Lecture Slides

TAX LAW & PRACTICE
(CUAC 212)
PROG: BSCAC
LEVEL: 2.2
YEAR : 2017
Food for thought
There are only two things which are certain in
life; death and taxes (Franklin,1789)
People often say death and taxes are the same,

but this is wrong. Death is a taxable event, but
taxes never die -(Anonymous)
CUAC 212 COURSE OUTLINE
AIM
• To develop knowledge and skills with respect to the
Zimbabwean tax legislation, processes, procedures and
computations and their application in the taxation of
individuals, partnerships and companies.
MAIN CAPABILITIES
After completing this course students should be able to:
1. Explain the meaning of taxation and discuss its importance
in the development of the Zimbabwean economy and the
standard of living.
2. Outline the general framework for the administration of
taxes in Zimbabwe.
3. Apply tax principles in computing the income tax liability
of an individual and outline the administration of individual
taxes.
4. Apply tax principles in computing the corporation tax
liability of a company and outline the administration of
corporation tax in Zimbabwe.
5. Apply tax principles in computing the capital gains tax

liability of an individual and of a company and outline the
administration of capital gains tax in Zimbabwe.
6. Apply tax principles in computing Value Added Tax (VAT)

payable by or refundable to businesses and outline the
administration of VAT in Zimbabwe.
Course Outline continues….
1.Introduction to Taxation in Zimbabwe
2. Gross Income
3. Exemptions
4. Allowable deductions (& prohibited
deductions).
5. Taxation of employment income and
income from trade and investment
(individuals)
6. Taxation of companies
7. Taxation of farmers and partnerships
8. Capital Gains Tax (CGT)
9. Value Added Tax (VAT).
1. Reference material :2016 tax year
2. Income tax Act [Chapter 23:06], Capital Gains Tax
Act[Chapter 23:01], Value Added Tax Act[Chapter
23:12], Finance Act[Chapter 23:04]
3. Textbooks by:
4. a). Sabelo Nare b). L.W Hill c). Marvelous Tapera.
d). Patson Nyatanga e). CIMA, ACCA & CIS Study
Texts and notes on Zimbabwean Taxation f).
www.zimra.co.zw
5. g). Tax bulletins from Chartered Accountant Firms
e.g Earnest and Young
Introduction to Taxation
Chapter 1
Learning outcomes
After completing this chapter you should be able to:
• Define tax and explain the importance of taxation
to the Zimbabwean economy and the standard of
living in Zimbabwe.
• Explain the difference between source based and
resident based tax systems
• Discuss the three main ways of classifying taxes.
Chapter 1
Learning outcomes
After completing this chapter you should be able to:
• Outline the general framework for the levy and
administration of taxes in Zimbabwe
• Explain the three sources of tax law in Zimbabwe
• Discuss the main principles of a good tax system
• Outline the general framework for the
determination/calculation of tax payable.
1.1 Definition of tax
Tax is a compulsory amount paid by individuals or
businesses to the government of a country.
Taxation is therefore the charging/levying of stipulated and
compulsory amounts on the citizens by their government.
• It can be paid in cash or kind.
1.2 Purpose of taxation
• Taxation serves four broad objectives; Revenue,
Redistribution, Re-pricing and Representation.
(a) Revenue
Source of revenue for financing government expenditure,
e.g health care, education, infrastructure development, etc.
1.2 Purpose of taxation
(b) Redistribution
To redistribute wealth among society members.
To support economically disadvantaged members of the
society e.g sick, unemployed and elderly.
To reduce income gap between the rich and the poor.
1.2 Purpose of Taxation
(c) Repricing
To influence the prices of goods and services, so as to;
Address externalities and market failures e.g
 Control imports, prevent dumping, stimulate local
industries, reduce unemployment, discourage or encourage
consumption in certain sectors of the economy and to
regulate consumption.
1.2 Purpose of Taxation
(d) Representation
Taxes create demand for representation.
People generally demand accountability and better
governance once taxed.
1.3 Classification of taxes
Taxes may be classified according to any of the following
three ways;
(i)Direct or Indirect taxes: based on the person responsible
for making the actual payment
(ii)Regressive or Progressive: based on the impact on the
person bearing the tax.
(iii)Administrative classification: based on how the tax is
charged and collected e.g income tax, capital gains tax,
value added tax, etc.
(a) Direct or Indirect tax
Direct taxes are those taxes that are paid by the people
or organizations on which the tax is imposed or charged.
For example, corporate tax.
Corporate tax is charged on a company, and it is the
same company that is responsible for paying it.
Therefore the impact of the tax is ‘direct’ on the
company.
Indirect tax is a tax that is charged on one person but
paid by a different person.
For example, Value Added Tax (VAT).
VAT is:
• Charged on a trader but;
• Paid by the consumer.
The consumer therefore indirectly pays the tax.
Such taxes are often included in the price of the item.
So even though the seller sends the payments to the
government, the buyer is the real payer.
The seller is just an agent, collecting the tax from the
consumer on behalf of the government.
(b) Regressive or progressive taxes
A regressive tax is represented by a flat tax rate.
The tax percentage does not depend on the income base.
For example, the rate of VAT is generally 15% on each
transaction.
This rate of tax remains the same despite the income of the
taxpayer.
The more a person has, the lower the absolute tax as a
proportion of a person's income.
Example:
• Mr Moyo gets disposable income of $50 000 per month,
while Mrs Zara gets disposable income of $5 000 per month.
They each bought groceries worth $500 (before VAT) in the
month of April 2016. Determine the tax paid by each
taxpayer as a proportion of the income.
The VAT rate is 15%.
Example:
Solution
Mr Moyo Mrs Zara
• Absolute VAT paid (15%X$500) $75 $75
• Income $5 000 $500
• Tax paid as a % of income 1,5% 15%
 This tax hurts the poor more than the rich as each of them is required to
pay the same tax despite the income base.
 Thus Mr Moyo, the richer pays only 1.5% of his income as tax, while Mrs
Zara the poorer pays 15% of her income as tax.
A progressive tax is a tax that increases the tax rate as
income increases.
• The more you have the higher the tax rate.
Progressive taxes reduce the tax burden of people
with smaller incomes;
• Because they take a smaller percentage of their
income.
The tax is usually represented by tax bands.
Tax bands are based on the income classes.
For example, tax on employment income.
The tax bands will generally look like this;
• Income band ($) Rate of tax (%)
• Up to 3600 0%
• 3601 to 5000 20% etc.
(c) Administrative classification
Taxes may be classified according to how they are
administered(charged and collected) by the government as
follows;
(i) Income tax- this is tax levied on employment
income(PAYE) and also on income from trade and
investment.
(ii) Excise duty- this is a tax imposed on specified goods,
usually harmful goods, to discourage consumption.
(iii) Sales tax- this is a form of tax levied when a
commodity is sold to its final consumer.
(iv) Customs duty-this is a charge for the movement of
goods through a political boarder (exports and imports).
(v) Value-Added Tax(VAT)-this is tax on supply of goods
and services including imports.
• VAT is collected at each stage of the production chain.
(vi) Stamp duty-this is tax levied on the purchase of fixed
property (land and buildings) and shares.
(vii) Estate duty-this is a form of a property tax levied on
the value of property owned by an estate
(viii) Capital gains tax-this is tax levied on the profit
realised upon the sale of marketable securities and
immovable property.
(i) Corporate tax-this is a tax on the profits of a company
and a form of income tax on trade and investment.
1.4 Sources of Tax Law
There are basically three sources of tax law in any given
country; namely,
(i) Legislative Law,
(ii)Case Law;
(iii)Departmental Practices.
(a)Legislative law
Tax legislation is the most authoritative source of tax
law.
Tax legislation is drafted by the Ministry of Finance.
 It is then pronounced into law by a Parliament.
It also has to be passed by Senate.
It includes all Acts of Parliament relating to tax.
Also includes statutory instruments passed by
government.
Tax law is updated each year through a Finance Bill.
(b)Case Law/Judicial Precedence
Usually explains certain words and phrases not given
enough or clear meaning in the Acts.
Emanates from decided court cases on taxation tried at the
law courts in Zimbabwe.
The resultant judgment by the judicial officer becomes law,
which have authoritative value.
Case Law may cover legal cases from other countries.
Such cases have persuasive value.
(c)Agency interpretation/Departmental Practice(DP)
The tax legislation may be difficult to interpret.
Tax agents (e.g ZIMRA in Zimbabwe) may issue written
statements stating how they interpret and apply provisions
of the existing tax laws.
DP are practices or instructions given by the Commissioner
General(CG) of ZIMRA to his subordinates to explain
certain legislation.
(c)Agency interpretation/Departmental Practice(DP)
DP are just practices that have been in use for a long time
by the tax authority and;
Have generally been accepted as a normal way of taxing
certain transactions.
1.5 Tax Administration
In Zimbabwe, taxes are generally administered by the
Zimbabwe Revenue Authority(ZIMRA).
 The head of ZIMRA is known as the Commissioner

General(CG) of taxes.
The CG has the overall responsibility to administer

taxes.
1.5 Tax Administration
The CG's main duties are to;
Implement tax laws,
Oversee Zimbabwe tax administration and;
Ensure the effective running of ZIMRA across the

country.
1.6 Principles of a good tax system
The following tax principles should govern, a good tax
system:
(i)Vertical equity principle
Every member of state should contribute towards the
burden of tax in accordance with his/her ability.
(ii)Horizontal equity principle
Taxpayers in the same economic circumstances should
receive equivalent tax treatments.
(iii)Certainty
The tax to be paid should be exact, and not arbitrary.
The amount, timing and manner of payment should be
known.
(iv)Simplicity
Tax legislation must be in simple language and;
Easily understood by the subjects.
(v)Tax neutrality or efficiency principle
Tax should act as a resource allocation tool by assuring
that;
• Economic resources are diverted to best location.
(vi) Flexibility
Tax system should be able to accommodate changes in;
• Business, technology and markets.
(vii) Effectiveness
A tax system should achieve its objectives.
It should be able to generate revenue.
(viii) Consistence and coherence
Transactions with the same commercial results should
have the same tax result.
Activity
Discuss the extent to which Road tolls system(tollgate)
as a form of tax satisfies the qualities of a good tax
system.
1.7 Definition of a Person
Tax is charged on income earned by a "person".
A "person" includes a natural person and an artificial
person.
An example of an artificial person is a company.
Partnerships and joint ventures are not persons.
They are just conduit pipes (flow entities) of theirs
members.
1.7 Definition of a Person
Income earned by joint ventures or partnerships is taxed
in the hands of the partners;
In proportion to their agreed profit or loss sharing
ratios.
1.8 Basis of Taxation
The tax system of a country can either be;
Source-based(territorial), or
Resident-based(worldwide).
Source-based systems only tax income obtained from
within a country’s boarders.
Resident-based systems tax income obtained by
residents of a country from all over the world.
1.8 Basis of Taxation
Zimbabwe uses a source-based tax system!!.

1.9 Definition of Residence
A resident of Zimbabwe is;
A Zimbabwean national, or
A person domiciled in Zimbabwe.
A person whose aggregate stay in Zimbabwe
exceeds 183 days in any year of assessment.
1.9 Definition of Residence
A body corporate incorporated, established or formed
in Zimbabwe, or
Has its place of effective management in Zimbabwe.
1.10 General Framework for the computation of income tax
Income tax is tax on Taxable income.
‘Taxable Income’ Formula
Gross Income(Sect. 8,10 & 12) XX
Less Exemptions (sect.14 a.r.w 4th Schedule) (XX)
Income XX
Less Allowable Deductions(sect.15 &16) (XX)
Taxable Income/(Assessed Loss) XX
1.10 General Framework for the computation of
income tax
Calculation of Income tax
In terms of section 7 of the Income Tax Act[Chapter
23:06], income tax is calculated as follows:
(a) Determine the taxable income of the taxpayer,
b) Apply the appropriate rates of tax(Finance Act) and,
c) Grant the taxpayer any relevant tax credits.
income tax
Taxable Income(TI) XX
Tax thereon/chargeable(apply tax rates)-FA XX
Less Tax Credits-Finance Act(FA) (XX)
Net tax XX
Add 3% Aids Levy 3%(where applicable) XX
Tax Payable/Tax liability XX
income tax
A distinction should be drawn between;
Taxable income from employment and;
Taxable income from trade and investments.
END OF CHAPTER 1
CHAPTER 2:GROSS INCOME
2.Gross Income(Section 8)
Gross Income(GI) is the starting point in the calculation
of income tax liability.
Definition(Section 8(1) of the Income Tax Act(ITA))
The total amount received by or accrued to or in favour of a
person or deemed to have been received by or to have accrued
to or in favour of a person in any year of assessment from a
source within or deemed to be within Zimbabwe excluding any
amount so received or accrued which is proved by the taxpayer
to be to be of capital nature.
Components of Gross Income Definition
Total amount,
Received by,
Accrued to,
Deemed to have been received or accrued,
A person
Year of assessment
Source within or deemed to be Zimbabwe
Capital nature
Total Amount(Section 2)
Money and non-monetary items.
Money or;
Any other property corporeal or incorporeal,
has an ascertainable money value (section 2).

Received
In possession of the income or;
Received on his/her behalf and for his/her own benefit.
Must have a legal claim to the amount.

Received
Excludes;
Amounts stolen(COT v G(1981) 43).
Loans.
Amounts left in your custody(CIR v Genn & Co (Pvt) Ltd
(1955)).
Illegal operations can form part of gross income in(ITC
1624 (1997) 59 SATC 373).
Non-refundable deposits where held to be received in:
ITC 675 (1949) 16 SATC 238.
Accrued
Due and payable but not yet received.
Delfos vs CIR.
Also means the taxpayer is entitled unconditionally to
the income.
Lategan vs CIR.
Accrued or received?
Income may accrue in one year and be received in
another.
CG has power to tax in either year(CIR vs Delfos).
In practice, where accruals are given, CG taxes on
accrual basis(Silverglen vs. SIR(1968)).
Where accruals are not disclosed, CG taxes on receipt
basis(Maguire v COT).
Deemed Accruals/Receipts(Section 10)
To deem is ‘to take as if’.
Instances where it is taken as if income has been
received or has accrued to a person.
Implies that income has been received/accrued to the
benefit of a person indirectly.
Such income is included in his gross income.
(i) Income not paid over
Amount reinvested, capitalized, or accumulated by
someone or on his behalf by others.
(ii)Partnership Income
Deemed to be income of individual partners.
Shared among them using their profit and loss sharing
ratios.
(iii)Donations
Parent donates an asset to his minor child.
Income accrues to minor child as a result of donation.
Taxable in the hands of the parent.
(iv)Cross Donations
Parent A donates to child of Parent B
Parent B donates to Child of Parent A.
Both parents taxable on income accruing to their minor

children.
(v)Suspensive Conditional Donations
Where asset is going to be transferred on fulfillment of
a future event.
Donor taxed on the income accruing before the
suspensive condition materializes.
(vi)Donation where the donor retains the power to
change the persona of the beneficiary
Income accruing is taxed in the hands of the donor who
retains the rights.
A Person(Section 2)
An individual or;
Any other entity with a separate legal identity,
For example, a company or a trust.
It excludes a partnership business.
Year of Assessment(Section 2)
A period of 12 months;
Commences 1 January and ends 31 December or;
Any period within the year.
Source of Income
No definition of ‘source’ in the Act.
Clarity is sought from common law.
The general definition laid down by;
Watermeyer, CJ, in CIR v Lever brothers and Unilever
Ltd (1946).
The source of income is not where it comes from but;
The work which was done by the taxpayer which
resulted in the income being earned (the originating
cause of the income).
• The originating cause of income is the effort or work
which the taxpayer did in return for the income.
Source of Income
The work may be;
A business,
An activity,
An enterprise,
Mental or physical effort,
Employment of capital to earn income or,
Letting the use of capital to someone else.
Source of Income
How do we determine source of Income?
Ask 2 questions;
1. What is the ‘originating cause of the income’?
i.e. what form of work did the taxpayer do in order to earn the
income?
2. What is the geographical location of this ‘originating cause of
income’?
i.e. where did the taxpayer do the work which resulted in
him/her earning the income?
The geographical location of the originating cause of income is
the source of income
Specific Sources of Income
(i)Royalties
The place where the intellectual property was created
i.e.
Where the author exercised his wits, labour and
intellect
Case: Millin v CIR (1928).
Same with income from patent rights and other
intellectual property.
(ii)Trademarks and ‘know how’
Where the recipient carries on the activity, or employs
the asset, giving rise to such income.
An exception to all other forms of intellectual property.
Case of ITC 1491 (1991).
(iii)Services rendered under an employment contract
Where services are rendered.
Case :COT v Shein (1958).
(iv)Directors’ fees
Where the head office of the company to which the
director renders his services is located.
Case: ITC 106 (1927).
However, if the director renders his services in the
capacity of an employee, i.e. earning a salary;
Source of such income is determined by the place
where the services are rendered.
(v)Services rendered in the course of carrying of
business or trade.
Where the services are rendered.
(vi)Sale of shares
The place where the shares were traded.
Case:CIR Vs Black, 21 SATC 226.
(vii)Income derived from trade
The place where the trade is carried out ,
Case: Smith & Co. v Greenwood, 8 T.C. at 203-4. or ;
Where the trade is controlled;
Case: San Paulo (Brazilian) Rly Co. Ltd v Carter, [1896].
(viii)Business operations- profits
The place where the operations are being carried out.
If business operations extend beyond one country;
Source of profits is the country of dominant activities
For Trading activities which extend beyond one country;
Source of profits is the country in which the goods are sold.
Australian Case :Commissioner of Taxation of Western
Australia v Murray Limited, 42 C.L.R. 332.
(ix) Dividends
The country in which the company which paid the
dividends is incorporated.
Case: Boyd v CIR (1951).
(x)Annuities
Contractual Annuity: the place where the contract was
concluded:
Boyd v CIR (1951).
Will trust: the place where the will was executed
ITC 826 (1956).
(xi)Interest
Interest income is derived from the letting of use of
capital to another person.
Source of interest is the place where;
the credit was granted(loan) or;
the place where the capital producing the interest was
employed(other activities).
Case: Dunn & Co. and Overseas Trust Corp Ltd. v
C.I.R, 1926 A.D.
(xii)Rentals
Immovable property: the country in which the property
is located.
Movables:
Depends on whether its short-term lease or long-term
lease.
• Short term leases(less than 5 years).
The country in which the owner of the hired assets
carries on business.
(xii)Rentals
Movables:
Long term leases(5years and above),
The country where the asset is used by the customer.
Case:COT v British United Shoe Machinery (Pty) Ltd
(1964) 26 SATC 163.
(xiii) Partnership profits
The place where the partner renders his services to
earn the partnership income.
CIR v EPSTEIN, 1954.
Mr Modekai an ordinary resident of Zimbabwe obtained the following
income during 2016 year of assessment. Calculate his GI.
$
Royalties from a book published in Zimbabwe but written in England 300
Salary from Econet Zimbabwe 200

Dire tor’s fees fro T alu a Pt ith HQ i S azila d 600
Income from trading activities in Ghana 500

Share trading activities on Zimbabwean Stock Exchange 400
Furniture sales from a small branch in South Africa, main business is in Zimbabwe 700
Dividends from Zex Ltd an Australian Company 500
Annuity purchased from Old Mutual Zimbabwe 200

Mr Modekai an ordinary resident of Zimbabwe obtained the following
income during 2016 year of assessment.
$
Interest from Barclays Zambia 300
Rent from a House in Botswana 400
Rent from a Commercial Property in Harare CBD 300
Lease income from a 10 year lease of a truck used in Namibia 500
Deemed source(Section 12)
Cases where the ITA assumes that income is from a
source within Zimbabwe;
Even if the true source is not Zimbabwe.
(i)Contract for the sale of goods made in Zimbabwe:
Sect 12(1) (a)
(ii)Income derived from rendering of services in
Zimbabwe: Sect 12(1) (b)
Services rendered in the course of employment or;
In carrying on of a trade.
Where the payment comes from doesn’t matter.
(iii)Income from services rendered by an employee
during period of temporary absence from Zimbabwe:
Sect 12(1) (c)
A period of temporary absence is a period not
exceeding 183 days in aggregate during a year of
assessment.
It is a period less than 6 months.
This includes a director as an employee.
(iv)Services rendered to Zimbabwe government: Sect
12(1) (d)
Remuneration paid to;
A Zimbabwean government official;
 Who is an ordinary Zimbabwean resident;
 For services rendered to Zimbabwe government;
Outside Zimbabwe.
Excludes;
Remuneration earned by a non-resident of Zimbabwe;
To the Zimbabwean government;
Outside Zimbabwe.
(v)Pension and Annuities for services rendered in Zimbabwe:
Sect 12(1) (e)
(vi)Foreign Interest and dividends received by a resident of
Zimbabwe: Sect 12(2)
(vii)Foreign annuities purchased by ordinary residents of
Zimbabwe: Sect 12 (3)
(viii)Foreign Royalties from the use of intellectual
property in Zimbabwe (Sect 12(4))
Use of a design, trade mark, patent, secret formula or
film in Zimbabwe.
(ix)Recoupment/Recoveries (Sect 12 (5))
Any recoveries made outside Zimbabwe; if
The taxpayer once enjoyed allowances in Zimbabwe.
For example, disposal of a motor vehicle outside
Zimbabwe which was granted capital allowances in
Zimbabwe.
Mrs Modekai an ordinary resident of Zimbabwe obtained the following
income during 2016 year of assessment. Calculate her GI.
$
Receipt for goods delivered in Algeria. The contract of sale was done in Gweru 300
Receipt from a Liberian company for construction work done in Zimbabwe 600
Award for a good presentation done during a 2-day workshop in Australia 200
Services rendered to the Zimbabwean Embassy in Zambia 500
Pension from Old Mutual Zimbabwe 200

Interest from a Chinese Bank 100
Dividends from Mkani Pty, South Africa 600
Purchased Annuity from Barclays London(Net of cost) 300
Deemed source(Section 12)-Double Taxation Relief
To avoid double taxation on income deemed to be from
a source within Zimbabwe;
A foreign tax relief is granted on income which was
subject to foreign tax.
Most common with foreign interest and dividends.
Procedure
1.Calculate Zimbabwean tax on the foreign income;
2.Compare the Zimbabwean tax to the Foreign tax paid.
3.The lesser of the Zimbabwean tax and Foreign tax is the
double taxation relief.
4.Deduct the double taxation relief from the tax payable
on the income.
Take Note
Foreign interest is taxable @ 25%+3% AIDS Levy.
Expenses incurred on foreign interest are an allowable
deduction.
Foreign dividends are taxed @ 20%.
Expenses incurred are not an allowable deduction.
i.e. foreign dividends are taxed gross.
Not subject to 3% AIDS Levy.
Take Note
Foreign interest is taxable @ 25%+3% AIDS Levy.
Expenses incurred on foreign interest are an allowable
deduction.
Foreign dividends are taxed @ 20%.
Expenses incurred are not an allowable deduction.
i.e. foreign dividends are taxed gross.
Not subject to 3% AIDS Levy.
Example
• Mr. Chimutsa is ordinarily resident in Zimbabwe. During the current year of
assessment he earned the following income from foreign sources:
• (i) Dividends from Zulu Ltd, a company listed on the Johannesburg Stock
Exchange valued at $25 000 net of Non-residents tax (N.R.T) of $5 000.
• (ii) Bank interest from Ekeme Banking Corporation, a Nigerian bank located in
Abuja. The amount was $10 000 gross of 10% of Non-residents tax on Interest.
Expenses amounting to $1000 were incurred in earning the income.
• (iii) Rental income of $40 000 from a commercial property in London, United
Kingdom. No tax was charged on this income.
• Required
• Co pute Mr. Chi utsa’s ta pa a le after gra ti g a relief a aila le to hi .
Income of a Capital Nature
Income of a capital nature is excluded from gross
income.
Income of a capital nature means;
Income from disposal of a non-current asset.
Income from disposal of an asset which wasn’t initially
intended for resale.
Income from any activity where initially there was no
profit motive e.g inheritance.
Income obtained from payment by another person for
him/her to obtain a long term benefit/advantage e.g
payment in restraint of trade.
Consider taxpayer’s intention
Consider intention of taxpayer when he initially
acquired the asset.
• Use to generate revenue-income from disposal is capital-
not part of gross income.
• Resell later to make profit-income from disposal is
revenue-part of gross income.
Examples of capital receipts
Insurance policy proceeds,
Goodwill,
Lottery wins(gambling proceeds),
Inheritance,
Payment in restraint of trade,
Damages compensation,
Fortuitous receipts,
Proceeds from sale of assets in which taxpayer does not
trade.
Determine the Gross Income for 2016 from the information
given below for Mrs Chasi an ordinary resident of Zimbabwe($)
Sale of a motor vehicle 5,000
Sale of personal clothes 2,000
Compensation from Insurance 1,000
Proceeds from sale of Goodwill 3,500
Money inherited from late uncle 6,000
Weekly winnings from Econet Lotto 2,000
Payment from previous employer so as to prohibit her from
joining competitors 5,000
Determine the Gross Income for 2016 from the information
given below for Mrs Moyo an ordinary resident of
Zimbabwe($)
Insurance Policy Proceeds 12,000
Rent from a house in Harare 25,000
Fixed Deposit account interest from South Africa 1,000
Econet Zimbabwe dividends 3,500
Textbooks royalties from Zimbabwe 53,000
Rent from a house in Botswana 250,000
Salary form ZIMRA 110,000
Determine the Gross Income for 2016
Bank interest from a book written in Nigeria 3,600
Proceeds from the sale of house 60,000
Annuity from a fund in Zimbabwe 10,000
Allowances from Zimbabwe Government for services rendered in
Swaziland 60,000
Leave pay (for December 2016 & January 2017) 200,000
Cash in lieu of leave 12,000
Groceries received from employer 500
Commission earned from sale of motor vehicle 74,000
Loan from local building society 50,000
Specific Inclusions in Gross Income[S8(1)]
The following sub-paragraphs are specific inclusions in
gross income;
Even though some of the receipts may appear to be of a
capital nature:
Annuities [S8(1)(a)]
Definition
A repetitive annual payment paid to a particular person
for a defined period of time.
Characteristics
Provides for an annual payment, even if divided into
instalments;
Repetitive, payable from year to year, at any rate, for
some period and;
Paid by a defined person to another.
Types of Annuities
Purchased from an insurance company,
Gift or legacy,
Sale of a business or an asset,
Pension for services rendered.
Purchased Annuity
Only the interest/profit portion is brought into gross
income.
Calculation
I = [(P x N) – A)]/N, where
I = interest content of annuity;
P = the annual payment(or periodic payment);
Purchased Annuity
N = number of payments expected;
This may be a definite period or,
Life annuity: life expectancy of the annuitant.
A = the purchase price of the annuity.
Example
• Wachembera [50 years old] purchased a retirement
annuity policy with First Mutual many years ago for $1
250. They agreed on life expectancy of 6 years after
retirement. During the year he became entitled to $2 100
per annum as an annuity.
• Calculate Wachembera’s taxable income per year.
Purchased Annuity
Where the annuity accrues on a monthly basis,
Use number of months to apportion.
Amount received after life expectancy is taxed in full.
Maximum life expectancy is 10 years.
Example
Mr. X. purchased an annuity on retirement from Old
Mutual Zimbabwe using $100,000 won from the state
lottery. The policy matured and he was entitled to a
monthly annuity amounting $2,000 while his life
expectancy is estimated at 10 years. Calculate the
amount which constitutes gross income for the tax period
ended 31/12/2016 assuming that his pension entitlement
was with effect from:
(a) 1st January 2016
(b) 1st July 2016
(ii) Annuity by gift or legacy
No expenditure is incurred by taxpayer,
Where the fund is situated in Zimbabwe or,
Deemed to be situated in Zimbabwe,
The amount is taxable in full.
Where the fund is not situated in Zimbabwe,
The amount is not taxable at all.

(iii) An annuity from sale of assets
Only the interest/profit content of the annuity is
taxable.
Calculations are as in a purchased annuity.
(iv) As an annuity or pension for services rendered
During employment a person may contribute monthly or
annually to retirement annuity fund [RAF].
Contributions are allowed as a deduction[S15(2)(h)]
Deductions subject to maximum amounts.
Upon retirement the person will be entitled to an
annuity as income.
(iv) As an annuity or pension for services rendered
Contributions Allowed as a deduction in full
Annuity is taxable in full if the contributions were
allowed as a deduction in full.
Part of contributions disallowed
Spread the disallowed contributions over life
expectancy, and
Deduct against annuity received.
Example
• Musarurwa retired at the age of 60 years on 31
December 2016 and is entitled to an annuity of $3 200 per
annum. During his working life he was contributing to the
employer’s Pension Fund and his contributions exceeded
the maximum for those years. The aggregate of the
disallowed contributions amounted to $560 .His life
expectancy is 8 years from date of retirement.
• Calculate his taxable Income per annum.
Income for services rendered [S8(1)(b)]
Any amount received for services rendered or to be
rendered is gross income.
Commutation of amounts due under a contract of
employment/service
Full amount is taxable in the year of receipt.
Amount received for services to be rendered
Gross income in the year of receipt not when the
services are actually rendered.
Fringe benefits/Benefits in kind
Value of assets like shares, motor vehicle awarded for
services rendered are gross income.
Value of wedding presents and other gifts to employees
are gross income, only if
• The employer claims a deduction.
Ex-gratia receipts by widow
An ex-gratia receipt in the hands of a deceased
employee’s widow,
Is an amount of a capital nature,
Since the services were not rendered by her.
• Example
Mr Jikirosi received the following amounts during the year:
$
• Salary 21 780
• Bonus 1 600
• Cash in lieu of leave 1 240
• Gratuity on termination of service 1 450
• Commutation of amount due under a contract of service 4 530
• Calculate the gross income of Mr Jikirosi.
Lumpsum payments [S8(1)(c)]a.r.w 1st Schedule
Key Definitions
Lumpsum payment
Is an amount received by a person on withdrawal from
or winding up of a pension, retirement annuity or
benefit fund.
Pension fund
Fund established by an employer to benefit his
employees at the time of retirement.
Key Definitions
Benefit fund
Fund established by an employer to cater for his
employees in times of ill-health, loss of employment and
etc.
Retirement annuity fund
Contract between an insurance company and an
individual,
whether an employee or not,
Key Definitions
Retirement annuity fund
The individual makes contributions now;
Receives annuity on retirement.
Annuity might be;
• In addition to(supplement) or,
• In lieu of;
• any pension from his employer’s pension fund.
Circumstances giving rise to Lumpsum payments
A withdrawal from a fund occurs when;
• An employee resigns from the fund,
• Before reaching the retirement age as a result of:
Retrenchment before the age of retirement,
Changing employers.
Liquidation or winding up of pension fund.
Lump sum payments are taxable subject to limitations
contained in the 1st schedule.
Taxation of Lumpsum payments
Guided by;
The type of fund, and;
The date the member (employee) joined the fund.
Types of Funds
There are three types of funds namely:
 Benefit fund.
 Pension fund.
 Unapproved fund, pension or benefit.
1 July 1960
A very crucial date in terms of the pension laws.
Pension laws were changed.
Due to the changes in pension’s law the following funds
emerged:
 Old benefit / pension fund
 Semi-old benefit/pension fund
 New benefit/pension
An old fund
Fund to which the member joined before 1 July 1960,
Whose rules did not change after 1 July 1960.
Semi-Old Fund
A fund to which a member joined before 1 July 1960,
but whose rules were changed on 1 July 1960.
New Fund
A fund which was created after 1 July 1960, or
To which the member joined after that date.
Our discussion will focus on the New funds only.
New Benefit Fund
Beneficiaries of a benefit fund are called Part 1
Beneficiaries.
Where the member joined on or after 1 July 1960(New
Fund),
The amount to be taxable is arrived at as follows:
New Benefit Fund
• Lump sum payment xxx
• Less
• Prescribed amount (1 800)
• Amount used to purchase an annuity on retirement (xxx
• Amount transferred to a benefit fund (xxx)
• Amount transferred to a pension fund (xxx)
• Taxable income xxx
New Pension Fund
Beneficiaries of a pension fund are referred to as part 2
beneficiaries.
Where the member joined on or after 1 July 1960(New
Fund),
The amount to be taxable is arrived at as follows:
New Pension Fund
• Lump sum payment xxx
• Less
• Amount used to purchase an annuity on retirement
(xxx)
• Amount transferred to a pension fund (xxx)
• Taxable income xxx
New Pension Fund
Note
Transfer to a benefit fund is not accepted in respect of
a lump sum accruing from a pension fund.
Beneficiaries of unapproved fund (para.10, 1st
schedule)
LSP constitutes a refund of member’s contributions.
Only the interest/profit is taxable.
• Lump sum payment X

• Less: Member’s own contributions (X)
• Gross income amount X
The resultant taxable income from LSP is taxed at the top
rate of tax for the particular tax payer.
Example
• Arumando submitted the following with respect to 2016. He
joined the funds in 1980.
• Lump sum Payment 100 000
• Transfer to a pension fund 20 000
• Transfer to a benefit Fund 12 000
• Members’ own contributions 40 000
• Amount used to purchase an annuity on retirement 33 000
Calculate the amount to be included in gross income
assuming the above mentioned LSP is from a:
• (a) Benefit Fund (b)Pension Fund (c)Unapproved Fund
Lease premiums [S8(1)(d)]
A premium is an amount paid by a lessee to a lessor for
the right of use of property.
Property might be;
• land and buildings,
• plant or machinery,
• patent,
• design,
• trademark,
• copyright,
• secret process, film etc.
A premium is taxable in full in the year of receipt or
accrual.
It can be in cash or kind.
It can be in addition to or in place of rent.
A premium between sub-lessee and sub-lessor is gross
income to sub-lessor.
Example
• Daniel agreed with the tenant Munya that he should pay
$2 500 down payments plus rent of $11 000 per month as
from 1 August 2016. He also agreed with tenant Tari that
she should pay $4 000 cash and use the property rent free
for the next 3 years.
• Calculate taxable income for Daniel for the 2016 tax
year.
Lease improvements [S8(1)(e)]
Improvements done by a tenant on the landlord’s
property.
Tenant does not get a refund.
Improvements become part of lessor’s property.
The value of such improvements is gross income to the
landlord.
The value to be brought into gross income is that
stipulated in the agreement.
Voluntary improvements by the lessee are not gross
income to the lessor.
Revision of the value of improvements
Upward revision of the cost of construction before
completion of the improvements,
• Lessor is taxable on the revised amount.
If revision of the amount takes place after completion
of the improvements;
• The lessor is taxed on the original amount.
If there is no stipulated value, fair and reasonable value
used,
This is usually the cost.
If a lease stipulates a minimum amount, actual cost is
taken as gross income.
Lease improvements accrue as income to the lessor
from the date such improvements were effected or
completed.
Lease improvements accrue in equal monthly
installments,
Over the unexpired [remaining] period of the lease
agreement or 10 years whichever is the lesser period.
If the initial lease period is extended or renewed,
Only the initial period shall be considered for the
calculation of gross income.
If lease period is silent or indefinite the lease period
shall be deemed to be 10 years.
Example
• Tamuka and Chasima entered into a ten-year lease
agreement on 1 January 2016. Chasima agrees to
construct a building to the value of $1,140.Prior to
completion of the building the value is amended to
$1,200. Buildings are completed in 6 months and put into
use on 1 November 2016.
• Calculate the gross income amount for Tamuka for the
year ended 31 December 2016.
Benefits from employment[S8(1)(f)]
Fringe Benefits
A fringe benefit is a payment by an employer to an
employee or a director of a company,
• In the course of employment,
• Over and above the employee’s salary.
It can be paid in cash or in kind.
• The value of fringe benefits is gross income to the
employee.
Valuation of benefits
Based on the cost to the employer for providing the
benefit.
Exception
Housing and furniture benefit are valued in reference to
the value to the employee.
(a) Passage benefit
A personal(private)journey undertaken by an employee,
his spouse or child,
Paid for by the employer,
Is gross income in the hands of the employee.
It is apportioned on time or usage basis if the journey is
undertaken for dual purposes.
Exemptions
First journey on taking up of employment
First journey on termination of employment
Journey taken for the business of the employer
Example
Mr Sadombo, who works for Alisto Engineering as a
production manager, went to a business trip to Brazil in
May 2015. He was accompanied by his wife and son. He
incurred the following expenses:
Hotel bookings and meals $2 500
Wife’s touring $500
Paid for jumping castles for his son $120
Mr Sadombo spends 3/5 of his time in Brazil doing the
business of his employer.
Calculate Mr Sadombo’s passage benefit.
Solution $
• Hotel bookings and meals $2 500*2/5 1 000
• Wife’s touring 500
• Son’s jumping castles 120
• Taxable benefit 1 620
(b) Housing benefit
Employee granted free use of a house by employer.
Benefit is gross income to the employee.
Valuation
(i)Municipal area: Open market rental
(ii)Outside municipal area(e.g farm):
The greater of:
• 12.5% of the employee’s salary or;
• 7% of the cost of construction.
Exemptions
• If conditions of service require employee to stay in a
company house.
• House to staff of a mission hospital or rural clinic.
Operated or sponsored by a religious body or a rural
district council.
(c) Furniture benefit
• Employee is granted free use of furniture.
• Value of the benefit= 8% of the cost of furniture.
• Usually granted together with the housing benefit.
Example
George Mukarati is a finance manager with Matombo Quaries
(Pvt) Ltd, beginning April 2015 he was granted a benefit of
staying in his employer’s house in Greendale suburbs. The rentals
for similar houses average $750 per month. George’s employer
deducts $100 for accommodation from his monthly earnings. Just
before George occupied the house his employer furnished it for a
total cost of $3 600. The house was constructed for $56 000.
Calculate George’s taxable benefit for the year ended 31

December 2015.
Solution $
• Housing benefit (750-100)*9 5 850
• Furniture benefit (8%*3 600) 288
• Total taxable benefit 6 138
• #Note: Since the house is within municipal area, the
open market rentals are the only relevant information
for valuation of the benefit.
(d) School fees benefit
This arises where;
Employer pays school fees for the employee, spouse or
children, or
Employer exempts the employee, spouse or children from
paying fees or part of the fees.
Value of the fees =gross income in the hands of the employee.
With effect from 1 January 2013, half of such benefit is
exempt to the employee.
The exemption applies to only three children of the taxpayer.
Example
• Artwell is a teacher with Harvest Private Primary School.
He has 4 children learning at the school and the school
offers education to his children free of charge. School
fees and levies paid by other pupil’s amounts to $1,300
per child per term. Artwell is on $1,000 monthly salary.
• Compute his 2016 taxable income.

Solution $
• Salary (1 000*12) 12 000
• School fees benefit 1300*3*4 15 600
• Less: exemption: 1300*3*3*50% (5 850)
• Taxable income 21 750
(e) Motoring benefit
Where an employee is granted free use of a car by the
employer.
The benefit is measured based on the engine capacity of
the vehicle.
The benefit arises where an employee uses the vehicle
for private purposes.
• The following are the deemed cost in respect of the
year of assessment
• Engine Capacity Deemed cost per annum
US$
• Less than 1500 cc 3600
• 1501 -2000 cc 4 800
• 2001 – 3000 cc 7 200
• 3001 cc and above 9 600
• Where the period of use of the vehicle is less than a
year, the deemed cost is reduced proportionately.
(f) Sale of a motor vehicle to an employee
• If an employer sells a motor vehicle to an employee,
• Whether during or on termination of employment,
• The benefit to the employee is determined by the following
formula:
• A – B, where,
A represents the market value of the motor vehicle:
B represents the cost at which the employee acquired the
motor vehicle:
Exemption
No benefit arises if the motor vehicle is disposed to an
employee who is above 55 years of age.
Example
• Mrs Olivia joined Fire Engineers (Pvt) Ltd beginning of
April 2016 as an Production manager, she is entitled to a
company car Mazda BT-50, engine capacity 3 000cc, and
a monthly salary of $1 800. At the end of the year the
employer purchased a new vehicle for her and gave her
the option to purchase the Mazda BT-50 car for $5 000,
the market value of the car is $15 000. She took the
option.
• Show her taxable benefit for the 2016 tax year.
Solution $
• Salary (1800*9) 16 200
• Motoring benefit (9 600*9/12) 7 200
• Purchase of a motor vehicle (15000 -5000) 10 000
• Taxable income 33 400
(g) Interest benefit
Arises if an employee is granted an interest free loan
or;
A loan on which interest is charged below market rates.
The benefit is calculated by multiplying the loan
amount by following formula;
LIBOR + 5% - A
Where,
LIBOR means London Inter -Bank Offered Rates; and
A is the rate of interest being paid to the employer.
Exemptions
loans which are below $100.
loans used on education of employee or his/her family.
loans used on technical education of employee or
his/her family,
loan used on medical costs of an employee or his/her
family,
Loans with an interest rate above Libor + 5%.
Example
• Mr Manjoro a marketing manager with Telkom
Communications P/L was given a loan of $10 000 in
beginning of April 2016. Mr Manjoro is supposed to pay
back the loan together with interest at the end of the
year. He was being charged an annual interest rate of
3%. Libor is 2.5%.
• Calculate his taxable benefit for the year 2016.
• Solution
• Interest benefit (5+2.5-3) %*10 000*9/12 = $337.50
(i) Entertainment allowance
Entertainment allowance which is paid to a person by
his or her employer;
Is taxable in the hands of the employee;
Exempt if used for the business of the employer.

(j) Subsidized or free meals
Subsidised meals to employees provided by
employer.
Benefit is taxable in the hands of the employee.
The benefit=cost to the employer.
•Reduces if employee pays.
(j) Subsidized or free meals
Exceptions
No benefit in the hands of the employee if;
The employer runs a canteen as part of his
business.
The meals are provided during working hours.
Other benefits
All other benefits which accrue to an employee, These
include:-
• Use of telephone and cell phone.
• The provision of domestic workers including gardeners.
• The provision of security services
• The provision of clothing with the exception of
protective clothing
• Fuel coupons - Taxable in the hands of employees if
given to employees who are not enjoying a taxable
motoring benefit.
Exemptions
• Medical aid, and
• Medical expenses
 paid on behalf of the employee by the employer.
Income from growing crops[S8(1)(g)]
The sales of reaped crops are taxable income.
If timber or crops were grown with the intention of sale
and;
The land is sold together with the growing crops;
The market value of such timber or crops at the time of
sale is gross income.
Valuation of trading Stock[S8(1)(g)]
a.r.w 2nd Schedule
The value of the following types of stock is gross
income:
closing stock,
stock consumed or donated,
stock on hand on insolvency or death,
stock attached by court order and
stock sold together with business.
Recoupment
Section 8(1)(i).Recoupment from sale of mining assets
Section 8(1)(j) Recoupment general
Concession by a Creditor[S8(1)(k)]
If the sale price of any commodity is adjusted
downwards such that;
The purchaser ends up paying less than the amount
previously charged;
That adjustment is brought into gross income in the
hands of the debtor;
If the full purchase price was allowable as a deduction
before such adjustment.
It does not apply to the acquisition of a non-current
asset.
Concession by a Creditor[S8(1)(k)]
• Example
• Year 2016
• Joshua sold goods to Dennis for $8 100 on credit. The sales of
$8 100 are taxable to John. The purchases of $8 100 million are
allowed as a deduction to Dennis under section 15(2) (a) even if
he has not paid.
• Year 2017
• John agreed with Dennis that he should settle the debt by
paying $8 000.
• How much is gross income in the hands of Dennis in 2017?
Subsidies and Grants[S8(1)(m)]
If revenue expenditure was incurred and allowed as a
deduction and later;
The taxpayer recovers it by way of subsidy or grant;
The amount recovered is taxable income.
Thus subsidies and grants are taxable income;
When received in the normal course of business.
Grants for capital expenditure are not gross income.
Commutation of a Pension from a RAF[S8(1)(n)]
If a taxpayer makes a commutation from a Retirement
Annuity Fund,
1/3 of the total value of the annuity/pension
entitlement is not taxable.
A commutation means giving up the right to receive
income in future, and opting for a lump sum.
Only apply in the case where contributions were first
made to that fund on or after the 1st of August 1970.
Where a reduced pension is received afterwards it is
taxable in full in the year of accrual or receipt.
Commutation of a Pension from a RAF[S8(1)(n)]
To be availed a commutation it is necessary that a
taxpayer should elect.
Pension entitlement is what the taxpayer is expected to
receive over the life expectancy.
Example
• Steven retired on 30 July 2016, and received a lump sum
payment $2,500 from a retirement annuity fund as
pension. His pension entitlement is $5,700.
• Calculate his taxable income for 2016.
Commutation of a Pension from a Pension Fund[S8(1)(r)]
The commutation of a pension from a pension fund is
taxable if;
It is from a source within Zimbabwe.
Share options[S(8)(1)(t)]
The value of shares received by an employee from
employer;
In pursuant of a share option scheme.
Is gross income in the hands of the employee.
The income is calculated by the following formula:
• A-(B+C)
Where—
• A =the market value of shares at the time the option is
exercised.
• B =the offer value of shares.
• C=Inflation adjustment.
=[B x(D - E)]/E
• Where—
D is inflation index at the time the employee exercises
the share option;
E is the inflation index at the time when the shares
were offered to the employees.
Exemption.
• The share option benefit is tax exempt where the
employee share ownership scheme or trust has been
approved by ZIMRA
Where there is no inflation, benefit=A-B
Share options Scheme[s(8)(1)(t]
Example
• Dakarai was granted 10 000 shares under an employer
share option plan at 60 cents a share. The market value
per share was 100 cents on the date of exercise. The
inflation indexes were 1.3% and 1.75% on the date of
share offer and exercise, respectively.
• Calculate her taxable income?
• Solution
• A-(B+C) = 100(A)- [60(B) + (60(B) x (1.75(D)-
1.3(E))/1.3(E))] = 19.2c x 10 000 = $1 920
Exchange rate Variations[s(8)(2)]
Any gain as a result of movement in exchange rates is
gross income.
However, only realised gains are brought into gross
income.
END OF CHAPTER 2
CHAPTER 3:EXEMPTIONS
3.EXEMPTIONS(s14 a.r.w 3rd Schedule)
Exemptions are amounts that meet the definition of
Gross Income but;
Which are specifically stated in the ITA to be exempt
from tax.
Exempt income can be categorized in 2 ways:
(a) By the identity of the recipient, or
(b) By nature of income.

EXEMPTIONS(s14 a.r.w 3 rd Schedule)
Exemptions on individuals
Salary or allowances paid to the President of Zimbabwe.
Salary paid to domestic workers of the president to the
extent that the salary is paid by him from his salary.
Allowances paid to a member of parliament and the
minister.
Allowances paid to civil servants. Only allowances,
salary is taxable.
Allowances paid to the chief or village headman.
Receipt of a scholarship or bursary.
Alimony or maintenance received by a person.
Allowance paid to the councillor.
Bonus or any performance related award, in respect of
the first US $1000.
Retrenchment package, in respect of a 1/3 of such
package to a minimum of US$10 000 and a maximum of
US $20 000. (i.e. the ceiling of retrenchment package is
US $60 000)
A scholarship paid to a student, as long as it is not
payment for services rendered.
RETRENCHMENT PACKAGE
Example
Chipo, Sarah and Chinedu were retrenched during the
year and they received
$9 000, $24 800 and $61 000 respectively.
Calculate the exemptions attributable to each of them.

Medical and related expenses paid by employer on
behalf of employee, spouse, children or dependancies.
Refunds from medical aid society or benefit funds.

Contributions paid to a medical aid society by an
employer on behalf of his employee.
Contributions to pension fund paid on behalf an
employee by his employer.
Compensation for injury at work paid by an employer.
Amounts received as benefits for injury, sickness or
death of a person which is paid to the person in terms of
a policy of insurance covering accident, sickness or
death; or by a medical aid society.
An entertainment allowance expended on the business
of the employer.
A pension received by an elderly person(55 years and
above) from the Consolidated Revenue Fund or any
approved pension fund.
Exemptions on elderly persons(55 years and above)
Exemption from Income Tax of the first US$3 000.00
per annum on rental income.
per annum on income earned from bankers acceptances.
per annum on income earned from interest on deposits
with financial institutions.
Pension received from a pension fund or the
Consolidated Revenue Fund is exempt from Income Tax.
Motor vehicle purchase benefit.
Exemptions on Trade and Investment Income
Interest from a POSB (Zimbabwe) account or Zimbabwe
Revenue Authority tax reserve certificates.
Interest on class C permanent shares issued by building
societies.
Dividend received from a Zimbabwean company which
is chargeable to tax on its profits.
Interest accruing to a resident which has been
subjected or which is subject to withholding taxes
(Resident Tax on Interest).
This covers interest from financial institutions.
Exemptions on Trade and Investment Income
Amounts paid by the state to an exporter of goods in a
scheme of export development.
Example is export incentive grants.
Interest earned on approved loans to Statutory
Corporations.
Interest earned on loans to small scale miners.
Income from sale of traditional beer.
The receipts and accruals of an industrial park
developer, for the first 5 years of his operation.
Organisation whose receipts and accruals are exempt
from tax
Parastatals and government owned entities, e.g. ZESA,
NRZ, and RBZ etc.
Ecclesiastical or charitable institutions e.g. trust
organisations, church organisation
Clubs, societies, institutes and associations organized
and operated solely for social welfare, civic
improvement e.g. institutes like CIS, IBAS, ACCA, ICAZ
Employees saving schemes
Pension fund
Organisation whose receipts and accruals are exempt
from tax
International government organizations, e.g. African
Development Bank, WHO, IMF etc.
Example
• Mr Jones is 56 years old and is a Director in the Ministry of Finance in
Zimbabwe. He obtained the following income during the year of
assessment. Calculate his Income.
$
Salary 20 000
Housing Allowance 5 000
Transport Allowance 3 000
Cash in Lieu of leave 1 000
Bonus 1 500
Retrenchment package 24 000
Pension from government 5 000
Example $
Rental income 6 000
Bankers’ acceptances interest 1 000
Interest from POSB Zimbabwe 500
Interest from deposits with CBZ 1 000
Income from Poultry Project 5 000
Dividends from Econet Zimbabwe 2 000
Calculation of Mr Jones’ income for the year of assessment
$
Salary 20 000
Housing Allowance 5 000
Transport Allowance 3 000
Cash in Lieu of leave 1 000
Bonus 1 500
Retrenchment package 24 000
Pension from government 5 000
Rental income 6 000
Bankers’ acceptances interest 1 000
$
Interest from deposits with CBZ 1 000
Income from Poultry Project 5 000
Dividends from Econet Zimbabwe 2 000
Gross Income 75 000
$ $
Gross Income 75 000
Less Exemptions
Housing Allowance(civil servant) 5 000
Transport Allowance(civil servant) 3 000
Bonus(max.) 1 000
Retrenchment package(1/3X24 000 or 10 000) 10 000
Pension from government(elderly) 5 000
Rental income(elderly) 3 000
Bankers’ acceptances interest(elderly) 1 000
$ $
Gross Income 75 000
Less Exemptions
Interest from deposits with CBZ(withhold.tax) 1 000
Dividends from Econet Zimbabwe(local company) 2 000 (31 500)
Income 43 500
CHAPTER 4: ALLOWABLE DEDUCTIONS
Allowable deductions [Section 15]
This is expenditure which is allowed as expenses when
calculating taxable income.
General deduction formula [Sect. 15(2)(a)]
Gives a general guide on which expenses/deductions
are allowable.
These are;
expenditure or 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 it is of a
capital nature.
To the extent to which
The expenses can be apportioned between private and
business.
Only the business portion is allowed as a deduction.
Incurred
Expenditure is allowed as a deduction as long as the
taxpayer has acquired a legal liability to pay.
It doesn’t matter whether cash has been paid or not.
For the purposes of trade
Means for the purpose of enabling a person to carry on
business and earn profits.
Expenditure of a Capital Nature
Capital expenditure is the cost of acquiring, expanding
or improving the income earning structure(e.g non-
current assets).
Also includes expenditure incurred in acquiring a long-
term/enduring benefit or advantage.
Examples of allowable deductions
Cost of valuation of assets such as business premises,
stock, plant and machinery for insurance purposes.
Travelling and entertainment expenses incurred by
insurance agents.
Cost of preparation of income tax returns but NOT cost
of professional advice on income tax matters.
General short-term advertising and promotional costs.
Loan raising fees and interest charges for revenue
expenditure.
If a loan is used to purchase assets, the charges should
be capitalized and therefore forms part of the cost of
the asset.
The loan-raising fee in respect of working capital is
allowed as a deduction under section 15(2)(a).
The cost of replacement of tradesman tools.
The cost of protective clothing such as overalls, boots,
helmets, specially required for the employment and
which cannot be used for ordinary purposes.
Donations and similar contributions made from purely
business motive not charitable motive.
Losses of cash by petty pilferage and losses through
embezzlement or theft by an employee who is not in the
position of proprietor/owner.
Examples of expenditure of a capital nature
Money spent on acquiring fixed assets for use in
business including;
Costs connected with the acquisition of capital assets
e.g transfer fees, transport or installation costs,
travelling expenses to purchase the assets.
Money spent in order to create a long-term source of
income e.g.
Purchase price of goodwill or annuity.
The cost of obtaining share capital e.g.
Underwriting commission, advertising legal costs in
connection with an offer of shares to the public.
Advertising of a permanent nature e.g signboards.
Outlay incurred in devising permanent method of
disposing of waste effluent of a chemical manufacturing
company.
Acquisition by a farmer of the right to a supply of water
in perpetuity.
Architect’s fees in connection with the erection of new
factory premises by manufacturers.
Finance charges included in total purchase price of a
capital asset acquired under a hire-purchase agreement.
Sum of money paid for the exclusive right to become a
sole agent of a certain commodity (payment in restraint
of trade).
Expenditure incurred with the aim of improving a
taxpayer’s knowledge resulting in a change in the
income-producing machine.
Mere maintenance of professional or trade efficiency is
revenue in nature.
SPECIFIC ALLOWABLE DEDUCTIONS(S15(2))
Section 15(2)(b): Repairs
A repair is a restoration by renewal or replacement of
subsidiary parts of the whole, which have worn out.
Repairs to assets used for the purposes of trade are
allowable deductions.
Repairs should be distinguished from improvements.
An improvement creates a new asset which results in an
increase in the income generating capacity.
Section 15(2)(b): Repairs
A repair merely restores the asset to a state in which it
will continue to earn income.
It maintains the income earning capacity.
Reconstruction of substantially the whole of an asset
constitutes an improvement.
Improvements are amounts of a capital nature.
Section 15(2)(d): Lease premiums
The allowable deduction is determined as follows:
=Premium/ lease period or 10 years. whichever is the
lesser period
If the lease period is silent or for an indefinite,10 years
shall be taken as the lease period.
If there is an option to renew the lease, the initial
period is considered.
If property is used for both business and private
purposes,
The premium is apportioned and;
Only the business element is allowed as a deduction.
Example:
Bath entered into a lease agreement with Towel for a
period of 14 years. Towel was required to pay a premium
of $1 450 in addition to annual rental of $4 120.
Calculate the allowable deduction for Towel in the
current year.
Lease Improvements Section 15(2)(e)
The deduction is granted to a lessee where he has
effected lease improvements under a lease agreement.
The deduction is based on the value of lease
improvements in the lease agreement or the amount
expended on the improvements.
The deduction is calculated as follows: value of
improvements /lease period VS 10 years (lesser).
The deduction is granted from date when improvements
were first used or occupied for the purposes of trade.
If the lease period is indefinite or exceeds 10 years it
shall be deemed to be 10 years.
If the agreement is for an initial period, which is
subject to renewal, only the initial period is considered.
The deduction is apportioned if the property is used
both for business and private.
Where the taxpayer acquires ownership of the
improvements then the deduction shall cease from the
year following that of purchase.
• Example
• Mr Huni owns a vacant piece of land measuring 2 000 square
metres. He entered into a 20 year lease agreement with Mr Moto
from 1 February 2016. They agreed that Moto should construct
lease improvements [warehouse] to the value of $11 500.
Construction started on 1 April and it took Moto 4 months to
complete the construction. The improvements were used by
Moto for business purposes as from 1 September 2016.
• Calculate the allowable deductions for Mr Moto for 2016
Bad Debts: Section 15(2)(g)
Irrecoverable debts should meet the following criteria:
The debt should be due and payable to the taxpayer.
• NB If the debts were sold together with the business,
they cannot be claimed.
The debts should have been included in the income of
the taxpayer, either in the current or previous year of
assessment.
• NB: An incoming partner or a person who acquires or
inherits the business cannot claim a deduction for a bad
debt.
It must be proved by the taxpayer that the debt is
irrecoverable.
• NB Provision for bad or doubtful debts are not to be
allowed as a deduction.
In all cases, the bad or doubtful debt should be in
respect of trading stock.
Recovered debts should be brought into gross income if
they had be granted as a deduction.
Example
• Honeycomb Ltd has an expenditure figure of $28 000 in its
accounts, the amount is in respect of its debtors for sales made
during the year. The amount is broken down as follows:
$
• Insolvent debtor 18 000
• 5% provision 5 000
• Acquired together with a subsidiary 5 000
• Total 28 000
• Show the amount allowable as deduction
Pension and RAF contributions: Section 15(2)(h)
• Summary on restrictions(6th Schedule):
Contributions to 1 Pension fund (plus NSSA) – Paragraph
15 restriction $5,400
Contributions to 1 Retirement annuity fund – Paragraph
16 restriction $5,400
Contributions to 2 or more Pension funds – Paragraph
18(2) restriction $5,400
Contributions to 2 or more Retirement annuity funds –
Paragraph 18(2) proviso restriction $2,700
Contributions to Pension fund(s) and Retirement annuity
fund(s) – Paragraph 18(2) restriction $5,400
Pension and RAF contributions: Section 15(2)(h)
• Summary on restrictions(6th Schedule):
Contributions to NSSA 3.5% of gross salary of up to a
salary ceiling of $700/month
Aggregate maximum deductions to all of the above per
employee US$5 400/annum.
NB: Contributions to a Retirement Annuity Fund by
employer are not allowable.
Medical aid Societies: Section 15(2)(j)
The amount of any contributions paid to a Medical Aid
Society by an employer;
In respect of his employees or their dependants;
Is an allowable deduction in the hands of the employer.
Experiments and Research: Section 15(2)(m) and (n)
Revenue expenditure incurred by taxpayer on
experiments and research which are related to his/her
trade.
Joint-expenditure (by 2 or more taxpayers) is
apportioned.
Scientific Experiments and Research: Section 15(2)(o)
Expenditure on scientific research and experiments
related to the taxpayer’s trade.
The deduction is double the amount incurred.
Educational Grant, Bursary or Scholarship: Section
15(2)(p)
The course should be related to the taxpayer’s trade.
The beneficiary should not be the taxpayer, his spouse
or near relative, or near relative of spouse.
If the taxpayer is a company, the beneficiary should not
be a near relative of the individual controlling the
company, his spouse or near relative of the spouse unless
the director works full time for the company and
controls not more than 5% of the share votes.
NB: A cousin is not a near relative.
Educational Grant, Bursary or Scholarship: Section
15(2)(p)
If the taxpayer is a company, the beneficiary should not
be;
A near relative of the individual controlling the
company, or
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.
NB: A cousin is not a near relative.
Voluntary Payments to Former Employees and/or their
dependants15(2)(q)
Should have left employment due to:
(i) Old age
(ii) Injury (infirmity) or disability
(iii) Sickness
(iv) Death,
Voluntary Payments to Former Employees and/or their
dependants15(2)(q)
The maximum deductions are:
(i)Ex-employee US$500-00/annum
(ii)Ex-partner US$200-00/annum
(iii)Dependents of former employee or partner US$200-
00/annum
Persons whose employment was of a domestic or
private nature are excluded.
Donations 15(2)(r)
A deduction is granted on donations made to:
National Scholarship Fund
National Bursary Fund
Charitable Trust Funds administered by Ministries of
Health and Child Welfare, Public Service, Labour and
Social Services.
Donations 15(2)(r)
Schools run by the government, local authorities and
churches as approved by the Minister responsible for
education to a maximum of US$100 000-00/annum.
Hospitals and clinics run by the government, local
authorities and church organizations, to a maximum of
US$100 000-00/annum.
Donations 15(2)(r)
Research Institutions, up to a maximum of US$100 000-
00/annum.
Anti-retroviral drugs to institutions approved by the
minister up to a maximum of US$100 000-00/annum.
An amount paid by the taxpayer to the Public Private
Partnership Fund up to US$50 000/annum.
Donations 15(2)(r)
An amount paid to a local authority with the approval of
the minister responsible for local government, for the
purposes of the maintenance of infrastructure up to
US$100 0000/annum.
The Destitute, Homeless Persons Rehabilitation Fund up
to maximum of US$50 000/annum.
Subscriptions 15(2)(s)
Subscriptions paid by a taxpayer in respect of his
continued membership to any business, trade, technical
or professional association
e.g ACCA, ZNCC, ZCTU, NEC.
Entrance fees and subscriptions as a student are not
allowed as a deduction
Subscriptions to sporting, social or recreational clubs
are not allowable as a deduction.
Pre-production Expenses 15(2)(t)
Expenses incurred before trading commenced provided:
The expenses were incurred 18 months or less before
business operations commenced.
The expenses are normal business expenses i.e.
excluding purchase of capital assets.
Such expenses are claimed in the year in which the
business is commenced.
Opening Stock 15(2)(u)
Donated stock and inherited stock 15(2)(v)
Donated stock-value restricted to value in the
hands of the donor.
Inherited Stock-value restricted to value in the estate.

Section 15(2)(w) Conventions And Trade Missions
Attendance to trade mission or convention approved by
the Commissioner and also;
In connection with the taxpayer’s trade.
The maximum deduction is limited to a maximum of
US$2 500-00/annum.
NB: If such a convention/ mission commences in one
year of assessment and ends in another, then such
amounts shall be allowable only in the year in which
it ends.
If the person attending is a member of a partnership
and the partnership bears the expense,
The limit of $2 500 is applicable to one visit by each
partner.
Example
Mr Mangure is a corporate affairs manager with Angletton
Investments (Pvt) Ltd, during 2015 year, he attended a
seminar in Germany the cost to the employer was $8 600,
he also attended the 2015 Zimbabwe International Trade
Fair (ZITF) at a cost of $3 700.
What is the amount deductible in the hands of

Angletton Investments (Pvt) Ltd in respect of the
expenses for trade fairs?
Section 15 (2) (aa) and 15(2)(bb) Legal Costs On Income
Tax Appeals
Section 15 (2) (gg) Export Market Development
A double deduction on expenditure wholly or
exclusively for the purpose of seeking opportunities for
the export of goods or for creating or increasing the
demand for such exports.
The expenditure may include:
Research into foreign markets
Research into the packaging or presentation of goods
outside Zimbabwe.
Advertising in foreign lands
Participation in trade fairs
Bringing prospective buyers to Zimbabwe
Providing samples of goods to persons outside
Zimbabwe.
Investigating or preparing information, designs or
estimates for the purpose of submitting tenders for the
sale of goods outside Zimbabwe.
Example
• McBowells Ltd is a company engaged in the manufacture of blankets for local and
export market; the company incurred the following marketing expenses in 2015
tax year.
$
• Newspaper advertisements 1 200
• Erecting billboards in major roads in Harare CBD 12 000
• Cost of samples sent to Malawi 3 000
• Payment for a right to advertise in bays of sports stadiums 15 000
• Research expenses in exploring Botswana market 23 000
Show the amount deductible in the hands of the company.
• Solution $
• Newspaper adverts 1 200
• Billboards (capital nature) -
• Samples (3 000*2) # 6 000
• Right to advertise in bays (capital nature) -
• Market research expenses (23 000*2) # 46 000
• Total deductible expenses
53 200
Section 15 (2) (hh) Tobacco Levy
The amount of any tobacco levy paid in the year of
assessment.
Section 15(2)(kk) Maintenance On Behalf Of Local
Government
Expenditure 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.
Maximum is $50 000.
Section 15(3) Assessed Losses
 Business losses are carried forward and are claimed in
future as an expense when the business makes a profit.
They are carried forward up to a maximum of 6 years.
Mining losses are carried forward indefinitely.

If a person earns income from trade and investment
and income from employment, any allowable
deductions shall be claimed in respect of the income
to which they relate.
PROHIBITED DEDUCTIONS(S16)
This expenditure is not allowed as a deduction in
calculating taxable income.
(i) Maintenance of a taxpayer & his family [sect. 16(1)
(a)]
(ii)Domestic and private expenses [sect. 16(I) (b)]
(iii) Losses recovered under insurance contract [sect.
16 (I) (c)]
(iv)Tax and interest thereon [sect. 16 (I) (d)]
(v)Transfers to reserves and provisions [sect. 16(1) (e)]
However; amounts voted on or before the date of the
relevant accounts are allowable deductions.
Expenditure for exempt or of non-taxable income
[sect.16 (1) (f)].
Contributions to unapproved funds [sect. 16(1) (g)]
Private rent or repairs etc. [sect. 16 (1) (I)]
Restraint of trade [sect. 16(1) (j)]
Lease payments for passenger motor vehicle in excess
of $10 000[sect. 16(1) k]
Entertainment Expenditure [sect. 16 (1) (m)]
Entertainment includes the concept of hospitality in any
form, such as provision of lunch to customers, directors,
staff members etc.
However cost of canteen meals provided to members of
staff including senior members is an allowable
deduction.
Expenditure on foreign dividends [sect. 16 (I) (n)]
Expenditure on interest payable [sect. 16(1) (o)]
 Expenditure incurred in the production of interest
payable by any bank, discount house or financial
institution including a building society in Zimbabwe.
CHAPTER 5: TAX CREDITS
A tax credit is a relief awarded to a taxpayer, on his
assessed tax liability.
Tax credits are given to a taxpayer on the grounds that
they, to some extent suffer certain disadvantages in life.
Tax credits are stipulated in the FINANCE ACT (FA).
(a) Elderly person’s credit(s10)
An elderly person is a person who is 55 years of age and
above.
A credit of $75/month or $900/annum is applicable for
the 2016 Tax Year.
The taxpayer should have attained the age of 55 prior
to the commencement of the year of assessment.
The credit is apportioned on a time basis if the
period of assessment is less than 12 months.
(b) Disabled person’s credit(s13)
A credit of $75/month or $900/annum is applicable
to a taxpayer who is;
Either mentally or physically disabled to a
substantial degree.
A blind person is not regarded as disabled for
the purpose of this credit.
The credit is NOT apportioned if the period of
assessment is less than a year.
If the taxpayer has a child, who is mentally or
physically disabled , he can claim the credit.
(b) Disabled person’s credit(s13)
Exam tips!
The disability should be of permanent nature, i.e.
certified by a competent doctor to be permanent.
The taxpayer can claim a credit if himself, his spouse or
child is disabled.
The credit is granted only to ordinary residents of
Zimbabwe.
The credit is granted in respect of each child of a
taxpayer who is mentally or physically disabled.
A child includes a step child and lawfully adopted child.
(c) Blind person’s credit(s11)
A credit of $75/month or $900/annum is awarded to a
taxpayer who is blind or whose spouse is blind.
The credit is transferable to a spouse.
The credit is NOT apportioned .
The credit is not granted for taxpayer’s blind child.
The taxpayer should have been blind for more than
half of the period of assessment.
(d) Medical expenses and invalid appliances credit(s12)
A credit of 50% is granted on medical expenses incurred
by the taxpayer, his spouse or children.
Medical expenses means;
(i)The sum of any payments made for the purchase, hire,
repair, modification or maintenance of any invalid
appliance or fitting used by a disabled taxpayer, his
spouse or child.
(d) Medical expenses and invalid appliances credit(s12)
Invalid appliances includes;
A wheelchair or;
Any mechanically propelled vehicle which is specially
designed and constructed for the carriage of one
disabled person or;
Any artificial limb, leg callipers or crutch; or
Any special fitting for the modification or adaptation of
a motor vehicle, bed, bathroom or toilet to enable its
use by a person suffering from a physical defect or
disability; or
Spectacles or contact lenses;
ii. The sum of any payments made for—
Services rendered to a taxpayer, his spouse and minor
children or one or more of them by a medical or dental
practitioner; and
Drugs and medicines supplied to a taxpayer, his spouse
and minor children or one or more of them on the
prescription of a medical or dental practitioner; and
the accommodation, maintenance, nursing and
treatment, including blood transfusions and X-ray and
laboratory examinations, tests and the like, of a
taxpayer, his spouse and minor children or one or more
of them in or at a hospital, maternity-home, nursing-
home, sanatorium. surgery, clinic or similar institution;
and
ii. The sum of any payments made for—
The conveyance by ambulance, including an air
ambulance, of a taxpayer, his spouse and minor children
or one or more of them; and
iii. Contributions to Medical Aid Societies
Contributions made by the taxpayer for himself, or for
his spouse or minor child,
Allowed as a credit against his tax liability to the tune
of 50% of the amounts contributed.
Exam tips!
The credit can only be claimed by ordinary residents of
Zimbabwe.
Credit is not granted if taxpayer can get a refund from
whatever source.
Medical expenses or contributions paid on behalf of the
taxpayer cannot stand as a credit.
A child includes a step child and lawfully adopted child.
Example of Tax Credits calculation
Mr Marimo is 57 years old. His salary is US$30 000 per
annum and he contributes US$120/annum to NSSA and $5
800/annum to Old Mutual Pension Fund and
US$200/annum to PSMAS Medical Aid Society. He was
injured in a road accident. He also received a bonus
amounting to $5 000. He incurred medical expenses
amounting to US$350 and purchased an artificial limb for
$150 during the period of assessment(year 2016) to
replace an amputated leg.
Required:
Calculate Mr Marimo’s tax liability for the year ended 31
December 2016.
CAPITAL ALLOWANCES(S15(2)(c)a.r.w 4th Schedule
Introduction
Capital expenditure gives rise to an asset(whether
tangible or intangible).
An asset is an entity capable of generating income.
Capital expenditure is not allowable as a
deduction(being expenditure of a capital nature);
However, section 15(2) (c) of the ITA, authorises the
deduction of the cost of various assets in the form of
capital allowances.
• Capital allowance represents the loss of value of an
asset due to use, wear and tear, etc.
Introduction
Capital allowances replace depreciation that is applied
by an accountant in arriving at net profit.
The taxman disregards depreciation(sect.16) and

applies capital allowances for the determination of
taxable income.
CAPITAL ALLOWANCES(S15(2)(c)a.r.w 4th Sched.
Capital Expenditure-Specific Assets
Assets do not qualify for capital allowances alike.
The 4th Schedule provides the guidelines as to which
class a certain asset falls, and capital allowances that
are applicable.
Generally capital expenditure includes expenditure on:
Acquisition of fixed assets (including the cost of bringing
it into its useful state).
The improvements or alteration of fixed assets.
The construction of fixed assets, etc.
(i) Commercial building
Any building erected after 1st of April, 1975, and;
Which is used to the extent of at 90% of the floor area
for the purposes of trade or in the production of income.
The following do not qualify:
Buildings covered by other definitions namely, farm
improvements, industrial buildings, staff housing and
tobacco barns.
The following do not qualify:
A block of flats, apartments or similar residential units;
Which is occupied more than 10% of its floor area for
residential purposes.
Flats or apartments owned by companies, partnerships
or associations,
Which can be occupied by the shareholders, partners or
members for residential purposes.
(ii)Farm improvement
Any permanent building or structure or works on a farm
including;
A water furrow, cattle dip, permanent roads, dairy, a
school, hospital, nursing home or clinic which is used for
carrying on farming operations.
Exclusions
Works under paragraph 2 of the 7th schedule, or
Staff housing used by the taxpayer as homestead of
himself and his family.
(iii)Industrial building
(a) Is a building used specifically, for the following
purposes:
Used mainly for the purposes of operating machinery
worked by steam, electricity, water or other mechanical
power;
Any building which is on the same premises as any other
building mentioned above and which,
In the opinion of the Commissioner, suffers depreciation
by reason of the operation of machinery.
purposes:
Any building which suffers depreciation by reason of the
use of chemicals, corrosives, furnaces etc.
Any building erected and used mainly for the purpose of
carrying out industrial research or scientific experiments
in manufacturing.
purposes:
Any building used mainly for a hotel business in respect
of which a hotel liquor licence or casino licence, has
been issued,
Includes ancillary buildings, structures and works of a
permanent nature like swimming pool, golf course, etc.
Industrial building
A warehouse used mainly for the storage of;
Raw materials which are to be used by the taxpayer for
the manufacture of other goods,
Consumables used by the taxpayer and;
Finished goods manufactured by the taxpayer.
Any building in use mainly for the purposes of a trade in
the distribution of hydro-carbon oils by pipeline;
Industrial building
Staff welfare buildings, e.g. canteens,
Excludes any building used mainly as a dwelling-house,
retail shop or showroom or for the storage of goods or
materials;
Any works for the prevention of pollution;
Any building erected and used mainly for the purpose of
international data capture operations and the assembly
of computers;
Any toll-road or toll-bridge declared in terms of the
Toll-roads Act [Chapter 13:13]
Industrial building
Includes any fencing, car parks, courtyards and
driveways in or around industrial buildings.
(iv)Passenger Motor Vehicle(PMV) –para.14
Any vehicle with a seating capacity of 15 or less
passengers,
e.g. Mercedes Benz S Class, Double cabs, Prado and
Land Cruiser.
The maximum cost of each unit is limited to US$10 000
A PMV is the luxury type of cars used for the
conveyance of passengers.
(iv)Passenger Motor Vehicle(PMV) –para.14
It excludes;
Lorries, trucks, buses, minibuses, commuters and;
Cars which have a seating capacity of 15 passengers or
more and;
Motor vehicles meant for leasing and taxis.
Includes; twin/double cabs
(v)Staff Housing
Permanent buildings used by taxpayer for housing
employees.
In order to qualify as Staff housing each ‘residential
unit’ should not exceed $25,000 cost of construction.
If it exceeds $25 000, it is disqualified.
(vi)Tobacco barn
It is a building used for the purpose of curing tobacco.
(vii)Farm Schools, Hospitals and Clinics
In the case of a school, more than 50% of the pupils
should be children of persons employed by the taxpayer
in carrying out farming operations.
In the case of a hospital, nursing home or clinic, more
than 50% of the persons receiving treatment there,
should be employed by the taxpayer or members of the
families of the employees.
The cost of each unit is restricted to a maximum of $10
000.
(vii)Farm Schools, Hospitals and Clinics
Houses used to accommodate teachers, doctors and
nurses employed at the farm schools, hospitals and
clinics are restricted to a maximum cost of $10 000/
unit.
(viii)Machinery, articles, implements or utensils
All other assets employed by a taxpayer in the
furtherance of trade and production of income.
Examples of such assets are; computers, equipment,
etc.
Includes; computer software that is acquired by a
taxpayer for use by him in his trade.
The Taxman and Accountant compared
The taxman disregards some expenses recognised by an
accountant in respect of assets and replaces such
expenses with his own allowances.
• The following tables give Accountant
Taxman a comparison of terms, in
respect of assets, used by the accountant and the
Capital Allowance Depreciation
taxman.
Income Tax Value(ITV) Net Book Value
Recoupment Profit on Disposal
Scrapping Allowance Loss on Disposal

Capital Allowances
Special Initial Allowance(SIA),
Wear & Tear,
Scrapping allowance.
(i)Special Initial Allowance (SIA)-Para 2 of 4th Schedule
SIA is calculated at rate of 25% of capital expenditure
incurred by the taxpayer in any year of assessment, on
Construction, addition, alteration or purchase of the
assets discussed above.
Granted to a taxpayer upon election.
The subsequent three years, an allowance known as
accelerated wear and tear is charged at a rate of 25%
on cost.
Granted on 50% of the cost of Electronic fiscalised
registers(section 15(3)(k) of VAT Act)
Important notes on S.I.A:
Is charged in the first year an asset is brought into use.
The rate is applied on the cost of an asset, i.e. straight
line basis
Is never apportioned on either time or usage basis.
Is never granted on a commercial building unless it is
constructed on a growth point.
Is never granted on purchased immovable assets.
Is granted on purchased movable property whether
purchased new or second hand.
Important notes on S.I.A:
Is never granted on assets acquired through donation or
inheritance.
No S.I.A is granted to a lessor on a finance lease.
No S.I.A is granted where the asset is used less than 90%
for trade.
• Example
• Rain [Pvt] Limited has been carrying on business in Kadoma for
the past 3 years. During the year it submitted an Income Tax
return showing a profit of $33 300 before capital allowances. It
incurred the following capital expenditure during the year:
$
• Industrial building constructed 3 000
• Delivery van purchased 6 000
• Office furniture purchased 2 000
• Taxpayer elects for SIA.
• Calculate the taxable income for Rain Pvt Ltd
Rain(Pvt) Ltd
(W1) Schedule of Capital Allowances
Asset SIA@25% $
Industrial building 25%X$3 000 750
Delivery Van 25%X$6 000 1 500
Office Furniture 25%X$2 000 500
Total Capital Allowances 2750
Computation of taxable income for the year ended 31 December 2015
$
Net Profit before capital allowances 33 300
Less Capital allowances(W1) (2 750)
Taxable Income 30 550
(ii)Wear & Tear (W&T)-para.3
Main form of capital allowance granted on assets unless
the assets qualify for SIA.
Calculated on reducing balance basis on movable assets
and;
Calculated on cost of immovable assets.
Rate is generally 5% on immovable assets,
Commercial Building –rate is 2.5%.
Rate is generally 10% on movable assets;
Motor Vehicle-rate is 20%.
(ii)Wear & Tear (W&T)-para.3
Important notes on Wear & Tear:
It is never apportioned on immovable assets
Is apportioned on movable assets on time or usage
basis.
• Example:
• Sun [Pvt] Ltd started business operations in Ruwa 2 years ago.
During the year it earned net profits of $32 500 before capital
allowances. The following assets were constructed/purchased
and used for business operations during the year:
$
• Commercial building 9 000
• Equipment 4 200
• 5 ton lorry 8 500
• Calculate the Taxable income for Sun
Sun(Pvt) Ltd
(W1) Schedule of Capital Allowances
Asset W&T $
Commercial building 2.5%X$9 000 225
Equipment 10%X$4 200 420
5 tonne lorry 20%X$8 500 1 700
Total Capital Allowances 2 345
Computation of taxable income for the year ended 31 December 2015
$
Net Profit before capital allowances 32 500
Less Capital allowances(W1) (2 345)
Taxable Income 30 155
(iii)Scrapping Allowance(para.4 )
It is the amount by which the Income Tax Value of an
asset exceeds its sales proceeds.
Scrapping allowance is the equivalence of accountant’s
loss on disposal of an asset.
Scrapping allowance is limited to the cost of an asset.
It is in granted only were assets so scrapped belongs to
the taxpayer and used for trade.
The allowance is apportioned if the asset was used for
dual purposes.
Example
AB Insurance Brokers (Pvt) Ltd acquired a Mazda Familiar
for its Accountant for $ 9 000 in 2013. The car was sold
during the current year(2016) for $1 000. The company
had elected for SIA in the year of acquisition. The
Accountant, however, used the car 80% for the business of
the employer.
Calculate the scrapping allowance on the disposal of
the car.
Solution
Year 2013: S.I.A 25% * 9 000 $2 250
Year 2014: Accelerated W& T 25% * 9000 $2 250
Year 2015: Accelerated W& T 25% * 9000 $2 250
Total 6 750
ITV ($9 000 –$ 6750) $ 2 250

Scrapping allowance ($2 250 – $1 000)* 80% $ 1000
Recoupment(s8(1)(j))
Recoupment in accounting terms represents a profit on
disposal of an asset.
It is income in terms of section 8 (1) (j) and is taxable.
Recoupment to the taxman is recovery of capital
allowances previously granted.
Thus, recoupment is calculated as: sales proceeds less
Income Tax Value (ITV) of an asset.
It is limited to the capital allowances previously
granted.
Recoupment is the lesser of;
(i) Capital allowances granted in the life of an asset and
(ii)Sale proceeds -Income Tax Value(ITV).

If capital allowances were not granted, no recoupment
is calculated.
Example
• Moon Company has been trading for the past 10 years.
The company had purchased furniture for $1 450 in the
year 2012 on which wear & tear had been granted. It
sold the furniture for $1 670 during the year 2015.
• Calculate recoupment.
Moon
Capital Allowances Schedule-Furniture
$
Cost(2012) 1 450
W&T 2012(10%X1 450) (145)
ITV 1 Jan 2013 1 305
W&T 2013(10%X1 305) (131)
ITV 1 Jan 2014 1 174
W&T 2014(10%X1 174) (117)
ITV 31 Dec 2014(a) 1 057
Sales proceeds(b) 1 670
Potential recoupment(b-a) 613
Moon
Total capital allowances=145+131+117=$393
Actual recoupment =lower of $613 and $393
=$393
If the cost of an asset was restricted for the purposes of
calculating capital allowances,
The sales proceeds should be restricted proportionally
as follows:
• Deemed Selling price =Deemed cost/Actual Cost

×Actual selling price.
Example
• Masawara Ltd acquired an S Class Mercedes Benz for its
Operations Director for $22 000 on 30 September 2013.
On 10 July 2015, the company sold the car for $18 000.
The company had elected for S.I.A on purchase of the
car.
• Calculate recoupment to be taxed in the hands of

Masawara Ltd.
Solution
Year 2013: S.I.A (25%* $10 000) $2 500
Year 2014: S.I.A (25% *$10 000) $2 500
ITV ($10 000 - $5 000) $5 000
Deemed selling price: (10 000 * 18 000)/22 000 $8181.82
Recoupment = ($8181.82 - $5000) $3181.82

Recoupment on damage of an asset
The whole amount will not be taxable provided the
taxpayer satisfies the Commissioner that:
Within a period of 18 months from the date of damage
or destruction he has purchased or constructed a similar
asset thereof.
Such asset has been or will be brought into use within a
period of 3 years from the date the original asset was
damaged or disposed.
Example
• MTC Communications had its factory building destroyed by fire
on 3 March 2015. The Income Tax Value of the building at the
date of destruction was $152 000, the company received
compensation of $230 000 from Eagle Insurance on 5 July 2015.
Calculate recoupment, if any, to be taxed in the hands of MTC
Communications in 2015 on the following assumptions:
(a) That the building was not replaced.
(b) That the building was replaced by February 2016 at a cost of
$240 000 and brought into use in May 2016.
(c) That the construction of a building was completed on 3 April
2017.
Recoupment on damage of an asset
Solution
(a) Recoupment: ($230 000 – $152 000) = $78 000, the
whole amount of $78 000 is taxed since the building was
not replaced.
(b) Recoupment: No recoupment, building completed
within 18 months and whole amount used.
(c) The whole amount of recoupment, i.e. (230 000 -152
000) = $78 000, will be taxed in full since the construction
exceeded 18 months.
Exam Tips:
If any of the following statements is included in a
question, it means that all the qualifying assets should
be granted S.I.A.
The taxpayer elected for S.I.A
The taxpayer was granted maximum allowances.
Calculate minimum taxable income/tax liability.
If the question is silent, it means Wear & tear was
granted on all the assets.
Exam Tips:
If the costs of the assets and their ITVs are given, you
should establish whether SIA or Wear and tear was
granted in the previous years.
Recalculate ITV assuming SIA was granted.
If it agrees with the given ITV, it means SIA was granted.
If it doesn’t agree, it means wear and tear was granted.
CHAPTER 7: CAPITAL ALLOWANCES(S15(2)(c)a.r.w 4th Schedule
Example
KM (Private) Limited is a Zimbabwean incorporated company based in Chinhoyi
industrial area. The company is in the business of manufacturing various plastic
products. On 1 January 2015, the following assets were shown in its asset register:
Assets Cost ($) Year acquired Month ITV($)
Industrial land 500 000 2013 January 500 000
Delivery truck 10 000 2014 July 9 000
Computers 4 000 2012 January 1 000
Warehouse 50 000 2014 January 48 750
Factory building 200 000 2012 February 170 000
Mercedes Benz 20 000 2014 December 7 500
Industrial machinery 30 000 2014 March 22 500
Example
Additional information
1. The company disposed the existing machinery for $ 24 000 on 30 June 2015 and
replaced it with a new machinery which was bought for $ 50 000. The cost of
bringing the machinery to its useful state was incurred as follows:
• Import duty (Beitbridge border post) $2 500
• Installation $ 1 500
• Alteration of the factory building so as to fit the new machinery$ 2 000
2. The company bought a Nissan Primera for the finance director on 20 February
2015, for $14 000.
3. The delivery truck was involved in an accident on 30 October 2015, the
insurance company paid the company $9 000 in compensation. The directors have
since found a similar tuck for replacement.
Example
• Required
• Calculate the maximum allowances and income to be included in the
computation of tax liability for KM. [20 marks]
Schedule of Capital Allowances-MN
Asset Cost/ITV($) SIA or W&T rate Capital Allowance($) ITV($)
Delivery truck 9 000 W&T@20% 1 500 7 500
Computers 4 000 SIA@25% 1 000 -
Warehouse 50 000 W&T@2.5% 1 250 47 500
Factory Building 200 000 W&T@5% 10 000 160 000
Benz 10 000 SIA@25% 2 500 5 000
Machinery(old) 30 000 SIA@25% 7 500 15 000
Machinery(new) 56 000 SIA@25% 14 000 42 000
Nissan Primera 10 000 SIA@25% 2 500 7 500
40 250
Recoupment on Old Machinery
$
Sales proceeds 24 000
Less ITV (15 000)
Potential recoupment 9 000(a)
Capital allowances granted 15 000(b)
Actual recoupment 9 000( lower of (a) and (b))
CHAPTER 8: TAXATION OF CORPORATES(COMPANIES)
8.1 Introduction
Corporate is a general term for an entity whether
incorporated or not that carries on trade or investments
activities with a purpose of making a profit.
Corporates includes companies incorporated under
various statutes;
Such corporates are taxed on income accruing to them
from their trade or investments activities.
Framework for the determination of tax liability for corporates.
• Net profit as per accounts XX
• Add: Tax income(e.g recoupment) XX
• Prohibited deductions(e.g depreciation) XX
• Other income (investment income, e.g. Interest) XX XX
• Less: Exempt income(e.g local dividends) (XX)
• Accounting income(e.g profit on disposal) (XX)
• Allowable deductions(e.g capital allowances) (XX) (XX)
• Taxable income XX
Framework for the determination of tax liability for
corporates.
• Tax @ 25% XX
• Add: 3% Aids Levy XX
• Tax liability XX
• Less: Cumulative QPD’s paid (XX)
• Tax payable / (refundable) XX
CHAPTER 10: TAXATION OF FARMERS
Introduction
The assessment of farmers for tax purpose is similar to
other businesses.
Special provisions applicable exclusively to farmers with
regard to;
Valuation of stock,
Items constituting gross income and;
Certain deductions.
Introduction
A farmer is defined in section 2(1) of the ITA as any
person who derives income from;
Rearing of animals,
Growing of crops,
Growing fruits, timber, and other plants from the soil.
Any person who derives income from the letting of a
farm used for such purposes.
10.2 Valuation of farm trading stock
Farm trading stock includes:
(a) Livestock acquired or bred by a farmer for farming
operations; and
(b) Crops and other produce produced by a farmer in the
carrying on of his farming operations.
The Act provides guidance for the valuation of different
forms of farm trading stock.
10.2.1 Livestock
Animals under some control of the farmer.
Categorised into stud livestock and ordinary livestock.
Stud livestock is livestock acquired and kept by a
farmer for breeding purposes.
Ordinary livestock includes all non-stud livestock born
on the farm and any purchased for non-study purposes.
10.2.1 Livestock
There are three methods of valuation in respect of
livestock, which are:
(i)Purchase Price Value (PPV),
(ii)Fixed Standard Value (FSV) and
(iii)Cost and Maintenance Value (CMV).
(a)Purchase Price Value
The cost at which the animal was acquired by the
farmer.
Applicable to stud livestock only.
(b) Fixed Standard Value(FSV)
The farmer fixes the value for each class of livestock.
The Commissioner approves.
Applicable for both ordinary and stud livestock.
In the case of stud livestock,
The minimum FSV that can be elected by the farmer is
$150
(c) Cost and Maintenance Value
Takes into account the cost of;
Acquiring or breeding the animal,
The cost of maintaining the animal up to the end of the
year of assessment.
Maintenance cost of an animal includes the cost of
labour, feedstuff, dips, etc.
This method is, however, rarely used in practice.
• Ordinary livestock is valued according to Fixed Standard
Value (FSV) or Cost and Maintenance Value (CMV).
10.2.2 Crops and other stock valuation (2nd Sch. para.
12(b) )
Crops and other farming trading stock, such as
Unutilised consumables (e.g. fertiliser, fuel, and
chemicals)
are valued by an amount determined by the
Commissioner to be the fair and reasonable value.
10.3 Gross income specifically for farmers
Starts with net profit as per accounts just like any other
business.
Net profit is then adjusted in order to arrive at the
taxable income for a farmer.
Specific gross income for a farmer.
10.3.1 Closing stock: Sect 8(1)(h)
Closing stock of a farmer is treated as income.
Proceeds from sale of donated or inherited livestock
which was not introduced to farming operations; are of a
capital nature.
10.3.2 Stock disposed through a donation or consumed
by farmer
Such stock is gross income in the hands of the farmer.
The stock is included in gross income at its fair and
reasonable value, i.e. at cost.
Livestock is valued at its fixed standard value, (FSV).
10.4 Relief from enforced sales(para 5, 7th Schedule)
A farmer who is forced to dispose his livestock due to
Drought,
Epidemic disease or;
Compulsory acquisition of land;
Is allowed to spread the taxable income arising from
such sales over 3 years.
10.4 Relief from enforced sales(para 5, 7th Schedule)
(a) Drought or epidemic diseases relief
Drought or epidemic area and period has to be specified
by the responsible Minister.
Period of drought and precise drought-stricken farms
are all proclaimed by a Statutory Instrument through the
Government Gazette.
To spread the taxable income, the taxpayer must make
an election to that effect, which becomes binding.
(b) Compulsory acquisition of land
A farmer who, as a result of compulsory acquisition of
his farm or part of his farm for resettlement purposes in
terms of the Land Acquisition Act [Chapter 20:10],
Is forced to dispose of his livestock;
May elect to spread the taxable income from such sales
over 3 years, beginning the year of his disposal.
A farmer who returns grazers as a result of compulsory
acquisition of land is deemed to have disposed them.
Formula for the determination of Taxable income from
Enforced sales
• Enforced Sales(X herd @selling price) X
• Less Cost of Enforced Sales
• Purchases(X herd @FSV) X
• Direct herd expenses (W1) X (X)
• Taxable income X
(W1)
• Total direct herd expenses X (Number of enforced sales/Average
Stock)
• Average stock = (Opening stock+Closing Stock)/2
Example
$
• Forced sales 150head 10 900
• Opening stock 300 head FSV $50
• Closing stock 50 head FSV $100
• Cost of stock feeds $500
• Calculate the taxable income for the year if the

farmer makes an election under para.5
10.5 Allowable deductions
Most deductions are common with most corporate
organisations.
However, farmers enjoy special deductions below.
10.5.1 Opening stock :Sect 15(2)(h)
The value of farm trading stock at the beginning of the
year is allowed as a deduction, i.e. the opening stock.
10.5.2 Restocking allowance (Para 6, 7th Schedule)
A farmer, who wishes to restock livestock depleted by
drought or epidemic diseases,
 Is allowed to deduct ½ of the cost of livestock
purchased.
The allowance is in addition to a deduction for livestock
purchases.
10.5.2 Restocking allowance (Para 6, 7th Schedule)
If the farmer exceeds the Assessed Carrying Capacity of
the Land(ACCL),
 The allowance is calculated(reduced) using the
following formula;
• A/2 X B/C
• Where:-
• A =the cost of the livestock purchased;
• B=Livestock herd that should have been purchased.
• C=Livestock herd actually purchased.
• B =ACCL less livestock on hand before restocking.
Example
• Farmer Bindu purchased 200 herd for $140 000 to restock
the herd which was depleted by an epidemic disease.
The CCL was 450 herd .Stock on hand was;
(i) 210 and
(ii) 300.
10.5.2.2 7th schedule, para. 2 allowances
The schedule allows a 100% deduction of expenditure
incurred by a farmer on;
The stumping and clearing of lands;
Works for the prevention of soil erosion;
The sinking of boreholes and wells;
Aerial and geophysical surveys;
10.5.2.2 7th schedule, para. 2 allowances
The schedule allows a 100% deduction of expenditure
incurred by a farmer on;
Any water conservation work and any amounts paid by
him towards the cost of any water conservation work
done by any other person for which such farmer has
become liable in terms of the Natural Resources Act
[Chapter 20:13];
Fencing.
Water conservation work means any reservoir, weir, dam
or embankment constructed for the impounding of
water.
Capital expenditure which qualifies under the 4th
schedule does not qualify under the 7th schedule.
Assets falling under the 7th schedule have the following
qualifying requirements;
Have to be constructed or erected by the taxpayer i.e.
Do not rank for deduction if they are purchased with an
existing farm;
Assets falling under the 7th schedule have the following
qualifying requirements;
Rank for deduction in full,
Do not suffer recoupment on disposal.
10.6 Livestock reconciliation
Livestock reconciliation is prepared to compute the
number of closing stock of livestock in each category of
livestock for valuation purposes.
Sample reconciliation;
• Details Bulls Oxen Cows Tollies Heifers Calves Total
• Opening Balance X X X X X X X
• Purchases X X X X X X X
• Births - - - - - X -
• Promotion in X X X X X X X
• Sub-total X X X X X X X
• Promotion out (X) (X) (X) (X) (X) (X) (X)
• Sales (X) (X) (X) (X) (X) (X) (X)
• Deaths (X) (X) (X) (X) (X) (X) (X)
• Closing stock X X X X X X X
• FSV/ PPV($) X X X X X X X
• Value($) X X X X X X X
Example
• Miss Mandengu is a Bindura livestock farmer. She has provided
the following details concerning her livestock.
On 1 January 2015 she had the following animals at her farm: 2
bulls, 35 cows, 12 calves, 8 tollies, 17 oxen and 23 heifers.
During the year the following stock movements were recorded:
• 1 bull, 3 cows and 10 heifers were purchased during the year.
20 calves were born during the year. 7 heifers grew into cows, 4
tollies became oxen, 11 calves became tollies and 7 calves
became heifers. 1 bull died due to black leg. 2 oxen were
slaughtered during the year. 3 cows, 9 oxen and 6 heifers were
sold during the year. The bull was purchased for $800.
• The company had the following standard values for its stock.
• Livestock Cows Oxen Heifers Tollies Calves
• FSV($) 320 400 250 200 80
Details Bulls Oxen Cows Heifers Tollies Calves Total
• Opening balance 2 17 35 23 8 12 97
• Purchases 1 - 3 10 - - 14
• Births - - - - - 20 20
• Promotion- in - 4 7 12 11 -
• Subtotal 3 21 45 45 19 22 131
• Promotion-out - - - 7 4 18 29
• Sales - 9 3 6 - -
• Deaths 1 2 - - - - 3
• Closing stock 2 10 42 32 15 4 99
• PPV/ FSV ($) 800 400 320 250 200 80
•
CHAPTER 11: TAXATION OF PARTNERS
11.1 Introduction
A partnership is an organisation;
Formed by at least 2 and not more than 20 people,
Who agree to contribute something to a common
business,
With the object of making a profit.
A partnership is not a legal persona.
As such a partnership is not a taxpayer on its own.
11.1 Introduction
Partners are taxed on their share of partnership profits.
The income is taxed at a rate of 25.75%.
11.2 Accrual of Partnership Income
Section 10(2) of the ITA stipulates that;
Income received by or accrued to a partnership is
deemed to have accrued to partners;
In their profit/loss sharing ratios;
On the accounting date.
11.3 Source of partnership income
Where the partner has rendered his services to produce
the partnership income, CIR v Epstein, 1954.
11.4 Returns and assessments
Section 37(15) of the ITA requires persons carrying on
any trade in partnership;
To submit a joint return,
Supported by accounts to show the results for the year
of assessment.
Section 51(5) of the ITA, however,
Provides for separate assessments to be made on each
partner.
11.4 Returns and assessments
Each partner is therefore liable to tax only on his
individual capacity.
Each partner is separately and individually liable for the
rendering of the joint return.
11.4.1 Death of a partner
When a partner dies,
Accounts are prepared in order to show the results of
the operations of the partnership;
For the period from the last accounting date to the date
of the death of the partner.
11.4.1 Calculation of partners’ tax liability
First calculate joint partnership taxable income.
This is calculated in the same way with taxable income
for companies with a few exceptions.
Secondly; Share the joint taxable income to the
partners in their profit/loss sharing ratios.
Then tax the partners on their shares of profit using a
rate of 25.75%.
11.5 Allowable deductions
Expenses that are incurred by the partnership for the
benefit of a partner;
Are allowable deductions in the hands of the
partnership and;
Are Gross Income in the hands of the partner who is
benefiting.
However, expenses like premiums for joint life policies
and partners’ drawings are not allowable deductions.
They are also not taxable in the hands of the partner.
11.5 Allowable Deductions
11.5.1 Passage Benefits
Where a partnership bears the cost of a travelling by a
partner on a trip for private purposes;
Such cost is considered as distribution of partnership
profit, and as such;
Cost is allowable in the hands of the partnership; but
Taxed in the partner’s hands.
11.5.2 Attendance at trade conventions
A maximum of US$2 500 per partner is allowable for not
more than one such convention attended.
11.5.3 Ex-gratia payments to a former partner or
dependent of a former partner S15(2)(q)
Amounts paid to a former partner who would have
retired due to;
Ill-health,
Old age or infirmity;
Is allowed to the partnership up to a maximum of $200.
11.5.4 Medical Aid Contribution
Medical aid contributions made by partnership on behalf
of partners;
Are allowable deductions in the hands of the
partnership, and
Are gross income in the hands of the concerned
partners.
The partners can also claim a credit in respect of those
amounts.
11.5.5 Subscriptions
Subscription to a sport, professional or trade
association paid by a partnership on behalf of the
partner;
Is allowed to the partnership and taxable in the hands
of the partner.
A partner can claim a deduction in respect of
contributions to trade or professional associations.
11.5.6 Private expenditure
Private expenditure incurred by a partner and paid by
the partnership;
Is allowed as a deduction to the partnership and;
Taxed in the hands of the partner.
11.5.7 Insurance premiums
Insurance premiums paid by a partnership for insuring
of its assets is a business expense and is allowable.
However insurance premiums paid to cover the life of
partners is treated differently as follows:
11.5.7.1 Joint survivorship policy
If a partnership takes out a joint survivorship policy to
cover;
The joint lives of the partners, and;
Where the partnership is the beneficiary,
Premiums paid in respect of that policy is not an
allowable deduction in the hands of the partnership.
It is also not taxable in the hands of the partner.
11.5.7.2 Separate life policies for partners
Where a partnership pays premiums for separate
policies covering the partners,
Such an expense is allowed as a deduction in the hands
of the partnership provided that;
The partners are the beneficiaries of those policies.
The benefiting partner is taxable on the premiums paid
on his behalf.
11.5.7.2 Separate life policies for partners
Where partners take separate life policies for their lives
and;
The partnership is the beneficiary,
Such premiums are not allowable to the partnership
even though the partnership pays for the premiums.
They are also not taxable in the hands of the partner.
Ceded Policies
Ceded partners policies are policies which were
originally taken by partners for their benefit but;
Have been surrendered to the partnership.
It then means the policies now benefit the partnership.
Such policies are not allowable in the hands of the
partnerships.
Not taxable in the hands of the partner.
Motor Vehicle Use
If a partnership buys a motor vehicle which is used for
both private and business by a partner,
The capital allowances on the vehicle are treated as
follows;
The portion for business is an allowable deduction when
calculating joint taxable income.
The portion for private is gross income when calculating
the concerned partner’s taxable income.
11.5.8 Summary of allowable deductions
• EXPENDITURE PARTNERSHIP PARTNER
• 1) Part er’s salary Allowable Taxable
• 2) Joint life policies Not allowable Not taxable
• 3) Part er’s life policy – partnership is the beneficiary.
Not allowable Not taxable
• 4) Part er’s life policy – partner is the beneficiary.
Allowable Taxable
• 5) Part er’s life policy – ceded to the partnership.
Not allowable Not taxable
6) Partners interest on Capital Allowable Taxable
7) Drawings Not allowable Not Taxable
11.5.8 Summary of allowable deductions
• EXPENDITURE PARTNERSHIP PARTNER
• 8) Interest on drawings Taxable Non deductible
• 9) Rents payable to a partner Allowable Taxable
• 10) Sports subscriptions Allowable Taxable
• 11)Pension contribution Allowable Taxable
Partner can claim deduction up to $5400
CHAPTER 12: CAPITAL GAINS TAX
Administered through the Capital Gains Tax Act[Chapter
23:01].
12.1 Introduction
The definition of gross income in Section 8 (1) of the
Income Tax Act excludes any amount of capital nature.
Receipts and accruals of a capital nature are therefore
not charged Income Tax Act.
12.1 Introduction
Certain capital receipts and accruals are subjected to
Capital Gains Tax
With effect from 1 August 1981.
These proceeds are those derived from sale of a
specified asset.
Definition of a specified asset
Immovable property like land, buildings, fencing,
durawall, dams, boreholes.
Any marketable securities including;
Bonds,debentures,shares or stocks.
Excludes mining claims.
Rate of CGT
The rate of capital gains tax is 20% (Section 38 –Finance
Act).
However, if the specified asset sold was acquired before
1 February 2009,
The rate is 5% and;
Capital gain=Sales proceeds.
Framework for the determination of CGT
Is similar to that of determination of taxable income.
DETERMINATION OF CAPITAL GAINS (LOSS) FOR THE YEAR ENDED……….
• Total Sales proceeds xxx
• Less: Recoupment (sect. 8 ITA) (xxx)
• Gross Capital Amount(sect.8 CGTA) xxx
• Less Exemptions (sect. 10 CGTA) xxx
• Capital Amount xxx
• Less: Deductions
• Section 11(2)(a)-CGTA xxx
• Section 11 (2)(b)-CGTA xxx
xxx
• Less Capital Allowances (s15 (2)(c) & 7th Sch, para 2 *ITA) (xxx)
xxx
DETERMINATION OF CAPITAL GAINS (LOSS) FOR THE YEAR ENDED……….
Capital Amount xxx
• Less: Deductions
• Section 11(2)(a)-CGTA(Cost) xxx
• Section 11 (2)(b)-CGTA(Improvements) xxx
xxx
• Less Capital Allowances (s15 (2)(c) & 7th Sch, para 2 *ITA) (xxx)
xxx
Inflationary Allowance s11(2)(c )
• 2.5% x no# years asset held x cost i.e. s11(2)(a) & (b) xxx
• Selling expenses s 11(2)(d) xxx (xxx)
• Capital gain(loss) xxx
12.3.1 Gross Capital Amount Section 8(1)
Gross capital amount means the total amount received
by or accrued to or in favour of a person or deemed to
have been received by or accrued to or in favour of a
person in any year of assessment from a source within
Zimbabwe from the sale of specified assets on or after 1
August 1981, excluding any amount which constitute
gross income.
12.3.1 Gross Capital Amount Section 8(1)
The definition of Gross Capital excludes any amounts
included under gross income.
E.g Recoupment.
Only gains from a source within Zimbabwe are taxable.
Thus gains from the sale of shares registered in South
Africa are not from a source within Zimbabwe.
Gains from a homestead in Warren Park D Harare is from
a source within Zimbabwe.
12.3.3 Deemed Sales [Sect.8 (2)]
Certain transactions are deemed to be sales;
Notwithstanding the fact that no actual consideration
has been exchanged:
12.3.3 Deemed Sales [Sect.8 (2)]
• Section 8(2) (b) Disposal other than by way of sales
• Section 8(2) (c) Expropriation of assets
• Section 8(2)(d) Assets sold in execution of court order
• Section 8(2) (e) Maturity or Redemption of stock
• Section 8(2) (f) Transfer of rights
12.3.4 Exemptions (Section 10)
The receipts and accruals of bodies referred to in
paragraphs 1, 2 and 3 of the 3rd Schedule to the Taxes
Act.
Excludes those referred to in subparagraphs (a), (c) and
(f) of paragraph 2;
Receipts from distribution of specified assets in a
deceased estate.
Amounts received or accrued on the sale, by a person
The receipts and accruals of a licensed investor from
the sale of a specified asset.
The receipts and accruals of an industrial park
developer.
Receipts from sale of shares from an approved share
ownership scheme by an employee to a trust.
Receipts from sale of a Principal Private Residence(PPR)
by an elderly person.
The first $1 800 from sale of marketible securities by an
elderly person( 55yrs and above).
Proceeds from the sale of listed marketible securities.
Proceeds from sale of shares under indigenisation
schemes.
Receipts from the sale of a specified asset used in the
business by a petroleum operator to another.
12.3.5 Deductions (Section 11)
(a) Sect. 11(1) Exchange losses:
(b) Sect. 11(2) (a) Cost of Acquisition/Construction:
Includes: initial cost, transfer duty, installation costs
and any other costs incurred in putting the asset to
usable state.
Excludes allowances granted under income tax e.g
Capital allowances and special deductions allowable to
farmers S.15 (2) (z), 7th Schedule, Para.2.
The cost of an item inherited is deemed to be its value
in the estate of the deceased.
The cost of an asset acquired through a donation is
deemed to be:
The market value of the asset at the time of donation,
for any donation made before 1 August 1981.
The amount included in the donor’s gross income or
gross capital amount, for a disposal after 1 August 1981.
(c) Sect. 11 (2) (b) Improvements
Expenditure on additions, alterations or improvements
to existing specified assets,
 Excludes expenditure on repairs -s 15(2) (b) Income Tax
Act.
Expenditure on immovable property by a company
which owns shares is deemed to be expenditure incurred
on the shares.
(d) Sect. 11 (2) (c) Inflation Allowance
This section provides for a 2.5% allowance on:
 Section 11 (2) (a)-cost
 Section 11 (2) (b)-improvements
A 2.5% allowance is also granted in respect of Special
deductions applicable to farmers, para. 2, 7th Schedule.
The allowance is granted in full even if the asset is used
for a period less than a year.
(e) Sect. 11(2)(d) Selling Expenses
Expenditure incurred by the taxpayer in connection
with the sale of a specified asset, agents commission,
selling expenses etc.
(f) Sect. 11 (2) (e) Bad Debts
Bad debts resulting from a disposal of a specified asset.
The conditions are the same as to those in sect. 15 (2)
(g) of the Income Tax Act.
(g) Sect. 11 (2) (f) High Court expenses
Payments made to High court on any case appealed by
the taxpayer and;
Successfully or substantially won by him and;
Which is related to capital gains.
(h) Sect. 11 (2) (g) Supreme Court expenses
(i) Sect. 11 (2) (h) Non-taxable gains
A capital gain of $50 or less is not taxable.
(j) Sect 11 (3) Assessed Capital losses
The taxpayer shall be allowed to deduct any capital loss
brought forward.
The conditions are the same as for Assessed losses under
Income tax[Sect.15(3)].
Example
• Nimrod purchased an industrial building on 1 September
2009 for $300 000, and transfer duty of $12 500 was
incurred when the property was purchased. The property
was sold on 1 June 2012 for $800 000. Prior to the sale
the taxpayer had incurred $ 30 000 on rates to date of
sale. Given that allowances previously granted and now
recouped amounted to $ 41 875.
• Calculate any capital gain payable
12.4 Damage or destruction of an asset (Section 13)
Where a specified asset is damaged or destroyed;
A sale is deemed to have taken place at a price paid by
way of insurance compensation.
Only applicable where the compensation is greater than
the; cost + cost of additions.
The taxpayer can avoid tax if he;
Uses the whole proceeds from the insurance company to
purchase or construct another asset in replacement,
Before the end of the following year next to that of
deemed sale.
Where the proceeds are partially utilised;
Capital gain tax shall be calculated based on the
Example
• Mr Adamant Mike who is 50 years old purchased a
commercial building in July 2009 at a cost of $200 000. In
August 2011 he constructed a garage on that property at
a cost of $27 000. The main building was gutted by fire on
1 September 2014 and was granted insurance
compensation of $2.4 million.
Calculate Capital gains tax payable, if any.
12.4.1(b) Sect 13 (2)
Where the compensation is insufficient to cover the
cost and cost of additions;
The asset is not assumed to have been sold.
The compensation is used to reduce the cost and cost of
additions of the specified asset damaged/destroyed.
Example
• Lima Garufu purchased land and buildings in April 2009
at a cost of $130 000. The building was destroyed by fire
and he was awarded insurance compensation of $110 000
million in February 2016. He uses the compensation to
reconstruct the building at a cost of $110 600 in
November 2016. In January 2017 he sells the property for
$450 000 and incurs $7 250, worth of selling costs.
• What is the position regarding capital gains tax?
12.5 Capital gains tax reliefs
Sections 15,16,17,18,19, 21 and 22 can be used by the
taxpayer in;
Reducing tax liability or;
Postponing payment of capital gains tax.
12.5 Transfer of assets at values equal allowable
deductions
Under the circumstances below,
The transferor and the transferee may chose to transfer
the specified assets;
At values equal to the allowable deductions;
Notwithstanding the actual selling price;
No CGT is payable.
deductions
However CGT is payable if the specified assets are later
on disposed off to a third party.
deductions
Section 15: Transfer of specified assets between
companies under the same control,
Section 16: Transfer of assets between spouses,
Section 17: Transfer of business property by
individual to a company under his control.
12.5.4 Section 18 &19 Suspensive sale allowance
Hire Purchase sales and credit sales
A suspensive sale allowance shall be granted as a
deduction against the capital gain arising from the sale.
The suspensive sale allowance is calculated as follows:
• A/D x (B-C)
• A: Amount not yet due and payable at the end of the
year.
Hire Purchase sales and credit sales
• (B-C)=Capital gain arising from sale.
• D: Total Sales proceeds.
The suspensive sale allowance granted shall form part
of the capital amount in the following year.
• Example
• Mr Numeri Mabasa sold his property during on 30 July 2015 for $120 000, the property
was built at a cost of 80 000 in May 2012. The property was sold with the following
conditions:
• a) 50% deposit was to be paid on the date of sale.
• b) 25% of the selling price to be paid on 30 July 2016
• c) The final 25% of the selling price to be paid on 30 July 2017
• c) The transfer of the property to the buyer will only occur upon full payment of the
purchase price.
• Calculate the capital gains tax for Mr Numeri Mabasa for the years 2015, 2016 and
2017.
Roll-over relief (Sect.21 & 22)
An allowance known as a roll-over relief is allowed to
be deducted from capital gain under the following
circumstances;
Sale of a PPR and use of the proceeds to acquire
another,
Sale of a business asset and use of the proceeds to
acquire/construct another asset.
The new asset must be constructed before the end of
the following year.
Roll-over relief (Sect.21 & 22)
The roll-over relief is calculated based on the amount
expended(used) using the following formula;
• (A/B)XC
• A: The expended(used) amount
• B: Selling price
• C: Capital Gain on sale of property
Taxable gain=Total Capital gain less Roll-over relief
Example
• Murima inherited a principal private residence from his
late father’s estate where it was valued at $34 000 in
2009. In 2010 he made improvements of $3 000. He sold
the house in 2014 for $580 000 and incurred selling
expenses of $23 000.Two months later he purchased a
new bigger residence for $800 000 and incurred transfer
fees of $170 000.
Calculate CGT if the taxpayer made the elections
Example
12.5.7 Partial roll over relief
• Suppose the cost of the new PPR was $400 000.
Calculate CGT if the taxpayer made the relevant
elections
12.6 Section 22: Withholding tax on Capital Gains
Tax deducted at source on the disposal of specified
assets.
12.6.2 Who should withhold the Capital Gains
Withholding Tax?
A depositary.
12.6 Section 22: Withholding tax on Capital Gains
Depositary includes:
Conveyancer, legal practitioner, estate agent, building
societies, Sheriff or Master of the High Court,
stockbroker or financial institution who;
Holds the whole or part of the price paid or payable to
the seller in respect of the specified asset.
12.6.3 Rates of Withholding Tax
These are tabulated as follows:
Description of Specified Asset Period Rate of tax
Sale of listed securities From 1 August 2009 1% of sale price
Sale of non-listed securities From 1 October 2010 5% of sale price
Sale of immovable property 1st February 2009 and 5% of the sale price (this tax
purchased prior to 1st February prior years becomes the final tax for
2009 Capital Gains Tax purposes)
Sale of immovable property 1st February 2009 and 15% of the sale price.
purchased and subsequent years
sold after 1st February 2009
CHAPTER 13: VALUE ADDED TAX
CHAPTER 13: VALUE ADDED TAX (VAT)
Introduction
VAT is;
An indirect tax
Levied on the supply of goods and services.
Levied on imported goods and some imported services.
A form of consumption tax, i.e. levied on consumers.
Levied on each stage of the value chain(on value added).
Triggered by a supply of goods or services in the course of
furtherance of a trade.
Levied under the Value Added Tax Act [Chapter 23:12].
TRADE(Section 2)
Only persons carrying on trade are required to
register for VAT
 Trade is a business in the broadest sense.
It includes any activity carried on:
Continuously or regularly.
By any person.
In or partly in Zimbabwe
In the course of which goods or services are supplied to any
other person for a consideration, i.e. some form of payment.
TRADE(Section 2)
Trade includes:
Business transactions to start or close down business.
Ordinary businesses such as: manufacturers, traders,
auctioneers, lessors, construction, etc.
Trades and professions – builders, electricians,
plumbers, doctors, lawyers, accountants, etc.
Non-profit organizations- sporting/ social clubs,
charitable organizations.
TRADE(Section 2)
Trade also includes services by:
Public authorities – government departments, provincial
authorities.
Local authorities.
Charitable organizations.
TRADE(Section 2)
Trade excludes:
Employment
Hobbies
Private occasional transactions, e.g. occasional sale of
domestic/household goods, or private motor vehicle.
Exempt supplies.
Supply to an independent branch outside Zimbabwe.
MECHANICS OF VAT
VAT Formula (section 15)
$
Output Tax X
Less Input Tax (X)
= VAT Due/Refundable X
MECHANICS OF VAT
Example Of VAT Formula
Output tax on sales
($60000 x 15%) = $ 9000
Less
Input Tax On Purchases
($50000 x 15%) = $ 7500
VAT Payable = $ 1500
REGISTRATION(s23)
WHO MAY REGISTER?
 Every person trading.
Person includes:-
 Company,
 Deceased or Insolvent Estate,
 Partnership or Joint Venture,
 Body of persons, Trusts, Individuals, Welfare
Organisations, Local and Public Authorities.
REGISTRATION(s23)
COMPULSORY
The prescribed annual turnover is reached (currently
$60,000), from normal trade activities.
The trader expects to reach the prescribed annual
turnover within the next 12 months.
A person is only registered once for all the
trades/divisions/branches carried on.
Must be completed within 30 days from the relevant date.
VOLUNTARY

Persons operating below threshold may apply.
It has several advantages.
REGISTRATION(s23)
CONDITIONS FOR VOLUNTARY REGISTRATION
Fixed place of abode or business.
Proper accounting records.
Bank account.
Good track record under Sales Tax.

DEREGISTRATION(s24)
WHEN ?
 Annual turnover falls below registration thresholds.
 On cessation of trade.
Voluntarily registered trader fails to meet registration

conditions.
EXCLUSIONS FROM REGISTRATION(s23)
Private or recreational pursuit or hobby.
 Service by employee to employer.
 Providers of wholly exempt supplies.

DUTIES OF A REGISTERED OPERATOR(s25)
Provide correct and accurate information.
Submit returns and payments on time.
Include VAT in advertisements and quotations.
Produce relevant documents when required by the

Commissioner.
Keep accurate accounting records for at least 6 years.
DUTIES OF A REGISTERED OPERATOR(s25)
Issue tax invoices, debit and credit notes.
Notify the Commissioner of any changes in the

representative person.
Notify commissioner of any changes in business e.g
address, trading name, partners and bank details.
TAX PERIODS(s27)
 Are regular intervals in which registered operators(R/O)
are required to submit returns and account for VAT.
 There are four categories of tax periods:
Category A
R/O whose tax period is two months ending Jan, Mar, May,
July, Sept & Nov.
Category B
R/O whose tax period is two months ending Feb, April,
Jun, Aug, Oct & Dec.
TAX PERIODS(s27)
Category C
R/O whose tax period is one calendar month.
Registered operators annual sales amounting to at least
$240,000.00
Category D
Any other period as the Commissioner may approve after
written application.
Examples:
Farming, agricultural and pastoral activities whose
turnover does not exceed $120,000.00 p.a.
DEEMED SUPPLIES(s7)
Goods sold by an auctioneer to recover debts,
Short-term insurance claims.
Repossession of goods sold under a credit agreement,
Subsidies or grants from a local or public authority used in
making taxable supplies,
A disposal of a business due to death or liquidation of an
operator,
Disposal of a business as a going concern.
Transfer of goods or services by a registered operator to an
independent branch situated outside Zimbabwe.
DEEMED SUPPLIES(s7)
Repossessions of goods sold under hire purchase.
Betting.
Goods imported by an agent on behalf of a principal.
VALUE OF SUPPLY(s9)
Value of supply = Consideration less tax.
Consideration is the selling price of a supply.
If consideration is in money = amount of money.
If not in money = open mkt value.

TIME OF SUPPLY(s8)
The time of supply determines the tax period a transaction
will fall in.
The general rule of the time of supply is the earlier of;
The time an invoice is issued or

The time any payment is received.
ACCOUNTING BASIS(Section 14)
VAT is accounted for on either the invoice or
cash/payment basis.
INVOICE / ACCRUAL BASIS
Registered operators must account for output tax on both
cash and credit sales.
Input tax is claimed on both cash and credit purchases.
Written application and the Commissioner should approve
the same.
• Example:
Kumunda (Pvt) Ltd purchased a fridge for resale on 20 October 2016 and received a tax
invoice for $3 450 (incl. VAT @15%). It paid the supplier $2 300 on 31 October 2009 and
the balance on 30 November 2016.
It then sold the fridge for $ 5750 (incl. VAT @ 15%) on 31 October 2016 and issued a tax
invoice for the whole amount the same day. It received 70% deposit on the date of
invoice. The balance was paid on 15 December 2009.
What is the VAT treatment of the transaction?
• Solution
• Kumunda (Pvt) Ltd is entitled to an input tax claim of
(15/115 * $3 450) $450 and should account for output tax
of (15/115 * $5750)= $750 in the tax period ending 31
October 2016.
CASH / PAYMENT BASIS
Under this basis, the registered operator has to account for
output tax on cash sales only.
Input tax is claimed on cash payments or purchases only.
To use the cash basis, the register red operator should
make an application to the CG.
The cash basis is normally applicable to:
Association Not For Gain.
Local and Public Authorities.
CASH / PAYMENT BASIS
• Example:
• In the example above if Kumunda (Pvt) Ltd was
authorized by the Commissioner to be on cash basis will
claim input tax of (15/115 X $2300)=$300 and account for
output tax of (15/115 X $4 025)=$525 in the tax period
ending 31 October 2016. However this will only be applied
if Kumunda (Pvt) Ltd is authorized by the Commissioner to
use the payment basis.
TAXABLE SUPPLIES
Supplies on which VAT is chargeable.
Zero rated supplies- 0%
Standard rated supplies- 15%
 If an amount is given inclusive of VAT(consideration),
apply the tax fraction(15/115).
ZERO-RATED SUPPLIES(Section 10)
Zero rated supplies are charged VAT at 0%(output tax).
A supplier of zero rated goods can claim input tax.
Must be registered to be eligible.
Zero rating applies primarily to exports and to;
Certain other types of transactions mainly for social and
economic reasons.
Exported movable goods
Repairs or renovations to goods temporarily imported into
Zimbabwe.
Goods supplied under a rental agreement and used
exclusively in an export country.
Sale of a business as a going concern
Supply to the Reserve Bank of Zimbabwe
International transportation of goods and passengers
Local air transport as part of international transport
Ancillary transport services for exports
Certain basic foodstuffs e.g groceries
Farming products
Goods for use by disabled persons
Supply to a branch or subsidiary in an export country
Supply of medicines
Local diamond sales
EXEMPT SUPPLIES(Section 11)
These are not charged VAT at all.
The operator cannot claim input tax.
The operator is not required to register for VAT.
The following supplies are exempt from VAT:
(a) Supply of any financial services
(b) Donated goods/ services
(c) Supply of residential accommodation
(d) Supply of leasehold land
The following supplies are exempt from VAT:
e) Supply of land together with improvements situated
outside Zimbabwe.
(f) Supply of transportation services to fare-paying
passengers.
(g) The supply of educational training services
(h) Medical supplies
(i) Supply by employee organisations e.g trade unions and
clubs.
The following supplies are exempt from VAT:
(j)Supply of fuel and fuel products.
(k)Water and electricity for domestic use.
(l) Rates charged by a local authority.
IMPORTS(Section 12)
Goods imported into Zimbabwe are charged VAT unless

they are exempt or zero rated.
It is calculated as follows:
• Initial Cost X
• Plus costs of freight, insurance etc. X
• = Value for Duty Purposes X
• Add Duty X
• =Value for VAT purposes X
• Apply 15% VAT X
IMPORTS(Section 12)
Example
• On the 16th of May 2015, the company imported 100
machines from India through Beitbridge and were put in
the bonded warehouse. The value for customs purposes was
$8 000 each and the rate of duty was 40% and VAT 15%
respectively. Calculate value for duty purposes. Show duty
and VAT payable to Zimra for the year.
IMPORTED SERVICES(Section 13)
VAT may be levied on imported services
The recipient of the service will be required to account for
VAT
VAT is paid only when the service is used for making non
taxable supplies.
Value of supply: the greater of;
(i)Value of Supply and (ii)Open Market Value(OMV)
Time of supply: earlier of invoice or any payment
EXAMPLE 1
• Chinhoyi University of Technology was sued by its Lecturers that they had fired
following an illegal industrial action. The University hired Advocate Khama from
Botswana to represent it. He charged them 14 500 Pula for the service. The open
market value of the services rendered was 16 000 Pula. He raised his invoice for the
service on 1 August 2016 but payment was made on 31 December 2016.
• Required:
• (a) Calculate VAT due if any.
• (b) When is the VAT due?
• (c) Who will account for the VAT?
• Solution:
• (a) VAT payable =15/115*16 000 Pula (greater of open
market value or consideration).
• = 2 086.96 Pula
• (b) The VAT was due on 1 August 2016, the general time
of supply rule applies, i.e. the earlier of an invoice being
issued or any payment being made.
• (c) The university is required to account for the VAT.
FRINGE BENEFITS-MOTORING(S17(3))
Where an employer provides motor vehicle for use to its
employees as a benefit,
VAT is chargeable on the deemed motoring benefit at the
standard rate.
The benefit is valued based on the engine capacity of the
car.
The principle also applies to cell phone benefit.
Example
• ABC Ltd is a VAT category C registered operator, at the beginning of 2015 tax
year the company acquired the following passenger vehicles used by its
senior management team: show the VAT implication of the purchase of the
passenger vehicle in the first tax period of 2015.
• Cost US$
• Two Toyota double cab vehicles, engine capacity 3200cc 90 000
• Three Nissan sedan vehicles, engine capacity 2000cc 35 000
• One Mazda sedan vehicle, engine capacity 1300cc 8 000
133 000
Solution
• VAT output tax:
• Toyota double cab 2*9 600*15/115*1/12 = 209
• Nissan sedan 3*4 800*15/115*1/12 = 157
• Mazda sedan 3 600*15/115*1/12 = 39
• Total output tax 405
INPUT TAX-PERMISSIBLE DEDUCTIONS(S16(1))
Input tax is VAT charged on the R/O by his/her suppliers.
It applies to suppliers of both goods and services.
Input tax can be claimed from ZIMRA if it was incurred in
the production of taxable supplies.
Where it is incurred for mixed supplies, apportionment
will be done
Basis of apportionment: turnover basis
De minimus rule applies if use is 90% and above.
50% of the cost of fiscalised registers can be claimed as
input tax.
INPUT TAX-PROHIBITED DEDUCTIONS(16(2))
Entertainment excluding:
Entertainment supplied to a client where fees to cover
direct or indirect costs are charged.
Promotional activities
Left overs
Entertainment supplied to employees where fees to cover
costs are charged.
Meals supplied to a passenger during a journey.
Refreshments provided at a seminar if cost is inbuilt in the
seminar charge.
Goods acquired by a local authority for the provision of
recreational facilities through payment of a subsidy.
Goods supplied to a private voluntary organisation in
fulfilling its object.
Subscription fees to recreational clubs excluding
professional bodies.
Initial purchase, hiring and importation of passenger
motor vehicles.
Medical services
TAX INVOICE(S20)
A document as prescribed in the Act.
Basis for operators to claim input tax.
FEATURES
 Words TAX INVOICE inscribed prominently.
 Supplier s name, address and registered number.
 Recipient s name and address and VAT number
 Serial number and date of issue
TAX INVOICE(S20)
FEATURES(cont.)
Description of goods.
Quantity/volume of goods/services.
VAT-exclusive price, tax charged and total price paid OR
VAT-inclusive price and amount of tax paid or
VAT-inclusive price and a statement that VAT is included and rate

Rules of Issuing a Tax Invoice
 Issued within 30 days of making a supply.
 Only one tax invoice for each transaction.
 Any replacement copy to be written COPY .
 Not required for total amounts of $10 or less.
CREDITS AND DEBIT NOTES(Section 21)
Credit notes: issued when consideration of supply is

reduced.
Debit notes: issued when consideration is increased.
CREDITS AND DEBIT NOTES(Section 21)
• Assuming a Computerised System:
Credit notes issued-reduce sales made-reduce output tax
Debit notes issued-increase sales-increase output tax
Credit notes received-reduce purchases made-reduce input

tax
Debit notes received-increase purchases made-increase

input tax
IRRECOVERABLE DEBTS(S22)
 Registered operators can claim input tax on bad debts
provided:
The supply was a taxable supply.
Output tax was previously paid/declared
The debt has been written off.
In an instalment credit agreement, the amount that can be
claimed is the outstanding cash price.
IRRECOVERABLE DEBTS(S22)
 If the r/o subsequently recovers the bad debt, output tax
should be paid on the amount recovered.
 If a registered operator has not paid his debt over a period
of 12mths, input tax previously claimed should be declared
as output tax.
RETURNS AND PAYMENTS(S28)
Every registered operator is required to submit VAT return
together with the payment on or before the 25th day of the
month following the relevant tax period.
Late submission will attract a penalty a well as interest.
Penalty is 100% of the tax liability and interest is calculated
at a rate of 10% per annum.
REFUNDS(S44)
 A VAT refund arises where output tax is less than input tax.
 The refund is done within 45 days from receipt of a claim.
 A claim for any refund may be made within a period of 6
years.
 If a refund is not done within 45 days, the Commissioner
becomes liable for interest at LIBOR plus 5%.
 A refund is not done where the amount claimed is less that
$60. Such amount will be credited against future VAT
payments.
 A VAT refund may be offset against any tax liability.
CHANGE OF USE OF GOODS/SERVICES(S17)
 Where goods or services are acquired by a registered
operator on which an input tax has been suffered and
claimed, and the taxpayer change the use of goods from
being a taxable supply or from making taxable supply to
private use;
 The taxpayer should nevertheless include the goods in his
computation of his output tax as if he had applied the
goods for the purpose indicated at the time of
acquisition.
CHANGE OF USE OF GOODS/SERVICES(S17)
• TRD Mining (Pvt) Ltd imported 10 machines worth $8 000(exclusive of VAT)
each in March 2015. In June the company sold 8 of the machines to local
mining companies at a price of $14000 each(inclusive of VAT), the remaining
two machines were taken by two of the directors of the company for their
private use. Show the VAT implication of the donation of the two machines
to the directors.
Solution
• VAT output tax $
• Sales (15/115/14 000 *8) 14 609
• Adjustment: add VAT on change of use (15/115*14 000*2) 3 652
• Less: Input tax
• Importation (15*8000*10) (12 000)
• Tax payable 6 261
OBJECTIONS(Section 32)
 Any person who is not happy with an assessment or a decision by
the Commissioner may object to such assessment or appeal.
 The objection must:
Be in writing
State the grounds of objection,
Cite applicable law and decided cases, if any.
Be lodged within 30 days of receipt of the Commissioner s
assessment or decision
 On receipt of the objection, the Commissioner may :
Accept it and make necessary adjustments
Disallow it
APPEALS(section 33 &34)
 If the person is not satisfied with the Commissioner s decision, he
may appeal with the Fiscal Court.
 The appeal must:
Be done within 30 days of receipt of the Commissioner s decision
Be made in writing
Reasons of objection must be similar to the previous reasons.
The Fiscal Court may vary the decision by the Commissioner,
disallow it or uphold it.
 If any person is not happy with the decision of the Fiscal Court, an
appeal may be made to the Supreme court.
Format for Calculating VAT
Item Consideration Rate/Tax Output tax($)
/Value of fraction
Supply
Sales
Fringe
benefits(s(17(3))
Deemed Supplies(s7)
Credit notes Issued-
(s21(2)(a)
Debit notes issued-
(S21(3)(b)
Total Output tax(a)
Item Consideration Rate/Tax Input tax($)
/Value of fraction
Supply
Goods/Services
Second hand
goods(s15(3)(a)(ii)
Imported
goods(s15(2)(d)
Credit notes received-
(s21(2)(a)
Debit notes received-
recipient (S21(3)(b)
Item Consideration Rate/Tax Input tax($)
/Value of fraction
Supply
Irrecoverable
debt(s15(3))
Betting
transactions(s15(3)(c)
Tax invoice received
late-now
claimed(s15(3)(f)
Total input tax(b)
VAT
payable/refundable(a
-b)
THE END
THANK YOU!

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TAX LAW & PRACTICE

People often say death and taxes are the same,

5. Apply tax principles in computing the capital gains tax

6. Apply tax principles in computing Value Added Tax (VAT)

 The head of ZIMRA is known as the Commissioner

The CG has the overall responsibility to administer

Oversee Zimbabwe tax administration and;

Ensure the effective running of ZIMRA across the

Zimbabwe uses a source-based tax system!!.

Any other property corporeal or incorporeal,

has an ascertainable money value (section 2).

Received on his/her behalf and for his/her own benefit.

Must have a legal claim to the amount.

Parent B donates to Child of Parent A.

Both parents taxable on income accruing to their minor

Salary from Econet Zimbabwe 200

Income from trading activities in Ghana 500

Dividends from Zex Ltd an Australian Company 500

Annuity purchased from Old Mutual Zimbabwe 200

Services rendered to the Zimbabwean Embassy in Zambia 500

Pension from Old Mutual Zimbabwe 200

Where the fund is situated in Zimbabwe or,

Deemed to be situated in Zimbabwe,

The amount is taxable in full.

Where the fund is not situated in Zimbabwe,

The amount is not taxable at all.

• Lump sum payment X

Calculate George’s taxable benefit for the year ended 31

• Compute his 2016 taxable income.

Is taxable in the hands of the employee;

Exempt if used for the business of the employer.

(a) By the identity of the recipient, or

(b) By nature of income.

Calculate the exemptions attributable to each of them.

Refunds from medical aid society or benefit funds.

Inherited Stock-value restricted to value in the estate.

What is the amount deductible in the hands of

They are carried forward up to a maximum of 6 years.

Mining losses are carried forward indefinitely.

The taxman disregards depreciation(sect.16) and

Recoupment Profit on Disposal

Scrapping Allowance Loss on Disposal

ITV ($9 000 –$ 6750) $ 2 250

(ii)Sale proceeds -Income Tax Value(ITV).

• Deemed Selling price =Deemed cost/Actual Cost

• Calculate recoupment to be taxed in the hands of

Deemed selling price: (10 000 * 18 000)/22 000 $8181.82

Recoupment = ($8181.82 - $5000) $3181.82

• Calculate the taxable income for the year if the

Description of Specified Asset Period Rate of tax

Sale of listed securities From 1 August 2009 1% of sale price

Sale of non-listed securities From 1 October 2010 5% of sale price

Fixed place of abode or business.

Proper accounting records.

Good track record under Sales Tax.

 Annual turnover falls below registration thresholds.

Voluntarily registered trader fails to meet registration

 Providers of wholly exempt supplies.

Submit returns and payments on time.

Include VAT in advertisements and quotations.