Taxes in the Zimbabwean Context.

By Bianca Mahere, Associate.

There are different types of taxes payable in Zimbabwe. Like every other government, the Zimbabwean government relies on taxes as a source of revenue to use in various government obligations. Individuals and companies have a number of tax obligations which will be discussed in this article.

The issue of taxes is governed by the Zimbabwe Revenue Authority (ZIMRA) which is established by the Revenue Authority Act [Chapter 23:11]. ZIMRA is mandated to act as an agent of the State in assessing, collecting and enforcing payment of all tax revenue. The various types of taxes include Income tax, Capital Gains tax, Value Added Tax, Customs and Excise and Stamp Duties. All these are governed by individual statutes and the Finance Act [Chapter 23:04] is the charging statute that stipulates rates at which taxies will be levied. Our initial focus will be on Income Tax.

INCOME TAX

Income tax can be defined as a tax imposed on individuals or entities and it varies with respective income or profits. Income tax in Zimbabwe is governed by the Income Tax Act [Chapter 23:06].

The Zimbabwe tax system is based on source and not on residency. It follows therefore that all income derived or deemed to be derived from sources within Zimbabwe is subject to tax.  Residents are taxed on income from a source within Zimbabwe or from a source deemed to be from Zimbabwe. For non-residents, they are taxed on income from a Zimbabwean source, that is withholding tax (WHT). Simply put, if you are working in Zimbabwe and the source of your income is in Zimbabwe or deemed to be from Zimbabwe, you are subject to income tax remittance. However, in some instances, certain types of income arising outside Zimbabwe, may be subjected to tax if they are for a Zimbabwean tax resident. Examples of these include copyright royalties arising outside Zimbabwe and dividends.

Another aspect of Income Tax is the Immediate Money Transfer Tax (IMTT). IMTT is collected in terms of section 36G as read with the Thirtieth Schedule of the Income Tax Act. This tax is collected physically, electronically, or by other means whenever there is transfer of money between persons which transfer is not by cheque. Such transactions include transfers involving financial institutions or mobile banking service providers, who collect the tax on behalf of ZIMRA. The IMTT is charged at a rate of US$0.02 on every US$1, that is 2% on every transaction above the value of US$5 or ZW$500. A flat IMTT of ZW$800 000 is chargeable on transactions equal to or exceeding ZW$40 million or US$2 000 charged on transactions that are equal to or exceeding US$100 000.

For employees (payee), income tax is deducted from the payment accruing to the payee but it is deducted from the source. This means the payee receives their net of income after tax deduction. As discussed above, the tax deductible depends on the income to be paid. In our case, the percentage to be deducted increases with the amount earned. The percentages for all tax brackets are currently provided for in the Finance Act (No.2 of 2020).

Corporate income tax is the tax collected from companies based on the net income companies obtain while exercising their business activity. The rate for companies is  24% and this also includes mining companies. Interesting to note is the fact that no tax is payable in the first 5 years of operation by some licensed investors. After 5 years of operation, the 24% becomes applicable.

In some circumstances, certain income is exempt. This is specifically provided for in legislation under the third schedule of the Finance Act. Examples of exempt income include contributions to pension funds, subject to some conditions, and recently covid-19 risk allowances earned by frontline health workers as stated in the Finance Act amendment.

In conclusion, there are different aspects to Income tax and this part of the article was articulating the basics of Income Tax. On a lighter note, the words of the famous Albert Einstein are important to note, I quote, “the hardest thing in the world to understand is the income tax.” 

The other forms of tax will be discussed in the next parts of this article.

Should you require any further information on the above please do not hesitate to contact us.

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