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TAXATION (BS211)

1.0 INTRODUCTION
Taxation is the means by which the
government collect revenue for
financing public expenditure.
Tax is also levied to discourage
demand of demerit goods i.e.
tobacco, alcohol etc, and promote or
protect local industries

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Features (Principles) of a
good tax system
a) Equity principle- every member of
society should pay tax according to
his or her ability to pay. i.e tax
payers in the same economic
circumstance should receive the
same tax treatment and those
earning more should pay more tax
b) Simplicity principle-system should
be in simple and easy to understand
language. Should also be stable and
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c) Tax neutrality / efficiency principleshould ensure that economic decisions


are diverted to best locations
d)Flexibility/certainty principle- system
should be able to accommodate
changes in business, markets or
technology
e) Effectiveness principle- ability to
achieve the desired goal
f) Consistency transactions with the
same commercial result should have
the same tax result.
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2. TYPES OF TAXES
Direct taxes
Indirect taxes

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Direct Taxes
These are taxes levied on income and
wealth of individuals and companies. The
burden of these taxes is borne by the
person or organisation responsible for
paying taxes,
Direct taxes are progressive in nature. The
more you earn the more tax you pay.
Examples:
Corporate tax tax on business income
(profits)
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Direct Tax (contd)


Pay as you earn- tax earned by
individuals from employment
Investment income tax on
dividends and interest
Capital gains tax- tax on sale of
immovable property and shares
Estate duty tax- on the property of a
deceased person etc.
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Indirect Tax
Are levied on one set of individuals or
organisations, but may be partly or wholly
passed onto others and are largely related
to consumption.
The person who is charged the tax is not
the one responsible for paying it to the
authorities
Indirect taxes are regressive. i.e they have
a relatively greater impact on the poor
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Indirect Tax (contd)


Examples:
Value Added Tax;
Sales Tax;
Customs and Exercise duty

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ADMINISTRATIVE FRAMEWORK
1. ADMINISTRATION
. Administration of all taxation fall under
the responsibility of ZIMRA.
. 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.
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2. Returns and Assessments


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
The duty to obtain a tax return rests with
each individual taxpayer who falls within
the specifications outlined in The
Commissioners public notice.
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Returns and
Assessments (Contd)
Employees paying PAYE under the
FDS are not liable to furnish self
assessment returns
The employer is responsible for
deducting the correct amount of
PAYE for the year,
Commissioner is empowered to
estimate any taxpayers taxable
income if one fails to submit a return
and also to impose penalties for any
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Returns and
Assessments (Contd)
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
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(QPDs)
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Returns and
Assessments (Contd
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
10% of tax payable
25 June
25% of tax payable
25 September
30% of tax payable
20 December
35% of tax payable
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LEGAL FRAMEWORK
calculation of a taxpayers tax liability
is based on the following:
a) taxable income of taxpayer in year of
assessment
b) the appropriate rates of tax per the
charging act for the year
c) the credits* to which taxpayer is
entitled to per the charging act for
that year. (section 7
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Legal Framework (contd)


Only taxpayers who are natural
persons are entitled to tax credits.

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TAX CREDITS
These are concessions granted to
taxpayers due to certain life
disadvantages, notably:
a) physical and mental disability,
b) Illness,
c) Old age,
d) Blindness.
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Physical and mental disability


Applicable to a disability of a
taxpayer, spouse or child only
The credit is transferable between
spouses where the disabled person is
not working, but his/her spouse is
working

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Physical and mental disability(Contd)

Where the spouse is working but with


insufficient income to cover the
credit in full only the portion not
covered is transferable.
The disability must be substantial
and of permanent nature, excluding
disability of persons whose treatment
is still in progress
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Blind persons credit


Applicable to a blindness of a
taxpayer and spouse only.
The credit is transferable between
spouses where the blind person is
not working, but his/her spouse is
working.
Where the spouse is working but with
insufficient income to cover the
credit in full only the portion not
covered is transferable.
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Elderly persons credit


Applicable to an elderly working
taxpayer only, and is over the age of
55 years

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Medical expenses credit


Applicable to medical expenditure of
a taxpayer, spouse and child only
Each case is granted 50% of
expenditure incurred
A medical doctor should prescribe
the medical expenditure.

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Medical expenses credit


(contd)
Not applicable on medical expenses
recovered or capable of being
recovered from a medical aid society
or paid by an employer or some one
on behalf of the taxpayer

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Medical contributions
No credit is granted where the
medical aid cover is for the benefit of
some other persons other than the
taxpayer, spouse or child.
No credit is awarded on contributions
made by someone else including the
employer for the benefit of taxpayer,
spouse or child.
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Summary of credits
Type
Apporti Transfera Non
of
on
ble
-reside
Credit
nts
Blind
No
Yes
Yes
Elderly
Yes
No
Yes
Disable
No
Yes
No
d
Med.
No
No
No
Exp
Med.
No
No
Yes
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Example: credits
Mr Moyo, who is a 58 year old
disabled university employee received
a salary of $28 000 during the current
year of assessment. He is married to
Lisa who is blind. During the year they
paid $220, medical contribution to
CIMAS and bought a wheel chair worth
$1 000 for their son who had been
temporarily injured.PAYE paid during
the year amounted to $4 550.
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Solution
Cumulative tax up to $18 000
$4 104
($28 000-$18 000) x 35%
$3 500
$7 604
Less credits:
Elderly person(Mr Moyo)
Disabled person(Mr Moyo)
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$900
$900
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Solution(contd)
Total credits
310.00
Tax liability
294.00
Add 3% Aids levy($4 294x0.03)
128.82
$4 422.82
Less PAYE
$4 550.00
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$3
$4

AIDS LEVY 3%
Aids levy is applied on tax liability
after deducting tax credits

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Calculation of Taxable
Income
Total receipts and accruals in tax
year
less Amounts proved by taxpayer to
be capital in nature
= Gross Income
less Exemptions = Income
less Allowable Deductions
= Taxable Income
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Gross Income
Gross Income is defined as :-the total
amount ..received by or accrued to
or in favour of a person..or deemed
received or accrued..
in any year of assessmentfrom a
source within or deemed to be
within Zimbabwe
excluding amounts proved by the
taxpayer to be of a capital nature
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Key elements in
definition of Gross
income

a) Amount-Means money or property


capable of being expressed in
monetary terms
b)Received by-Means received by
the taxpayer for his benefit or by
someone on his behalf and the
taxpayer has a legal right to claim
the amount
) Stolen items or those held in custody
for another person or collected for
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Key elements gross


income(contd)
in the hands of the taxpayer.
c) A person-refers to a natural person
and artificial persons notably :
Individuals
Companies and trust
Private business corporations
Deceased estates etc
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Key elements :Gross


Income(cont)
A partnership is not regarded as a
person, but a group of persons
making up the partnership. It is not
taxable, but the people constituting
the partnership on their individual
share of profits
d) Accrued-means due and payable or
entitled to.
an item becomes due and payable
when date of settlement (payment or
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key elements:Gross
income(contd)
one becomes entitled to something
on the date of agreement or contract
(date of signing
sale agreement) no matter whether
payment has been received or not.
e) Source of income-means the
originating cause of income , i.e what
gave rise to the income.
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key elements:Gross
income(contd)
f) Capital nature-proceeds received
by a taxpayer on sale of a fixed asset
or his income generating machinery.
A disposal of such items will not
attract any income tax, unless they
constitute trading stock to the
taxpayer.
The intention of the taxpayer is also
material in deciding whether an item
is a receipt of a capital nature or not.
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key elements:Gross
income(contd)
Also not taxable are items like,
proceeds from insurance policies,
lottery wins or amounts accruing as
a result of a hobby, or amounts
received in restraint of trade.

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Source of specific income


a) Dividend income: Where shares
are located i.e the registered office
of the company or the country in
which the company is incorporated.
b)Profits from business
operations-the place where the
operations are being carried out or
conducted
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Source of specific
income(contd)
c) Partnership income-the place
where the services to earn partnership
income are rendered.
d) Sale or rental of immovable
property-is the country where the
property is situated
e) Rent from movable property-the
place where the lessee uses the asset.
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source of specific
income(contd)
f) Service rendered-place where the
services were rendered
g) Directors remuneration-where
the head office is situated.
h) Royalties -the place where these
items were created or perfected.
i) Interest-place where the credit or
loan was provided
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Specific inclusions in
Gross income

Specific
inclusions
in Gross
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1. ANNUITIES [(S8(1)(a)]
Annuity- an annual payment in
perpetuity for the life of grantee or for
a limited period .
Characteristics
claimable from another person or
body
must be a fixed annual amount
(which can be divided into monthly
or weekly payments)
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Specific inclusions(S8)
(contd)
must be repetitive for a period.
An annuity can arise from the
following:
i. Purchased from an insurance
company i.e. retirement annuity
ii. Granted by way of gift or legacy
iii. Granted as a consideration for the
sale of business, of an asset or
surrender of a right.
iv. For services rendered(pension).
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Purchased annuity
only interest content is taxable if
there was no tax deduction or credit
allowed at or during time of payment
of contributions.
I =(PXN)-A
N
I = interest
P= Annual payments(annuity received
per year)
N = number of annual payments
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Purchased
Annuity(contd)
A = purchase price of annuity
(excluding any deductions granted
when making contributions).
Example :Mr Amos purchased a
retirement annuity fund (RAF), from
Old Mutual. Over the years he
contributed $2400 to purchase it, the
contributions were not allowed as
deduction. The policy matured
beginning of current tax year and is

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Purchased Annuity
(contd)
Required : Calculate the amount to be
included in gross income
Solution
I = (300X10)-2400 = 60
10
Only 60 is taxable but for only 10
years and thereafter the whole annual
amount (300) will be taxable.
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Annuity from gift or


legacy
This type of annuity is taxable in full,
even if paid out of capital funds.

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Annuity from services


rendered
taxable portion is determined using
the formulae in the purchased annuity
section above.

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Annuity from services


rendered
This type of an annuity is the pension
receivable upon ones retirement.
It is the fruit of the contributions
made by employee, and employer on
behalf of the employee s 15 (2) (h).
This annuity is taxable in full except
where portions of contributions were
disallowed as a deduction for tax
purposes. In such cases the
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Annuity from services


rendered
taxable portion is determined using
the formulae in the purchased annuity
section above.

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2. Income for service


rendered (from
employment) [(S8(1)(b)]

This section is the authority for taxing


amounts received from employment,
whether during employment or on
termination of employment.
Examples: Salaries and wages,
awards from an employer, such as
Christmas bonuses or gratuities on
retirement, cash in lieu of leave,
retrenchment packages, including
gifts or tips received from customers
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Income for services


rendered
All items received from employment
i.e. under this section are taxable in
full subject to certain exemptions as
provided by the 3rd schedule or
other provisions.

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Employment Benefits
[S8(1)(f)]
Allowances granted by an employer to
the employee or to a director, which is
paid over and above the persons
salary
Examples :
i. Occupation of quarters or a
residence
ii. The use of furniture or a motor
vehicle
iii. The use or enjoyment of any
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Employment Benefits
(contd)
all benefits granted to civil servants
or persons employed by the state are
exempted
licensed investor employees (In an
EPZ) are also exempted but up to a
maximum of 50% of total
remuneration paragraph 4(q), 3rd
schedule.
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Valuation of benefits
Generally benefit to the employee is
the cost to the employer except in
the following where it is value to
employees :
a) Housing Benefit;
b) Furniture Benefit;
c) Loan Benefit;
d) Motoring Benefit;
e) Entertainment Allowances;
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Housing Benefit
A house granted to an employee as a
place to live by employer is a benefit
to the employee as follows:
1) The open market rentals for a house
located in municipal area;
2) 12.5% of salary of the employee for
a house located outside municipal
areas;
3) In the absence of above, the benefit
is 7% of cost of construction of the
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Housing benefit(contd)
The benefit is reduced by any rentals
paid by employee to the employer.
There is no benefit where the
taxpayer pays rentals above the
market rate

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Furniture Benefit
Where the employer provides
furniture to the employee free of
charge ;
Annual benefit is 8% of cost of
furniture items.

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Loan Benefit
The benefit in respect of a loan free
interest from employer or his
associate to an employee.
Over $100 - benefit is 5% plus
LIBOR p.a. less any interest paid
(LIBOR is currently around 5.3%)
The benefit is reduced where period
of the loan is less than a year.
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Loan benefit(contd)-libor
rate
Definition: LIBOR is the interest rate
that banks charge each other for onemonth, three-month, six-month and
one-year loans. LIBOR is an acronym
for London Inter Bank Offered
Rate. This rate is that which is
charged by London banks, and is then
published and used as the benchmark
for bank rates all over the world.
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Loan Benefit (contd)


There is no benefit in respect of loans
granted for:
i. Education of taxpayer, spouse or
child
ii. Technical education of taxpayer,
spouse or child
iii. Medical treatment of taxpayer,
spouse or child
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Example: Soft loan


benefit
A lecturer employed by BUSE, was
granted loan by his employer
amounting to $6 000 on 1 Jan 2011 at
8% p.a. He utilized the loan as follows:
20% for the purchase of medical
drugs for his sister.
30% for the education of his son at a
college
10% for medical treatment of spouse
The rest used to complete
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Example: Soft
loan(contd)
The loan was repaid on 31 August
2011.Assume the LIBOR rate was
5.26%%
Required
Calculate the lecturers loan benefit to
be included in the gross income

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Solution: Soft loan


benefit
Loan borrowed
- $6 000
Medical drugs for sister (not exempt)
For education of son
($1 800)
Medical treatment of spouse
($ 600)
Soft loan
$3 600
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Solution :Soft loan


(contd)
Loan benefit=(3 600)[(5.26%+5%)8%](8/12)
=(3 600)(2.26%)(8/12)
= $54.24

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Motoring Benefit
It is the benefit to an employee on
use of a company car
The figures below represent a full
years benefit, and are reduced
proportionately where the period of
use is less than a year, or where the
car is used for both business and
private use
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Motoring benefit (contd)


Deemed benefits for year ended 31
December 2010

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Engine
Benefit
Capacity
($/p.a)
Up to 1 500cc
1 800
1 501cc to 2
2 400
000cc
2 001cc to 3
3 600
000cc
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Example :Motoring
benefits
An employee was provided with a
motor vehicle with an engine
capacity of 2 700cc by his employer.
He ascertained that 80% of the
usage is private. He joined the
company on 1 February 2010 and
was employed up to the end of the
year.
Required
Calculate motoring benefit taxable in
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Solution: Motoring
benefits
Deemed annual benefit on 2 700 cc $ 3 600
Les s Business usage(20% x$3 600)
$720
$ 2 880
Less Period not used(1/12 x2 880)
$240
Taxable income
$ 2 640
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Entertainment
Allowances benefit
It is an expenditure of hospitality of
some nature incurred by the
employer.
It covers expenditure on groceries for
employees, drinks for business
clients etc.
The employee is taxed on amount
consumed by him, his spouse or child
privately, excluding so much as has
been expended on business of
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Entertainment
Allowances (contd)
The cost of a normal daily meal,
office teas whether there is a
canteen or not, are exempted
benefits.

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Passage Benefit
This is the cost of any journey
undertaken by an employee, his/her
spouse or child as is paid by an
employer such as;
i. A journey for taking up employment
ii. A journey on termination of
employment
iii. A journey made during
employment, i.e. business trips,
holiday trips.
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Exempted passage
benefits (non-taxable)
a) The first journey for taking up
employment by the employee with
each employer.
b) The first journey on termination of
employment with each employer.
c) All journeys made by employee on
the business of the employer.

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Passage Benefits(contd)
A benefit will only arise where the
journey does not benefit the
employer, but the employee, his/her
spouse or child.
Where the journey made during
employment is both private and
business there will be an
apportionment and only the private
component is part of gross income.
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Passage
Benefits(contd)
Where the period spent on the
business exceeds 10% of the total
period of the journey, the amount of
an employees passage benefit
applicable to the period spent on
business will be exempt from tax and
will be determined in accordance
with the following formula
AxB
C
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Passage benefit(contd)
A is the number of days spent on
business
B is the amount of passage benefit
money applicable to the employee
C is the total days spend on the
journey
If the time spent on business does
not exceed 10% of the total
period ,the whole of the passage
benefit is taxed, whether paid for the
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Example: Passage
benefit
Mr Mari was sent on a business trip to
USA for 10 days. He however decided
to pass through UK, where he spent 5
days seeing his girl friend. The total
amount for the trip paid by the
employer was $5 000.
Required
Calculate the amount to be included in
Mr Maris gross income
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Solution: Passage
benefit
Total passage benefit
$5 000
Less spent on business (10 x5 000)
- $3 333
15
Taxable income
=
$ 1 667
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Other benefits
Subscriptions in respect of an
employees continued membership
of business, trade, technical or
professional i.e. ACCA, CIS etc paid
on behalf of the employee by the
employer are exempted and
therefore not part of gross income
Subscriptions to clubs such as sports
clubs are included in gross income
and therefore taxable .
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Other benefits
An employee who receives
ownership of a motor vehicle or
some other property as a gift from
his employer in respect of services
rendered is taxable on the market
value of the car, or property, after
reducing it by amount paid by
employee towards acquiring it if any.
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4. PENSION RECEIPTS
[ S8(1)(a) S8(1)(c),S8(1)
(n),S8(1)(r)]

i. Pension on retirement
s8 (1) (a)
ii. Pension on retirement
s8 (1) (n)
iii. Pension on retirement
s8 (1) (r)
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Pension on retirement
s8 (1) (a) (From Pension
fund)

The sum is taxable in equal streams


in each year until the person dies.
The pension is taxable in full on
receipt or accrual basis, subject to a
certain adjustment.
The amount which was (disallowed
contribution) not allowed as
deduction during the time of
contribution will be received tax free
where it is included in the pension
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Pension on retirement
s8 (1) (a)
The disallowed portion should be
deducted equally over the life of the
pension from the annual pension
being received

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Example : s8 (1) (a)


A bus driver at BUSE turned 65 years
on 31 March 2010 and had to retire
since he had reached the compulsory
retirement age.BUSE contributes 80%
to Old mutual for its employees. Over
the years the drivers contribution
exceeded the limit by $3 500. He will
be receiving $500 per month in arrears
with effect from 25 April 2010. His life
expectancy is 20 years. Compute his
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Solution
Gross pension accrual/receipt [$500x9]-

$4 500.00
Less Disallowable(9/240months)x$3 500

131.25
Taxable income
4 368.75

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Commutation of pension
from retirement Annuity
Fund[S8(1)(n)

This is where a taxpayer elect to


receive from a retirement annuity
fund a lump sum amount in the
year of retirement and a reduced
stream of equal pension until he dies.
The amount to be taxable is arrived
at after taking off 1/3 of the
members pension entitlement in the
first year of receiving the lump sum
amount.
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Commutation of
pension(contd)
(Retirement Annuity
The 1/3 of pension
entitlement is
Fund)

referred to as a commutation and is


regarded to be of a capital nature
Where a reduced pension is received
afterwards it is taxable in full in the
year of accrual or receipt.

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Example :Commutation
A lecturer from BUSE retired on 30 July
2010, and received lump sum payment
$250 000 from a retirement annuity
fund as pension. His pension
entitlement was $570 000.
Required: Calculate the lecturers
taxable income in 2010 if he elects to
be availed commutation
9/18/15

By Mabhungu I

88

Solution: Commutation
Lump sum payment
$250 000
Less 1/3 of pension
$190 000
Taxable income
$60 000

9/18/15

By Mabhungu I

89

Pension on retirement
s8 (1) (r) (Commutation:
Pension fund)
the source of the pension is the
pension fund and not retirement
annuity fund.
A pension fund is the fund to which
both the employer and employee
contributes during the employees
working life.
The commutation is 1/3 of the
members pension entitlement
9/18/15

By Mabhungu I

90

Example: Commutation:
Pension fund
A Professor from BUSE retired on 1
July 2010 and elected to commute his
pension.BUSE is a contributor to Old
mutual pension fund. The Professor
received $200 000 on 31 July 2010,
and a reduced monthly pension of
$1600 in arrears with effect from 27
August 2010. His total pension
entitlement is $420 000.
Required: Compute his taxable
9/18/15

By Mabhungu I

91

Solution: Commutation
Pension fund
Lump sum payment
$200 000
Less 1/3 of pension
$140 000
$60 000
Add monthly pension(1 600x5mnths)
8 000
Taxable income
68 000
9/18/15

By Mabhungu I

92

Lease Premiums[S8(1)
(d)]
A lease premium is paid by a lessee
to a lessor
for the right of use of the lessors
property and is distinct from rent , and
is paid over and above the normal
rent.
A lease premium is gross income in
the hands of the lessor, and is taxed
in full in the year of accrual or
receipt, and is never spread.
9/18/15

By Mabhungu I

93

Example: Lease
premiums
A lessor entered into a lease
agreement on 1March 2010 for the
leasing of his property for a period of
11 years commencing 1 April 2010.
The terms of the lease agreement
requires the lessee to pay monthly
rentals of $6 000 and $5000 as deposit
on inception of the lease. The deposit
is a premium paid over and above the
nominal rent. Required: To show the
9/18/15

By Mabhungu I

94

Solution: Lease Premiums


a) Taxable income for the year
ended 31December 2010
Lease premium (taxable in full)
5 000
Add Rentals [6000x9)
54 000
Taxable income
59 000
9/18/15

By Mabhungu I

95

Solution-lease premium
b) Taxable income for the year
ended 31December 2011
Lease premium ------Add Rentals [6 000 x12)
72 000
Taxable income
72 000
9/18/15

By Mabhungu I

96

Lease Improvements
[S8(1)(e)]
Refers to a structure put up by the
lessee on the premises owned by
someone else(the lessor).
The structure will benefit the lessee
during the period of lease and
eventually the lessor on termination
of the lease agreement.
Not all structures will qualify as lease
improvements but only those
structures with a value agreed
9/18/15

97

Treatment of lease
improvements in the
hands of lessor

The lessor is taxed on the value per


agreement but this is spread over
the unexpired period of the lease or
10 years whichever is the lesser. The
period of construction is disregarded.
The lessor is taxed from the date of
completion of the improvements.
Where the value is not stated in the
agreement the actual cost of the
improvements will be taxed.
9/18/15

By Mabhungu I

98

Treatment of lease
improvements(contd)
Where the agreement is silent on the
lease period use 10 years.
Where the value of the
improvements is varied prior to
completion of the building the actual
amended value is used.
Where the value is varied after
completion of the building, only the
original value will qualify.
9/18/15

By Mabhungu I

99

Treatment of lease
improvement
If the actual cost ends being less
than the value per agreement ,the
lessor is taxable on the value per
agreement.
Where no variation is effected to the
agreement and the building costs are
more than the value per agreement,
but it meets specifications or it is a
specific building then the actual cost
of the building will be taxable in the
9/18/15

By Mabhungu I

100

Lease
improvement(contd)
Where the initial period is renewed
only the initial period of the lease is
considered.

9/18/15

By Mabhungu I

101

Example: lease
improvement
Two parties entered into a fifteen-year
lease agreement on 1 January 2012.
The lessee agrees to construct a
building to the value of $15000.Prior to
completion of the building the value is
amended to $20 000.If the Buildings is
completed in 6 months and put into
use on 1 November 2012,calculate the
taxable income in the hands of the
lessor.
9/18/15

By Mabhungu I

102

Solution: lease
improvement
Value of improvement
$20 000
Unexpired period(120mths-6mths)
-114months
Value to be taxable per month- 20
000/114mths
=$175.44
Taxable in 2012 =(6x$175.44) =$1
052.64
9/18/15

By Mabhungu I

103

Recoupment in leasing
s8(1)(l)
On the acquisition of the ownership
of the property previously let, the
lessee will cease to qualify for any
allowance in the tax year following
the acquisition.
Any allowances (rent, premium or
improvements) previously claimed
which have been applied in reducing
the purchase price is brought into
gross income, and may be taxable
9/18/15

By Mabhungu I

104

Recoupment in
leasing(contd)
All outstanding instalments are
brought into gross income if the
property is disposed off before the
expiry of six years

9/18/15

By Mabhungu I

105

Timber or growing crops


grown for sale [S8(1)(g)]

9/18/15

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106

closing stock [S8(1)(h)


This paragraph brings into gross
income, closing stock on hand at the
end of the period of assessment
including any stock disposed of
otherwise than in the ordinary course
of trade
There are three methods used in the
valuation of stocks namely, market
value, replacement value and cost.
9/18/15

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107

Closing stock
TYPE OF STOCK

METHOD OF
VALUATION

Ordinary closing stock

Cost, market value or


replacement value

Donated

Cost, market value or


replacement value

Consumed by taxpayer
(drawings)

Cost or market value

Attached by court order

Cost, market value or


replacement value

Sold together with business

Selling price (market value)

9/18/15

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108

Closing Stock
All above types of stocks are
regarded to be gross income in terms
of s 8 (1) (h), notwithstanding the
fact that some of it will no longer be
available at the year-end.
Cost price includes freight;
insurance, duty and other expenses
paid in acquiring the stock
9/18/15

By Mabhungu I

109

mining recoupments
[S8(1)(i)]

9/18/15

By Mabhungu I

110

Recoupment/scrapping
allowance [S8(1)(J-K)
Recoupment is a term used by the
taxman to refer to profit on the sale
of an asset
It is the difference between the
selling price of an asset and the
income tax value of an asset. (NBV).
The income tax value (ITV) is arrived
at after deducting from cost the
taxman depreciation i.e. capital
allowances
9/18/15

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111

Recoupment
Where an asset had its cost
restricted for purposes of calculating
allowances, its selling price must also
be restricted for purposes of
calculating recoupment, as follows:
Deemed cost x Actual
selling price
Actual cost
9/18/15

By Mabhungu I

112

Recoupment/scrapping
allowance
Scrapping allowance is the
taxmans loss on the sale of assets
RECOUPMENT/SCRAPPING
ALLOWANCE
Ass SP ITV P/R All A/R
et
0
A XX XX XX XX XX
B XX XX XX XX XX
C XX XX XX XX XX
9/18/15

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113

Recoupment/Scrapping
allowance
KEY
P/R= Potential Recoupment = Selling
price ITV;
A/R =Actual recoupment = the lesser
of allowances and potential
recoupment;
Allo = tax depreciation (capital
allowances claimed in previous
periods) .I .e Cost ITV.
9/18/15

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114

Recoupment(contd)
Potential recoupment is the
difference between selling
price(s/price) and ITV.
Actual recoupment(A/recoupment) is
the lesser of allowances and
potential recoupment
Selling price should be restricted in
order to match the deemed cost.
Usually the commissioners practice
is not to grant allowances in the year
9/18/15

By Mabhungu I

115

Recoupment (cont)
Deemed costs used are in respect of
the year of purchase of the assets.

9/18/15

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116

Example :Recoupment
with deemed cost
A taxpayer purchased the following
assets in the 2011 tax year, a
passenger motor vehicle for
$15000,staff housing 1 unit $20 000.
During 2012-tax year he sold them for
$20,000 and $50000 respectively.
Required: To calculate his recoupment
to be included in gross income.
Assume no SIA was claimed.
9/18/15

By Mabhungu I

117

Solution: Recoupment
with deemed cost
Asset
Actual Cost
Deemed Cost
Wear & Tear
rate
Wear & tear
allow
9/18/15 Income tax

Motor
Vehicle
US$15
000
US$10
000
20%

(US$2
000)
By Mabhungu
I
US$8

Staff
House
US$20 000
US$10 000
5%
(US$500)
118
US$9 500

Solution: Recoupment
with deemed cost
Calculation of selling Prices:
PMV = 10 000X 2O OOO = 13 333.33
15 000
Staff housing = 10 000 x 50 000 = 25
000
20 000

9/18/15

By Mabhungu I

119

Solution: Recoupment
deemed cost
Asset

PMV
Staff
Housin
Totl
Recou
p
9/18/15

Deem
ed
Selling
Price
13 333
25 000

Incom
e Tax
Value
8 000
9 500

Potent
ial
Recou
pm
5 333
15 500

Capita
l
allowa
nc
2 000
500

Actual
Recou
pm
2 000
500
2 500

By Mabhungu I

120

Example: RecoupmentNo deemed cost


A company sold the following assets
during the year ended 31 December
2010. Asset Sellin Origi ITV
g
nal
Price Cost
Bus
60
100
45
000
000
000
Tracto
25
45
30
r
000
000
000
Buildi
60
35
30
9/18/15

By Mabhungu I

121

Example (contd)
Required: Calculate
recoupment/scrapping allowance to be
included in gross income.

9/18/15

By Mabhungu I

122

Solution:
Recoupment/Scrapping
allowance
Asset Selling Incom Potenti
Price
e Tax al
Value Recoup
ment
Bus
60 000 45 000 15 000
Tracto 25 000 30 000 (5 000)
r
Buildi 60 000 30 000 30 000
ng
Total
9/18/15

By Mabhungu I

Allowa
nces
Claime
d
55 000
15 000

Actual
Recou
pment

15 000
(5
000)
5 000 5 000
15 000
123

Recoupment/scrapping
allow (contd)
NB
Recoupment of an asset is the
lesser of profit as per the taxman
and the actual capital allowances
claimed on the asset
The above determination of
recoupment applies to all types of
business except mining.
9/18/15

By Mabhungu I

124

Grants or subsidies
[S8(1)(m)]
Any subsidies or grant paid in
respect of expenditure allowed or
allowable as a deduction is gross
income in terms of s8 (1) (m).

9/18/15

By Mabhungu I

125

Designated Area Grants


[sect 8 (1) (o)]
Grants or payments awarded to
farmers in terms of such a scheme
are gross income for the purposes of
this section.

9/18/15

By Mabhungu I

126

Exchange gains [sect 8


(2)
Any profit resulting from changes in
exchange rate is gross income in
terms of this section. The gain shall
be taxable in the year of assessment
in which they are realised.

9/18/15

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127

DEEMED ACCRUALS [S
10]
It is income, which the taxpayer, has
not received, but which remains
taxable in his
hands.
Deemed means assumed or
considered to be.

9/18/15

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128

EXEMPTIONS [SECT 14
3RD SCHEDULE]
Exemptions are accruals and receipts
of revenue nature, which are free of
income tax.
Examples are revenue of:
1) State owned companies
2) Non-profit organisation
3) Foreign governments and world
organisations,etc
9/18/15

By Mabhungu I

129

Exemtions:State owned
companies
All receipts and accruals earned by all
companies whose shares are held by
the state or the Reserve Bank of
Zimbabwe are non-taxable including
profits of local authorities and such
other organisations like:
(a) POSB
(b) Reserve Bank of Zimbabwe
(c) The Zambezi River Authority
(d) The Natural Resources Boarded
9/18/15

By Mabhungu I

130

Non-profit organisation
Companies not operating for gain and
whose objective is that of enhancing
the welfare of its members are not
taxable on their profits:
Church organizations, education
institution of a public character.
Trade Unions, trusts of a public
character.
Building societies, benefit funds.
CIS, ACCA, ZAAT, IAC ,commercial
9/18/15

By Mabhungu I

131

Foreign governments and


world organisations
Among the foreign organization the
following are not taxable on profits
earned by them;
Any agency of any government
Any international organization i.e.
FAO ,WHO, UN etc
International financial organization
African Development Bank
South African Reserve Bank etc
9/18/15

By Mabhungu I

132

Exemptions for employed


persons
All individuals providing services for
the state are exempted on benefits
granted to them by the state.
Bonus including performance related
bonus not exceeding 10% of ones
remuneration or $400 (with effect
from 01/11/09) whichever is lesser.
The salary and benefits paid to the
President and his domestic workers
paid out of his salary.
9/18/15

By Mabhungu I

133

Exemption-Employed
person
Any benefits or allowances granted
to a minister, spouse of President or
a Vice President(s) in respect of state
duty, the leader of opposition party
etc.
An allowance payable to a chief or
headman
Value of a scholarship, bursary paid
on behalf of a student to a college,
school or university
9/18/15

By Mabhungu I

134

Exemption-Employed
person
Benefits granted to persons
employed by a licensed investor up
to 50% of total remuneration.
the first $5 000 or one third of
approved retrenchment package
whichever greater, subject to a
maximum exemption of $15 000
1/3 of retrenchment package up to
$1 800
9/18/15

By Mabhungu I

135

Exemption-Presidential
pension
Any pension or allowance payable to
any President of Zimbabwe and
which is provided to him upon his
retirement is exempted from tax.

9/18/15

By Mabhungu I

136

Pension for specified groups


Certain groups of people have been
specified in the Act to be exempted of
tax on any pension or such like
allowance as is received by them:
a) War disability pension
b) Pension or compensation to any
person or his dependants as is paid
by Wankie Disaster Relief Fund.
c) War Veteran gratuity with effect
from 1997
9/18/15

By Mabhungu I

137

Compensation for injury,


sickness or death
Any receipt or accrual received by a
person, his/her spouse, dependants or
his/her deceased estate as
compensation for injury, sickness or
death is not taxable provided that such
amounts are paid by:
a) A trade union
b) Benefit fund or
c) An insurance company in respect of
a policy covering death, accident or
138

Exemption: Medical aid


assistance
Any value of medical aid or traveling
to obtain medical aid treatment as is
paid by an employer is free of
income tax in the hands of the
employee, whether provided to the
employee, or any dependant of the
employee.
Also exempted are medical aid
contributions to an approved medical
aid society paid by an employer for
9/18/15

By Mabhungu I

139

Dividends from local


companies
Dividends from any company
incorporated in Zimbabwe which is
liable to pay tax, are free of income
tax in the hands of the recipient.
However, all dividends from
companies exempted from paying
tax i.e. building societies, benefit
funds are taxable in the hands of the
recipient.
9/18/15

By Mabhungu I

140

Dividends from local


companies(contd)
NB: Withholding tax of 15% is charged
on all dividends accruing from a
company incorporated in Zimbabwe
which is liable to pay tax on its profits,
whether the dividend is paid to a
resident or non-resident of Zimbabwe.

9/18/15

By Mabhungu I

141

Interest for locals


To be exempted is any interest paid on:
a) Sums deposited with POSB account
b) Any tax reserve certificate issued by
ZIMRA.
c) Any loan raised by the state i.e.
treasury bills, agribonds etc
d) Class C permanent shares issued by
a building society
9/18/15

By Mabhungu I

142

Interest accruing to
foreigners
Any interest received or accruing to a
non-resident who does not carry out
business in Zimbabwe shall be
exempted from tax, provided that it is
in respect of a loan made to:
a) Any person carrying mining
operations
b) The state or a company whose
share are fully controlled by the
state.
9/18/15

By Mabhungu I

143

Interest accruing to
foreigners(contd)
e) Building society provided it was
made before 16 July 1976
NB:The interest is exempt provided
the amount will be taxable in the
taxpayers home country by reason of
its being exempted from this country.

9/18/15

By Mabhungu I

144

Maintainance - Alimony
Amount paid for the maintenance of
wife, husband or dependents in
terms of the court is exempted from
tax in the hands of the beneficiary.

9/18/15

By Mabhungu I

145

Exempt: Entertainment
allowance
Any amount received as
entertainment allowance as is used
by an employee on the business of
employer is exempted in the hands
of an employee.
However, where the taxpayer has
used the amount for private purpose
it is a taxable benefit under section
8(i) (f). In both cases, i.e. whether
used for business or private, an
By

146

ALLOWABLE
DEDUCTIONS[S15(2)]
Deduction 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 there are
expenditure or losses of a capital
nature.
There will be apportionment where
the expenditure is incurred for both
9/18/15

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147

Expenditure for purpose of


trade
This is an expenditure normally
expected to be incurred in a business
set up. An example includes salaries
and wages, telephones rentals etc.
a) Designed expenditure-This is an
expenditure normally expected to
be incurred in a business set up. An
example includes salaries and
wages, telephones rentals etc.
9/18/15

By Mabhungu I

148

Expenditure for purpose of


trade
b) Undersigned/ fortuitous
expenditure-This type of expenditure is
usually not expected by the taxpayer
and occurs as result of some
misfortunes or mischance.e.g. crops
destroyed by army worms, or cyclones,
theft by employees,etc
c) Expenditure for the efficient running
of the business.
9/18/15

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149

Capital nature
This is an expenditure incurred on
acquisition of fixed assets or income
generating units of an organization
and is not allowable as deduction.
This includes any expenditure
necessary to bring the asset to its
working condition like traveling cost to
purchase the asset, installation cost ,
freight charge on the asset, VAT or
import tax chargeable on the asset
9/18/15

By Mabhungu I

150

Repairs sect 15 (2) (b)


Any form of repair undertaken on
articles, plant, equipment, property
used or occupied for purposes of
trade is an allowable deduction.
In the event that an item being
repaired is used for dual purpose, the
expenditure is apportioned and the
business portion allowable deduction.
9/18/15

By Mabhungu I

151

Bad debts[S15 (2) (g)]


A deduction for irrecoverable debts 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
9/18/15

By Mabhungu I

152

Bad debts(contd)
A claim in respect of debts sold
together with business will not
succeed
A claim on debts sold with a
condition that the taxpayer was
obliged to repossess and reimburse
the purchaser for debts which the
purchaser was unable to collect
within a specified time is allowed
9/18/15

By Mabhungu I

153

Pension contributions s15


(2) (h)
Contributions made by employers
and employees for the benefit of the
member (employee) to an approved
pension fund, retirement annuity
fund (RAF), NSSA, or benefit fund.
Aggregate maximum contributions to
all above per employee per year is
$5 400.
9/18/15

By Mabhungu I

154

Pension contributions(contd)
No contribution by employer to a
retirement annuity fund is allowable
as a deduction
No contribution by employee to a
benefit fund is allowable as a
deduction.
NSSA contributions are allowable to
both the employer and employee
subject to rates fixed by the
authority from time to time.
9/18/15

By Mabhungu I

155

Medical aid contribution or


expenses [S15 (2) (j)]
An employer is granted a deduction
on any amount of contribution paid
to an approved medical aid society
paid by him, including medical
expenses paid on behalf of his
employees, their spouses and
dependants.

9/18/15

By Mabhungu I

156

Research and experiments


[S 15 (2) (m)]
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.
The taxpayer should personally carry
out the research.
9/18/15

By Mabhungu I

157

Experiments and Research


[S15 (2) (n)]
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: A x B
9/18/15

By Mabhungu I

158

Experiments and Research


[S15 (2) (n)]
A. = the amount of the taxpayers
contributions
B. = the amount incurred by the other
person, which would have been
allowed as a deduction in terms of
section 15 (2)(m) above
C. = is the total amount of the
expenditure incurred on experiment
and research.
9/18/15

By Mabhungu I

159

Scientific Research and


Experimental Work [S15(2)O
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.

9/18/15

By Mabhungu I

160

Educational Grant, Bursary


or Scholarship[S15(2)(p)]
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.
9/18/15

By Mabhungu I

161

Educational Grant, Bursary


or Scholarship(contd)
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.
9/18/15

By Mabhungu I

162

Voluntary Payments To
Former Employees and/ or
their dependants

Also called Ex-Gratia Payments


Any amount paid during the year of
assessment by way of an annuity,
allowance or pension is deductible
subject to the following:
a) The employee must have retired
because of ill health, infirmity or
old age.
b) The amount allowed is restricted to
US$500 per tax year for each former
9/18/15

By Mabhungu I

163

Voluntary Payments/ExGratia Payments (contd)


c) 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 ex employee.

9/18/15

By Mabhungu I

164

Voluntary Payments/ExGratia Payments (contd)


NB
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
9/18/15

By Mabhungu I

165

Donations[S15(2)(r)]
A deduction shall be granted for
payments
made to the National Scholarship
Fund, National Bursary Fund or a
trusts administered by the Minister
responsible for either Social Welfare or
Health.

9/18/15

By Mabhungu I

166

Donations-Health [S15(2)
(r1)]
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:
a) the purchase of medical equipment,
b) the construction, extension or
maintenance of a hospital or
9/18/15

By Mabhungu I

167

Donations-Education
[S15(2)(r2)
Any amount not exceeding
US$100,000
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:
a) The purchase of educational
9/18/15

By Mabhungu I

168

Donations-Education(contd)
b) the construction, extension or
maintenance of a school
c) the procurement of school books or
other educational materials.

9/18/15

By Mabhungu I

169

Donations-Public Private
Partnership Fund[15(2)(r4)]
Any amount not exceeding US$50,000
paid by a taxpayer during the year of
assessment without any consideration
to the Public Private Partnership Fund.

9/18/15

By Mabhungu I

170

Donations[S15(2)(r5)]
Any amount not exceeding US$50,000
paid by a taxpayer during the year of
assessment without any consideration
to the Destitute Homeless Persons
Rehabilitation Fund established by
the Ministry of Finance under the Audit
and Exchequer Act.

9/18/15

By Mabhungu I

171

Subscriptions [S15(2)(s)]
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.

9/18/15

By Mabhungu I

172

Expenditure Prior To
Commencement Of
Business[S15(2)t
A deduction is allowed for expenses
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 it is claimed in the year of
assessment in which business
9/18/15

By Mabhungu I

173

Opening Stock [S15(2)(u)]


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.
9/18/15

By Mabhungu I

174

Trading Stock Acquired


Other Than In the Ordinary
Course Of Trade [S15(2)v]
A deduction shall be allowed equal to
what the Commissioner considers as
the fair and reasonable value of
such trading stock at the date it was
brought to hand or at the date it was
acquired.

9/18/15

By Mabhungu I

175

Closing stock(contd)
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.
9/18/15

By Mabhungu I

176

Conventions And Trade


Missions[15(2)(w)]
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 one
convention, which in the opinion of
the Commissioner was in connection
with the trade carried on by the
taxpayer or one trade mission,
9/18/15

By Mabhungu I

177

Conventions And Trade


Missions(contd)
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
9/18/15

By Mabhungu I

178

Legal Costs On Income Tax


Appeals
[S15(2)(aa), S15(2)(bb)]]
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 for such
costs in the year of assessment in
which the costs are so taxed.
Should an appeal be taken further
(by either partly) to the Supreme
Court, the court may, at its
9/18/15

By Mabhungu I

179

Expenditure Not Yet


Incurred[15(2)(cc)]
Deduction allowed 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 subject to the
following:
9/18/15

By Mabhungu I

180

Export Market Development


Expenditure [S15(2)gg
This paragraph provides for a 200%
deduction of expenditure incurred by a
taxpayer during the year of
assessment on any export market
development.

9/18/15

By Mabhungu I

181

Tobacco Levy 15(2)(hh)

The amount of any tobacco levy paid


in the year of assessment in terms of
Section 36A.

9/18/15

By Mabhungu I

182

Maintenance On Behalf Of
Local Government .[S15(2)
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.
9/18/15

By Mabhungu I

183

Assessed Losses [S15(3)


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.
9/18/15

By Mabhungu I

184

Assessed Losses [S15(3)


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

9/18/15

By Mabhungu I

185

Expenditure Not Yet


Incurred[15(2)(cc)]
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
9/18/15

By Mabhungu I

186

NON ALLOWABLE
EXPENSES[S 16]
a) Maintenance of a taxpayer & his
family [sect. 16(1) (a)]
b) Domestic and private expenses
[sect. 16(I) (b)]
c) Losses recovered under insurance
contract [sect. 16 (I) (c)]
d) Tax and interest thereon [sect. 16 (I)
(d)]
e) Transfers to reserves [sect. 16(1)
(e)]
9/18/15

By Mabhungu I

187

NON ALLOWABLE
EXPENSES[S 16]
g) Lease payments for passenger
motor vehicle [sect. 16(1) k]
h) Cost of shares [sect.16 (1) (l)
i) Expenditure for exempt income
[sect.16 (1) (f)]
j) Contributions to unapproved funds
[sect. 16(1) (g)]
k) Private rent or repairs etc [sect. 16
(1) (I)]
l) Restraint of trade [sect. 16(1) (j)]
9/18/15

By Mabhungu I

188

NON ALLOWABLE
EXPENSES[S 16]
m) Entertainment Expenditure [sect.
16 (1) (m)]
n) Expenditure on foreign dividends
[sect. 16 (I) (n)]
p) Expenditure on interest payable
[sect. 16(1) (o)]

9/18/15

By Mabhungu I

189

Maintenance of a taxpayer
& his family [sect. 16(1) (a)]
No deduction shall be permissible for
the cost incurred by the taxpayer in
maintaining himself, his family or
establishment.
All private expenses i.e. medical
costs, rent for own accommodation,
groceries etc are not allowable as
deduction.
9/18/15

By Mabhungu I

190

Domestic and private


expenses [sect. 16(I) (b)]
All domestic and private expenses
are not allowable. In addition,
traveling cost incurred by the
taxpayer between home and place of
work or traveling between two places
of business, which are distinct in
nature, is not an allowable deduction.
However, traveling between two
places of business, which
are similar in nature, would rank as a
9/18/15

By Mabhungu I

191

Losses recovered under


insurance contract [sect. 16
(I) (c)]

No deduction shall be permissible for


any loss or expense, which is
recoverable under any insurance
company or indemnity.

9/18/15

By Mabhungu I

192

Entertainment Expenditure
[sect. 16 (1) (m)]
A deduction shall be prohibited of
any expenditure incurred by the
taxpayer on entertainment.
Entertainment includes the concept
of hospitality in any form, such as
provision of lunch to customers,
directors, staff members etc.
However deduction shall be
permissible in respect of cost of
canteen meals provided to members
9/18/15

By Mabhungu I

193

CAPITAL ALLOWANCES
The cost of acquiring assets used in
trading is an expenditure of a capital
nature, which is not allowable as a
deduction. Depreciation is also not
an expense to the taxman. It is
replaced by the following capital
allowances:
a) Special Initial Allowance (SIA)
b) Wear & Tear (W&T)
c) Scrapping allowance (loss on
9/18/15

By Mabhungu I

194

Assets qualifying for


allowances
To qualify for allowances an asset
must be used for purposes of trade. It
follows therefore that all residential
buildings will never qualify for
allowances, but leased block of flats
does. Land generally does not qualify
for either depreciation or capital
allowances.
9/18/15

By Mabhungu I

195

Commercial Building
A building constructed on or after 1
April1975
A building used 90% or more of its
floor area for purposes of trade
A hotel without liquor license
The following are not commercial
buildings:
A farm improvement, industrial
building,
staff housing etc
9/18/15

By Mabhungu I

196

Industrial Building
Is a building used mainly in connection
with manufacturing or industrial
research including:
Licensed hotels
Fencing , tarmac concrete or sealing
surrounding such industrial building
Building used in connection with
computer international or data
capture
Storage building used by the
9/18/15

By Mabhungu I

197

Industrial Building
Toll bridges and roads e. g Limpopo
river bridge
Staff welfare buildings i.e. canteens,
garages , drawing offices etc
A hotel with a liquor license including
permanent structures used together
with it i.e. swimming pool
Tennis courts(permanent), golf
courses and bowling greens
9/18/15

By Mabhungu I

198

Industrial Building
*NB :
Warehouse does not qualify as an
industrial building if they store
goods, which have not been
manufactured by the taxpayer.
Showrooms are regarded to be
commercial buildings.
9/18/15

By Mabhungu I

199

Staff Housing
Means any permanent building used
by the taxpayer for the purposes of
his trade wholly or mainly for the
housing of his employees, excluding
any building erected after 1 January
2003, which comprises or
incorporates any residential unit the
cost that exceeds $25 000. Thus for
a staff housing to qualify as a staff
housing its cost must not exceed $25
9/18/15

By Mabhungu I

200

Staff Housing
The existence of a unit or units in a
residential block, which cost more than
$25 000, will result in the whole block
being disqualified

9/18/15

By Mabhungu I

201

Passenger Motor vehicle


Means any motor vehicle propelled by
mechanical or electrical power and
intended or adapted for use or capable
of being used on roads mainly for
conveyance of passengers i.e. luxury
type of cars. E.g:
Estate car, Pajero, Twin cabs
Station wagon, Mercedes Benz
9/18/15

By Mabhungu I

202

Passenger Motor vehicle


It excludes:
Vehicles used to convey passengers
for gain i.e. taxis, commuter buses
Vehicles used by hotels for
conveyance of its guests
Vehicle carrying 15 or more
passengers excluding the driver
Vehicle purchased by lessor for
leasing purposes
9/18/15

By Mabhungu I

203

Passenger Motor vehicle


The deemed cost is $10 000 and there
is no limit in the qualifying amount.

9/18/15

By Mabhungu I

204

Farm improvements
This refers to expenditure on
permanent farm roads, clinic or
hospital and school constructed on the
farm or mine. The restricted cost for
purposes of calculating allowances for
a hospital/clinic or school is $10 000

9/18/15

By Mabhungu I

205

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
Taxpayer must make an election for
it to be granted
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
9/18/15

By Mabhungu I

206

Special Initial Allowance


(S.I.A)
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.
9/18/15

By Mabhungu I

207

Special Initial Allowance


(S.I.A)
S.I.A 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
9/18/15

By Mabhungu I

208

.
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 line except for commercial
building (2.5%).
movable assets :- generally 10% on
reducing balance with some
9/18/15

By Mabhungu I

209

Wear and tear allowance


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.

9/18/15

By Mabhungu I

210

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.

9/18/15

By Mabhungu I

211

PAY AS YOU EARNEMPLOYMENT INCOME


Determination of tax liability for
the year
Tax there on
xxx
Less Credits
xxx
Tax liability
xxx
Add 3% Aids levy [3%of tax liability]
xxx
9/18/15

By Mabhungu I

212

INVESTMENT INCOME
This is income derived by individuals
and companies from trade and
investments, other than business
operations notably interest,
dividends, fees or rentals.

9/18/15

By Mabhungu I

213

Rental Income
Rental income is treated in the same
way as profits from business
operations. It is taxable at the rate of
25% plus 3% aids levy. However, only
rental income from an immovable
property
situated in Zimbabwe is taxable.
9/18/15

By Mabhungu I

214

Interest Income
Generally, interest from trade and
investments is taxable at the rate of
25% plus 3% aids levy effectively
making it 25.75%. Accordingly
interest on debentures, loan stock or
other form of indebtness accruing to
non-residents and residents alike
from a source within Zimbabwe is
taxed at 25%. Also taxable at that
rate is income from a foreign source
9/18/15

By Mabhungu I

215

Dividend income
Dividends from a source in
Zimbabwe are exempted in the
hands of the shareholder because
tax is withheld by the distributor
(payer) at the time of distribution.
Dividends from a foreign source
accruing to Zimbabwean residents
s12 (2) are also taxable at the rate of
15% in the hands of the recipient.
9/18/15

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216

Taxable income :Trade or


company
Net profit as per statement
xxx
Add back
Depreciation
xxx
Fines and penalties
xxx
Charitable donations
xxx
Company formation expenses
9/18/15

By Mabhungu I

PARTNERSHIP
A partnership is not a legal person. In
practice the taxable income of the
partnership is first determined on the
basis that it is a separate taxable
person and the profits are then
apportioned based on their profitsharing ratio as is agreed in the
partnership agreement and each
partner is liable individually on his or
her own share of profits.
9/18/15

By Mabhungu I

218

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.
9/18/15

By Mabhungu I

219

ACCRUAL OF PARTNERSHIP
INCOME
Partnership income accrues to the
partners at the end of tax year /
agreed accounting period.
Partnership income may also accrue
to the partners on date of dissolution
unless this has been varied by any
other agreement.

9/18/15

By Mabhungu I

220

Admission of new partner


If taxpayer has been trading as a sole
trader and admits a partner into his
business he will be considered as
having sold his assets to the
partnership and hence he is liable on
any
recoupment which may arise from the
deemed disposal of such assets. The
recoupment
would be the difference between ITV of
9/18/15

By Mabhungu I

221

Payment of insurance
premiums joint life policy
If a partnership takes out a policy on
the joint lives of the partnership
and charges the premium as an
expense in the partnership account,
the amount of such premium is not
an allowable deduction where the
partnership is the beneficiary.

9/18/15

By Mabhungu I

222

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).
9/18/15

By Mabhungu I

223

Separate policies on
partners lives
If each partner separately takes out a
policy for his own benefit and the
premiums are paid by the partnership;
this is considered as allocation of
partnership profits. The premium will
be allowed as a deduction in
computing the partnerships taxable
income. Each partner becomes taxable
on the premium paid on his policy. The
same treatment is accorded to
9/18/15

By Mabhungu I

224

Private expenditure incurred


on behalf of a partner
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.
9/18/15

By Mabhungu I

225

Private expenditure incurred


on behalf of a partner
Private expenditure of a partner
incurred by the partnership is
allowable to the partnership and
taxable in the hands of the benefiting
partner.
Partners salaries are also allowable
to the partnership and taxable in the
hands of the benefiting partner. Also
taxable in the partners hands is rent
received for the use of his asset by
9/18/15

By Mabhungu I

226

Subscriptions
The subscription is always allowed to
the partnership and taxable in the
hands of the partner. The partner can
then seek a deduction in respect of
the amount. A prerequisite of its
deductibility is that the partner
should establish that his membership
is dictated by business consideration.
9/18/15

By Mabhungu I

227

Where dual usage can be established


the partner will be called upon to
submit his estimate of business and
private usage with a view to allow the
partner deduction in respect of his
business usage only.

9/18/15

By Mabhungu I

228

Medical aid contribution


A contribution to a medical aid society
by the partnership on behalf of a
partner is an allowable deduction to
the partnership, and taxable in the
hands of a partner. The partner can
claim a credit in respect of those
amounts.

9/18/15

By Mabhungu I

229

Passage benefits
Where a partnership bears the costs
of a partners business trip and the
partner takes the opportunity to take
a holiday after the business trip has
been concluded, no amount is
taxable in the partners hands.
But where a partnership bears the
cost of a holiday for a partner this
will be considered as disbursement of
partnership profit, and such cost is
9/18/15

By Mabhungu I

230

Attendance at trade
conventions 15(2)(w)
Expenditure incurred by the
partnership in respect of not more than
one convention attended by a member
of such partnership shall be allowed to
the partner up to a maximum of $2
500. This being allowed to partners in
their profit sharing ratios.
9/18/15

By Mabhungu I

231

TAXATION OF FARMERS
A farmer is taxable in terms of
provisions stated in the 2nd & 7th
schedules, as stated below. .

9/18/15

By Mabhungu I

232

LIVESTOCK VALUATION
At every tax year-end there is
valuation of livestock closing stock
and the method most commonly
used by the commissioner is the
fixed standard Value method (FSV).
Where this method is adopted each
farmer is required to come up with
his standard value for each class of
herd, which must be approved by the
commissioner. Once this method has
9/18/15

By Mabhungu I

233

Livestock valuation
The other methods occasionally used
are:
a) Cost and maintenance value
method (CMV).
b) Purchase price value method (PPV)
The purchase price value
(PPV)method is commonly used in the
valuation of stud livestock and
bulls. While cost and maintenance
value is used as an alternative to fixed
9/18/15

By Mabhungu I

234

Stock acquired other than


through purchase.
This is when a taxpayer acquires
livestock either through donation or
inheritance. In such circumstances
there is nothing paid on acquisition of
the stock. The farmer will not be
taxable on their subsequent disposal if
sold immediately on acquisition.
However, if the taxpayer introduce the
livestock into existing farming
operations or commences farming with
9/18/15

By Mabhungu I

235

Stock acquired other than


through purchase.
Where the livestock are taxable the
cost on acquisition shall be :
a) The amount which would have been
deductible in the donors hands had he
sold the livestock, in the case of a
donation.
b) The fair market price for which the
valuation in the estate concerned will
be used, in the case of inherited
livestock.
9/18/15

By Mabhungu I

236

Timber or crops acquired


together with land
The cost of timber or crops acquired
together with the farm is an
allowable deduction to the
purchaser, and gross income in the
hands of the seller.
The cost will be regarded to be of a
capital nature to the buyer where he
immediately sells the stock without
conducting farming operation with it.
9/18/15

By Mabhungu I

237

Timber or crops acquired


together with land
On the other hand, donated stocks,
consumed for private purposes or
timber felled by the taxpayer for
private purposes are gross income in
terms of s 8 (1) (h).

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By Mabhungu I

238

EXAMPLE:FARMING
A farmer commenced livestock farming
on 1 January 2011 and his first year
return showed the following:
Purchases:

9/18/15

Numbe
r

Herd

bul cow
l
s

Cost
each

50
0

300

20

15

30

oxen heife
rs

tollie
s

calv
es

400

200

150

By Mabhungu I

10

350

239

It cost him $1 500 to maintain the herd


to the end of the year. There was no
movement in the herd during the year
and the same number was still in stock
as at 31 December 2011
He chooses PPV for the bulls and FSV
for other livestock when valuing
closing stock
9/18/15

By Mabhungu I

240

Herd Cow
s
FSV 600
each

Oxe Heife Tolli Calv


n
rs
es
es
460 450
300 200

Required:
a) To compute his closing stock value
b) To compute his taxable income
9/18/15

By Mabhungu I

241

Solution
a) Closing stock valuation

9/18/15

Class

No in
stock

FSV/PPV Value($
($)
)

Bull
Cows
Oxen
Heifers
Tollies
Calves
Total

1
500
5
600
20
460
10
450
15
300
30
200
81
By Mabhungu I

500
3000
9200
4500
4500
6000
27 242
700

b)Taxable income
Livestock trading a/c for the year
Purchases:
Sales
ended 31 Dec
--------Bull(1x500)
500

Closing stock
27 700

Cow(5x300)
1500
Oxen(20x400)
8000
Heifers(10x350)
3500
Tollies(15x200)
3000
9/18/15

By Mabhungu I
Calves(30x150)

243

FSV are used for valuing closing


stock
Purchases are recorded at original
purchase price or cost
Sales are shown at actual selling
price
Deaths are not valued at all

9/18/15

By Mabhungu I

244

Movement in the herd


This is the progression of animals
from a lower category to an upper
category.
Thus calves will grow into heifers,
which in turn grow into cows.
This natural movement affects the
closing stock and therefor before a
trading account is prepared, livestock
reconciliation must be prepared.
9/18/15

By Mabhungu I

245

Example
A farmer commenced business on 1
Jan 2011 and submitted the following
accounts for the year ending 31 Dec
2011.
a) Livestock purchases during the year:

9/18/15

Numb
er

100

90

50

70

40

Herd

bull

cows

oxen

heife
rs

Tollies

calves

Total($ 900
)

4000
0

4050
0

2100
0

17500

6000

By Mabhungu I

246

b) The commissioner adopted the


following FSVs
Herd cow oxe heife tolli
s
n
rs
es
FSV
600 460 400
300
each

calve
s
200

c)There were 30 births,4 deaths(2


tollies and 2 cows),30 heifers become
cows,15 tollies became oxen, and of
the 20 calves half became tollies and
9/18/15

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247

d)100 herd was sold for $57 000, of


which 70 were oxen and 30 were cows
e)Direct herd expenses amounted to
$2 300
Required:
a)To compute a reconciliation account
b)Compute the taxpayers taxable
income
9/18/15

By Mabhungu I

248

Solution
a) Livestock Reconciliation Account
Detail bu Co
s
lls ws

Oxe
n

Tolli
es

heif
ers

calv
es

tot
al

Purch

90

70

50

40

352

30

30

100

Births
Pro in
Total

30
2

Death

15

10

10

130 105

80

60

Pro
out

15

sales

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k

30

70

98

35

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70

447
4

30

20

65
100

63

30

50
249

278

b)Trading profit a/c for the year end 31


Dec
Sales
57 000
Less cost of sales:
Opening stock
----------Purchases
125 900
Less closing stock
(116 700)
9 200
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Special
concessions
applicable to
farmers
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a) 7th Schedule paragraph 2


A farmer shall be entitled to deduct in
full any expenditure incurred by him
during the year of assessment on:
Stumping and clearing of land and
fencing
Works for the prevention of soil
erosion
Sinking of bore holes and wells
Aerial and geophysical surveys
Any water conservation work and
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The expenditure in respect of any of


the above work is deducted in full,
and is non-recoupable. Where any of
the above has been acquired
together with a farm or land no
deduction shall be provided in
terms this paragraph.

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b) 7th schedule paragraph


5: Relief from Enforced
Sales.

Taxable income from a sale by a


farmer of his livestock due to stress
of drought, epidemic disease or farm
acquisition, may upon election be
taxable over 3 years in equal
installments
The taxable income is calculated as
follows:
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Drought, epidemic or farm acquisition


sale xxx
Less : cost of sales
Purchases [number sold x FSV]
xxx
Direct expenses*
xxx
Taxable income
xxx
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*Direct expenses are arrived at as


follows:
= Number sold x livestock
expenses
Average stock
Average stock =(opening stock +
closing stock)/2
Only those direct expenses related
to the keeping of animals are
included in the computation.
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Example: Forced sales


A Farmer sold 10 cows and 25 oxen in
an epidemic area and realized $40 000
.The F.S.Vs for oxen and cows which
had been on hand at the beginning of
the year were $130 and $150
respectively. Opening stock was 260
herds and closing stock 210.The direct
livestock expenses were estimated at
$4500.Calculate minimum taxable
income from epidemic sales.
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SOLUTION
Epidemic sales
$40 000
Less: Cost of herd sold
Cows: 10 at $150
Oxen: 25 at 130

1 500
3 250
4

750
Less: Expenses related to herd sold
5 420
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258

Taxable income: 34 580= 11 526 per


year.
3

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c) 7th schedule paragraph


6: Restocking Allowance.
In the event of a taxpayer restocking
the herd depleted by circumstances
outlined above he is granted an
allowance of 50% of the cost of each
livestock purchased.
The allowance is over and above
the normal purchase price which is
generally an allowable deduction.
The allowance is, however, restricted
where he exceeds the assessed
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In the event of him exceeding the


assessed
carrying capacity of the land the
maximum restocking allowance
granted is:
B x A x 50%
C
A = cost of the livestock purchased
B = difference between ACCL and
stock on hand immediately before
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Example: Restocking
allowance
Due to favorable weather conditions, a
Farmer restocked his herd which was
depleted by drought. He purchased
300 herd for $93 000.The ACCL as
approved was 500 herds. The herd on
hand before purchases was 300.
Calculate the restocking allowance.
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Solution
Restocking allowance = B x A x 50%
C
(500-300) x $93
000 x 50%
300
=$31 000
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TAXATION OF MINERS
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.

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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.
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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
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Capital redemption allowances


replaces most allowances, allowable to
other tax payers i.e. SIA, wear and
tear, scrapping allowances, allowances
in respect of lease premiums and preproduction expenditure (s15 (2)(t).

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calculation of 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
The taxpayer has to make an election
of the method preferred.
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Life of mine (paragraph


2)
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
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The taxpayer must make an estimate


of the life span of the mine, and
submit it for approval by the
commissioner.
Capital redemption allowance:
=Capital expenditure ranking for CRA
Life of mine
or
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Unredeemed bal of CE b/f -recoupmnt


+CE
Life of mine
Where CE =Capital expenditure

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Determination of CRA for


the year ended
Unredeemed balance of CE b/f
xxx
Less Recoupment
(xxx)
xxx
Add Current year CE
xxx
Total capital expenditure
xxx
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*CRA = Balance b/f recoupment + CE


Life of mine
Please note:
1) The method relate to mine owning
individuals and companies

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2) In the case of a company, which is


not, the owner of the mine CRA is
calculated based on the shorter of life
of mine and period of tribute.
3) In respect of an individual who is
not the owner of the mine, the
commissioner recognizes accumulated
shaft sinking and development costs in
the first productive year and thereafter
the allowance is spread over remaining
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4) No allowance is calculated until


production stage is reached.
5) Life of mine is computed from the
beginning of the year of assessment

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Estimated life of mine


Means the numbers of years during
which mining operations are expected
to continue after the beginning of the
year of assessment i.e the life span of
the mine.
Provided that, the life of mine must not
exceed
(a) In the case of a mine producing
lead or zinc 10 years
(b) In respect of a mine producing iron,
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New Mine Method


(paragraph 4(4))
This method is only available to
those carrying on operations in a
new mine as defined.
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
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A person who conducts mining


operations in a new mine may elect to
deduct in the year of
assessment in which production
commences, both the Accumulated
capital expenditure incurred prior to
commencement and that expenditure
incurred subsequent to
commencement in that year (current
year capital expenditure).
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This basis is available to both


individual and companies, and applies
regardless of whether the taxpayer
owns or tributes the mine.
Capital Redemption allowance is
calculated as follows:
CRA= balance of CE b/f + Current
expenditure
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Mixed Method
(paragraph 4(2))
This is a mixture of the new mine
basis and life of mine basis.
The effect is to grant current capital
expenditure in full, while capital
expenditure brought forward less
recoupment is spread
over the life of the mine.

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Unredeemed balance of CE b/f


xxx
Less Recoupment
(xxx)
Sub total
xxx
Add Current year expenditure (CE)
xxx
Total capital expenditure
xxx
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*CRA = Balance b/f recoupment


CE
Life of mine

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Other
provisions
about mining
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Recoupment-s 8(1)(i)
Miners recoupment is not restricted to
allowances previously granted. It is
simply sale
proceeds less ITV. In most cases a
miners recoupment is equal to sale
proceeds. Recoupment is brought into
gross income when expenditure has
been claimed using new mine basis,
but would first be off set against
unredeemed balance of capital
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In respect of damage to or
destruction of an asset, the
recoupment is restricted to
allowances previously granted.

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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.
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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
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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
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Income Tax Rate


The income tax rate for mining
companies is 25% effective from 1
January 2010

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Example: Capital
Redemption Allowances
Korokoza Mining (Pvt.) Ltd situated
20kms Northwest of Zvishavane,
incurred the following capital
expenditure, year 1 and 2 being preproduction. Production stage was
reached in the
current year i.e. year 3.

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YEAR 1 & 2
$
Plant and Machinery
40 000
Shaft Sinking
10 000
Mine Building
30 000
Salaries and wages
50 000

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CURRENT YEAR
Salaries and wages
000
Passenger Motor Vehicle
000
Lease premiums
000

60
16
10

86 000
Life of mine is 3 years from the end of
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Solution :NEW MINE BASIS


Balance b/f from previous year:
$
Plant and Machinery
40 000
Shaft Sinking
10 000
Mine Building
30 000
Salaries and wages (pre-production)
50 000
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Passenger motor vehicle (restricted


cost) 10 000
Lease premiums
10 000
Total
150 000
NB:The whole amount is provided
as a deduction in respect of
capital redemption allowance.
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Solution: Life of mine


method
Balance b/f from previous year:
Plant and Machinery
40 000
Shaft Sinking
10 000
Mine Building
30 000
Salaries and wages (pre-production)
50 000
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Passenger motor vehicle (restricted


cost) 10 000
Lease premiums
10 000
150 000
Less CRA
37 500
Unredeemed balance of CE C/F
112 500
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CRA = Balance b/f recoupment + CE


Life of mine
= 150 000
4 years
=37 500
*NB Life of mine is counted from the
beginning of the year of assessment
concerned i.e. current
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Solution: Mixed Basis


Unredeemed balance of capital
expenditure b/f:
- Plant and machinery
40 000
- - Shaft Sinking
10 000
- Mine Building
30 000
- Salaries and wages
50 000
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Passenger motor vehicle (restricted


cost) 10 000
- Lease premiums
10 000
150 000
Less CRA
52 500
Unredeemed balance of capital
expend 97 500
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*CRA = Balance b/f recoupment + CE


Life of mine
= $130 000 + 20 000 = $52 500
4
NB life of mine is counted from the
beginning of current year of
assessment. Under this method
current capital expenditure is claimed
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VALUE
ADDED TAX
ACT
[Chapter
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SOME IMPORTANT TERMS


Trade means any activity or business
which is carried on continuously or
regularly in or partly in Zimbabwe by
any person of which goods or services
are supplied for a consideration,
whether or not for profit.
Exempt supplies means supplies
which are immune from VAT in terms
of Section 11 of
the VAT Act.
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Input Tax is the tax a registered


operator is charged on goods or
services acquired or imported for the
purposes of making taxable supplies
Output Tax is the tax charged by a
registered operator on the supply of
taxable goods or
services
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Consideration includes any payment


made or to be made for a supply of
goods and
services made by the registered
operator
Zero-rated supplies means supplies
of goods or services where the rate of
0% is applied.
Standard-rated supplies means
supplies of goods or services where
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Taxable supply means supplies of


goods or services taxed at the rate of
0%, 15% and the
special rate of 22.5%.
VAT Return is the form used to
declare the value of supplies, output
and input tax of a
registered operator to the
Commissioner.
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Registered Operator means any


person who has registered or is
required to register for
VAT purposes.
Tax periods means regular intervals
in which registered operators are
required to submit
returns and account for VAT,
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Entertainment means the provision


of any food, beverages,
accommodation, entertainment,
amusement, recreation or hospitality
of any kind by a registered operator
whether directly or indirectly to any
one in connection with the trade
carried on by him.
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WHAT IS VAT?
VAT is an indirect tax which is levied
on:
local supplies of goods and, or
services made by a registered
operator;
Goods imported into Zimbabwe.
It is collected at each stage of
production, distribution and
importation.
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Where a person donates or gives any


amount of money to someone without
receiving anything in return, there will
be no VAT implications on such
donations.
Only persons carrying out trade
should be registered for VAT

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The following requirements must be


met for one to be deemed to be
carrying on trade:
The activities must be carried on
continuously or regularly.
The business activities must be
carried on in Zimbabwe or partly in
Zimbabwe.
The goods or services must be
supplied to other persons for a
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The following activities shall not be


regarded as trade for VAT purposes:
Services supplied by an employee to
an employer for which remuneration
received is
subject to Pay As You Earn (PAYE)
The activities of a branch
permanently located outside
Zimbabwe
Hobbies and private activities
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How does VAT work?


All registered operators are required
to charge output tax to both
registered and non-registered
operators.
Registered operators are entitled to
claim input tax on purchases of
goods and/or services, which are for
use in making taxable supplies.
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Calculation of VAT

OUTPUT TAX INPUT


TAX =VAT
Payable/Refundable
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Example
Suppose a supermarket buys a bar of
soap from a manufacturer for $1.It will
pay VAT of 15cents ($1 x 15%) on the
purchase. The total purchase price will
be $1.15. The 15cents VAT becomes
the supermarkets input tax and the
manufacturers output tax. If the
supermarket sells the bar of soap for
$1.50 it would charge VAT of
22.5cents($1.50 x 15%).This 22.5cents
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HOW TO REGISTER FOR VAT


Who must register?
Any person who carries on a taxable
activity and whose annual turnover
exceeds or is likely
to exceed the prescribed
amount(US$60 000 per year) must
apply to register for VAT purposes on
form VAT 1.
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A person includes any of the


following: Company
Partnership or joint venture.
Local and public authorities.
Trust.
Deceased or insolvent estates.
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VAT Voluntary Registration


A person whose turnover is below
the prescribed amount(threshold)
can voluntarily register for VAT
Voluntary registration can be denied
where a person:
i. Has no fixed residential address or
business address
ii. Does not keep proper accounting
records for the business.
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Does not operate a bank account for


the business
Has failed to perform the duties
under the repealed Sales Tax Act or the
VAT Act if one
was registered under such Acts.

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Separate registration of
Branches
Branches can be registered separately
when each branch is carrying on a
separate trade by reference to the
nature of the business activities or
geographical location of each branch
and such branch maintains
independent accounting system.
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Cancellation of registration
VAT registration can be cancelled if:
The annual taxable turnover falls
below the prescribed turnover for
clients that were
registered compulsorily
One ceases trading
One was registered voluntarily but
no longer meets the voluntary
registration conditions.
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Responsibilities upon
registration?
One will be obliged to comply with the
following requirements of the VAT Act:
Keep accounting records for a period
of at least six (6) years after the tax
period to which the records relate.
Complete and submit VAT returns as
required.
Calculate and pay the VAT due to the
Commissioner on or before the due
date.
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Issue tax invoices for any taxable


supplies where the value is more than
the prescribed
amount.
Advise the Commissioner of any
changes in business details such as
change of address, addition of new
partner, cessation of trade, etc.
Allow the Commissioner to enter the
business premises and examine goods
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TAX PERIODS
A registered operator is required to
submit returns and account for VAT to
the Commissioner according to the
allocated tax period.
At registration, one will be allocated
one of these tax periods:
1. Category A: A two-month period
ending on the last day of January,
March, May, July, September, and
November
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2. Category B: : A two-month period


ending on the last day of February,
April, June, August, October, and
December.
3. Category C(one month tax period)
4. Category D

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category C
Under category C, VAT returns are
submitted on a monthly basis.
One will be registered according to
Category C when:
The turnover of taxable supplies
exceeds the prescribed amount per
annum. Where the
registered operator has more than one
business, or operates a business with
branches, the
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One has applied to be in this


category.
One has repeatedly failed to perform
any of the obligations as a registered
operator.

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Category D
A registered operator will be allowed
this category upon written application
to the
Commissioner. In order for one to be in
this category, ones trade should
consist solely of
farming, agricultural or pastoral
activities and ones turnover should
not exceed or is not
likely to exceed the prescribed amount
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ACCOUNTING FOR VAT


VAT is accounted for on either the
invoice or the cash basis.
INVOICE BASIS
The invoice basis is where the
registered operator must account for
output tax on both credit and cash
sales. The operator must also claim
input tax on both credit and cash
purchases and expenses incurred for
making taxable supplies.
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Where payment is received before the


issuance of a tax invoice, the general
time of supply
rule applies, that is the earlier of an
invoice being issued or payment being
received.
CASH OR PAYMENT BASIS
The cash or payment basis is where
the registered operator claims input
tax or accounts
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TAXABLE AND EXEMPT


SUPPLIES
Taxable supplies are supplies that are
taxable at the following rates:
Zero rate 0%
Standard rate 15%

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Zero rated Supplies


These are supplies on which VAT is
chargeable at rate at 0% Some of the
examples of zero rated supplies are: Exports of goods from Zimbabwe to
an address in an export country.
Basic foodstuffs such as mealie-meal,
sugar, milk, meat, salt, bread, etc.
Agricultural inputs such as fertilizer,
seeds, and pesticides, animal feed,
animal remedy, plants, tractors, etc.
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Exported goods with the exception of


un-beneficiated chrome which is
taxed at 15%.
The supply of day old chicks
weighing not more than 185g is now
zero-rated with effect from 1st
September 2010.
International transport services
provided by a registered person.
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Services physically rendered outside


Zimbabwe.
Note: VAT incurred in making zerorated supplies may be claimed as input
tax.

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Standard-rated Supplies
These are supplies of goods on which
VAT is chargeable at 15%.
Generally all goods and services are
standard rated unless specifically
exempted, zero-rated
or subject to VAT at a special rate.

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Exempt Supplies
Exempt supplies are supplies of
goods and services on which no VAT
is chargeable at all. VAT incurred on
goods and services acquired to make
exempt supplies shall not be claimed
as input tax credit.
Traders who exclusively provide
exempt supplies are not required to
register for VAT purposes.
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Exempt supplies include the following


services and products:
medical services
educational services
rentals from residential properties
transport of fare-paying passengers
water for domestic use
electricity for domestic use
fuel
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Deemed Supplies
These are transactions, which do not
generally appear as actual supplies but
regarded by law
to be supplies. The following are
examples of deemed supplies: Goods or services taken for own use.
Motoring benefit.
Closing stock and assets on hand at
the time of de- registration.
Subsidies or grants received from the
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Goods acquired under an instalment


credit agreement that have been repossessed by
the seller.
Transfer of goods between
independent branches.

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INPUT TAX CREDIT


Any VAT paid on local purchases or
on the importation of goods for
making taxable supplies may be
claimed as input tax.
If goods or services are acquired for
the purpose of making both taxable
and non-taxable supplies, only the
VAT attributable to taxable supplies
can be claimed as input tax.
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Where goods or services are acquired


by a registered operator to make
both taxable and
exempt supplies, full VAT incurred
may be claimed as Input Tax if the
ratio of the value
of taxable supplies to total supplies
exceeds 90%.
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Amounts which may not be


claimed as input tax?
Entertainment which includes staff
meals, Christmas parties and
customer entertainment of all kinds
(this includes equipment purchased
to provide staff refreshments, e.g.
canteen utensils.)
Goods or services acquired
exclusively for making exempt
supplies.
Club subscriptions fees or
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incurred by a registered operator for


membership of a club or association of
a sporting, social or recreational
nature.
Acquisition of passenger motor
vehicles as specified.

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PRICING
Registered operators are required to
include VAT in advertisements or
quotations. It must be
explicitly stated that VAT is included in
the prices advertised or quoted. If both
the price
including VAT and the price excluding
VAT are shown, then each amount
must be shown
with equal prominence.
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It is a requirement for price tickets to


indicate that VAT is included in the
selling price.
However, where notices at all
entrances to the premises and at all
pay points display that
prices include VAT, the above
requirement can be dispensed with on
the tickets.
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Determination of price of
goods and services
In determining the price of goods and
services to charge customers, input
tax incurred should
not be considered as a cost since it
will be claimed as a credit.

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Example
A Retailer bought a bicycle valued at
$115 for resale. His mark up is 50%.
His selling price will thus be:
Purchase price $115
Less VAT paid (115 x 15/115) $15
Actual Cost
$100
Add 50% mark-up
$50
Selling price before VAT
$150.00
Add VAT at 15%
$22.50
9/18/15

By Mabhungu I

347

Selling price including VAT

$172.50

9/18/15

348

By Mabhungu I