Zimbabwe’s New Domestic Minimum Top-Up Tax

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Zimbabwe’s introduction of the Domestic Minimum Top-Up Tax (DMTT) marks a paradigm shift in the taxation of foreign entities operating within the country. The DMTT is meant to foster a fair and effective tax system in line with global rules. This article unpacks the complexities of this new tax for multinational corporations.

At its core, the DMTT is a tax levied on the income of foreign entities active in Zimbabwe. Under the tax, global profits of large multinational enterprises will be taxed at a minimum corporate income tax rate of 15 percent. It targets companies, trusts, or juristic persons domiciled outside Zimbabwe, including locally incorporated subsidiaries, registered companies, and local branches of foreign entities. The essence of this tax is to ensure that foreign entities contribute a fair share to Zimbabwe’s tax revenue, particularly when these entities benefit from the country’s market but pay little to no corporate tax in their country of residence.

To determine the DMTT, a two-step calculation process is used. The actual corporate tax charged on the entity’s income is compared against the corporate tax that would have been charged without deductions under section 15 of the Income Tax Act. This comparison yields the “effective” rate of corporate tax, reflecting the real tax burden on the entity’s income.

The tax comes into play under specific circumstances. It will be applicable when a foreign entity earns income from any business or activity within Zimbabwe. It will also be applicable when the foreign entity’s country of residence either does not levy corporate tax at all or it levies taxes at an effective rate of less than 15% of the corporation’s income. Under these conditions, despite any existing double taxation agreements, the foreign entity is liable to pay the DMTT.

 

The DMTT for entities not liable to tax in Zimbabwe, the DMTT is equal to 15% of jurisdictional profits earned in Zimbabwe during the assessment year. Where the entity on the other hand, is liable to tax in Zimbabwe but at a rate less than 15%: the DMTT is 15% minus the corporate tax rate paid in the country of residence, or the tax chargeable under Zimbabwean law due to double taxation agreements, whichever is greater.

 

The introduction of DMTT has significant implications for foreign entities operating in Zimbabwe. It ensures that these companies contribute a minimum tax amount, thus aligning Zimbabwe’s tax policy with global efforts to prevent tax base erosion and profit shifting by multinational corporations. Recognizing the complexities of international taxation, the DMTT takes into account the potential for double taxation. If a foreign entity’s income in Zimbabwe is taxed as if it were earned in its home country, the DMTT is adjusted accordingly. The entity will pay either the DMTT calculated at 15% minus the tax rate in its country of residence or the amount chargeable under Zimbabwean tax laws due to double taxation agreements.

To facilitate the implementation of this new tax law, the Ministry of Finance is empowered to make regulations deemed necessary or convenient. This provision ensures that the DMTT can be effectively integrated into Zimbabwe’s existing tax framework and adapted as necessary to meet evolving economic and international tax standards.

The DMTT offers several benefits. It will ensure that foreign entities contribute a fair share of tax. Also, the DMTT can potentially increase Zimbabwe’s tax revenue, providing more revenue for public services and development. Third, the tax aligns Zimbabwe with international efforts to curb tax avoidance.

While the DMTT offers many benefits, it also presents challenges such as a compliance burden where foreign entities must now navigate an additional layer of tax compliance in Zimbabwe. Also, there might be implications for international trade and investment if foreign entities perceive the tax as a barrier. There also could be complexity in the implementation of the DMTT. It should be ensured that the DMTT is applied fairly and efficiently. This may require significant administrative effort from the Ministry of Finance and Economic Development, the Zimbabwe Revenue Authority and the Zimbabwe Investment Development Agency.

In conclusion, Zimbabwe’s introduction of the DMTT is a bold step to align the domestic tax system with global tax rules. While it presents certain challenges, the potential benefits in terms of increased revenue are significant.

Zimbabwe’s Sugar Tax: A Public Health Necessity

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The taxation of sugar-sweetened beverages (SSBs) has been brought to the forefront as a key public health intervention strategy amidst the global health crisis. The SSB taxation is endorsed by the World Health Organisation (WHO) and the United Nations Children’s Fund (UNICEF) and is hailed as a “best buy” policy to curb the proliferation of certain health issues. The implementation of such a tax could be a critical step towards fostering a healthier population in Zimbabwe. This article explores the various facets of SSB taxation, its objectives, effectiveness, and the unique context of Zimbabwe’s current tax policy.

 

A tax on sugar-sweetened beverages discourages their purchase and consumption. There has been a decline in SSB consumption in countries that have adopted such taxes. A crucial aim of SSB taxation is to nudge consumers towards healthier alternatives. Beyond economic impacts, SSB taxation strives to reshape societal norms and perceptions. It serves as a potent indicator that regular consumption of sugary drinks does not align with a healthy diet. Reducing sugar intake is essential for combating obesity, type 2 diabetes, and heart diseases. Lower SSB consumption, driven by taxation, is expected to decrease overall sugar intake, leading to improved public health and reduced healthcare costs. The revenue generated from SSB taxes can significantly boost public health initiatives. It enables governments to invest in health education, obesity prevention, and healthcare infrastructure, creating a cycle of health investment.

 

Further to the above, the design of the SSB tax is significant. Analysing how it can be highly effective is important.  In addition to the high tax rate on SSB’s, for the sugar tax policy to be effective, it must clearly define the tax incidence and the range of products it targets. To be highly effective, it is ideal that a wide range of beverages containing free sugars and artificial sweeteners, including carbonated drinks, fruit juices, energy drinks, and flavoured milk should be subject to the tax. This inclusive approach prevents consumers from simply switching to untaxed sugary alternatives. The tax rate is pivotal in altering consumer behaviour. A consensus among health experts suggests that a minimum 20% tax is necessary to effectively deter consumption of high-sugar beverages. This rate is deemed sufficient to prompt a noticeable change in purchasing habits. A tiered tax system, where rates vary according to sugar content, is increasingly favoured. It penalizes higher sugar content more heavily, thus providing a stronger disincentive against consuming such drinks. This method also encourages manufacturers to reformulate their products to lower sugar levels. The policy must be transparent in its objectives and the products it targets, ensuring there’s no confusion among consumers and manufacturers. Additionally, the tax structure should be equitable, avoiding any bias towards domestic or international products to prevent trade disputes.

 

It is apparent that Zimbabwe’s has adopted a conservative approach to SSB taxation which is contrast with international practices, which have demonstrated the effectiveness of higher tax rates in achieving public health objectives without severely disrupting the market. Other countries implementing higher sugar taxes have seen more success in reducing sugary beverage consumption and encouraging healthier lifestyles. It would thus be an arguable consideration that Zimbabwe should consider aligning its tax rate with global standards to enhance the effectiveness of its sugar policy. Such an approach should be accompanied by comprehensive policy measures, including public education, subsidies for healthy alternatives, and safeguards for the beverage industry and employment.  If well implemented, these measures would support the transition to healthier alternatives and enhance public understanding of the policy’s health benefits and revenue collection aim.

 

Unfortunately, Zimbabwe cannot be quick to introduce a high SSB tax. The general design of an SSB tax depends on a number of factors. Zimbabwe has different economic factors from first world countries who have successfully introduced the SSB tax and increased the rate to 20%. As such, the government policy of attracting investment and developing industry should be balanced with the policy’s health benefits and revenue collection to fund the health sector.  Although well intentioned, the introduction of the SSB tax may potentially shrink or destroy the beverage industry. Industry is still attempting to reboot after an economic turmoil which the country faced in 2008 and the years after characterised by currency issues. Also, the government has recently introduced many tax changes which have shocked the business sector. Thus, although 20% is the recommended rate to discourage the consumption of SSB’s, the affected industry needs an opportunity to recover from the many economic shocks, including in tax policy.  

 

Engaging with a diverse range of stakeholders is crucial for a transparent policy development process. It helps in addressing potential conflicts of interest. The successful implementation of SSB taxes in Zimbabwe requires a multifaceted approach. This includes clear policy design, stakeholder consultation, cross-sector support, and continuous monitoring and evaluation. Informed by global practices and adapted to local contexts, these strategies can help Zimbabwe achieve its health and economic objectives through SSB taxation.

IMTT removal and the tradeoff.

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The Monetary Policy Committee (MPC) of the Reserve Bank of Zimbabwe (RBZ) recommended that the government removes IMTT on transactions that are intermediated through plastic bank cards and other digital platforms. The recommendation was part of resolutions of the MPC meeting held on the 23rd of October 2023. Prior to the MPCs meeting, another organ of the country, the Confederation of Zimbabwe Industries (CZI) amplified its call for the government to remove the IMTT. The heightened calls for scrapping of the IMTT are neither new nor few in number. Several key players in industry have called for the scrapping of the IMTT. The IMTT became a significant transaction in 2018 when the government made it a percentage of value of transaction as opposed to being computed on a number of transactions made. This was through Statutory Instrument 205 of 2018 which fixed the rate of IMTT of 2 percent on all value of electronic transactions within Zimbabwe. The IMTT was solely instituted to increase tax revenue and the tax base. Increasing revenue is achieved by collecting revenue from the already existing taxpayer and increasing the tax base is achieved by taxing the informal sector. This means that every electronic payment (with exceptions) will attract the IMTT, therefore, increasing the cost of transacting digitally. Withal, as taxpayers we have been paying the IMTT for close to six years now, with the government receiving the IMTT for a similar period. Therefore, the questions we want answered are, why the sudden pressure from our big institutes and professional bodies, what are the current impacts of the IMTT on taxpayers and the Government of Zimbabwe, and what will a post IMTT Zimbabwe look like?

The calls for scrapping the IMTT begun around 2018 and have spanned to present day. Additionally, the calls for scrapping the IMTT have been made by professional bodies, stand alone firms and some of Zimbabwe’s most prestigious institutions such as the RBZ. However, the calls have recently intensified due to the economy cooling.  The upstream effects include a compounded effect on players in the entire value chain from the producer to the wholesaler. The upstream effects are seen by a negative impact on profits, sales, and revenues. The downstream pressures on retailers and consumers further amplify the impact of the IMTT. Therefore, with the economy cooling down and business activities slowing down, firms and institutes alike have felt the pinch of the IMTT. This has led to calls for scrapping of the IMTT, for example Bankers Association of Zimbabwe have highlighted the fact that the tax acts as a disincentive for banking. Additionally, players like Zimbabwe Investment and Development Agency have positively received the lowering of the IMTT to 1%, however, they also called for the scrapping of the IMTT.

The impact on the taxpayers is seen by an increase in cash transaction, decrease in deposits as most taxpayers would rather prefer to keep their hard-earned currency at their premises, loss of competitive advantage, double taxation, taxation of social basics such as school fees, and a general increase in the cost of doing business, While the impacts on the consumer are negative, the government has reported positive impact of the IMTT as it has contributed to the fiscus. The positive contribution to the fiscus has leveraged the government to execute more projects that are in line with the national development strategy.

Noting the impacts on the taxpayers and the government, removing the IMTT would affect everyday transactions in Zimbabwe. One such an effect would be on electronic payment methods, such as mobile money transfers and digital banking, which may become more attractive and widely adopted due to the reduced costs associated with them. People may also be more inclined to use these methods for everyday expenses like groceries, transportation, and utility payments, leading to a shift from cash-based transactions.

Small and Medium Enterprises (SMEs) are likely to benefit from the removal of IMTT. SMEs often rely on digital payment methods for their operations, and the elimination of this tax would reduce their transaction costs. This could lead to improved cash flow for these businesses, making it easier for them to conduct transactions, pay suppliers, and manage their finances more efficiently. Large corporations may also benefit from the removal of IMTT, particularly when it comes to making large transactions or paying employees electronically. However, the impact on these companies might be less significant compared to SMEs, as they might have already negotiated lower transaction fees with financial institutions due to their higher transaction volumes.

However, the government’s revenue would be significantly affected by the removal of IMTT. The tax has been a reliable source of revenue for the government, contributing to its budget and funding various public services and infrastructure projects. On the other hand, removing the IMTT will stimulate demand within the economy and hence the government will benefit through taxes such as vat and income tax. Yet, if the removal of the IMTT does not stimulate the economy, the government would need to find alternative sources of revenue to make up for the loss. This could involve revising other taxes or seeking external financial assistance. Therefore, the government would need to scale the benefit from removing the tax against the loss of revenue from removing the tax.

In conclusion, the removal of the Intermediate Money Transfer Tax in Zimbabwe would have both positive and negative consequences. Taxpayers, especially individuals and SMEs, would benefit from reduced transaction costs and increased convenience, while the government would face challenges in replacing the lost revenue. The impact on large corporations might be less pronounced, but they would still experience some benefits. Overall, the change in fiscal policy would require careful planning and alternative revenue sources to ensure that essential public services and government functions continue to be adequately funded.

Employees Tax- Pay As You Earn

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The end of the month is approaching, which is a joyous time for a number. It is at this point that you hear employees calling their employers names since their net- pay would not be matching with the gross income specified in their contracts. PAYE and NSSA are the main causes, and some have referred to them as the devils of their era. Allow me to walk you through the Pay As You Earn system for employees.

The Pay As You Earn (PAYE) system is a technique of calculating and paying income tax on wages. Before handing out the net income or pension, the employer is required to deduct tax from salary or pension earnings. The Income Tax Act [Chapter 23:06] outlines which components of an employee’s salary or earnings are taxed and at what rate. It also addresses what income is exempt from taxation and what deductions are permitted from these earnings prior to taxation. Section 4A (1)(a) of the Finance  Act Para 3(1b) of the 13th Schedule to the ITA; Section 2 of the Finance Act no 2 & 3 of 2019 is the legislation that guides on PAYE remittance.

Everything that one makes or earns – whether in cash, perks, or an item of value given in lieu of cash – is taxed in some way. However, in some situations, the determination of the value and related tax liability in relation to any of these kinds of payment will differ.

The official tax table is based on a progressive rate of taxation, which means that the higher your wages, the higher the percentage tax you pay on each earnings group. When your earnings reach a particular level, the percentage stops increasing and a flat tax rate is applied to any earnings over that level – this is known as the Marginal Tax Rate (MTR).

PAYE should be remitted to ZIMRA by the 10th day of the month following the month of deduction, accompanied by PAYE remittance advice (P2).

PAYE is calculated as follows:

  1. Determine gross income for the day/week/month/year.
  2. Deduct exempt income eg bonus =  Income
  3. Deduct allowable deductions, e.g. pension: Taxable Income.
  4. Refer to https://www.zimra.co.zw/domestic-taxes/tax-tables = Tax on Taxable Income. Salaries with both local and USD currency components use the USD tax tables and apportion the tax due accordingly
  5. Deduct tax credits e.g elderly, blind or disabled persons (ZWL450 000.00 or US$900.00 per annum) and medical credit $1.00 of every $2.00 paid = Tax after credits
  6. Calculate 3% Aids Levy and add to tax after credits = Actual tax payable.

ZiG: Transforming Zimbabwe’s Payment Landscape through Gold-Backed Innovation

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On October 5th, 2023, Zimbabwe witnessed a significant shift in its domestic payment landscape with the introduction of Zimbabwe Gold (ZiG), a novel means of payment backed by physical gold. We focus on the implications and motivations behind this policy change, exploring the potential impact on financial stability, risk mitigation, and the broader transition towards digital payment methods.

The introduction of ZiG represents a departure from the conventional means of payment for domestic transactions, which predominantly involved local and foreign currencies. The government’s decision to introduce a gold-backed currency aligns with a dual purpose – not only as a means of payment but also as a vehicle for value preservation. ZiG is uniquely backed by a milligram of physical gold, providing an intrinsic value that distinguishes it from traditional fiat currencies. A noteworthy feature of the ZiG implementation is the application of the Intermediated Money Transfer Tax (IMTT), which is set at half the rate applicable to foreign transactions. This move reflects a conscious effort to incentivize the use of ZiG for domestic transactions, making it a more attractive option for taxpayers. By reducing the tax burden associated with ZiG transactions, the government aims to facilitate its adoption and integration into the existing financial ecosystem.

The operational framework of ZiG involves transactions being cleared on the ZimSwitch platform and settled through the Real Time Gross Settlement (RTGS) system. Banks are required to maintain dedicated ZiG accounts, treating ZiG transactions with the same level of importance as local and foreign currency transactions. Importantly, the absence of tariffs or account maintenance charges for ZiG transactions promotes accessibility and encourages widespread usage. A notable restriction imposed by the government is the prohibition of lending in ZiG by banks. This regulatory measure is likely aimed at preventing speculative activities and maintaining the stability of the gold-backed currency. By restricting lending in ZiG, the government seeks to ensure that ZiG remains a secure and reliable means of payment rather than a speculative financial instrument.

To facilitate the ease of ZiG transactions, the government has authorized the issuance of ZiG cards. This move aligns with a broader trend in the global financial landscape towards digitalization and contactless payments. Individuals can conduct transactions through point-of-sale machines and online payment methods, reflecting a strategic move towards reducing reliance on cash-based transactions. An important aspect of the ZiG system is its flexibility in redemption and payment. While ZiG is backed by physical gold, individuals are permitted to redeem and receive payments in the local currency. This dual functionality provides individuals with options, allowing them to choose the currency that aligns with their preferences and financial needs.

The introduction of ZiG signifies a deliberate effort by the government to diversify the domestic payment system. By offering an alternative backed by a tangible asset, the government aims to provide citizens with choices and reduce reliance on conventional fiat currencies. This diversification may contribute to increased financial stability by introducing an additional layer of security and reliability into the payment system. The ZiG initiative is not just about introducing a new physical currency but is indicative of a broader strategy to promote digital payment methods. With the issuance of ZiG cards and the encouragement of online transactions, the government is aligning its financial system with global trends that prioritize digitalization for its efficiency, speed, and transparency.The reduced IMTT on ZiG transactions serves as a direct benefit for taxpayers. By lowering the tax burden associated with ZiG, the government incentivizes individuals and businesses to adopt this new payment method. This aligns with the broader goal of encouraging financial inclusion and reducing the reliance on traditional cash-based transactions.

However, an important and significant question to accountants, auditors and tax professionals is how ZiG will affect income statements, tax computations, financial statements e.t.c? We also pose another question: according to S37AA, how do we treat ZiG when one transacts in ZiG? The last question, when one purchases ZiG, does the IMTT apply, or it only applies when settling transactions. We will delve into these questions in future engagements of Matrix Tax School.

Therefore, the introduction of ZiG represents a strategic move by the Zimbabwean government to reshape its payment landscape. The gold-backed currency not only provides an alternative means of payment but also signifies a commitment to value preservation and financial stability. The implementation of ZiG reflects a forward-thinking approach that embraces digitalization while leveraging the intrinsic value of physical gold. As Zimbabwe transitions towards a more diversified and technologically advanced financial system, the implications of ZiG are likely to resonate across various sectors, contributing to the nation’s economic resilience and adaptability in an evolving global financial landscape. Given the advantages, ZiG still leaves several accounting and tax questions unanswered.

The safety of our information in the hands of the Revenue Authority

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Taxpayers are required by law to give sensitive information of their businesses to Revenue authorities, such as their income, expenditures, and business operations. Tax returns, assessments, and other correspondents or documents that a tax authority may seek from time to time may be used to supply the information. Section 34F of the Revenue Authority Act (Chapter 23:11) also grants the Commissioner General of ZIMRA unrestricted authority to demand full information regarding any person’s tax liability under any act managed by him or any matter relevant to the collection of such tax. He has access to a wide range of information, including deeds, plans, instruments, books, records, financial statements, trade lists, stock lists, and any other documents he deems appropriate for tax administration. The question is how secure this information is and whether it can be shared with third parties without the taxpayer’s authorization.

When taxpayers contribute personal information, they expect it to be kept private. Compliance is also enhanced if taxpayers are guaranteed that the information they submit will only be used for that purpose and will not be used for any other purpose. Zimbabwe implemented secrecy measures that put tight requirements on tax officers and others who receive tax information in order to safeguard taxpayer privacy and confidence. Section 34A of the Revenue Authority Act (Chapter 23:11) authorizes any person employed to administer taxes, authorized to receive payment of any revenues under the Revenue Acts, or authorized to examine records under the Commissioner-General’s control or custody to examine records guided by the law. The officer shall not divulge the information obtained to any person who is not the taxpayer, except in the exercise of his functions under the Act or unless required to do so by order of a competent court. As a result, no one other than the taxpayer, his representative, or the person to whom the information relates has access to any record within the Commissioner-General’s control or custody. Officers working under the Commissioner’s authority are required to swear a secrecy oath before exercising their duties; Section 5(4) provides that if the officer then discloses information to other people and not the taxpayer, during the course of his duties after taking the oath he or she shall be guilty of an offense and subject to a fine not exceeding level six or imprisonment for not more than one year, or both such fine and imprisonment.

However, the Commissioner-General has the right to disclose taxpayer information if he is required or authorized by the Minister or the Board for statistical purposes to provide information to the Minister or the Board. This should be in respect of the total amount of taxable income accrued during such periods to such classes of persons from such sources as the Minister or the Board may specify. Despite the fact that such information is supplied for statistical purposes, it may also be disclosed to the Minister as he deems desirable or essential in order to carry out Zimbabwe’s obligations under any international convention, treaty, or agreement. The Commissioner is also not bound by confidentiality laws if the taxpayer is a tax evader and he wishes to utilize the information for court appeals and reviews.

Although taxpayers may be assured confidentiality with regard to information in the custody of the ZIMRA, the requirements of the Interceptions of Communications Act (Chapter 11:20) may affect taxpayers’ right to privacy. According to Section 5(1)(d) of the Act, the Commissioner General is authorized to apply to the Minister for a warrant to intercept any relevant communication for the purposes of administering fiscal matters, i.e. ZIMRA, together with Central Intelligence Officers “CIO”, the Army, and the Zimbabwe Republic Police “ZRP”, is authorized to intercept mail, telephones, and other communications. Zimbabwe’s tax treaties additionally permit disclosure of information by competent authorities under the Exchange of Information Article when disclosure is essential and relates to taxes covered by the treaty.

The integrity of disclosure is frequently jeopardized when ZIMRA loses information that taxpayers would have provided. This calls into question the security of the information provided. However, taxpayers should be aware that they are powerless to prevent ZIMRA from accessing information, as doing so may result in the Commissioner issuing estimated assessments. The only solution is to guarantee that the information requested is recorded and signed for by ZIMRA personnel before it is released. It is also our belief that the new TARMS system, with its digitisation and lack of paperwork, have placed strict rules reducing the possibility of information being shared with third parties without the taxpayer’s knowledge, or being exposed in unusual instances. Meanwhile if a taxpayer’s privacy is violated or breached, he or she has a right to sue ZIMRA for breach of confidentiality.

The safety of our information in the hands of the Revenue Authority.

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Taxpayers are required by law to give sensitive information of their businesses to Revenue authorities, such as their income, expenditures, and business operations. Tax returns, assessments, and other correspondents or documents that a tax authority may seek from time to time may be used to supply the information. Section 34F of the Revenue Authority Act (Chapter 23:11) also grants the Commissioner General of ZIMRA unrestricted authority to demand full information regarding any person’s tax liability under any act managed by him or any matter relevant to the collection of such tax. He has access to a wide range of information, including deeds, plans, instruments, books, records, financial statements, trade lists, stock lists, and any other documents he deems appropriate for tax administration. The question is how secure this information is and whether it can be shared with third parties without the taxpayer’s authorization.

When taxpayers contribute personal information, they expect it to be kept private. Compliance is also enhanced if taxpayers are guaranteed that the information they submit will only be used for that purpose and will not be used for any other purpose. Zimbabwe implemented secrecy measures that put tight requirements on tax officers and others who receive tax information in order to safeguard taxpayer privacy and confidence. Section 34A of the Revenue Authority Act (Chapter 23:11) authorizes any person employed to administer taxes, authorized to receive payment of any revenues under the Revenue Acts, or authorized to examine records under the Commissioner-General’s control or custody to examine records guided by the law. The officer shall not divulge the information obtained to any person who is not the taxpayer, except in the exercise of his functions under the Act or unless required to do so by order of a competent court. As a result, no one other than the taxpayer, his representative, or the person to whom the information relates has access to any record within the Commissioner-General’s control or custody. Officers working under the Commissioner’s authority are required to swear a secrecy oath before exercising their duties; Section 5(4) provides that if the officer then discloses information to other people and not the taxpayer, during the course of his duties after taking the oath he or she shall be guilty of an offense and subject to a fine not exceeding level six or imprisonment for not more than one year, or both such fine and imprisonment.

However, the Commissioner-General has the right to disclose taxpayer information if he is required or authorized by the Minister or the Board for statistical purposes to provide information to the Minister or the Board. This should be in respect of the total amount of taxable income accrued during such periods to such classes of persons from such sources as the Minister or the Board may specify. Despite the fact that such information is supplied for statistical purposes, it may also be disclosed to the Minister as he deems desirable or essential in order to carry out Zimbabwe’s obligations under any international convention, treaty, or agreement. The Commissioner is also not bound by confidentiality laws if the taxpayer is a tax evader and he wishes to utilize the information for court appeals and reviews.

Although taxpayers may be assured confidentiality with regard to information in the custody of the ZIMRA, the requirements of the Interceptions of Communications Act (Chapter 11:20) may affect taxpayers’ right to privacy. According to Section 5(1)(d) of the Act, the Commissioner General is authorized to apply to the Minister for a warrant to intercept any relevant communication for the purposes of administering fiscal matters, i.e. ZIMRA, together with Central Intelligence Officers “CIO”, the Army, and the Zimbabwe Republic Police “ZRP”, is authorized to intercept mail, telephones, and other communications. Zimbabwe’s tax treaties additionally permit disclosure of information by competent authorities under the Exchange of Information Article when disclosure is essential and relates to taxes covered by the treaty.

The integrity of disclosure is frequently jeopardized when ZIMRA loses information that taxpayers would have provided. This calls into question the security of the information provided. However, taxpayers should be aware that they are powerless to prevent ZIMRA from accessing information, as doing so may result in the Commissioner issuing estimated assessments. The only solution is to guarantee that the information requested is recorded and signed for by ZIMRA personnel before it is released. It is also our belief that the new TARMS system, with its digitisation and lack of paperwork, have placed strict rules reducing the possibility of information being shared with third parties without the taxpayer’s knowledge, or being exposed in unusual instances. Meanwhile if a taxpayer’s privacy is violated or breached, he or she has a right to sue ZIMRA for breach of confidentiality.

Death and taxes

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As the law surrounding taxation can be complex and often subject to interpretation, but what is clear is that death and taxes are inseparable. Even in times of mourning, taxes must be paid. Accordingly, there are tax implications of income and expenses received after the death of a loved one. The Income Tax Act provides guidance on this matter, stating that income received after death is generally taxable. This includes any earnings from investments, businesses, or rental properties that continue to generate income after an individual’s death. The only difference is that when death unfolds, one will not be able to manage his or her affairs the way they do now or the way they would have planned or wanted to. The legislation governing estate administration in Zimbabwe has evolved over time it is codified in the Administration of Estates Act [Chapter 6:01]. The Act provides for the administration of deceased estates, estates belonging to children or mentally defective or disordered people, as well as individuals who are absent from Zimbabwe and whose whereabouts are unknown. The Act also establishes the position of the Master of the High Court, as well as the appointment of curators and executors, and protects both creditors and beneficiaries. The article aims to take taxpayers through on the administration of estates.

A deceased individual is subject to two fees: the Master’s fees, which require all deceased estates to pay a tax of 4% of the estate’s worth to the Master of High Court. The estate should be able to cover its own costs if it cannot the beneficiaries may make cash contributions to avoid selling assets. Second, a deceased individual is liable to estate duty tax, which is levied on the value of estate that exceed a specified sum that is gazetted by the law payable to ZIMRA. The following is how estate duty is calculated: Total Assets – Total Liabilities – Principal Residence – Family Car – Rebate = Dutiable Amount. The estate duty payable becomes 5% of the Dutiable sum It is also paramount to note that estate duty applies to income that meets the threshold of US100 000, amounts less than this are exempted from the payment of estate duty only subject to the Master of High Court fees.

In Zimbabwe, the question “Are funds received after death taxable?” is dominant. A deceased estate is created through the operation of law due to death. When a person dies, a new individual known as the estate of the deceased person takes his or her place. As a result, there are different tax rules for living people and deceased people. There may be two assessments for the same person in the same year of death, namely pre-death assessment and post-death assessment. If a person dies while working or running a business, income and expenses received and paid prior to death are typically assessed in the period preceding the date of death, while income and expenses received after death are assessed in the period following the date of death. However, it is important to note that not all income is subject to taxation. There are two types of income received after death: income accruing to the deceased estate and income accruing to beneficiaries. Income accruing to the deceased estate refers to any income earned by the deceased individual before their death but received by their estate afterward.

Death of person does not change the nature of his income nor how it is taxed.  If an amount would have been income in the hands of the deceased, it will also be income when received by the executor. His remuneration, including voluntary awards given in respect of services rendered, remains employment income. However, the voluntary payments only apply to amounts received or accrued to the executor.  A voluntary award made directly to a dependent or heir of the deceased could be treated as an amount of capital in nature, since the dependent did not render any services. A deceased estate as a person will be represented by the executor or administrator, who will be responsible for collecting all income earned by the deceased, whether earned before death or after death. Once he receives the letters of executorship, he is also responsible for collecting debts, paying creditors, reducing the estate into possession, rendering accounts, distributing property to heirs, and wound up the estate. If the testator established a trust, the estate must be transferred to the trustees.

There are different principles applied when dealing with different items in the computation of the  deceased’s taxable income; the following are examples but the list is not exhaustive: cash in lieu of leave received by the executor of the deceased estate of civil servant is not taxable; bonuses and directors fees voted after death or which are not fixed in the Articles of Association or Shareholders Agreement are not taxable since the deceased had no right to the amount during his lifetime; leave pay under an employment contract, royalties on a book, bonus or directors fees fixed in the Articles of Association and contractual commission are taxable in the post death period; commission in terms of a contract or agreement which is paid after death, to the executor of a deceased estate will be taxable either in the hands of the deceased if it becomes due and payable before death or in the hands of the estate if it becomes due and payable after death; any income made by a taxpayer as director of a company or as an employee in respect of a right to acquire marketable securities, shall be deemed to have been made by him on the day before his death and shall be included in his income up to the date of death. Death may also result in life insurance policies being paid to the estate or beneficiaries, as well as other death benefits, pensions etc. These are often not taxable because they are capital in nature.

VAT dilemma of construction projects

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The construction industry plays a crucial role in the development of any economy. With Zimbabwe’s economic development agenda being premised on 14 pillars under the National Development Strategy, infrastructure development is said to be central to the achievement of the country’s economic goals. In pursuance of the same, the government set aside money for the sector in the 2023 national budget. There are therefore a number on going construction activities in the country.It is critical to stress that the sector, like other sectors of the economy, is not immune to the tax system’s issues and must negotiate its way through the complex tax rules. The VAT complexities of the construction industry stem from the time horizon disparities between the conclusion of the construction contract, the undertaking of the construction and the eventual settlement for the job done. This stands out as one of the construction industry’s distinctive complications, as well as a possible risk to tax compliance, liquidity, and profitability, particularly for small construction enterprises.


By their very nature, construction projects are long term, in some cases spanning several years before the project concludes. The law provides that VAT in the case of construction, manufacturing or construction and assembly work becomes chargeable upon payment being made in respect of any supply becoming due, is received, or any invoice relating only to that payment is issued, whichever is the earliest (underlined own emphasis). The interpretation of what is meant by “any supply becomes due” is critical. Because the construction project is often delivered in parts, it is impractical to expect the “supply which becomes due” to be the full project value.


The building contractor and the contracting entity must agree when the works have been finished for a supply to become due. The view currently embraced by tax authorities and courts is that construction or assembly work is completed when a certificate of completion or progress is issued. This may be viewed as the date of signing a handover protocol denoting the client’s acceptance of the work. In order for this to be achieved the following three conditions should be met : (a) a formal acceptance protocol should be stipulated by the parties under the contract, (b) such formal acceptance protocols are common commercial practice in the field in which the service is supplied and (c) it must not be possible to establish the consideration due by the client before the client formally accepts the construction or installation work. In the absence of a clause in the contract stipulating the acceptance protocols as aforesaid, it appears the date the “supply becomes due” is when the contractor announces to the buyer that the services are complete and ready for handover. How the agreement is worded is a critical consideration in the determination of a tax point underscoring the point in time, rights and obligations under the contract are exchanged by the parties.

The dilemma with construction contracts is that the process of works acceptance is often very long, consisting of multiple stages, and is never guaranteed to end successfully. When tax chargeability and invoicing date is to be conditional on the works becoming declared ready for acceptance, the contractor may find itself forced to issue an invoice and pay VAT although the contracting entity refused to accept the works and the invoice it received. If this happens, the contractor may find itself facing loss of financial liquidity as it will have to pay the VAT without itself being paid by the contracting entity for the work it performed. This stems from the fact that invoice is one of the three elements which may trigger VAT on a construction contract.

Moreso, VAT issue of front payments as indicated above is another problem, the time of supply is triggered when a supplier receives a payment. It is not relevant whether the goods or services were not physically supplied or performed at that time see: (Case L67 (1989) 11 NZTC 1,391). The fact that the contract is later cancelled does not void the supply. However, of essence is whether such upfront payment is a consideration for the supply or not. The VAT Act has defined term consideration to exclude a deposit, other than a deposit on a returnable container, whether refundable or not, given in respect of a supply of goods or services unless and until the supplier applies the deposit as consideration for the supply or such deposit is forfeited. Deposits are a customer’s way of reserving goods or services
or a sum payable as a first instalment on the purchase of something or as a pledge for a contract, the balance being payable later. The far-reaching consequence of this is that the contractor should be able to demonstrate that the upfront payment is a deposit which has not been appropriated to him/her as part of the supply. Where the amount is an advance payment it can be argued that VAT is triggered when such advance is received. In practice an advance payment helps the business to pay its actual costs during a contract. The issue of VAT on deposit is a topic which requires an in-depth analysis, and we will deal with it in our future articles.

In the final analysis the contractor will become liable to VAT based on the progress report as approved by the client, where billing or actual payment has preceded the certificate of completion such payment or invoice, whichever occurs first will trigger the VAT point. The certificate of completion as approved by the client or invoice will force the contractor to declare and pay the VAT long before receiving payment from the client which represents the biggest VAT dilemma within the construction industry. The upfront payment also, although a much better problem to deal with, will trigger VAT even when services has not been performed unless it can be demonstrated that the payment is a deposit as described above. All these are VAT intricacies bedeviling construction contracts which contractors should manage to avoid noncompliance penalties which may take a huge toll on the business liquidity as well threatening business going concern.

ZIMRA rolling out a new system – TaRMS!!!

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A new dawn beacons at the tax office of the country, ZIMRA. The Tax and Revenue Management System (TaRMS) will go live on the 12th of October 2023. A business re-engineering process committed at simplifying corporate operations for taxpayers’ benefit. Tax revenues are central to Zimbabwe’s national development and the attainment of the country’s vision of being a middle-income economy by 2030. As a result, ZIMRA’s operations must be re-engineered to facilitate efficient and effective revenue collection. TaRMS will replace the current system (SAP TRM) for automating domestic tax activities. When offering services to its taxpayers via SAP TRM under the Domestic Taxes Division, ZIMRA discovered a number of system difficulties, hence necessitating an upgrade. TaRMS is expected to drive up taxpayer registrations, improve the registration process, expand the taxpayer base, capture ITF 12B (QPDs), improve refunds management, tax return management, payment and debt management systems. The new system will be released in three stages on three different dates. The first phase will be the front end, with 80% of the program being delivered on 12 October 2023. The second stage will be the installation of the Tax Agent Module, which will be live on 1 December 2023. Finally, the third phase, which will include the back end, will go online on 1st August 2024.

It is expected TaRMS will have better features and functionalities compared to the outgoing SAP and there is no doubt that it will boost domestic revenue mobilisation. ZIMRA identifies various advantages of utilising the TaRMS system over the traditional SAP system. The enhancements are roughly classified as taxpayer registration, tax return administration, payments management, refunds management, and debt management. In registration, Duplicate Business Partner Numbers will be eradicated, there will be an online validation of company registration numbers integrated with Registrar of Companies, banks, and civil registry, Taxpayer Identification Number (TIN) and tax types registration will be automatic for all entities, the system will offer a self-service portal “SSP” that can save uncompleted taxpayer’s registration applications that can be completed later. Integration with Registrar of Companies will assist ZIMRA to grow taxpayer’s base as all registered companies will be automatically registered in TaRMS. The use of manual registrations forms done prior will now be eliminated through use of electronic forms on TaRMS. Taxpayers can update master data through SSP without requirement for ZIMRA’s intervention on editable fields. Taxpayers will use one TIN for both USD and ZWL, submit one return per tax period and post-tax obligations in both ZWL and USD, which is easy for the taxpayer. Except for those that are partially automated, such as capital gains on entities or individuals with diplomatic immunity, all returns/claim forms are totally automated. The solution will eliminate the problem of unallocated payments in ZIMRA bank accounts, as well as the need for
suspense accounts.

The taxpayer’s ledger will be automatically maintained by TaRMS. It will automatically identify refunds for processing, assess any outstanding liabilities (returns and payments), discover unpaid obligations, and maintain accounts automatically since a tax liability reported on the return is settled straight from the single account. The system will calculate interest on a daily basis, update and display the amount in the taxpayer ledger and post penalties from the due date to the taxpayer ledger. If the taxpayer has made any necessary corrections, the system will be able to automatically reverse interest and penalties on any
adjusted/amended tax liabilities. It will send reminders for payments and returns prior to, on, and beyond the due date, based on the escalation methods. Following the launch, the transition will be gradual, with no loss of existing capability. The new TIN update will be linkable with BP until the end of the project. TaRMS will already be split, with each currency (USD and ZWL$) residing in separate ledgers. A single return will result in two assessments. SSP a self-service site connected with TaRMS will ease business operations. Because Zimbabwe is designated as a multi-currency economy, TaRMS will only have two currencies: USD and ZWL$ however, if one’s currency of trade is different from the mentioned, it must be converted to USD, but just for tax reporting purposes. ZIMRA will only accept payments in either ZWL or USD i.e., if one trades in pounds, they have to convert their currency to USD for payment of taxes.

E-services and e-tax will be phased out on the 12th of October 2023.TaRMS will not necessarily amend the legislation. Refunds will be issued automatically, with the exception of those who exceed a specified threshold. Domestic payments will be processed online using domestic bank cards, buttressed by ZIMRA’s collaboration with ZIMSWITCH. Persons dealing with agents, as well as agents dealing with persons, must enter individual email addresses so that the TIN can be delivered directly to the individual. Otherwise, the TIN will be mailed to the current address. As with any new system that is implemented, there will be some flaws here and there. The current tax structure already presents certain difficulties for taxpayers. Complex tax regulations, complicated paperwork, and a lack of transparency have frequently led to taxpayer misunderstanding and dissatisfaction. The implementation of a new tax system should solve some of these concerns while also providing a more user-friendly experience. The revenue management system is intended to improve revenue management by streamlining tax collection. It intends to automate tax operations, improve efficiency, and limit the potential for fraud by integrating technology. However, the successful deployment of such a system is strongly dependent on taxpayers’ willingness to adjust to the changes, as well as the authority’s financial readiness to completely finance the system and manage its operations.

In summation, to be fully prepared for the system, taxpayers must collaborate with ZIMRA, attend training sessions, and follow all of their social media handles to stay up to date on developments and communicate any potential challenges they anticipate so that ZIMRA can either address them or reassure them that everything is in order. Backups by taxpayers of old data are critical moving into a new system to avoid disappointment. The new system promises to be fantastic and we hope it is not the same promise offered by all promoters of new systems. Our hope is that the promoters will leave to their billing and the government will commit resources to make the project a success. Does TaRMS offer a complete digitalised tax system capable of delivering features such as e-filing, e-matching, e-auding, e-accounting and e-assessing, watch out for our follow up article next week.