The Sunday Mail
Edmore Ndudzo
The main legislation governing taxation in Zimbabwe is the Income Tax Act (Chapter 23:06). Other legislative instruments specifically cover capital gains, customs and excise, value added tax et al.
Fundamental provisions of the Incomes Tax Act are Sections 6 (Levy of Income Tax); 7 (Calculation of Income Tax) and 8 (Interpretation of Terms Relating to Income Tax).
Part 111, Section 6 says, “There shall be charged, levied and collected throughout Zimbabwe, for the benefit of the Consolidated Revenue Fund, income tax in respect of the taxable income, as defined in this Part, received by or accrued to or in favour of any person, during the year of assessment ending 31 March, 1968 and each succeeding year of assessment thereafter.”
On the other hand, Section 7 reads, “The income tax which a person is chargeable shall, subject to Section 50, be calculable in accordance with the charging Act by reference to: (a) The taxable income of the person in the year of assessment,
“(b) The appropriate rates of income tax fixed by the charging Act, relating to that year; and (c) The credits to which the person is entitled in terms of the charging Act, relating to that year.”
Section 8 defines gross income as “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 source deemed to be within Zimbabwe, excluding any amount (not being amount included in ‘gross income’, by virtue of any of the following paragraphs of this definition so received, or accrued which is proved by the taxpayer to be of a capital nature, and without derogation from the generality of the foregoing; includes Clauses (a), (b), (c), (d), (e), (f), (g), (h), (i), (j), (k), (l), (m), (n), (o), (p), (t) and (s)”.
In simple terms, this means only gross income earned in Zimbabwe or from a source deemed to be in this country shall be subject to tax provided it is not of capital nature or stated specifically under any of the clauses listed above.
The Income Tax Act has been in force since 1967, and has never been fundamentally reviewed.
It might now warrant constructive and objective consideration given prevailing domestic and international dynamics on taxation in general and double taxation in particular.
The Act relates exclusively to gross income “received, accrued to a person or deemed to have been so received by, or to have accrued to or in favour of such a person in any year of assessment, from a source within or source deemed to be within Zimbabwe, excluding any amount so received or accrued, which is proved by the taxpayer to be of a capital nature”.
In recent years, the Zimbabwe Revenue Authority has resorted to setting annual targets for itself, primarily to monitor and evaluate performance. And Zimra has to meet or surpass those targets.
Over an extended period, various tax heads have emerged apart from income tax, which initially consisted mainly of company tax and individual tax.
These taxes include VAT, customs and excise duties, carbon tax, mining royalties, tobacco levy and dividends, interest and remittances. Taxes are also being levied on fuel.
At local government level, the main tax head comprises rates/owners charges. Other taxes and/or levies at this level now include tollgate fees, development levies and “rent charges”.
The main justification for taxes is to enable the State to finance public goods and services, which are basically vital goods and services.
One fundamental and internationally-recognised principle of taxation is that only public goods and services should be financed via taxes.
In the context of Zimbabwe’s Land Reform Programme, I suggest the following:
l Taxes should be used to settle compensation for both land and improvements on farms previously owned by indigenous farmers that were acquired in error (or deliberately) and those under bilateral agreements. This should be done in line with Section 295 of the Constitution;
l Contributions from direct and identifiable beneficiaries of such improvements on farms acquired from non-indigenes should be met, principally, through such contributions. These payments should be made over an agreed, comfortable and reasonable period; and
l The same concept should apply to both indigenous and non-indigenous beneficiaries as it relates to, say, movable assets like tools and machinery, which may have been acquired, found on the farms or enjoyed under various schemes that either Government or the Reserve Bank of Zimbabwe subsequently purchased or acquired with a view to assisting resettled farmers.
This means taxes should only be applied where there is no identifiable individual beneficiary, and that identified beneficiaries should carry the can.
In the same vein, whoever vandalised farm property must be made accountable and bear the cost.
Compensation to former non-indigenous farmers in respect of land is due and payable to them by former colonial power Britain under Section 72(7) of the Constitution.
Financial engineering will be required thereafter to ensure all obligations are settled within agreed time-frames.
This may involve issuance of, say, Treasury Bills or other suitable long-term monetary instruments with an appropriate tenure and arranging interest-free mortgages/long-term loans.
Payments may result in increased farm production as farmers work towards amortising loans/mortgages.
Beneficiaries can then obtain title to farm improvements upon liquidation of assets.
However, title should not include land itself as it should remain State property perpetually. The improvements or assets should automatically become eligible for inheritance or sale.
In this sort of arrangement, payments to previous farm-holders for improvements and/or to suppliers of movable assets should be prompt to close this emotive chapter in our history.
In addition, the plight of former farm workers who have not been formally engaged by resettled farmers can also be addressed.
Zimbabwe also stands to gain goodwill; not to mention upholding accountability, fairness and transparency in administration of agricultural land vested in the State.
Taxes in general are not a new phenomenon as they go back ages into history.
They are mentioned in the Holy Bible because of their crucial and indispensable purpose.
However, taxes are unpopular among those who would rather enjoy public goods and services without making any contribution to their financing.
It is vital to distinguish between tax evasion (which is illegal) and tax avoidance (which is unethical).
It is equally important to appreciate that certain types of taxes are easier to collect and enforce, and less susceptible to avoidance.
Treasury, for instance, has historically relied on company and individual tax, particularly when Zimbabwe’s economy was predominantly formalised.
Lately, however, it appears authorities have settled for VAT, road tolls and other taxes on items such as cellphone airtime as these are unavoidable.
It should also be accepted that tax evasion by some new informal sector players stems from genuine ignorance of tax laws and practices.
Zimra should educate this emerging class of taxpayers, and this will perhaps lead to an increase in tax revenue in the short to medium term.
Zimbabwe should embrace these potential taxpayers as a matter of economic survival.
Harnessing SMEs could have raised tax revenues in the last few years via VAT, which, in essence, replaced “sales tax”.
With prudent, well-thought out taxation strategies, it is easy to achieve or surpass set tax targets.
Edmore AM Ndudzo was the first black treasurer of the City of Harare and lead consultant in crafting the Public Finance Management Act of Zimbabwe (2009). He writes in his personal capacity and in the national interest
