Advanced Zimbabwe Tax Module 2011 PDF

2011
B. COMPT HONOURS DEGREE

ZIMBABWE CERTIFICATE IN THEORY OF
ACCOUNTING
ADVANCED ZIMBABWE TAXATION MODULE
ICAZ ZCTA ADVANCED ZIMBABWE TAX

TAXATION MODULE 2011
TAXATION COURSE - OUTLINE

TOPIC
1
Introduction
Syllabus
Legislation cut off for exam
Recent Amendments
Administrative and legal framework

-
Administration of Taxes in Zimbabwe

Gross Income
Capital and Revenue Accruals and Outlays
Special Inclusions
Exemptions
General Deduction Formula
Suspensive sales and credit sales
Capital Allowances and Recoupments:
General scheme of taxation

Accrual of partnership profit and salaries
Taxation of Farmers
-
Prohibited Deductions
Taxation of Individuals and Partnerships

-
Special Initial
Wear and Tear
Scrapping
Growth Point Investment
Recoupments
Special Deductions
Valuation of Stock
Drought Sales and Restocking
Sales due to Land Acquisitions
Taxation of Miners
-
Prospecting Expenditure
Capital Redemption Allowances
Sale of Mining Claims
Capital Gains Tax
10
Specified Assets
Exemptions
Deductions
Suspensive Sales and Roll Overs
Withholding Taxes & Tax on Shares
Deceased Estates
11
Tax Planning
12
Practice Questions

1.
INTRODUCTION
The Advanced Taxation module has been prepared to meet the requirements of the
UNISA B Compt Honours degree. The study pack contains summaries of the
relevant tax legislation and practical tax questions.
The professional accountant is normally expected to understand taxation legislation,
to interpret it, and to be able to give professional advice in the business world. The
taxation questions in the examination require candidates to demonstrate awareness
of current taxation practices as well as ability to derive important facts and figures
from given sets data. The taxation syllabus is fairly wide, and candidates must be
well prepared, as an approach based on spotting can be an expensive exercise in
self-deception.
It is possible to score high marks in tax examination questions. In order to score
these high marks, one needs to demonstrate their tax knowledge, appropriate
interpretation, application and production of well crafted solutions presented in a
professionally acceptable format.
Examination technique, approach, clarity of
expression and readable presentations are important aspects, which should not be
ignored.
Best wishes, and may you succeed in your endeavours.
2.
SYLLABUS
The following statutes embrace the main areas of the tax law and practice syllabus in
Zimbabwe. The provisions of the statutes are augmented, expanded and explained
in detail in legal precedents embodied in the South African Tax Cases Reports.
STATUTES
The Income Tax Act (Chapter 23:06)
The Capital Gains Tax Act (Chapter 23:01)
Extract from the Financial Act (Chapter 23:04)
Candidates should be aware of the general provisions of the following

statutes as well.
Value Added Tax (Chapter 23:12)
Estate Duty Act (Chapter 23:03)
In addition to the above the existing textbook on taxation in Zimbabwe is

Income Tax in Zimbabwe, by LW Hill.
Although the statutes mentioned above are the main sources of tax legislation in
Zimbabwe, legal precedents (case law) form an integral part of tax law and practice
in Zimbabwe. The case summaries contain some useful analogies, interpretations
and clarifications.

Candidates should have:
An understanding of the various taxation statutes and relevant case law

together with the principles contained therein and the interaction between
them;
Knowledge and understanding of court interpretations of significant cases;
Knowledge and understanding of administrative interpretations;
Awareness of sectorial taxation provisions;
Awareness of taxation exceptions and exemptions
Ability to perform tax calculations, to determine associated liabilities from

given information, and should develop the ability to contribute meaningfully to
clients and employers tax plans and financial affairs.
LEGISLATION CUT OFF FOR EXAM PURPOSES

The questions will be based on legislation in force as at 31 December 2010. For
planning type questions, candidates should also be aware of the legislative changes
which have recently been promulgated, following the parliamentary approval of the
National Budget presented by the Minister of Finance to parliament in November
2010.
RECENT CHANGES IN LEGISLATIVE PROVISIONS

The changes outlined below are mainly effective from 1 January 2010 unless
otherwise indicated.

TAX LEGISLATION YEAR ENDED 31ST DECEMBER 2010

The Tax questions in the 2011 Examination will be based on legislation relating
to the year of assessment ended 31st December 2010. The following tax rates
apply:RATES OF TAX: EMPLOYMENT INCOME
ANNUAL P.A.Y.E TABLE (US$)
1ST JANUARY 2010 31ST AUGUST 2010 (USD)
Band of Taxable
Amount
Tax Amoun Cumulative
Income
within
Rat
t of
Tax
Band
e
Tax
US$
US$
US$
%
US$
1
1
1 280 Nil
Nil
Nil
280
1 281
4
2 720 20
544
544
000
4 001
000
4 000
25
1 000
1 544
8 001
12
000
12 001 and
above
4 000
30
1 200
2 744
35
Aids levy of 3% of tax is payable
MONTHLY P.A.Y.E TABLE (US$)

1ST JANUARY 2010 31ST AUGUST 2010 (USD)
Band of
Amount
Tax Amoun Cumulative
Taxable Income
within
Rate
t of
Tax
US$
%
Band
Tax
US$
US$
US$
1
160
160
Nil
Nil
Nil
161
500
340
20
68
68
501 1 000
500
25
125
193
1 001 1 500
500
30
150
343
1 501 and above
35
Aids levy of 3% of tax is payable

ANNUAL P.A.Y.E TABLE (US$)

1ST SEPTEMBER 2010 31ST DECEMBER 2010 (USD)
Band of Taxable
Amount
Tax
Tax
Cumulative
Income
within
Rat
Tax
Band
e
US$
US$
US$
US$
%
1
700
700 Nil
Nil
Nil
701 2 000
1 300 20
260
260
2 001
4 000
2 000
25
500
760
4 001
6 000
6 001 and
above
2 000
30
35
600
1 360
MONTHLY P.A.Y.E TABLE (US$)

1ST SEPTEMBER 2010 31ST DECEMBER 2010 (USD)
Band of Taxable
Amount
Tax
TAX
Cumulative
Income
In Band
Rate
US$
Tax
US$
US$
%
US$
1
175
Nil
Nil
Nil
175
176
325
20
65
65
500
501 1
500
25
125
190
000
1 001 1
500
30
150
340
500
1 501 and above
35
4.1 INCOME TAX INDIVIDUALS

TAX FREE BONUS

With effect from 1 November 2009, a bonus tax free threshold of US$400 per
annum will be applicable.
The tax free threshold is further increased to US$500 per annum with effect
from 1 November 2010.
RETRENCHMENT PACKAGES
With effect from 1st January 2010, the tax-free portion of a retrenchment
package is pegged at the greater of US$5,000 or one third of the retrenchment
package provided it does not exceed US$15,000.
PENSION CONTRIBUTIONS
With effect from 1st January 2010, the monthly maximum amount allowable for
employer and employee pension fund contributions is US$450 per month.
TAX RATES
The age for eligibility for the elderly persons credit is reduced from 59 years
to 55 years with effect from 1 January 2010.
%
14(2)(b)
Taxable income of individual from trade or investment
25
14(2)(d)
Taxable income of pension fund from trade or

investment
15
14(2)(e)
Taxable income of licenced investor (taxed at 0% up to

the fifth year of his operations as such)
...
25
14(2)(f)
Taxable income of holder of special mining

lease..
14(2)(g)
Taxable income of company or trust derived from mining

operations
25
Taxable income of person engaged in approved BOOT or

BOT arrangement: First five years of the arrangement
...
14(2)(h)
Second five years of the arrangement

.
14(2)(i)
14(2)(j)
Taxable income of industrial park developer (after being

taxed at 0% for the first five years of his operations as
such)
15
15
25
Taxable income of operator of a tourist facility in approved

tourist development zone (after being taxed at 0% for the
25
first five years of his operation as such)...................................

Operator of a tourist facility where 60% or more of the

turnover from such operations is in foreign currency
...
14(3)
Taxable income of manufacturing company which exports

50% or more of its output
.
20
20
The rate of income tax that generally applies to companies is 25% of taxable
income and an AIDS levy of 3% of tax payable, giving an effective rate of
25.75%.
MOTOR VEHICLE BENEFITS
With effect from 1st January 2010, the deemed motoring benefit is revised as
follows:Engine Capacity
2010
US$
1 500cc or less
1 501cc to 2 000cc
2 000cc to 3 000cc
Above 3 000cc
150 per month

200 per month
300 per month
400 per month
PAYE REMITTANCE PERIOD

PAYE remains payable on or before the third day of the month following that of
deduction. This due date is revised to the 10th day of the following month with
effect from 1st September 2010.
RATE OF INTEREST
With effect from 1 January 2010 the rate of interest on unpaid taxes including
customs duty and outstanding refunds has been placed at 10% per annum.
Previously the rate was based on 5% plus LIBOR rate.
4.2
INCOME TAX: - COMPANIES, TRUSTS, INDIVIDUAL

TRADE OR INVESTMENT CORPORATE TAX
With effect from 1st of January 2010, the corporate tax rate will be reduced
to 25% plus 3% Aids Levy, effectively reducing the rate from 30,9% to 25,75%. .
INCOME FROM TRADE OR INVESTMENTS
The tax rate for income from trade or investment is also reduced from 30% to
25% plus 3% AIDS LEVY.
CAPITAL ALLOWANCES
The rate of special initial allowance SIA is reduced from 50% to 25% with effect
from 1 January 2010 up to the year of assessment ending on 31 December
2013.

SIA will be limited to 50% of the cost of fiscalised electronic registers, the other
50% is allowed as VAT input. The 14th Schedule, capital allowances in growth
point areas is repealed with effect from 1 September 2010.
CONTRIBUTIONS TO SCIENTIFIC AND EDUCATIONAL SOCIETY
With effect from 1 January 2010, the double deduction on contributions to a
scientific and educational society or institution is removed and only the actual
amount contributed is allowed.
PROVISIONS FOR DOUBTFUL DEBTS
With effect from 1 January 2010, the provision for the deduction
debts is repealed.
The allowance for actual bad debts incurred is still claimable.
of doubtful
4.3 MINING TAXATION REFORM

TAX RATE
With effect from 1 January 2010 the rate of tax on mining companies is
increased from 15 % to 25%. The taxable income of a holder of a special
mining lease remains at 15%.
MINING CLAIMS
With effect from 1st January 2010 the election to spread the taxable income
derived from the sale of mining claims is repealed and such income will be
taxable in full in the year of receipt.
An election to spread the income from the sale of mining claims over four
years, made prior to 1 January 2010 shall not be subject to the new
changes.
ROYALTIES
ROYALTY RATES
It is proposed that the rate of royalties on precious metals be increased from 3%
to 3,5% with effect from 1 January 2010.
4.4 WITHHOLDING TAXES: RESIDENTS / NON RESIDENTS
RESIDENT SHAREHOLDERS TAX [R.S.T.]
The rates of resident shareholders tax on dividends paid by Zimbabwean
resident companies to non-resident individuals, trusts and partnerships are
reduced as follows with effect from 1 January 2010: Payable by companies listed on the Zimbabwe Stock Exchange, from
15% to 10%
Payable by non listed entities, from 20% to 15%.

With effect from 1 January 2010, R.S.T. is payable by the 10th day of the month
following date of distribution.
NON-RESIDENT SHAREHOLDERS TAX [N.R.S.T.]
The rates of non-resident shareholders tax on dividends paid by Zimbabwean
resident companies non resident shareholders are reduced as follows with
effect from 1 January 2010: Payable by companies listed on the Zimbabwe Stock Exchange, from
15% to 10%
Payable by non listed entities, from 20% to 15%.
With effect from 1 January 2010, N.S.R.T. is payable by 10th day of the month
following date of distribution.
RESIDENTS TAX ON INTEREST (R.T.I.)
With effect from 1 January 2010, residents tax on Interest has been reduced
from 20% to 15%.
With effect from 1 January 2010, RTI is payable by the 10th day of the month
following date of payment.
NON-RESIDENTS TAX ON INTEREST (NRTI)
The 10% NRTI was repealed with effect from 1st August 2009.
NON-RESIDENTS TAX ON FEES (NRTF)

With effect from 1 January 2010, the rate of withholding tax on fees is reduced
from 20% to 15%.
The tax is imposed on fees paid to non-residents in respect of technical,
managerial, administrative or consultative services. This includes directors
fees.
With effect from 1 January 2010, NRTF is payable by the 10th day of the month
NON-RESIDENTS TAX ON ROYALTIES (NRTROY)
With effect from 1 January 2010, the rate of withholding tax on royalties is
reduced from 20% to 15%.
The withholding tax is chargeable on royalties paid to non-residents for the use
of patents, trade marks, formulae, equipment, motion picture etc.
With effect from 1 January 2010, NRTROY is payable by the 10th of the month
10

WITHHOLDING TAX ON TENDERS

With effect from 1 January 2010 withholding tax on contracts shall be payable
by the tenth day of the month following that in which the payment was made.
NON RESIDENTS TAX ON REMITTANCES
With effect from 1st September 2010, the rate is 15%.
PRESUMPTIVE TAXES
With effect from 1st January 2010 the following revised presumptive taxes will
apply on commuter omnibuses per each vehicle, per quarter: Number of passengers
15-24
25-36
37 and above
Current fees
US$
200
400
650
Proposed fees
US$
175
300
450
Restaurants and Bottle Stores

With effect from 1 January 2010, operators of restaurants or bottle
stores not registered for tax purposes will pay a presumptive tax of
US$300 per quarter.
Cottage Industry Operators

With effect from 1 January 2010, operators of cottage industries not
registered for tax purposes will pay a presumptive tax of US$300 per
quarter.
The definition of cottage industry includes:
Furniture making or upholstery
Metal fabrication
BANKING INSTITUTION LEVY

The 5% Banking Institution Levy has been repealed with effect from 1 January
2010.
4.5
INTEREST FOR LATE PAYMENT OF CAPITAL GAINS TAX

With effect from 1 January 2010, the interest rate for late payment of capital
gains tax shall be 10% per month. No interest shall be payable for the first
thirty days after the date from which the tax becomes due.
11

4.6
TAX PAYMENT DATES

TAX PAYMENT DATES
12

Revenue Head
Vat
Presumptive tax
Small Scale Miners
Current Payment Date
Proposed
Payment
Date
5th day of the following 10th day of the following
month.
month
month in which payment month
was made.
On or before the last day By the 10th day of the

under of the month following month of payment on
that in which payment contracts with state and
was made.
statutory corporations.
Excise Duty on
Second Hand Motor month.
month
Vehicles
Non-Resident
Within 30 days of the
By the 10th day of the
Shareholders Tax
date of distribution or
month following date of
within further time as the
distribution.
Commissioner General
may for good cause
allow.
Resident
Within 15 days of the By the 10th day of the
Shareholders Tax
date of distribution or month following date of
within such further time distribution.
as the Commissioner
General may for good
cause allow.
Non-Residents Tax Within 15 days of the By the 10th day of the
on fees
date of payment or within month following date of
such further time as the payment.
I
Commissioner
General
t
may for good cause
allow.
i Non-Residents Tax Within 15 days of the By the 10th day of the
s on Remittances
date of payment or within month following date of
such further time as the remittances.
i
Commissioner
General
n
may for good cause
t
allow.
e Non-Residents Tax Within 15 days of the By the 10th day of the
n on Royalties
date of distribution or month following date of
d
within such further time payment.
e
as the Commissioner
d
cause allow.
t
hat payment dates for various other taxes be standardized as shown below:Withholding
Amounts
Contracts
13

Residents tax on
interest
Tobacco Levy
Automated
Financial
Transactions Tax
Informal Traders
Presumptive tax
Intermediated
money transfer tax
Non-Executive
Directors Fees
Property for
Insurance omission
Tax
4.7
On or before the 15th day

of the month following the
month in which the
payment was made.
date of distribution or
within such further time
as the Commissioner
cause allow.
Not later than the 15th day
month in which the
transaction in respect of
which the tax is payable
was effected.
date on which he
recovers it or within such
further time as the
Commissioner General
may for good cause
allow.
Not later than the 15th day
month in which the
transaction in respect of
which the tax is payable
was effected.
Within 15 days from the
end of month of payment.
By the 10th of the

month following date of
payment.
By the 10th of day of
the month following
date of payment.
By the 10th day of the

month following month
in which the transaction
in respect of which the
tax is payable was
effected.
By the 10th of the month
following date of
recovery.

following month of
transaction.

following month of
payment.
On or before the last day By the 10th of the month
of the month following the following month of
month on which payment payment.
was made or within such
further time as the
Commissioner
General
may for good cause
allow.
ESTATE DUTY
Estate duty is chargeable on the net value of a deceased persons estate. The
applicable rates vary on a sliding scale from 1.02% per $100 or part thereof,
up to a maximum of 5% where the dutiable amount is USD$50,000 or above.
EXEMPTIONS
14

Where there is a surviving spouse or minor child the value of a family home as
defined is not subject to estate duty.
Transfer duty is not chargeable where a property is transferred to a beneficiary
who is a spouse or blood-relative or adopted child of the deceased or to a
trustee.
Donations may be exempt if they were made 5 years or more prior to death.
Payments from policies specifically taken out to pay estate duty are not
taxable only to the extent of the duty payable.
STAMP DUTY
Stamp duty is imposed on bonds, brokers notes, cheques, policies of
insurance and registration in a Deeds Registry on the acquisition of
immovable property.
CUSTOMS DUTY
Customs duty is levied on all goods imported. The effective rates of duty
range from 0% to 100%.Import tax is levied on most goods at the VAT
standard rate of 15%. In general, Zimbabwe imposes restrictions on the
importations of a range of goods which require import permits or licences e.g.
agricultural products and explosives.
CONVERSION OF SPECIFIED AMOUNTS INTO FOREIGN
CURRENCY
Description of Item
Proposed
amounts
allowable
annually
(US$)
1.
Arrear pension contributions: as a deduction
1 800
500
Annuity, allowance or pension paid to former employee
200
Annuity, allowance of pension paid to former partner
Annuity, allowance or pension paid to a dependent of a former
employee or partner
200
2.
Payments to the Public Private Partnership Fund
50 000
3.
Payments to the Destitute Homeless Persons

Rehabilitation Fund
50 000
4.
Co-operative societies: Deductions allowed in respect of

income derived by a co-operative, agricultural company or
co-operative society
5.
Expenditure allowed on maintenance of roads, buildings,

bridges or water, public or sanitation works managed by
the local authority
15
500
50 000

6.
Passenger motor vehicle (PMV): Maximum amounts

allowable on leasing a passenger motor vehicle
7.1
Minimum amounts of tax not collectable by Commissioner
0.50
7.2
Minimum amounts of PAYE not refundable
0.50
Lump sum payments (Pensions) which shall not be

included in gross income.
10.
11.
12.
1 800
Valuation of farm trading stock (livestock):fixed standard

values of livestock and stud livestock
Restricted capital expenditure on permanent building used as:
dwelling of staff employed at a school, hospital, nursing home or clinic
in connection with mining operations
Capital expenditure on school, hospitals, nursing homes
clinics:
Restriction on staff housing
13.1 Renewal or Replacement expenditure on buildings,

equipment (mining)
13.2
10 000
150
10 000
and Expenditure
incurred
10 000
works or
10 000
Renewal or Replacement expenditure on buildings, works or

equipment: mine is owned, tributed, or leased by a company under
the control of not more than 4 individuals.
4 000
14.1 Allowable Benefit Fund contributions by employers
1 500
14.2 Allowable employee pension contributions
5 400
14.3
5 400
Allowable employer pension contributions
15.
An amount paid by way of a wage to domestic worker. The

amount should not exceed a monthly minimum wage
150
16.
Resident Shareholders Tax on dividends and interest

income refundable where taxpayer is over 55 years of age
600
17.
Resident Shareholders Tax on dividends and interest

income refundable where taxpayer is below 55 years of
age
Presumptive Tax of 10% is charged in informal traders:
An Informal trader is an individual who carries on trade for
his own account from which he derives a gross income
less than
Assessed loss that is written off in any year
480
18.
19.
20.
21
Exemptions from CGT on marketable securities to persons

over 55 years old
Amounts to be deducted where the final CGT is a small
16
6 000
100
1 800
50

DEEMED LOAN BENEFITS

Description
Loan Benefit
of Statutory Proposed
Proposed Statutory Rate
Interest
Threshold where
Rate
no interest is
Charged (US$)
Loan benefit below 12.5%

ZW$35 000
$100
Difference between interest

charged by the employer and
the Statutory rate of interest of
5% above Libor
Loan benefit above 16%

ZW$35 000
$100
Difference between interest

charged by the employer and
the Statutory rate of interest of
5% above Libor
17

5.
ADMINISTRATIVE AND LEGAL FRAMEWORK

5.1
ADMINISTRATIVE FRAMEWORK
(All references to sections and schedules in this section are in relation to the
Income Tax Act [Chapter 23:06]).
5.1.1 Administration
The administration of all taxation (Value Added Tax, Capital Gains Tax,
Income Tax, e.t.c) now fall under the responsibility of the National
Revenue Authority of Zimbabwe (ZIMRA), which Authority came into being
with effect from 19 January 2001. The Commissioner-General of Taxes is
vested with the power and responsibility of administering the tax statutes.
He does this through regional offices and ports established across the
country.
5.1.2 Returns and Assessments
Every year, three to four months after the end of a tax year the
Commissioner publishes a notice in the most commonly read press inviting
taxpayers to obtain tax returns from their nearest tax office; truthfully
complete them and return them to the respective offices for assessment.
Although Tax Offices may post some tax returns to taxpayers (on their
records), the duty to obtain a tax return rests with each individual taxpayer
who falls within the specifications outlined in The Commissioners public
notice. Tax returns for the year ended 31 December 2010 will be due by
30 April 2011.
Self assessment legislation was introduced with effect from 1 January
2007. Taxpayers, so specified by the Commissioner General as being
those registered or required to have registered under Category C for
Value Added Tax (VAT) in terms of the VAT Act as at 31st December 2007
and thereafter or registered under the Banking Act or registered under the
Insurance Act, are required to furnish self assessment returns within four
months from the end of the tax year. Employees paying PAYE under the
FDS are not liable to furnish self assessment returns unless specifically
requested to do so. Under the self assessment legislation, the return will
constitute an assessment on either the due date of furnishing the return or
on the date that it is actually furnished.
Notwithstanding the lodgment of the self assessment return, the
Commissioner General is still empowered to raise an assessment where
he has justifiable reasons for doing so.
All employers have been placed on the Final Deduction System (FDS).
Under the FDS, any employee who receives employment income only (i.e.
has no source of income other than remuneration), does not need to
submit a tax return. The employer is responsible for deducting the correct
amount of PAYE for the year, and no further return needs to be made to
the tax department by the employee.
The Commissioner of Taxes is empowered to estimate any taxpayers
taxable income if one fails to submit a return. In addition to the tax
payable the Commissioner is also empowered to impose penalties for any
18

default. These penalties are 100% of the basic tax chargeable. Section
46 outlines some grounds for penalties.
It is a legal requirement for Pay As You Earn (P.A.Y.E.) to be deducted
from all emoluments payable to employees on a monthly basis. The
P.A.Y.E. withheld has to be remitted to the Commissioner within 15 days
from the end of the month to which such P.A.Y.E. refers. The penalty for
late payment of PAYE is 100% of the tax payable, and interest is also
charged on late payment at a rate prescribed by statutory instrument. (See
sections 73 and 74 as read together with schedule 13.)
Taxpayers who are not employees, but are in receipt of other income, (e.g.
sole traders, consultants and companies), are required to be on Quarterly
Payment Dates (Section 72). Under this scheme the taxpayers pay their
estimated tax liabilities, for the current tax year in which they are trading, in
four instalments on dates allocated throughout the year, as follows:
25 March
25 June
25 September
20 December
10% of tax payable

20% of tax payable
25% of tax payable
35% of tax payable
5.1.3 Representative Taxpayers

The duties and rights of representative taxpayers are outlined in the above
quoted sections. The Commissioner of Taxes also has remedies against
defaulting representatives. Where a representative has met an obligation
of the principal out of his resources, he is empowered by the Act to seek
restitution from the principal.
The administrative sections of the Act are fairly simple to read. Students
should read them in order to have an understanding of the overall
administrative framework.
19

5.2 LEGAL FRAMEWORK

5.2.1 Overview
In terms of section 6 of the Income Tax Act (Cap 23:06) there shall be
charged, levied and collected income tax calculated on taxable income for
the benefit of the consolidated revenue fund.
The calculation of a taxpayers tax liability shall be made by reference to :- taxable income of taxpayer in year of assessment
- the appropriate rates of tax per the charging act for the year ; and
- the credits* to which taxpayer is entitled to per the charging act for
that year. (section 7)
* Only taxpayers who are natural persons are entitled to tax credits.
The basic model for calculating any taxpayers (individuals, trusts and
companies) taxable income is as follows :-
Total receipts and accruals in tax year

less Amounts proved by taxpayer to be capital in nature
Gross Income
(section 8)
(section 14 and 3rd schedule)
less Exemptions
Income
less Allowable Deductions (section 15 and various schedules)
Taxable Income
Sections 8, 14 and 15 are cornerstones of Zimbabwe Income Tax

legislation.
5.2.2 Gross Income
Gross Income is defined as :the total amount ..
received by or accrued to or in favour of a person..
20

or deemed received or accrued..

in any year of assessment
from a source within or deemed to be within Zimbabwe
excluding amounts proved by the taxpayer to be of a capital
nature.
Section 2 of the Act defines various terms used in the Act. Students
should be familiar with the meanings attached to words such as amount
and person. Amount for tax purposes embraces all receipts or
accruals, whether deemed or actual as long as they have an ascertainable
monetary value. An example of a specific inclusion is motoring benefit
[section 8(1)(f)].
Received by or accrued to or in favour of a person :
An amount is only taxable when it has been received by or accrued to a
taxpayer in any specific tax year. The Act does not define the words
received an accrued. Guidance has to be sought, therefore from legal
precedents (court cases).
The most celebrated cases on accrual of income are :
Delfos vs CIR in which the learned judge asserted that income accrues
when it becomes due and payable.
In Lategan vs CIR the judge concluded that income accrues to a person
when one becomes entitled to.. the income. Section 10(7) of the Act
affirms the decision in the Lategan case.
Please refer to Students Guide to Tax in Zimbabwe 2006 published by
ZXNET (Pvt). Ltd. for detailed summaries of the above cases, as well as a
few other relevant cases.
Deemed received or deemed accrued :
The Commissioner will invoke receipt or accrual under the circumstances
outlined in section 10, although the income might not have been physically
received. An amount will be deemed to have accrued to a person if it has
been invested on behalf of the person.
Section 10(2) provides that partnership business income accrues on the
accounting date. This provision reinforces the decision established in the
case Sacks v CIR. Sections 10(3) to 10(6) provide for the taxation of
income that accrue from donated assets.
From a source in, or deemed in Zimbabwe :
Income is not taxable in Zimbabwe unless it is from a Zimbabwean source
or has been deemed to be from a Zimbabwean source (section 12).
Source is one of the words used extensively in tax matters, but is not
defined in the Act. Although there is no definition of source in the
statutes, many legal precedents have dealt with the word at length.
21

Specific circumstances under which income is deemed to be from a

Zimbabwean source are outlined in section 12 of the Act. The most
common examples are interest and dividends from outside Zimbabwe
which are deemed to be from a Zimbabwean source in terms of section
12(2).
The following quotations are from celebrated tax cases on source of income :(a)
Lord Atkin, Privy Council, UK :- in Rhodesia Metals (in liquidation) v COT :. As a hard matter of fact the only proper conclusion appears to
be that the company received the sum in question from a source
within the territory (Rhodesia), viz the claims they had acquired
and developed there for the very purpose of obtaining the
particular receipt.
. Source means .. not a legal concept but something which the
practical man would regard as the real originating cause of the
income..
(b)
Watermayer CJ in CIR v Lever Bros and Unilever Ltd 1946
AD 441 :-
. source of receipts, received as income, is not the quarter

whence they come, but the originating cause of their being
received as income . the quid pro quo which he gives in return
for which he receives them .
The following are some important legal precedents :Directors fees - ITC 235 (1932) 6 SATC 262 :- It is quite clear that the
directors fees are derived from the fact that the appellant is a director of
the company, and therefore must be assumed to have earned the fees at
the headquarters of the company. It is there only that he can make his
voice heard as a director.
Interest - .. Provision of credit is the originating cause hence the place
where exercised is the source . This was the majority
decision in CIR v Lever Bros and Unilever Ltd 1946, 14 SATC1.
Sale of mineral rights/immovable property - Some mining claims were
bought and sold in the Territory in a profit making scheme .. source is
the Territory . (where the immovable property was situated).
International Trade - Transvaal Association Hide & Skin Merchants v
COT Botswana Court of Appeal (May 1962 SATC 97). Company bought
hides from a Botswana Abattoir via Botswana subsidiary, treated them with
salt and bound them into bales in Botswana. The company headquarters
in Johannesburg marketed the hides and gave delivery instructions to the
Botswana subsidiary to deliver direct to customers, whether in Botswana
or outside Botswana.
22

The decision was that there was two activities :- curing and marketing.
Curing was the dominant activity, hence the source was deemed to be
Botswana. However, it appears from ITC 1103 (1967) 29 SATC 35, that it
is possible for the source of income to be found partly in one country and
partly in another. (See Hill textbook for details of this case.)
Gains on Stock Market - CIR v Black 1957 (3) SA 536 (A) 21 SATC 244.
Important factors identified in this case were the employment of capital and
the undertaking of business. It was ruled that the dominant factor was the
carrying on of transactions hence the source was deemed to be London,
where shares were bought and sold ., though under instruction from
South Africa.
Services Rendered - (COT V Shein 1958 14 SATC 12)

. the source of earnings is the work done in return for those
earnings . It now seems settled law that generally the source of
such income is the place where the services for which the salary is
paid have been rendered.
Royalties - Millin v CIR 1928 SATC 170The originating cause of the
authors royalties is the wit and labour exercised in writing the book in
South Africa, therefore the source is South Africa (not England were the
book was published).
Rental Income - COT v British United Shoe Machinery (SA) (Pty) Ltd
1964 26 SATC 163
Immovable property : source is the country/place where property is
situated.
Movable property
: source is the country where lessor carries out his

business.
5.2.3 Capital and Revenue : Accruals and outlays in general

The definition of gross income specifically excludes amounts proved by the
taxpayer to be capital in nature. Expenditures and losses to the extent to
which they are capital in nature are not allowable as deductions.
Of utmost importance is establishing just what constitutes a capital accrual
or receipt ; and what constitutes a capital outlay. There are many court
cases dealing with the capital or revenue nature of amounts, because
neither term is defined in the legislation..
The basic principle of
determining whether an item is on capital or revenue account is to
examine the intention underlying the transaction. Where there exists more
than one intention then the dominant intention will determine nature. Any
transaction undertaken for a profit motive is taxable, despite the fact that it
might be an isolated transaction. (Overseas Trust Corporation v CIR
(1926) 2 SATC 71).
When analysing nature of expenditures, it is sometimes necessary to
consider the ensuing benefit. If the ensuing benefit is short term, then
23

expenditure could be considered to be on revenue account. If it is long

term (for example restraint of trade), then it is capital.
. as a general rule . income was revenue derived from capital
productively employed . capital . might be said to be wealth used
for the purpose of producing fresh wealth..
as per Chief Justice Innes in CIR v George Forest Timber Co Ltd.
Capital can be fixed or floating. Floating capital is consumed and
disappears in the very process of production, for example raw materials.
Fixed capital remains relatively intact for a number of years though there is
some diminution in value due to wear and tear. Fixed assets used in a
business are examples of fixed capital. Stock for sale on the other hand is
floating capital.
. its use involved disappearance and the money obtained for it
was received as part of the ordinary revenue of the business . the
sale of fixed capital represents a realisation which should not be
included in gross income.
Please refer to the Students Guide to Taxation (EY) or Income Tax in
Zimbabwe (Hill) for more detailed commentary on capital and revenue
concepts.
5.2.4 Calculation of tax liabilities (2010 tax year)
Companies and Trusts
Tax rate on taxable income

Add 3% AIDS Levy
25.00
0.75
_____
Tax liability
25.75
_____
Individuals
Tax rates on taxable income
Less credits
$
$
__
Tax payable on taxable income
Less :
PAYE
Double taxation relief
Any applicable tax withheld
in advance
$
$
$
__
$
__
Payable/(Refund)
24

Please take care and internalise the chronology of the above steps and make sure you
follow them exactly. A lot of students have come short because they rewrote the law
relating to the above steps.
5.2.5 Specific Inclusions in Gross Income

Although the definition of gross income outlined in section 8(1) is all
embracing, paragraphs 8(1)(a) to 8(1)(t) outline various types of amounts
which must be included in gross income whether or not they may appear
like they are capital in nature.
Section 8(1)(a) :
Annuities/pension receipts :Definition :. an annual payment in perpetuity for the life of grantee or for a
limited period . . ITC 826 (1956) 21 SATC 189.
Characteristics :- claimable from another person or body
- must be a fixed annual amount (which can be divided into monthly
or weekly payments)
- must be repetitive for a period ITC 761 (1952) 19 SATC 103
Types :Purchased annuity
- only interest content is taxable if there was no tax deduction or
credit allowed at or during time of payment of contributions.
Basic formula for determining taxable portion
(I) = (P*N)-A
______
N
where: P = annual payments (gross annuity received per year)
N = number of annual payments expected
A = purchase price of annuity (excluding any deductions
granted when making contributions).
25

NB :- All amounts received after the expiry of the N years are taxable
in full.
Annuity from gift or legacy

This type of annuity is taxable in full, even if paid out of capital funds.
Annuity from services rendered

This annuity is taxable in full except where portions of contributions
were disallowed as a deduction for tax purposes - in such cases the
taxable portion is determined using the formulae in the purchased
annuity section above.
Section 8(1)(b) :
Income for services rendered - e.g. salaries, commission, cash in lieu etc.
The first $5 000 or up to a maximum of 1/3 of the first $45 000 of a lump
sum accruing by reason of the termination of employment in terms of a
Government approved scheme is exempt from taxation.
Section 8(1)(c) :
Lump sum receipts or accruals from pension or benefit funds (1st
schedule).
Section 8(1) (d) and (e) :
Premiums and lease improvements.
Section 8(1) (f) :
Advantages or benefits from employment, service, office or gainful
employment.
Value of benefit is determined by reference to :
value to employees in the case of occupation of quarters, residence
or furniture
cost to employer in the case of any other benefit
Some examples :soft loans :- with effect from 1/01/10
over $100
- benefit is 5% plus LIBOR p.a. less any
interest paid
motoring :-
26

Engine Capacity
Deemed monthly
benefit
up
to
1 500cc
150
1 501
to
2 000cc
200
2 001
to
3 000cc
300
3 001
and
above
400
housing :- in municipal areas - market value ; outside municipal

areas value determined as 12,5% of salary or 7% of cost
of house.
furniture :- annual benefit is 8% of cost of furniture items.
passage :- see definition, apportion if dual purpose.
any allowance :- taxable in full except portion utilised on employers
business.
NB :- Benefits paid by the State to its employees are exempt (para 4(d) of
3rd schedule).
Section 8(1)(g) :
Timber or growing crops grown for sale, sold as part of land except where
these assets have been inherited or received as a donation.
Section 8(1)(h) :
closing stock
Section 8(i) :
mining recoupments
Section 8(j) - (k) :
Recoupments re capital expenditure and concessions.
Section 8(1)(1) :
Recoupments of rent premium where this arises as a result of acquisition
of property formerly leased. Taxpayer can elect to spread taxation of
these recoupments over six years.
Section 8(1)(m) :
grants or subsidies
Section 8(1)(n) and (r) :
Any portion above one third commutation from retirement annuity or
pension fund is taxable.
Section 8(2) :
Where amount accrued differs from amount actually received due to
fluctuations in exchange rates, effect must be given to tax amount actually
received.
27

5.2.5.1 Lease premiums

Lease Premiums
Gross Income : Section 8(1)(d)

Deduction : Section 15(2)(d)
(in hands of lessor)
(in hands of lessee)
Definition
A premium
Or like consideration
Or consideration in the nature of a premium
Paid for
The right of use or occupation of land or building ; or

plant, or machinery ; or patent, design, trade mark, copyright,
model, plan, secret process or formula ; or any similar property,
films, sound recording or advertising matter,
imparting of any knowledge etc.,
Used/occupied for the purposes of trade

or in the production of income
(apportion between business and private use)
Taxation(Income)
Tax in full in the year of accrual
28
Deduction (Expense)
Yearly allowance:- premium
divided by period of lease,
or 10 years, whichever lesser.

Where period of lease not stated, use ten years

Where period extended, use initial period only in calculations
In year in which lease commences/ceases or cessation of use
for business, apportion as appropriate.
Notes :
(a)
For use of knowledge, Commissioners discretion applied for period,

normally not less than one tenth (1/10).
(b)
On acquisition of ownership the lessee will cease to qualify for any

allowance in the tax year following acquisition.
(c)
Any allowances previously claimed which have been applied in

reduction of purchase price are recoupments brought into gross
income by Section 8(1)(l).
(d)
Lessee can make an election to spread the recoupment mentioned

above in (c) over six years. If property is disposed of by lessee
before the expiry of six years all outstanding instalments not yet
taxed immediately become taxable in the year of disposal of such
property.
(e)
The characteristics of a premium were laid out in the tax case : CIR v
Butcher Bros (Pty) (1945) 13 SATC 21 as follows :consideration must have an ascertainable money value
must pass from lessee to lessor
whether in cash or otherwise
distinct from and in addition to, or in lieu of rent.
(f)
Leasing of passenger motor vehicles

What is more tax efficient, to lease a passenger motor vehicle,
purchase it on hire purchase or borrow funds and pay for it outright?
What are the specific tax implications of each; and what are the
implications in relation to finance lease versus operating lease?
(i)
For Value Added Tax (VAT) purposes a lease is an instalment

credit agreement (defined) whose time of supply is the time the
goods are delivered or when any payment is received by the
supplier and will be subject to VAT on the cash value
(excluding finance charges).
(ii)
The lessor can claim SIA or wear and tear on the full cost of
the assets purchased for leasing, under both financial and
29

operating leases. The exception arises where the lessee or

other person has an option to purchase the asset at the end of
the lease; in that case only wear and tear can be claimed.
(Paragraph 2(iii) of 4th schedule).
(iii)
The lessee can claim deduction of the lease premiums (made

up of both capital and finance charges). In the case of the
leasing of a passenger motor vehicle, the deduction is
restricted to a maximum of $100 000. (Section 16(1)(k) of
IncomeTax Act).
(iv)
Where the lessee or other person exercises the option to

purchase the leased asset at the end of the lease period,
recoupment may arise if the asset is sold at a price which is
less than the market value. This recoupment could be taxed
over six years, if taxpayer so elects.
(v)
Under a hire purchase agreement, VAT is payable on the

cash value, or the amount at which the goods would in normal
circumstances be sold for cash (excluding finance charges).
(vi)
Cost of leased vehicles to lessor under both operating and

financial leases.
Any vehicle purchased for leasing purposes is not restricted in
cost, under both financial and operating leases. (Paragraph
14(2)(c) of 4th schedule).
Under a financial lease (where lessor is not entitled to the
return of the asset at the end of the lease period - i.e. option
exists), the lessor can only claim wear and tear on actual cost
without restriction. SIA is not available under this option.
Under an operating lease (where lessor entitled to the return of
the asset at the end of lease period), SIA or wear and tear can
be claimed, again on the actual cost.
Please note that while the vehicles are not restricted in cost for
the lessor under both financial and operating leases, the
restriction in cost (of passenger motor vehicles) do apply to
lessees as provided for in Section 16(1)(k) of the Income Tax
Act.
30

5.2.5.2
Lease Improvements
Gross income : Section 8(1)(e)
Deduction : Section 15(2)(e)
Definition
An agreement for the right of use

or occupation of land and buildings
For the right to have

improvements effected
An obligation to
effect improvements
Land or buildings must be used

for the purposes of trade or in the
production of income (apportion for
business and private use)
An amount or value per

agreement.
Expenditure actually incurred.

The expenditure incurred shall not
exceed the amount per the
agreement.
If no amount stipulated in the agreement,

the amount should be such sum
as the Commissioner considers fair
and reasonable value of such improvements
The amounts taxable in equal
monthly instalments from the
date the improvements were
completed to the end of lease
or 10 years whichever lesser.
31
The amount is allowable in

equal monthly instalments
calculated from the date the
improvements are first brought
into use, to the end of the lease

period or 10 years whichever lesser
If the lease is for an initial period and can be renewed,

only the initial period of the lease is taken into account.
If the period of the lease is indefinite then it is deemed

to be 10 years.
Notes :
(a)
On acquisition of ownership the lessee will cease to qualify for any

allowance in year of assessment following. On cessation of use of
property for purposes of trade or production of income, allowance to
be given only up to date of cessation - i.e. apportion.
(b) The balance will be taxable in the hands of lessor on date of :

cancellation or cessation of the agreement
the sale of the land and buildings
on the death or insolvency, liquidation of lessee
(c)
Recoupment is considered under Section 8(1)(l).

Case Law on Improvements
Lease improvements
For a taxpayer to claim a deduction for lease improvements effected
there must be an obligation to erect such improvements. An
obligation, though not expressed in certain contracts, may be implied
as per Rex Tea Room Cinema (Pty) Ltd vs CIR (1946) 14 SATC 76.
Variation of the Building Clause
(a)
COT vs Ridgeway Hotel Ltd (1961) 24 SATC 616

Under the original 99 year lease agreement a hotel building of
not less than $80 000 was to be constructed. When $60 000
had been spent on construction, Ridgeway hotel approached
the lessor (Government in this case) to alter the figure of $80
000 to $200 000 and this was agreed. The contention was to
decide which amount to use for calculating allowances for the
lessee. C J Clayden ruled that the variation clause entered
32

into before completion of construction became part of the

contract and therefore the amount to be used was $200 000.
(b)
Professional Suites Ltd (1960) 24 SATC 573

In this case it was ruled that a variation of the building clause
entered into after completion of construction of the building
would not validate the change of amount used for calculating
allowances.
Question:
Tourism P/L entered into a lease agreement with the Masvingo Municipality effective
from 1st July 2010. The agreement in part stated that the lease was for a piece of
land in Masvingo extending to 5 acres. The lease would commence on 1st July 2010
and would be for a period of 99 years. The lessee was obliged to erect a hotel
building to the value of not less than $2 000 000. The lessee was also obliged to pay
a premium of $50 000 up front and monthly rentals of $10 000 until the end of the
lease.
On the piece of land let there was a municipal hostel which Tourism used as a
boarding house for its benefit until the completion of construction of the hotel, when
the hostel building was to be demolished. Construction of the hotel commenced on
15th July 2010. In April 2011 when $1 500 000 had been expended on the
construction Tourism approached the Masvingo municipality with a proposal to change
the building clause from $2 000 000 to $5 000 000. The municipality concurred and
the hotel was completed in September 2011 at a total cost of $5 200 000. The hotel
opened for business with effect from 1st October 2011.
Required:
Set out the income tax deductions available to Tourism (Pvt) Ltd for the tax years
ended
31st December 2010 and 31st December 2011.
Suggested solution:
Tourism (Pvt)Ltd
Income Tax Deductions for 2010 and 2011 tax years
US$
2010 tax year:
Lease premium : (50 000 / 120) * 6 months
2 500
Rent : 10 000 * 6 months
60 000
Lease improvements :
nil
33

____________________________________________________________________
_
2011 tax year :
Lease premiums : (50 0000 / 120) * 12 months
Rent : 10 0000 * 12 months
5 000
120 000
Lease improvement : (5 200 000 / 120) * 3 months
13 000
____________________________________________________________________
Notes :
Dividing by 120 is simply establishing the monthly allowance over 10 years.
$5 200 000 is accepted by the Commissioner for allowance calculation purposes
because the variation to building clause was entered into before completion of
construction.
5.2.6 Hire purchase and credit sales in general
Section 17 and section 18 of the Income Tax Act outline the basis of taxation of
amounts accruing under hire purchase and under credit sales. Under these
agreements the full amount of sale is receivable in instalments, which may
stretch into years. For tax purposes the full sale price is deemed to accrue on
the date of signing of the sale agreement. This would mean that taxpayers are
taxable on amounts not yet received.
However, sections 17 and 18 provide deductions which enable taxpayers to be
taxable on profit which relate to amounts which have become due and payable
in each tax year. A calculation of the profit relating to amounts which are not yet
due is made and deducted. This amount is added back to gross income in the
subsequent year when a fresh calculation is then made.
In the case of hire purchase sales (section 17) the calculation is made in
accordance with the following formula :
D * (E - F+G)
_____________
E
In which :
D = represents that portion of the amount accrued which is not due
or receivable at the end of the current accounting year/(tax
year).
E=
represents the total amount accrued under the agreement
F=
represents the cost to the taxpayer of the property so disposed

of
34

G = represents that proportion of development and other charges

which the Commissioner considers is applicable to such
property.
See paragraph 5.5 on calculation of allowances

5.2.7 Construction Contracts
For income tax purposes income from construction contracts is taxable on the
basis of what is due and payable in the tax year, i.e. based on percentage of
completion and progress payments due. Amounts received in advance are held
in trust and would not be taxable. Please refer to the provisions of section
15(2)(cc).
5.3
EXEMPTIONS
Section 14 as read together with the third schedule outlines receipts and
accruals which are exempt from taxation. Please refer to the schedule and the
Students Guide to Tax in Zimbabwe book for detailed reading.
It is important to be familiar with the following :- Receipts of statutory corporations such as the Reserve Bank and POSB
are not taxable.
- The emoluments of the President, and any allowances paid to a spouse
of a President or a Vice President for duties performed on behalf of the
State.
- allowances to civil servants.
- bonus not exceeding 10% of ones remuneration or $400 (with effect
from 01/11/09) whichever is lesser.
- bank interest.
- the first $5 000 or one third of approved retrenchment package
whichever greater, subject to a maximum exemption of $15 000.
- value of medical treatment and medical contributions paid by the
employer etc.
Please refer to the Third Schedule for more details.
35

5.4
GENERAL DEDUCTION FORMULA

Section 15(2)(a) outlines the general deduction formula. In terms of this section,
expenditure and losses to the extent to which they are incurred for the purposes
of trade or in the production of income will be allowed as a deduction for tax
purposes. Apportionment of expenditure is permissible, where incurred partly for
business purposes, or partly for capital purposes. It is also useful to note that
where the expense incurred is different from the amount actually paid due to the
fluctuations in exchange rates, then the amount actually paid will be allowed as a
deduction. (Section 15(1)).
Subsections 15(2)(b) to 15(8) outline specific deductible expenditures and
losses. A lot of the sections are amplified in schedules. Please refer to the book
and related case law for detailed reading.
One of the main tasks of a tax adviser is to analyse client circumstances in order
to take effective steps to minimise the clients tax burden. This can be achieved
only when the tax adviser is familiar with legislative provisions, particularly
deductions available to taxpayers. The provisions in section 15 are important
and every student should make an attempt to read the provisions.
Tax planners should be aware of the Commissioners treatment of assessed
losses as outlined in section 15(3) and the fact that losses attributable to
business cannot be set off against employment income per section 15(8).
Section 15 (2)(a) General Deduction Formula The deductions allowable
shall be expenditure and losses, to the extent to which, they are incurred for the
purposes of trade or in the production of income except to the extent to which
they are expenditure or losses of a capital nature.
36

(i)
(ii)
(iii)
(iv)
(v)
Expenditure and losses does not refer to net loss as reflected in the Profit
& Loss Account of the taxpayer. Is not limited to cash outlays but would
include losses such as pilferage (theft), breakages, destruction etc.
To the extent to which gives room for apportionment. Where expenditure
and losses are incurred partly for business and partly for private or partly
capital and partly revenue, apportionment arises. The apportionment must
be fair and reasonable.
Incurred means that there is a legal liability to pay. Such expenditure is
deductible from income even if payment occurs only at some later date.
For the purposes of trade means for the purposes of enabling a person to
carry on and earn profits in the trade. The ordinarily recurrent expenses of
business, such as trading licence fees, audit fees, rates, secretarial fees,
insurance premiums, business subscriptions and advertising costs will
usually pass the test. Expenditure for the purposes of trade may be
categorised in 2 ways:
Designed expenditure is money voluntarily and designedly spent by
the taxpayer for the purpose of this trade.
Fortuitous expenditure is money involuntarily spent because of
some mischance or misfortune, which has overtaken the taxpayer.
A deduction is not allowable where the expenditure, which though
arising out of the manner in which a taxpayer conducts his trade,
falls upon him in his capacity as a law-breaker rather than as a
businessman, e.g. traffic fines, customs fines or parking fines.
Capital Nature In the same way as accruals of a capital nature are
generally not subject to income tax, expenditure and losses to the extent
that they are of a capital nature are not deductible from income. In trying
to draw a distinction between revenue and capital expenditure Judge Innes
CJ brought up the following valuable dictum in C.I.R. v. George Forest
Timber Co. Ltd. 1 S.A.T.C. 20:
Money spent in creating or acquiring an income-producing concern must
be capital expenditure. It was invested to yield future profit and while the
outlay did not recur, the income did. There was a great difference
between money spent in creating or acquiring a source of profit, and
money spent in working it. The one was capital expenditure, the other was
not...
Revenue Expenditure is the cost of performing the income earning
operations and costs of merely maintaining the operating income earning
structure. Expenses which are necessary for the performance of the
business operation, or expenses which are attached to the performance of
the business operation by chance or expenses which are in good faith
incurred for the more efficient performance of such business operations,
are all deductible provided they are so closely connected with the
performance of the business operation that it would be proper, natural or
reasonable to regard them as part of the cost of performing the operation.
Section 15(2)(b) Repairs to articles, implements, machinery and
utensils used, and to property occupied for the purpose of trade and
repairs resulting from the letting of property.
Repair is restoration by renewal or replacement of subsidiary parts of the
whole i.e. restoring an asset to its original state at the time it was first
owned by the taxpayer. It is not necessary, however that the materials
used should be identical with the materials replaced. Repairs are to be
37

distinguished from improvements. The test for improvements is whether a

new asset has been created resulting in an increase in the income earning
capacity or whether the work undertaken merely represents the cost of
restoring the asset to a state in which it will continue to earn income as
before.
Section 15(2)(g) Bad and Doubtful Debts
Bad Debts A deduction can be claimed in respect of debts, which
are irrecoverable as long as all the following conditions are met:
i)
The debt must be due and payable to the taxpayer,
ii)
The debt must be proved, to the satisfaction of the
Commissioner, to be irrecoverable as at the end taxpayers
financial year
iii) The debt must have been included in the taxpayers income
either in the current or any previous year of assessment.
Section 15(2) (h) arw 6th Schedule Pension and Retirement Annuity
Fund Contributions
If a member joined the fund on or after 1 July 1960 his deduction is
restricted to the lesser of $72,000 per annum and 7% of annual
emoluments. For persons who contribute to a retirement annuity fund the
Commissioners approach is that not more than the lesser of $72,000 per
annum and 7% of annual emoluments is allowed as deduction. Annual
emoluments refer to earnings on which the ordinary contributions are
calculated.
Where a taxpayers contributions were only in respect of a retirement
annuity fund policy the deduction allowable shall not exceed $36,000.
No contributions to a retirement annuity fund shall be allowed as a
deduction to a member of such fund, who was not ordinarily resident in
Zimbabwe at the time he made the contribution unless,
He was ordinarily resident in Zimbabwe at the time he first became a
member of the fund, and
He became a member of the fund before 1 April 1967, and
No amount in respect of the contribution is allowed as a deduction in
terms of any law imposing a tax on income, which is in force in a
country other than Zimbabwe.
Section 15(2)(i) Arrear Pension Fund Contributions Payments in
respect of past service, may be deducted in the year of payment, subject
to restrictions reflecting the ceilings applicable to deductibility in past
years. Interest charged thereon is not allowable as a deduction for tax
purposes.
Section 15(2)(j) Medical Aid Societies The amount of any
contributions paid to a Medical Aid Society by an employer in respect of
his employees or their dependants.
Section 15(2)(m) Experiments and Research A taxpayer may deduct
expenditure incurred during the year in carrying out experiments and
research relating to his trade, other than expenditure of a capital nature
incurred on plant, machinery, land or premises or on the acquisition of
rights.
38

Section 15 (2)(n) Experiments and Research The principle is extended

to sums, which the taxpayer contributes to other persons carrying out such
experiments and research relating to the taxpayers trade or a proportion
of such contributions if the other persons expenditure is not wholly of this
nature. The amount allowable as a deduction shall be determined by the
formula:
AxB
C
Where
A. =
B. =
C.
the amount of the taxpayers contributions

the amount incurred by the other person, which would have
been allowed as a deduction in terms of section 15 (2)(m)
above
is the total amount of the expenditure incurred on experiment
and research.
Section 15(2)(o) Scientific Research and Experimental Work A

deduction is also permitted of the sums which are contributed to approved
scientific or educational bodies with the condition that they be used for
industrial research or scientific experimental work connected with the
taxpayers trade.
Section 15(2)(p) Educational Grant, Bursary or Scholarship A
deduction is allowed of grants, bursaries, scholarship paid for a person
undergoing technical education, provided that: the course is related to the
taxpayers trade and that the beneficiary is not the taxpayer, his spouse or
near relative of either spouse. If the taxpayer is a company, the beneficiary
should not be a near relative of the individual controlling the company, his
spouse or near relative of the spouse unless the director works full time for
the company and controls not more than 5% of the share votes.
Section 15 (2)(q) Voluntary Payments To Former Employees And/Or
their Dependants Any amount paid during the year of assessment by
way of an annuity, allowance or pension is deductible subject to the
following:
the employee must have retired because of ill health, infirmity or old
age.
the amount allowed is restricted to US$500 per tax year for each
former employee.
in the case of payments to dependants or persons who were
dependant on a retired or deceased former employee the annual
restriction is US$200 in respect of all dependants of each exemployee.
In all cases the amount allowed is reduced by any obligatory payments
(e.g. pension or annuity) received during the year by the ex-employee or
dependant from any fund of the former employer. Persons whose
employment was of a domestic or private nature are excluded in all
contexts.
Section 15(2)(r) Donations A deduction shall be granted for payments
made to the National Scholarship Fund, National Bursary Fund or a trusts
39

administered by the Minister responsible for either Social Welfare or

Health.
Section 15(2)(r1) Donations Any amount not exceeding US$100,000
paid by a taxpayer during the year of assessment to the State or to a fund
approved by the Minister of Health for, any of the following operated by the
state, local authority or religious organisation:
the purchase of medical equipment,
the construction, extension or maintenance of a hospital or
the procurement of hospital drugs (including ARVs)
paid by a taxpayer during the year of assessment without any
consideration at all to a research institution approved by the Minister
responsible for higher or tertiary education.
paid by a taxpayer during the year of assessment, without any
consideration at all, to the State or a fund approved by the Minister
responsible for education, for any of the following operated by the state,
local authority or religious organisation:
the purchase of educational equipment
the construction, extension or maintenance of a school
the procurement of school books or other educational materials
consideration to the Public Private Partnership Fund.
consideration to the Destitute Homeless Persons Rehabilitation Fund
established by the Ministry of Finance under the Audit and Exchequer Act.
Section 15(2)(s) Subscriptions A deduction is allowed for subscriptions
paid by a taxpayer in respect of his continued membership to any
business, trade, technical or professional association. Entrance fees are
not allowable.
Section 15(2)(t) Expenditure Prior To Commencement Of Business
A deduction is allowed from business income, which
was incurred by the taxpayer, 18 months prior to commencement of
business, in the course of establishing the business, and
would have been allowed as a deduction had it been incurred after
beginning the business and
is claimed in the year of assessment in which business commences
Section 15(2)(u) Opening Stock Accounting principles are recognised
and the taxpayer is allowed to deduct the value of the trading stock, which
was on hand at the end of the preceding year of assessment, i.e. opening
stock.
Section 15(2)(v) Trading Stock Acquired Other Than In the Ordinary
Course Of Trade A deduction shall be allowed from the income derived
by the taxpayer in a year of assessment, from the carrying on of a trade,
40

an amount equal to what the Commissioner considers as, at the date it

was brought to hand or at the date it was acquired, the fair and reasonable
value of such trading stock of the taxpayer acquired otherwise than in the
course of trade.
In the case of donated stock the deduction shall not exceed the value
available from the person from whom it was acquired. In the case of
inheritance the deduction shall not exceed the valuation as shown in Final
Liquidation and Distribution Account of the deceased.
Section 15(2)(w) Conventions And Trade Missions The cost of
attending a convention or trade mission is allowed as a deduction subject
to the following:
The deduction is restricted to US$2,500 of the amount spent in any
one tax year and must relate to not more than one convention, which
in the opinion of the Commissioner was in connection with the trade
carried on by the taxpayer or one trade mission, approved by the
Minister (not both).
If the convention or trade mission commences in one year of
assessment and ends in another the deduction is allowed in the tax
year it ends.
If the person attending is a member of a partnership and the
partnership bears the expense, each partner is allowed to deduct an
amount in proportion to his share of profits. In such a case the limit of
$2,500 is applicable to one visit by each partner.
Section 15(2)(aa) Legal Costs On Income Tax Appeals Taxpayers
who appeal against any decision made by the Commissioner and whose
appeal is allowed in full in the Special Court or the High Court, may deduct
their legal costs (allowed by the registrar of the court as being in
accordance with the proper scale for such costs) in the year of assessment
in which the costs are so taxed. If the appeal is allowed to a substantial
degree the court may direct that the costs be deductible.
Section 15(2)(bb) Legal Costs On Income Tax Appeals Should an
appeal be taken further (by either partly) to the Supreme Court, and the
taxpayers case be upheld in full or to a substantial degree the court may,
at its discretion, permit the costs to be deducted.
Section 15(2)(cc) Expenditure Not Yet Incurred Expenditure may
normally be claimed as a deduction only in the year in which it is incurred.
An exception is provided in cases where income accrues in one year of
assessment in respect of services to be rendered or goods to be delivered
in a subsequent year and it is known that expenditure related to such
income will be incurred in subsequent years. An allowance for such
expected costs may be claimed in the year of accrual of the income but
subject to the following:
the amount of the allowance will be at the discretion of the
Commissioner (not subject to objection or appeal).
expenditure of a capital nature is ignored
current expenditure, which relates directly to future tax years income
and which would have been claimable in the current tax year, is set off
against the allowance and
41

any allowance granted is brought back into income in the following tax
year.
Section 15(2)(gg) Export Market Development Expenditure This

paragraph provides for a 200% deduction of expenditure incurred by a
taxpayer during the year of assessment on any export market
development.
Section 15(2)(hh) Tobacco Levy The amount of any tobacco levy paid
in the year of assessment in terms of Section 36A.
Section 15(2)(jj) Approved Employee Share Option Scheme This
section allows for a deduction of the fair value of any stock, shares,
debentures, units or other interest paid or given by the client to an
employee of the client or for the benefit of an employee of the client or
pursuant to an approved employee share ownership scheme or trust.
Section 15(2)(kk) Maintenance On Behalf Of Local Government
Expenditure not exceeding US$100 million approved by the Minister
responsible for local government on the maintenance of buildings, roads,
bridges, water works, sanitation works, public works and any other utility,
amenity or item of infrastructure.
Section 15(3) Assessed Losses Where a taxpayer has income from
one business activity but sustains a loss on another, the latter is set off
and only the balance is taxable. If the deduction exceeds the income the
excess is defined as the assessed loss. Assessed loss determined in the
previous year of assessment is deductible.
Except in the case of mining no assessed loss shall be carried forward
after the expiry of six (6) years from the end of the year of assessment in
which it was determined.
5.5
SUSPENSIVE SALES AND CREDIT SALES

Section 17 Suspensive Or Hire Purchase Sales
This section deems all proceeds from a suspensive sale to accrue on the date of
the signing of the agreement. It dealt with special provisions relating to Hire
Purchase Agreements and other Agreements referring to property sold.
42

Where an agreement provides that: ownership (movable assets) or transfer

(immovable assets) shall be suspended or postponed pending fulfilment of
certain conditions e.g. payment of the whole amount, the whole price (including
finance charges) shall be deemed to have accrued to the vendor (seller) on the
day the agreement is concluded and must thus be returned in the year in which
the sales took place.
The Act recognises, however that this may cause hardship (as not of the sale
price will have been received by the year end) and thus provides for the granting
of certain allowances.
Movables Assets (Hire Purchase Agreement etc.)
The Commissioner gives an allowance which he thinks is fair and reasonable.
The following methods are adopted in practice:
Full purchase price including finance charges must be returned by taxpayer
as gross income in the year of accrual.
Allow bad and/or doubtful debts in terms of Section 15(2) g (i) and (ii).
Section 17 allowance = gross profit % of debtors not due and payable to
taxpayer, i.e. not yet receivable, at the end of the Accounting year after
allowing 15 (2)(g) forming part of such debtors, that is, deduct only bad and
doubtful debts that are applicable to instalments not due and payable.
The Section 17 allowance is added back in the following year of assessment.
The calculation in effect achieves an estimate of profit applicable to
instalments not yet due and payable and this amount constitutes the
allowance.
No allowance in year in which taxpayer cedes or otherwise cancels the
agreement.
The allowance is merely an estimate of the profit applicable to all instalment
debtors not yet receivable at the year end / accounting period.
The allowance is at the Commissioners discretion and is calculated as
follows:Gross HP Sales
Less: Cost of Sales
Gross profit
Gross Profit %
xxxx
xxxx
xxxx
Gross Profit x 100
Gross HP sales
Less: Profit applicable to instalments not yet receivable

(i.e. GP% x Instalment not due & payable = allowance)
Taxable income
xxxx
xxxx
Variation where there are bad and doubtful debts forming part of both instalment
debtors receivable and not yet receivable:
43

Allow bad and doubtful debts (subject to normal tests) on both instalment
debtors receivable and not receivable under section 15 (2) (g)(i) and (ii) in the
profit and loss account; and
Then calculate the allowance as follows:

Gross HP sales
xxxxxx
Less: Cost of sales
Gross profit
Less: Section 17 allowances:
Instalments not yet receivable
Less: Bad debts forming part thereof xxxx
Doubtful thereof
xxxxxx
xxxxxx
xxxxxx
xxxxxx
xxxx
xxxxxx
Xxxxxx @ GP%
Taxable income
xxxxxx
xxxxxx
Note:
When gross profit percentage is determined in the trading account, the cost of sales
will have been allowed. Thus by allowing for the profit relating to, instalment not
receivable by the year end, the instalments receivable is taxed.
a) The allowance granted in one year must be included in the taxpayers income in
the following year. Treatment is similar to that of doubtful debts.
b) If the agreement is ceded or otherwise disposed of for valuable consideration
then the allowance ceases in such year of session etc.
c) The allowance for credit sales in section 18 is calculated in a similar manner.
Example 1
Gross H/P Sales during the year
600,000
Cost of sales
Outstanding H/P debtors at end of year
400,000
450,000
Solution:
600,000
Cost of sales
450,000
150,000
.
. . Gross profit % = Gross profit x 100
Gross Sales
150 000 x 100

600 000
= 25%
.
. . Section 17 allowance [$400,000 x 25%]
Taxable income
44
100,000
50,000

Example 2
Suppose the outstanding debtors of $400,000 included doubtful debts of $20,000
which is for specific debtors what effect would this have on your taxable income.
Solution:
600,000
Cost of sales
450,000
150,000
.
Gross Sales
150,000 x 100
600,000
= 25%
.
. . Section 17 allowance [($400,000 20,000) x 25%
Doubtful debts
Taxable income
35,000
Example 3
Gross H/P Sales Year 1
800,000
Cost of sales
Outstanding H/P debtors at year 1
20,000
95,000
115,000
500,000
450,000
Calculate taxable income after allowing section17 allowance. The allowance under
this section in the previous year was $100,000.
Solution:
Gross H/P/ Sales during the year
800,000
Cost of sales
500,000
300,000
100,000
400,000
Add: Allowable from previous year
.
Gross Sales
300,000 x 100
800,000
= 37%
.
. . Section 17 allowance [$450,000 x 37%]
168,750
Taxable income
45
321,250

Immovable Assets (Hire Purchase Agreement etc.)

With regards to immovable property the second proviso permits an allowance which
is deducted each year and included in income in the following tax year. It has the
effect of bringing to account the profit on the sale over the period of the agreement in
the same ratio as the instalments bear to the selling price. In this case also, if the
agreement is ceded or otherwise disposed of, no allowance is made in the year of
sale or other disposal.
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 capitalised and added to the cost
of the land except to the extent that it is allowable in terms of section
15 (2) (v).
(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
capitalised, 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.
1. The allowances to be determined in terms of section 17 will be calculated in the

same manner. The cost to the Client of the immovable property referred to in
proviso (ii) will only include development and other charges which have been
added to the cost of the land prior to the full selling stage being reached.
2. The allowance is calculated using the following formula:
D x [E + G)] i.e.
E
i.e. Instalments not yet due and payable x (Selling price Cost of sales)
Selling price
Section 18 - CREDIT SALES
This section relates to the taxation of income accruing from sales made on credit
with the price being paid in instalments. It removes the doubt of the date of accrual
of such income by bringing the full selling price to account at the date of the
agreement.
Proviso (i) enables the Commissioner to make any allowance that he considers
reasonable. The allowance to be granted will be the same as that given in respect of
movables sold under hire purchase agreements.
Proviso (ii) ensures that the allowance granted is brought in as income in the
following year of assessment.
46

5.6
CAPITAL ALLOWANCES - SECTION 15(2)(C) AS READ TOGETHER WITH

THE 3RD SCHEDULE
The 4th schedule outlines allowable deductions with regard to capital expenditure
incurred for the purposes of trade in the relevant tax year. The allowances
covered by the schedule are as follows:
Special initial
Wear and tear
Scrapping
Training Investment
Paragraph 1 of the 4th schedule outlines the definitions of assets on which

capital allowances can be granted. It is essential to be familiar with these
definitions in order to correctly determine the assets classification for tax
purposes.. For example, a canteen constructed within an industrial stand is
defined as an industrial building, and NOT a commercial building.
The allowances outlined in the Fourth Schedule can be manipulated to the
taxpayers advantage. In particular, paragraph 8 is useful in relation to disposal
of assets within group companies, or localisation of international group
companies.
There are some incentives which facilitate avoidance of
recoupments to business operations which arise during reorganisations of group
operations.
Other notable provisions to know are as follows:Para 14 : Limitation of cost of passenger motor vehicles
Tax Year
Allowable Cost
From 1 January 2009 to 31 December 2009
10 000
10 000
Para 15 : Limitation of cost of schools, nursing homes and staff housing
Schools/clinics
Tax Year
Allowable Cost
$10,000
$10,000
NOTE
47

(i)
Paragraph 15 (1)(b) (14) -
US$10,000 limit for school

clinic or nursing home
(ii) Paragraph 15(2)
No limit on school, clinic etc. used in

connection with taxpayers farming
operations but
(iii) Paragraph 15(3)
Total cost of building used for housing

staff not included in calculating
allowances
Staff housing (school, nursing home, clinic housing) (Para 15(1))

Tax Year
From 1 January 2009 to 31 December
Allowable
Actual cost
Cost
not more than
$10,000
$25 000
$10,000
$25 000
2010
From 1 January 2010 to 31 December
2011
It should be noted that if the cost of staff housing exceeds $25,000 then no
allowances are granted.
5.6.1 Special Initial Allowance (S.I.A) - paragraph 2 of 4th schedule
- With effect from 1 January 2010, SIA is 25% of cost followed by 25%
accelerated wear and tear allowance for the following 3 years (was
50% followed by 25% accelerated wear and tear for the following 2
years).
- taxpayer must make an election for it to be granted
- it is claimable on capital expenditure incurred on the
(a)
construction of farm improvements, industrial buildings,

railway lines, staff housing,
(b)
additions or alterations to existing assets mentioned in (a)

above,
(c)
the purchase of articles implements and machinery
- S.I.A. will not be granted on movable leased assets where there is

an option to lessee or any other person to acquire the asset at the
end of the lease period.
- S.I.A. is not normally claimable on a commercial building, but if the
commercial building has been constructed in a growth point, then
S.I.A. can be claimed.
- S.I.A. is not apportionable between private and business, if an asset
has qualified, then it is deductible in full.
48

5.6.2 Wear and tear allowance - paragraph 3

Where the taxpayer has not made an election to claim S.I.A. on assets
used for business, the Commissioner will automatically grant wear and
tear allowances as follows :immovable assets :- generally 5% straight
commercial building (2.5%).
line
except
for
movable assets :- generally 10% on reducing balance with some

exceptions. (See Departmental Practice number
40 for detailed schedule of rate).
-
Where S.I.A. has been granted in the first year of use, then
accelerated wear and tear (at 25% on cost) is granted in the
subsequent three years.
5.6.3 Scrapping Allowance - paragraph 4

Scrapping allowances are the equivalent of losses on disposal of fixed
assets used for trade. It arises when a scrapped asset is disposed of for
proceeds which are less than the income tax value.
In order for scrapping allowance to be allowable, a decision to scrap must
have been made. A decision to scrap is to intimate that an asset is no
longer useful for business use.
When business organisations windup operations, scrapping allowances
will be allowed to the extent that it does not exceed the recoupment arising
from the business closure.
5.6.4 Training Investment Allowance - paragraph 5

Repealed effective 1 January 2001
5.6.5 Growth Point Area Allowances (14th schedule)
Repealed 1st September 2010
5.6.6 Recoupments
Training Investment and Growth Point Investment Allowances are not
subject to recoupment.
Recoupments arise when assets which were being used for business are
sold for proceeds in excess of the income tax value. The formulae for
calculating recoupment are as follows:(i)
Proceeds or original cost whichever lower less income tax

value of asset sold.
49

(ii)
Deemed proceeds or deemed original cost whichever lower

less the income tax value.
The above formulae ensure that recoupments are restricted to allowances

previously granted.
The restriction of amount recouped applies to all traders and businesses
except mining concerns. The amount to be recouped is arrived at as
follows:(iii)
Proceeds
= recoupment, where asset cost was

never restricted
(iv)
Deemed Proceeds = recoupment, where asset cost was

originally restricted.
Recoupments are generally set off against capital allowances for all other
businesses except miners. For miners the recoupment established is first
set off against the unredeemed capital expenditure before calculation of
the years redemption allowances.
5.7 PROHIBITED DEDUCTIONS

Section 16 of the Act outlines cases in which no deduction is allowable for tax
purposes. These prohibited deductions included :-
expenditures in maintaining oneself and household,
domestic or private expenses of a taxpayer,
expenditure incurred in travelling between home and business,
entertainment expenses
lease expenses of passenger motor vehicles in excess of statutory

deemed cost,
expenditures incurred in the production of non taxable income.
Section 16 While the general deduction formula contains its own restrictions
further restrictions on deductibility arise under this section, parts of which forbid
a deduction despite the expense passing the tests of purposes of trade, noncapital nature, etc.. Other parts merely ensure a disallowance of certain items of
expenditure, the deductibility of which might be in doubt.
It is for this reason that no deduction shall be allowed in respect of the following
expenditures:a) The cost incurred in the maintenance of the taxpayer, his family or
establishment.
50

b) Domestic expenses, including travel between home and place of business or

between two entirely distinct trades. A taxpayer, who caries on trade at
home and travels to other places where he carries on the same trade may
avoid both of these prohibitions. Domestic expenses include wages paid to
a domestic servant who was recruited to enable the taxpayers wife to take
up employment.
c) Any loss or expense, which is recoverable under any contract of insurance
or indemnity.
d) Tax levied on income and interest on overdue tax. There are nevertheless
instances where tax may rank as a credit against other tax payable.
e) Income carried to any reserve fund or capitalised in any way. The
Commissioner accepts, however, that specific provisions for directors fees
and staff bonuses are deductible subject to the following conditions, i.e.

that they are voted by the date of the relevant accounts or annual
general
meeting and;

that they accrue for tax purposes in, at the latest, the year of
assessment after that in which they are claimed as a deduction.
f)
Expenditure incurred in respect of any amount received or accrued which is

not included in the term income, as defined. A common example of such
disallowable amounts is that of interest payable on a loan used to purchase
Zimbabwean shares as they yield exempt dividends.
g) Contributions by employers to pension/annuity/sickness/etc. Funds for

employees, except to the extent permitted in the Sixth Schedule. The effect
is that only contributions to funds approved or registered in accordance with
laid-down procedures are deductible, subject then to the limits imposed in
that schedule.
h) Notional interest which is lost as a result of investing capital in trade.
i)
The rent of, or cost of repairs to, or expenses incurred on, any premises not
occupied for trade, or of any dwelling or domestic premises except in
respect of such part as may be occupied for the purposes of trade.
j)
The cost of securing sole selling rights. An example is the cost as might be
incurred by a petrol company in payment to a service station which then
sells only that companys brand of petrol.
k) Amounts, in excess of US$10,000 paid for leasing a passenger motor

vehicle (as defined in the Fourth Schedule) where the lease was entered
into on or after 1st January 1999.
l)
The cost of any shares awarded by the company to an employee or director.

This prohibition would counter any claim for a deduction by a company in
respect of either an issue of its own share or, an award of shares in another
company (for related companies).
m) Expenditure incurred on entertainment, whether directly or by the provision

of an allowance to any employee, including a director. Entertainment is
defined as including hospitality in any form. A deduction is therefore
51

clearly precluded in respect of the cost of, for example, a lunch for business
associates, despite the hosts purpose being the furtherance of trade
relationships.
n) Expenditure incurred in the production of any income arising from stocks or
shares of any company. Dividends from foreign companies, which are liable
to income tax in the hands of a taxpayer ordinarily resident in Zimbabwe, aer
taxable (at a flat rate; without any deduction for related expenditure. The
latter could be a minor matter such as bank charges, or more substantial
such as interest payable on monies borrowed to purchase the shares.
o) Expenditure incurred in the production of interest on any loan or deposit with
local financial institution.
52

6.
TAXATION OF INDIVIDUALS AND PARTNERSHIPS

Members of a partnership are taxable in their individual capacities on their share of
profit as determined on the accounting date. In terms of section 37(15) of the Income
Tax Act, partners are required to submit a joint return with supporting accounts each
year. For the establishment of the individual share of taxable income from partnership
business operation, the accounts submitted will first be assessed as if they
represented a legal persona. The taxable income established therefrom is then
shared in the profit sharing ratio per the Partnership Deed.
Some important points to note when establishing taxable income of a partnership
business are as follows :- expenses paid on behalf of partners by partnership are allowable to
partnership but should be included in the computation of the individual
partners taxable income. Such expenses include school fees, groceries,
medical expenses, subscriptions and insurance premiums where partners
estate is the beneficiary.
- insurance premiums on joint life policies and life policies on partners lives
with the partnership as beneficiary, are not allowable deductions and are not
added to partners individual computation. (By disallowing their deduction in
partnership partners are already being taxed).
- partnership profits accrue on the accounting date, or desolation date of
partnership, on admission of new members, or resignation of new members
; or on the death of a partner. Where the partnership business is continuing
after a change in membership, the Commissioner does not normally require
accounts to be drawn up. He will accept whatever method used to determine
profit share of the outgoing member. The partnership would then be
expected to draw up accounts at the usual time.
The actual taxation of an individual is simply to apply the rates of tax to the taxable
income established, after which the credits applicable to the individual are calculated
and subtracted. An AIDS levy of 3% of the remaining tax after credits is added, after
which P.A.Y.E. is applied in reduction of the tax liability established.
Relevant sections of the Act include: Section 37(15) : Joint returns
Section 51(5) : Separate assessments
Accrual of partnership profits - on accounting date (Legal precedent Sacks v CIR)
Accrual of partnership salaries - monthly as established in COT v Newfield.
53

EXAMPLE
David and Samuel practise as Quantity Surveyors in Harare. Samuel joined the
practice when he qualified in July 2006. David has practised here for seven years.
They submit the following profit and loss account in support of income returns for the
tax year ended 31 December 2010.
For the purposes of the question, the following amounts are stipulated at;
Passenger motor vehicle cost for capital allowances purposes- $10 000
Blind, disabled, elderly persons credits - $900 p.a.
Maximum annual deduction for contributions to approved pension fund - $5 400
US$
US$
Insurance premiums:
- loss of profit
20 000
- fire
9 000
- partnership joint life policy
38 000
- life policies for benefit of :
Samuel
16 000
David
10 000
26 000
Medical aid contributions:
David
5 200
Samuel
3 200
Staff
11 000
19 400
Staff salaries
680 000
Annuity to widow of
deceased employee
21 000
Interest on capital : David
48 000
Samuel
44 000
Bad debts
97 000
Trade subscriptions
1 000
Legal expenses : debt collection 6 000
Attendance at approved post
graduate course
90 000
Depreciation
86 000
Net Profit :
David 60%
1 798 560
Samuel 40% 1 199 040
________
2 997 600
________
Fees accrued
3 985 000
Bad debts recovered
84 000
Bank interest
75 000
Debenture interest
29 000
Dividends Delta Corp Ltd 10 000
4 183 000
________
4 183 000
________
________
1. Partners drawings were Samuel US$800 000 and David US$900 000.
2. Bad debts recovered include an amount of US$6 000 on account of a loan
previously written off as bad and not allowed as a deduction for tax purposes.
3. Residents tax on bank interest US$11,250 withheld. The debentures were in a
farming company.
4. The gross dividend from Delta Corporation Ltd is US$12 500 from which US$1,250
resident shareholders tax has been deducted at source.
54

5. Bad debts are made up as follows :

US$
Provisions for doubtful debts calculated at 5% of debtors
Fees unpaid
Loan to former manager now irrecoverable
43 000
26 000
28 000
______
97 000
______
6.
Attendance at post graduate course:
Samuel
David
US$
30 000
60 000
This represented the cost of lectures including travelling and hotel bills.
7.
(a)
Fixed Assets in the hands of the partnership at the beginning of the year
are as follows :
Date
Acquired
Description of Asset
______________________
_________
Office Furniture and Equipment

Surgery Equipment
Truck (single cab)
Jan 2004
Jan 2009
Jun 2005
Original
Cost
$
__________
Zim15 000
US70 000
Zim70 000
(b)
During the year the truck was traded in for a second-hand land cruiser. A
trade in value of US$40 000 was given on the truck and the cost of the
land cruiser was US$500 000.
(c)
A sterilizer (cost $400 purchased in January 2009) was scrapped during

the year 2010, and a new one purchased for $10 000.
(d)
The partnership elects to claim SIA.
8.
Samuel borrowed money to purchase his share in the partnership practice.

Interest payable during the year amounted to $12 000.
9.
David and Samuel paid $30 000 and $55 000 respectively to approved
retirement annuity funds.
10.
Samuel travels extensively for the practice and provides his own transport. He
rented a car for $9 000 a month for six (6) months from 1 January 2010 and on 1
July 2010 purchased a Mazda seda vehicle car for US$50 000. His running
expenses for six months to 31 December 2010 were US$100 000. It has been
established that his non-business travel has at all times been 10% of the total.
11.
Samuel is unmarried but has a disabled child aged 5. In addition to his income
from the partnership, he had the following income :
55

US$
Dividends from companies registered in Zimbabwe
40 000
Interest on tax reserve certificates fully utilised in payment on tax2 400
Rents from UK property
72 000
12.
David is married with two children, and during the year his medical aid shortfalls
were $6 000.
REQUIRED :
Calculate the tax payable by David and Samuel in respect of the tax year ended
31st December 2010.
56

SUGGESTED SOLUTION
Partnership David and Samuel
$
Profit per accounts
Add :
Less :
SIA
2 997 600
depreciation
86 000
bad debts : general provision
43 000
: loan
28 000
annuity excess (S 15 (2) of (c) (21,000-200)20 800
joint life insurance (capital)
38 000
recoupment
bad debt recovered
Bank interest
5 000
Wear and tear
Scrapping allowance
215 800
3 213 400
6 000
75 000
17 400
200
(113 600
3 099 800
David 60%
Samuel 40%
1 859 880
1 239 920
________
3 099 800
_________
Capital Allowances
Asset
______
Cost
US$
____
Office Furniture
& Equipment
2004 additions NIL
Surgery
Equipment
2009 additions 70 000
2010 additions
Motor
Vehicles
2007 additions 70 000
2009 additions
ITV
31/12/09
US$
_______
Cost
Add
(Disp)
US$
_______
Wear
and
tear
US$
_______
SIA
US$
_____
NIL
35 000
NIL
(400) (17 400)

10 000
-
80 000
(1)
(Scrap)
Recoup
US$
______
2 500
(3)
2 500
NIL
(200)
-
NIL
ITV
31/12/10
US$
_______
(1)
(2)
17 400
7 500
NIL
7 500
_____________________________________________________________________
TOTAL
155 000 35 000
89 600
(17 400)
5 000
(200) 32 400
_____________________________________________________________________
57

1.
Sterilizer scrapped
Cost of asset scrapped
ITV asset scrapped
US$
400
200
Proceeds
nil
Scrapping allowance
Equipment: Wear & Tear Calc:

2009 additions
Less : scrapped
(200)
70 000
(400)
______
Cost of assets on hand
69 600
ITV
34 800
Therefore accelerated
wear and tear @ 25%
ITV at 31/12/2010
2. Truck trade-in
ITV
Proceeds
Recoup
(17 400)
17 400
______
6 000
______
______
No recoupment since the tax allowances were claimed in Zimdollars.

3. Land cruisers are specifically included in the definition of passenger motor
vehicle, and are therefore subject to the $10 000 cost limit.
58

Individual Computations
David
Samuel
60%
40%
Share of taxable income
1 859 880
1 239 920
Add : life assurance policies

medical aid society contribution
interest on capital
16 000
5 200
48 000
________
10 000
3 200
44 000
________
1 929 080
1 297 120
Less :
interest on capital account
12
000
RAF contribution limited to $3 600
car rental 90% of $54 000
SIA on $250 000 restricted to
$10 000 at 50%
Running costs 90% of $100 000
Taxable Income
Tax thereon at 25%
5 400
2 500
________
90 000
1 923 680
________
1 138 620
________
480 920
284 655
_______
(900)
(3 000)
_______
480 920
14 428
_______
495 348
280 755
8 422
_______
289 177
_______
_______
Less : Credits
Disabled child
Medical shortfall 50% x 6 000
Tax Chargeable
Add 3% Aids Levy
Tax Payable
59
5 400
48 600

7.
TAXATION OF FARMERS
7.1 SUMMARY OF RELEVANT SECTIONS :Section 2 :
definition
Section 8(1)(I) :
Taxation of closing stock.
Section 15(2)(u) :
Deduction for stock.
2nd schedule :
Valuation of farm trading stock.
The valuation of farm trading stock is based on Fixed Standard Values
(FSVs) that are set by the Commissioner from time to time.
7th schedule :
Special deductions for farmers, drought induced relief, and restocking allowance.
Finance Act: s 14(3)(c) :
Special rate for taxation of drought sales.
4th schedule :
Capital allowances.
Section 15(2)(y) :
Special deductions for agricultural co-operatives.
The establishment of taxable income for all taxpayers is virtually the
same. Farmers have some extra deductions outlined in the 7th schedule
and the valuation of a farmers stock is also peculiar with regard to
livestock valuations. This valuation is by reference to fixed standard
values as outlined in the second schedule. A farmer should normally
come up with his standard values which must then be approved by the
Commissioner. Once approved, they must be used consistently for
subsequent years.
Crops are valued at what the Commissioner
considers fair and reasonable.
60

The 7th schedule provides for the following :Para 2 : Special deductions for farmers as follows :(This expenditure is not subject to recoupment.)
(a)
the stumping and clearing of lands
(b)
works for the prevention of erosion
(c)
the sinking of boreholes and wells
(d)
aerial and geophysical surveys
(e)
any water conservation works or contributions thereto in

terms of the Natural Resources Act.
(f)
New Fencing
Para 3 : Deals with the determination of taxable income/assessed loss

from growing timer.
Para 4 : Re orchards and vineyards
Para 5 : Assessment of income when drought conditions force a farmer
to sell livestock.
In this situation the taxable income emanating therefrom can
be taxable over three years if the taxpayer so elects. This
income is taxable at a special rate, which is the marginal rate.
The taxable income from drought sales is determined as
follows :Proceeds from drought sales
XX
Less :
(a)
number of sold * fixed standard value
XX
(b)
total no. sold * livestock expenses

___________________________
Average stock
XX
___
XX
Average stock = (opening stock + closing stock) / 2

New Par :
Assessment of income when compulsory acquisition of
farm
necessitates sale of livestock.
61

In this situation income emanating therefrom can be taxable

over three years if the taxpayer so elects.
Para 6 : Restocking Allowance :

The restocking allowance is calculated as 50% of the cost of
livestock purchased to bring up the stock holding to the
assessed carrying capacity of the farm.
7.2 Important Departmental Practices (DP)

No. 20 : Chinchilla and crocodile breeders are treated as farmers and are
covered in the 7th schedule.
No. 21 : Expenditure on crops in the ground - read.
No. 22 : Farm improvements exclude expenditures incurred under paragraph 2
of the 7th schedule.
No. 23 : Farm roads : temporary farm roads are allowable under section 15(2)(a)
while permanent roads are farm improvements on which S.I.A or wear
and tear can be claimed.
No. 24 : Sale of building by farm owner to company while retaining ownership of
land - is not legally possible.
No. 26 : Timber and wattle plantations - read.
No. 27 : Orchards and vineyards, tea and coffee plantations - read.
No. 28 : Farm improvements and plant : security items - security screens,
security lighting, fire extinguishers rank for capital allowances.
No. 29 : Valuation of donated or inherited livestock, growing crops and reaped
produce - value at estate valuation or market value, in any case use the
same value established in the hands of donor for tax purposes.
62

EXAMPLE
Longhorn Ranches (Pvt) Limited was incorporated on the 1st January 2010 to acquire
in the Belingwe district from that date the farm Cowhaven together with
improvements thereon, for the sum of $1 810 000. According to the agreement of
sale, the terms of which are acceptable to the Commissioner of Taxes, the purchase
price was made up as follows :
Land
Fencing
Farm dwelling
Staff housing
Plant and equipment
$
970 000
101 000
200 000
334 000
(erected 01/05/2004)
(2 units of $62 000 each and 1 unit
of $210 000 all erected on
01/06/2003)
205 000
________
1 810 000
________
During the year ended 31st December 2010 the company expanded and incurred the
following capital expenditure:
$
Erection of fencing
60 000
Sinking of boreholes
24 000
Purchase of 2 new tractors on 31st October 2010 48 000
Purchase of 2 cattle transportation lorries on
240 000
31st November 2000
Addition to farm dwelling
200 000
REQUIRED :
To calculate the maximum amount of deductions to which the company is entitled for
the year ended 31st December 2010.
63

SUGGESTED SOLUTION
Longhorn Ranches (Pvt) Ltd
Para 2
7 Schedule
$
__________
th
Ranking
Wear & tear
SIA
$
$
_____________________
Total
Allowance
$
________
Maximum deductions allowed :

Fencing
Purchased
Erected
60 000
60 000
Staff Housing
Farm dwelling
Staff housing
Plant and equipment
205 000
51 250
2 new tractors
48 000
1 2 000
2 cattle Lorries
240 000
60 000
Sinking of boreholes
24 000
24 000
________
207 250
________
** NOTES
1.
2.
3.
SIA is 25%
Purchased fencing does not rank for 7th schedules
Farm dwelling and staff housing exceed $25,000
64

8.
TAXATION OF MINERS
8.1
The computation of taxable income for miners is basically the same as any other
class of taxpayer. The determination of allowances on capital expenditure for
miners are outlined in the 5th schedule.
8.2 Relevant sections :-
Sale of mining claims held as stock - section 9
Definitions - section 2
Mining recoupments - section 8(1)(j)
Allowable deductions :prospecting expenses - section 15(2)(f)(ii)

capital redemption - section 15(2)(f)(i) and 5th schedule
8.3 Prospecting expenses

Section 15(2)(f)(ii) provides for the deduction of expenditure incurred during the
tax year on surveys, boreholes, trenches, pits and other prospecting and
exploratory works undertaken for the purpose of acquiring rights to minerals in
Zimbabwe.
A binding election is available to claim such expenditure from current income
from any source or carry forward the expenditure to be allowed against income
from mining operations in any subsequent year.
8.4 Capital redemption allowances - (5th schedule)

Capital expenditure for mining purposes is defined as :Expenditure on buildings, works or equipment, lease premiums, shaft
sinking (including sumps, pump chambers, stations and ore bins
accessory to a shaft) ; expenditure incurred prior to commencement of
trade on preliminary surveys, boreholes, development, general
administration and management, interest on loans ; and, after 1/04/88 :
includes expenditure on mine schools, nursing homes and clinics.
8.4.1 Methods of calculating capital redemption allowances :The redemption allowance can be calculated using either of three methods
commonly referred to as :
Life of mine
Mixed method
New mine method
65

The taxpayer has to make an election of the method preferred.

Life of Mine (paragraph 2)
The life of the mine is outlined in paragraph 2 of the 5th schedule.
Under this method the current years capital expenditure is added to
the balance of unredeemed capital expenditure brought forward at
the commencement of the current year of assessment. The total
capital expenditure is then divided by the approved estimate life of
the mine (in years), counting from the beginning of the current year
of assessment.
Companies not owning mines and other individuals
The capital redemption allowance will be based on Commissioners
assessment of what is fair and reasonable. Any person who is the
owner of a mine can use the life of the mine basis if she can submit
the estimate of the life of mine. In other cases the redemption is
based on the shorter of tribute period or life of mine.
With regard to individuals leasing mines, the Commissioner may
allow accumulated expenditure (shaft sinking and development) in
the first year of production. Thereafter the allowance is spread over
remaining period and wear and tear allowed at 20%.
Mixed Method (paragraph 4(2))
Under this method this method the taxpayer can make an election to
claim a portion of unredeemed capital expenditure brought forward at
the beginning of the year, by applying the life of the mine method to
it. In addition to that portion, the whole of the capital expenditure
incurred in the current year is allowed in full.
New Mine Method (paragraph 4(4))
This method is only available to those carrying on operations in a
new mine as defined. The election of this method allows the
taxpayer to deduct all capital expenditure brought forward and
current in the first year of production. Thereafter, capital expenditure
is allowed in the year in which it is incurred.
A new mine is defined as an undertaking which commenced regular
production on or after 1/04/1968, or recommencement of a mine
which has changed ownership and has been reorganised with
substantially new development and new plant.
8.5 Ring Fencing

a)
With effect from the year of assessment beginning on 1 January 2001 the
computed taxable income or loss for the year from each mine location of a
particular operator must be separately calculated. Thus a loss on
operations in one mine would not be available for set off against taxable
income from another but would be carried forward.
66

b)
With effect from the year of assessment beginning on 1 January 2001

deductions allowed per section 15 can only be claimed in respect of
income to which they relate.
c)
Capital allowances can only be claimed in respect of expenditure or losses

attributable to a particular mining location and shall not be claimed in
respect of any other mining location.
d)
Assessed Losses No assessed loss carried forward will be allowed as a

deduction unless a breakdown showing the extent to which such loss is
attributable to each location must be submitted to the commissioner for
approval. An assessed loss from mining operations can not be offset
against other income.
8.6 Expenditure
The restrictions refer to :
i) A local branch of a foreign company
ii) A local subsidiary of a foreign company
a)
In the case of pre-production (etc.) expenditure: 0.75% of the companys

total section 15 deductions for the year, after reducing the latter by :
i) admin and management expenditure paid outside Zimbabwe and
ii) CRA
b)
In the case of post-production (etc.) expenditure : 1%, instead of 0.75%, of

the above.
c)
The deductibility of interest payable by a mining company is limited if the

debt causes the companys debt: equity ratio to exceed 3:1.
8.7 Income Tax Rate

The income tax rate for mining companies is 25% effective from 1 January 2010
(was 15%).
8.8 Other provisions

Paragraph 5 provides an election to claim expenditure incurred on nonproducing
and non-contiguous mines against the income of the current producing mine.
This paragraph has been repealed with effect from 1 January 2001.
The election to claim capital expenditure of a non-contiguous non-producing
mine against income of a producing mine has been removed. That is capital
expenditure from a non-contiguous mine that is not yet in production must be
carried forward until the mine is producing.
Paragraph 6 provides for an election to claim expenditure on any one renewal of
buildings, works or equipment where cost does not exceed $10 000.
67

Paragraph 8: Provides that where there is a change of ownership of a mine, a

schedule of allocation of the sale price to the assets is required. The section
also provides for postponement of taxation of recoupments if transfer is within
group companies/reconstructions; or between spouses. In these cases the
assets are transferred at amounts equal to the deductions available.
The estimated life of mine is subject to the following limitations:Type of mine
Maximum estimate
Lead and/or zinc mine
10 years
Iron
5 years
Any other mine
20 years
Section 9 of the Act :- Income emanating from sale of mining claims can be
spread over four years for taxation purposes if taxpayer makes the election.
68

9.
CAPITAL GAINS TAX

Capital Gains Tax
Authority for the levying and collection of capital gains tax is in terms of section 6 of
the
Capital Gains Tax Act(Chapter 23:01).
-
Capital gains arising from the disposal of immovable property and marketable
securities, acquired after 1st February 2009 are taxed at a flat rate of 20%.
Capital gains arising from the sale of a principal private residence by an

individual who has attained fifty-five years on or before the date of sale are
exempt from tax.
- Capital gains arising from the sale of marketable securities are exempt from tax
up to $1,800 if the seller is fifty-five years or over on the date of sale.
- The disposal of listed marketable securities that were acquired before 1 February
2009 is subject to capital gains tax at 5% of the gross capital proceeds.
- The disposal of marketable securities listed on the Zimbabwe Stock Exchange
that were acquired after 1 February 2009 is exempt from capital gains tax but
subject to a capital gains withholding tax of 1% of the gross capital proceeds.
- The disposal of marketable securities that are not listed and were acquired after 1
February 2009 is subject to capital gains tax at 20% (and capital gains
withholding tax of 10%).
- Marketable security is a defined term, which includes shares in private
companies. To be taxable, the proceeds must be from a source within
Zimbabwe.
- The disposal of immovable property that was acquired before 1 February 2009 is
subject to capital gains tax at 5% of the gross capital proceeds.
The disposal of immovable property that was acquired after 1 February 2009 is
subject to capital gains tax at 20% of the gross capital proceeds (and capital
gains withholding tax of 15%).
- The main deductions which are allowed in the determination of a capital gain are
the cost of the asset together with any additions after acquisition and an inflation
allowance of 2% per annum.
69

The framework for establishing capital gain is as follows :-
Total receipts or accruals (deemed or actual) from a Zimbabwean Source

(deemed or actual) from the sale or disposal of a specified asset
Less
amounts of a gross income nature and recoupments of section 11(2) allowances
==
Gross Capital Amount

Less
Exemptions (section 10 of CGT Act)
==
Capital Amount
Less
Allowable Deductions (section 11 of CGT Act)
==
CAPITAL GAIN
If the total computed aggregate gain in a year of assessment is $50 of less no tax is
payable. A computed loss may generally be carried forward against future gains.
9.2
Specified assets are :
immovable property ; and
any marketable security.
Deemed sales [section 8(2)]

(a)
Where amount accrued and amount actually received varies due to

exchange rates, effect shall be given to the amount actually received in
Zimbabwe dollars.
(b)
Disposal other than by way of sale, Commissioner deems specified asset

to have been sold at market price of such asset.
(c)
Expropriations - asset deemed sold at expropriation/compensation price.
70

(d)
Sold in execution of court order - deemed sold for price realised.
(e)
Maturity or redemption of specified asset - asset deemed sold for maturity

amount or redemption value.
(f)
Transfer under a deed of sale.
Exemptions from capital gains tax (section 10)
(a)
Disposals by bodies mentioned in paragraph 1,2 and 3 of 3rd schedule to

income tax act, except disposals by those bodies mentioned in paragraph
2(a), (c) and (f) of 3rd schedule :- namely
(a)
agricultural, mining and commercial institutions or societies not

operating for the private pecuniary profit or gain of the members
(b)
building societies
(f)
employees savings
Commissioner.
schemes
or
funds
approved
by
the
(b)
Realisation/distribution by executor of specified assets forming part of a

deceased estate.
(c)
Sales of marketable security being bond or stock in respect of :-
any loan to the state, or any company all the shares of which are
owned by the state,
local authority
a statutory corporation
(d)
Insurance business re factor F or G in paragraph 6 of eighth schedule.
(e)
Disposal of shares in the Zimbabwe Development Bank.
(f)
Disposal of immovable property by petroleum operator to another

petroleum operator, provided buyer would use property for petroleum
purposes.
(g)
Receipts and accruals from sale of specified assets by licensed investor.
(h)
Receipts and accruals of an industrial park developer.
(i)
Amounts received or accrued on disposal of shares withheld by an

insurance company (recoupment by a insurance company
in a
demutualisation)
(j)
Amounts received by or accruing to an employee from the sale or disposal

of his shares or interest in an approved employee share ownership trust
where such sale or disposal is to the trust.
71

(k)
Amounts received by a person on the sale of his or her principal private

residence if such person was, on the date of the sale, of or over the age of
fifty-nine years.
(l)
Amounts received by or accruing to a person who is of or over the age of

fifty-five years on the sale of any marketable security, other than a
marketable security referred to in paragraph in respect of the $1 800
received by or accruing to him or her in the year of assessment concerned.
(m)
Amounts accruing from listed shares which are subject to the 10%
withholding tax.
DEDUCTIONS
Section 11(1) :
Where amount of liability incurred and amount actually paid differ due to exchange
rate variation, then effect shall be made of the amount actually paid in Zimbabwe
currency.
Section 11(2)(a) :
Costs of acquisition of specified asset which has been sold, excluding amounts
allowable as deductions for income tax purposes.
NB :Asset acquired by inheritance - taxpayer deemed to have incurred cost
equal to estate valuation.
Asset acquired otherwise than by way of purchase of inheritance - if acquired prior to
1st August 1981, taxpayer deemed to have incurred cost equal to market value at time
of acquisition, if acquired after 1st August 1981, cost is the gross capital amount as
established in the hands of person from whom acquired.
Section 11(2)(b) :
Expenditure on additions, alterations or improvement of specified asset, excluding
deductions allowable for income tax purposes.
NB : In the case of capital amount arising from the sale of shares in a company which
owns immovable property, any expenditure incurred by seller on additions or
alteration to the property shall be deemed to be expenditure incurred on addition
to shares.
Section 11(2)(c) :
An amount determined by applying the Consumer Price Index at the times of sale and
purchase on;
1)
Amounts referred to in section 11(2)(a) other than amount relating

to Building Societies, and
2)
amounts referred to in section 11(2)(b), and
72

3) the amount of any expenditure in respect of which a deduction is

allowable for income tax purposes, by way of allowance in terms of
the 4th schedule, 5th schedule, 7th schedule paragraph 2(c), (e) or
(f) in respect of each year or part thereof from the date of
construction, acquisition, alteration, addition or deemed addition or
alteration, to date of sale.
NOTE:
Section 39A 9(b) of the Finance Act which replaces section 11(2)(c) by an inflation
allowance of 2% per annum with effect from 1 st February 2009.
Section 11(2)(d) :
selling expenses
Section 11(2)(e) :
Bad Debts from previous or current disposal of specified asset.
Section 11(2)(f) :
High Court Costs where appeal was fully or substantially successful.
Section 11(2)(g) :
Supreme Court costs where appeal fully or substantially successful.
Section 11(2)(h) :
After above deductions, where profit is $50 (the effective amount is nil and the
paragraph is merely academic) or less, an amount equal to such amount shall be
allowed as a deduction.
Section 11(3) :
Taxpayers shall be allowed to deduct any assessed capital loss brought forward ; but
not those declared insolvent or had their property or estate assigned for the benefit of
creditors.
A company registered under the Companies Act, which converts into a private
business corporation can carry forward its loss ; and vice versa.
Section 11(4) :
A taxpayer shall claim a deduction only under one provision of the Act.
Section 11(5) :
Owners of immovable property who have been taxed on value of improvements in
terms of section 8(1)(e) of the income tax act, shall be deemed to have incurred a cost
equal to such amounts as have been taxed.
Section 11(6) :
73

Deed of sale deemed an acquisition.

Section 12 :
No deduction shall be allowed in connection with exempt disposals.
Section 13 : Damage or destruction of specified asset

Any asset damaged or destroyed shall be deemed to have been sold for the amount of
compensation receivable. Where the Commissioner is satisfied that the whole amount
of, or part of proceeds shall be expended within two years on purchase or construction
of a further specified asset, or repair of damaged asset, then such amounts shall not
be deemed proceeds of sale.
Section 14 : Determination of fair market price

The Commissioner has power to vary selling price or purchase price if he is of
the opinion that the price given is at variance with the fair market price.
Section 15 : Elections postponing the payment of Capital Gains Tax
Transfer of specified assets between companies under the same control in the
course of group reconstructions, mergers and other similar business
operations.
The following elections must be made by the time the returns for assessment are
submitted.
Election available (notwithstanding the terms of the sale) to transfer specified asset at
the amount equal to the deductions established in the hands of the seller. If asset
eventually sold to someone outside the group then recoupment calculated as it the
original seller was selling.
Section16 :
Transfer between spouses - election to transfer at amount equal to deductions
available.
Section 17 :
Transfer of specified asset by individual to company under his control - same election
as above available.
Section 18 : Sale of immovable property under suspensive conditions

Capital gain relating to amounts not due at year end allowed as a deduction, but to be
added back the following year, when a fresh calculation is then made, if applicable.
Formulae :
A*(B-C)
_______
74

D
where :
A = Portion of proceeds not yet due

(B-C) = Capital Gain accrued on sale
D = Total proceeds on sale
Section 21 : Provision for sales of principal private residence

Where a taxpayer sells a principal private residence and uses the total proceeds to
acquire a new principal private residence, then capital gains tax shall not be
chargeable on such sale. If the amount used is less than the actual proceeds then the
capital gain which relates to the portion not used shall be subject to capital gains tax.
When the new PPR is sold, the capital gain not subjected to tax previously shall be
deducted from the amount mentioned in section 11(2)(a), i.e. from cost.
Section 22 : Substitution of business property

Where a business property is disposed of and the taxpayer disposing the property
satisfies the Commissioner that the entire proceeds will be utilised to construct or
purchase another business property within two tax years, capital gains tax shall not be
chargeable ; provided that such capital gain will reduce the cost of the new property
when it is eventually sold.
Capital Gains Withholding Tax
Sale proceeds are liable to capital gains withholding tax at the following rates :
Immovable property
Listed marketable securities
Other marketable securities
15%
1%
10%
The responsibility for withholding such amount rests primarily with the depositary.
Should the depositary fail to withhold the amount, responsibility passes to the agent
and lastly the seller. In certain circumstances, taxpayers may apply for capital gains
withholding tax clearance certificates in order to eliminate their liability. What this
amounts to is the submission of the Capital Gains Tax liability together with the
application form for the capital gains withholding tax clearance certificates.
75

10. DECEASED ESTATES & TRUSTS

10.1
INTRODUCTION
The provisions of the Income Tax Act in relation to estates and trusts contain
important but sometimes convoluted definitions to which reference may in specific
cases be necessary. These include, in Section 2, beneficiary with a vested right,
and income the subject of a trust to which no beneficiary is entitled, and in
Section 11 (1) in relation to deceased estates only, ascertained beneficiary.
a)
As in the case of individuals and companies it is possible also for an estate

(deceased or insolvent, etc.) or a trust, to constitute a taxpayer and to be
liable to tax on its taxable income.
b)
An estate is a legal persona which comes into being by operation of law, as

follows.
A deceased estate commences its existence with the death of an individual. It

consists of the whole of the deceaseds property being administered under the
Administrator of Estates Act (Chapter 6:01) by the executor or executrix. It
terminates when the necessary realisation of assets has been effected and the
Final Liquidation and Distribution Account has been approved by the Master of the
High Court. Distributions, under an interim account, may have been made in the
meantime.
An insolvent or assigned estate is created by order of the court on presentation of a
petition for surrender, sequestration (confiscation) or statutory assignment of a
debtors estate. The estate is then administered under the Insolvency Act (Chapter
6:04) by a trustee under the control of the Master of the High Court. An insolvent
estate terminates on a successful application for rehabilitation by the debtor.
For tax purposes an estate is a person by virtue of the definition in Section 2 (1) of
the Income Tax Act.
c)
A trust on the other hand is not generally a persona though, in the present
context, it may be a person for tax purposes, as will be seen below. It is
commonly formed either:
i)
by an existing person (not necessarily an individual) who, by a written
trust deed, names persons as trustees and hands over to them
various assets as the initial capital of the trust. The trustees then
administer this capital and deal with the income thereon in
accordance with the conditions set out in the trust deed; or
ii)
by the will of a deceased individual who does not wish all or part of his
estate to be handed over immediately to his heirs. Instead of keeping
the deceased estate open for possibly a long time, the will may
nominate trustees to whom the executors are to hand over the assets
in trust, to be dealt with in accordance with the conditions set out in
the will. The estate can then be wound up and the Masters file
closed.
76

10.2
DECEASED ESTATES
GENERAL
On the death of a taxpayer an assessment is raised on the deceaseds taxable
income accruing to date of death. A new taxpayer, the deceased estate, then
comes into being and there arises the question of determining in which partys
hands the income accruing in the post-death period should be taxed (the bequest of
the asset itself never giving rise to liability). Such parties are (1) the beneficiaries of
the deceased. (2) the deceased estate itself or (3) any trust created in terms of the
deceaseds will.
The terms of the will are crucial, the basic rules as to who is taxable on income
subsequently derived from assets in the estate being as follows:
i)
Where a specific asset is left to a specific individual (e.g. my
debentures to my son Sam) the son is taxable on the income earned
by that asset from the day after the date of death of the deceased.
The son is in this respect an ascertained beneficiary i.e. a person
named or identified in the will who acquires an immediate certain right
to claim the present or future enjoyment of the income arising from a
particular asset in the estate.
ii)
Where the will provides for a residue in an estate the estate is

taxable, on the income from the assets in residue, from the day after
the date of death until the date of distribution by the executor.
(Residue arises in terms of a will through a clause such as: :...
debentures to my son Sam and the residue of my estate to my
daughter Daisy). The estate is initially taxable on any income
produced by the assets in residue. Daisy is taxable only on income
produced by such assets there being no ascertained beneficiary.
iii)
Where the will does neither of the above but provides for the whole
estate to go to a specific individual it appears to be the
Commissioners practice to treat the position as being the same as in
(ii), i.e. to tax the estate on the income in the period prior to
distribution and the beneficiary only thereafter e.g. My assets to my
children Sam and Daisy.
Wills are, of course, not necessarily as straightforward as to leave assets

outright. A common variation is a usufruct, giving a beneficiary a right to
income but not to inheritance of an asset itself . Thus a father may leave an
asset to his son but grant the widow a life usufruct and the estate being
administered by an executor. The rules for liability on such income are, in
comparison with the above:
i)
ii)
iii)
asset specified: the same as for (i): the ascertained beneficiary is

liable on the income immediately;
residue: the same as for (ii); the estate is liable on the income until the
date of distribution, and the beneficiary only thereafter;
whole: the position may differ from (iii) in that the usufructuary is
generally liable immediately on the post-death income.
77

In cases of intestacy (i.e. where there is no will) the treatment is the same as
that for a residue under a will.
10.3
FURTHER POINTS REGARDING ESTATES

a)
Assessed losses
Any assessed loss incurred by a deceased falls away, upon his death, and
cannot be carried forward against the income of the estate or any other
taxpayer. Similarly any assessed loss incurred by the estate in operations
during the post-death falls away upon the winding up of the estate.
b)
Expenditure incurred against post-death income

Expenditure (allowable under the general rules of deductibility) incurred
during the period of administration of the estate, is allowable in the
determination of the taxable income in the hands of the appropriate party, be
it the estate or a beneficiary. Conversely inadmissible expenditure is
disallowed in the determination of the taxable income of the party concerned.
c)
Marriage out of or in community

In the case of a marriage out of community of property the above rules apply
only to income from the assets of the deceased spouse since the assets of
the surviving spouse would not fall into the estate. The survivor would remain
taxable on his or her income.
In the case of a marriage in community of property it appears that upon the
death of, for example, the husband, the wife would, during the post-death
period, be taxed in her own right on one-half of the income accruing from the
assets in the joint estate. Only the other one-half would fall to be dealt with in
accordance with either the late husbands will or the rules of intestacy.
d)
Ordinary residence
An estate is deemed by Section 2 (3) (a) of the Act, to be ordinarily resident
in Zimbabwe if the deceased was ordinarily resident in Zimbabwe at the time
of his death. This can be important in the case of, for example, the receipt of
foreign interest (Section 12(2)).
e)
Annuities
Where a will imposes the duty to pay an annuity in such a way that it
constitutes a bequest price; although the beneficiary is burdened by the
condition the annuity is not linked to the income resources. In these
circumstances his income is not reduced for tax purposes, despite the
annuitant also being taxable on the annuity.
f)
Income from employment

An individuals employment may give rise to accruals which are:
i) Taxable in either the pre-death or the post-death period or
ii) Not taxable in either.
78

Any amount which accrues during 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, and which
would have been taxable in his hands, had they accrued during his lifetime.
These include cash in lieu of leave 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 cash in
lieu of leave (in the case of, for example, civil servants), a bonus voted after
death and directors fees as are not fixed in the companys Articles of
Association.
g)
Insolvent and Assigned Estates

i)
Where an individual becomes insolvent during the year of assessment it

is the Commissioners practice to raise two assessments on him for, firstly
the period from 1 January to the date of insolvency and, secondly, in
respect of any income earned by the insolvent person in his own right, for
the period from the latter date to
31st December.
ii) Additionally a new taxpayer, the insolvent estate, comes into being from
the date of insolvency to the date of rehabilitation. It is taxable on, for
example, any income earned for the continuation by the trustee, for the
benefit of creditors, of any business previously carried on by the
insolvent.
(This applies also to statutory, though not voluntary,
assignments.) The estate is not entitled to any personal credits.
iii) In no case is any assessed loss, incurred prior to insolvency, carried
forward against subsequent income, i.e. of the insolvent personally, or of
the estate during the insolvency period, or later after his rehabilitation.
(This applies also to both statutory and voluntary, assignments.)
iv) The rules for ordinary residence of insolvent estates are the same as
those for deceased estates, referred to above. See Section 2 (3)(b).
79

11. TAX PLANNING

Tax planning is the process of organising a taxpayers affairs in a way that legally
minimises the impact of taxation imposed by the statutes. One should always
remember that tax planning requires an analysis of all taxes, including income tax,
capital gains tax and estate duty. A plan which minimises income tax but increases
estate duty is not the best of plans.
Planning implies arranging of ones affairs well in advance. Taxpayers often approach
their tax advisors after things have already gone wrong, for example when a tax
investigator has knocked on the door. In such cases accountants, lawyers and tax
consultants can not do much planning but can attempt to minimise damage.
Establishment of tax liabilities is normally based on facts, referenced to legislation
existing at the time. Tax consultants cannot change facts retrospectively and the
Commissioner is bound to implement the law as it existed at the time.
Before commencing tax planning activities, it is important to be aware of the provisions
of section 98 of Income Tax Act, which deal with tax avoidance. Tax avoidance is the
arrangement of ones affairs in a legal manner which results in minimisation of tax
liabilities. Tax evasion on the other hand embraces all those activities that are
undertaken by taxpayers to free themselves from paying tax, without regard for the
law. Examples include falsification of records, misrepresentation, failure to submit
returns without good reason and so on. Section 81 of 87 of the Income Tax Act
outline types of offences and remedies the Commissioner can employ to counter such
activities. Please refer to those sections. The basic remedy provided by the statutes
is the imposition of a penalty of 100% of the tax evaded. In many cases this can be
profound and taxpayers need to be aware.
The following quotations are topical in the discussion of tax planning :. No man in this century is under the smallest obligation, moral or other, . to
arrange his legal relations to his business. or property, as to enable the Inland
Revenue to put the largest possible shovel into his stores. The Inland Revenue
is not slow and quite rightly to take every advantage which is open to it under
the taxing statutes for the purpose of depleting the taxpayers pocket. And, the
taxpayer is, in like manner, entitled to be astute to prevent, as far as he honestly
can, the depletion of his means by the Revenue ., so said Lord Clyde in the
English case Ayreshire Pullman Motor Services and D M Ritchie v IRC.
Lord Tomlin in Duke of Westminster v Inland Revenue Commissioners said the
following :Every man is entitled if he can to order his affairs so that the tax attaching under
the appropriate Acts is less than it would otherwise be. If he succeeds in
ordering them so as to secure this result, then, however unappreciative the
Commissioners of Inland Revenues or his fellow taxpayers may be of his
ingenuity, he cannot be compelled to pay an increased tax.
The above quotations make it clear that avoidance is the legal way of minimising ones
tax burdens while evasion is illegal. The Acts give the Commissioner authority to undo
any transaction if he is of the opinion that the transaction is abnormal and the purpose
80

was to avoid paying tax. He can for instance invoke what he deems to be the fair
market price in any transaction if he is persuaded to do so by the facts of the case.
Please refer to the avoidance provisions in section 98 of the Act. (Refer to some
questions on next page).
Some scenarios requiring tax planning powers

(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.
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 companys 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 weeks duration. The
81

managing director is uneasy with the visit of the tax officials and he wants you to be
present in the meeting.
REQUIRED: Advise the possible tax implications and suggest any strategy to deal
with the situation.
TAX PLANNING SCENARIOS: SUGGESTED APPROACH

(1)
The major tax implications of forming a consultancy company (or operating as an

independent contractor) are as follows :
(i)
Business income is subjected to tax at a flat rate of 30% (plus 3% AIDS levy) on
assessment. Tax, based on estimates if necessary, will however still need to be
paid on quarterly payment dates, during the year following the year of
assessment, as follows :
10% of (estimated) tax
25% of (estimated) tax
30% of (estimated) tax 35% of (estimated) tax
(ii)
10 February
25 June
25 September
20 December
You will be required to register for Valued Added Tax should your turnover be
within the registration threshold and the services are taxable.
(iii) Business expenses are claimable provided they pass the test as laid out in
section 15(2)(a), the general deduction formula.
As an employee (which includes a director) salaries, including benefits, are subject to
P.A.Y.E, which is normally deducted every month. The calculation of P.A.Y.E is based
on the tax rates applicable to individuals according to the various bands.
Although the tax situation of the consultancy company / independent contractor may
be advantageous, as opposed to that of an employee, before the choice is made
section 98, which is an anti-avoidance section, must be taken into account. This
section may be invoked by the Commissioner where it is evident that the only reason
for making the choice is solely and mainly because there is a lower tax regime
pertaining, and that, in reality, an employer/employee relationship still exists.
Penalties, and interest, may therefore arise.
In order to avoid the invocation of s98, a written contract should be concluded
between the company / independent contractor and the customer (your previous
employer). This contract must be normal, and be in line with prevailing practice, and
should steer clear of any wording which may indicate that you are still an employee of
the company.
(2)
The roll over provisions with regard to capital gains tax can only be elected in the
following scenarios :
(i)
Where an individual sells his sole or main residence i.e. his principal private
residence, and purchases or constructs a replacement residence before the end
of the next assessment year ;
82

(ii)
Where a taxpayer (including a company) sells immovable property used for the
purposes of his trade, and expenditure on a replacement property is incurred
within the time limit as in (i).
In this case, the taxpayer is a company, so (i) does not apply, and, as the house is not
used for the purposes of the companys trade, (ii) will also not apply. The roll over
provisions can therefore not be invoked.
(3)
An independent contractor is not an employee, as defined, for the purposes of the

13th schedule which deals with Employees tax (PAYE). He is therefore not liable for
PAYE, but is obliged to pay tax, based on his estimated annual taxable income, on the
quarterly payment dates (see 1 above).
(4)
The relevant provision, in this case, is section 17 of the Capital Gains Tax Act. Where
an individual transfers any immovable property to a company controlled by him,
through holding a majority of its shares or otherwise, the parties may elect, under this
section, to transfer the property at a value, for tax purposes, the effect of which is that
no capital gains tax arises. Full liability is swept up on any resale to a purchaser other
than a company under the same control.
In this case, although the shareholding of the company will be spread equally between
the taxpayer, his wife and his 2 children i.e he will hold only 25% of the shares (not the
majority), it may still be shown that the taxpayer will have control of the company (by
way of voting powers etc). The section does state that the taxpayer may control the
company by holding the majority of the shares, or otherwise.
In addition, this section can only be invoked where the individual used the property for
the purposes of his trade, and where the company will continue to use it for the
purposes of its trade. In this case, these conditions are fulfilled.
(5)
Sections 17 and 18 of the Income Tax Act are relevant under Mrs Ds scenario. In the
case of instalment-credit sales (where transfer of ownership is immediate but payment
is by instalments), the whole of the amount payable is deemed to have accrued to the
vendor at the date on which the agreement was entered into. To prevent hardship to
the vendor, however, an allowance, in respect of payments not yet received, may be
deducted, in addition to the normal deduction for bad and doubtful debts.
The allowance is determined by the Commissioner. In the case of movable property
the method of calculation is set out in departmental practice 33. (See example in
prescribed textbook Students Guide to Tax in Zimbabwe 2006) The allowance
granted must be brought in as income in the following year and, at that year end, a
new allowance calculated.
(6)
When dealing with investigating tax officials, always provide them with the information
and documents that they request. Do not be aggressive.
In this case, the following issues could be raised :
(i)
Deductibility of the full management fees : although excessive expenditure

resulting from bad business administration is deductible, the Commissioner
General is entitled to disallow excessive expenditure on the ground that it is not
properly classifiable as expenditure incurred for the purposes of trade or in the
83

(ii)
production of income, commonly because it is based on some non-business, or

even ulterior, motive.
Non residents tax on fees (NRTF) : this must be withheld from all fees paid to
non-residents. Therefore withholding tax on the management fees payable to
the head office should have been withheld, and paid over to the Commissioner
General within 15 days of payment of the fees. The rate of withholding tax
amount is subject to any double taxation agreement with the country of
residence of the recipient of the fees, in this case, of the head office.
ADVANCED ZIMBABWE TAXATION
PRACTICE QUESTIONS
84

QUESTION 1
On 30th June 2010,Mr Jones who was 66 years old, retired from employment after 25 years of service
with a pharmaceutical company.
His remuneration in respect of the period 1st January 2010 to 30th June 2010 was:
US $
Gross salary
18,000
Bonus
1,500
Gratuity
36,000
Housing allowance
1,200
Entertainment allowance
1,000
Cash in lieu of leave
9,000
Lumpsum payment from pension fund (see note 1)
40,000
Contributions to pension scheme
(1,080)
Contributions to medical aid society
(1,200)
P.A.Y.E. deducted from P. A.Y.E. remuneration
(22,500)
During the period 1 January 2010 to 30th June 2010, Mr Jones was entitled to the free use of a company
vehicle a Toyota Vigo Twin cab with an engine capacity of 3 000 c.c.
In addition, Mr Jones purchased the following assets from the company as part of his retirement package:
Original
Cost
US $
Laptop
800
85
Date
purchased
by company
July 2009
Market
value at
th
30
June
2010
US $
Disposal
Value
to Mr
Jones
US $

Toyota Vigo twin cab
2.
200
50,000
May 2009
30,000
20,000
1,000
June 2009
800
500
Office furniture
Notes
1.
500
Mr Briggs whose total pension entitlement amounted to $150,000 opted to commute a

portion of the pension and received a lump sum of $40,000 . His monthly pension from
1st July 2010 is $350.
Mr Briggs also received the following income:
Company dividends received from Botswana
800
Less: tax withheld at source
(120)
680
Bank interest received from Botswana
1,000
(150)
850
Rental income from property in Zambia
50,000
(12,500)
37,500
Rental income from property in Zimbabwe
12,000
REQUIRED
1.
Calculate the minimum tax payable by Mr Jones from employment income in

respect of the tax year 31st December 2010.
2.
Calculate the minimum tax payable by Mr Jones from investment income in respect
of the tax years ended 31st December 2010.
29 MARKS
86

QUESTION 2
The income statement of G.Tours (Pvt) Ltd, a travel agency and trading company for the year ended
31st December 2010 was:
$
Gross profit
$
7,032,000
Profit on sale of motor vehicle
2,000
Interest received
14,500
Dividends: Econet Wireless .Zimbabwe Ltd
150,000
7,198,500
Less:
Agents commission
200,000
Annuity to retired employee
50,000
Bad debts
120,000
Bursary
25,000
Depreciation
240,000
Donations
60,000
General expenses
82,000
Interest payable
7,000
Rent
123,000
Salaries \ Wages
2,355,000
(3,262,000)
Net profit before tax
3,936,500
NOTES
87

The motor vehicle was sold in Zambia
Interest received
Bank interest
5,000
Overdue debtors
9,500
14,500
Agents Commission
This was paid to sub-agents in South Africa who arranged package tours for tourists to Zimbabwe
Annuity to retired employee

The annuity of $50,000 was paid voluntarily by the company to an employee who had retired at the age
of 47 years on the grounds of ill health. The company does not contribute to any pension scheme except
the statutory social security N.S.S.A.
Bad debts
10% provision agreed with auditors as doubtful
95,000
Taken over from associated company
25,000
120,000
Bursary
The bursary of $25,000 is for a technical course closely related to the company's trade.
The course was undertaken by the controlling shareholder's son who is not employed by the company.
Donations
Zimbabwe Tourism Council
40,000
Cancer Research Centre
20,000
60,000
General expenses
Company formation expenses written off
2,500
Cash stolen by wages clerk
3,500
Removal expenses of trading stock from 1 store to another

Paid to GAK LTD under an agreement whereby only goods
7,500
supplied by G Travel (Pvt) Ltd are to be sold to GAK LTD
68,500
82,000
Rent payable $123,000

Included in this amount is :
(i) A premium of $12,000 for a store leased from 1st October 2010. The lease is for an indefinite period.
88

(ii) $50,000 rent for a vacant stand
Interest payable
The interest related to a loan used to buy shares in OK Zimbabwe Ltd.
FIXED ASSETS
The motor vehicle sold at a profit of $2,000 was a Mazda 3 sedan which had been acquired in
December 2009 for $18 000 for a sales rep. It was sold in the current year for $20,000.
A replacement Mazda BT50 sedan was acquired for $30,000.
Other assets acquired during the year were:
Computers
Mercedes benz for director
12,000
120,000
REQUIRED
Calculate the minimum taxable income or loss of the company for the year ended
31st December 2010.
26 MARKS
89

QUESTION 3
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:
90

1. Debt to equity ratio

The average debt to equity ratio of Peachy Mines (Pvt) Ltd during the year ended 31st December
2010 was 5 : 1
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

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 advise
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 hardbody double cab pick up truck for mine manager
91
12,000

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 31st
December 2010.
14 MARKS
(iii) Discuss the withholding tax implications associated with the payment of interest and
management fees to the holding company.
4 MARKS
QUESTION 4
Farmind Enterprises (Pvt) Ltd has been conducting farming operations in Karoi for the
past 10 years. The company's accounts are prepared up to 31st December. In October
2010, the Minister of Finance issued a statutory instrument declaring the farm to be an
epidemic area due to an outbreak of blackfoot disease.
LIVESTOCK
The livestock on hand on 1st January 2010 was :
Number
4
100
30
70
20
25
80
Class
Fixed standard Values

(F.S.V.)
Bulls
Cows
Oxen
Heifers
Steers
Tollies
Calves
800
500
450
400
200
150
100
Livestock movements from 1st January 2010 to 31st December 2010 were :
Births and deaths :
90 calves were born during the year
4 tollies died of diseases
12 calves died of snakebites
Sales :
1 Bull, 20 Oxen, 10 Steers were all sold for Us $15,000
50 Cows and 1 bull were sold as a result of the epidermic disease
for Us$30,000
Promotions :
35 calves to tollies
33 calves to heifers
92

25 tolllies to oxen
70 heifers to cows
Purchases
1 bull for Us 900
12 cows for Us $7,000.
Livestock expenses were Us$ 5,000
FIXED ASSETS
The income tax values (ITV's) of assets as at 1st January 2010 were:
YEAR
PURCHASED
COST
US $
Toyota corolla sedan
8,000
Farm trailer
5,000
Farm tractor
15,000
31st December
2009
31st December
2009
31st December
2009
I.T.V. AT
1
JANUARY
2010
US $
4,000
2,500
7,500
Additions to fixed assets

The following capital expenditure was incurred during the year :
US $
House for farm employee (1 unit)
10,000
House for farm manager ( 1 unit)
30,000
12,000
Dam
Fencing
2,000
REQUIRED:-
93

a) Draw up a livestock reconciliation statement to show the livestock on hand

as at 31st December 2010;
9 MARKS
b) Compute the minimum tax payable by the Company in respect of the year
ended 31st December 2010;
15 MARKS
QUESTION 5
Mr Joram is ordinarily resident in Zimbabwe.
During the year ended 31st December 2010 , he sold the following
shares :
a) 5,000 Econet Wireless Zimbabwe (Pvt) Ltd shares were sold in May 2010 at
US$$4,70 a
share. The Econet shares were acquired in July 2001 at Zim $ 0 per share.
Econet shares are listed on the Zimbabwe Stock
Exchange.
b) 10,000 Toks Technology (Pvt) Ltd shares were sold in July 2010 at US$1,50 per
share.
The shares were acquired in April 2009 for Us$0.80 per share.
Toks Technology (Pvt) Ltd is an unlisted company.
c) A house which was being let out was sold in November 2010 for
US50,000.
The house had been acquired in February 2006 for Zim $ 10,000.
US$ 1,000 was incurred in October 2009 in repainting the house.
A further US$2,000 was incurred in renovating the cottage in
February 2010.
QUESTION
Calculate Mr Joram's capital gains tax liability for the year ended 31st December
2010.
13 MARKS
94

QUESTION 6
On the 5th of March 2010, officials from the Zimbabwe Revenue Authority, (ZIMRA) visited Plastics
(Pvt) Ltd, a plastic manufacturer in the Willovale industrial area of Harare and carried out a tax
audit of the company's affairs.
On the 12th of March 2010, the ZIMRA officials presented the following findings:
1. The company had an estimated tax liability of Us $200,000 for the year ended 31st December 2010.
No tax payments have yet been made to ZIMRA in respect of this liability.
4 MARKS
2. The company's selling price is arrived at by adding a mark- up of 60% to the cost of production.
The company offers a 5% cash discount to all its customers while employees are offered
a 30% discount. It has been established that goods which cost the company Us $50,000 were
sold to employees for US $56,000 instead of the normal retail price of $80,000.
ZIMRA officials contend that the discount of US $6,000 offered to the employees is a taxable benefit
liable to employees' tax (PAYE) .
4 MARKS
3. The financial statements for the year ended 31st December 2010 reflected a dividend payable to the
following shareholders;
US $
10,000
10,000
20,000
20,000
60,000
Mr A Andrews
Mr J Jones
Andrews Investment (Pvt) Ltd
Jones Family Trust
The company's shareholders are all resident in Zimbabwe.

An offer was made to shareholders to elect to receive their dividend as shares.
Mr A Andrews and Mr Jones elected to receive a scrip dividend while Andrews Investment (Pvt) Ltd
and Jones Family Trust elected to have a cash dividend.
95

No tax payments have yet been made to ZIMRA in respect of any tax payable.
5 MARKS
4. The company paid director's fees to the following non executive directors:
$
Mr Kilo (Zambian resident)
3,000
Mrs A Andrews (Zimbabwean resident)
3,000
Mrs J Jones (Zimbabwean resident)
3,000
9,000
6 MARKS
No tax was deducted on the payments.
5. During the year ended 31st December 2010, Plastics (Pvt) Ltd contracted a South African based
company to repair its blow moulder machine. The machine was sent to South Africa and
Plastics (Pvt) Ltd was charged an equivalent of US $20,000. The funds were paid through the
company's foreign currency account.
ZIMRA officials contend that a withholding tax should have been deducted.
1 MARK
6. During the year ended December 2010, the company's factory manager was sent to Germany
on a course on plastic manufacturing.
The fees for the course were again paid from the company's foreign currency account.
1 MARK
No tax was deducted on the payments.
REQUIRED
Prepare a report to the directors of Plastics (Pvt) Ltd advising them on the tax implications of the
ZIMRA tax audit findings.
(21 MARKS)
96

TAX 7
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
and a further 10% payable on 1st January 2012. Interest at the rate of 8% per annum was payable on
amounts outstanding.
The remaining 50 stands were sold on 30th September 2011 at $15,000 each.
Again, a 75% deposit was payable immediately with 15% payable on 1st January 2012 and
and a further 10% payable on 1st January 2013. Interest at the rate of 10% per annum was payable on
amounts outstanding.
The following administration expenses (all tax deductible) were incurred:
US$
8,000
12,000
15,000
25,000
Year ended 31st December 2010

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.
97

(26 MARKS)
ZCTA 2011
TAXATION PRACTICE SUGGESTED SOLUTIONS
98

99

SUGGESTED SOLUTIONS
TAX 1
MR JONES
Tax computation
Tax year ended 31st December 2010
US$
Gross salary
MARKS
18,000
1,500
36,000
Housing allowance
1,200
Entertainment allowance
1,000
Cash in lieu of leave
9,000
Bonus
Gratuity
Lump sum payment from pension fund
40,000
Less: exempt portion
(40,000)
Motoring benefit (6 x $300)

Benefit on purchase of assets:
Laptop ( 500 - 200)
*Mazda
B2500 Twin cab benefit
Office furniture (800 - 500)
Pension July 2010 to August 2010
1,800
300
300
69,100
Less:
Exempt bonus
Pension contributions (maximum)
400
1,080
1
(1,480)
Taxable income from employment
67,620
(Cont.)
100

MR JONES
Taxable income from trade/investment:
31 December 2010
Tax payable: 31st August 2010
Up to:
Less:
US$
67,620
@35%
67,620
Less:
MARKS
23,667
(1,456)
22,211
Medical credit (50% of 1,200)
(600)
21,611
Add:
3% aids levy
1/2
648
22,259
Less:
P.A.Y.E. paid
(22,500)
Tax payable
(241)
1/2
NOTE
*Mazda B2500 Twin cab benefit
1. No benefit accrues as the taxpayer is aged above 55 years (section 8 (1) f para x
rd
2. Taxpayer is aged above 55 years; pension not taxable para 6 (h) of 3 Schedule
18
Taxable income from trade/investment

Rental income from property in Zimbabwe
12,000
Less: Exemption [3rd Sched. Para 4 (v) ]
(3,000)
9,000
Rental income from Zambian property (not Zimbabwean source)

Bank interest received from Botswana
rd
(not financial institution as defined in 3 Schedule,
para 10
1,000
10,000
101

US$
MARK
Company dividends received from Botswana
800
Taxable income from trade/investment
10,800
Tax on taxable income from trade/investment
Rental income from Zimbabwean property (9,000 * 30%)

Botswana bank interest (1,000 * 30%)
2,700
300
3,000
Add: 3% drought
levy
90
3,090
Botswana company dividend (800 * 20%)
160
3,250
Less: Double tax relief
Zimbabwe
tax
Foreign
tax
Relief
Botswana company dividends
160
120
120
Botswana interest
300
150
150
1
(270)
Tax on taxable income from investment
2,980
10
102

SUGGESTED SOLUTION : TAX 2

TAX COMPUTATION
+
$
Net profit per accounts
MARKS
5,000
150,000
2,000
3,936,500
Exempt bank interest

Exempt Zimbabwe company dividend
Annuity [S 15 (2) q ]
(50,000 - 500)
49,500
Bad debts[S 15(2) g]
:not proven to be bad)
95,000
: capital
25,000
25,000
Bursary [S 15 (2) p ]
Donations
: ZTC: allow 15 (2) (a)

: Cancer Research: not for trade
Depreciation : capital
General expenses:
20,000
240,000
2,500
Cash stolen by wages clerk: S 15 (2) allowance
Removal expenses : S 15 (2) allowance
Company formation :capital
Paid to GAK LTD :S 16 (1) j restraint of trade

Interest
:S 16 (1) f
Rent premium : S. 15(2)(d) proviso iii ' :3/120 x 12,000
68,500
7,000
12,000
:vacant stand :capital
300
50,000
8,000
Capital allowances
Recoupment
1
1
6,111
4,537,111
165,300
(165,300)
Taxable income
4,371,811
Tax at 25%
1,092,953
3% aids levy
32,788
21
1,125,741
Minimum tax payable
103

Capital allowances
MARKS
Mazda BT50 :
Actual cost
Deemed cost
30,000
10,000
25% S.I.A.
I.T.V.31.12.2010
(2,500)
7,500
Computers:
Cost
12,000
25% S.I.A.
I.T.V.31.12.2010
(3,000)
9,000
Mercedes benz
Actual cost
Deemed cost
2,500
3,000
2,500
120,000
10,000
25% S.I.A.
(2,500)
I.T.V.31.12.2010
7,500
8,000
Recoupment
Nissan sunny (cost $12 million)
Deemed cost December 2009
Actual selling price
Deemed selling price
18,000
10,000
20,000
11,111
I.T.V. 31.12.2010
Recoupment
(5,000)
6,111
1
5
Deemed selling price =
Deemed cost x proceeds

Actual cost
SUGGESTED SOLUTION TAX 3
104

Peachy Mines (PVT) LTD

Computation of tax
$
Profit before tax
Add:
Depreciation
Interest payable to parent company :Section16(1)q
Management fees payable to parent company :Section 16(1)r
General expenses : not for purposes of trade
Recoupment from capital expenditure
$
500,000
MARKS
1/2
3
5
1/2
1
26,000
96,000
179,710
10,000
40,000
351,710
851,710
less:
Capital redemption allowance
Bank interest received-net of withholding tax
Profit on sale of machinery : capital
Unrealised exchange gains capital
615,000
6,000
35,000
90,000
1
1
1
(746,000)
105,710
Taxable income
Tax @ 25,75%
27,220
1
14

restricted
50,000
Construction of guest house
No limit
50,000
House for mine manager
No limit
60,000
restricted
50,000
restricted
50,000
No limit
45,000
restricted
50,000
No limit
250,000
restricted
10,000
Extension to mine hospital
House for nurse employed at mine hospital

House for school teacher employed at mine
school
Mine office canteen
Mine school block constructed
Mine equipment
Nissan hardbody double cab for mine manager
615,000
105

Notes
Maximum allowances allowed are pegged at the 5th Schedule allowances for schools, clinics,
staff housing and passenger motor vehicles.
Mine clinic, school

House for nurs, teacher
Passenger motor vehicle
50,000
50,000
50,000
106

SUGGESTED SOLUTION
TAX 3
MARKS
Peachy Mines (PVT) LTD

Computation of disallowable portion of interest (s 16 (1) (q)
Allowable portion is the debt to equity ratio 3 : 1
Allowable portion is therefore =
3/5 * 240,000
144,000
Interest paid
240,000
Allowable portion of interest

Disallowed portion of interest
(144,000)
96,000
1
3
Computation of allowable portion of management fees (s 16(1)(r)

Deductible portion is restricted to 1% of [ A - (B + C) ]
A =
Total expenditure qualifying for deduction i.t.o. Section 15
B=
Expenditure on general administration and management paid outside Zimbabwe
C=
Expenditure qualifying for deduction i.t.o. Section 15(2)f(I)
A =
2,976,000 - 26,000 - 10,000 96,000 = 2,844,000.
B=
200,000
C=

615,000
Allowable portion =
1% ( 2,844,000 - (200,000,000 + 615,000)

1% of $2,029,000
20,290
Management fees paid
200,000
Allowable portion of management fees

Disallowed portion of management fees
(20,290)
(179,710)
107
1
5

WITHHOLDING TAX IMPLICATIONS

The interest on the loan is not subject to withholding tax.
The management fee payable to the parent company is subject to a 15% non residents tax on
fees payable in terms the 17th Schedule to the Income Tax Act.
The tax is payable within 10 days of the date of payment.

Interest at 10% per annum and penalties of up to 100% are payable for late payment.
1
1
108
SUGGESTED SOLUTION TAX 4

FARMIND ENTERPRISES (Pvt) Ltd
LIVESTOCK RECONCILIATION STATEMENT
31st DECEMBER 2010
MARKS
Bulls
Opening stock 1 Jan 2010
Cows
Oxen
Heifers
Steers
Tollies
Calves
Total
100
30
70
20
25
80
329
90
90
13
(16)
163
Births
Purchases
12
Deaths
Promotions in
(4)
70
25
33
35
(12)

Promotions out
(70)
Sales : Normal
(1)
Sales : Epidermic
(1)
Closing stock as at 31st Dec 2010

Fixed standard values
(25)
(20)
(68)
(10)
(50)
132
35
33
10
31
90
(163)
(31)
1/2
(51)
1/2
334
800
500
450
400
200
150
100
3,200
50,000
13,500
28,000
4,000
3,750
8,000
110,450
1/2
2,400
66,000
15,750
13,200
2,000
4,650
9,000
113,000
1/2
CAPITAL ALLOWANCES
Farm trailer
US$
US$
MARKS
I.T.V. @ 01.01.2010
2,500
Current year 25% W & T
(1,250)
I.T.V. @ 31.01.2010
1,250
3,750
1,250
Farm tractor
I.T.V. @ 01.01.2010
7,500
(3,750)
I.T.V. @ 31.01.2010
3,750
110

Toyota corolla
I.T.V. @ 01.01.2010
4,000
(2,000)
I.T.V. @ 31.01.2010
2,000
House for farm

employee
US$
Cost
10,000
Current year 25% S .I.A.
(2,500)
2,000
US$
MARKS
2,500
7,500
House for farm
manager
Cost of house exceeds USD 25,000; it does not qualify as staff
housing
12,000
Dam
100% paragraph 2 allowance of 7th Schedule
111

Fencing
100% paragraph 2 allowance of 7th Schedule
112
2,000
23,500
SUGGESTED SOLUTION
TAX 4
FARMIND ENTERPRISES (Pvt) Ltd
TAX COMPUTATION
31st DECEMBER 2010
US$
Sales : Normal
15,000
1/2
30,000
1/2
: Epidermic
MARKS
45,000
Less:
Purchases
110,450
1/2
7,900
1/2
118,350
(113,000)
1/2
(5,350)
Gross profit
39,650
Livestock expenses
(5,000)
34,650
Capital allowances
1/2

(23,500)
11,150
Epidemic sales c/fwd
(2,287)
Taxable income
8,863
Tax @ 25.75%
2,282
Epidemic sales
US$
Epidemic sales
Less:
Cost at FSV:
MARKS
30,000
50 cows @
500
(25,000)
1/2
1 bull @ 800
(800)
1/2
4,200
Less:
Applicable livestock expenses:
Livestock expenses x
forced sales
1/2 ( opening stock + closing stock)
5,000 x 51
1/2 (329 +334)
255,000
331.5
(769)
Taxed over 3 years per para 5 7th schedule
3,431
2/3 carried forward
2,287.33
1
9
114

SUGGESTED SOLUTION
TAX 5
Mr Joram
Capital Gains Tax computation
US$
MARKS
a) Econet shares
Disposal proceeds of 5,000 shares
23,500
1% Capital gains withholding tax
235
The disposal of a marketable securities that is listed on the Zimbabwean Stock

exchange
is exempt from capital gains tax but is subject to a capital gains withholding tax of
1% of the gross capital proceeds.
Capital gains withholding tax is due for submission to ZIMRA not later than three working
days
from the date when payment was made .
b) Toks Technology (Pvt)

Ltd
Disposal proceeds of 10,000 shares at Usd 1,50 per
share.
Less :
Purchase price of
shares
Inflation allowance 2,5% for 2
115
15,000
(8,000)
1
1

years
(400)
Capital gain
6,600
Capital gains tax @ 20%
1,320
Capital gains withholding tax 15%
(750)
CGT due
570
The capital gains withholding tax is due to Zimra within 3 working days from date of
payment.
The final CGT liability is due within 30 days from date of payment.
c) House
US$
MARKS
Disposal proceeds of house
50,000
5% Capital gains withholding tax
2,500
The disposal of immovable property that was acquired before 1 February 2009
is subject to capital gains tax at 5% of the gross proceeds.
The rate of capital gains withholding tax is also accordingly reduced from the normal
15% to 5%.
1
13
116

SUGGESTED SOLUTION 6
The Managing director,
Plastics (Pvt) Ltd
10 Willovale Road
Harare
MARKS
Dear Sir,
Tax implications of ZIMRA audit
We refer to your request for an opinion on the above matter and respond as follows:
1.
Tax payments
The tax for the year ended 31st December 2010 is payable as
follows:
25 March 2010
10%
20,000
1/2
25 June 2010
25%
50,000
1/2
30%
60,000
1/2
35%
70,000
1/2
25 September
2010
20 December 2010
200,000
Interest at the prevailing ZIMRA rate of 10% per annum is payable on the tax instalments not
paid on due date.
1
Penalties are however not payable for the late payments.
1
It is therefore recommended that you immediately make arrangements to pay the tax and
117

interest outstanding.
2.
Deemed benefit
Section 8(1) (f) of the Income Tax Act (Chapter 23:06) brings into tax an amount equal to
the value of an advantage or benefit in respect of employment.
The value of the grant of an advantage or benefit other than a payment by way of an
allowance, shall be determined :
(i)
in the case of occupation or use of quarters,residence or furniture by

reference to its value to the employee;
1
(ii)
in the case of any other advantage or benefit by reference to the cost to

the employer.
1
In this particular case, the products cost the employer $50,000 and the employee is
required to pay $56,000.
Since the employees pay an amount which is greater than cost to the employer, it is
submitted that there is no taxable benefit that accrues in terms of section 8(1) f.
SUGGESTED SOLUTION TAX 6 (cont)
PLASTICS (Pvt) Ltd
3.
Tax on dividends
MARKS
The 15th Schedule to the Income Tax Act deals with residents shareholders' tax (RST)
which shall be deducted on dividends payable to shareholders who are ordinarily resident
in Zimbabwe.
(i)
In terms of paragraph 1(2) of the 15th Schedule, a dividend shall be deemed

to be distributed when it is paid to the shareholder ,credited to his account or
so dealt with that he becomes entitled to it whichever occurs first.
It therefore follows that the dividend payable to Messrs A Andrews and J
Jones is subject to the 15% withholding tax irrespective of the fact that they
opted for a script dividend.
RST should be submitted to ZIMRA within 30 days of being distributed.

Interest at prevailing ZIMRA rate of 10% per annum as well as a penalty of
up to 100% is payable for the late payment.
(ii)
(iii)
In terms of paragraph 2(1)(a) of the 15th Schedule, a dividend payable to a

company which is ordinarily resident in Zimbabwe is exempt from RST;
no withholding tax should therefore be deducted on the dividend payable
to Andrews Investments (Pvt) Ltd.
The dividend payable to the Jones Family Trust is subject to the 15% wht
of $3,000.
1
Interest at 10% per annum as well as a penalty of up to 100% is payable for
the late payment.
118

Directors' fees
The fees payable to Mr Kilo are subject to a 20% withholding tax in terms of the 17th Schedule.
Tax on the fees should be payable within 10 days of the date of payment.
Interest at 10% per annum as well as penalties of up to 100% are payable for any late payment.
The fees payable to the Zimbabwean directors are subject to a 20% non-executive directors fees
tax in terms of the 33rd Schedule to the Income Tax Act. The tax is payable to ZIMRA within
ten date of payment.
1
1
1
1
Interest at 10% per annum as well as penalties of up to 100% are payable for any late payment.
1
1
Technical fees
In terms of paragraph 1 (1)(d) of the definition of fees in the 17th Schedule, any amount payable
in respect of the repair of goods outside Zimbabwe is not subject to the withholding
tax.
Technical fees
In terms of paragraph 1 (1)(c) of the definition of fees in the 17th Schedule, any amount payable
in respect of education or technical training not subject to the withholding tax.
We hope we have been of assistance.
Please do not hesitate to contact me should you require any further clarification.
Yours faithfully,
TAX CONSULTANT
119


PLOT DEVELOPERS (Pvt) Ltd
COMPUTATION OF TAX PAYABLE
MARKS
Cost per stand
Cost of land
Development costs
Cost per stand
1,500,000
300,000
1,800,000
900,000

Gross sales
(150 x $12,000)
1,800,000
Cost of sales
(150 x $9,000)
(1,350,000)
450,000
(8,000)
(112,500)
329,500
Add:
Interest on outstanding instalments
Taxable income
18,000
347,500
Tax payable at 25%

3% aids levy
86,875
2,606
Administration expenses
Section 17 allowance : 2010
120

Tax payable
Gross profit % =
89,481
25%
Gross sales
(50 x $15,000)
750,000
Cost of sales
(50 x $9,000)
(450,000)
300,000
Add:
19,088
112,500
1
131,588
431,588
Less:
(12,000)
(147,000)
US$
(159,000)
272,588
Taxable income
Tax payable at 25%
3% aids levy
Tax payable
Gross profit % =
68,147
2,044
70,191
40%
16
121


COMPUTATION OF TAX PAYABLE
MARKS

Less:
(15,000)
(30,000)
7,500
147,000
154,500
1
1
Taxable income
(45,000)
109,500
Tax payable at 25%
27,375
3% aids levy
821
Tax payable
28,196
122

30,000
1
1
30,000
Less:
(25,000)
1
(25,000)
Taxable income
5,000
Tax payable at 25%

3% aids levy
1,250
36
Tax payable
1,285
1
10
123

COMPUTATION OF S17 ALLOWANCE
150 stands
Amount due
Amount paid
Amount outstanding
31st Dec 2010
31st Dec 2011
1,800,000
(1,350,000)
450,000
450,000
(270,000)
180,000
50 stands
Amount due
Amount paid
Amount outstanding
750,000
(565,500)
187,500
31st Dec 2012
31st Dec 2013
180,000
(180,000)
-
187,500
(112,500)
75,000
Total amount outstanding
450,000
367,500
75,000
Gross profit% =
25%
40%
40%
(1,800,000)
75,000
(75,000)
-
(750,000)

S17 allowance
112,500
147,000
30,000
INTEREST OUTSTANDING
Interest on $450.000
Interest on $ 75.000
18,000
14,400
4,688
18,000
7,500
7,500
19,088
125

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2011

B. COMPT HONOURS DEGREE

ADVANCED ZIMBABWE TAXATION MODULE

ICAZ ZCTA ADVANCED ZIMBABWE TAX

TAXATION COURSE - OUTLINE

Legislation cut off for exam

Administrative and legal framework

Administration of Taxes in Zimbabwe

General scheme of taxation

Taxation of Individuals and Partnerships

Capital Gains Tax

ICAZ ZCTA ADVANCED ZIMBABWE TAX

The Income Tax Act (Chapter 23:06)

The Capital Gains Tax Act (Chapter 23:01)

Extract from the Financial Act (Chapter 23:04)

Candidates should be aware of the general provisions of the following

Value Added Tax (Chapter 23:12)

Estate Duty Act (Chapter 23:03)

In addition to the above the existing textbook on taxation in Zimbabwe is

ICAZ ZCTA ADVANCED ZIMBABWE TAX

Candidates should have:

An understanding of the various taxation statutes and relevant case law

Knowledge and understanding of court interpretations of significant cases;

Knowledge and understanding of administrative interpretations;

Awareness of sectorial taxation provisions;

Awareness of taxation exceptions and exemptions

Ability to perform tax calculations, to determine associated liabilities from

LEGISLATION CUT OFF FOR EXAM PURPOSES

RECENT CHANGES IN LEGISLATIVE PROVISIONS

ICAZ ZCTA ADVANCED ZIMBABWE TAX

TAX LEGISLATION YEAR ENDED 31ST DECEMBER 2010

Aids levy of 3% of tax is payable

MONTHLY P.A.Y.E TABLE (US$)

ICAZ ZCTA ADVANCED ZIMBABWE TAX

ANNUAL P.A.Y.E TABLE (US$)

MONTHLY P.A.Y.E TABLE (US$)

4.1 INCOME TAX INDIVIDUALS

ICAZ ZCTA ADVANCED ZIMBABWE TAX

Taxable income of individual from trade or investment

Taxable income of pension fund from trade or

Taxable income of licenced investor (taxed at 0% up to

Taxable income of holder of special mining

Taxable income of company or trust derived from mining

Taxable income of person engaged in approved BOOT or

Second five years of the arrangement

Taxable income of industrial park developer (after being

Taxable income of operator of a tourist facility in approved

ICAZ ZCTA ADVANCED ZIMBABWE TAX

Operator of a tourist facility where 60% or more of the

Taxable income of manufacturing company which exports

150 per month

PAYE REMITTANCE PERIOD

INCOME TAX: - COMPANIES, TRUSTS, INDIVIDUAL

ICAZ ZCTA ADVANCED ZIMBABWE TAX

4.3 MINING TAXATION REFORM

ICAZ ZCTA ADVANCED ZIMBABWE TAX

NON-RESIDENTS TAX ON FEES (NRTF)

ICAZ ZCTA ADVANCED ZIMBABWE TAX

WITHHOLDING TAX ON TENDERS

Restaurants and Bottle Stores

Cottage Industry Operators

BANKING INSTITUTION LEVY