Chapmans Chartered Accountants Ground Floor, North Block, Zimplow House, Northridge Park, Northridge Close, PO Box BW1041, Harare +263 (0) 4 885734/5/6 Finance Act 2017 The 2017 Budget proposals have been passed with some modifications by way of the Finance Act 2017. The following is a summary of the significant changes: Changes to the Income Tax Act Changes Section Details Effective General Administration and Management Charges The restrictions applicable for the tax deductibility of general and administrative fees between companies and their subsidiaries will now be extended to cover such fees between associated companies. Section 16 Income tax act Thin-capitalisation - Payment of tax on deemed dividend Zimbabwe currently a thin capitalization rule which effectively can result in a tax disallowance of borrowing costs relating to the portion of debt that causes the entities debt to equity ratio to exceed 3:1. The excess interest that is disallowed is further deemed to be a dividend subject to withholding tax at the rate of 15%. Previously the imposition of the withholding tax was on notification by the Commissioner. It is now on a self-assessment basis. Furthermore the exemption of dividends from income tax does not extend to deemed dividends. Permanent Establishment The definition of Permanent Establishment has been introduced into the Income Tax Act to capture taxation of profits from businesses conducted by non-residents in Zimbabwe, where these are not already captured by existing Double Taxation Agreements. Section 19 A Section 19 B A Permanent Establishment is a fixed place of business through which the business of a company is wholly or partly carried on. Non-resident non-executive directors Payment of fees to non-resident directors currently attracts withholdings taxes, at 20% in accordance with the 33rd Schedule (Tax on Non-Executive Director s Fees), and at 15% in accordance with the 17th Schedule (Non- Residents Tax on Fees). In order to eliminate double taxation of the same income board fees accruing to non-executive directors are not subject to the non-residents tax on fees. As such their board fees would then only be subject to the 20% withholding tax in accordance with the 33rd Schedule. 3rd Schedule para 9
Payment of Provisional tax for SME s The Commissioner General may on application by a tax payer who qualifies to be a Small to Medium Enterprise permit a tax payer to pay provisional tax on a monthly basis Section 72 Subsection 14 Income Tax Act Additional powers for Commissioner on the use of Computer Based systems Currently the use of computer based systems like E-services is entirely voluntary. The Commissioner is now empowered to require certain tax payers to use Computer based systems Registration of tax practitioners to controlling bodies All tax professionals should be registered with a recognised controlling body or association regulating their conduct, as well as ZIMRA. Registration with ZIMRA will be subject to attainment of specified minimum educational qualifications among other requirements. Section 80 Subsection Ff Section 98 subsection B Reporting unprofessional conduct by tax professionals The authority of the Commissioner General is extended to permit reports to be made of any unethical conduct by a taxpayer or tax practitioner to their controlling association. Section 98 subsection B Zimbabwe Asset Management Company (ZAMCO) 15/07/2014 ZAMCO was added on to the list of statutory bodies that are exempt from tax. 3rd Schedule para F RBZ Premium on receipts of earnings by exporters on remittances from abroad A premium paid by the RBZ to promote receipts from exports is exempt from tax. This covers the current 5% export incentive but only from the effective. Strategic reserve levy The NOCZIM debt redemption and strategic reserve levies are now as follows The NOCZIM debt redemption levy, is calculated at the rate of US$0.013 per litre of diesel and US$0.057 per litre of petrol; The strategic reserve levy is calculated at the rate of US$0.015 per litre of diesel and US$0.015 per litre of petrol. 3rd Schedule para 16 31st schedule Special economic zones A definition of Special Economic Zones was added to the Act. Section 2 subsection 1 Investment license A definition was added to scope in investments licenses in respect of Special Economic Zones Section 2 subsection 1
Changes to the Finance Act Changes Section Details Effective Taxable income of individuals within a licensed investor The taxable income of an individual (holding a temporary employment permit) with a licensed investor having qualifying degree of export-orientation as defined in section 2 of the Taxes Act is set at 15%. Section 14 Finance act Carbon tax Visitors to Zimbabwe will pay Carbon tax at 10% each month Section 22 Subsection E NOCZIM debt redemption NOCZIM debt redemption levy has been reduced from 6.7cents per litre to 5.7 cents per litre Section 22 Subsection H The following is a summary of the changes: Category Current rate per quarter New Rate per month Informal Traders 10% of the rental 10% of each dollar of rent paid by Informal trader Small scale miners 0% of the gross amount payable 0% of each dollar of the purchase price of the precious minerals Taxi cabs $ 100 $ 25 Omnibus 8 to 14 Passengers $ 150 $ 40 15 to 24 Passengers $ 175 $ 45 25 to 36 Passengers $ 300 $ 70 Above 36 Passengers $ 450 $ 100 Driving School Class 4 Vehicles $ 500 $ 100 Class 1 and 2 $ 600 $ 130 Operators Goods Vehicles Greater than 10 tonnes but less than 20 $ 1,000 $ 200 tonnes Greater than 10 tonnes but less than 20 $ 2,500 $ 500 tonnes with one or more trailers Greater than 20 tonnes $ 2,500 $ 500 Hair Salon Operator $ 1,500 10 per chair Cross border traders 10% of the Value for Duty purposes of the Commercial goods imported 10% of the Value for Duty purposes of the Commercial goods imported Restaurants and bottle-stores $ 300 $ 75 Cottage industry operators $ 300 $ 75 Commercial waterborne vessels Up to 5 passengers $ 250 $ 60 6 to 15 passengers $ 500 $ 100 16 to 25 passengers $ 1,000 $ 200 26 to 49 passengers $ 1,500 $ 350 50 passengers and above $ 2,000 $ 450 Fishing rigs $ 350 $ 80
Changes to the VAT Act Changes Appointment of VAT Withholding tax Agents Section Details Effective Commissioner has been empowered to appoint VAT Withholding tax agents. Section 50A Mobile banking exemption Banking and payment solutions offered by any person registered under the National Payments Systems Act is exempt from VAT(mobile banking platforms) Export of unbeneficiated platinum Collection of Value Added Tax on Exportation of unbeneficiated platinum has been deferred 1 January 2018. VAT Registration Moratorium With effect from the 1st January, 2017, and for a period of 6 months ending on the 30th June, 2017, any person liable to VAT registration but who failed to apply timeously for registration before the 1st January, 2017, will not be subject to any penalties for failure to do so, including the charging of tax deemed to be payable from the when the Commissioner deems the person to have become liable for registration. This moratorium applies to persons whose taxable supplies are between US$60 000 and US$ 240 000 per annum prior to registration and who have applied voluntarily. Additional powers for commissioner on the use of Computer Based systems Currently the use of computer based systems like E-services is entirely voluntary, the Commissioner was empowered to require certain tax payers to use Computer based systems Section 12 Subsection B Section 23 subsection 2 Section 68 subsection F 1/1/2018 Changes to the Capital Gains Act Changes Capital Gains Tax on Intangible property The definition of specified assets has been expanded, to include any right or title to property whether tangible or intangible that is registered or required to be registered in terms of - The Mines and Minerals Act [Chapter 21:05]. Or - the Patents Act [Chapter 26:03]; or - the Trade Marks Act [Chapter 26:04]; or - the Industrial Designs Act [Chapter 26:02]; or - the Copyright and Neighbouring Rights [Chapter 26:05]; - the Brands Act [Chapter 19:05]; or - the Geographical Indications Act [Chapter 26:06]; or - the Integrated Circuit Layout-Designs Act [Chapter 26:07] Act (No. 18 of 2001) Section Details Section 2 Subsection 1 Effective Capital Gains Tax on Donated property Certain companies have been donating housing units to local authorities and communities and suffered capital gains tax on such transactions as deemed disposals at the related market value of such housing units. The donation of housing units to any local authority, approved employee share ownership trust or community share ownership trust or scheme is now exempt from Capital Gains Tax. Section 20
Changes to the Customs and Excise Act Changes Other changes Effective The special excise duty on airtime is increased from 5% to 10%. Part XIIB Registration of Customs professionals controlling bodies All Customs professionals should be registered with a recognised controlling body or association regulating their conduct, as well as ZIMRA. Registration with ZIMRA will be subject to attainment of specified minimum educational qualifications among other requirements. Section 216 subsection C Reporting unprofessional conduct by Customs professionals and other practitioners The authority of the Commissioner General is extended to report any unethical conduct by a taxpayer or clearing agent to their controlling association. Section 216 subsection C Changes to the Revenue Authority Act Changes Section Details Effective Appointment and functions of Commissioner general The ZIMRA Board will now appoint the Commissioner General of ZIMRA with the approval of the Minister The tenure of office for the Commissioner General is fixed to a maximum of two, five year terms. The ZIMRA Board appoints, such Commissioners, as maybe deemed necessary, for a fixed tenure of office not exceeding three, four year terms. Section 19 subsection 1a Section 19 subsection 1b Section 19 subsection 2
Changes to the Criminal Law Act Penalty Loading Model A penalty loading model which informs taxpayers on the level of penalties was published and the new penalties are as follows: Standard Scale Fines $ Level 1 10 2 15 3 30 4 100 5 200 6 300 7 400 8 500 9 600 10 700 11 1000 12 2000 13 3000 14 5000