An overview of tax changes in Zimbabwe
RUTENDO MANHIMANZI
Taxation Overview:
An effective tax collection regime has always been a topical subject of great concern in both developed and developing countries.
Taxes have become an increasingly important and crucial source of revenue for national budgets.
Thus, it is crucial for tax revenue authorities to fulfill their mandate and obligation of raising the government revenue effectively. It is imperative to note that, taxes are a mandatory contribution levied on corporations or individuals to finance government activities and public services.
There are other purposes of taxation, these include redistributing wealth and income for example imposing a tax on the rich and utilize the money for social services and the less privileged in society. Taxation is also a good measure used to discourage certain activities or behaviours and giving tax incentives to the others to promote the public good for its own sake.
Many governments in the world rely on revenue to fund essential services and national budgets.
This revenue is mainly generated from tax, donations, loans and other sources. Zimbabwe as a developing country, is primarily forced to rely on taxes as a source of funds for government projects. However, taxpayers often have a misconception about tax payment, the main argument being that it’s non-beneficial to them and that its often an imposition on them, rather than their responsibility. This has often resulted in ineffective tax revenue collection. The Zimbabwe Revenue Authority (ZIMRA) is a statutory body mandated with the collection of tax revenue in Zimbabwe.
Income Tax:
Generally, Income tax in Zimbabwe is charged on one’s remuneration or salary, as provided for in terms of the Income Tax Act (Chapter 23:06). In Zimbabwe, tax is levied on a source or deemed source basis. Residents are taxed on domestic-source income and also foreign income. Income earned by foreign companies from a source within Zimbabwe or deemed to be within Zimbabwe and is therefore liable to taxation in Zimbabwe. The tax rate paid by individuals, incorporated businesses and businesses owned by individuals directly or through transparent entities is 25%. The new amendment to the Finance Act allows for the payment of income tax in local ZIG currency since the bulk of taxpayers receive their remuneration in the local ZIG currency.
Non-residents are taxed on Zimbabwe-source income and are subject to a range of withholding taxes some of which may be reduced in terms of a double tax treaty negotiated with the country of the recipient.
Zimbabwe presently operates on a source-based tax system. This means that income from a source within or deemed to be within Zimbabwe will be subject to tax in Zimbabwe unless a specific exemption is available. The specific circumstances of a transaction should always be considered to determine whether the transaction gives rise to taxation in Zimbabwe.
What is VAT?
Value Added Tax (VAT) is an indirect tax on consumption, charged on the supply of taxable goods and services. It is levied on transactions and on the importation of goods and services. The principal legislation is the Value Added Tax Act (Chapter 23:12).
Where a local resident meets a particular threshold and is registered for VAT, the income received will be taxed at 15%.
New changes to note:
Payment Deadline Changes: VAT payment deadline has been shifted from the 25th of the following month to the 15th in order to create a balance between revenue collection and timely government expenditure.
Automatic VAT Registration for Large Tenders: suppliers offering taxable goods and services in tenders above US$25,000 will automatically be registered for VAT. This change will foster an even playing field, since all businesses operating at the same threshold and are subjected to equivalent VAT compliance requirements.
Exemption
Exemption from VAT has been granted for Liquefied Petroleum Gas (LPG). The main thrust being to push for the reduction of its cost and encourage its widespread use as an alternative safe energy source.
On the other hand, there is a reduction of customs duty on electrical vehicles imported into the country to reduce carbon emissions. Duty on buses imported for public service transport has been suspended.
Value Added Tax on Betting and Gaming:
The rate of value added tax in respect of transactions or receipts on betting and gaming as set out in the table in Part 11 of section 17 of the Finance (No.2) Act,2022 is generally 15%.
However, in terms of the amendment to the Finance Act, those involved in sports betting will be required to pay a withholding tax (WHT) of 10% of their winnings deducted when paid out and it will be transmitted to ZIMRA directly by the betting house. The betting houses will pay 3% of their gross monthly income.
Bookmakers and punters tax has been set at the rate of three percent of each dollar of the gross monthly takings of the bookmaker and at the rate of ten percent of each dollar of the gross winnings of betting punters.
This taxation on betting and gaming is premised on the fact that your winnings are considered as an income earned and thus must be taxed like any other earnings. This is a practice across other jurisdictions. Some countries have set aside some of the revenue collected to set up rehabilitation centres for people with an addiction to betting and gaming.
New Tax of fast foods
This has been necessitated by the need to discourage certain social behaviour of unhealthy eating and promote a particular way of life, a healthy lifestyle of clean eating. This in turn will encourage food manufacturers to produce healthy alternatives. The new Fast Foods Tax of 1% on the sales value will be levied on fast foods such as pizzas, burgers, and French fries.
Tax on plastic bags
A new tax on the sale value of each disposable plastic carrier bag produced by a manufacturer, at the rate of twenty percent of such sale value was introduced. The objective of this tax is to promote the manufacturing and use of biodegradable alternatives to protect the environment.
Tax on properties
It is crucial for homeowners to take note of the new changes regarding properties converted from residential to business use. These will now attract a 25% tax on their rental income.
Alcohol excise duty
Excise duty on selected alcoholic beverages and spirits has been increased from 25 cents per litre to 30 cents per litre.
Capital Gains Tax
Capital Gains Tax (CGT) is an amount levied on the capital gain arising from the disposal of a specified asset in terms of section 6 of the Capital Gains Tax Act [Chapter 23:01]. Specified assets mean immovable property (land and buildings) and any marketable security (debentures, shares, unit trusts, bonds, intellectual property). Valuations for the purpose of determining the values of the assets will also be required by the taxing authority (ZIMRA), together with proof of payment for the property (if case of a sale).
The capital gains tax on marketable securities has been revised from 2% withholding tax to 1% tax.
There is the introduction of Special Capital Gains Tax on Mineral Titles. A special capital gains tax will be levied on the transfer of mining titles. This tax will apply to any mineral titles transferred after December 31, 2023, regardless of whether the transfer occurred within or outside Zimbabwe.
Mineral Royalties
The Finance (No. 2) Act, 2024, has introduced new reforms to the mining tax framework, in order to boost revenue collection. Accordingly, it’s now a requirement that all mining entities must be registered taxpayers with the Zimbabwe Revenue Authority (ZIMRA), this must be done before the acquisition or disposal or transfer of any mining tittles. The sale or transfer of mining property is now subject to capital gains tax.
Subsequently, the definitions of beneficial owners and controllers have been given a broader meaning to include entities or individuals who exercise significant control over a mining entity, directly or indirectly. This is to ensure accountability and compliance in the mining sector.
Penalties will now be imposed on mining entities that fail to remit their royalties timeously, regardless of any pending civil or criminal proceedings related to the payment or non-payment of royalties. This is to curb any possible evasion from one’s tax obligations.
Royalties have been incorporated under the definition of “tax,”. The Income Tax Act empowers the Commissioner with the power to exempt taxpayers from penalties if non-compliance is not intended to harm the State, previously unavailable for royalties.
- Current Royalty Rates:
- Coal: increased from 1% to 2%.
- Black Granite: maintained at 2%.
- Lithium: new 2% on gross value.
- Other Dimensional Stones: reduced from 2% to 0.5%.
- Quarry Stones: new rate of 0.5%.
Payments
For minerals such as gold, diamonds, platinum, and similar minerals payments shall be 50% in the form of the minerals themselves, 40% in local currency and 10% in foreign currency.
Special Economic Zones (SEZ)
The existing tax holiday for investors in Special Economic Zones (SEZ) will be removed and replaced by a 15% Corporate Income Tax. Withholding Tax Withholding tax on SEZ investments will be reduced from 15% to 10%.
Conclusion.
The critical tax and royalty changes including the special capital gains tax on mining titles is a clear reflection of the government’s focus on revenue collection and curb any loopholes to escape obligation by companies and organizations. The surcharge on fast foods and gaming also reflects on the government’s continued focus on encouraging the public to abandon certain harmful behaviours and encourage a better lifestyle. The shift in VAT deadlines, exemption for LPG, and changes to the customs regime aim to foster a balanced and efficient tax environment, promoting compliance and creating a fair playing field for businesses operating in Zimbabwe.
However effective revenue collection is yet to be attained, and the revenue authority faces challenges as a result of low levels of tax education amongst taxpayers, ineffective taxpayer identification methods, poor monitoring and assessment procedures and corruption.
Effective taxation is vital for development. An effective tax system not only raises revenues needed for funding public services, but can also support development goals, for example by helping combat illicit financial flows, reducing inequality through redistribution and addressing health and environmental objectives by influencing taxpayer behaviour.
Rutendo Manhimanzi is a registered Legal Practitioner and practices under the law firm Ruzvidzo Legal Counsel. She can be reached on +263 773 589 263 or email rmanhimanzi@yahoo.com
