Advanced Taxation Issues

in Zimbabwe 2017

By [Link](Mr)
Chinhoyi University of
Technology(CUT),
Zimbabwe

ADVANCED
TAXATION(CUAC 408)
MODULE NOTES
2017

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 CHINHOYI UNIVERSITY OF TECHNOLOGY
ACCOUNTING SCIENCE AND FINANCE DEPARTMENT
+ P. Bag 7724, CHINHOYI, ZIMBABWE
( +263 67 22203-5 ext 216
2 +263 67 28957
Website: [Link]
E-mail: inzero@[Link]

The Chairpersons Office

COURSE OUTLINE 2017

COURSE LECTURER: [Link] (MR.)

General Information
Office: Prefab Block 1 Office 6
E-mail: emuguti@[Link], eriazerimuguti@[Link].

1.0 Course Title and Code

Advanced Taxation – CUAC 408

2.0 Time Allocation

4 hours per week and 1 hour will be reserved for tutorials
1.
3.0 Rationale
To equip students with the necessary Zimbabwean taxation knowledge and the
taxation regime obtaining. This is a continuation of the Tax Law and Practice
(CUAC 212) course but with particular emphasis on tax planning issues.
4.0 Purpose
2. 4.1 Enable students compute tax payable for all corporate enterprises, estates
and individuals
3. 4.2 Enable students to plan effectively for taxation and minimize tax payable
wherever possible.
4.3 Enable students discern between tax avoidance and tax evasion issues
4.4 Enable students to understand the administration of different taxes and
appreciate the importance of tax compliance.

4.
5.0 Main Capabilities
By the end of the course, students should be able to:

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5.1 Explain the context and purpose of taxation.
5.2 Compute tax liability for individuals, corporates and estates.
5.3 Define tax planning and comprehend its mechanics.
5.4 Outline the mechanics of tax administration.

6.0 Method of Instruction

Each section of the course outline will be thoroughly demonstrated in the lecture,
with comprehensive examples articulated to the students. The following methods
among others will be used:
6.1 Lectures
6.2 Demonstrations
6.3 Group discussions
6.4 Tests

7.0 Students Assessments

5.
 Coursework comprises of at least two (2) tests and one (1) assignment,
which constitute 30% weight of the final mark. Questions in the tests will
cover all the pertinent aspects of the course covered up to the time of
the test, and will serve as mock exams, in preparation for the final exam.
6.
 Final exam constitute 70% of the final mark and will examine all the
pertinent aspect of the course.
7.
 The final mark will be a summation of course work and the exam mark.
8.
 The administrator will provide course evaluation forms to students.
9.
 The range of marks attained by the student will be classified as follows:

Degree Class Range of Marks Description

1 75% - 100% Distinction
2.1 65% - 74% Pass
2.2 60% - 64% Pass
3 50% - 59% Pass
F 0% - 49% Fail
10.
8.0 Course Content
 Income tax on Miners

 Comparison of miners and other traders.

 Capital Expenditure.
 Capital Redemption Allowance (CRA).
 Management fees and Interest.
 Assessed losses and ring fencing.

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  Recoupment and mining claims.
 Other allowable mining expenditure.
 Computation of tax liability for miners

 Income tax on Hire Purchase transactions.

 Income tax on movable items.

 Income tax on immovable properties.
 Capital gains tax on specified assets
 Suspensive sale allowances.
 Computation of tax liability.

 Tax planning issues

 Computation of tax due on individuals and companies.

 Minimising or Deferring Tax Liabilities.
 Allowances available to companies and individuals.
 Fiscal incentives for individuals and companies under income tax, capital gains
tax and value added tax.
 Tax avoidance and evasion.
 Anti-avoidance legislative provisions
 Legislative options and elections for minimising tax liability under income tax,
capital gains tax and value added tax.

 Deceased Estates and Estate Planning

 Formulation of deceased estates and insolvent estates.

 Taxation of pre-death and post-death income.
 Income tax on beneficiaries, trusts and the deceased estates.
 Estate duty.
 Estate planning.

 Tax Administrative matters in Zimbabwe

 Tax assessments and tax returns.

 Penalties, Fines and Interest.
 Objections and appeals.
 Withholding and presumptive taxes.
 Double taxation agreements.
 Advance tax rulings

Course Text(s) Recommended Reading

1. The Income Tax Act [Chapter 23:06]
2. The Finance Act [Chapter 23:04]
3. The Capital Gains Tax Act [Chapter 23:01]
4. Value Added Tax [Chapter 23:12]
5. Income Tax in Zimbabwe [2001] by LW Hill 5th Edition Durban: Butterworth
publication

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6. Nare, S (2017) Tax law and Practice in Zimbabwe, 7th Edition, Rebasotho
Investments (Pvt) Ltd, Harare.
7. Nyatanga, P (2017) A Guide To Zimbabwe Taxation, 3rd Edition
8. Zimbabwe Taxation by E Tagara and W Gono [2001] Ng Publishers.
9. Ernst and Young Tax Guides [[Link].
[Link] and Touché Tax Bulletins [[Link]]
[Link] Revenue Authority website [[Link]]
[Link] Tapera(2017) Tax principles in Zimbabwe

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CHAPTER 1

TAXATION OF MINERS

(Section 15(2)(f) a.r.w 5th Schedule)

1.0 Introduction
A miner is any person (company, individual, trust) involved in the extraction of
minerals from the earth’s crust and, or is involved in mining activities e.g. refining
and processing.

Minerals exclude petroleum, ordinary clay, sand and stone. Limestone, fire clay and
basic minerals such as chrome, gold, iron, platinum and diamonds are recognized as
minerals.

A miner is assessed in a manner similar to that applicable to a trader with certain

exceptions notably:
1. Method of claiming capital allowances
2. Indefinite carrying forward of assessed losses i.e. s15 (3)
3. A more favorable rate for a holder of a special mining lease of tax on his taxable
income of 15%. However, taxable income of a company or trust derived from mining
operations is 25%.
4. AIDS levy was previously not charged but beginning 1 January 2015 AIDS LEVY on
mining income is now applicable
5.
Restrictions on Capital Allowances-Mining-5th Schedule
ASSET DEEMED
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 COST($)
Staff housing for directors or used by a person who controls the $10 000
company (shareholder).para 1(1)(a)(i)A
Passenger Motor Vehicle(PMV)-para 1(a)(i)(B) $10 000
House for staff at a school, hospital, nursing home, clinic para.(1)(a) $50 000
(ii)(A)
Hospital, school, nursing home or clinic para.1(a)(ii)B $50 000

NB. There is no restriction on staff housing for employees working in the mine.

6. A miner’s recoupment is calculated in accordance with s8(1)(i).

It is very important to understand the terms; Capital Expenditure (CE) and Capital
Redemption Allowance (CRA).

1.1 Capital Expenditure (5th Schedule Paragraph 1)

 Any mine assets purchased or constructed are known as capital expenditure.

 Capital expenditure includes the following:

(1) All mine buildings; furniture, fixtures and fittings, tools and equipment; plant and
machinery.

(2) Commercial motor vehicles e.g. bulldozers, dump trucks, delivery vans and staff
buses.

(3) Passenger motor vehicles (maximum cost US$10 000/unit)

(4) Shaft sinking (amount spent in drilling the shaft)

(5) Lease premiums

(6) Mine hospitals, clinics, nursing homes and schools.

 These are recognised as mine assets if more than 50% of the users come from
the mine, either as employees, their children or dependents.

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  The maximum cost of each unit must not exceed $50 000.

(7) Pre-production costs on preliminary surveys, boreholes, development costs,

general administration and management including any interest payable on loans
utilized for mining purposes.

 Thus 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 part of UBCE in the year in which production
commences.
 NB: The cost of land, where the mine is situated is known as the mining claim.
 Land is not listed under capital expenditure as it is not granted CRA and
therefore as in accounting land is not depreciated.

(8) Staff housing

 In mining there is no maximum cost restriction on the qualification of staff

houses as mine assets i.e. as long as the house is being used to accommodate
an employee, then it is a mine asset.

(i) Employee staff houses (mine workers, managers and directors who are
not shareholders).
 Whatever amount is spent on the staff house would be considered as capital
expenditure, the whole amount.
(ii) Teaching and nursing houses
 Expenditure on permanent building used as a dwelling by staff at a mine
school, hospital ,nursing home or clinic is restricted to a maximum of US$50
000.
(iii) Shareholders houses
 If the mine is owned by four or less shareholders only one house can be listed
under capital expenditure up to a maximum cost of US$10 000.

1.2 Capital redemption allowances (CRA)

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  The allowance/deduction is granted in respect of capital expenditure.

 No capital redemption allowances arise until the year of assessment in which

the mine first commences production.

 Capital redemption allowances replaces most allowances, allowable to other

tax payers i.e. SIA, wear and tear, scrapping allowances, allowances in respect
of lease premiums and pre-production expenditure (s15 (2)(t).

 *NB – Never calculate S1A or wear and tear in mining.

 CRA is granted on capital expenditure, not on individual assets.

 There are 3 methods of calculating CRA and a taxpayer has to choose one.

 These are (a) New Mine Basis (b) Life of Mine Basis and (c) Mixed Basis

1.2.1 Computation of capital redemption allowance (CRA)

(a) 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, and/or;
 A mine that had been previously in production and had closed down and had
subsequently reopened and commenced operations.
 A person who conducts mining operations in a new mine may elect to deduct in
the year of assessment in which production commences, both the Accumulated
capital expenditure incurred prior to commencement and that expenditure
incurred subsequent to commencement in that year (current year capital
expenditure).
 This basis is available to both individual and companies, and applies regardless
of whether the taxpayer owns or tributes the mine.
 CRA= balance b/f + Current expenditure
 This method is only granted on election and it offers maximum allowances.
 Under this method CRA is 100% of total capital expenditure.
 This is the maximum deduction.
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  It is granted to new mines or those which closed down and have now reopened
or any change in shareholding with substantial new developments and new
plant.

Example 1

Mugomaster Mining (Pvt.) Ltd situated 40km South of Zvishavane, incurred the
following capital expenditure, year 2010 and 2011 being pre-production. Production
stage was reached in the current year i.e. year 2012.

YEAR 2010 & 2011

$
Plant and Machinery 400 000
Shaft Sinking 100 000
Mine Building 300 000
Salaries and wages 500 000
1300 000
YEAR 2012
Salaries and wages 600 000
Passenger Motor Vehicle 160 000
Lease premiums 100 000
860 000
Life of mine is 3 years from the end of year 2012.
Required:
Calculate;
CRA for 2012 based on the New Mine method.

Life of Mine Basis (5th Schedule Paragraph 2)

Estimated life of mine

 Means the numbers of years during which mining operations are expected to
continue after the beginning of the year of assessment.

 In other words, it refers to the life span of the mine.

 Provided that, the life of mine must not exceed

(a) In the case of a mine producing lead or zinc 10 years

(b) In respect of a mine producing iron, 5 years

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(c) Any other mine, 20 years.

 Where an estimated life of mine is used a taxpayer must submit to the

commissioner for approval, an estimate of years for which operations are
expected to continue – based on certified estimate of ore reserves.

 A new estimate is required each year of assessment and is counted from the
beginning of the year of assessment.

Computation of CRA under Life of Mine Basis

 Generally, under this method CRA is found as follows:

 Total capital expenditure/Life of mine estimate.
 However, any recoupment should be taken into account as follows;
 CRA =Balance b/f -recoupment + CE (Current Expenditure)/Life of Mine
 If a miner does not make an election he automatically gets this method
because it offers minimum allowances.
 The capital expenditure carried forward from the previous year and which
remains unclaimed is known as unredeemed capital expenditure balance
(UCEB).
 For simplicity the above formula can be expressed as follows:

DETERMINATION OF CRA FOR THE YEAR ENDED……………………..

Unredeemed balance of capital expenditure b/f xxx

Less Recoupment (xxx)

xxx

Add Current year capital expenditure xxx

Total capital expenditure xxx

Less* CRA (xxx)

Unredeemed balance of capital expenditure C/F xxx

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*CRA = Balance b/f –recoupment + CE/Life of mine

Note:

(1) The method relate to mine owning individuals and companies.

 In the case of a tribute mine the position is as follows

(a) In the case of a company, which is not, the owner of the mine CRA is calculated
based on the shorter of life of mine and period of tribute.

(b) In respect of an individual who is not the owner of the mine, the commissioner
recognizes accumulated shaft sinking and development costs in the first productive
year and thereafter grants an allowance either over the period of tribute or on a
percentage of costs basis such as in the case of wear and tear.

(2) No allowance is calculated until production stage is reached.

(3) Life of mine is computed from the beginning of the year of assessment.

Example 2

Based on the data in Example 1, Calculate CRA for 2012 based on the Life of Mine
method.

(c) MIXED BASIS (Para. 4(2) and 4(3), 5th Schedule)

 This is a mixture of the new mine basis and life of mine basis.
 The effect is to grant current capital expenditure in full, while capital
expenditure brought forward less recoupment is spread over the life of the
mine i.e.
 (Preproduction Capital expenditure or UCEB less recoupment)/Life of mine
estimate + Current capital expenditure.
 UCEB-Unredeemed Capital Expenditure Balance
 This method is also granted on election.

The computation can be set out as shown below;

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DETERMINATION OF CRA FOR THE YEAR ENDED………..

Unredeemed balance of capital expenditure b/f xxx

Less Recoupment (xxx)

Sub-total xxx

Add Current year expenditure (CE) xxx

Total capital expenditure xxx

Less *CRA (xxx)

Unredeemed balance of capital expenditure c/fwd xxx

*CRA = (Balance b/f –recoupment)/Life of mine + CE

Example 3

Based on the data in Example 1, Calculate CRA for 2013 based on the Mixed Method.

1.3 Other provisions about mining

1.3.1 Recoupment-s 8(1)(i)

 Miner’s recoupment is not restricted to allowances previously granted.

 It is simply sale proceeds less ITV i.e. (sale proceeds is greater than ITV).
 In most cases a miner’s recoupment is equal to sale proceeds.
 Recoupment is brought into gross income when capital expenditure has been
claimed using New Mine Basis.
 When capital expenditure has been claimed using Life Of Mine basis or Mixed
Basis Method recoupment is first off-set against unredeemed balance of capital
expenditure(UBCE).
 The excess recoupment is then brought into gross income.
 However, in the following circumstances, the recoupment is restricted to the
allowances previously granted;
 The sale of an asset which has been subject of a replacement allowance;

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  The recovery (usually by way of insurance proceeds) in respect of damage to or
destruction of an asset.
 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.

1.3.2 Prospecting Expenditure-S15 (2)(f)(ii)

 This is expenditure incurred by taxpayer on operation either in searching for

potential claim or in searching for minerals after the claim has been pegged.
 Such expenditure is allowable in the year of assessment in which it is so
incurred.
 In the absences of income such expenditure maybe carried forward to be
allowed against subsequent income from the mining operations.

1.3.3 Sale Of Mining Claims (section 9)

Generally;

 If any part of taxable income is attributed to sale of a mining claim the

taxpayer is taxable in full in year in which the claim is sold on the profit from
sale.
 Profit on sale of claim is usually the difference between the selling price of a
claim and its cost incest of claim.
 However, where the cost of claim is not available profit is the sale proceeds.
 NB Purchase or expenditure on mining claim is not regarded as capital
expenditure.
 However, if there was intention to carry out mining business on the claim; the
claim, the sale is deemed to be a sale of a specified asset and only subjected
to CGT.

1.3.4 Replacement Election (Para 6,5th schedule)

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  If a miner replaces/renews mine buildings, works or equipment and in the
process spends US$10 000 or less, then such expenditure shall, on election be
treated as a normal business expense in the income statement, rather than as
capital expenditure.
 Proviso – The renewal or replacement cost where mine is owned, tribute or
leased by a company under the control of not more than 4 individuals should
not exceed $1,500.

1.3.5 Transfer of Assets

Where assets are transferred between companies under the same control, or between
husband and wife or in a scheme of localization if the taxpayer so elect, there shall
be no recoupment in the hands of the transferor.

1.3.6 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.

1.3.7 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 2015, 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.

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  The due date for remittance is the 10 th 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.

1.3.8 Assessed losses

 Miners are allowed indefinite carry-over of assessed losses to future years

where there may be taxable income.

1.3.9 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 2015.
 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.

1.4 Amendments in mining

1.4.1 Interest (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 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 in terms of
s26.

Example

Adebayo Zimbabwe Ltd is a mining company operating from Chegutu area, with its
head office located in Lagos, Nigeria. During the current year the Zimbabwean
subsidiary received a loan of $ 300 000 at 10% interest per annum. Adebayo Zimbabwe
showed the following details in its statement of financial position.

50 000 $1 ordinary shares $50 000

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Retained profit $30 000

Calculate the interest deduction to be allowed to Adebayo Zimbabwe.

Solution

Equity (50 000 + 30 000) $80 000

Qualifying debt is thus 80 000 X 3 $240 000

Allowable interest 10% X 240 000 $24 000

Note # a withholding tax is levied on (10 % X (300 000 -240 000)= $ 6 000, that is
interest on excess loan which is deemed to be a dividend.

1.4.2 General administration and management fees (Sect.16 (1) (r)).

 To be prohibited as a deduction is general administration and management fees

paid by a local branch or subsidiary of a foreign company engaging in local
mining operations.
 In respect of such expenditure as is paid before commencement of production
to the extent that is exceeds 0.75% of:
 A – (B + C)

Where,

 A – Represents the total expenditure qualifying for deduction in terms of s15.

 B – Represents general administration and management fees paid outside
Zimbabwe.
 C – Capital redemption allowance
 In the case of such expenditure as is paid after commencement of production
to the extent that it exceeds 1% of the above formula.

1.5 Ring fencing

 With effect from 1 January 2001 each mine is assessed separately.

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  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.

1.6 Cessation of Mining Operations

 If the cessation is due to the life of the mine having come to an end or in the
case of a mine worked under a concession, the concession having expired, the
balance of the unredeemed capital expenditure is allowable as a deduction in
the year of cessation of mining operations.
 If however the taxpayer has abandoned the mine e.g. by forfeiture of a claim
before its life has come to an end, the unredeemed balance of capital
expenditure is not deductible unless he can show that there has been a
material change of circumstance necessitating the revision of the life of a
mine.

Tutorial Questions on Taxation of Miners

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 Zhii 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

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time responsibility with the company. The other directors are based in China. The
company showed the following details for the year ended 31 December 2015.

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 2015, 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 2015, the company had the following balance sheet extract;
$
Issued share capital 120 000
Retained profit 60 000

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Loan from Zhang Zhii China 1500 000
4. The company incurred the following capital expenditure during the year ended 31
December 2015.

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
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 2015. 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 2015. Only the lump sum was
included in the accounts.
Required:
a) Calculate Capital Redemption Allowance (CRA) for the year ended 31 December
2015. [5 marks]
b) Calculate the taxable income of Zhang Zhii for the year ended 31 December 2015.
[15 marks]

Question 3
Chikorokoza Chapera Mining Corporation is a diamond mining company operating a
mine in the Chiadzwa area of Mutare. In support of its return it submitted the
following information for the year ended 31 December 2014.
US$ US$
Income
Operating income 3 000 000
Profit on disposal 2 000
3 002 000
Operating expenditure
Shaft sinking 20 000
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Development costs 5 000
Boreholes, trenches and pits 15 000
Purchase of mining claims 1 100 000
Salaries and wages 200 000
Crushing and milling 80 000
Administration costs 150 000
Depreciation of fixed property 9 000
Goodwill written off 75 000
General expenses 100 000 (1 754 000)
Net Operating Income 1 248 000

Additional Information:
(i) The machinery disposed of was purchased in 2012 for US$5 000.
(ii) Included in administration costs are:
 Penalty for late payment of tax US$10 000
 Company formation expenses written off US$60 000
(iii) Included in general expenses are:
 Water reconnection fees US$5 000
 Tax consultation fees US$20 000
 Preparation of financial statements and audit fees US$50 000
(iv) During the year the following expenditure was also incurred:
US$
Office buildings constructed 550 000
Mercedes Benz S500 purchased 200 000
Mine Equipment 100 000
Prospecting and exploratory works 50 000
900 000
(v) The balance of capital expenditure from last year was US$450 000
(vi)The estimated life of the mine at the end of 2014 was 8 years.

Required:
Calculate the company’s tax liability by granting CRA in terms of paragraph 4 (2) of
the 5th Schedule to the Income Tax Act for the assessment year ended 31 December
2014. [30 marks]

Question 4
Miners enjoy better tax incentives than other general taxpayers. Explain [10]

Solution
Mining losses are carried forward indefinitely whilst; other companies cannot carry
forward losses for more than 6 years.
- The cost of staff housing in mining is not limited, but for other companies it is
limited to US$25 000.

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- On sale of mining claims miners can elect to spread the income over 4 years (i.e.
prior to 1 January 2010)
- Recoupment in mining is not taxed, but to other taxpayers it is treated as income,
therefore taxable.
- Miners are not granted either SIA or Wear and Tear, instead they are granted Capital
Redemption Allowance which on election results in minimum tax liability or even
assessed losses, and thus tax liability is lesser to miners than other companies.
- Miners enjoy a replacement allowance on renewal/replacement expenditure on
buildings, works or equipment, which reduces their tax liability.

Question 5
N.A Mining Pvt. LTD is a gold mining company located 10km Northwest of Zvishavane.
It is controlled by three individuals. The mine has been in operation since 1 July 1996,
but has been making losses since inception. The total accumulated losses as at 1
January 2013 amounted to $1 050 000.
It submitted the following with its returns for the year ended 31 December 2013.

$ $
(a) Net profit as per accounts 14 000 000
After debiting total expenditure 19 500 010
This includes among others:
- Depreciation 1 500 000
- Shaft sinking 950 000
- lease premiums on Mazda 626 700 000
- Salaries and wages 10 900 000
- Depletion allowances 50 000
- Goodwill 6 500
The following items were credited
- Profit on sale of equipment (see note) 4 000
- Export incentive grant 100 000
- Sale mining claim (see note) 40 000
(b) Capital Expenditure
(i) Balance of capital expenditure B/F 62 400
(ii) Current capital expenditure
- Pajero for the General Manager 300 000
- Twin cab for the financial controller 250 000
- 50 medium density houses for Supervisory staff 5 000 000
- Renewal of plant 3 500
- Director (shareholder) house:
Constructed 30km from mine site 45 000
- Shaft sinking 70 000
- Plant and machinery 75 000

NOTES

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-During the year equipment with a net book value of $16 000 was sold for $20 000
making a profit of $4 000 on the transaction.
- A mining claim was sold for $40 000 during the year.
- The taxpayer estimated the life of mine to be 22 years from 1 January 2014
Required:
Minimum tax liability at 31 December 2013

Question 6
Tropical Mines (PVT) Ltd is a mining company operating a gold mine in Mvuma in
Zimbabwe. 80% of the company’s issued share capital is owned by Broken Hill
Investments plc, an Australian company which has its head office in Alice Springs,
while the balance of 20% is held by Zhunde (Pvt.) Ltd, a Zimbabwean registered
company.

The financial year ended of Tropical mines (Pvt.) ltd is 31 October each year and in
respect of the financial year to 31 October 2001, the net accounting profit per the
financial statements was $8 500 000. The income statement was credited with
amounts, which included:
$
Export incentive grant 400 000
Interest on tax reserve certificates 50 000
Total debits were $12,000,000 and these include:
Interest on long term debt (see note) 3 500 000
Management fees (see note) 250 000
Depreciation 1 200 000

The following is an extract from the balance sheet of Tropical Mines (Pvt.) LTD as at
31 October 2001:
Issued share capital 4,000,000
Retained earnings 6,000,000
Shareholders’ equity 10,000,000
Long term debt 35,000,000
Current liabilities 6,000,000

The capital redemption allowance, which is tax deductible for the current year, is
$2,000,000.

NOTES:
(i) The interest expense is payable to an offshore bank (based in Brussels) which had
provided the long-term loan reflected in the balance sheet.
(ii) The management fees are payable to the Australian parent company but
arrangements for its payment have not yet been made.
(iii) The current liabilities as at 31 October included a proposed dividend of
$2,000,000.

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The public officer of Tropical Mines (Pvt.) LTD has approached you in your capacity as
a tax consultant to assist with identifying all the tax liabilities associated with the
payment of interest, management fee and dividends. In addition she needs assistance
in computing the taxable income of the company for the 2001 tax year.
Required:
(a) Identify the taxes associated with the prospective remittances of interest,
management fees and dividends, qualifying them where possible and indicating when
these amounts should be paid to the Revenue Commissioner
(b) Explain and compute the tax-deductible portions of the interest and management
fees in accordance with the limitation provided for in the Income Tax Act (cap 23:06)
(c) Compute the taxable income and liability for tax year ended December 2001.

Question 7
Winox Investments Plc, a mining company with Head Office in London, submitted the
following information for assessment, for the year ended 31 December 2013.
The state of Winox Investments Plc at 1 January 2013 was as follows:
 Assessed loss brought forward $115 000
 The unredeemed balance of capital expenditure was $912 000
 Life of mine is 10 years from 1 January 2014
In respect of the tax year ended 31 December 2014 Windfall Investments plc’s
financial statements indicated:
$
i. Net Profit per accounts 19 900 000
ii After crediting among others:
Interest on tax reserve certificate 20 000
Profit on sale of mining claim 95 000
Sale proceeds of grinder 25 000
iii. After debiting among others:
Depreciation 15 000
Interest paid to Head Office 90 000
Purchase of a mine claim 250 000
Iv Current capital expenditure for the year:
Mining buildings 300 000
Constructed house for general manager 50 000
House for financial controller 95 000
House for new nurse for mine clinic 55 000
Twin cab for financial controller 30 000
Construction of mine clinic 105 0 000
Shaft sinking 50 000
V Balance sheet extract indicated:
• Shareholders’ equity 1400 000
• Long term loan from Head Office 5 500 000

Page 24 of 89
Compute the taxpayer’s minimum tax liability for the year ended 31 December 2014
(it’s not a new mine)

Question 8
Peachy Mines (Private) Limited is a 70% subsidiary of an Australian mining
conglomerate Peach Holdings Limited Headquartered in Sidney, Australia. Peachy
Mines (Private) Limited operates a gold mine in the Shamva area of Zimbabwe.

During the year ended 31st December 2010, Peachy Mines (Private) Ltd borrowed Usd
$50 million from the holding company to finance an expansion programme for the
mine
The parent company seconded a mining engineer from Australia to oversee the
expansion programme.

The income statement for the year ended 31st December 2010 reflected a net profit
before tax figure of $500,000. The debits and credits to the income statement
included the following:

Credits:
$
Bank interest (net of withholding tax) 6,000
Exchange gains 120,000
Profit on sale of assets 35,000
Debits
Depreciation 26,000
General expenses 10,000
Interest payable to parent company 240,000
Management fees payable to parent company 200,000
Other allowable mine development expenditure 2,500,000
Total expenses claimed 2,976,000

Other information:
1. Debt to equity ratio
The equity of the company is $10million
2. Exchange gains
This amount was made up of $90,000 unrealised exchange gains and $30,000 realised
exchange gains relating to the mining operations.
3. General expenses
This amount was paid to the Bindura Mayor's Christmas Cheer Fund.
4. Profit on sale of asset
A generator which was purchased by the company for $5,000 in April 2009 was sold
during the year for $40,000
5. Interest payable to parent company

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The amount was paid to the holding company through the company's foreign currency
account.
6. Management fees payable to parent company
This is a general management fee payable to the holding company in respect of
technical advice received on the mine. The amount was paid to the holding company
through the company's foreign currency account.
Additions to fixed assets
The following capital expenditure was incurred during the year ended 31st December
2010:
Extension to mine hospital 200,000
Construction of guest house 50,000
House for mine manager 60,000
House for nurse employed at mine hospital 65,000
House for school teacher employed at mine school 68,000
Mine office canteen 45,000
Mine school block constructed 120,000
Mine equipment 250,000
Nissan hard body double cab pickup truck for mine manager12,000

REQUIRED
(i) Compute the capital redemption allowance the year ended 31st December
2010 using the new mine basis. 9 MARKS
(ii) Calculate the minimum tax payable by the company for the year ended 31 st
December 2010. 14 MARKS
(iii) Discuss the withholding tax implications associated with the payment of
interest and management fees to the holding company (2 marks)

CHAPTER 2
HIRE PURCHASE & SUSPENSIVE SALES
2.0 INTRODUCTION
 A hire purchase transaction is a sale on credit.
 The buyer is not granted ownership of the item until the full sale price is paid.
 This is the case no matter whether the item under sale is a movable property
or immovable.
 In this chapter we review hire purchase as they pertain to the Income Tax Act
and the Capital Gains Tax Act.
 The Income Tax Act provisions relates to movable items and immovable items
sold by the taxpayer in the ordinary course of his trade.
 On the other hand, a sale of immovable assets (specified assets) held by the
taxpayer as an investment is governed by the Capital Gains tax Act.
 The commissioner’s practice is to regard a hire purchase sale as a sale on date
of agreement i.e. date of signing the contract.
 Accordingly, the taxpayer is taxed on the full sale price on this date
irrespective of the fact that the full sale price will be received in installment.

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  Taxpayers are thus taxable on amounts not yet received.
 However, the Act recognizes the hardship and makes a provision for section 17
and 18 allowances.

2.1 PROCEDURE FOR COMPUTATION OF INCOME TAX

 The following basic steps should be followed when computing taxable income
according to the Income tax Act procedure, no matter whether the item sold is
movable or immovable:
Step 1
DETERMINATION OF TAXABLE INCOME FOR THE YEAR ENDED 31
DECEMBER…………….
Yr1 Yr2 Yr3
Sales xxx xxx xxx
Less cost of sales xxx xxx xxx
Opening stock - xxx xxx
Purchases xxx xxx xxx
Pre-sale development costs xxx - -
Less closing stock (xxx) (xxx) (xxx)
Gross profit xxx xxx xxx
Add s 17 or 18 Allowance b/f xxx xxx
Less s17 or 18 Allowance (xxx) (xxx) (xxx)
Less other operating costs (xxx) (xxx) (xxx)
Taxable income xxx xxx xxx

Steps 2-4 Computation of Allowance

 The allowance is calculated using the following formula:
Gross Profit/Sales x Debtors not yet due and payable

Step2
Monthly or annual installment computation
= (Selling price –deposit)/Credit period

Step 3
Gross profit ratio computation
= (Selling price – Cost of sales)/Selling price x 100%

Step 4
DEBTORS SCHEDULE FOR THE ENDED 31 DECEMBER……………………
Opening debtors - xxx xxx
Sales xxx xxx xxx

Page 27 of 89
 Less: movement in debtors (xxx) (xxx) (xxx)
Deposit xxx xxx xxx
Installments xxx xxx xxx
Provision for bad debts xxx xxx xxx
Repossessed or Returns xxx xxx xxx
Bad debts xxx xxx
Debtors due but not yet paid xxx xxx xxx
Debtors not yet due & payable xxx xxx xxx
Allowance: xxx xxx xxx

NB Allowance is gross profit ratio multiplied by each year’s closing debtors not yet
due and payable.
Special points to note:
 The allowance calculated in the current year is taken as gross income in the
following year of assessment.
 No allowance is calculated on bad debts, provision for bad debts- s15 (2) (g)
items or on debtors due, but which for some reason have not yet been paid.
 No allowance is calculated in the event of death, insolvent of taxpayer, cession
or disposal of item under hire purchase agreement.
 Development costs stated above are applicable to computation of taxable
income on sale of immovable items, but post-development costs are treated as
operating expenditure.
 Pre-sale development should be included in valuation of closing stock.
 Development costs refers to expenditure of lying of pipes, streetlights, planting
of trees, on roads etc. in the case of a land developer.
 Closing stock is valued thus [(Total purchase price + pre-sale development
costs)/no# of items purchase] multiplied by items in stock.

2.1.1 EXAMPLE- MOVABLE ITEMS S17 (1)

Alpha Electronics (Pvt.) LTD is a retail shop, selling Televisions on credit to approved
customers. Each Television cost Alpha Electronics (Pvt.) LTD $120 000. 50 Television
sets were bought on 1 February 2003.

You are given the following information for the year ended 31 December;
20 sets sold in April 2003 at $250 000 each
16 sets sold in October 2003 at $250 000 each
14 sets sold in March 2004 at $250 000 each

The terms of agreement requires the customer to pay a deposit of 25%. On date of
sale and the remainder payable over 20 months in equal installments commencing the
month following that of sale.
Compute the taxpayer’s taxable income for each year during the credit period.

2.1.2 IMMOVABLE PROPERTY SOLD ON HIRE PURCHASE- S17 (2)

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  The land which the owner of the townships holds (i.e. City Councils) is
considered as floating capital and thus trading stock in the hands of the owner.
 On sale of such land the owner is taxable on it.
 In practice a township developer selling land under suspensive conditions would
be assessed in the following manner:
1. (a)
 The land which the owner of the township holds is considered to constitute
floating capital and thus trading stock in his hands, as it will have been
acquired for resale at a profit.
 Expenditure on development, such as roads, water, light, tree planting,
laying out of parks, etc., and on administration which is incurred prior to
the land reaching the full selling state, will be capitalized and added to the
cost of the land.
(b)
 When the full selling stage is reached, any further development or
administration costs of the type referred to in paragraph (a) will not be
capitalized, as it is considered that all such expenditure is allowable as a
deduction from income in terms of section 15 (2) (a) of the Act, in the year
when such expenditure is incurred.

Example
Trojan Masters Limited a land developer buys and sells land. In the current year of
assessment it bought 20 hectares for $10 million, which were subdivided into 120
stands for sell to residents of Gweru, incurring $5million development costs.

The terms of agreement requires that a deposit of 20% to be paid on signing the
agreement. The balance to be paid over 24 months in equal installment, commencing
the month following the month of sale. Each stand is sold for $2 million.

Sale took place as follows:

 50 stands on 29 march 2003
 51 stands on 3 January 2004
 19 stands on 13 November 2004
Annual developing costs of $300,000 are expected to be incurred at the end of each
year.

One of the buyers defaulted in payment of his 7th installment; accordingly the stand
was forfeited in November 2003.

30% of debtors due on 31 December 2003 were settled on 6 January 2004.

Interest amounting to $300 000 was received in 2004.
Required:
Taxable for the 3 years-2003-2005

Notes
Page 29 of 89
1. Gross profit is [2 000 000(selling price) - 15 000 000/120(costs)] =$1 875 000
Ratio therefore 1 875 000/2 000 000 x 100 =93.75%

2. Monthly installment= (selling price- deposit)/credit period

[(2 000 000 – (2 000 000 x20%)]/24 months = $66 666 .67

3 .Repossessed stand remains in stock since it was not re-sold. Make sure you remove
all its installments whether paid or not in the year in which it is repossessed i.e. 24 x
$66,666.67 = $1 600 000. Deposit has already been accounted for in the deposit
figure.

4. Debtors due but not yet paid are deducted from closing debtors no allowance is
calculated from such debtors. Accordingly amount due on 49 stands for month of
December i.e. 49 x66 666.67=$3 266 667, 30% of it represent debtors due but not yet
paid.

NB
 Students may care to use the following formula for purposes of s 17(2), but
many students find the above procedure very easy according to your author’s
experience with them:
Allowance = (D X [E – (F +G)])/E

Where
D –represents installments not yet due to payable
E – The whole amount deemed to have accrued to the Taxpayer i.e. selling price
F – Original Purchase price of land
G – Development cost of land
Gross Profit = [E – (F +G)]
GP% = ([E – (F + G)])/E

2.2 CREDIT SALES [Section18: Income Tax Act]

 This section relates to the taxation of income accruing from sales made on
credit with price being paid in installments.
 A credit sale is a sale whereby ownership passes to the buyer on delivery of the
property.
 The whole amount sale price shall be deemed to have accrued to the taxpayer
on the date on which agreement is made or concluded.
 The commissioner grants an allowance similar to that granted on disposal of
movable property sold under hire purchase i.e. section 17 (1) allowance.

2.3 CAPITAL GAINS HIRE PURCHASE

 Where a specified asset is sold on hire purchase the following conditions are
applicable;
 The whole gross capital amount shall be deemed to have been received on the
date of agreement i.e. the date of sale.
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  An allowance is made of debtors not yet due and payable.
 The allowance is calculated as follows:
 Capital gains/Gross Capital amount x Debtors not yet due and payable.
 The allowance so calculated is gross capital amount in the following year of
assessment where a fresh allowance will be calculated.

Tutorial Questions
QUESTION 1
Zama Zama (Pvt) Ltd submitted its capital gains tax returns for the year ended 31
December 2014 with the following information:
(a) Details of the property sold: Cost ($) ITV 01-01-2014($)
Warehouse (purchased 31 July 2011) 125 000 106 250
Stand (purchased 1March 2011) 25 000 25 000
Office block (purchased 28 August 2012) 250 000 237 500

(b) The properties were sold on 15 October 2014.

(c) The selling price of US$1 000 000 is payable in instalments as follows:

15 October 2014 deposit of $500 000

15 October 2015 1st instalment $250 000
15 October 2016 2nd instalment $250 000

(d) The selling price was allocated as follows:

Warehouse $300 000
Stand $100 000
Office block $600 000
(e) As security for the seller, the transfer of ownership will only be affected upon
payment of the last and final instalment.
(f) Agents commission is 2, 5% of selling price
(g) As a statutory requirement, withholding tax is withheld at a stipulated rate.

Required:
Compute the gains tax payable/assessed capital loss for the 3 years in question.
[25 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 2015, the company
had the following details in its books of accounts:
Selling price per unit $400

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Manufacturing cost per unit $260
Number of units sold 20

The refrigerators are sold on hire purchase on the following terms: A deposit of 40% of
the selling price is paid on date of sale and the remainder is paid over 24 equal
monthly instalments.
The refrigerators were sold as follows: 5 were sold on 1 April 2015, 10 on 31 July 2015
and the other 5 on 1 October 2015.
Required
Calculate the taxable income for Coolmix (Pvt) Ltd for the year ended;
a) 31 December 2015 [10 marks]
b) 31 December 2016 [10 marks] [20 marks]

Question 3
Mr. Olu Goblin 61 years, inherited a farm from his late uncle Aristos Manuel in 2009.
The valuation of the farm then in the estate was $30 000. Ever since 2009 he has
been operating livestock farm, until 14 January 2015. Due to demand of land for
residential purposes he decided to give up farming and sold his farm to Harare City
Council for $13,000,000 the proceeds were receivable as follows:

$7, 000,000 on 30 December 2015

$4, 500,000 on 30 December 2016
$1, 500,000 on 30 December 2017

The sale proceeds were allocated as follows:

Land 10 000 000
Homestead 2 500 000
Dam 500 000

He had made the following improvements on the land

Small dam (2009) 40 000
Homestead (2010) 150 000

No allowances were granted on the dam in respect of paragraph 2, 7 th schedule.

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Harare City Council had the farm subdivided into 50 stands of equal size, which were
ready for sale to the public on 1 March 2015 for $350 000 each. It incurred
development expenditure prior to sale amounting to $1 500 000.

The sale took place as follows;

20 stands 16 October 2015

15 stands 1 December 2015
15 stands 1 March 2016
The terms of agreement were as follows;
25% deposit on signing of the contract-date of sale. Balance payable over 10 months
in equal installments commencing the month following that of sale.

One of the buyers who had bought the stand on 1 December 2015 failed to pay his
March 2016 installment and his stand was accordingly repossessed. The installments
paid by the defaulting buyer were forfeited.

Required:
(a)Mr. Olu Goblin’s tax liability.
(b)The City of Harare tax liability. (20 marks)

Question 4
In March 2010, Plot Developers (Private) Limited, a company registered in Zimbabwe
with a 31st December year end, acquired 200 hectares of land for Us $1,500, 000 with
the intention of developing residential stands for resale.
Development costs were:
US$
Survey fees 50,000
Expenditure on roads, water reticulation etc. 250,000

200 stands were available for sale.

150 stands were sold on 30th June 2010 at $12,000 each. The terms were a 75%
deposit payable immediately with 15% payable on 1st January 2011 and a further 10%
payable on 1st January 2012.

The remaining 50 stands were sold on 30th September 2011 at $12,000 each. Again, a
75% deposit was payable immediately with 15% payable on 1st January 2012 and a
further 10% payable on 1st January 2013. The following administration expenses (all
tax deductible) were incurred:

US$
Year ended 31st December 2010 8,000
Year ended 31st December 2011 12,000
Year ended 31st December 2012 15,000
Year ended 31st December 2013 25,000

Page 33 of 89
Required:
Compute the company's tax payable in respect of the tax years ended 31st December
2010 to 31st December 2013 assuming that all the terms of the agreement are met by
the purchasers. (20 marks)

CHAPTER 3
TAXATION OF DECEASED ESTATES AND TRUSTS

3.0 Introduction

 When a person dies, another person comes into being; the estate of the late
person (deceased estate).
 A deceased estate is liable to tax.

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  A deceased estate commences its existence 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 in
accordance with the provisions in the will.
 Estate duty is levied on the value of property of the deceased (next chapter).
 Income derived from the assets of the estate is taxed under the ITA;
 This chapter is thus concerned with the taxability of income derived from the
assets of the estate.
 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.

3.1 Deceased estates – Business and Investment Income

 Income which had accrued prior to death is taxed in the hands of the dead
person.
 Income which 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 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 day after 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’.

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  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.
(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 from 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 estate.
d) Usufruct arrangement

 A usufruct is where 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 2015, 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
2015. The executor’s first and final distribution account was confirmed by the Master
on 1 December 2015.

Show how income which accrued in the post-death period will be assessed.

Solution

 The son is taxable on rentals from the industrial building from 5 March 2015,
being the day after the death of Mr Masocha.
 The estate is taxable on income accruing in the period 5 March 2015 to 31 July
2015.
 The son and daughter are taxable on any income accruing from assets
transferred to them from 1 August to 31 December 2015 (year-end).
 The estate is taxable on an income accruing from the assets in ‘residue’ from 1
August to 31 December 2015.

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  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 2015 to 31 December 2015.
3.2 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.
 Medical expenses of the deceased paid after death is claimed as credit in the
pre-death period.
3.3 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.
 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.
 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:

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(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.

3.3.1 FURTHER POINTS ABOUT A TRUST

(a) Identity of trust income
 The general rule is that trust income will retain its identity in the hands of the
beneficiary.
 In other words if the trust receive a bank interest and distribute it to the
beneficiary, the income will still be called bank interest in the hands of a
beneficiary.
 This is known as the conduit pipe principle.
 An annuity however forms an exception to the general rule.
 As long as an amount is received as an annuity by beneficiary it will be taxable
indiscriminately, no matter whether the trust income is from an exempted
source.
(b) Trust expenditure
 If the expenditure is allowable under the general deductions formula it will
also be allowable against trust income, and prohibited expenditure is
disallowed.

(c)Residence of trust
 A trust is assumed to be ordinarily resident of Zimbabwe if;
 Part of its income is from a source in Zimbabwe.
 The executors or trustees are ordinarily residence in Zimbabwe.
 The person who created the trust was ordinarily residence in Zimbabwe at the
time of creating the trust.

(d)Expenditure on exempt income

 It has to be reinforced once again that no expenditure is allowable in respect
of exempt income.
 This scenario is usually more often in trust cases.
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  The trustees maybe paid commission based on the income created by them, of
which part of the income will be from an exempt source.
 Where such a circumstance applies, the allowable part of the commission will
be reduced by;
(AxB)/C
 Where:
 A is the exemption income,
 B is direct expenditure applicable on creation of trust income,
 C is total gross income created by the trustees.

Example:
Mhere trust was created on 31/07/2013 and is administered by Tendai and Tinotenda.
During the current year of assessment the trust earned a total income amounting to
$800,000, included in this income is dividend from a company incorporated in
Zimbabwe amounting to $40,000. The trustees were paid commission amounting to
$120,000. How much is allowable against trust income?

Solution
$
Total commission paid 120,000
Less (40x120)/800 6,000
----------
Allowable commission 114,000
======

Tutorial Questions-Deceased estates and trusts

Question 1
a) Explain the two types of trusts. [2 marks]
b) What does it mean to have a vested right [2 marks]
c) Define an ascertained beneficiary [2 marks]

Question 2
Mr Torima was employed by Titanic (Pvt) Ltd (Titanic) for the past 20 years and held
the position of Finance Director for the past three years. Mr Torima became seriously
ill and on 26 February 2015 he was diagnosed with a terminal illness. He retired with
effect from 28 February 2015 on the ground of ill health. He died on 31 March 2015
and his estate was wound up on 30 September 2015.

Mr Torima, who was 45 years old, was ordinarily resident in Zimbabwe. He was
married out of community of property to Nadia who is disabled and unemployed.
They have three little children, Samuel who is 23 years of age, John who is 20 years of
age and Karen who is 16 years of age.

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1. Mr Torima received the following remuneration from Tamasiya for the period 1
January 2015 to 28 February 2015:
$
Salary 5 000
Bonus, voted 10 February 2015 2 000
Director’s fees, voted 10 February 2015 1 000
Entertainment Allowance(of which $200 had been used in entertaining 500
business guests)
8 500

2. Mr Torima had the use of a company vehicle with an engine capacity of 1 400cc.

3. On 1 January 2015 Titanic granted Mr Torima an interest-free loan of US$5 000 to

finance his medical expenses. Titanic also paid medical expenses amounting to US$ 3
000 in February 2015 on behalf of Mr Torima.

[Link] Mr Torima retired at the end of February he was given the company vehicle
which had purchased by Titanic in November 2014 at a cost of US$5 000 and which at
28 February 2015 had a market value of US$ 4 000.

5. Mr Torima owned a block of flats in Zimbabwe which was let at a monthly rental of
$400 from 1 January 2015 to 31 December 2015. In January 2015 he had erected a
fence along one boundary at a cost of US$ 2 500. At 31 December 2014 Mr Torima had
an assessed loss of $700.

6. On 15 January 2015 Garikai (Pvt) Ltd, a Zimbabwean subsidiary of Titanic, voted a

director’s fees of $2 000 to Mr Torima, who had also been a non-executive director of
this company.

7. Mr Tsikirai made the following bequests in terms of his will:

(i)To his sister, Fatima Toks, the sum of $2 000.
(ii)To his wife, Nadia, the family home and any moveable assets(including motor
vehicle) as well as an annuity of $300 to be paid out of rental income from the block
of flats.
(iii)The flats were bequeathed jointly to Samuel, John and Karen. Mr Torima
stipulated that the rental income from the flats would be held in a trust for any child
who was under the age of 21.

If either of his sons died before they reached the age of 21, any accumulated rent
would be paid immediately to his estate. However, if Karen died before she was 21
years of age, her share would fall away and would be given to her surviving brothers.

8. The residue of the estate would be divided equally amongst the three children.

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9. Operations during the administration period from 1 April 2015 to September
2015:
US$
Rental Income(6x$400) 2 400
Interest arising on a loan to a Zimbabwean registered 320
company
2 720
Annuity to: Nadia(6X$200) (1200)
Maintenance costs(all allowable) (480)
1 040)

Required:
(a)Calculate the 2015 tax liability of Mr Torima for the period 1 January to his date of
death. [18marks]
(b)Calculate the taxable income of each of the beneficiaries at 30 September 2015,
when the estate was wound up. Provide explanations for your answers.
[12marks]

Question 3
Mr Mangoro was a Chief Operating Officer of a manufacturing company Sunlight
Investments (Pvt) Ltd. Mr Mangoro died on 30 June 2015 and the residue of his estate
was left upon a Trust. The residue was ascertained on 31 October 2015. 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 4

Page 41 of 89
Mr Mapuranga, who has been a resident of Zimbabwe throughout his life, died on 20
October 2015 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 2015 to 20 October
2015:
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

The executer of Mr Mapuranga’s estate received the following amounts between 21

October 2015 and 31 December 2015.
Rental from properties in Botswana 2 100
Cash in lieu of leave 16 000
Bonus voted on 30 November 2015 62 000

Required
Calculate the taxable income in relation to the above income of Mr Mapuranga,
identifying it with the respective taxpayer. [15 marks]

Question 5
Susan Anderson is a beneficiary of a trust created in terms of her husband’s will. In
terms of the will Susan is to receive an annuity of $60,000 p.a. until she dies, plus 50%
of the remaining income, which is distributed by the trust annually. The following is a
statement of income and expenditure of trust for the year ended 31 December 2003

Net profit as per statement $160,000, after charging

• Dividends from a local company 15,000
• Tax reserve certificate interest 25,000
• Rent from Zambia house 125,000
• South Africa company dividends 35,000
• Farm income 165,000

The following were deducted in arriving at the above net profit:

• Executors’ commission 75,000
• Annuity paid to Susan 60,000
• Depreciation 45,000
• Loss on sale of asset 16,000

The total gross income of trust for the year amounted to $1,200,000.

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In whose hands is trust income taxable and what amount will be taxable?

Question 6
Mr. Moo, 70 years, stroked and died on 30 June 2003. He was employed by Ministry of
Rural & Water Development up to time of his death. A wife and child Fungi survive
him. His will bequeath his Mutare house to his child, subject to a life usufruct in favor
of the widow. The following are the details for the year ended 31 December 2003.

Income & Expenses

• The house is being let at a monthly gross rental of $61,000 payable in advance.
• Mr. Moo’s Salary for the period January to July [150,000 x 7] $1,050,000
• Proceeds from insurance received by executors $38,500
• Cash lieu payable after death $115,200.12
• Repairs to Mutare house $15,100 on 1 December 2003
• Medical bills for the deceased paid by the executors $191,750.
• Pension contribution by him $90,000
The master confirmed the executors’ final and first liquidation account on 30
November 2003.

Mrs. Moo is employed as an Accountant for her monthly salary of $250,000 p.m. She
drives a company car engine capacity 3200 cc .She qualified for a widow‘s pension of
$50,000 per annual effective 1 July 2003. Besides the pension she received a death
benefit of $450,000 equivalent to husband’s 3 month salary.

Compute the tax liability for each person.

CHAPTER 4

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ESTATE DUTY
4.0 INTRODUCTION
 Estate duty is levied on the estate or property of a deceased person.
 The rate of duty varies from 0.02% and 5% of the dutiable estate.
 The dutiable amount is arrived at after deduction from the property of the
estate certain allowable expenses.
 The framework is as follows;
Gross property (assets) xxxx
Less deduction xxxx
Dutiable amount xxxx
 Estate duty is levied on the worldwide estate of every deceased person who
was ordinarily resident in Zimbabwe at the time of his death.
 Foreign assets acquired prior to 1 January 1967 and any such assets acquired
prior to the deceased becoming ordinarily resident in Zimbabwe are excluded.
 There is a tax free threshold of US$50 000 before duty can be levied.
 No donations or gift tax is levied.

4.1 Property
Property for estate duty purposes means:
 Any right in or to property, movable or immovable, corporeal or incorporeal
held by the deceased immediately prior to his death; and
 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;
 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

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  Any rights to any income derived from any stocks, shares, debts not recovered
from Zimbabwe and intangible property like patents, trademark, copyright etc.

4.2 Deemed property

 Deemed property of the deceased includes:
[Link] 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:
 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.
 Policies taken out by a person other than the deceased before 1 January 1967.
 Policies taken out before 1 January 1967 where someone other than the
deceased has paid the premiums or part thereof, pro rata.
 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.
2. Donations made within 5 years prior to the death of the deceased provided the
donee must survive the donor.
 Where the donee dies first the property will be assessable in the estate of the
donee.

4.3 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.

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  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.

(c) Cost of administration

 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.

(d) Expenditure incurred in carrying out the Master’s requirements

(e) Property not situated 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.
 Value of any interest in property which has been included as property
(h) Charitable bequests and donations

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  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 science, art, charitable
educational or ecclesiastical purposes.
 The purpose must be for public nature;
 The purpose must be within Zimbabwe.

(k) Books, pictures, statuary or other objects

(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

(n) Proceeds of insurance policies where the deceased left a surviving spouse

(o) The value of family house (PPR)

(p) The value of family car.

Tutorial Questions-Estate Duty

Question 1
Mr. Manama aged 82 stroked whilst on holiday in Victoria Falls on 1 July 2002. He
survived by a wife and a child Tanaka. His estate includes the following items for
which Mrs. Manama has enlisted your services for purposes of compiling information
for estate duty.

(1) Cash held at Trust bank $11 791

(2) Commercial building valued at $3.5 million situated in Zambia
(3) $300 000 being proceeds from insurance taken for the purposes of paying estate
duty.
(4) Donations to Chinyaradzo children’s home $200 000
(5) Family house market value $4.2 million
(6) Donation of a car to Morgan his son on his wedding in July 1999 market value
$2,100,000
(7) Mr. Manama owed $600 000 on mortgage in respect of a commercial building in
Zambia.

Required:
(a) State how each of the above items will be treated for estate duty purposes
(b) Calculate Mr. Manama’s tax liability

Page 47 of 89
Question 2
Mrs. June Erasmus was recently appointed executor for the estate of her husband,
Jim Erasmus, who died in November 1999. She is in the process of compiling estate
assets for the purposes of estimating estate duties payable. In particular, she needs
some clarification or confirmation of the following matters:

(1) She and her late husband had been living on the family farm, ‘La Vista’ since their
marriage fifty years ago. Although the farm was registered in the name of her late
husband, she believes that as they were using the farm as their principal private
residence, the value of the farm, $2,000,000 at the time of her husband’s death,
would not be included in the assets subject to estate duty.

(2) She is uncertain of the tax implications of the following amounts receivable from
the guaranteed Life Assurance Company:

(i) $500,000, being proceeds of a joint life assurance policy they had both subscribed
to since 1985.

(ii) $200,000, being proceeds of a policy taken out by the husband five years
previously as a provisional cover for potential estate duty on the death of one of
them, earlier than the other.

(3) Her late husband had made some donations prior to his death as follows:
 Lump sum of $300,000 to David, his sister’s son in July1996. David has since
committed suicide in December 1998.
 Vacant stands in highlands, Harare, valued at $100,000 to Janet, his niece, on
her passing Á’ Level examinations in November 1997. Janet had since got
married in June 1999.
 Donation of a block of flats valued at $800,000 to the Erasmus family Trust, a
discretionary trust formed by the late Jim Erasmus, in April 1997. The
beneficiaries of the Trust were all Erasmus family members. The trustees were
Brian Erasmus, the couple’s eldest son; the family accountant and the family
lawyer.
 On 1 January 1998 Jim and June Erasmus had registered a post-nuptial contract
whereby Jim had donated a parcel of stock exchange registered shares valued
at $200,000.

(4) Mrs. June Erasmus was also in receipt of a lump sum of $400,000 from the First
Mutual, being proceeds from an approved Retirement Annuity fund registered under
the pension and providence funds act of her late husband.

(5) Mr. and Mrs. Erasmus used to jointly own a town house in the Avenues area of
Harare. They had bought this house in July 1995 for $400,000 as a possible retirement
home. However the area in which the house is situated was rezoned as a business
office development area. In October, prior to Jim’s death, they had signed a sale

Page 48 of 89
agreement on the property selling it for $1,000,000. The agreement further stated
that the sale proceeds would be receivable in installments as follows:
 31December 1999 $500,000
 30 June 2000 $500,000
Mrs. Erasmus would like to be appraised of her tax obligations in relation to this
property and wants to know whether there is anything she could do to reduce or avoid
a portion of the liability.

Required:
(a) Analyze each of the above concerns of Mrs. Erasmus, and give appropriate advice,
supporting your submissions with appropriate calculations where possible.

Question 3
You have been approached by Mr. Benny who does not wish to be taxed on his death
and would like to know whether there is anything he can do in order to pay less tax
duty on his death.

Question 4
Mr Diehard became ordinarily resident in Zimbabwe beginning of March 2013. On 1
July 2015 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 2015 and 31 December 2015 , 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 2011, worth $14 000.

Notes
Page 49 of 89
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 2012, the block of flats are
situated in Francistown, Botswana

Required:
Calculate the dutiable amount in respect of Mr Diehard estate (20 marks)

Page 50 of 89
CHAPTER 5
TAX PLANNING

5.0 INTRODUCTION
 Tax planning means the management of one’s tax affairs in advance of the
period to which it relates, with a view to minimize future tax liability.
 It involves issues about tax advice, and timely remittance of taxes to ZIMRA.
 Tax planning has the effect of minimizing tax liability, through avoidance of
penalties and interest, as well as being able to take advantage of schemes
targeted at postponing tax liability.
 Unfortunately, however, a number of taxpayers are ignorant of such schemes.
 Usually taxpayers have the tendency of seeking expert knowledge on these
matters when things have gone wrong.
 That is when they been visited by the taxman.
 The legislation contains quite a number of schemes concerning tax planning.
 In order to understand them better you need to know whether a given scheme
is legal or illegal through classifying a scheme either as a scheme of tax
avoidance or tax evasion.

5.1 DIFFERENCE BETWEEN AVOIDANCE AND EVASION

(a) Tax Avoidance
 It is the legitimate ordering of one’s affairs so as to minimize tax liability.
 Tax avoidance is permissible, unless it falls within the terms of the specific
anti-avoidance sections of the Acts – s 98 main Act.
 The commissioner has a right to attack any transaction should he assume it to
be abnormal, and that it was entered into with the object of avoiding paying
tax.
 He has powers to determine the fair market price where such transaction
occurs.

(b) Tax Evasion

 Tax evasion is illegal.
 It is the deliberate submission of false returns, omission of sales from the
trading account, overstating deductions and credits etc. – s 46 Income Tax Act.
 There are penalties and interest implications on such type of transactions, as
well as offences, which are open to prosecution.

5.2 TAX PLANNING SCHEMES

 These are schemes targeted at minimization or postponement of tax liability.

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  There are quite a number of them in the Acts, but shall review the major ones.
The schemes are available to both companies and individual taxpayers.

5.2. 1 Paragraph 8 (3) 4th Schedule Income Tax Act

 According to this paragraph an election may be made on sale of assets to
transfer the assets at income tax values as established in the hands of the
transferor, notwithstanding the actual selling price.
 The election is permissible where the asset(s) is sold under any of the following
schemes:
 A sale between a husband and wife, or vice-versa.
 Where the assets are sold between companies under the same control.
 A sale of assets in a scheme of reconstruction, or some other business
combination.
 Where a foreign company formally operating in Zimbabwe is being taken over
by a new company formed in Zimbabwe to take over foreign business.
 Or in a scheme of conversion of a company to a private business cooperation.
 The election would result in the avoidance of income tax on potential
recoupment.
 However, the recoupment will be taxable if the asset(s) is subsequently sold
outside the group or to person who is not the spouse of the transferor.
 The recoupment in this instance is calculated as if the transferee always owned
the asset from day is was acquired or constructed.
 Please note that where assets were transferred at ITV the new owner may not
claim allowances on the sale price, but at ITV and no SIA is claimed.

5.2.2 Section 15 Capital Gains Tax Act

 The section provides for the transfer of specified assets at values equal to
deductions i.e. Sect 11-(2) (a) to Sect 11 (2) (d), in the hands of the seller or
transferor upon election, notwithstanding the actual selling.
 The election is permissible where a specified asset(s) is sold under any of the
following schemes:
 Where the assets are sold between companies under the same control.
 A sale of assets in a scheme of reconstruction, or some other business
combination.
 Where a foreign company formally operating in Zimbabwe is being taken over
by a new company formed in Zimbabwe to take over foreign business.
 Or in a scheme of conversion of a company to a private business cooperation.
 The effect is that any potential capital gain tax on sale or disposal is
postponed, until such a time the asset(s) is sold outside the group.

Example
Troika (Pvt.) LTD, a company incorporated in the United States has several branches
throughout the world. The company has a branch in Zimbabwe, Rom (Pvt.) Ltd. As a
result of restructuring made at its head office in the United States, a new company
was formed in Zimbabwe for the taking over of Rom (Pvt.) Ltd’s business with effect
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from 1 March 2007. All the assets belonging to Rom (Pvt.) Ltd were taken over by the
new company. Some of the assets taken over were:

Asset Original cost ITV 31/12/01 Selling price

Showroom (7/12) 900,000 350,000 900,000
Plant 415,000 75,000 45,000
Factory (9/09) 750,000 140,000 6,650,000
Com building (2/12) 940,000 195,000 800,000
Required:
a) Compute any tax implications on assets taken over.
b) Outline any relevant provisions of the Acts that result in either tax minimization or
postponement.

Relevant provisions:
 If the taxpayers make an election in terms of paragraph 8 (3) 4th schedule
Income Tax Act, the transfer can be effected at income tax values.
 This will result is the postponement of tax on recoupment of $536,115.00 as
stated above.
 If an election is made to transfer at allowable deductions the taxpayer i.e.
transferor would not pay tax on capital gains in terms of sect.15 of the Capital
Gains Tax Act.

5.2.3 Section 16 Capital Gains Tax Act

 The section provides for the transfer of a specified asset(s) between spouses,
whether in the normal course of trade or by the order of the court.
 If the taxpayer so elect transfer may be effected at values equal to deductions
i.e. sect 11 (2) (a) to sect 11 (2) (d), notwithstanding the actual selling price.
 Any potential tax on capital gain on disposal is postponed until such a time
when the asset(s) is sold to any person who is not the spouse of the seller.

5.2.3 Section 17 Capital Gains Tax Act

 It provides for the transfer of asset(s) previously used by an individual for
purposes of his trade at values equal to deductions [i.e. sect 11 (2) (a) to sect
11 (2) (d)], to a company owned by him upon election, notwithstanding the
actual selling price.
 It is important that the person should hold a majority shareholding in the
company.
 The effect is to postpone any potential tax on gains resulting from the transfer.
 Provided that capital gain shall be calculated on disposal of an asset outside
the group.
Example
Mr. Marvelous Mike has been operating a retail business in Chinhoyi since 1 July 2009.
On 1 January 2015 Mr. Mike transferred a commercial building previously owned by
him in his retail business to a new company in which he holds 60% of the shares. The

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building was transferred at a market value of $250,000. Its original cost was $50,000
when it was constructed in 2009. Income tax value at date of transfer was $13,500.

Comment on any tax implication on disposal assuming the building was later sold
outside the group 31 May 2016 for $300,000.
Support your comment by relevant computations.

5.2.4 Section 22 Capital Gains Tax Act

 Subject to an election, a taxpayer may rollover or postpone any potential
capital gains on disposal of a business asset, provided the proceeds from sale of
the asset are utilized in construction or purchasing of an asset of a similar
nature before the end of the following year following that of disposal or sale
thereof.
 The gain to be taxed will be reduced by the following formula (referred to as
rollover):
 (A x C)/B
 Where:
 A is the expended portion or proceeds
 B is proceeds on sale of business asset
 C is capital gain accruing from the sale of asset
 Where an amount has been rolled over it shall be used in reduction of the cost
(s 11 (2) (a) of the new immovable asset.

Activity 2
Mr. Rice, a retail businessman, sold his business lock, stock and barrel, when he re-
located to Murewa Growth point on 31 December 2015. Among that assets sold was a
commercial building sold for $3.5 million, originally constructed for $850,000 in the
2009 tax year. The income tax value at date of disposal, 31 December 2015 was
$550,000. Of the proceeds received from sale of commercial building $2,500,000 was
utilized on construction of a similar commercial building at the growth point. Mr. Rice
turned a farmer on 25 January 2017; as a result he sold his business to a local
businessman, fetching $7million on the commercial building in the process.

Required.
Capital gains implications on disposal of the two buildings.

5.2.5 Assessed losses sect.15 (3) Income Tax Act

 An assessed loss is an allowable deduction in terms of s 15 (3). The section
allows such a loss to be set-off against income of any other business activity
owned by the same person.
 Where the assessed loss has not been set-off against any other income such
losses are carried forward and allowable as a deduction against future year’s
income.

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 The commissioner however, does not accept the carrying forward of assessed
loss in the following circumstances:
 By a taxpayer who has been declared insolvent
 By a taxpayer whose property or estate has been assigned for the benefit of his
creditors.
 Where there has been a change of ownership (shareholding), and it is
established that the change was mainly influenced by the existence of an
assessed losses.
 Thus trafficking in shares of companies with assessed losses is not allowed
 No assessed loss may be carried forward to a new company in a scheme of
localization of foreign company unless the sole consideration for the transfer
will be the issue to members of the old company of shares in a new local
company in proportion to their previous shareholding in the foreign company.
 Assessed losses may be carried forward for a maximum of six years on a FIFO
basis i.e. losses created first are first set-off against taxable income.
 An exception to the six-year limit in which is mining operation, where losses
can be carried forward indefinitely.
 In a scheme of a conversion of private company into a private business
corporation or vice-versa unless it can be proved that the intention is not to
take advantage of assessed loss
 Sometimes it is difficult to justify the taxpayer’s intention, however the
commissioner will always accept a change of ownership influenced by need for
change of management, restructuring of business operations or some other
reasons, but not to take advantage of assessed loss.
 The advantage of utilizing assessed loss rest in its effect to reduce the amount
to be taxable. In that sense it is beneficial for a company anticipating high
profits in the future to takeover a company with huge balances of assessed
loss.
 Thus companies with losses are usually targets for takeover by prudent
financial managers.
 Note, however that once an election is made to carry forward assessed loss to
the new company, the old company may not utilize those losses anymore.
 Therefore, it make sense for the election to be made as well in terms of
paragraph 8 (3), 4th schedule Income Tax Act, otherwise the old company
might be taxed heavily in case there was going to be potential recoupment as
result of transfer of assets, with no corresponding expenses to utilized in the
reduction of amount to be taxed.
 As a financial manager of a company with huge balances of assessed loss it pays
to minimize your expenses.
 Such expenses will result in the build-up or increase in assessed loss, and if no
meaningful profits are anticipated in the future some of the losses may be
written off after the expiry of 6 years, bearing in mind that losses made in a
particular year have 6 years to be off set against taxable income.

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  It therefore pays to claim wear & tear instead of special initial allowance if the
company is making losses, and the trend is expected to continue for more than
6 years.

5.2.6 Employee vs. Consultancy

 Sometimes a question may be raised on whether one should be an employee or
an independent contractor/consultant.
 In such a case an option with the least tax liability should be chosen.
 An employee is taxable using individual rates, and is not allowed to claim any
expenses from employment except for a few prescribed in sect15 (2) (h) and
sect.15 (2) (i).
 On the other hand a consultant is taxable at 25,75% i.e. income from trade and
investments. He is also required to register for VAT where his sales value
exceeds the required threshold.
 Where he has registered for VAT he must charge 15% on services provided
unless they are exempt or zero rated.
 The tax so charged must be paid to ZIMRA by the 25 th of the following month
after the tax period.
 A consultant is allowed to claim business expenses in the assessment of his
taxable income.

5.2.7 Period of tax holiday

Capital allowances policy:
 It is prudent for an organization to claim wear & tear in lieu of SIA where it is
enjoying a period of tax holiday or where it has huge balance of assessed loss
which is not likely to be set-off against future taxable income.
 Additionally, capital expenditure can be deferred to period after the tax
holiday or to periods where huge taxable income is likely to be made.
 Such an arrangement would result in postponement or minimization of tax
liability.

5.2.8 VAT registration

 Being a registered operator have several advantages.

5.2.9 Housing loans or construction of houses for employees:

 You may be called upon to assess whether it is tax efficient for a company to
provide loans to its employees for the construction of houses, or whether the
company should construct the houses for its employees.
 Loans provided free of interest or below prescribed rates would be regarded as
a taxable benefit in the hands of an employee in terms sect 8(1) (f).
 If the company constructs the houses it will be granted capital allowances
subject to a restricted cost $25 000 per each unit of staff housing.

5.2.10 Company cars for employees or loans to employees

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  Ideally, company cars bought by a company for use by employees whether for
private or business purposes qualifies for capital allowances in terms of section
15 (2) (c).
 Related motor running expenses are also allowable as a deduction.
 The employee will however, be taxable on the private benefit in terms of s 8(1)
(f) depending on the engine capacity of the car.
 The effect to the company is the reduction of taxable income available as
result of the expenses claimed.
 Should the company provides loans to employees for the purchase of cars for
use by the employee in the business of the employer, no capital allowances
may be claimed since the car is owned by the employee, related running
expenses cannot also allowable to the company.
 The employee will be taxable on the loan benefit in terms of s 8 (1) (f)
depending on the loan provided or whether the employer charges no interest or
below the stipulated rates.
 If the employee uses the personal car on the business of the employer in return
for compensation, the transaction may well be taken to be the hiring of the
car.
 The employee will be taxable on the compensation (deemed rentals), and will
be taxable using the business income rate 25.75%.
 The company may in that case claim the related hiring expenses, but not
capital allowances, subject to a maximum of $10,000 in respect of a passenger
motor vehicle – s 16(1) (k).

5.2.11 Other Individuals schemes

 Employees are also capable of taking advantage of schemes outlined in the Acts
in order to minimize their tax liability i.e. spread gratuity on cessation of
employment, commute pension in terms of sect 8 (1) (n) or sect 8 (1) (r) etc,
maximum utilization of exempt benefits such as medical aid contributions by
employer or more allowances for civil servants etc.
 All such cases will result in more disposal income in the hands of a taxpayer.
 We are unable to exhaust all schemes, in your studies we hope you will come
across some of them.

Tutorial Questions-Tax planning

Question 1
Tax Advice questions
a) Mr. Flan aged 60 years would like to sell his private house for $8 million and buying
the right to live in a retirement village for $9 million. He would like to know whether
he is required to pay capital gains.

b) In the current year of assessment Mr. Mateo purchased a house for $5.4milion plus
transfer duty $160 000. He is paying interest on the bond amounting to $60 000, and

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would like to know whether such amounts can be claimed as a deduction for capital
gains purposes.

c) Mr. Dete sold his private house and then bought shares in a company, which owns
his new replacement house. He wants to know whether he can claim rollover relief.

d) Mr. Weans wants to transfer his Comet shares into his wife’s name without
suffering capital gains tax. What would you advise him?

e) Jacks Ltd sold its land and buildings for $20million and buys another factory with
its land by purchasing the shares of Lombard Ltd for $[Link] Jacks Ltd be
entitled to defer capital gains tax by rolling over the gain by virtue of the purchase of
the new company.

f) Mr. Ronald is an Accountant with Aniline (Private) Ltd is due to resign 30 June 2002.
His company will pay him and his family air tickets to Germany on termination of
employment. He would like to know whether the benefit is taxable.

g) Mrs. Dick is an employee with Funds & Cash flow (Private) Ltd; she would like to
know the effect of signing a consultancy contract with the company.

h) Dorothy, 27 years old died of malaria. Her husband was paid $200,000, by her
employer. The husband would like to know whether the amount is taxable in his
hands. At the same the company would also want to know whether the expenditure is
deductible.
i) Alice a Zambian resident working for Government of Zimbabwe in Zambia has
approached you for advice on whether she is taxable in Zimbabwe on her salary and
benefits.

j) Mr. Robertson was injured on 1 April 2002 in a motorcar accident. On 31 July 2002
he received $30 000 as claim damages from the vehicle owner insurer. He would like
to know whether the amount is taxable.

k) Mr. Wear has just received his 1999 assessment, he is however not happy with it.
He would like to know whether there is anything he can do to correct the error.

Question 2

(1) The managing director of a large company comes to you and asks whether it is
advisable to form a consultancy company for purposes of limiting his personal tax. He
earns well in excess of $15 000 per year, and he says that a friend he met at the golf
course advised him that he should form a consultancy company to which his salary
would be paid without P.A.Y.E. being deducted.

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Required: What are the tax issues in the above scenario?

(2) A owns the majority of shares in a company which owns the house he is residing in.
He wants to know whether he can invoke the roll over provisions with regard to
capital gains tax, if the company sold the house and constructed another one in a
more affluent suburb.

Required: Advise the taxpayer.

(3) An independent contractor whose income is on the rise would like to know his
position with regard to pay as you earn, or any other tax obligation.

Required: Advise him.

(4) A taxpayer has in the past operated the business of a general dealer at a growth
point. He was operating from a building that he owns on which he had been claiming
capital allowances. He has now formed a company in which the shareholding is spread
equally between himself, his wife and his two children. The market value of the
building is several million although it had originally cost about $50 000 to construct,
ten years previously.

Required: What are the tax consequences of transferring the building to the
company?

(5) Mrs D is a widow who has been operating a furniture shop on a cash basis in Harare
for many years. Due to the increases in supplier prices she has now decided to start
selling the furniture on credit terms extending over two to three years. She has now
made sales amounting to $10 000 and she estimates her profit to be more than $5
000. She vaguely remembers that she is taxable on all profit made in any year. She
wants to know whether or not there is tax relief available since she will only receive
the bulk of her income in future tax years.

Required: Advise

(6) The managing director of the local branch of an international group of companies
advises that the local branch has been paying a large amount of management fees
(40% of profits) to the overseas head office for the past five years. On Friday last
week he had received a phone call from the Investigations unit of the ZIMRA for an
appointment to discuss the company’s tax affairs. He tells you that the contact with
the overseas head office has over the years been on a visit to the country twice a year
by the Group Finance Director. The visits are normally of a week’s duration. The
managing director is uneasy with the visit of the tax officials and he wants you to be
present in the meeting.

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Required: Advise the possible tax implications and suggest any strategy to deal with
the situation.

Question 3
Mr Erikana, a Zimbabwean resident at all times, aged 50, was the financial director of
Tabarirwa Ltd. He held the position for 15 years. Based on his excellent work
performance, he was offered the position of financial director of Sarafina Ltd, a
subsidiary company of Tabarirwa Ltd. He took up his new position on 1 January 2016.
The financial year-end of Sarafina Ltd is 31 December. Sarafina Ltd offered Mr Erikana
the following remuneration package.
(i) A cash salary of $750 000 per month.
(ii) Continued membership of the company’s pension fund which is a defined
contribution scheme. Mr Erikana is obliged to make monthly contributions being 6% of
his cash salary. Sarafina Ltd will contribute 9% of his cash salary. Mr Erikana will only
be entitled to the results from Sarafina’s contributions i.e. by way of pension when he
retires at the age of 60.
(ii)An interest free loan equivalent to his annual cash salary.
(iii)The exclusive right to use a company car. Sarafina will provide a new 3 000cc
engine capacity Mercedes and will pay for all the fuel, licence, maintenance, and
insurance costs. Ownership of this vehicle will never be transferred to Mr Erikana.
(iv) Overseas travel in the form of a business class air ticket once a year. Mr Erikana is
encouraged to use this travel as an opportunity to pursue the group’s business
interests. The trips will be for both business and holiday.
(v)A fully furnished company house comprising four bedrooms, two bathrooms, a
tennis court and swimming pool. Mr Erikana and his wife will be the only occupants.
They moved from his own house of only three bedrooms and two bathrooms on taking
up the new appointment.
(vi)An entertainment allowance of $20 000 per month.
(vii) Sarafina Ltd will cover the cost of 100% of medical aid fund contributions on
behalf of Mr Erikana.
Required:
Advise Mr Erikana on the income tax implications for each item of his remuneration
package for the tax year ended 31 December 2016. [20 marks]

Question 4
Selfmade (Private) limited company is incorporated in Zimbabwe. The company is in
the business of manufacturing products for local sale. The directors of the company
have approached you seeking advice regarding the following.
1. The company has just started trading for a year and has not registered any tax
head with ZIMRA. For the past six months of trade, the company sales per month
were $5 600. When the company purchases and import raw materials, it is
charged VAT by ZIMRA so then the company want to claim VAT from ZIMRA.

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Required:-
a) Advise the directors of the company the PAYE and Corporate tax registration
and payments requirements to ZIMRA. (4 marks)
b) State two documents that are required to claim input tax from ZIMRA.(2
marks)
c) Advise the directors if the company is liable for VAT registration.

Question 5
(i) John, a South African resident regularly brings his vehicle for service at a garage
where you are the accountant. During his frequent visits, his family accompanies him
and uses the time to do some shopping. The workshop manager asks for your opinion
on whether to charge John VAT at the standard rate (15%) or at zero percent. In his
opinion the service should be zero rated since John is a non-resident.
Advise the workshop manager of the VAT status of the transaction citing relevant
provisions in the VAT Act. (4 marks)

(ii) Mr Munda owns a fleet of buses that ply the Harare/Mutare road and carries fare
paying passengers. He is facing viability problems and he decides to hire out some of
his buses to Mr Jones who intends to use the buses to ferry fare paying passengers
along the Harare/Bulawayo route. He will hire out the buses to Mr Jones without the
services of drivers for a fee of $5,000 per month per bus.
Advise Mr Munda of the VAT considerations to make. (4 marks)

(iii) Your company which is in the transport business has been contracted by a local
company with branches in Bulawayo and Botswana to transport goods to its branches.
On several occasions, goods are transported to Botswana separately from goods to
branches in Bulawayo. However, at times deliveries to Bulawayo are done at the same
time (using same trucks) with those to Botswana.
You have been asked to advise management of the VAT implications of this
arrangement. (4 marks)

(iv) A registered operator supplies accommodation to his employees. The employees

are obliged, in terms of their conditions of service to reside in the accommodation
provided for them. Part of the residence is also used in the making of taxable
supplies. What are the VAT implications of this arrangement?
(4 marks)
[Total marks 16]
Question 6
a) You have been approached by Murehwa Private Limited who has just received a
call from ZIMRA audit section who wants to audit its VAT books. The company has
been underpaying VAT for the past 6 months. It has explained to you that it had done
a lot of projects, some for government institutions for which payment had not been

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made and hence non-payment of VAT for those projects. How would you advise the
company on how to deal with such a scenario given the VAT provisions?

b) Chimuti Enterprise is a registered operator who had been disallowed an amount

of $1, 600.00 in respect of input tax as there was no tax invoice to support the claim.
In the current tax period the supplier has issued a tax invoice. How would you treat
the claim?

c) Dumisani buys wooden artwork from rural areas in Zimbabwe and delivers them
to a foreign going aircraft for export to an art dealer in London on a regular basis
(after every three months). None of the sellers of the artwork is registered for VAT
and Dumisani is also not registered for VAT. His turnover for the last twelve months
was USD70, 000.00 and he expects this to continue and increase in the future. He
approaches you for advice as he is of the opinion that he does not have to register for
VAT because according to him there is no VAT on his activities. Advise him making
reference to relevant provisions in the VAT Act.

d) Mr X who is registered for VAT sold his business to Mr Y who is also registered
for VAT as a going concern. The business owns a shopping complex which is let out to
tenants. Mr Y operates the letting business for a while. However, due to fall in
property rentals, Mr Y decides to convert 20% of the complex into a college which
offers vocational training. The college is registered with the relevant Ministry of
Education as a training centre. What is the VAT consequence of the transaction?

e) Mr Munda owns a fleet on buses that ply the Harare/Mutare road and carries
fare paying passengers. He is facing viability problems and has decided to hire out
some of his buses to Mr Jones who intends to use the buses to ferry fare paying
passengers along the Harare/Bulawayo route. He will hire out six buses to Mr Jones
without the services of drivers for a fee of $5, 000 per month per bus. Advise Mr
Munda of the VAT considerations he should make?

Question 7
(a)
Jayman (Pvt) Ltd has operated a manufacturing plant in an industrial area in
Chitungwiza since 2009. In February 2015 the company sold its industrial property in
Chinhoyi in order to relocate to Marondera, where it had been given a new
manufacturing project status which would enable it to enjoy a preferential rate of tax
for the next five years. Jayman (Pvt) Ltd commenced trading in Marondera in May
2015 after acquiring a new state-of-the-art manufacturing plant. He used the
proceeds from Chitungwiza plant to acquire the Marondera plant.

Details of the properties sold (Chinhoyi plant) and bought (Kadoma plant) were as follows:
$
Cost of Chitungwiza plant (May 2009) 26 000
Income Tax Value of Chinhoyi plant as at 31 December 2014 18 000
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Proceeds from sale of Chitungwiza plant 600 000
Selling agent’s commission 12 000
Cost of Marondera plant 400 000

Required:
Compute the capital gains / (loss) arising from the disposal of the Chitungwiza plant
by Jayman (Pvt)Ltd. Assume that the company made all relevant legislative elections
to delay or avoid payment of capital gains tax. (4
marks)

(b)
Mr Gumbo bought a core-house in Highfields in August 2010 for $30 [Link] July 2011
he erected a durawall around the property at a cost of $15 000. In May 2013 he
completed construction of three bedrooms and a lounge as additions to the property
at a cost of $60 000.

Mr Gumbo sold the Highfields residence in March 2014. The Highfields house was sold
for $600 000 and the proceeds were all used to acquire their new principal private
residence in Sunningdale. The Sunningdale house, cost $1 000 000. In April 2016, Mr
Gumbo sold the Sunningdale house for $10 000 000 and used half of the amount to
settle his gambling debts. Of the remaining amount, he used $2 000 000 establish a
small mining business and the rest to acquire a smaller one bedroomed flat in the
Avenues area of Harare.

Required:
Ascertain the capital gains tax payable by Gerry Gumbochena from the disposals of his
houses, granting him all the dispensations in terms of the Capital Gains Tax Act that
would facilitate reduction of the capital gains tax payable, or delay payment.
(13 marks)
Question 8
Tropical Cigarettes International Company (Tropical) specializing in the manufacture
of tobacco products is contemplating restructuring its operations worldwide. The
company has been operating a branch in Zimbabwe in the name of Toasted (Pvt) Ltd.
The company is being restructured at its head office in London. Although it is winding
up its operations in a number of countries in Southern Africa the decision has been to
form a new company registered with the Zimbabwe Registrar of companies for the
purposes of taking over the business operations of Tropical.

Zimbabwe was chosen as the suitable place for centralizing operations in Southern
Africa on the basis that most of the high quality tobacco leaf was grown therein.

Sweet Cigarettes Ltd is the new company, which is formed with its entire issued share
capital being held by Tropical International Ltd and its nominees:

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The assets of Tropical International Ltd Zimbabwe branch on hand as at 1 January
2016 were as follows:

ITV 1/01/16 Market value Cost

$ $ $
Manufacturing equipment 800,000 1,000,000 1,500,000
Furniture & Fittings 450,000 250,000 600,000
Commercial building 450,000 1,000,000 600,000
Delivery fleet of vehicles nil 500,000 800,000
Computer equipment 125,000 100,000 500,000

Sweet Cigarettes Ltd took over the operations of the Tropical International with
effect from 1 January 2016. The commercial building had been constructed in July
2013.

In order to be competitively placed the company relocated operations to the

Workington industrial sites. The company moved in to operate from leased industrial
premises, which were secured by signing a 20-year lease agreement commencing 1
February 2016. The terms of the agreement were as follows:

Lease premium payable prior to occupation $120,000

Lease rentals payable every month 5,000
An obligation to construct on the stand a suitable staff canteen for a value of not less
than $200,000.

Although the company commenced operating from the industrial stand with from 1
February 2016 the construction of the canteen was not completed until June 2016 at
an actual cost of $240,000 and was first used with effect from 1 July 2016.

The company replaced some manufacturing equipment, which had an income tax
value of $100,000 as at 1 January 2016 but had cost $500,000 in the hands of Tropical
International, after selling the equipment for $300,000. The replacement equipment
cost $600,000.

During the year some second equipment was also received from South Africa
subsidiary of Tropical International Ltd with a value $500,000.
The company sold the commercial building acquired from Tropical International Ltd
for $1.4 million in June 2016 and used the proceeds to construct a new spacious office
building on freehold land in Avondale for $2 million. The new building was brought
into use with effect from 1 December 2016.

Required:
(a)Outline the elections that can be taken to minimize the incidence of tax on the
group for the 2016 tax year

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(b) Compute the potential tax avoided on the restructuring as a result of making the
elections identified in (a) above.
(c)Compute the maximum deductions that can be claimed by Sweet Cigarettes Ltd in
respect of the year ended 31 December 2016. [25 marks]

CHAPTER 6
ADMINISTRATION OF TAXES IN ZIMBABWE

6.0 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.

6.1 Duties and rights of the Commissioner (Section 40)

 To have access to all public records.

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  Appointment of tax collection agent
 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 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 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.
 Power to require information, search or entry

6.2 Returns (Section 37 of ITA)

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 for 30th day after the end of a tax
summary of payroll details year
P2 Return by employers on 10th day of every month
remittance of PAYE
ITF 1 Return by individuals in 30th day after the end of a tax
receipt of employment year
income
ITF 12 Income tax return for 30 days from the date of the
business (Company) Commissioner General’s public
notice
ITF 12C Self-assessment return Not more than four months

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 after tax year end(30th of
April)
Capital Gains CGT 1 Return for Capital Gains Within 30 days from the date
Tax of disposal.
Corporate tax ITC 12B 1st QPD 25th of March
ITC 12B 2nd QPD 25th of June
ITC 12B 3rd QPD 25th of September
ITC 12B 4th QPD 20th of December
VAT VAT 7 Return for the remittance 25th day of the following
of VAT month after the end of the tax
period
Withholding REV 5 Return for the remittance Due dates differs with type of
taxes of withholding taxes withholding taxes

 Every 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 therein.
 A taxpayer shall retain such books for a period of 6 years from the date of the
last entry in those books.
6.3 Income of minor children (Section 38)
 Income accruing to a minor child shall be included in the returns of their
parents.

6.4 Memorandum or articles of association (Section 42)

 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.

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  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

6.5 Accounts and supporting schedules (Section 43)

 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.
6.6 Dormant companies (Section 37)
 With effect from 1 January 2015, 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.
6.7 Assessments

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6.7.1 Estimated assessments (Section 45)
 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.
6.7.2 Additional assessment (Section 47)
 An additional assessment may be raised where income which was meant to be
taxed was never charged to tax, where in the determination of assessed loss,
income was 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

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 result of fraud, misrepresentation or wilful non-disclosure of facts, in which
case the adjustment or call may be made at any time thereafter.
6.7.3 Reduced assessment (Section 48)
 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.
6.7.4 Amended assessment of loss (Section 49)
 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.
6.7.5 Additional tax (Section 47)
 A taxpayer shall be required to pay an additional tax where he has defaulted,
evaded or omitted to pay tax.

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 The following are the circumstances and the additional taxes that should be
paid:
 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.
 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.
 Incorrect statement in 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.
 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.
 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

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 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.
 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.
6.7.6 Self-assessment (Section 37A)
 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.

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  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 has 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.
6.8 Representative taxpayers (Section 53)
 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:
 Company – representative taxpayer is the public officer
 Trust – representative taxpayer is the trustee.
 For income possessed, disposed of, controlled or managed by an agent-
representative taxpayer is the agent.

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  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.

6.8.1 The following are the representative taxpayers for VAT:

 Company – representative taxpayer is the public officer.
 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.
 Corporate or unincorporated body, other than a company – representative
taxpayer is the treasurer.
 Persons under legal disability – representative taxpayer are the guardian,
curator, administrator or a person having control of the person‘s affairs.
 Deceased person or his estate – representative taxpayer is the executor or
estate administrator
 Insolvent person or his estate – representative taxpayer is the executer or
estate administrator.
 Trust fund – representative taxpayer is the administrator or trustee
 Non-resident or person out of Zimbabwe – representative taxpayer is an agent
or manager of any trade of the person.

6.8.2 Liability of representative taxpayers (Section 54)

 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.

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  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.
6.8.3 Right of a representative taxpayer to indemnity (Section 55)
 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 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.
6.8.4 Personal liability of representative taxpayer (Section 56)
 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.
6.8.5 Company or society regarded as agent for absent shareholder or member
(Section 57)
 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.
6.9 Rights of taxpayers
6.9.1 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.

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  The tax laws and obligations must be brought to the attention of taxpayers.
6.9.2 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.
6.9.3 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.
6.9.4 Tax refunds
 The law gives a right to a taxpayer to apply to the Commissioner 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.
6.9.5 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 taxpayer whose premises are to be
inspected or upon whom an audit is to be conducted.

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  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.

6.9.5 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.
6.9.6 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
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 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.
6.10 Objection and appeals (Section 62-70)
6.10.1 Objection to the Commissioner-General
 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 conclusive.
 However, no objection can be laid in respect of assessed loss determined in
respect of the previous tax year.
6.10.2 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

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 deduction or credit, shall be upon the person claiming such exemption, non-
liability, deduction or credit whichever the case might be.

6.10.3 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.
6.10.4 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.
6.10.5 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.

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  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.
6.10.6 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
6.10.7 Penalties
 A penalty for late payment of tax is 100% of the tax due.
6.10.8 Civil Penalties
 With effected from 28 June 2015.
 Penalties will be charged for any previous returns that remain outstanding after
28 June 2015 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.
6.10.9 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.

6.11 Fines and imprisonment (Section 81-86)

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(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

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 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.
(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.
 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.
6.12 WITHHOLDING TAXES (Section 26-36)
 There are some incomes where tax is paid at source, i.e. the tax is deducted
before the income is paid over.
 Such tax is known as a withholding tax and it is a final tax.
The following are charged withholding tax:
Income Rate
Interest from banks 15%
Interest from building societies 15%
Interest of treasury bills 15%
Unit trusts or asset managers 15%
Technical fees 15%
Royalties paid to non-residents 15%
Dividends from companies listed on the
Zimbabwe Stock Exchange 10%

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Dividends from unlisted companies 15%
Foreign dividends 20%

5.5.1 Withholding Taxes Due Dates

Withholding Tax Due Date
Non- Residents Shareholders Tax Within 30days of the date of
distribution
Residents Shareholders Tax Within 10days of the date of distribution
Non- Residents Tax on Fees within 10days of the date of payment
Non- Residents Tax on Remittances within 10days of the date of remittance
Residents Tax on Interest within 10days of the date of payment
Non- Residents Tax on Royalties within 10days of the date of payment
Tobacco Levy 48 hours after the date of the auction

Withholding Tax (Section 80 of Cap 23:06)

 All registered operators including government, quasi-government and statutory
corporations who enter into any contracts which result in an obligation to pay
any amounts aggregating US$1000 or more in a tax year are required to
withhold 10% of each amount payable to payees without valid tax clearance
certificates.
 Tax clearance certificates are issued only to clients who are fully paid up and
whose Income Tax, VAT and PAYE returns are up to date.
 They are valid for a period of 12 months i.e. January-December.
 However, the Commissioner may grant a taxpayer a tax clearance certificate
for less than one year depending on circumstances.
Payer’s Obligations
 The amount deducted should be remitted to ZIMRA on or before the 10th of the
month following the month in which the payment is made.
 The person from whom the amount has been withheld must be furnished with a
certificate showing full details including the amount withheld.

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  The payer should retain a copy of the tax clearance certificates furnished by
registered clients.
 The payer is liable for the amount that he/she has failed to withhold and is
also liable to payment of a 100% penalty on the amount defaulted.
 Interest is also payable on outstanding amounts.

Exceptions
 Amounts paid in terms of employment contract.
 Payments for the supply of farm produce and livestock to farmers.
 However payments for farm produce to persons who buy for resale such as
traders, retailers and wholesalers are subject to withholding tax.
 Sales effected in any shop in the ordinary course of the business of the shop
and any other consumer contract for the sale or supply of goods or services or
both in which the seller or supplier is dealing in the course of business and the
purchaser or user is not.
 This caters for sales by retailers or wholesalers to consumers.
6.13 Presumptive Tax (26th Schedule)
 It is a tax which is levied on presumed income of those persons engaged in
business not registered for tax purposes, such as bottle store operators,
commuter omnibus operators, hair salons, small scale miners and the cottage
industry.
 Presumptive taxes were introduced in order to capture informal businesses that
have remained outside the tax net.
 Operators that are up to date with their tax obligations and have been issued
with tax clearance certificates by ZIMRA are exempt from payment of
presumptive tax.
 Presumptive tax is paid to ZIMRA on a quarterly basis i.e. every 3 months, not
later than 10 days after the end of each quarter.

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  Zimbabwe National Road Administration (ZINARA) was appointed as an agent
for collection of presumptive tax from operators of commuter omnibuses,
taxicabs, haulage trucks and driving schools, with effect from 1 January 2015.

6.14 Double Taxation Relief

 According to Section 91 to the Income Tax Act , the President of Zimbabwe
may enter into agreements with the government of any other country or
territory with a view to prevent, mitigate or discontinue the levying of taxes
under this Act or the laws of such country or territory in respect of the same
income.
 Double Taxation Agreements offer reduced rates of withholding taxes on
dividends, interest, royalties and technical fees.
 The effect of the relief is that the taxpayer is going to receive a credit which is
equivalent to the lesser of between foreign and Zimbabwean tax.

6.15 ADVANCE TAX RULINGS

 With effect from the 1st of January 2007, the Commissioner General of the
Zimbabwe Revenue Authority (ZIMRA) was empowered in terms of the Revenue
Authority Act to issue Advance Tax Rulings.
 This development is in line with trends in other countries worldwide.

What is an Advance Tax Ruling?

 Advance Tax Ruling (ATR) is a written statement in the form of a binding
general ruling, binding private ruling or binding class ruling’ issued by the
Commissioner General of ZIMRA regarding the interpretation or application of
the Income Tax Act.
Types of ATRs
 Binding General Ruling- is an advance tax ruling that affects all taxpayers. The
Commissioner General of ZIMRA can issue such ruling at any time and at his

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 discretion.
 Binding Private Ruling – is an advance tax ruling issued in response to an
application by a person regarding the application or interpretation of the
Income Tax Act in respect of a proposed transaction as it affects the applicant
alone.
 Binding Class Ruling - is an advance tax ruling issued in response to an
application by a person regarding the application or interpretation of the
Income Tax Act as it affects a specific class of persons
 It should be highlighted that any other decisions, communications issued by the
Commissioner General of ZIMRA to clients in response to enquiries made by
clients, who do not fall within the above categories are classified as non-binding
private opinions
Purpose/Benefits of an ATR
 An ATR is meant to promote consistency, clarity and certainty in the
interpretation and application of the tax law.
 It also assists clients in confirming the tax consequences of proposed
transactions and promotes voluntary compliance by assisting them to comply
with tax laws.
Effect of an ATR
 The Commissioner General of ZIMRA may interpret or apply the Act in favour of
the applicant or otherwise in conformity with the advance ruling given.
 A Binding General Ruling may be cited by the Commissioner-General of ZIMRA
or any person in any proceedings before the Commissioner-General of ZIMRA or
the courts.
 A Binding Private Ruling or a Binding Class Ruling may not be cited in any
proceeding before the Commissioner General of ZIMRA or the courts other than
a proceeding involving the applicant for that ruling or an affected class member
identified in the ruling respectively.
 A publication or other written statement issued by the Commissioner General
of ZIMRA does not have any binding effect unless it is an advance tax ruling.

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  An Advance Tax Ruling ceases to be effective upon the occurrence of a repeal
or amendment to the Act which affects the ruling, or if the courts give a
different interpretation which affects the ruling
How do you apply for an ATR?
 A client is supposed to make an application to the Commissioner General of
ZIMRA through a prescribed form and ensure that all the details are included as
required.
 The client should ensure that all the full facts of the proposed transaction are
disclosed and the form should be submitted at the head office of the Zimbabwe
Revenue Authority.
 This form can be downloaded from the ZIMRA website [Link].
 The Commissioner General of ZIMRA may however request for any additional
information from the applicant at any time in order to assist in the issuance of
an ATR.

Cases where applications for Advance Tax Ruling may be rejected

The Commissioner General of ZIMRA may not accept applications for Advance Tax
Rulings in circumstances where the application:
 Requires the rendering of an opinion, conclusion or determination regarding the
market value of an asset
 Relates to interpretation of the laws of a foreign country
 Requests the interpretation or determination of pricing of goods or services
supplied by or rendered to a connected persons
 Requires the determination of the constitutionality of any tax law
 Entails a proposed transaction that is hypothetical or not seriously
contemplated
 The application relates to determining whether a person is a casual, part-time
or full-time employee, or an independent contractor
 Is submitted for academic purposes
 The matter is under audit , investigations or examination

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  The application or interpretation of any general or specific anti avoidance
provisions
 Results in failure or refusal by the applicant to give additional information
requested
It should be noted that the above list is not exhaustive and our valued clients are
encouraged to make an enquiry with ZIMRA if they require clarity on this issue.

Conditions for the applicability of advance tax rulings

The advance tax ruling applies to a person only if the following conditions are satisfied
the:

 Provisions of the Act at issue are the subject of the advance tax ruling
 Facts presented are the same as the set of facts and circumstances governed by
the advance tax ruling
 Facts of the transaction fall within the effective period of the advance tax
ruling
 Conditions imposed by the Commissioner General of ZIMRA have been satisfied
or carried out

Effect of fraud and misrepresentation

 A Binding Private Ruling or a Binding Class Ruling is nullified if the proposed
transactions are materially different from the transactions actually carried or
constitute fraud or misrepresentation or wilful non-disclosure of a material
fact.

Withdrawal or modification of an ATR

The Commissioner General of ZIMRA may withdraw or modify an Advance Tax Ruling at
any time and persons affected will be notified.
If the advance tax ruling is either a Binding Private Ruling or a Binding Class Ruling,
the Commissioner General of ZIMRA first provides the applicant with notice of the

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proposed withdrawal or modification.
Tutorial Questions
Question 2
(a) State the due dates for the following taxes and returns:
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]

Question 2
(a) Define ‘withholding tax’ and explain its importance in tax administration.
(5 marks)
(b) Outline the withholding taxes in Zimbabwe (title, description, rate of tax, due
date and payer). (20 marks)
[25 marks]
THE END

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