C‖ and whose
annual turnover exceed US$240 000.00 are expected to record transactions
electronically.
- Advising ZIMRA of any change in business details, including address, addition of/or
change of partner, cessation of trade, etc.
- Allowing ZIMRA officials to enter your business premises and examine goods and all
business records.

18.24.3 Offences and penalties

a) General offences
Any of the following offences will render a person guilty and warranties a fine not
exceeding level seven or to imprisonment for a period not exceeding twelve months,
or to such fine and such imprisonment:
- Falsely holding oneself as an officer engaged under the authority of the
Commissioner.
- Fails to collect tax on importations of services.
- Refuses or neglects to furnish, produce or make available any information,
documents or items; reply to or answer truly and fully, any questions put to him;
or attend and give evidence as and when required; when requested by the
Commissioner or any officer engaged under his authority.
- Hinders or obstructs or assaults any officer engaged in carrying out his duties.
- Fails to notify the Commissioner upon becoming a representative registered
operator.
- Being a registered operator, fails to provide another registered operator with a tax
invoice, credit note or debit note as required by the Act;
- Fails to keep books of accounts, records and documents as requested by the Act;

On subsequent conviction for failing to submit any return or document required by the
Commissioner or for refusing to furnish any information or reply, or to produce any
books or papers required of him by the Commissioner or any other officer, the
taxpayer shall be liable to a fine not exceeding fifty dollars for each day that he is in
default, or to imprisonment for a period not exceeding twelve months. It has to be
proved that such taxpayer has been previously been convicted of a similar offence in
relation to the same return , document, information, reply or books for the penalty to
apply.

A Guide to Zimbabwe Taxation 261

 b) Offences in regard to evasion
Offences committed with intent to avoid tax include:
- Making or causing to make a false entry in any return rendered or signs any
return rendered without reasonable grounds for believing them to be true.
- Giving a false answer whether, verbally or in writing to any request for information
made by the Commissioner or any person discharging duties under the authority
of the Commissioner.
- Prepares and maintain or authorise the preparation or maintenance of any false
books of account or other records or authorise the falsification of any books of
account or other records.
- Making use of any fraud, art or contrivance whatsoever, or authorises the use of
such fraud, art or contrivance;
- Making of any false statement for the purposes of obtaining any refund of or
exemption from tax;
- Receives, acquires possession of or deals with any goods or accepts the supply
of any service, knowing or having reason to believe that the tax on the supply of
the goods or services has been or will be evaded; or
- Knowingly issues any tax invoice, credit note or debit note required under this Act
which is in any material respect erroneous or incomplete; or
- Fabricates, produces, furnishes or makes use of any tax invoice, debit note,
credit note, bill of entry or other document contemplated in that section knowing
the same to be false.

Any person who commits the above offences will be liable on conviction to a fine not
exceeding level twelve or to imprisonment not exceeding twenty-four months or to both such
fine and such imprisonment.

Where it can be proved that a registered operator or any person acting on behalf of a
registered operator fails to perform the duties imposed upon him by the Act, with intent to
evade tax or causing a refund to be made to him by the Commissioner, such operator shall
be chargeable with an additional tax equal to 100% of an amount that should have been
paid or the refund claimed.

18.24.4 Objections and appeal

Objections

A taxpayer may lodge an objection with the Commissioner on one of these possible grounds
of dissatisfaction:

a) That the Commissioner has refused to register a taxpayer as a registered operator.

b) That the Commissioner has cancelled registration of a taxpayer.
c) That the Commissioner has refused to refund a taxpayer.
d) That the taxpayer believes to be has been wrongly assessed.
e) With effect from 1 January 2017, the VAT Act (Chapter 23:12) is amended in order to
allow clients to lodge objections against the assessment or decisions made in
respect of fiscal regulations.

A valid objection must be in writing and it should be made within 30 days after the date on
which notice of any decision or assessment against which such objection is lodged was

262 A Guide to Zimbabwe Taxation

given by the Commissioner, unless the Commissioner is satisfied that reasonable grounds
exist for delay in lodging the objection.

Upon receipt of an objection by a taxpayer, the Commissioner may:

- Alter the decision on which an objection is made; or
- Alter or reduce an assessment on which an objection has been made; or
- Disallow the objection.

The Commissioner shall sent to the person on which an objection is made, a notice of the
reduction, increase, alteration or disallowance , whatever the case may be. Any taxpayer
who did not receive such notice within three months shall consider his objection disallowed.

Appeals
The court of appeal for VAT issues is the Fiscal Court of Appeal. A taxpayer who is
dissatisfied by the decision of the Commissioner shall lodge an appeal to that court within 30
days of receipt of the notice of the decision of the Commissioner. An appeal should be made
in writing by way of a notice.

At the hearing by the Fiscal court, the appellant is limited to the grounds of objection stated
in the notice of objection. On consideration of the matter by the court, the court may confirm,
cancel or vary any decision of the Commissioner under appeal or make any other decision
which the Commissioner was empowered to make at the time the Commissioner made the
decision under appeal or, in the case of any assessment, order that assessment to be
altered, reduced or confirmed.

18.25 Chapter Round-up

- Value Added Tax is levied on supply of goods and services including imports.
- VAT compulsory registration threshold is an annual turnover of $60 000 (historic or
futuristic).
- VAT registered operator are grouped into categorized, i.e. A, B, C & D.
- The time of supply determines the tax period in which a supply falls.
- There are two types of supply, namely: taxable supply and exempt supply. Taxable
supply can be standard rated (15%) or zero rated.
- Input tax is VAT suffered by an operator on goods supplied to him or on importation of
goods for the purpose of making taxable supply.
- Output tax is VAT charged by an operator on a supply of goods or services by him.
- A registered operator is required to maintain proper books of accounts, keep accounting
documents and to furnish proper documents like an invoice.
- VAT deferment is the postponement of VAT liability on importation of certain capital
goods.
- VAT registered operators in category C are required to acquire a fiscalised electronic
register. 50% of the cost of acquisition shall be claimed as input tax, the remaining 50%
of the cost will rank for capital allowances.

18.26 Practice questions

A Guide to Zimbabwe Taxation 263

Section A: Multiple choice questions

1. Tino is in the process of finalising her value added tax (VAT) return for the month of
August 2017. Her VAT payable for the month is US$6 300 before taking into account the
following VAT inclusive adjustments:

US$
Sales value of goods applied to own use 2 200
Recovery of impaired debts 3 000
Purchases returns 1 200

What is the adjusted VAT payable by Tino for the month of August 2017?

A US$7 135
B US$12 700
C US$7 260
D US$6 534
(ACCA Adapt)

2. Mary registered for value added tax (VAT) under category A on commencement of
business operations on 1 January 2017. Mary‘s VAT inclusive sales and purchases for
her first quarter are as follows:
Sales: Purchases:
Month US$ Month US$
January 6 000 January 2 000
February 10 000 February 4 000
March 15 000 March 7 000

What is the net amount of value added tax (VAT) payable by Mary for the tax period
which includes the results from March 2017?

A US$2 100
B US$2 700
C US$1 826
D US$2 347
(ACCA Adapt)

3. The following are the monthly sales of B&B Incorporation from Jan the first month of its
trading.
January $3 000
February $3 800
March $4 800
April $5 200

In which month was B& B supposed to register for VAT?

A January

264 A Guide to Zimbabwe Taxation

 B February
C March
D April

4. Which of the following is not a condition for voluntary VAT registration?

i. One must have a fixed address
ii. One must have a bank Account
iii. One must have performed the duties under the other tax statutes without
defaulting.
iv. One must keep proper books of accounts

A (iii) only
B none of the above
C (iv) only
D (i) only

5. What is the VAT turnover threshold for category C operators?

A No threshold
B $60 000
C $240 000
D $120 000

6. Jack Ltd is a category B operator. The following are his sales (all VAT exclusive)

November 2015 23 000

December 2015 20 000
January 2017 35 000
February 2017 28 000

What is the amount that Jack Ltd should declare as output tax in its first VAT return for
2017 tax year?

A $9 450
B $8 250
C $5 250
D $15 900

7. Which one of the following categories of goods / services which is NOT zero rated?

A Sale of business as a going concern

B Farming products
C Supply of medicines
D Supply of accommodation

8. Mudzi (Pvt) Ltd purchased goods from registered and un-registered VAT suppliers. The
following are the purchases made in the month of March 2017.

A Guide to Zimbabwe Taxation 265

 Name of suppler VAT number Value of purchases $
ABC (Pvt) Ltd 20641Y 10 350
Mangoro Pesticides Ltd N/A 16 100
TN Wholesalers 30126N 41 400
Lobels bread 14672A 13 800

What is the amount for VAT amount for VAT input tax amount in respect of purchased
made in March?

A $9 832.5
B $8 550
C $10 650
D $12 247.5

9. Which of the following is not a fiscal document?

A Invoice
B Debit note
C Quotation
C Credit note

10. MPC Mining P/L purchased equipment worth $800 000 from Zambia, what is the
maximum number of days will the company allowed to defer the payment of VAT on
importation of the equipment?

A 90 Days
B 120 Days
C 180 Days
D 0 days

Section B: Structured questions

Question 1
a) Explain the procedures to be followed by a taxpayer when dealing with objections
and disputes, in respect of VAT. [3]
b) State ANY TWO types of expenditure on which input VAT is prohibited as a
deduction [2]
c) Outline the statutory VAT registration requirements for companies [3]
d) State FOUR advantages of voluntary VAT registration; [2 ]
e) Outline the statutory duties of a registered VAT operator [5]
f) What is the due date for the remittance of VAT returns [2]
g) Outline the features of a valid tax invoice [5]

Question 2

266 A Guide to Zimbabwe Taxation

FT (Private) Limited was incorporated on 1 February 2017 and specialises in the
manufacturing of furniture for domestic and office use. FT‘s sales revenue has been steadily
growing.

The following are the extracts from the sales and purchases ledger of FT for the 11 months
ended 31 December 2017:

Sales ledger (VAT exclusive)

US$
February 3 500
March 4 200
April 4 800
May 5 300
June 6 200
July 7 500
August 4 500
September 8 600
October 8 900
November 9 400
December 10 000

Purchases ledger (VAT inclusive as appropriate)

Supplier VAT registered number US$
February XYZ X0005 1 800
March ABC A0003 2 100
April KYL K0009 2 500
May NTC N0002 3 200
June DHP N/A 3 600
July CPT N/A 4 300
August PDK P0001 2 200
September MRK M0007 3 900
October BZT B0004 3 700
November GNF N/A 4 400
December STR S0008 5 500

Other expenses from 1 July 2014 to 31 December 2014 (VAT inclusive as appropriate)
US$
Motor vehicle expenses 2 400
Stationery 1 000
Payroll costs 3 100
Other office expenses 900
Acquisition of fiscalised electronic registers 8 000
Entertainment expenditure 2 000

Additional information
FT registered for VAT on 1 July 2017 and also complied with all the other ZIMRA registration
requirements on the same date.

A Guide to Zimbabwe Taxation 267

Required

a) Show by when FT should have registered for VAT and by when FT should have
submitted its first VAT return.[4]
b) Calculate the amount of input tax recovery forfeited by FT due to the VAT registration
on 1 July 2014. [2]
c) Calculate the VAT payable by FT for the year ended 31 December 2014, assuming
ZIMRA accept the VAT registration date of 1 July 2014. (8 marks)

Question 3

VAT regulations require all registered operators to use cash registers for the purpose of
accounting for VAT. Your client approaches you as a tax advisor requesting your advice on
the requirements. You are required to list the requirements so that he can decide on the
appropriate machine to buy. [20 marks]

268 A Guide to Zimbabwe Taxation

 19

TAX AVOIDANCE AND TAX EVASION

Chapter outline

19.1 Introduction
19.2 Tax avoidance
19.3 Anti-avoidance rules
19.4 Tax evasion
19.5 Chapter Round-up

19.1 Introduction
Tax is an expense that most taxpayers relent. Taxpayers may seek to mitigate their tax
burden by any means possible, legal or illegal. This chapter seek to clarify both the
legitimate and illegitimate ways of reducing a tax burden. Tax avoidance is a legitimate way
of mitigating tax burden whilst tax evasion is an illegitimate way.

19.2 Tax avoidance

Tax avoidance can be described as the legitimate ordering of one‘s affairs in such a way as
to minimise the tax which is chargeable. It refers to the legitimate use of loopholes in the tax
laws in order to minimize one‘s tax burden.in other words, tax avoidance is the right of a
taxpayer as implied in Per Lord Tomlin in Duke of Westminister v IRC 51 TLR, in that,
―every man is entitled if he can to order his affairs so that the tax attaching under the
appropriate Acts is less than it otherwise would be…‖ However, the Commissioner is
empowered by the Act to accept or reject any tax avoidance scheme undertaken by a
taxpayer, where he is of the opinion that such scheme was entered into solely or mainly for
the avoidance of tax.

19.2.1 Tax avoidance methods

a) Income reduction technique

This technique seeks to reduce income which will be subjected to tax. An example is
when a taxpayer would elect, say, to spread his or her income over several tax years,
thus postponing tax liability to future years. By doing so, a taxpayer would have
lessened his or her tax burden in each of the years income is so spread. Examples of
provisions which allows such avoidance is where a farmer, upon election, is permitted to
spread taxable income realised by him on sale of livestock due to stress of drought or
epidemic disease; over three years.

b) Exemption technique

A Guide to Zimbabwe Taxation 269

A taxpayer may reduce his tax liability by taking advantage of tax exemptions available
to him. A taxpayer should be aware of tax exemptions available to him and should claim
them accordingly.

c) Deduction technique
Deduction technique can be employed were a taxpayer seeks to claim maximum
allowable deductions so as to reduced taxable income and thus, reducing tax liability. An
example is where a taxpayer elects to claim Special Initial Allowance (SIA), instead of
wear and tear (W&T).

d) Transfer pricing
Transfer pricing is the pricing of intercompany transactions which take place between
affiliated enterprises or between the head office and its branch. It is the manipulation of
prices and other terms of trade between related parties on cross-border transactions.
The transfer pricing process determines the amount of income that each party earns.
Usually multinational companies, with operations in different countries (tax jurisdictions),
employ this technique.

Example
A microchip company has operations in different countries that have different income tax
rates as follows: country A, 25%; country B, 40% and country C, 50%. The company
would design its products in country C, manufacture in country B assign marketing rights
in country A. In order to avoid tax, the corporation allocate costs between the branches
such that it will shift profits from country C to say, country A with a lower tax rate.

e) Income splitting / Income shifting

Income splitting can be defined as diving income in a way that lowers overall tax liability.
Income shifting is achieved by shifting income from higher tax bracket taxpayers to lower
bracket taxpayers.

Income splitting can be applied to personal taxes by way of redirecting income within a
family group to take advantage of the lower tax bracket, deductions and credits available
to each family member. Generally, speaking the total tax on family income will be the
lowest when each member earns approximately the same level of income.

For corporates, business income splitting may be achieved by, employing spouse and
children, paying directors‘ fee to your spouse, loaning funds to your spouse to start-up a
business.

Generally, the following methods are used to achieve income splitting or shifting:

- Interest-free or below market loans

- Employing family members
- Family partnerships
- Gifting
- Trusts, etc.

270 A Guide to Zimbabwe Taxation

 Trusts are the most popular tools used in income splitting. Thus the ITA specifically
spells out anti-trust rules to curb an attempt by a taxpayer to avoid tax.

With effect from 1 January 2017, section 98A was added to the ITA which specifically
deals with income splitting. The section empowers the Commissioner to adjust the
taxable income of a taxpayer and associate to prevent any reduction of tax payable as a
result of income splitting.

A taxpayer shall be treated as having attempted to split income where:

- A taxpayer transfers income directly or indirectly to an associate.
- A taxpayer transfers property directly or indirectly to an associate with the result
that the associate receives or enjoys income.

And the sole or main reason of transfer of income or property being to lower the tax
payable upon the income of the taxpayer or associate.

f) Transactions between associates, employees and employers

Section 98B of the ITA, empowers the Commissioner to distribute ,allocate or apportion
income , deductions or tax credits between associates or persons as he may consider
necessary to reflect the taxable income that could have accrued to them in an arm‘s
length transactions.

Where there is a transfer or a licence of an intangible asset between associates or

persons in an employer-employee relationship. The Commissioner may adjust the
income accruing from any such transfer or license so that it is commensurate with
income attributable from such property.

In making the adjustments the Commissioner may re-characterise the source of income
and nature of any payment or loss as revenue, capital or otherwise.

19.3 Anti-avoidance rules

As discussed previously, not all tax avoidance schemes are acceptable. Section 98 of the
ITA is the principal section that seeks to curb tax avoidance. It targets transactions, schemes
or operations which have the effect of avoiding, reducing or postponing the payment of tax.
Section 98 spells out the tests to determine whether an avoidance scheme is permissible, as
follows:
a) That it was entered into or carried out by means or in a manner which would not
normally be employed for such a scheme; or
b) That it has created rights or obligation which would not normally be created between
persons dealing at arm‘s length under such scheme.

Section 98 is invoked, if the Commissioner is of the opinion that the avoidance or

postponement of tax liability or the reduction of the amount of such liability was the sole
purpose or one of the main purposes of the transaction, operation or scheme.

19.3.1 General anti-avoidance rules

A Guide to Zimbabwe Taxation 271

Generally impermissible avoidance schemes, operations or transactions involve four basic
goals:
- The deferral of tax liability
- The conversion of character of an item (for example, from revenue to capital, or the
conversion of a taxable item such as interest to an exempt one such as dividends).
- The permanent elimination of tax liability
- The shifting of income (e.g. from a taxpayer subject to highest marginal rate to a
taxpayer subject to a lower (or zero) rate of tax.

Impermissible avoidance arrangements have the following features;

a) Lacks commercial substance

A business transaction is said to have a commercial substance when it is expected
that the future cash flows of a business will change as a result of transaction. Any
arrangement that fails to have a substantial impact upon a taxpayer‘s
- Business or commercial risks, or
- Net cash flows
- Beneficial ownership of any asset involved,

Such transaction if entered in an attempt to avoid tax is not permissible.

b) No arm‘s length rights or obligation created

Where parties to a transaction, scheme or operations create rights or obligations
which would not normally be created between persons dealing at arm‘s length, such
transaction, scheme or operations which result in a tax advantage will not be
permitted.

A transaction is at arm‘s length if it is entered into between knowledgeable; willing

parties who are independent, such that the agreement arrived will not be influenced
by any relationship that may exist between them.

19.3.2 Specific Anti-Avoidance Rules (SAAR)

Specific anti-avoidance rules can be classified into two:

a) Anti- set off rules

There are rules specifically set in tax legislation that seek to prohibit the set-off of
expenses or losses and income from different areas. For instance, taxpayers cannot set
off private expenses derived from employment against business income and vice versa.
Another example is in mining were expenses of one mine location cannot be set off
against income of another mine location.

b) Anti- trust donations

The Acts disregards certain donations which were, in the opinion of the Commissioner,
made to avoid tax. Such donations would still be taxed in the hands of the donor.

272 A Guide to Zimbabwe Taxation

 Examples include, donations to minor children and cross donations by parents to minors
which would be taxed in the hands of the parents. Another example is where property
which has been donated by a deceased person in not more than five years prior to his
death is assessed in the estate of the deceased for estate duty purposes.

c) Income splitting (Section 98A)

Under this section the Commissioner is empowered to refuse any transaction by a
taxpayer and associate which aims to split income of the taxpayer. A person is deemed
to have attempted to split income if he or she transfer income or property to an associate
(usually at below the open market value) and the Commissioner is of the opinion that
such transaction has been entered into for the sole purpose of reducing the tax liability of
the taxpayer or the associate or both of them.

d) Transactions between Employers, employees and associates (Section 98B)

This section empowers the Commissioner to distribute, apportion or allocate income,
deductions or tax credits between the associates or persons as he or she considers
necessary to reflect the taxable income that would have accrued to them in an arm's
length transaction.

e) Reporting unprofessional conduct (Section 98C)

With effect from 1 January 2017, The Commissioner is empowered to report
unprofessional conduct by tax consultants, customs clearing agents to their controlling
bodies or association. Unprofessional conduct involves where a person assist a taxpayer
to evade tax or contravene any tax rules.

The power of the Commissioner is extended to include disclosing the affairs of the
taxpayer who would have been assisted. The Commissioner should however make a
written notification to the taxpayer and the person against whom the complaint is lodged.
The taxpayer or the person against whom any objection is lodged shall raise an objection
within 30 days from receipt of the said notice. If the Commissioner is not satisfied with
the objection raised or if 30 days has lapsed, he will proceed to lodge a complaint with
the Controlling board.

The same provision requires the controlling board or association to preserve secrecy
with regard to the affairs of the taxpayer disclosed to it.

19.4 Tax evasion

Tax evasion is a deliberate concealment or misrepresentation of the taxpayer‘s affairs in
order to reduce tax liability. Tax evasion is criminal. Taxpayers found guilty of evasion would
face heavy penalties and possible imprisonment.

19.4.1 Falsifying records

This is when a taxpayer falsifies financial records so as to report a very low taxable income
thereby reducing tax liability.an example is where a taxpayer inflate the purchase price or
understate sales prices.

19.4.2 Defaulting on payments

This is when a taxpayer deliberately ignores his or her duty to pay tax when it falls due.
A Guide to Zimbabwe Taxation 273
19.4.3 Round-tripping
It involves local businesses taking advantage of tax incentives offered to foreigners. They
achieve this by sending their own money offshore, legally or, more commonly, illegally, then
bringing it back disguised as foreign investment, which qualifies for preferential tax
treatments.

19.4.4 Bribery and kickbacks

This involves paying tax officials in order to pay less tax. Bribes and kickbacks are common
at exports and imports entry points.

Taxpayers found guilty of evasion would face heavy penalties and / or possible
imprisonment.

19.5 Chapter Round-up

- Tax avoidance is the legitimate way of mitigating a tax burden by taking advantage of
leeway that may exist in tax statutes.
- Tax evasion is illegal and criminal. Tax evasion may take the form of falsifying
records, wilfully defaulting on rendering of returns, etc.
- The Commissioner is empowered to accept or reject an avoidance scheme entered
into by a taxpayer.

274 A Guide to Zimbabwe Taxation

 20

FISCAL INCENTIVES

Chapter outline

20.1 Introduction
20.2 Rebates
20.3 Small business enterprises.
20.4 Tourist sector
20.5 Exporters
20.6 Manufacturing
20.7 Industrial park developer
20.8 Build Own Operate and Transfer (BOOT) and BOT arrangements
20.9 Farmers
20.10 Mining companies
20.11 Double taxation Agreements
20.12 Value Added Tax
20.13 Other incentives
20.14 Chapter Round-up

20.1 Introduction
Tax incentives are generally defined as ‗fiscal measures‘ that are used to attract investment
capital to certain economic activities or particular areas in a country. Fiscal incentives take
the form of, customs rebates, tax holidays and reduced tax rates, or accelerated
depreciation. Zimra administers various tax incentives aimed at promoting investment while
the Ministry of Industry and Commerce, Industrial Development Corporation and Zimbabwe
Investment Authority are the main administrators of non-tax incentives.

20.2 Rebates
These are available to all manufacturing industries. Provision exists for rebate or drawback
of certain duties applicable to imported goods, raw materials and components used in
manufacturing, processing or for export.

Most of these incentives come in the form of rebates and suspension of duty and the
summary is shown below.

- Rebate of duty on goods for the mining industry- It is granted on specified articles when
imported or taken out of bond or purchased from the licensed premises of a
manufacturer by a person engaged in the mining industry.

- Rebate of duty on goods for the prospecting and research for mineral deposits- Granted
on goods which are imported by a person who has entered into a contract with the
Government, which is approved by the Commissioner, for the prospecting and search for
mineral deposits

A Guide to Zimbabwe Taxation 275

- Rebate of duty on materials to be used in the preparation and packaging of fresh
produce for export - Granted on such materials as the Commissioner may approve when
such materials are imported to be used in the preparation and packaging of fresh
produce for export by a person or organization approved by the Commissioner.

- Rebate of duty on goods imported in terms of an agreement entered into pursuant to a

special mining lease- Granted on goods which the Secretary for Mines certifies are
eligible for a rebate of duty in terms of an agreement in the special mining lease.

- Rebate of duty on goods imported temporarily for an approved project- granted on goods
which are temporarily imported by contractors or other persons for completion of
approved projects as may have been approved by the Minister.

- Rebate of duty on goods for incorporation in the construction of approved projects-

granted on components or materials for incorporation in the construction of approved
projects as may be approved by the Minister.

- Suspension of Duty on Goods Imported for Specific Mine Development Operations.

- Refund of duty on capital goods imported for use in tourist development zones- granted
to an operator of a tourist facility in a tourist development zone on capital goods imported
for the purposes of or in connection with that tourist facility
- Rebate of duty on imports covered by a Duty Free Certificate issued under the export
incentive scheme- Granted on capital goods and raw materials specified by the Minister
to be eligible.

- Rebate of duty on goods imported for Tourist Development Zones- granted on such
equipment and machinery as the Commissioner may approve, when such goods are
imported for use in a tourism development zone.

- In addition rebate is granted on the following: Registered aircraft assembler, registered

bus assembler, registered electrical manufacturer, registered motor vehicle assembler,
registered tyre manufacturer, registered pharmaceutical manufacturer. Rebate applies
on materials and components parts imported.

20.3 Small Business Enterprises

Incentives for small business sector –The Zimbabwe Government is well aware of the
important role that small, medium and micro enterprises play in job creation and innovative
new production methods. SME‘s presently access a more favourable capital allowance
regime, Qualifying SME‘s can access a capital allowance structure of 50% SIA, and 25%
accelerated wear-and-tear in the next two years of assessment.

To promote financing of SME‘s, interest earned by financial institutions on loans extended to

Small to Medium Enterprises is tax exempt with effect from 1 January 2017.

276 A Guide to Zimbabwe Taxation

20.4 Tourist sector

Operators of tourist in an approved Tourist Development Zone enjoy preferential treatment

as follows:

- Tax holiday – taxable income is taxed at 0% for the first 5 years.

- Taxed at 25% after the 5 year tax holiday.
- Refund of duty on capital goods imported for use in tourist development zones.
- Tourist facility operators conducting business in approved tourism development zones or
an operator of a hunting safari is required to charge VAT at 0% for services offered to
persons who are not residents of Zimbabwe and who are required under the exchange
control Act to pay for such services in foreign currency. Such operators end up in a
refund position for goods and services acquired locally.

20.5 Exporters
Tax incentives available to exporters include, double deduction on export market
development and incentives available to taxpayers operating in Export Processing Zones.
a. Corporate Tax Levied on exporting Companies

With effect from 1 January 2016, a lower corporate tax structure for exporting
companies is introduced as follows;

Export Threshold (%) Corporate Tax Rate (%)

30 -40 20
41- 50 17.5
Above 50 15
b. Exemption on Withholding Tax on Fees for Export Market Development
With effect from 1 January 2016 export market services rendered by an agent of a
company that exports goods from Zimbabwe, are exempt from withholding tax. Such
fees should however not exceeds 5% of the value of exports based on the FOB
prices.
To qualify for the exemption, the exporter would have to show proof in the form of an
acquitted CD1 Form.

20.5.1 Export Processing Zones (EPZ)

To trade in the EPZ an investment licence is required. A company which operates in the EPZ
is referred to as a licenced investor and should undertake in a manufacturing, processing or
service utility which exports at least 80% of its production.

A Guide to Zimbabwe Taxation 277

The following incentives apply to licensed investors:
- Tax holiday – taxable income from operations in export processing zones is taxed at 0%
for the first 5 years.
- A tax rate of 15% applies after the first 5 years.
- Exemption from capital gains tax
- Exemption from non-resident and resident shareholder‘s taxes, non-residents taxes on
interest, fees, royalties and remittances
- Duty free importations
- Sales tax on goods and services is refundable.
- Fringe benefits earned by staff employed by licenced investors operating in export
processing zones are exempt from income tax. The exemption on fringe benefits is to be
restricted to 50% of an employee‘s taxable income.

20.5.2 Export market development expenditure s 15(2)(gg)

Exporters are allowed a double deduction in respect of non- capital expenditure incurred
wholly or exclusively for the purpose of seeking opportunities for the export of goods from
Zimbabwe or of creating or increasing demand for such exports. See paragraph 6.4.1 (v).

20.6 Manufacturing companies

Manufacturing companies or processing companies which exports 50% or more of its output
are taxed at special rate of 15%.

20.7 Industrial park developers

Industrial park developer is a person who own and maintain industrial parks, that is approved
premises or an area in which any person other than the industrial park developer carry on
business of manufacturing or processing goods or components of goods for export from
Zimbabwe.
The following special provisions apply to industrial park developers:

- Enjoy a tax holiday for the first 5 years.

- Taxed at 25% after the first 5 years
- Not liable to tax from dividends paid to residents or non-residents
- Exempt from withholding tax on interest and fees paid to non-residents
- Disposal of specified assets forming part or connected to the industrial park is exempt
from capital gains tax.
20.8 Build Own Operate and Transfer (BOOT) or BOT
Contractors may enter into contracts with the state or statutory corporation under which they
undertake to construct infrastructure for the state or statutory corporation. This will be in
consideration for the right to operate or control, for a specified period after which the
contractor will transfer ownership or control of the item to the state or statutory corporation.
278 A Guide to Zimbabwe Taxation
The following incentives are available to such contractors:
- Enjoy tax holiday for the first 5 years
- Taxed at 15% for the second 5 years.

20.9 Farmers (7th schedule Para 2)

Farmers are allowed special deductions over and above normal deductions like cost incurred
in sinking of boreholes, construction of dams, areal and geophysical surveys which are
claimed in full in the year the expenditure is incurred. See Chapter on farming.

VAT - Most farm inputs such as animal feed, animal remedy, fertiliser, plants, seeds and
pesticides and equipment or machinery used for agricultural purposes are zero rated.
[Section 10 a. r. w. 2nd schedule of VAT Act Chapter 23:12]

20.10 Mining companies

Miners enjoy the following incentives:
- All capital expenditure on exploration, development, and operating activities incurred
wholly and exclusively for mining purposes is allowed in full.
- There is no restriction on carryover of tax losses; they can be carried forward for an
indefinite period.
- Special Initial Allowance (SIA) on capital equipment is allowed at a rate of 100%
- Taxable income of holders of a special mining lease is taxed at a special rate of 15%.

20.11 Double Taxation Agreements

Zimbabwe has signed several Double Taxation Agreements. These are meant to avoid or
mitigate double taxation of the same income in the two countries to the agreement, that is,
where a business entity operates in the two territories.

These agreements offer the following incentives:

- The agreements restrict some withholding taxes to the amounts specified
- The DTAs offer reduced rates of withholding taxes on dividends, interest, royalties and
technical fees.
- As an example, almost all the DTA‘s signed limit the rate of tax on Technical Fees to
10% or less

20.12 Value Added Tax

The following VAT incentives are available:

- Value added tax can be deferred on some capital equipment for exclusive use in mining,
manufacturing, agricultural and aviation industries whose investment generally relies on

A Guide to Zimbabwe Taxation 279

 imported capital. The whole amount becomes due within 90 days from the date of
deferment.
- VAT refund may be granted to:
 Any person who is not a citizen or permanent resident of Zimbabwe, and enjoys
full or limited rights or privileges, in terms of the Privilege and Immunities Act or,
 Any diplomatic or consular mission of a foreign country, established in Zimbabwe
for official supplies. The refund shall not be payable to a citizen or permanent
resident of Zimbabwe.

20.13 Other incentives

20.13.1 Capital allowances

Fiscal incentives are also made available through favourable capital allowances in respect of
capital expenditure incurred by certain taxpayers. The following are examples of such capital
allowances:

a) Special Initial Allowances (SIA)

SIA is allowed on expenditure incurred on construction of new industrial buildings, farm
improvements, railway lines, staff housing and tobacco barns. It is also allowed on
additions or alterations to existing items as already mentioned. SIA is also allowed on
articles, implements, machinery and utensils purchased for purposes of trade
- Allowance is optional and once claimed this replaces wear and tear
- Allowed at the rate of 25% of cost from year one.

b) Capital redemption allowance

Mining companies can access capital redemption allowance, CRA, of 100% of the
amount incurred on capital expenditure in the year of assessment. See topic on
mining.

c) SME‘s
Qualifying SME‘s can access a capital allowance structure of 50% SIA, and
25% accelerated wear-and-tear in the next two years of assessment.

20.14 Chapter Round-up

- Fiscal incentives are tax measures that are generally used to attract investment
- Most tax incentives takes the form of a tax holiday for the first 5 years of operation,
for instance, BOOT or BOT, Licensed investors, industrial developers, etc.

20.15 Practice questions

Section A: Multiple choice questions

1. Motsi Land Developers Limited (MLD) entered into an approved build, own, operate and
transfer (BOOT) arrangement with the Ministry of Transport for the construction of a
highway and bridge. The BOOT arrangement was signed in 2010.

280 A Guide to Zimbabwe Taxation

 MLD‘s taxable income for the years ended 31 December 2017 and 31 December 2017 is
as follows:
US$
2017 420 000
2017 380 000

What is MLD‘s total corporate tax liability for 31 December 2017 and 31 December
2017?

A US$123 600
B Nil
C US$58 710
D US$57 000

2. Dominic is a manufacturing company which exports 60% of its output to Europe. During
the year ended 31 December 2017 its taxable income was$640 000. What is its tax
liability?

A $164 800
B $131 840
C $Nil
D $98 880

3. Industrial Park Developers are taxed at what rate in the 6th year of operations?
A 20%
B 0%
C 15%
D 25%

4. Which of the following incentives is /are not common to both Industrial Park Developers
and Export processing zones?
i. Tax holiday for the first 5 years
ii. Taxed at 15% after 5 years
iii. Exemption from capital gains
iv. Exemption form withholding tax on royalties, and fees paid to non-residents.

A (i) only
B (iii) only
C (ii) & (iii)
D (iv) only

5. Which sector of the economy with operators who do not qualify for rebates?
A Manufacturing
B Financial
C Agriculture
D Tourism

A Guide to Zimbabwe Taxation 281

 21

ADMINISTRATION OF TAX LAWS

Chapter outline

21.1 Introduction
21.2 Duties and rights of the Commissioner
21.3 Returns
21.4 Assessments
21.5 Additional tax
21.6 Self-assessment
21.7 Representative taxpayers.
21.8 Rights of taxpayers
21.9 Objections and appeals
21.10 Penalties, interest, fines for offences
21.11 Tax Amnesty
21.12 Chapter Round-up
21.13 Practice questions

21.1 Introduction

Revenue laws of a country are issued out by the parliament. Zimbabwe Revenue Authority
(ZIMRA) is a statutory body responsible for enforcing the tax laws. The duties mandated to
Zimra include, collection of tax, accounting for these taxes and ensuring that the tax laws are
complied with, etc. Zimra is presided by the Commissioner-General, whose duty is mainly to
represent Zimra in carrying out its mandate. The Commissioner- General may also delegate
to the officers employed by Zimra any function conferred by the tax laws.

21.2 Duties and rights of the Commissioner

21.2.1 To have access to all public records

The Commissioner or his officer is given the right to access and inspect registers, books,
accounts, records, returns, etc. the Commissioner or his officer shall, for no fee or charge,
be permitted to inspect for such purpose such registers, books, accounts, records, returns,
papers, documents or proceedings and to take such notes and extracts as he may consider
necessary.

The ITA, defy the secrecy provisions of other acts (e.g. Post Offices, POSB etc.) which could
preclude Zimra‘s access to records for the purpose of securing any tax or to give proof or
lead to discovery of any fraud, offence or omission in relation to any tax.

21.2.2 Appointment of tax collection agent

282 A Guide to Zimbabwe Taxation

The Commissioner is empowered by the ITA to appoint and declare a person as an agent of
any person, where he deems it necessary. The person so declared to be an agent shall be
required to pay tax to the Commissioner on behalf of the person he has been declared to be
an agent. The agent will usually be a person who holds money in a current, deposit or
savings account or other moneys in the form of a remuneration, pension etc. which is due
and payable to the person whose agent he has been declared to be.

An agent includes:

- A bank, building society or savings bank.

- A partnership
- Any officer in the Public Service.

The agent is required by law to furnish the Commissioner with information in respect of any
money, funds or other assets which may be held by him for, or due by him to , any other
person. A failure to do so will result in the agent being personally liable for the tax due.

21.2.3 Power to require information, search or entry

The Commissioner has the power to request information from any person whom he has
appointed agent for the collection of tax. He has also the power to access all public records.
For the purpose of getting the information and enforcing collection of tax, the Commissioner
or any of his appointed officers is empowered to enter or search the premises of a person,
and carry out an inspection or audit of any information, documents or things at any premises.
He may require any person to prepare and additionally, or alternatively, to produce for
inspection a print-out or other reproduction of any information stored in a computer or other
information retrieval system.

21.3 Returns (Section 37 of ITA)

21.3.1 Duty to furnish returns and keeping records

Every person who is a taxpayer is required to furnish the Commissioner with a tax return in
such form and at such time as the Commissioner may prescribe. The following are examples
of such returns:

TAX HEAD RETURN TAXPAYER DUE DATE

Employee tax ITF 16 Return by employer 30th day after the end
for summary of payroll of a tax year
details
P2 Return by employers 10th day of every month
on remittance of
PAYE.
ITF 1 Return by individuals 30th day after the end
in receipt of of a tax year
employment income
ITF 12 Income tax return for 30 days from the date
business (Company) of the Commissioner
General‘s public notice
ITF 12C Self-assessment Not more than four
return months after tax year

A Guide to Zimbabwe Taxation 283

 end(30th of April)
CGT 1 Return for Capital Within 30 days from
Gains Tax the date of disposal
ITC 12B 1st QPD 25th of March

ITF 12B 2nd QPD 25th of June

ITF 12B 3rd QPD 25th of September

ITF 12B 4th QPD 20th of December
Capital Gains CGT 1 Return for Capital Within 30 days from
Gains Tax the date of disposal
VAT VAT 7 Return for the 25th day of the following
remittance of VAT month after the end of
the tax period.
Withholding taxes REV 5 Return for the Due dates differs with
remittance of type of withholding
withholding taxes taxes, see chapter on
withholding taxes.

Every person whose gross income does not constitute solely of remuneration, salary or
compensation of personal service, i.e. a person who is in receipt of business income, is
required to keep in English language, books of accounts. The books of accounts includes, all
ledgers, cash-books, journals, paid cheques, bank statements and deposit slips, stock
sheets, invoices, and all other books of account relating to any trade carried on by him or her
in which the details from which his or her returns were prepared, are recorded their in. A
taxpayer shall retain such books for a period of six years from the date of the last entry in
those books.

21.3.2 Income of minor children

Income accruing to a minor child shall be included in the returns of their parents. The
principle has been explained in chapter 7, under paragraph 7.2(e)

21.3.3 Returns as to shareholdings

Every person who makes a return of his own income or, in a representative capacity, makes
a return of income of some other person, shall, if called upon by the Commissioner to do so,
attach to such return a statement showing fully:

a) The number and class of shares in any company registered in the name of the
taxpayer for whom the return is rendered;
b) The gross dividends from any company received by or accrued to the taxpayer for
whom the return is rendered and the amounts of tax, if any, deducted therefrom;
c) If the taxpayer for whom the return is rendered is not entitled to retain the dividends
received or accrued from any company, the name and address of the person who,
under any agreement or arrangement, is entitled to receive and retain such
dividends;
d) The number and class of shares in any company which are not registered in the
name of the taxpayer for whom the return is rendered but in respect of which such
284 A Guide to Zimbabwe Taxation
 taxpayer, under an agreement or arrangement with the registered owner, obtains all
dividends payable by such company;
e) The gross amount of the dividends and the amount of the tax, if any, deducted
therefrom, so received by the taxpayer for whom the return is rendered from the
person in whose name such shares are registered.

A person who fails or refuses to without just cause attach the above statement or
attaches a statement containing incorrect information, shall be guilty of an offence and
liable for a fine not exceeding level 5 or imprisonment. Where his or her conduct was
wilful, he shall be liable to a fine not exceeding level 6 or imprisonment for a period not
exceeding one year or to both such fine or imprisonment.

21.3.4 Memorandum or articles of association

Every company is required to file with Zimra a copy of its Memorandum and Articles of
Association within 30 days of its incorporation or registration under any law. Copies of
amendments thereto shall be filed within 30 days of making such amendment. A 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

21.3.5 Accounts and supporting schedules.

A return that should be rendered by a taxpayer must be accompanied by a sheet, trading

accounts, profit and loss accounts and supporting schedules which are necessary to support
the information contained in the return. Where accounts are prepared by someone else other
than the taxpayer the preparer shall attach a certificate or a statement to the taxpayer
showing the extent of his examination of the documents.

Any person, who, without just cause, fails to furnish the Commissioner with a certificate,
shall be guilty of an offence and liable to a fine not exceeding level four or to imprisonment
for a period not exceeding three months or to both such fine and such imprisonment. Where
the failure of such taxpayer is wilful, he shall be liable to a fine not exceeding level six or to
imprisonment for a period not exceeding one year or to both such fine and such
imprisonment.

21.3.6 Dormant companies

With effect from 1 January 2017, a dormant company (that is a company that has not been
trading for the whole year of assessment which the Commissioner has issued a public notice
for the submission of returns) will not be liable to pay a penalty if it has issued a notice to the
Commissioner within 30 days to that effect. In other words dormant companies are
exempted from the requirement of furnishing returns as long as they notify the
Commissioner of their status.

21.4 Assessments

21.4.1 Estimated assessments

A Guide to Zimbabwe Taxation 285

Where a taxpayer defaults in furnishing returns or information, or where the Commissioner is
not satisfied with the return or information furnished by a taxpayer, or where the
Commissioner believe that such taxpayer is about to leave the country, the Commissioner
may make an assessment based on a wholly or partly estimated taxable income.

If it appears to the Commissioner that any person is unable from any cause to furnish an
accurate return of his income the Commissioner may agree with such person what shall be
the amount of his taxable income or assessed loss. Any amount of taxable income or
assessed loss so agreed shall not be subject to any objection and appeal. If the
Commissioner is of the opinion that the taxpayer, at the time the amount of his taxable
income or assessed loss was agreed, withheld information which, had it been known to the
Commissioner, would have resulted in him not agreeing to that amount, the Commissioner
may, increase such agreed amount of taxable income or decrease such agreed amount of
assessed loss in such manner as he may consider to be appropriate.

21.4.2 Additional assessment

An additional assessment may be raised where income which was meant to be taxed was
never charged to tax, where in the determination of assessed loss, income was included
from tax or where an expense was erroneously deducted or where any sum granted by way
of credit should not have been granted.

Under the above circumstances, the Commissioner shall adjust such an assessment so as
to charge the correct tax. However, no adjustment shall be made where:

- The assessment was made according to the practice generally prevailing at the time the
assessment was made.
- Six years has lapsed from the end of the relevant year of assessment, unless the
Commissioner is satisfied that the adjustment or call is necessary as a result of fraud,
misrepresentation or wilful non-disclosure of facts, in which case the adjustment or call
may be made at any time thereafter.

21.4.3 Reduced assessment

Where it is provable to the satisfaction of the Commissioner that any person has been
charged with tax in excess of the amount properly charged, the Commissioner shall issue an
amended assessment reducing the tax charged and, if necessary authorise a refund of tax
overpaid. Such amended assessment issued by the Commissioner shall not be subject to
objection or appeal. The Commissioner will not authorise a refund of overpaid tax if a claim
is made after six years has elapsed.

The Commissioner is required to pay interest on overpaid taxes if they are not refunded to
the taxpayer within 60 days of a taxpayer claiming the refund, or the date of completion of
the assessment, whichever is the later date. However, the Commissioner is not liable to
refund where the overpayment was due to an incomplete or defective return or some other
error of a taxpayer.

21.4.4 Amended assessment of loss

286 A Guide to Zimbabwe Taxation

If it is proved to satisfaction of the Commissioner that a taxpayer‘s assessed loss for any
year of assessment is less than the amount which should be the assessed loss for that year,
the Commissioner shall issue an amended assessment to increase the assessed loss.
However, no amended assessment shall be raised if:

- The assessment was made in accordance with the law existing at the time of
assessment.
- Six years have passed since the date of notice of assessment in question.

An amended assessment shall be subject to an appeal or an objection.

2.15 Additional tax

A taxpayer shall be required to pay an additional tax where he has defaulted, evaded or
omitted to pay tax. The following are the circumstances and the additional taxes that should
be paid:

a) Default in rendering of returns – the additional tax shall be 100% of the tax
chargeable in respect of his taxable income for the year of assessment or an amount
equal to a fine of $400, whichever is greater.
b) Omitting from a return of an amount that ought to have been included – the additional
tax is equal to the difference between the tax as calculated in respect of the taxable
income returned by him and the tax properly chargeable in respect of his taxable
income as finally determined after including the amount omitted.
c) Incorrect statement any return rendered by him – the additional tax is the difference
between the tax as calculated in accordance with the return made by him and the tax
properly chargeable if the incorrect statement had not been made.
d) Failure to disclose in any return made by him of facts that should have been
disclosed - the additional tax is an amount of tax equal to the difference between the
tax as calculated in accordance with the return made by him and the tax properly
chargeable if the disclosure had been made.
e) If he makes any statement which results or would, if accepted, result in the granting
of a credit exceeding the credit to which he is entitled – the additional tax is an
amount equal to the difference between the tax with which he was chargeable as a
result of his statement or would have been chargeable as a result of his statement
had it been accepted and the tax with which he is properly chargeable.

A taxpayer who defaults, omit, or does any act which results in him being liable to pay an
additional tax, shall pay the tax outstanding together with a penalty equal to 100% of such
tax.

If the Commissioner considers that the default in rendering the return was not due to any
intent either to defraud the revenue or to postpone the payment by the taxpayer of the tax as
chargeable, or that any such omission, incorrect statement or failure to disclose facts was
not due to any intent to evade tax on the part of the taxpayer, he may remit such part or all of
the said additional amount for which provision is made under this section as he may think fit.

The Commissioner may, either before or after an assessment is issued, agree with the
taxpayer on additional amount to be charged and the amount so agreed shall not be subject
to any objection or appeal.
A Guide to Zimbabwe Taxation 287
The Commissioner may, however, vary the agreed assessment if he subsequently discovers
that the taxpayer, at the time the additional amount was agreed, withheld information which
could have an effect of him making a different decision.

21.6 Self-assessment

A self-assessment system is a system where a taxpayer is required to determine his /her tax
liability. The Commissioner may appoint certain persons who are in receipt of income from
trade and / or investment to be on self-assessment. The Commissioner will specify such
persons or class of persons by way of a public notice. Such specified persons will be called
specified taxpayers.

The system is applied to income tax liability of taxpayers falling within Category C for VAT,
taxpayers registered under the Banking Act or the Insurance Act and those taxpayers
requested by the CG to submit such a return. The return is required after the end of each tax
year. It must be submitted to reach Zimra on or before 30th April of the following year. Zimra
usually issues a public notice to remind taxpayers of the due date for submission of returns.

The return is submitted no matter there is no tax payable. It must be accompanied by the set
of accounts and a declaration stating that the return is complete and accurate. It is made on
a prescribed form (ITF 12 C) and should clearly show the information which is necessary for
the calculation of tax liability for year. The taxpayer should compute the tax liability. An
interim return may also be requested by the CG.

If a person is incapacitated his/her return shall be signed by the taxpayer‘s legal

representative. Failure to submit a return will cause the CG to appoint somebody else to
submit a return on your behalf.

Once the return is submitted, Zimra will verify or raise an assessment and where there is a
shortfall the taxpayer will be required to make up the difference. A notice of assessment will
be issued to the taxpayer, stating the period within which the taxpayer to pay up the tax due
and within which he may object to the assessment. The due date for paying the shortfall is
within 30 days of date of notice of assessment. If the shortfall is not paid within this period a
penalty of 100% of the tax due and interest at the rate of 10% p.a, for day the tax is not paid
after it becomes due, will become payable.

21.7 Representative taxpayers

Representative taxpayers are persons appointed and given authority by the tax statutes to
represent certain class of taxpayers.

The following are the representative taxpayers in respect of income tax earned by the
following persons:
a) Company – representative taxpayer is the public officer
b) Trust – representative taxpayer is the trustee.
c) For income possessed, disposed of, controlled or managed by an agent-
representative taxpayer is the agent.
d) Income remitted or paid by a person in Zimbabwe to a person temporarily or
permanently absent from Zimbabwe – representative taxpayer is the person remitting
or paying the income.

288 A Guide to Zimbabwe Taxation

 e) Income paid under a decree or order of a court or judge to a receiver or other person-
representative taxpayer is the receiver or other person whether or not the receiver or
other person is entitled to the benefit of income; or the income is receivable by or
accrues to a beneficiary on a contingency or on the happening of an uncertain event.
f) In respect of income in any year of assessment of a person whose property becomes
the subject of a trust during that year by reason of his death or his becoming subject
to a legal disability – representative taxpayer is the trustee.
g) In respect of income of that person in any other year of assessment in respect of
which a return was not made to the satisfaction of the Commissioner – representative
taxpayer is the trustee.

The following are the representative taxpayers for VAT:

a) Company – representative taxpayer is the public officer.

b) Any public authority/ local authority – representative taxpayer is the accounting
officer responsible for the receipt and payment of moneys under any law or for the
receipt and payment of moneys or funds on behalf of such public authority.
c) Corporate or unincorporated body, other than a company – representative taxpayer
is the treasurer.
d) Persons under legal disability – representative taxpayer are the guardian, curator,
administrator or a person having control of the person‘s affairs.
e) Deceased person or his estate – representative taxpayer is the executor or estate
administrator
f) Insolvent person or his estate – representative taxpayer is the executer or estate
administrator.
g) Trust fund – representative taxpayer is the administrator or trustee
h) Non-resident or person out of Zimbabwe – representative taxpayer is an agent or
manager of any trade of the person.

21.7.1 Liability of representative taxpayers

A representative taxpayer shall be assessed in his own name on the income of a taxpayer
he has the management, receipt, disposal, remittance, payment or control, shall be subject
in all respects to the same duties, responsibilities and liabilities as if such income were
received by or accruing to or in favour of him beneficially. However, such assessments are
made in his representative capacity only.

Any credit, deduction, exemption or right to deduct a loss which could be claimed by the
person represented by him shall be allowed in the assessment made upon the
representative taxpayer in his representative capacity.

Tax payable, except in the case of a public officer, shall recovered 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.

21.7.2 Right of a representative taxpayer to indemnity

A representative taxpayer who pays tax on behalf of a person he represents shall be entitled
to recover from the person on whose behalf it is paid, or to retain out of any moneys that

A Guide to Zimbabwe Taxation 289

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.

21.7.3 Personal liability of representative taxpayer

A representative taxpayer is liable personally for taxes he is required to pay should he, while
it remains unpaid, he alienates, charges or disposes of the income from which taxes are
chargeable or when he disposes of fund money which could have been used to settle the
taxes.

21.7.4 Company or society regarded as agent for absent shareholder or member

A shareholder or member of a company or society who is absent from Zimbabwe shall be

represented by the company or society he is a member. The company or society shall on
behalf of the absent shareholder or member, exercise all powers, duties and responsibilities
of an agent in respect of income of the shareholder or member.

21.8 Rights of taxpayers

a) The right to certainty

The right to certainty is a primary legal right that should be availed to every taxpayer.
Taxpayers‘ rights and obligations must be clearly stated by law. The tax laws and obligations
must be brought to the attention of taxpayers and tax obligations cannot be imposed with
retroactivity.

b) Right to equality

The Constitution provides that all persons are equal before and under the law and should
enjoy equal protection of the law. ZIMRA should also promote equity by applying tax laws
and procedures uniformly, handle all taxpayers‘ affairs with impartiality, presume the
taxpayers and their agents honest until proven otherwise, and collect only the fair and
correct taxes.

c) The right to pay no more than the correct amount of tax

Taxpayer‘s tax payments must be accounted for accurately at all times. Tax credits should
be promptly and properly accounted for. Correct deductions must be granted. When there is
overpayment of taxes a taxpayer is entitled to a refund. In short, tax collection must not
compromise taxpayer‘s rights.

d) Tax refunds

The law gives a right to a taxpayer to apply to the Commisioner for tax refund in respect of
any tax year of any tax paid by withholding or excess payment of tax. Where a taxpayer is
dissatisfied with the decision of the Commissioner, he or she has a right to appeal to enforce
his/her rights to pay only that tax which is due and payable.

e) Right to privacy

No person shall be subjected to unlawful search of the person, home or other property of
that person, or to unlawful entry by others of the premises of the person. It further provides
that no person shall be subjected to interference with the privacy of that person‘s home,
correspondence, communication or other property. ZIMRA should give prior notice to any

290 A Guide to Zimbabwe Taxation

f) Right to confidentiality and secrecy

Zimra officers are required to keep secret and aid in keeping secret with regard to taxpayer‘s
affairs. The information of a taxpayer cannot be shared with any person who is not the
taxpayer or a representative of the taxpayer. The disclosure of information or documents can
only be made to the Minister or any other person is authorized ―where necessary under the
law‖ or where it is by the order of a competent court. The information may also be shared
with the government of another country in terms of a double taxation agreement in order to
avoid double taxation or merely to exchange information to the extent permitted under the
agreement.

A ZIMRA employee must take an oath before commencing his/her duties. A person who
breaches this requirement shall be guilty of an offence and liable to a fine not exceeding
level six or to imprisonment for a period not exceeding one year or to both such fine and
such imprisonment. The use of information which relates to the business or affairs of another
person for personal gain shall make the person be guilty of an offence and liable to a fine not
exceeding level ten or to imprisonment for a period not exceeding five years or to both such
fine and such imprisonment.

g) Right to facilitation of tax compliance

The role of ZIMRA is to facilitate the taxpayer in order for him or her to comply with tax
obligations. It must provide taxpayers and their authorized agents with clear, precise and
timely information. It ensures that courtesy and considerate treatment are extended
unconditionally to all taxpayers; respond expeditiously to every taxpayer‘s enquiry, complaint
or request; explain the grounds for assessment and derivation of every tax assessment;
provide proper technical advice to the taxpayer on the request about tax implications; assist
in registration; and educate the taxpayers about their rights.
taxpayer whose premises are to be inspected or upon whom an audit is to be conducted.
However, the Commissioner or an officer authorized by him in writing, have a full and free
access at all times without any prior notice to any premises, place, book, record, or computer

21.9 Objection and appeals

21.9.1 Objection to the Commissioner-General (Section 62, ITA)

If a taxpayer is unhappy with a decision, assessment or determination of the Commissioner,
he has a right of objection. The following are the requirements of a valid objection:
- Objection must be made in writing.
- Must state the grounds of the objection clearly
- Must be made within 30 days from the date of notice of assessment, decision or
determination.

Upon receipt of an objection, the Commissioner may reduce, alter, increase or disallow in
whole or in part, the assessed tax or amend the assessment accordingly. The Commissioner
shall serve the taxpayer with a notice of the decision as soon as practicable. If no response
is made within 3 months after the date of objection, the case is considered disallowed. If the
objection is disallowed or where a taxpayer is dissatisfied with the decision or deemed
decision of the Commissioner, he may appeal to Special Court of Income tax appeal or the
High Court.

If no objection of an assessment, decision or determination is made and accordingly

adjusted, the assessment, decision or determination shall be regarded as final and
A Guide to Zimbabwe Taxation 291
conclusive. However, no objection can be laid in respect of assessed loss determined in
respect of the previous tax year.

21.9.2 Burden of proof

Where a taxpayer decide to make objection or appeal, the burden of proof that any amount
is exempt from or not liable to the tax or is subject to any deduction or credit, shall be upon
the person claiming such exemption, non-liability, deduction or credit whichever the case
might be.

21.9.3 Appeal to the Special Court of Income Tax Appeals

A taxpayer who is not satisfied with the decision of the Commissioner with respect to his
objection may appeal to either the Special Court or to the High Court. The following special
points apply for the appeal to be valid:

- An appeal must be made within 21 days of receiving the notice of decision of the
Commissioner or after the expiry of 3 months.
- An appeal must be in writing and must state whether the appellant wishes to appeal to
the High court or Special court/ Fiscal court of Appeal.
- At the hearing of any such appeal the arguments of the appellant shall be limited to the
grounds stated in his notice of objection.

An appeal which does not meet the above requirements is invalid and may not be
entertained.

21.9.4 Appeal to the supreme court

Where the taxpayer or the Commissioner is not satisfied with the determination of the
Special Court or the High Court, the appellant or the Commissioner may appeal to the
Supreme Court. The ground of appeal must exclusively involve the question of law, i.e. the
appeal should be on the basis of misapplication of laws and regulations.

21.9.5 Payment of tax pending decision on objection or appeal

The obligation to pay and the right to receive any tax, additional tax, penalty or interest,
chargeable shall not, unless the Commissioner otherwise directs and subject to such terms
and conditions as he may impose, be suspended pending a decision on any objection or
appeal which may be lodged by the taxpayer. If any assessment or decision is altered on
appeal, a due adjustment shall be made, for which purpose amounts paid in excess shall be
refunded and amounts short paid shall be recoverable.

21.10 Penalties, interest and fines

Generally, penalties, fines and interest are charged for any of the following offences:
- Defaulting in payment of tax and furnishing of returns
- Late payment of tax and furnishing of returns
- Providing false statements
- Failure to register with ZIMRA
- Keep proper books of accounts or records

292 A Guide to Zimbabwe Taxation

21.10.1 Penalties
A penalty for late payment of tax is 100% of the tax due.

21.10.2 Civil Penalties

With effected from 28 June 2017. Penalties will be charged for any previous returns that
remain outstanding after 28 June 2017 and any returns not submitted by the due date
thereafter. The penalty is levied at not more than thirty United States dollars (US$30) for
each day the return remains outstanding up to the 181st day from the first day when such
return became due.

Civil penalty apply to returns submitted under the following tax statutes:
- The Income Tax Act [Chapter 23:06]
- The Capital Gains Tax Act [Chapter 23:01]
- The Value Added Tax Act [Chapter 23:12]

The civil penalty is calculated as follows:

Days Delayed Penalty Penalty amount

Reduction Penalty Calculation in US$
Chargeable in US$
0 to 10 days 0%
100% $30 x 10days x 0% $0
(written warning)
11 to 20 days 75% 25% $30 x 20days x 25% $150.00
21 to 30 days 50% 50% $30 x 30days x 50% $450.00
31 to 60 days 25% 75% $30 x 60 days x 75% $1,350.00
61 to 181 days 0% 100% $30 x 181 days x 100% $5,430.00

21.10.3 Interest

Any tax liability of a taxpayer which remains outstanding attracts an interest at a rate of 10%
per annum. Interest is calculated from the date such tax is due to the day before the date of
payment. Interest also applies to any penalty imposed. The Commissioner may waive the
whole or part of interest charged where the person liable to pay the interest has given good
reasons or cause in writing.

Example

B Ltd paid the March 2017 PAYE of $4 320 on 29 April 2017. Calculate the additional tax
payable by B Ltd for failure to pay tax by the due date.

Solution

Penalty is $4 320* 100% $4 320

A Guide to Zimbabwe Taxation 293

Interest $4 320*10%*19/365 $22.49

Additional tax (4 320+22.49) $ 4 342.49

21.10.4 Fines and imprisonment

a) Rendering of returns
Any person who is found guilty of an offence for failing, neglecting, refusing to furnish
a return, or fails to include in a return, submitted either on his behalf or on behalf of
someone, any portion of gross income received by or accrued in favour of that
person, shall be liable to a fine not exceeding level 7 or imprisonment for a period not
exceeding 3 months or to both such imprisonment or fine.

b) Compliance with the instruction of the Commissioner, keeping proper books of

accounts and obstruction.

Any person who is found guilty for failing to file a return or furnish certain information,
which may be requested by the Commissioner and also a person who obstructs a
Zimra official on duty will be liable to a fine not exceeding level 7 or to imprisonment
for a period not exceeding 1 year or to both such fine or such imprisonment.

c) Increased penalty on subsequent convictions

Any person previously convicted under the offences discussed in the above
paragraph, the penalty shall be, in addition to any punishment be liable to a fine not
exceeding $500.00 a day for each day that he is in default or to imprisonment for a
period not exceeding 12 months.

d) False statements
Any person who makes a false statement or entry in any return rendered in respect
of any year of assessment, or if he makes a false entry in any ledger, cash-book,
journal or other book of account without reasonable grounds for believing it to be
true, shall be liable to a fine not exceeding level seven or to imprisonment for a
period not exceeding one year or to both such fine and such imprisonment.

e) Wilful making of false statements, keeping false accounts and fraud.

Any person who, with intent to evade or to assist any other person to evade
assessment or taxation by way of causing, allowing or making a false statement, or
who prepare, authorise or maintain any of any false books of account or other
records shall be liable to a fine not exceeding level eight or to imprisonment for a
period not exceeding two years or to both such fine and such imprisonment.

f) Failure to register as a VAT operator

A person who fails without just cause to apply for registration of VAT, where he
qualifies, or fails to notify of any change in his status or to furnish a VAT return is
liable to pay a fine not exceeding level 7 or to imprisonment for a period not more
than a year or to both such fine and such imprisonment.

294 A Guide to Zimbabwe Taxation

 g) Refusing to be investigated
Any person who, without just cause, obstructs or hinders a ZIMRA official in the
discharge of his duties under this Act shall be guilty of an offence and liable to a fine
not exceeding level five or to imprisonment for a period not exceeding six months or
to both such fine and such imprisonment.

Table of fines for various offences

Level of offence Fine ($) Level of offence Fine ($)

1 10 8 500
2 15 9 600
3 30 10 700
4 100 11 1000
5 200 12 2000
6 300 13 3000
7 400 14 5000

21.11 Tax amnesty (Statutory Instrument 163 of 2015)

The provisions of the Instrument are meant to give opportunity to taxpayers who are in
irregularities no normalise their tax affairs. Tax amnesty specifically applies to taxpayers
under the following statutes:

- Income Tax Act [Chapter 23:06]

- Value Added Tax Act [Chapter 23:12]
- Capital Gains Tax Act [Chapter23:01]
- Customs and Excise Act [Chapter 23:02]
- Stamp Duties Act [Chapter 23:09]

A taxpayer who is granted an amnesty will have to settle his or her outstanding tax
obligations either in full or by instalments by 31 March 2017. The tax amnesty is in respect of
any non-compliance which occurred during the period beginning 1st February 2010 to 30th
September 2017 (the amnesty period)

Taxpayers who wish to be considered for an amnesty should make an application to the
Commissioner on form TA01. On application the taxpayer should make a full disclosure of all
tax irregularities.

The Commissioner- General may approve or not an application for tax amnesty. Taxpayers
who are likely to be approved are those who had completed correctly the prescribed form,
made full disclosure and are not under special investigation or audit.

21.12 Chapter Round-up

- Every taxpayer is required to furnish the Commissioner with a tax return in such form
and at such time as the Commissioner may determine.
- A taxpayer in receipt of income other than employment income is required to keep books
of accounts. Such books shall be returned for a period of six years.

A Guide to Zimbabwe Taxation 295

- Every company is required to file with Zimra a copy of Memorandum and Articles of
Association within 30 days of incorporation. Also to be filed with Zimra are amendments
to such documents.
- Returns for business income should be attached with accounts as supporting schedules
of information contained in the return.
- An estimated assessment may be raised if a taxpayer is unable to furnish an accurate
return or is about to leave the country.
- An additional assessment may be raised where income that was meant to be taxed was
never charged to tax.
- An additional tax may arise from an additional assessment. An additional tax is a penalty
of 100% of the tax not paid by a taxpayer where he has defaulted, omitted or evaded to
pay tax.
- A representative taxpayer is a person appointed by the statutes to represent a taxpayer.
The duty of the representative taxpayer is to pay tax on behalf of the taxpayer to whom
he represent before disposing off any amounts that he has in possession which belongs
to the taxpayer.
- A taxpayer has a right to lodge an objection with the Commissioner if he or she is
unhappy with an assessment made on him.
- The Commissioner shall consider the objection lodged by a taxpayer and give his
determination with regard to the matter. If again the taxpayer is unhappy with the
decision of the Commissioner, he may appeal to the Special court of appeal, the Fiscal
Court of Appeal or the High Court. Further appeal can be made to the Supreme Court.
- Interest is chargeable on outstanding tax liabilities at a rate of 35% per annum from the
date the tax is due to the date immediately before the date of payment.

21.13 Practice questions

Section A: Multiple choice questions

1. XY Limited‘s accountant submitted the company‘s Pay As You Earn (PAYE) returns to
the Zimbabwe Revenue Authority (ZIMRA) for the quarter ended 30 June 2017 on the
following dates:

April 10 May 2017

May 25 June 2017
June 30 July 2017

For how many days in total during the quarter ended 30 June 2017 were XY Limited late
in filing their Pay As You Earn (PAYE) returns?

A 15 days
B 25 days
C 65 days
D 35 days

2. Which of the following statements are true in connection with a taxpayer raising an
objection to an assessment by the Zimbabwe Revenue Authority (ZIMRA)?

296 A Guide to Zimbabwe Taxation

 (1) The full disputed tax amount should still be paid as the objection does not suspend
payment of tax
(2) The objection should give the detailed grounds for the objection in writing
(3) The objection should not include supporting documentation, as this will be requested
by ZIMRA if necessary
(4) The objection must be lodged within 90 days of receipt of the assessment

A 1 and 2 only
B 1, 2, 3 and 4
C 1 and 4 only
D 2 and 3 only

3. Moyo P/L remitted its PAYE for March 2017 of $3020 on the 20th of April. The interest
and penalty chargeable by ZIMRA is:
Interest $ Penalty $
A Nil 3020
B 302 3020
C 8.27 Nil
D 8.27 3020

4. Fairmore Trading (Pvt) Ltd delayed submission of its VAT returns by 31 days. What is
the civil penalty it should expect to pay ZIMRA?

A 100% of the VAT amount

B $930
C $1350
D $697.50

5. Which of the following are the powers of the Commissioner?

i. To have access to all public records
ii. To require information
iii. Appoint a tax collection agent

A None
B (i) only
C (ii) and (iii) only
D All

6. A company is required to file with ZIMRA a copy of its Memorandum and Articles of
association within….
A 10 days
B 15 days
C 60 days
D 30 days

Section B: Structured questions

Question 1
a) State the due dates for the following taxes and returns:

A Guide to Zimbabwe Taxation 297

 i. VAT return
ii. Self-assessment return
iii. QPD return
iv. Capital gains tax return
v. Presumptive tax return
vi. I.T.F 16
vii. Monthly PAYE
viii. Annual tax return
ix. Withholding tax on contracts
x. Withholding tax on non-executive director‘s fees [13 Marks]
b) What is a representative taxpayer [12 marks]
c) Illustrate the requirements for a company to be tax compliant [10 marks]
d) Explain the procedures that a dissatisfied taxpayer should follow when lodging an
objection with the Commissioner or making an appeal to the relevant courts. [8 marks]

298 A Guide to Zimbabwe Taxation

 22

ANSWERS TO PRACTICE QUESTIONS

CHAPTER 1: INTRODUTION TO TAXATION

Section A: Multiple choice questions

1. 50% x (5 000 – 2 000) = US$1 500

Medical expenses credit on other medical expenses including drugs is not allowable to
non-residents. Answer is B
2. A trust is only a person when it has income to which no beneficiary is entitled to it.
Answer is C.
3. A partnership is not a legal person as such income accruing to a partnership is deemed
to have accrued to the partners in their agreed profit sharing ratios (Section 10(2) of the
Income Tax Act. Answer is B.
4. Foreign dividends and foreign interest are deemed to be from a source from Zimbabwe
(Section 12(2) of Income Tax Act. Salary earned in a foreign country during period of
temporal absence (period not exceeding in aggregate 183 days in any year of
assessment) is deemed to be from Zimbabwean source according to section 12(1)(c).
Answer is B.
5. B
6. A
7. D
8. Maintenance is exempt in the hands of recipient, dividend is exempt when received by a
company not an individual. Interest is not exempt unless withholding tax is has been
deducted from it. Civil servants are exempted on allowances paid to them only. Answer
is A
9. James is a partner to John so is likely to act according to instructions of John and
therefore is deemed an associate. The partnership is specified in the definition of
associate (Section 2 of the Income Tax Act) to be an associate of the controlling partner.
J&J Company is an associate of John since john has a control over the company.
Although James wife can act on instruction of John she does so in the capacity of an
employee, employees are excluded from the definition of associate. Answer is D
10. Only disability and Blind person credit is not apportioned. Answer is B
11. C
12. Taxable income calculated as follows:
Share of partnership income 2/3 *150 000 100 000
Salary 5 000
Interest on capital 8 000
Total 115 000
Answer is D
13. Pension contribution is a deduction it includes arrears pension contribution; NSSA; and
Retirement Annuity Fund (RAF). Insurance contributions are treated as private expenses
are prohibited according to section 16 of the Income Tax Act. Medical aid contribution is
a credit. Contribution to a benefit fund is not allowed. Answer is A
14. All of the items listed are invalid appliances. Answer is D

A Guide to Zimbabwe Taxation 299

Section B

Question 1

a) Purposes of taxation in a modern economy

- Revenue collection for the government to finance government expenditure.
- To stir economic policies, such as fiscal policy.
- To control international trade
- To protect local industries
- To discourage consumption of demerit goods.

Principles of good tax system

- Certainty
- Simplicity
- Vertical equity principle

b) Direct tax is tax that is borne by the same person (taxpayer) who is responsible of paying
the tax to the tax authorities. Indirect tax is tax borne by some other person different from
(the taxpayer) who is responsible for remitting it to the authorities.

c) See paragraphs 1.6 and 1.7 of chapter 1

- Source of tax is defined as the originating cause of income or as the geographical

cause of income. The principal case is that of CIR v Lever brothers and Unilever Ltd
(1946).
- Accrued to – income is said to have accrued to a person the person has become
unconditionally entitled to the income. The leading case is that of Lategan v
Commissioner of Inland Revenue (1926)..
- Total amount - in the case of De Beers Consolidated Mines v Commissioner for
Inland Revenue (1922, W.L.D. 184). It was held that the taxpayer‘s income for
taxation purposes, included not only the cash which he had received or which had
accrued to him, but the value of every other form of property which he had received
or which had accrued to him, including debts and rights of action.
- Received –a taxpayer can be said to have received an amount even if it is not paid to
him personally but to his agent, or if it is banked on his behalf.
- The ITA defines a person, besides a natural person, as including, A company; A local
or like authority; a deceased or insolvent estate; and a trust to which no beneficiary is
entitled.

300 A Guide to Zimbabwe Taxation

 CHAPTER 3: EMPLOYMENT INCOME

Section A: Multiple choice questions

1. A
2. B
Housing benefit (600-200)*12 =4 800. Note housing benefit is valued based on value
to the employee not the cost to the employer of providing the benefit. The cost of
upkeep to the employer is not important.

3. B
Loan 60%* 5000*6.5% $195
Motoring benefit $9 600
Total $9795

4. C

Severance pay 15 000

Long- service award(gratuity) 4 000
Package 19 000
Exemption (10 000)
9 000
Add: CIL 1 200
Add: Pension 10 000
Taxable income 20 200

5. B
Mango 9 000
Ralph (1/3* 54 000) 18 000
Joyce 20 000
Total 47 000
6. C

Taxable income 32 000* 25% 8000

Less: (1620)
6 380
Add: 3% Aids levy 191.4
Tax liability 6571.4
Less: PAYE (4 000)
Tax payable 2 571.4
7. D
8. B
NSSA 294 max
Pension Fund 5 400 max 5 400 aggregate max
Subscriptions 300
Total deductions 5 700

A Guide to Zimbabwe Taxation 301

 9. D
10. C
11. B
12. B
$
Air fare 1 200
Hotel & meals 1800*5/15 600
Wife touring 600
Jumping castles 400
2 600

13. D (5+1.5-2)%*6000*9/12 = 203

14. D
15. B RAF 2700 max 3.5%*700*12 = $2994

Section B

Question 1

a) According to the 13th Schedule to the ITA, the following provisions in regard to PAYE
apply:
- Para. 3(1) - Every employer is required to withhold employee tax from remuneration
paid by him to his employee. The withhold tax shall be paid to the Commissioner by
the tenth day of the month following the month of deduction.
- Para. 4(1) – Every employee shall maintain a record showing the amounts of
remuneration paid, employee tax withheld. The records shall be available for
inspection by the Commissioner.
- Para.4 (2) – Every employer shall furnish the Commissioner with returns as
appropriate. The return is ITF 16.
- Para. 4(3)- The above returns shall be submitted to the Commissioner within 30 days
of the end of the year of assessment.

b) Elderly persons have the following concessions in respect of income tax:

- Exempted from tax on gains realised on acquisition of a motor vehicle from an

employer at below market value.
- The first $3 000 of interest income from a deposit with a financial institution is
exempt.
- The first $3 000 of rental income is exempt.
- An elderly credit of $75 per month is granted in respect of income earned in the
individual capacity.

c) A P6 Form is a tax certificate issued by an employer to an employee or former employee

in terms of Paragraph 14(1) of the 3rd Schedule to the ITA. A P6 Form should be remitted
to the Commissioner for assessment, upon assessment any employee shall pay
additional tax or be paid a refund accordingly. A P6 form should show the following

302 A Guide to Zimbabwe Taxation

 details according to Paragraph 14(2) of the same schedule, total remuneration paid, tax
withheld, amounts standing for deductions, etc.

The following employee shall be furnished with a P6 form:

- Terminated employment; or
- Changed employers; or
- Started employment; or
- Received income from more than one employer; or
- Received pension
- Died during the year.

Note that, persons in receipt of income from employment, which has been subjected to
employees‘ tax (PAYE) and were employed by the same employer throughout the year need
not complete a P6 Form.

d) Employees who have been under employment by different employers during a tax year
are required to furnish a tax return (ITF1) on their own for assessment. Such employees
should obtain a tax clearance certificate (P6 Form) from the respective employers which
should be attached to the return. Note that, persons whose employers are not on FDS
should also remit returns own their own.

Question 2

a) This is the system whereby the employer is directed to withhold PAYE from the
employee‘s remuneration in such a way as to ensure that the amount so withheld in any
year of assessment is as nearly the same as the income tax liability for the employee
concerned.
b) See section 3.1.5 of chapter 3
c) Mr Gonyora
Computation of minimum tax liability
$
Basic salary 23 000
Motoring benefit (3 600*7/12) 2 100
25 100
Less: Pension 3 000
NSSA 6*7 42
PAAB Subs 250
Subs to football club - (3 292)
Taxable income 21 808

Average monthly income 21 808/7 months 3 115.43

Monthly tax (monthly tax tables) 734.63

Accumulated tax should be 7*734.63 5142.40

Aids Levy 3%*5142.40 154.27
Total tax liability 5 296.67
Less: Medical aid credit 120*50% (60.00)

A Guide to Zimbabwe Taxation 303

 5 236.67
Less: accumulated tax (4 476.30)
July tax payable 758.57

Question 3

Stephen Margolis‟ computation of tax liability for the year ended 31 December
2017.
Notes $
Salary 24 000
Bonus (5200 – 1000) 4 200
Cost of living allowance 1 600
Refund from medical aid society (600 – 600) -
Cash in lieu of leave 4 000
Housing benefit (600 -250) *4 1 400
Motoring benefit (80% *9 600* 10/12) 6 400
Interest benefit (6.5 -4) % *10 000 1 250
Sale of motor vehicle (7 000 -3 000) exempt 2 -
Income 41 850
Less: Allowable deductions:
Contributions to pension fund 3 900
Contribution to RAF 3 2 700 (5 400)
Taxable income 36 450
Gross tax 4 7 515
Less: Elderly credit (900)
Contribution to CIMAS (50% *3 600) (1 800)
Doctor‘s consultation (900)
3 915
Add: 3% Aids levy (3% *4 119) 117.45
Tax liability 4032.45

Notes

1. Interest benefit is not apportioned since the date on which the loan was granted is
not stated.
2. Disposal of a motor vehicle to an elderly person is exempt from tax.
3. Maximum contribution to RAF is $2 700 and the aggregate maximum for all pension
contribution is $5400.
4. Gross tax is calculated as follows:

Income band ($) Taxable income Rate of Tax ($)

tax

304 A Guide to Zimbabwe Taxation

 0 – 3 600 3 600 0% -
3 601 – 18 000 14 400 20% 2 880
18 001 – 36 000 18 000 25 % 4 500
36 001 – 36450 450 30% 135

CHAPTER 4: PENSIONS

SECTION A: MULTIPLE CHOICE QUESTIONS

1. D
3·5% x (700 + 600 + 500) x 6 = US$378
Tutorial note: Tax payers aged 65 and above do not contribute towards the monthly
NSSA contributions.

2. C
Only the contributions to the registered retirement annuity fund are allowable for
deduction as the pension fund is not registered. These are subject to the contribution
limit.
3. C
4. A
7.5%*1 200 = $90.00

5. B
Lump sum 24 000
Less: (1800)
Less: Disallowed portion (4 200)
Less: Transfer to RAF (10 000)
Taxable income 8 000

6. B
Employee 1 15 000*7.5% 1125
Employee 2 23 000*7.5% 1725
Employee 3 76 000*7.5% 5700 5400 max
Employee 4 81 000*7.5% 6075 5400 max
Total 16 275

7. C
Refund 40 000
Less: statutory deduction (1 800)
Less: disallowed portion (8 000)
Taxable amount 30 200
Tax @ 40% 12 080

$125 000 fall in 40% annual tax bracket.

A Guide to Zimbabwe Taxation 305

 CHAPTER 5: CAPITAL ALLOWANCES

Section A: Multiple choice questions

1. C
2. C
3. B
4. D

Motor vehicle 20% *40 000 8 000

Manufacturing building 25%*130 000 32 500
Shop Building (Commercial blng) 170 000* 2.5% 42500
Total 83 000
5. D SIA on factory building only 50 000
6. B
Commercial vehicle 25% *50 000 12 500
3* PMV 25%*10 000*3 7 500
Total 20 000

Note the assets qualify for SIA because they were acquired during the year of
assessment.

7. C
SIA on Factory Blng 25%*200 000 50 000
W&T on office blng 2.5%*120 000 3 000
SIA on Plant & Machinery 25%*110 000 27 500
SIA on Motor vehicles 25%*(30 000+50 000) 20 000
SIA on Furniture & Equipment 25%*60 000 15 000
Total 115 000

8. C
9. C
Block of flats - Staff housing
Manufacturing bldg. - Industrial bldg.
Warehouse – Industrial bldg.
Haulage trucks- Machinery, equipment, utensils
Admin Block – Commercial bldg.

10. D

Section B

Question 1

Capital allowance schedule

306 A Guide to Zimbabwe Taxation

 Asset Cost / ITV SIA or W&T/ Capital allowance ITV Notes
Rate

Delivery truck 9 000 W & T @ 20% 1 500 7 500 1,2

Computers 4000 SIA @ 25% 1000 - 1
Warehouse 50 000 W & T @ 2.5% 1 250 47 500 1
Factory building 200 000 W&T @ 5% 10 000 160 000 1
Mercedes Benz 10 000 SIA @ 25% 2 500 5 000 3
Indust machine (old) 30 000 SIA @ 25% 7 500 15 000 1,4
Indust machine(new) 56 000 SIA @ 25% 14000 42 000 -
Nissan Primera 10 000 SIA @ 25% 2 500 7 500 3

Recoupment on old machine:

Sales proceeds 24 000

Less: ITV 15 000
Potential recoupment 9 000
Capital allowances granted 15 000
Actual recoupment 9 000

Notes
1. By comparing the cost, date of acquisition and ITV of an asset, you can determine
whether SIA or W& T has been applied. The rule applied to delivery truck,
computers, warehouse and factory building, is to test whether SIA has been
applied by recalculating ITV assuming SIA, if the ITV calculated does not agree
with that on the question, then W &T applies. Note, W&T on immovable assets is
calculated on straight line while W&T on movable assets is calculated on reducing
balance.
2. W&T on Delivery truck is apportioned to date of destruction. No recoupment arises
because it is being replaced.
3. Mercedes Benz is a PMV, so its cost is restricted to $10 000. On the same token a
Nissan Primera is a PMV, the same principle applies.
4. The cost of new industrial machinery is made up as follows;

Acquisition cost 50 000

Import duty 2 500
Installation 1 500
Alteration 2 000
56 000

CHAPTER 6: CORPORATE TAX

A Guide to Zimbabwe Taxation 307

Section A: Multiple choice questions
1. B
Pre-production expenditure is claimable as deduction on commencement of trade if it
has been incurred in not more than 18 months prior to commencement of trade and it
must qualify for the criteria of deductibility according to Section 15(2) of the ITA.
2. A
3. B
4. C
5. B
6. B
Christmas party - entertainment expense -
Attendance at a trade mission - 2 500 max
Subscriptions - 2 300
Total 4 800
7. D
QPD 1 36 000*25.75% *10% 927.00
QPD 2 80 000*25.75%*25% 5150.00
QPD 3 105 000*25.75*30% 8 111.25
14 188.25
8. C
9. D
W& T on commercial vehicles: Year 1: 20%*80 000 $16 000
Year 2: 20%*64 000 $12 800
28 800
Purchases of goods 40%*120 000 48 000
76 800
10. B
Export market development
Advertisement of goods $40 000
Samples sent Namibia 36 000
76 000*2 152000
Purchase of shop building (capital nature) -
Lease premium ($320 000/10) 32 000
Lease rentals 144 000
Total 328 000

11. A
Renovation of ward 100 000
Harare Municipal Library 50 000
Lump sum pension contribution 50 000
Total 200 000

Section B
Question1
a) Every company is required to register with Zima within 30 days of incorporation and file
the following;
308 A Guide to Zimbabwe Taxation
 - Articles and memorandum of association
- Name and details of the public officer of the company.
b) ITF 12 B
c) Timing differences arise as a result of items which are accounted for by both the
accountant and the taxman but in different periods. Timing differences are mainly caused
by different approaches as applied by an accountant and taxman, an accountant applies
an accruals basis to income and expenditure while the taxman uses both accrual and
receipt basis. An example is accrued expenses.

Question 2
Ruwani Enterprises P/L
Computation of tax liability for the year ended 31 December 2017.
Notes $
Net profit as per accounts 1 736 000
Add: Extension of administration building 1 43 000
Depreciation 72 000
VAT 2 10 200
Interest on loan 1 35 000
HR Manager‘s trade convention (20 000 -2 500) 17 500
Ex-gratia payments (41 000- 10*500) 36 000
Penalty for breaching customs procedures 12 000
Legal cost of suit 33 400
Interest on PAYE 16 000
Repair to CEO‘s house 25 600
Donation to Chief executive wedding 20 000
Recoupment 3 333
Less: profit on disposal of Mercedes Benz (2 000)
Dividends (exempt) (15000)
Export incentive bonus (40 000)
Interest (exempt) (10 000)
Capital allowances 4 (36 750)
Taxable income 1 953 283
Tax @ 25% 488 320.75
Add 3% Aids Levy 14 649.62
Tax liability 502 970.37

Notes
1. The cost of extension as well as interest on loan for that purpose is capital expenditure.
2. Tax suffered by a taxpayer on other tax heads is a prohibited deduction
3. Recoupment
$
Disposal proceeds $8000 *10 000/15000 5 333
Less: ITV (see note 4) 5 000
Potential recoupment 333
A Guide to Zimbabwe Taxation 309
 Capital allowances granted 5000
Actual recoupment 333

4. Capital allowance schedule

Asset Cost / ITV $ S.I.A or W&T $ Capital allowance $ ITV $

Manufacturing bldng 85 000 W&T @5% 4 250 63 750

Administration block 70 000 SIA @2.5% 17 50 -
Computer equipment 18 000 SIA @ 25% 4 500 4 500
Commercial vehicles 60 000 SIA @ 25% 15 000 15 000
Staff bus 45 000 SIA @25% 11 250 22 500

36 750

CHAPTER 7: INDIVIDUALS- TRADE & INVESTMENT INCOME

Section A: Multiple choice questions

1. B (3000 +2400 +5 000)= 10400

2. B
2000*10 – 10 000
10 Years
= $1 000

3. A
4. D
Dividend 10 000
Rentals (6000 -3000) 3000
Pension (exempt) -
Interest (20 000-3000) 17 000
Total 30 000

Section B: Structured Questions

Question 1

a) Mr Mandivamba is exempted from the following income:

- The first $3 000 of rental income since he is an elderly person.
- The first $3 000 of his interest income – he is an elder
- Dividends from OK Zimbabwe – exempt income
- Proceeds from betting- receipt of capital nature.

b) Mr Mandivamba‘s computation of tax liability for the year ended 31 December 2017.

310 A Guide to Zimbabwe Taxation

 Notes $
Consultation fees 72 400
Rentals (61300 -3 000) 58 300
Interest from Barclays Bank (22 000 – 3 000) 19 000
Proceeds from betting --
Total income 149 700
Less: allowable deductions:
Rates (13 200)
Legal cost of suit -
Taxable income 136 500
Tax @ 25% 34 125
Less: Medical expenses credit (50%* 14 000) (7 000)
Elderly credit (900)

26 225
Add: 3% Aids Levy 786.75
Total tax liability 27 011.75
Less: Provisional tax paid (2 130)
Tax payable 24 881.75

CHAPTER 8: PARTNERSHIPS

Section A: Multiple choice questions

1. B
2. B
Share of taxable income 2/5* 125 000 50 000
Subscription to Men Lawyers Association 800
Contribution to Pension Fund 5 400
Contribution to Medical Aid Society 700
56 900

Section B

Question 1

a) Section 37(15) of the ITA provides that:

- Partners shall make a joint return of income of their partnership business
- Returns to be accompanied by supporting accounts
- Each partner shall be separately and individually liable for the rendering of the joint
return.
b) Section 51(5) of the ITA provides that partners are individual liable to tax and are thus
separately assessed. Where a partner dies, accounts should be prepared to show the
results of the partnership from the beginning of the financial year to the date of death.
Surviving partners are assessed at the end of tax year as if no change has happened.

A Guide to Zimbabwe Taxation 311

Question 2

Shorai & Shamiso

a) Computation of minimum taxable income for the year ended 31 December 2017.

Notes $

Net profit as per account 328 000

Add: depreciation 20 000
Loss of sale on generator 1 000
Attendance at trade mission (3 200 -2 500) 1 700
Donation to destitute and homeless people (52 000 -50 000) 2 2 000
Pension contribution: Shorai (5 600 -5 400) 200
VAT 3 800
Recoupment on generator 3 000
Less: Dividend (exempt) (10 000)
Capital allowances 3 (11 880)
Taxable income 337 620

Shorai $ Shamiso $
b) Calculation of Partners taxable income
112 540 225 080
Share of taxable income (2/6 & 4/6)
2 000 3 000
Medical aid contribution
- 3 000
Insurance: Life of Shamiso
5 400 5 400
Pension contributions
-
Motoring benefit
119 940 237 480

Notes

1. Maximum allowance is $2 500 per annum for not more than one attendance.
2. Maximum allowable donation to destitute and homeless persons is $50 000.
3. Capital allowances schedule.

Asset Cost / ITV SIA or W&T Capital ITV

Allowance
Machinery 20 000 SIA @ 25% 5 000 -
Furniture &Equip 10 000 SIA @25% 2 500 2500
Delivery truck 42 000 - - Nil
Mercedes Benz 10 000 SIA @ 25% 2 500 5 000
Computers 2 400 W& T@ 20% 480 1 920
Ford Ranger 10 000 W & T @20% 1 400 a 8 600

312 A Guide to Zimbabwe Taxation

 11 880

a -Allowance is apportioned on usage.

CHAPTER 9: FARMING

Section A; Multiple choice questions

1. A
2. D
3. B

Restocking allowance = (3000-2400)/700*28 000

= 24 000*50%

= $12 000

4. A
5. B

Section B: Structured questions

Question 1
a) Treatment of livestock
i. Inherited livestock is valued according to the value attached to the livestock for estate
duty purposes. Where a farmer inherits livestock and immediately disposes the stock
the proceeds from such disposal is not taxable. Where a farmer incorporates the
livestock into his farming operations, such stock is valued according to the farmers
elected values.
ii. Donated livestock is valued according to values given the similar classes of livestock,
i.e. FSV‘s adapted by the farmer. Where a farmer donates livestock, the value of
such donation is gross income to the farmer.
iii. Livestock consumed is gross income to the farmer and is valued according to what
the Commissioner to be the fair and reasonable value.
b) Fiscal incentives available to farmers.
- 100% deduction of certain capital expenditures as stipulated in the seventh schedule
to the ITA.
- Most farm inputs such as fertilisers, pesticides, animal remedy, etc. are zero rated.

Question 2
a) Mr Dawson
Livestock reconciliation

A Guide to Zimbabwe Taxation 313

Livestock movement Bulls Oxen Cows Heifers Tollies Calves Total

Opening stock 20 200 100 10 - 40 370

Births 16 16
Promotion -in 8 15 23

Sub-total 20 200 108 10 15 56 409

Sales (40) (40)

Stolen (3) (2) (5)
Promotion –out (8) (15) (23)

Closing stock 17 160 108 2 13 41 341

FSV ($) 500 450 350 300 250 80

Value of livestock 8 500 72 000 37 800 700 3250 3280 125 530

b) Mr Dawson
Computation of minimum tax liability for the year ended 31 December 2017.
Notes $

Sales of soya beans 400 000

Closing stock of livestock 125 530
Tobacco sales 60 000
Recoupment on irrigation equipment 1 7 500
Taxable income on livestock sales 2 4 833
Subsidy on building a dam (capital nature) -
Less: Allowable deductions
Opening stock of livestock (210 000)
Cost of building a dam (50 000-4500+1 200) (46700)
Salaries & Wages (38 500)
Dipping chemicals (4 000)
Livestock feed (8 000)
Sinking of boreholes (7th Schedule, par 2) (5000)
Other tax deductible expenses (4 200)
Capital allowances 3 (8 750)
Taxable income 272 713
Tax @ 25% 68 178.25
3% Aids Levy 2045.35
Total tax liability 70 223.60

Notes

314 A Guide to Zimbabwe Taxation

 1. Recoupment
$
Sales proceeds (14 000+ 4000) 18 000
Less: ITV 10 500
Recoupment 7 500

2. Sales proceeds 40 000

Less: Cost of animals (40/200*120 000) (24 000)
Less: Livestock direct expenses:
Dipping chemicals 4 000
Livestock feed 8 000
12 000* 40*2/ (370+341) (1350)
Taxable income 14 650
Spread over 3 years (1/3*14 650) 4 883

3. Permanent farm road (SIA, 25% *20 000) 5 000

Combine Harvester (SIA, 25%*15 000) 3 750
8 750

CHAPTER 10: MINING

Section A: Multiple choice questions
1. D
2. A
5*PMV 50 000
Mine school 50 000
3*Teachers‘ house 150 000
Renewal of equipment 10 000
260 000
Note# A school is limited to $50 000 and so is the cost of a staff house for teachers and
nurses. Renewal and replacement cost is limited to $10 000.
3. D 380 000*3 = 1140 000*15%
= 171 000
4. C
CRA = (156 000- 46000)/20 yrs + 224 000
= $229 500

Section B: Structured Questions

Question 1
a) Assessed losses generally are allowed as a deduction for a maximum period of six
years. However, assessed losses for miners are carried forward indefinitely.
Recoupment of capital expenditure generally is limited to the capital allowances
previously granted, for mining companies, recoupment is equivalent to the proceeds of
sale and is not limited to capital allowances previously granted.

A Guide to Zimbabwe Taxation 315

b) Ring fencing – expenses of one mining location cannot be offset against income of
another mining location unless the mining operations conducted on the mining locations
are inseparable or substantially interdependent.

Thin capitalisation – debt serving cost in respect of loan acquired from a parent company
is restricted to maximum debt, which is three times the subsidiary‘s equity.

c) Fiscal incentives available to miners:

- 100% deduction allowable in respect of certain capital expenditure such as ,
exploration cost, development cost, etc.
- There is no restriction on carryover of tax losses; they can be carried forward for an
indefinite period.
- Special Initial Allowance (SIA) on capital equipment is allowed at a rate of 100%
- Taxable income of holders of a special mining lease is taxed at a special rate of 15%.

Question 2
a) Capital redemption allowance

Unredeemed balance of capital expenditure $600 000

Recoupment (14 700 + 15 300) $30 000

Current capital expenditure

$
Clinic 50 000
Mine equipment 20 000
House of mine nurse 50 000
House of a director 10 000
Mercedes Benz 10 000
30 Tonne haulage truck 60 000
Prospecting expenses 13 000
Lease premium 10 000
Lease rentals (1 500* 9) 13 500
236 500

CRA = 600 000* 30 000+ 226 500

8 years
= $100 813

b) Zhang Zhii
Computation of taxable income for the year ended 31 December 2017
Notes $
Net profit as per accounts 1 904 300
Add: Depreciation 120 000
Lease expenses 10 000
Interest to parent company 150 000
Management fees 24 000
Renewal & replacement (14 000 – 1500) 12 500
316 A Guide to Zimbabwe Taxation
 Less: Profit on sale of front-end loader (15 300)
Interest to parent company 1 (54 000)
Management fees 2 (5147)
Capital redemption allowance (100 813)
Taxable income 2 045 540

Notes
1. Interest
Equity (120 000 +60 000) $ 180 000
Debt limit (3*180 000) $ 540 000

Permissible interest (10% *540 000) $54 000

2. Management fees
Total allowable expenditure (450 000+54000+134 000 +1 500) $639 500

Restrictions 1%*[639 500 –(24 000 + 100 813)] $5147

CHAPTER 11: LEASING

Section A: Multiple choice questions

1. B
The cost of improvement is spread over the unexpired lease period or 10 years
whichever is shorter.
2. A
Lease premium 10 000/10 $1000
Lease improvements 200 000/114 *6 $10526

3. B
Note# Lease premium is taxed in full to the lessor in the year of receipt but lease
improvement is spread over the unexpired lease period.

4. D
30000/5 years +80 000
$86 000

5. C
=(100 000+4*4000) – 86 000
=$30 000

Section B:
Question 1

a) Nyasha P/L, deductible expenses

A Guide to Zimbabwe Taxation 317

1. Lease premium

30 000
10 years

$3 000 per year

2. Lease rentals

$1 500*12 = $18 000

3. Lease improvements

180 000 * (4/120) months

$6 000

Nyasha P/L
Allowable deductions for 2017 tax year
$
Lease premium 3 000
Lease rentals 1 800
Lease improvement 6 000

b) Properties Ltd

1. Lease premium
The whole amount of $3 000 is taxable in the year of agreement.

2. Lease rentals
$1 500* 12 months $18 000

3. Lease improvements
$200 000 * 6 months
120

$10 000

Note# The lessor is taxed as per the value of agreement, if there is no agreement, the lessor
will be taxed on the amount which the Commissioner deems to be the fair and reasonable
value.

c)
Tax implication to the lessee
- The lessee is taxed on the recoupment that may arise.
- The lessee may elect to spread such recoupment over six years.

318 A Guide to Zimbabwe Taxation

 Tax implication to the lessor
- The lessor ceases to be taxed for lease rentals, lease premium and improvements. The
outstanding balance, as may have constituted gross income to the lessor, is taxed in full
in the year of disposal.
- The lessor will stop to claim capital allowance.

Total deductions claimed to 31 December 2017

Lease rentals 18 000
Lease premium 3 000
Lease improvements 6 000
27 000

Recoupment (60% *27000) 16 200

Question 2
Evergreen Panel Beaters (Private) Limited
(a) EPB: Adjusted taxable income and tax payable
US$ Taxable income 280 000
Less: Rent paid (8 000 x 12) (96 000)
Lease premium (60 000/10) (6 000)
Lease improvement allowance on:
Industrial building (150 000/10 x 8/12) (10 000)
Concrete wall (50 000/10 x 8/12) (3 333)
Interest (100 000 x 20% x 3/12) – disallowed 0
Interest (100 000 x 20% x 8/12) (13 333)
Adjusted taxable income 151 334
Tax payable at 25·75% 38 969
Less provisional tax paid (28 000)
Shortfall 10 969

Tutorial note: The deductions allowed in respect of a lease are restricted to the relevant
consideration divided by the number of years of the lease or one-tenth of the consideration,
whichever is greater. As the lease is for 20 years, the one-tenth restriction is used.

(b) Z Limited – Amounts to be included in gross income

US$
Premium 60 000
Rent 96 000
Lease improvements:
Industrial building (150 000/120 months * 9) 11 250
Concrete wall (50 000/120* 9 months) 3 750
171 000
Tutorial note: Lease premium is taxed in full in the hands of the lessor in the year of receipt
and lease improvement to the lessor is spread from the date of completion.

CHAPTER 12: DECEASED ESTATES & TRUSTS

A Guide to Zimbabwe Taxation 319
Question 1
a) Testamentary trust- this is a trust created by the will of the testator. Testamentary trusts
became effective from the date of death of the testator.

An inter-vivos trust is trust that is not a testamentary trust, all other trusts fall into this
category.

b) A person has vested rights if, being the beneficiary of a trust, have a right to trust income
and the trustee having no discretion as to distribute to the beneficiary

c) An ascertained beneficiary is a person to whom the deceased has bequeathed a specific

asset to him or her. An ascertained beneficiary, therefore, become taxable on the fruits
of such asset from the date of death of the testator.

Question 2
The Income for the year ended 31 December 2017 is assessable as follows:

- Mr Ngundu is taxable on the annuity of $6000*2/12 $1 000.

- The son, Zhou, is taxable on his share of of the remaining taxable income and the trust is
liable on its 60% share.

$
Total net income 75 000
Less: exempt income:
Zimbabwe dividends 10 000
Foreign rentals 30 000 40 000
35 000
Less: proportion of annuity (1 000*35000/75 0000 467
34 533

Son‘s share 40% 13 813

Trust share 60% 20 720
34 533
Question 3
Mr Mapuranga
Calculation of taxable income for the period 1/1/15 to 20/10/15
$
Gross monthly salary 35 000
Interest 3 600
Royalties 2 100
Botswana rentals (exempt) -
40 700
Less: Pension contribution (450 *10) 4 500
NSSA (3%*200*10) 60 4560
Taxable income 36 140

320 A Guide to Zimbabwe Taxation

 The estate of Mr Mapuranga

Calculation of taxable income for the period 20/10/15 to 31/12/15

$
Foreign rentals -
Cash-in-lieu of leave 16 000
Bonus -
Taxable income 16 000

CHAPTER 13: HIRE PURCHASE AND SUSPENSIVE SALES

Question 1
a) Hire purchase contract is a contract of sale in which possession of goods is passed to
the buyer immediately on making an agreement and upon payment of a deposit but
ownership of the goods is passed upon the payment of the last instalment. Whereas
under a credit sale, ownership of the goods is passed upon signing of a contract.
b) Section 10(7) and 17 of the ITA provides that the whole consideration is deemed to have
accrued in the year of assessment in which the contract is made. Section 17of the same
act, provides that an allowance shall be calculated in respect of the outstanding debtors.
c) Where goods are repossessed, a debtor will cease to claim a hire purchase allowance.
Goods repossessed will be treated as a supply by a debtor to the person exercising his
right of repossession for VAT purposes.

Question 2
Selling price per unit $450
Less: cost $270
Gross profit $180

Gross profit percentage 180/450* 100%

= 40%

a) Calculation of hire purchase allowance

$
Total sales (20*$450) 9 000
Less: deposit paid (20*450*20%) (3600)
Less: instalments paid:

5 fridges (0.6*450*5*10months)/24 months (562.5)

10 fridges (0.6* 450*10*7 months)/24 months (787.5)

5 fridges (0.6*450*5*4months)/ 24 months (225)

Outstanding debtors 3 825

A Guide to Zimbabwe Taxation 321

 Hire purchase allowance 40%* 3825 $ 1 530

Calculation of taxable income for the year ended 31 December 2017.

$
Sales (20*450) 9 000
Cost of sales 5 400
Gross profit 3 600
Less: Hire purchase allowance (1530)
Taxable income 2070

b) Calculation of outstanding debtors

$
Sales (20*450) 9 000
Less: deposit paid (40%*450*20) 3 600

Less: instalment paid:

5 fridges (5*450*0.6*22 months)/24 months (1237.5)

10 fridges (10*450*0.6*19 months)/24 months (2137.5)

5 fridges (5*450*0.6*16 months)/24 months (900)

Outstanding debtors 1125

Hire purchase allowance (40%*1125) 450

Calculation of taxable income for 2017 tax year

Hire purchase allowance previous year 1 530
Less: hire purchase allowance current year (450)
Taxable income 1080

CHAPTER 14: WITHHOLDING TAXES

Section A: Multiple choice questions

1. A
Note# Withholding tax on dividend paid by a listed company is 10% and that of unlisted
company is 15%.
10/90*300+15/85*1800 = $651
2. B
(15%*4000 +5%*10 000)
= $1 100
3. B
4. C
5. D
322 A Guide to Zimbabwe Taxation
6. A
7. B
(15/85 *8000 + 20/80*15 000)= $5162

Section B: Structured questions

Question 1

CHAPTER 15
Question 1
a) Double taxation may arise as a result of:
- For instance Section 12 of the ITA deemed certain foreign income to have been
received from a Zimbabwean source, as such income accruing to Zimbabwean
residents like dividends; interest etc. may be taxed in the source country thus giving
rise to double taxation.
- Withholding taxes like Section 26: Non –resident shareholder‘s tax; section 30 non-
resident tax on fees; Section 31: Non-resident tax on remittances etc., are sections
which authorises the taxing of non-residents, who may be taxed in the country of
residence hence giving rise to double taxation.

b) A Permanent establishment is a fixed places of business within a target country, which

may be a place of management, a branch etc. Also, a permanent establishment exist
where a corporation operates in the target country through a dependent agent that
habitually exercises the authority to conclude contracts on behalf of the corporation in
the target country.

c) Importance of signing tax treaties

- It eliminates double taxation and thus enhances international trade and cross border
flows of revenue and capital.
- Prevents fiscal evasion
- Provides rules for determining:
 The country in which a taxpayer is resident;
 The treatment given to specific types of income;
 The allowable rates of withholding tax on specific types of cross-border
payments; and
 The manner in which issues of taxation not in accordance with a tax convention
are to be resolved.

Question 2
Munotida

Calculation of tax liability

Note $
Foreign interest (1200 @30.9%) 370.80
Foreign dividends (2400@20%) 480.00
Zimbabwe tax 850.80
Foreign tax 1100.00

A Guide to Zimbabwe Taxation 323

Total tax 1950.80
Less: Double taxation relief 1 (780.00)
Net tax 1 170.80

Notes
1. Domestic tax Foreign tax Credit
Foreign interest 370.8 300.00 300
Foreign dividends 480.00 800.00 480.00
850.8 1 100.00 780.00

CHAPTER 17: CAPITAL GAINS TAX

Section A: Multiple choice questions

1. D
Listed 1%*35 000 350
Non-listed proceeds 31500
Less: cost (18 000)
Less: Inflation allowance (2.5%*18000*6) (2 700)
Capital gain 10 800
Tax @ 20% 2160
2 510
2. A
Tutorial note# where the amount of compensation is less than the cost of an asset the
asset is not deemed to have been disposed.
3. A
4. Inflation allowance is 2.5%* (800 000+ 400 000)*6 years = $180 000
5. B
1%* 40 000 +5%*20 000
= $ 1 400
6. C
Proceeds 80 000
Less: Cost (60 000)
Inflation allowance (9 000)
Capital gains 11 000

Roll-over = 11 000*70 000/80 000

= $ 9 625

Section B: Structured Questions

Question 1

The following are deemed disposals:

- Donations
- Expropriation of an asset
- Disposal by way of execution of a court order
- Maturity or redemption of a specified asset
- Transfer of a right to under a deed of sale
324 A Guide to Zimbabwe Taxation
Question 2
Mapango Unlimited

a) The following withholding tax rates apply:

- Immovable property 15%
- Unlisted securities 5%

Calculation of correct withholding tax

¾ land 300 000@ 15% 45 000
Administration building 80 000@15% 12 000
Warehouse 45 000@15% 6 750
Timber treatment stalls 40 000@ 15% 6 750
Total 70 500

b) Computation of capital gains tax liability for the year ended 31 December 2017.
Notes $
Proceeds on land (300 000 +90 000) 390 000
Proceeds on showroom 30 000
Proceeds on non-listed shares 3 000
Proceeds on admin building 80 000
Less: recoupment 1 (40 000) 40 000
Proceeds on warehouse 45 000
Less: recoupment 1 (7 500) 37 500
Proceeds on timber stalls 45 000
Less: recoupment 1 (10 000) 35 000

Gross capital amount 535 500

Less: cost of disposed assets 2 (73 500)
Inflation allowance 3 (47 500)
Assessed capital losses (12 000)
Capital gains 402 500

Tax @ 20% 80 500

Less: withholding tax (60 000)
Tax payable 20 500

Notes
1. Recoupment
Admin building Warehouse Timber
Cost
60 000 75 000 40 000
Capital allowances
(40 000) (37 500) (10 000)
ITV
20 000 37 500 30 000
Proceeds
80 000 45 000 45 000
Recoupment
40 000 7 500 10 000

A Guide to Zimbabwe Taxation 325

2. ITV of disposed assets
$
Showroom 16 000
Administration building 20 000
Warehouse 37 500
Timber stalls 30 000
Total 73 500

3. Inflation allowance
Land (320000*2.5%*4) 32 000
Administration (60 000*2.5%*4) 6 000
Warehouse (75 000*2.5%*3) 5 625
Timber stalls (40 000*2.5%*2) 2 000
Showroom (24 000*2.5%*3) 1 800
Shares (1 000*2.5%* 3) 75
Total 47 500

Question 3

Perkins
a) Calculation to capital gains tax liability
$
Sales proceeds 1000 000
Less: cost (300 000)
Additional bedroom wing (50 000)
Staff cottage (20 000)
Dura wall (30 000)
Electric gate (15 000)
Swimming pool (40 000)
Inflation allowance:
Cost (2.5%* 300 000*4 ) (30 000)
Bedroom wing (2.5%*50 000*2) (2 500)
Staff cottage (2.5%* 20 000*2) (1 000)
Dura wall (2.5* 30 000*2) (1 500)
Electric gate (2.5%*15 000*1) (375)
Swimming pool (2.5%*40 000*1) (10 000)
Capital gains 508 625
Tax @ 20% 101 725

b) Roll- over relief

700 000*508 625

1000 000

= $ 356 038

326 A Guide to Zimbabwe Taxation

 $
Capital gains 508 625
Less: roll-over relief 356 038
Taxable gains 152 587
Tax @20% 30 517.4

CHAPTER 18: VAT

Section A: Multiple choice questions
1. A
VAT payable 6 300
Add: Goods applied to own use (2 200 x 15/115) 287
Impaired debts (3 000 x 15/115) 391
Purchases returns (1 200 x 15/115) 157
7 135
2. C
Output tax – 15/115 x (10 000 + 15 000) = US$3 261
Less input tax – 15/115 x (4 000 + 7 000) = US$ 1 435
VAT payable = US$1 826

3. D
Note# a person is compulsorily required to register for VAT purposes if he/ she is
expected to attain a annual turnover of $60 000, i.e. a monthly turnover of $5 000.

4. A
5. C
6. A
15% *(35 000 +28 000)
= $9450
Category B operators submit in bi-monthly period ending February, April etc. So January
and February sales will be included in February return.

7. D
8. B
15/115*(10350+41400+13800)= $8 550.
9. C
10. A

Section B: Structured questions

Question 1
a) A taxpayer who is dissatisfied with the decision of the Commissioner may lodge an
objection. A valid objection should:
- Be in writing stating the grounds of objection.
- Should be made within 30 days after the date on which notice of any decision or
assessment was given by the Commissioner.

A Guide to Zimbabwe Taxation 327

If the Commissioner gives his determination concerning the objection of a taxpayer‘s appeal,
and such taxpayer is still dissatisfied, he or she may make an appeal to the Fiscal Court of
Appeal. An appeal should be in writing and should be made within 30 days of receipt of the
notice of determination of the Commissioner.

b) Input tax suffered on the following is prohibited:

- Goods or services acquired for entertainment purposes.
- Subscriptions
- Input tax suffered on hiring or acquisition of a PMW.
- Goods or services acquired not for the purpose of trade.

c) VAT registration

An operator is required to register for VAT purposes once his taxable supplies made in the
previous twelve months exceed $60 000, or where he or she reasonably believes that his
supplies will exceed $60 000 in the next twelve months.

Registration should be made within 30 days of the date of eligibility.

d) Advantages of voluntary registration

- VAT registration certificate is a prerequisite by most suppliers for consideration to
participate in tenders.
- Being VAT compliant is also a consideration by Zimra for the issuance of tax clearance
certificates.
- Avoidance of potential penalties & interest from late VAT registration.
- Input tax claim from purchases obtained from VAT registered suppliers.

e) Statutory duties of a registered operator

- Complete and submit the VAT return as well as the remittance of the tax.
- Issue tax invoice for taxable supplies.
- Keep accounting records for a minimum of six years after the relevant tax period.
- Advise Zimra of any changes in business related issues such as change of address,
cessation of trade, etc.
- Account for VAT on closing stock on cessation of trade.

f) Due date for VAT returns

The due date is the 25th day after the end of the relevant tax period.

g) Features of a valid tax invoice

A tax invoice should have the following features:

- The words ―tax invoice‖ clearly shown
- Name address and registration of number of the supplier
- Name and address of the recipient
- Individual‘s serialised number and the date of issue
- Description of goods or services supplied
- The quantity or volume of goods or services supplied
- The value of the supply, the amount of tax charged and the consideration for the supply.
328 A Guide to Zimbabwe Taxation
Question 2
FT Limited

a) FT should be registered for VAT when they attained a sales threshold of $5 000 monthly.
They should therefore have registered for VAT in the month of May 2014, and submitted
the respective first VAT return on 25 June 2014.

b) Input tax recovery forfeited.

May $3200* 15/115 $417

June $3600 ---
417
c) Calculation of VAT tax payable
$
Output tax on sales (48 900*15%) 7 335
Less: input tax
July -
August (22 000*15/115) (287)
September (3900*15/115) (509)
October (3700*15/115) (483)
November -
December (5500* 15/115) (717) (1996)
Motor vehicle expenses (313)
Stationery 130
Payroll costs -
Other office expenses (900*15/115) (117)
Fiscalised electronic registers (8000*50%) (4 000)
Entertainment -- (4560)
VAT liability 779

Question 3
Statutory Instrument 104 of 2011 is the regulation which requires every registered operator
in category C to acquire a fiscalised electronic register or a non-fiscalised electronic register
which has a fiscalised memory device.

A fiscalised electronic register should have the following features;

- Onerous back-up facility including the requirements of uninterrupted power supply for
eight hours.
- A screen on which the customer can see simultaneously displayed the input being made
by the till operator
- It must incorporate a backup master audit facility
- It must incorporate or be capable of being upgraded to incorporate a feature enabling the
fiscalised electronic register to be linked to an input facility operated by ZIMRA or any
other network facility
- It must be capable of retaining a fiscal memory of total daily sales, total VAT charged
and total sales for at least three years.
A Guide to Zimbabwe Taxation 329
 CHAPTER 20: FISCAL INCENTIVES

Section A: Multiple choice questions

1. C
2. B
3. D
4. A
5. B

CHAPTER 21: ADMINISTRATION OF TAXES

Section A: Multiple choice questions
1. D
2. A
3. D
Interest = 10%* 10/365*3020
= 8.27

4. D
Penalty = 31*30*75% = 697.5

5. D
6. D

Section B: Structured questions

Question 1
a) Due dates
i. VAT return – 25th of the month following the end of a tax period
ii. Self-assessment return- by the 30th April following the end of tax year of the
Commissioner‘s notice.
iii. QPD return-on or before 25 March, 25 June, 25 September and 20 December or any
other date approved by the Commissioner.
iv. Capital gains tax return 30 days from the date of transfer or receipt of payment of
gross capital amount.
v. ITF 16 – 31 January
vi. Monthly PAYE- 10th day following month end.
vii. Annual tax return – 30 days from the Commissioner‘s notice.
viii. Withholding tax on contracts – the 10th day of the month following that in which it was
deducted.
ix. Withholding tax on Non-Executive Directors fees – within 10 days from the date of
payment.

330 A Guide to Zimbabwe Taxation

A Guide to Zimbabwe Taxation 331