April 2015 MTU

April 2015 Edition

This Monthly Tax Update (MTU) summarises the

changes and announcements in the most recent

months in the following areas:

Legislation

Court Case decisions

Authority Announcements

© Tax Matrix (Pvt) Ltd| Monthly Tax Update – April 2015 edition | Page 1

Contents Pg no.

Legislation

Withholding tax on contracts threshold increased to US$1,000……………….………………… 3

Marginal gain for employees …………………………………………………………………… 4

Mining companies and trusts paying more to fiscus…..……………………………………………… 5

Concessionary tax rates for manufacturing exporting companies…………………………………… 5

Foreign Agents relieved of obligation to pay withholding tax on fees ……………………………… 6

Deemed dividend exempt from withholding tax………………………………………………… 7

Deduction of lump sum contributions to pension fund……………………………………………… 9

New law on dormant companies…..……….……………………………………………………… 9

Tobacco levy on seller of auction tobacco reinstated………………………………………………… 10

Export tax on unbeneficiated hides……………………………………………………………… 11

Export tax on un-beneficiated platinum ………………………………………………………… 13

Export tax on rough diamonds deferred………………………………………………………… 13

Deferment days increased for VAT on import capital goods…………………………………… 14

Court cases

Fairdrop vs. Zimra ………………………………………………………………………………… 15

BT vs. Zimra……………………………………………………………………………………… 19

Authority Announcement

ZIMRA Commissioner General’s comment on tax amnesty …..………………………………… 23

Deadline for submission of tax amnesty application extended…………………………………… 24

Appendices

Appendix 1 – Deferment of 15% tax on unbeneficiated diamond…………………………… 26

Appendix 2 – Tax Amnesty Extension for Acceptance of Applications……………………… 27


Introduction

Tax Matrix has the honour to introduce its first issue of Monthly Tax Updates (MTU). The monthly

update compliments our tax training programmes and Newsletters. They disseminate information about

tax developments happening locally and internationally. In the MTU, Tax Matrix (Pvt) Ltd analyses the

tax developments to ensure you, as our most valued client, is kept abreast of changes in the tax world.

This issue contains a review of some the tax changes brought about by Finance Act no. 3 of 2014 and

other ancillary regulations in the most recent months. It also includes two recently resolved cases

(Fairdrop v Zimra and BT v Zimra) and the ramifications of such decisions in relation to the tax world.

In this Monthly Tax Update, Tax Matrix also identifies and examines all relevant publications and Zimra

interpretations of these decisions as well as the institutional application of new legislation or rulings. The

updates are accompanied by an insightful commentary pointing out the key takeaway points from the

material.

Aside to what our regular Newsletters provide, MTUs are meant to help you to:

Identify new tax planning opportunities.

Keep you updated with all changes in the tax world.

Keep aware of current Zimra interpretations.

Recognise pitfalls many professionals miss.

Minimise compliance errors and offer practical and effective tax solutions.


Legislation

Withholding tax on contracts threshold increased to US$1,000

Section 80 (1) of the Income Tax Act (Withholding of amounts payable under contracts with State or

statutory corporations) was amended by increasing the threshold for withholding tax on payments made

to a counterparty with no tax clearance (ITF263) from US$250 in a year of assessment to US$1,000 in a

year of assessment through the Finance Act no. 3 of 2014. An extract of the section reads as follows:

“contract ” means a contract in terms of which the State or a statutory body, quasi-Governmental institution or

registered taxpayer is obliged to pay 1 or more persons an amount or amounts totalling or aggregating

US$1,000 or more over the year of assessment”

Application date 1 January 2015

Example

This example is an illustration of payments made to a single payee under a contract in a situation where

future transactions had not been anticipated.

Transaction No. Withholding tax

(US$)

Amount received

(US$)

Cumulative Total

(US$)

1. - 390 390

2. - 605 995

3. 109 95 1,090

It is not clear whether a payment of US$390 would immediately be subjected to withholding tax when

the payer is not sure that subsequent orders would result in the aggregate of US$1000 being exceeded.

The question also is whether tax should be withheld on the US$390 or on the excess which caused the

aggregate of US$1,000 to be exceeded. At that point the payer should have withheld $109, but the order

that has caused the minimum threshold to be exceeded i.e. $95 is not sufficient to cover the aggregate

withholding tax of $109. We warn that taxpayers should withhold tax from the very first payment to

avoid having to pay tax on behalf of the payee, until this piece of legislation is straightened.

Meanwhile, the Finance Act no.2 of 2014 amended the term “payment” for purposes of withholding tax

was to read as follows:

Comment

The increase in threshold provides a relief to suppliers of low valued transactions not to avail an ITF263 in

order to be paid and also simultaneously reduces compliance cost of payers on low valued transactions.

The law is open ended regarding withholding the tax in respect of suppliers with repeat orders to the same

payers which when aggregated exceeds US$1,000 (see example below).

The taxpayers must exercise caution regarding repeat orders and ensure always that every payment is

supported by ITF 263, without which 10% must be withheld.

In our view, the increase on the threshold is ineffective in that if repeat orders are anticipated then 10% should

be withheld on any contract even if the amount is below US$1000.


“Payment by cash, barter, setoff, crediting a director’s loan accounts, intercompany debits and credits or by other

settlement of obligations whatsoever and in any form”


Marginal gain for employees

Section 14(2)(a) of the Finance Act was amended by increasing the minimum taxable income of an

employee from US$3,000 per annum to US$3,600, while the rate for top earners (persons whose

taxable income exceeds US$20,000 per month) remains at 50%.. The following are the new rates tax:

Band (Per Annum) Rate

3600 0%

3600 18000 20%

18000 36000 25%

36000 60000 30%

60000 120000 35%

120000 180000 40%

180000 240000 45%

240000 50%

plus 3% Aids Levy

Application date effective 1 January 2015

Comment

The change in tax bands results in a relief of US$10 for employees whose income is US$3,600 per annum

and US$474 for taxpayers whose income is US$20,000 per annum, compared to 2014, details as shown in

the table:

Income

(US$)

Applicable tax in 2014

(US$)

Applicable tax in 2015

(US$)

Gain

(US$)

300 10 - 10

2,000 412 376 36

5,000 1,339 1,251 88

10,000 3,270 3,054 216

20,000 7,905 7,431 474

Note that whether or not the amount is below the non-taxable threshold it still has to be declared on the

annual return (ITF16). In the end aggregate of salaries and wages declared in the financial statements must

agree with that on ITF16. When a difference occurs ZIMRA may deem this as an understatement of either

PAYE or income tax liability, warranting unnecessary investigation.

Comment

The widening of definition implies other forms of settlement other than actual cash outlay can triggers

withholding tax on payments to payees without ITF 263. Thus, merely passing a journal in an intercompany

account may trigger 10% withholding tax, despite the intercompany balances being settled at year end.


Mining companies and trusts paying more to fiscus

Mining companies and trusts were amongst the losers of the 2015 National Budget following the

amendment of section 14(2) (b) of the Finance Act to exclude them from the list of taxpayers not subject

to 3% AIDS Levy on their tax liability. The effect is that these taxpayers are now required to pay AIDS

Levy of 3% of tax liability.


Concessionary tax rates for manufacturing exporting companies

In order to boost exports, the 17th Schedule was amended by The Finance Act number 3 of 2014 with the

introduction of multiple tax rates and export thresholds for companies engaged in manufacturing and

exporting of goods.

The change is summarized as follows:

New Law

Old Law

Taxable income of a company that conducts

manufacturing operations and, in any year of

assessment exporting such manufactured goods shall

be taxable at concessionary rates based on the level

of exports as follows:

Export threshold (%

manufactured)

Corporate rate

30-40 20%

41-50 17.5%

Above 51 15%

A company that conducts manufacturing operations

and, in any year of assessment exporting from

Zimbabwe fifty per centum of its total manufacturing

output shall be taxable at 20% on its taxable income.


Comment

The mining industry continues to be on the receiving end as government continuously withdraws mining

incentives and introducing new taxes. In a space of one year there have been at least three new laws as follows:

1. Repealing of section 15(2)(f) (iii) of the Income Tax Act (Chapter 23:06) which allowed the deduction

in the computation of mining tax payable of royalties paid during the year of assessment in terms of

section 245 of the Mines and Minerals Act [Chapter 21:05]. Application date 1 January 2014.

Export tax on unbeneficiated minerals (discussed below).

AIDS Levy of 3% (as discussed above)

Despite the need to mobilise revenue, there appear to be mistrust between mining houses and the

government. Government believes mining houses are making more profits than what they are declaring.

dps://2105/#245


Foreign Agents relieved of obligation to pay withholding tax on fees

The 17th Schedule is amended in the definition of fees by adding subparagraph (i) whose purpose is to

exclude part of fees any payment for export market services rendered by a foreign agent of a company

that exports goods from Zimbabwe. The exempt fees are limited to 5% of the "free on board value" of

the exports of the company for the year of assessment concerned, as confirmed on acquittance by the

company of the export documentation relating to its exports in that year.

The Customs and Excise Act in section 2 defines the term free on board value”, in relation to— “(a) exported goods, means the price of such goods to the purchaser, including all costs, charges and

expenses incidental to the sale thereof or to the placing thereof on board the means of transport by

which they will be removed from Zimbabwe but excluding any subsequent costs, charges or expenses

incurred in connection with the delivery of such goods to their destination;

(b) …..”

The term “export market services” is defined in paragraph 1 of the 17th Schedule of the Income Tax Act

as follows:

“services rendered wholly or exclusively for the purpose of seeking and exploiting opportunities for the export

of goods from Zimbabwe or of creating, sustaining or increasing the demand for such exports and, without

derogation from the generality of the foregoing, includes any of the following services—

- research into, or the obtaining of information relating to, markets outside Zimbabwe;

- research into the packaging or presentation of goods for sale outside Zimbabwe;

- advertising goods outside Zimbabwe or otherwise securing publicity outside Zimbabwe for

goods;

- soliciting business outside Zimbabwe;

- investigating or preparing information, designs, estimates or other material for the purpose

of submitting tenders for the sale or supply of goods outside Zimbabwe;

- bringing prospective buyers to Zimbabwe from outside Zimbabwe;

- providing samples of goods to persons outside Zimbabwe”


Comment

The manufacturing output must be calculated by reference to quantity or volume rather than value.

The concessionary rates are ring fenced to manufacturing and exporting operations and not extended to

other operations carried on by the same company. Expenditure and income of other operations carried on

by the same person should not be mixed with these operations or vice versa.

Section 14(1) of the Finance Act defines manufacturing operations as “any process of production which

substantially changes the original form of, or substantially adds value to, the thing or things constituting

the product”.


Deemed dividend exempt from withholding tax

Background

Section 28 of the Income Tax Act (Chapter 23:06) provides for the charging, levying and collection

throughout Zimbabwe of a resident shareholders’ tax on dividend distributed by a resident company

to a person or a partnership ordinarily resident. Whereas, dividend distributed to an ordinarily resident

statutory corporation, a company limited by shares, a private business corporation, a pension fund, a

benefit fund or a medical aid society is not subject resident shareholder’s tax.

The section also treats as dividend any interest or other charges paid inside Zimbabwe by a local

company or a subsidiary of a local company if such amounts are incurred on debt that exceeds debt to

equity ratio of 3:1.

The amount is also disallowed in the computation of the corporate tax liability in terms of section 16(1)

(q) of the Income Tax Act. Thus, if the ratio of 3:1 is exceeded, any interest or related expenditure

incurred on the excess debt is disallowed. This applies to interest on debt incurred in the production of

income of a local branch or subsidiary of a foreign company, a local company (whether local or foreign

borrowings) and a subsidiary of a local company, other than a partnership, local or like authority,

deceased or insolvent estate or a private trust. The disallowed expenditure (excessive interest and other

consideration) is computed as follows:

A x (B-C)

________

B

A = is the total interest or expenditure incurred during such year on debt

B = is the total financial assistance (debt)

C = is the equity capital multiplied by 3

The new paragraph 1(i) of the 15th

Schedule of the ITA

The 15th Schedule of the Income Tax Act is amended in paragraph 1, “the definition of dividend”, to

exclude interest and other charges disallowed in terms of section 16(1)(q) of the Income Tax Act of a

company that advances loan for the benefit of the State.

The paragraph reads as follows:

Dividend” means any amount which is distributed by a company to its shareholders, but excluding—

(a) ……

(b) ……

(c) …..

(d) ……

(e) …..

(f) ….

(g) …

(h) …

(i) any amount deemed under this Act to be a dividend by virtue of the company in question

exceeding the prescribed debt to equity ratio, if the company is one that the Minister certifies

in writing has advanced loans for the benefit of the State;



Loan Interest

Interest

Loan

Meanwhile, there is an onerous administrative requirement of having to obtain a certificate from the

Minister. This appears to be the current trend. Paying taxes must not be administratively burdensome

(Adam Smith – Cannons of Taxes).

Editor’s comment on section 16(1)(q) of the Income Tax Act

There is no standard definition of debt or equity for tax purposes and reliance must be placed on the accounting

definitions. Generally, equity capital is comprised of paid up share capital, share premium; accumulated profits of

a capital and revenue nature (retained earnings); and permanent owners’ capital (excluding any financial

assistance). Unless shareholder’s loans bear interest they should be simply be classified as equity capital.

Debt is an amount owing by the company to its creditors, where interest is or may become payable. When no

interest payment is made, it can be argued that a country’s tax revenue cannot be lost and it is misleading to

include non-interest-bearing loans in the computation. The treatment of short-term-loans is quite inconsistent, but

creditors are excluded. However, due to changing corporate needs the simple differentiation between debt and

equity does not mirror the diversity of finance. Many financial instruments show elements of both categories or can

be converted from one type to the other.

The relevant equity and debt are the amounts at year-end. South Africa uses an average annual amount of debt, the

highest amount of debt in a given year being used.

Deduction of lump sum contributions to pension fund

The amount of a lump sum contribution made by an employer in the year of assessment towards

capitalizing a pension fund to which the employer contributes on behalf of its employees is deductible

in terms of section 15(2)(mm) of the Income Tax Act. The employer should furnish the actuarial

certificate to the Commissioner to support the deduction. Another certificate issued by the Minister in

consultation with the Insurance and Pensions Commission is required.

An "actuarial certificate" means a certificate issued by an actuary.

Company A

Co. B

(Taxpayer) Statutory

Corporation

Comment

The amendment means that excess interest is no longer treated as dividend for purposes of section 28 of the

Income Tax Act (Chapter) as long as the interest was paid or incurred by a company which advanced loan. The

provision frees the interest from 15% (10% when paid by a listed company) shareholder’s tax. Practically, the

provision appears to be targeting back to back loans. Thus, B borrows from A then re-lends to a Statutory

Corporation, but the borrowing from A has caused it to exceed the limit of 3: 1 see section 16(1)(q) of the

Income Tax Act, illustrated as follows:



Dormant companies

The Commissioner General is required in terms of section 37 of the Income Tax Act to give a public

notice each year which requests all persons falling within a class prescribed in such a notice, whether

personally or in any representative capacity, to furnish returns within 30 days of the notice date or

such further time as allowed by him.

The Finance Act no. 3 of 2014 amended section 37 by not requiring dormant companies to submit

returns. Thus, a dormant company i.e. a company that has not carried on trade or business for the full

year of assessment shall not be required to submit the return. Instead its public officer, director or

major shareholder must submit a written or sworn declaration indicating that it has not carried on

trade for the full year. The written or sworn statement must be submitted within 30 days of the

commissioner’s public notice. Where the written or sworn declaration is not submitted, the company

shall still be liable to a civil penalty of US$30 a day up to a maximum of 181 days in terms of section

35(2) of the Revenue Authority Act.


Comment

This legislation is not new but it’s creating an onerous administrative burden in terms of certification.

Paragraph 6 of the 6th

schedule of the Income Tax Act, provides as follows:

“AMOUNTS ALLOWABLE AS DEDUCTIONS IN RESPECT OF LUMP SUM CONTRIBUTIONS

TO PENSION FUNDS BY EMPLOYERS

6. Any lump sum contribution to a pension fund by an employer shall be allowed as a deduction:

Provided that—

(i) the Commissioner may direct that the lump sum contribution shall be treated as an

expense to be spread over such period of years as the Commissioner may determine;

(ii) where the Commissioner has, in terms of any previous law, directed that a lump sum or

similar contribution shall be so treated, any balance of the contribution which has not been

allowed as a deduction shall be carried forward and allowed as a deduction in terms of this

paragraph”.

The major difference between the existing legislation and the new legislation lies on the powers of

the Commissioner under the existing law which are being curtailed as the expenditure must be

objectively be determined through the use of actuarial certificate. Also, paragraph 6 of the 6th

schedule caters for lump sum contributions to in-house and established pension funds, which the

Commissioner must authorise, whereas the new provision appears to be focused on in-house pension

fund.

.

The fact that the Income Tax Act includes double provisions s15 (2) (mm) and paragraph 6 of the 6th

Schedule with regards to the deduction of lump sum contributions to in-house pension funds may

give rise to conflicting legislation. Also, the insertion of s15 (2) (mm) gives rise to unnecessary

administrative delays in respect of obtaining the two certificates required in terms of that section.


Tobacco levy on seller of auction tobacco reinstated

It is contemplated to reduce deforestation caused by traditional tobacco curing methods by imposing

tobacco levy on sellers of auction tobacco calculated at the rate of 1.50c of each dollar of the price of

the tobacco. The levy had been scrapped by the Finance Act of 2005 with effect from 1st March, 2005.

The Finance Act provides that the levy shall be ring-fenced to finance re-forestation activities.


Comment

Nothing changes in terms of the civil penalty. The submission of sworn statement is as good as

submission of the return and failure to comply with the requirement the company is liable to the

said civil penalty.

The submission of sworn statement does not guarantee that the taxpayer’s books will not be

subject to an audit by ZIMRA.

The legislation is silent regarding submission of nil remittances advices (ITF12B) for QPDs for

dormant companies.

Comment

Auction tobacco is defined in the Income Tax Act as “tobacco which is declared in terms

of the Tobacco Marketing and Levy Act (Chapter 18:20) to be auction tobacco”. The

Tobacco Industry and Marketing Act provides that the Minister, may on the

recommendation of the Board through statutory instrument, declare any type of tobacco

to be auction tobacco. It appears that sellers and buyers of contract tobacco are not

affected by the levy, unless the Minister has made a declaration.

The timing of payment of tobacco levy to ZIMRA is in terms of Statutory Instrument 131

of 1996 which provides as follows:

An auctioneer who has withheld or recovered any amount of tobacco levy shall pay the amount to

the Commissioner within 48 hours after the date of the sale of the auction tobacco concerned or

relinquishing possession of the auction tobacco concerned.

In terms of paragraph 24(4) of the 24th

Schedule of the Income Tax Act, payment of

tobacco levy by an auctioneer must be accompanied by a return (Rev5). The Finance bill

appeared to have extended the period to about a week but the Finance Act No. 3 of 2014

doesn’t seem to contain that. The period of 48 hours still applies. This appears to add a

compliance burden on the buyers of auction tobacco considering the voluminous of the

transaction at the peak of the season.


Export tax on unbeneficiated hides

The Minister of Finance and Economic Development through the Government Gazette of Friday 30th

January 2015 published export relief rules on “stockpile” of unbeneficiated hides. Stockpile means

quantities of unbeneficiated hides in excess of domestic demand evidenced by proof of supply to the

local industry.

Background

The Finance Act 2 of 2014, clause 10 amended section 12 of the VAT Act to suspend the levying of

unbeneficiated export tax on hides and to be re-introduced 1 January 2015. The Minister of Finance

and Economic Development through the same section was tasked to present before the National

Assembly a Statutory Instrument to prescribe maximum quota of unbeneficiated hides by weight on

which export tax would not apply. The clause defines unbeneficiated hides as raw or untanned animal

hide but does not include crocodile skin, goat or sheep skin or any hide, skin or hair that is or forms

part of a trophy as defined by or under the Parks and Wild Life Act (Chapter 20.14).

Interpretation of the SI

SI 16 of 2015 re-introduces unbeneficiated tax on exported of hides and at the same time defines

maximum quotas each merchant can export without being subject to unbeneficiated export tax on

hides.

Application

An unbeneficiated hides merchant who wish to benefit under this Instrument shall, upon

confirmation of the evidence of a stockpile of unbeneficiated hides by a recognised Council

or Association responsible for the leather industry, apply for a permit to the Minister

responsible for Agriculture.

The Council or Association shall confirm in writing stating that the applicant has a stockpile

of unbeneficiated hides.

“Stockpile” means quantities of unbeneficiated hides in excess of domestic demand as

evidenced by proof of supply to the local industry.

In order to be eligible for registration thereunder the applicant must be registered with Zimra

and have a valid tax clearance certificate (ITF 263).

Conditions for Granting Export Tax Relief

The Minister responsible for Agriculture shall issue the merchant with an export permit which

would be approved by the Minister responsible for Industry and Commerce.

The relief granted shall not exceed the maximum quantities prescribed for each individual

exporter in the Schedule on this Instrument. I.e. the Merchant can only export the excess of

local demand, but with the maximum as prescribed for each individual merchant in this

instrument.

To benefit under the relief of export tax the unbeneficiated hides shall be exported through the

port of entry nearest to the premises where the unbeneficiated hides stockpile is held.

Only the unbeneficiated hides merchant issued with a permit that states the quantities of

unbeneficiated hides to be exported shall be eligible for export tax relief.


Cancellation of Permit

The Minister responsible for Agriculture may cancel or suspend the validity of the permit once the

merchant ceases to hold a stockpile of unbeneficiated hides or fails to comply with or contravenes any

of the provisions of these regulations or upon request by the merchant.

Once permit is cancelled as aforesaid, any relief granted in terms of these regulations shall

immediately become due and payable.


List of unbeneficiated hides exporters

This schedule provides a list of unbeneficiated hides merchants approved to benefit under the export

tax relief. The list may be amended to include merchants that would have been issued with export

permits or to delete merchants whose export permit would have been cancelled.

NAME OF MERCHANT WEIGHT OF EXPORT

QUOTA (Kilograms)

Bulawayo Abbatoirs 344,500

Montana Meats 241,200

Triscastol Enterprises (Private) Limited 290,000

Cold Storage Company Limited 155,000

Meggertop Enterprises 325,600

Lushaba Trading 206,750

Carswell Meats 206,750

Univision (Private) Limited 68,900

Honga Trading 227,400

Comment

Possession of the permit entitles your business or practice to an exemption of 75 cents/kg VAT

on export of unbeneficiated hides. Unregistered merchants will be unable to export without

incurring 75 cents/kg export tax on unbeneficiated hides.

Administratively, taxpayers must be up-to-date with all their taxes and submission of returns to

obtain a permit.

Our understanding of proof of supply to the local industry would be in the form of supply

agreements or reference letters from customers or supply invoices that would be to the

satisfactory of the Council or Association.

Although the effective date is 1 January 2015 our view is that the effective date for each

individual merchant would be the date of obtaining the permit from the responsible Ministry.


Export tax on un-beneficiated platinum

An export tax (VAT) on un-beneficiated platinum was enacted through Finance Act (No.1) of 2014,

with effective date of 1 January 2015. The export tax is levied on the value of the unbeneficiated

platinum at the rate of 15%. It had been proposed through the Finance Bill of 2015 to suspend the tax

until 1 January 2017, but the Finance Act (No3) of 2014 when eventually published omitted this

proposal. As it stands, platinum producers are required to pay on all unbeneficiated platinum.

The unbeneficiated platinum is platinum ore which has not been subjected to crushing, milling and

washing to remove waste material; and the smelting of the resulting platinum concentrate into pellet

or ingot form.

The value on which the export tax is charged shall be deemed to be the higher of the market value on

the date of exportation as determined by reference to a reputable metals exchange and the value as

reflected on the bill of entry or other document required in terms of the Customs and Excise Act.

Goods are deemed exported when the bill of entry or other document is delivered to an officer or the

time when goods cross the borders of Zimbabwe, whichever is the earlier (section 60 of the Customs

and Excise Act)


Export tax on rough diamonds deferred

The Finance Act (No1) of 2014 amended section 12 of the VAT Act (Chapter 23:12) by including

section 12D thereby introducing export tax on the value of rough diamonds exported from Zimbabwe.

The tax was meant to take effect from 1 January 2015 and levied at 15% of the value of export.

Meanwhile, a directive from the Minister of Finance and Economic Development defers the export

tax on unbeneficiated diamond until further notice as detailed in the correspondence attached in

Appendix 1. As contained in the letter, the legislation to suspend the tax will be amended at the

earliest opportunity in retrospective and appears will take effect from 1 January 2015. Taxpayers who

had paid the export tax on diamond may for a refund, but it’s most likely that the money will be

applied towards future tax liabilities of taxpayers as the government is facing liquidity challenges.

Meanwhile, 15% royalty tax on diamonds remains payable.

Comment

Altogether, a platinum mining is required to pay 15% export and royalty tax of 10%. This makes

unbeneficiated platinum the most taxed mineral in Zimbabwe following the suspension of 15%

export tax on unbeneficiated diamonds.

Meanwhile section 244 of the Mines and Minerals Act (Chapter 21:05) provides for a rebate of

royalty on minerals or mineral-bearing products disposed of in any 1 month which does not

exceed US$200. If the value exceeds US$200 but not exceeding US$300, the royalty payable

shall be 3 times the amount by which the assessed royalty exceeds US$200.

A full rebate is granted on minerals or mineral-bearing products used wholly within Zimbabwe

and on those disposed of or received for treatment by an approved beneficiation plant.

Section 249 of the Mines and Minerals Act (Chapter 21:05) provides for an exemption of royalty

on ore extracted for experimental purposes


Deferment days increased for VAT on import capital goods

The Minister through Finance Act (No3) of 2014 extended the period of deferment of collection of tax

on imported high valued capital goods to 180 days by amending section 12A of the Value Added Tax

Act. The effect is that upon importation of these goods for own use an operator may apply to the

Commissioner General to defer the payment of VAT on the imported goods for a period not

exceeding 180 days from the date the goods were imported. The section also provides that the

Minister may prescribe different periods for different classes or values of goods of a capital nature for

deferment. The following values were proposed in the Finance Bill but are missing in the Finance Act

(No3) of 2014 and we still await the Minister to prescribe the values:

Value of Equipment (US$) Deferment Period (Days)

100 000 – 1 000 000 90

1 000 001 - 10 000 000 120

Above 10 000 000 180

Meanwhile, a taxpayer who sells, re-export or otherwise dispose of such goods before the expiry of

the period of the deferment, without having used them in the manner that qualified them for deferment

of payment of tax, is immediately liable to the deferred tax plus additional tax equal to the deferred

tax due and interest at the rate of 10% p.a. Similar consequences apply to a taxpayer who fails to pay

the deferred tax when it becomes due.

Meanwhile, capital goods qualifying for deferment of VAT are plant, equipment or machinery:

Used exclusively for mining purposes on a registered mining location as defined in the Mines

and Minerals Act [Chapter 21:05].

Used exclusively for manufacturing or industrial purposes in or in connection with a factory

(including spare parts required for the purpose of maintaining or refurbishing such plant,

equipment or machinery).

Used exclusively for agricultural purposes (including spare parts required for the purpose of

maintaining of refurbishing such plant, equipment or machinery)

Used exclusively for the aviation industry (including spare parts required for the purpose of

maintaining or refurbishing aircraft and such plant, equipment or machinery).

Medical equipment

A letter of approval must be obtained from the relevant Ministry. The deferment does not cover motor

vehicles intended or adapted for use on the roads.


dps://2105/

dps://2105/


Court cases

Fairdrop vs Zimra

The Issues

Respondent was accused of including in applicant’s income terminal benefits and severance

package from Dr Kereke’s former employer, the Reserve Bank of Zimbabwe.

Other sources of income for the hospital project were said to have included proceeds from Dr

Kereke’s farming operations, including sale of tobacco and goats.

Also, alleged as forming part of the hospital income was bride price (lobola proceeds) of

sister’s getting married.

Respondent rejected certain shareholder assets that had been injected as start-up capital for

the hospital project. This included Dr Kereke’s immovable property on which the hospital

was to operate.

Cost of renovations and extensions to the immovable property were disallowed as not being

genuine tax deductible expenditure. Respondent argued that the premises remained in the

name of Dr Kereke and would not constitute applicant’s assets in the event of liquidation.

Respondent refused to acknowledge payments for specialist consultants such as doctors and

auditors whose fees would ordinarily not be subject to P.A.Y.E but to a 10% withholding tax.

Related party borrowings. Respondent was said to have discarded tax deductions for interest

charges on certain loans by the applicant from certain commercial banks that the applicants

accessed through a surrogate entity called Pedaball Investments (Pvt) Ltd. Dr Kereke said he

controlled Pedaball indirectly.

The facts

The applicant, a hospital sought to have an exorbitant assessment of Income Tax made by

respondent in respect of the period 2010 to 2013 set aside.

Records show that the taxpayer had not been paying taxes since 2010 and had not provided

ZIMRA with useful information to enable the latter to make useful assessment of the tax

payable.

After the hospital had failed to submit certain information useful on the financial aspects of

the hospital, Zimra made an estimated assessment of the hospital’s income tax liability in

accordance with section 45 of the Income Tax Act for the years of assessment 2010, 2011,

2012 and 2013.

Together with penalties raised in terms of section 46 of the Income tax Act, the assessment

amounted to US$3,253,646.42, but subsequently revised down as alleged by the respondent

following additional information received by it.

Case Name Fairdrop Trading (Pvt) Ltd v ZIMRA, 2014

Summary The applicant (Fairdrop Trading ) sought to force response to its objection and

suspension of the garnishee orders pending its appeal against respondent’s

(Zimra) assessment

Jurisdiction High Court of Zimbabwe

Date 19 February 2014

Decision Applicant’s hardship cannot exempt it from abiding by the provisions of section

69- payment of tax pending an appeal


To enforce collection, the respondent at one point appointed medical aid societies as

representative taxpayers in respect of the applicant and imposed garnishees for the attachment

of moneys due to the applicant.

Although dialogue was taking place between the applicant and ZIMRA to find a workable

plan, there was continued mutual mistrust between the parties which resulted in some of the

garnishee orders being reinstated and a subsequent objection to the tax assessment by the

applicant by November 2013.

Before the Commissioner General could decide on the objection, the respondent appointed the

applicant’s bank Stanbic Bank Zimbabwe as the applicant’s agent in terms of section 58 of

the Income Tax Act.

On 4 February 2014 the applicant made an urgent application to the court to have the case

heard, arguing that the determination be made in 7 days and that the garnishee be lifted.

Despite lodging an objection, the hospital did not pay its outstanding taxes.

Competing arguments

The taxpayer

That unless the garnishee order was removed it was facing eminent closure which could

threaten the lives of its patients, some of whom were cancer patients.

That the assessments were grossly incorrect and unreasonable, citing example of shareholders

‘funds injected in the project which appeared to have been included in income by ZIMRA.

That there was commercial urgency in the sense contemplated in the Silver’s Trucks’ case. In

that case the urgent chamber application had been brought some four months after the

applicant’s goods had been embargoed by customs. It was held that the court has power to

hear an application as a matter of urgency not only when there is a serious threat to life or

liberty but also where the urgency arises out of the need to protect commercial interests.

That ZIMRA’s decision to disallow in the assessment of the hospital’s tax payable of certain

renovations made on immovable property registered in Dr Kereke’s name was incorrect.

The Commissioner General

That the application was not urgent and that the urgency contemplated by the rules of court is

not only gauged by the imminence of the day of reckoning. It is also gauged by the day the

need to act arose. In Kuvarega v Registrar-General & Anor1998 (1) ZLR 188 (H),

CHATIKOBO J said, at p 193 F -G:-“What constitutes urgency is not only the imminent

arrival of the day of reckoning; a matter is urgent, if at the time the need to act arises, the

matter cannot wait. Urgency which stems from a deliberate or careless abstention from

action until the dead-line draws near is not the type of urgency contemplated by the rules. It

necessarily follows that the certificate of urgency or the supporting affidavit must always

contain an explanation of the non-timeous action if there has been any delay.”

That the Dr Kereke was uncooperative and had failed or refused to supply proper information

on applicant’s tax liability, hence reason for invoking s 45 and s 46 of the Income Tax Act.

That applicant evaded paying taxes from its inception and that there simply had been no paper

trail or verifiable information on all transactions.

Legislative considered

Income Tax Act [Chapter 23: 06], s45, s46, s58, s62, s69,

Revenue Authority Act [Chapter 23:11], s 3

Section 69 of the Income Tax Act:

dps://ZS@2306/

dps://ZS@2311/#3


“Payment of tax pending decision on objection and appeal

(1) The obligation to pay and the right to receive any tax chargeable under this Act 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 in terms of this Act.

(2) 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”

Section 45 of the Act, the power to make tax assessments and even to make estimates of taxes

due from the available information.

Section 46 of the Act, the power to levy penalties on taxes due but unpaid.

Section 58 of the Income Tax Act (Chapter 23:06):

“Power to appoint agent

(1) The Commissioner may, if he thinks it necessary, declare any person to be the agent of any other

person, and the person so declared an agent shall be the agent of such other person for the

purposes of this Act, and, notwithstanding anything to the contrary contained in any other law,

may be required to pay any tax due from any moneys in any current account, deposit account,

fixed deposit account or savings account or from any other moneys, including pensions, salary,

wages or any other remuneration, which may be held by him for, or due by him to, the person

whose agent he has been declared to be.

(2) ….”

Court’s decision

That the matter was urgent. The last garnishee by the respondent was on 16 January 2014

against the applicant’s bank. It was a very serious iron grip on the applicant’s major revenue.

There was no excessive delay when the urgent chamber application had eventually been filed

on 4 February 2014. The application was quite voluminous - 199 pages, therefore it must have

required lots of time to put it all together. On the merits, for one to succeed for an interim

interdict one must show at least four elements. These are:

- that one has a prima facie right that one wishes to protect even though the right be open to

some doubt;

- that one has a well-grounded apprehension of an irreparable harm such as would not be

cured by damages;

- that the balance of convenience favours the granting of an interim interdict; and

- that there is no other alternative remedy that is effective.

It must be assumed that parliament was alive to the hardships or unfairness of the application of s 69

of the Income Tax Act. The law says in spite of any objection or any appeal, the tax as charged is

payable. Any overcharge is refunded should the objection or the appeal succeed. The applicant was

offered the chance to avert the garnishees by offering an acceptable payment plan. Before it filed the

urgent chamber application none had been submitted. The one submitted after the launch of the

application was rejected by the respondent. The respondent made a counter offer. The applicant said

the counter offer was way beyond its means. Furthermore, the applicant had defaulted on a previous

payment plan. Admittedly there would have been reasons for such default.

It was held that the fact that the hospital was in financial hardships could not be taken as a

passport of being exempted from application of s69 (Payment of Tax pending objection). The

applicant was dismissed with costs.


Conclusion

Where you have not done an assessment or you have made default in furnishing any return or

information, ZIMRA can invoke s45 of Income Tax Act 23:06. The Commissioner General’s

assessment will be an estimated and sometimes based on the industrial average turnover.

It is of paramount importance to keep proper records and provide ZIMRA with any

information as requested to avoid estimated assessments in terms of s45 of the Income Tax

Act.

A fine may be charged under section 82 of the Income Tax Act for failing to keep proper

records may be charged.

Taxpayers should complete their returns in full and should not omit or provide wrong

information as this will result in 100% additional tax on tax due being levied through

invoking s46 of the Income Tax Act.

No taxpayer is exempt from the provisions of s69 of the Income Tax Act; therefore, it is

advisable to pay the tax charged while waiting for the decision of your objection or appeal.

Taxpayers should pay their taxes in full and if for a valid reason they can’t pay in full they

should communicate with ZIMRA and make the necessary payment arrangements. This will

ensure that the taxpayer will not be charged additional taxes in penalties. However, interest is

compensation to the fiscus for the opportunity cost and it remains payable.

Zimra is given the powers to garnish bank accounts and to intercept payments from debtors in

terms of section 58 of the Income Tax Act (section 48 of the VAT Act). Nothing overrides the

Commissioner General’s garnish order.

Cooperating with ZIMRA is very important and can act to the taxpayer’s advantage when

negotiation for penalties and even serve the taxpayer the garnishing of his/her accounts.

When operating more than one business it is necessary to ring fence income and expenses of

those businesses. It is because businesses with separate legal status assessed differently under

the Income Tax Act.

Taxpayers must maintain all relevant business records. The burden of proof is placed upon

them in terms of section 63 of the Income Tax Act. Failure to prove the loss falls on the

taxpayer.

Repairs are deductible in terms section 15(2) (b) of the Income Tax Act. Repairs imply

restoration of property to its original state. On the other hand, improvements are disallowed

and can only qualify for capital allowances.


BT vs Zimra

Case Name BT (Pvt) Ltd v Zimra, 2014

Summary Appeal case against Commissioner General’s decision to disallow claims BT for

the deduction of doubtful debts and bad debts

Jurisdiction High Court of Zimbabwe

Date 22 July and 12 November 2014

Decision Bonds issued by the Central Bank invalid because the bank had no power to

issue such bonds therefore they could not be used to settle the debts. The debt

had been long overdue and the bank unable to pay due to insufficient assets.

The bad debts and provision for bad debts met the perquisite for deductibility.

The issues

Whether central bank empowered to issue valid bonds under s 7 Reserve Bank of Zimbabwe

Act [Chapter 22:15]

Whether public authorities can invoke the doctrine of invalidity of their own actions for their

own benefit to the detriment of private citizens.

Reserve Bank – duties and powers under January 2009 monetary policy statement –whether a

statement of intent and not a decree of an accomplished deed – issuance of gold bonds merely

constitutes a unilateral rescheduling of the debt – brutum fulmen if proceedings instituted

Reserve Bank of Zimbabwe Act [Chapter 22:15] s 63B

Whether the provision of bad debts and the bad debts in respect of irredeemable bonds

claimed by BT were tax deductibility in terms section 15(2) (g) of the Income Tax Act. Note

Section 15(2) (g) (ii) covering doubtful debts was repealed by s 14 (a) of the Finance Act (No

3) (Act 10 of 2009) with effect from 1 January 2010.

The facts

BT produced gold bullion strictly controlled by and regulated under the Gold Trade Act

[Chapter 21:03] whereby the central bank pays it for all the gold bullion delivered to its

subsidiary Fidelity Printers and Refiners (Pvt) Ltd under the two tier system before the onset

of the multi-currency monetary regime . One component of the payment was in local currency

while the other was in United States dollars.

BT was not paid the foreign currency component for all the deliveries it made in 2008 and as

at 31 January 2009 the central bank owed it US$2 945 388.

In settlement of its debt it was issued with highly illiquid gold bonds, which the central bank

did not redeem on due date but unilaterally rolled them over ostensibly for six months.

The central bank would without fail always analyses the gold sector in its bi-annual monetary

policy statements. In one such statement in January 2009 the governor of the central bank

unilaterally converted all outstanding amounts to the gold sector into "Special Goldbacked

Foreign Exchange Bonds" with a tenor of 12 months.

The other terms attaching to the bonds were interest of 8 % per annum on maturity applied in

retrospect from the date each amount fell due.

The central bank unequivocally undertook to honour the full principal plus interest on

maturity to the holders of the bonds.

In a letter to the respondent's case, dated 23 February 2009, the central bank sought written

confirmation of the total debt inclusive of interest, owing to the appellant in the sum of US$ 2

945 388.32. BT confirmed the amount inclusive of interest owed and indicated its preferred

denominations for the gold bonds.

dps://ZS@2103/

dps://ZS@2103/


BT made a decision that it was not in its the best interest to trade the gold bonds at such huge

discounts besides there no buyers for them in the local, regional and international markets.

BT wrote off the bad debt amounting to US$ 341 922 because the amount was potentially

uncollectable based on s 63B of the Reserve Bank Act [Chapter 22:15], which precluded the

attachment and execution of the central bank's assets to satisfy such judgment.

The decision to write off was based on the evidence of failure by the central bank to redeem

the debt over a period of up to two years and the likelihood of payment ever eventuating.

The bank was in financial dire straits. It was enmeshed in staff retrenchments. There was

gloomy outcome of discussions with Treasury (central government) to obtain sufficient

financial support and the bank was failing to honour the gold bonds to other gold miners

them despite lobbying through the Zimbabwe Chamber of Mines

BT claimed a deduction of a provision for bad debts for the year ending 31 December 2009

and wrote off the balance as a bad debt for the year ending 31 December 2010. .

Zimra disallowed the amounts and also raised penalties and interest in terms of section 46.

BT noted its objection in full against assessments, the Commissioner disallowed but the

additional tax was reduced from 40% to 10%.

BT appealed to the court against the respondent's decision on 21 December 2012.

Legislation Considered

Banking Act [Chapter 24:20]Bill of Exchange Act [Chapter 14:02] s 3(1), s 72, s 89(1)

Finance Act [Chapter 23:04] s 14 (a)

General Laws Amendment Act [Chapter 8:07] s 14

Gold Trade Act [Chapter 21:03]Income Tax Act [Chapter 23:06] s 15 (2), s 65(1)

Presidential Powers (Temporary Measures) (Amendment of the Reserve Bank of Zimbabwe

Act) Regulations 2010

Public Finance Management Act [Chapter 22: 19] s 93

Reserve Bank of Zimbabwe Act [Chapter 22:15] s 6, s 7, s13, s 63B

Revenue Authority Act [Chapter 23:11] s 3

State Loans and Guarantees Act [Chapter 22:13] s 4 (2)-[now repealed]

Commissioner's Provisional General Ruling Conversion of Closing Balances for Tax

Purposes GN 274/2010

Income Tax Act section 15(2) (g) (i) and (ii). Section 15(2)(g) provides as follows: "The deductions allowed shall be:-

(g) The amount of any debts due to the taxpayer to the extent to which they are proved to the

satisfaction of the Commissioner to be bad, if such amount is included in the current year of

assessment or was included in any previous year of assessment in the taxpayer's income either in

terms of this Act or a previous law".

Competing arguments

The taxpayer

That the bonds were security for payment and not an investment. .

That the central bank lacked the legal authority to issue bonds and those bonds had no legal

standing and were unlawful and void.

That the bonds did not preclude it from claiming the debt as a doubtful debt or bad debt.

That it did not see value in pursuing litigation because it was not possible to sue the central

bank and get satisfactory judgment. In any case, any judgment obtained would be a brutum

fulmen in the face of s 63B of the Reserve Bank Act [Chapter 22:15], which precluded the

attachment and execution of the central bank's assets to satisfy such judgment.

dps://ZS@2215/#63B

dps://ZS@2420/

dps://ZS@2420/

dps://ZS@2304/#14.a

dps://ZS@0807/#14

dps://ZS@2103/

dps://ZS@2103/

dps://ZS@2219/#93

dps://ZS@2215/#6

dps://ZS@2311/#3

dps://ZS@2213/#4.2

dps://ZR@2010_274g/

dps://ZS@2215/#63B


That when the monetary policy statement was announced in January 2009, s 4 (2) (a) of the

State Loans and Guarantees Act [Chapter 22:13] reposed the power to issue bonds in the

State acting through the Minister of Finance.

That Act was repealed on 2 April 2010 by s 93 of the Public Finance Management Act

[Chapter 22: 19]. In terms of s 54(3) of the new Act, the power to issue bonds remained with

the Minister of Finance. The two Acts did not clothe the central bank with power to issue

bonds.

That the issuance of bills, notes and other obligations by the central bank are subordinated to

the provisions of s 13 of the Act and limited to the discounting of bills of exchange and

promissory notes for banking institutions that hold an account with the central bank. While s

13 (1) (b) of the Reserve Bank Act allows the central bank to discount bills, notes and other

debt securities issued by it, these must again be in respect of a banking institution that holds

an account with it.

That the bonds issued in this matter by the central bank were little different from a bill of

exchange or a promissory note or even a post-dated cheque to pay an outstanding debt.

That lack of authority invalidated the bonds ab initio and every transaction founded on them

was incurably bad.

That the claims for the deductions for both doubtful and bad debts in the two respective years

were correctly made.

The Commissioner

That the outstanding amount in each of the years thereafter changed its character by

conversion from being a debt to an investment

That the debt was capital debt as opposed to revenue debt against the opposing view by the

taxpayer that the gold sales were income even though payment had not yet been received.

That the debt was converted into an investment by the Special Tradable Gold-backed Foreign

Exchange Bonds and that the acceptance of the conversion constituted a full repayment of the

debt, which precluded the appellant from invoking the provisions of s 15 (2) (g) of the Act.

That although the conversion of debt into bonds was null and void, an unlawful act had valid

legal consequences until set aside by a court of competent jurisdiction.

Court’s Decision

That the creation of the bonds merely constituted a unilateral rescheduling of the debt and that

the debt was due for payment on the delivery of the gold bullion to which it related in 2008.

That the appellant established on a balance of probabilities that there was a likelihood that the

debt would not be paid by the central bank in the course of 2009.

That the taxpayer established on a balance of probabilities all the three elements necessary to

qualify the claim for deduction as a provisional bad debt.

That the debt was due and payable during that year and the purported gold bonds were null

and void. They were found on a law which did not exist and could not constitute a payment

for the debt.

That a debt does not become an investment merely because it also records terms of payment

and that writing it off as a bad debt does not extinguish it.

That requisite elements for a bad debt found in s 15 (2) (g) were satisfied by the appellant.

That the interest and penalties imposed by the Commissioner be set aside.

That BT be entitled to deduct appeal costs in terms of s 15 (2) (aa) of the Income Tax Act.

That on balance of probabilities public authorities cannot invoke the doctrine of invalidity of

their own actions for their own benefit; to the detriment of private citizens and are deemed to

have discharged their duty once the decision made is communicated to the private citizen.

That in the absence of statutory authority to issue bonds; the bonds were not lawful tender and

cannot discharge a debt. They remain at best acknowledgments of debt.

It was ordered that:-

dps://ZS@2213/#4.2.a

dps://ZS@2213/#4.2.a

dps://ZS@2219/#93

dps://ZS@2219/#93


1. The amended assessment be set aside and respondent is directed to issue to the

appellant an Amended Assessment for year ending 31 December 2009 allowing the

claim for an allowance in respect of the doubtful debt due to appellant by the Reserve

Bank of Zimbabwe in the sum of US$ 2 391 147 resulting in the taxable income of

the appellant being US$2 303 262 and discharging the penalty imposed on the

appellant;

2. The amended assessment for year ending 31 December 2010 be set aside and

respondent is directed to issue to the appellant an Amended Assessment for year

ending 31 December 2010 allowing the claim for a deduction in respect of the bad

debt due to the appellant by the Reserve Bank of Zimbabwe in the sum of US$1 032

382.00 and discharging the penalty imposed on the appellant.

3. The respondent shall forthwith reimburse the appellant the additional principal

amount and interest of the amended assessments of income tax in the sum of US$ 687

106.

4. The costs incurred by the appellant in respect of the objection and this appeal, as

taxed by the Registrar, shall be allowed as a deduction in terms of section 15 (2)(aa)

of the Income Tax Act [Chapter 23:06]

Conclusion

The three conditions for deductibility of bad debts were met namely

- The amount claimed must be due and payable

- The commissioner considers (is satisfied that) the amount is unlikely to have been

recovered at the end of the financial year

- The amount must have been included in the taxable income of the taxpayer in the current or any previous year of assessment

The debts were irrecoverable because the bank was in a serious financial trouble. Thus, the

bank could not get financial support from Treasury and owed a number of suppliers.

The appellant’s claim had been outstanding for more than 26 months and the purported gold

bonds had been issued and rolled forward so many times. Thus, the fact that a debtor

involuntarily postpones paying its debt may be a clear indication that the debt is irrecoverable.

Also, when a creditor is not permitted to attach or execute judgment against a debtor or when

it is financially unproductive to sue for a long outstanding debt is a proof that the debt is

irrecoverable.

However, the current practice of the Commissioner is that he needs to be satisfied that the

taxpayer has exhausted all recovery measures and has even sued for the debt. Thus, the taxpayer

must take steps that include written summons, legal proceeding, and recovery actions following

acquiring a judgement or civil imprisonment.

Evidence often required by the Commissioner General includes the debtor being declared

insolvent, died without leaving sufficient assets, or in the case of a company is under judicial

management or in liquidation with no sufficient assets from which to pay debts

dps://ZS@2306/#15.2.aa

dps://ZS@2306/#15.2.aa


Authority Announcement

ZIMRA Commissioner General’s comment on tax amnesty

The Commissioner General in his 27th February 2015 press conference indicated that the local

economy has been facing challenges for the past decade due to a number of factors such as liquidity

constraints, power outages and low industrial capacity utilization and these challenges are affecting

the industry’s ability to settle its tax obligations. Accumulated tax arears are over US$1 billion.

On revenue performance, the following are the summary statistics as highlighted by the

Commissioner General:

Collection (US$Billion) Target (US$Billion) Variance

2014 Full year 3.6 3.82 6%

2015 Jan- Feb 15 0.47 0.54 14%

The 2015 tax revenue budget is US$3.76 billion.

He further alluded that the current revenue performance requires extra-ordinary measures. He stressed

that the tax amnesty was one such measure which aims at giving relief to taxpayers and while at the

same time cultivating a culture of voluntary compliance. Tax amnesty is also meant to spread the tax

burden amongst a wider base and facilitating the provision of more accurate data on every level of

economic activity.

The Commissioner General reported that as at 27 February 2015 only 1,471 applications had been

received and of these 159 were rejected mainly because of incomplete information and making

declarations on amounts that would have already been assessed

Comment

The government is desperate for cash and tax amnesty is one such instrument that it is trying to use

to mobilise cash resources at the same time giving relief to offending taxpayers. It’s a genuine

measure for a desperate economy. Taxpayers are encouraged to freely participate and take this as

an opportunity to put their houses in order. Indications are that the Commissioner General would

not be sympathetic to those found on the wrong side after expiry of tax amnesty period. Further, the

fact that the Commissioner General is aware of the over $1billion tax arrears means that he is even

aware of the taxpayers who makes up this amount, although in our view part of the arrear could be

for those companies under liquidation or who have closed shop.

We foresee stern measures being taken against directors of troubled companies in the event that the

Commissioner General fails to collect the taxes in arrears. For example section 56 of the Income

Tax Act (Chapter 23:06) imposes a personal liability on a director or a shareholder if it is found that

the director or shareholder alienated or disposed property or money whilst tax remained

outstanding.


Tax amnesty- deadline extended

The Minister of Finance and Economic Development has extended the period for application of tax

amnesty to the 30th of June 2015. See Appendix 2 for the details.

Background to tax amnesty

The tax amnesty was enacted through the Finance Act (No 2) of 2014 as read with the Regulations

published through SI 163 of 2014 and SI 17 of 2015. The reform is meant to make taxpayers pay or settle

their tax offences committed by them during the period from 1 February 2009 to 30 September 2014. Tax

offences cover non-payment of any tax or duty which is administered by the Zimra in terms of the

Revenue Authority Act (RAA), including non-submission of returns. The initial period for application

was from 1 October 2014 to 31 March 2015 and now extended to the 30th of June 2015. Taxpayers can

settle their taxes from 1 October 2014 to 31 December 2015.

A discount of 5% is offered to taxpayers who settle their taxes early (see to SI 17 of 2015). The discount

is credited against the taxpayer’s future liabilities with Zimra. It is calculated on a simple interest basis as

follows:

PV = FV .

(1+r) n

Where:-

PV= the discounted value of the assessed tax.

FV= is the assessed liability

r = is the monthly interest rate derived by dividing the prescribed rate of 5% by 12 months in a

calendar year.

n = number of months between the date of payment of assessed tax and expiry of the amnesty period”

Tax amnesty allows taxpayers to settle transgressed taxes without being charged penalties and interest.

The person shall also not be prosecuted by the National Prosecuting Authority, to the extent of the

amnestied conduct. The civil penalty of $30 a day applicable on late submission of returns is also waived

completely.

Application for tax amnesty should be made by completing Form No. TAO1 and this is obtainable on

ZIMRA’s website (www.zimra.co.zw).

The amnesty is not available in cases where tax audit or investigation had commenced before 1

October 2014, with exceptions to cases:

Where investigations commenced prior to 1 October 2014 and completed before that date. If

the investigations had not yielded any tax due, the investigated person may benefit under the

amnesty in respect of irregularities not uncovered by the investigations or audit.

In respect of detention seizure, or forfeiture commenced before 1 October 2014.

In respect of any other tax irregularities which had both been identified and the taxpayer

notified of them on or before 1 October 2014

http://www.zimra.co.zw/


The amnesty can be withdrawn and thereby nullified if a taxpayer makes a false declaration to the

Authority i n h i s /he r app l i ca t i on o r fails to pay the covered tax liabilities in full and by the due

dates set out in the payment schedule form.

Comment

Tax amnesty is a genuine instrument for mobilising revenue in depressed economy. This is an opportunity

also for taxpayers to make disclosures of their tax and duty irregularities to Zimra while taking advantage

of a complete waiver of penalties and interest. Taxpayers may seek guidance of tax advisors to avoid

sending defective applications which might prove costly.

Note that there is a drafting error on the discount formulae with respect to the factor ‘n’. This has since

been communicated to the relevant authority.

April 2015 MTU

Documents

Transcript of April 2015 MTU