Finance act no.1 of 2019 has been gazetted


The much awaited Finance Act No 1 of 2019 was gazetted in a Government Gazette Extraordinary dated 20th February 2019, but almost all its clauses have been back dated to take effect from the 1st of January 2019. The Act ratifies Statutory Instrument 205 of 2018 which revised intermediated money transfer tax from 5 cents per transaction to 2 cents per transaction value, revises VAT on imported service rules, introduces the law on payment of VAT in currency of trade, provides for the payment of income tax in Zimbabwe by non-resident broadcasters and suppliers of e-commerce products etc. In this article we cherry pick and demystify some of the contents of the Finance Act no. 1 of 2019. 

Payment of VAT in foreign currency   

The new law provides for remitting VAT in foreign currency to the Zimbabwe Revenue Authority (ZIMRA) for taxpayers trading in foreign currency, or in either legal tender or foreign currency where the person has traded in legal tender that is not foreign currency. A “legal tender other than foreign currency” means bond notes and coins, or money paid by means of an electronic transfer of funds through an account (other than a nostro foreign currency account) with a banking institution; (means bond notes and coins, or RTGS). Whereas “nostro foreign currency account” means any account designated in terms of Exchange Control Directive RT/120 of 2018, held with a financial institution in Zimbabwe, in which money in the form of foreign currency is deposited from offshore or domestic sources. There are penalty implications for not remitting VAT in foreign currency as stipulated of equal to the amount of tax payable (100%) in the foreign currency plus other miscellaneous penalties.

VAT on imported services

VAT registered operators should brace up for new VAT on imported services because the Finance Act has changed the definition of imported services to make it apply to all importers of services. The implication is that any person who imports services and consume them in Zimbabwe is liable to 15% VAT on imported services no matter what the services have been used for. However services that are ordinarily exempted or zero rated if the supplier was ordinarily resident are outside the scope of VAT on imported services.  This presents a major shift from the current rules where only imported services which are used or consumed in the production of non-taxable supplies are subject to 15% VAT on imported services.  VAT registered operators were therefore exempted from this tax as long they used the services to produce taxable supplies, which is no longer the case now. Additionally, such services may also be subject to non-resident tax on fees or royalties in terms of the Income Tax Act whose general rate is 15%, subject to exemption or reduced rate which may apply in terms of double taxation agreement standing between Zimbabwe and the non-resident’s country of residence.

Time of supply rules expanded 

Output VAT is generally triggered when an invoice is issued by the supplier or recipient upon the supply of goods or services or when any payment of consideration is received by the supplier upon supply of goods or services, whichever occurs first.  This has been amended to include the time goods are delivered or services are made available to the recipient. It entails that movables supplied in the absence of an invoice will be deemed to be supplied at the time they are dispatched and for immovable goods, when the recipient takes possession and for services, at the time the services are performed.  Therefore taxpayers who have neither issued an invoice nor received any payment for the supply cannot avoid output tax if they have delivered movable goods, let out possession of immovable property or performed services.

Intermediated Money Transfer Tax (IMTT)

The Statutory Instrument (SI) 205 of 2018 which revised the rate of tax on transfer of money mediated by a financial institution from 5 cents per transaction to 2 cents per value of transaction with effect from the 13th of October 2018 has been confirmed.  The effect of this provision is that the nullity in the law previously made through S I 205 of 2018 is sort of regularised through the enactment of this provision. The effect is that whatever IMTT that was collected since October 2018, albeit without sufficient legal authority to do so is ratified.  Meanwhile this tax has been disallowed as a deduction for income tax purposes. However, the provision of the deductibility of IMTT is silent on the commencement date. All the other provisions are clear in so far as their commencement of operation into law is concerned. In terms of section 132 of the Constitution “an Act of parliament comes into operation at the beginning of the day on which it is published in the Gazette, or at the beginning of any other day that may be specified in the Act or some other enactment.” Given the silence of the provision on the disallowance of the IMTT as a deduction on the commencement of the provision, it appears that the provision will commence beginning the 20th of February 2019 which is when the Finance Act 1 of 2019 was gazetted. Furthermore, there are number of exemptions which you will need to consult your tax advisor for detail.

Penalties for violation transfer pricing rules

Multinational companies and local entities engaged in intercompany transactions should brace up for penalties for violating transfer pricing rules. A 100% penalty on the shortfall tax is levied for deliberately avoiding, reducing, postponing or evading tax through use of transfer pricing. Taxpayers who have not kept contemporaneous transfer pricing documentation to support the transaction giving rise to the amended assessment there is 30% penalty on the shortfall tax and the same penalty if a taxpayer has not complied with transfer pricing guidelines. In the absence of fraud or tax evasion and the taxpayer has kept contemporaneous transfer pricing documentation and complied with transfer pricing guidelines, but nevertheless there is understatement of tax, a penalty of 10% of understated tax applies.

Non-resident suppliers of satellite broadcasting and e-commerce services 

With effect from 1 January 2019, satellite broadcasting and e-commerce platform service providers domiciled outside Zimbabwe who receives or accrues income from persons resident in Zimbabwe for services rendered in Zimbabwe shall be liable to tax in Zimbabwe if they receive revenues in excess of $500 000,00) in any year of assessment. The income shall be taxed at a flat rate of 5% without deduction of expenses from such income.

Directors of wound companies liable to tax debts

Directors of companies that are wound up voluntarily or deliberately put into liquidation with the intention of avoiding tax are made jointly and severally personally liable for tax debts of those companies if such directors open a similar entity under the same directorship operating the same business or if the whole or a substantial part of the old company  business and property wherever situate is transferred to another company or entity which will be or has been formed, incorporated or registered under any law.  It does not matter that some of the directors did not join to form or start new companies or no longer act in similar positions. 


Besides widening the tax base, the current Finance Act is putting screws on tax administration through imposing stiff penalties for failing to comply with the law. It is also unique in that the government has expressed its preference to be paid in foreign currency and we wait to see how this inter play with the recent pronouncements made by the Governor of Reserve Bank of Zimbabwe, Dr John Mangudya in his Monetary Policy Statement.

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