• +263 242 252 816
  • info@taxmatrix.co.zw


The Zimbabwean tax system has been impacted by currency changes introduced in February 2019 by Statutory Instrument 33 of 2019. In 2016 when the bond note was introduced as a surrogate currency it carried the same value as the United States Dollar. Indications that the economic was reeling from currency started kicking in November 2018 when the Minister gave a directive to banks to separate the RTGS Accounts from the Nostro Foreign Currency Accounts. This was immediately followed up by a monetary policy statement made on the 22nd of February 2019 in which a new currency known as the RTGS dollars was introduced. In terms of this policy, balances that were previously denominated as United States dollars were now RTGS dollars for as long as the money was not held in the Nostro FCA when the separation was declared. Further to that, the monetary policy declared that all bank balances where to convert to RTGS dollars at 1:1 whilst an interbank market would be introduced after the conversion of those balances. The monetary statement was followed up with more robust legal instruments, Statutory Instruments 32 and 33 of 2019 which cemented the forgoing provisions. In the month of March, an interbank market was opened and it began at an opening exchange rate of US1: RTGS$2.5.

Sometime in July 2019, after the introduction of the interbank rate of exchange and conversion of bank balances of taxpayers, the RBZ then assumed the legacy foreign debts of some corporates in accordance to Circular 8 of 2019. The funds which the RBZ assumed were blocked funds which related to external obligations that could not be remitted between January 2016 and February 2019. The debt was assumed on condition that the corporates would surrender their RTGS balances at 1:1 with their foreign obligations. The assumption of the debt by RBZ occurred months after the promulgation of Statutory Instrument 33 of 2019. The interbank rate of exchange had been introduced which had an opening exchange rate of 1:2.5. Therefore, the result is that the debt was actually assumed by the RBZ at a lower rate than what was prevailing at the time.

In books of accounts gains are realised by virtue of the assumed debt by RBZ in that the liability that would have been paid by the corporate, had the RBZ not assumed the debt, would have been more and would fluctuate with the movements in the interbank rate of exchange. However, it is not clear whether the debt assumption by RBZ amounts to a debt forgiveness contemplated for taxation in terms of section 8(1) (k) of the Income Tax Act. Is the creditor precluded from demanding payment from the debtor simply because the RBZ has assumed that debt?

This question brings to the fore the concepts of transfer of obligations in contract law. Cession, novation and delegation are the common methods in which contractual rights are transferred. The assumption of the RBZ debt may not necessarily be considered to be a cession. The concept of cession is normally associated with the transfer of rights and not the transfer of obligations. In this instance the debtor, that is, the corporate whose debt has been assumed by the RBZ does not hold any rights that can be ceded to RBZ, but actually has an obligation. At best the assumption of foreign debt by RBZ may be considered to be a delegation.  It requires the agreement of the all parties concerned that a third party be substituted for the original debtor and the later become discharged from the obligation of the debtor. Therefore, the RBZ, debtor and offshore creditor must have an agreement that absolves the original debtor and delegating the RBZ as the debtor. When the forgoing occurs, the creditor cannot sue the original debtor. However, in this instance, it cannot be said that a delegation has taken place. The agreement between the debtor and the RBZ is independent of the creditor and it appears the creditor may still be able to sue the debtor as he has not been released from the debt. Taking into cogniscence of the forgoing, it then becomes difficult to fully conclude that a benefit has been derived by the taxpayer through a concession made by the creditor. However, creditors may well be amenable to the assumption of the debt by RBZ because a debt held by a state remains enforceable and more secure as compared to being held by the taxpayer. A taxpayer may become liquidated but the state can never be liquidated and the debt does not prescribe. Therefore, creditors may well be agreeable to the arrangement. However, for tax purposes, until and unless it has been proven that the creditor is actually in agreement with the assumption of the debt, then it cannot be said that there is a benefit that has been derived from a concession from the creditor because the creditor has not given the concession. It is actually the RBZ that has given the concession, therefore, to impute tax on the concession given by RBZ on the debt would be overstretching the application of the provision. If the legislature intended to include debt assumption by a third party and not the actual creditor, then it would have been included in the provision. If the debt assumption was structured in consultation with the offshore creditor, then it may be said that a delegation has taken place. Because there is no participation from the creditor in the assumption of the debt by the RBZ, the benefit derived therefrom remains out of scope for ZIMRA and therefore cannot be brought into gross income.

The acquisition of a motor vehicle by an employee from employer at below market value of the vehicle represents a taxable benefit for to the employee. The taxable benefit to the employee is the difference between the market value of the motor vehicle at the time of sell to the employee and the cost at which the employee acquired the motor vehicle. In determining the market value of the vehicle the Commissioner will have regard to the valuation from a valuer prescribed by him in Gazette or motor dealers. It is advisable to obtain at least 3 quotations or valuations from reputable dealers and use the highest of the 3 to avoid disagreements with ZIMRA. This value must be measured against other quotations obtained from different reputable dealers for the value to be accepted. These quotations are required in terms of the law to be kept for at least six years. This is because the taxpayer has the burden of proof in terms of the law in the event of the Zimbabwe Revenue Authority tax audit. Meanwhile, if the employee is of the age of 55 or above, the benefit will be tax exempted, i.e. no tax liability arises on the benefit.  The identification of such person is also a record which should be kept in terms of the law as burden of proof that the motor vehicle was sold to a person who qualified for the exemption.

The consequence of this is that the benefit accruing to the employee through the disposal of the vehicle to him or her at less than market value is a taxable benefit in terms of s8 (1) (f) of the Income Tax Act (Chapter 23:06) which brings into gross income of an employee an advantage he/she receives as a consequence of services rendered. For some employees, this benefit may be out of their reach if their salaries have not been adjusted in line with inflation. This is further compounded by the effect of inflation which will cause the market value of the motor vehicle to be at higher nominal value. Although they may get the motor vehicle at concessionary value from the employer, they may have difficulties in financing the tax emanating from such a concession. The tax should be remitted to the Zimbabwe Revenue Authority by the 10th of the month following the month of sale of motor vehicle to the employee. It is this short lead period that complicates matters.  Additionally, the higher nominal value of the motor vehicle will push the tax bracket of the employee into a higher tax bracket and this can further compound the situation for the employee. Whilst there are different options available to employees such as taking a loan to purchase the motor vehicle, this still results in a taxable benefit. If the loan or advance is for free or is below LIBOR plus 5% (albeit a cheaper option because of low interest rate), the benefit is deemed to accrue to an employee and will be processed through the payroll. If the employer pays the tax on behalf of the employee, a concept known as the grossing up, this represents another taxable benefit in terms of the law. In the final analysis, these options may result in indebtedness by employee to employer just for purposes of funding the tax. This is unavoidable largely because of the employment tax tables which have remained fixed since the day they were announced despite the run-away inflation. Therefore a sale of motor vehicle to an employee is currently constrained by the tax burden on the discount due to stagnant tax tables. This impair values and the employee’s capacity to pay the tax accruing on the benefit.

Meanwhile, grossing up poses a challenge for public sector entities. The law makes a provision for the recovery of employee’s tax which is assessed on the public sector entity or an association from the employees and management of such public entity. Where the Commissioner has made an assessment of employee’s tax which the entity has failed to collect and that tax is then paid by the public entity but failed to be recovered from the employees, the Commissioner shall be deemed to be the employer for the purposes of recovering the tax from the employees. Therefore, if a public sector entity grosses up, the Commissioner will still recover the tax on tax from the employee. In short the grossing up in public sector entities is prohibited.

In conclusion, the disposal of the motor vehicle to the employee, will result in the benefit being out of reach for many if the key fundamentals are not addressed. The tax tables must be adjusted regularly in line with inflation. This is not the only item affected by the stagnant employment tax tables. When tax rates are not changed regularly everybody is involuntarily pushed into higher tax brackets especially where they receive earnings or amounts which are market linked. The Minister of Finance should consider quarterly review of employment tax tables to cushion employees from heft taxes.

Prior to 2019, only persons who were not VAT registered operators and those consuming or utilising imported services to produce exempt supplies would bear the burden of VAT on imported services. This changed with effect from 1 January 2019 when the government extended the tax burden to all importers of services notwithstanding some may be VAT registered operators. The Finance Act 3 of 2019, has restored the position prior to January 2019 by ensuring VAT registered operators do not suffer the burden of VAT on imported services. Therefore VAT on services imported by registered operators and utilised, consumed or used imported services in the production of non-taxable supplies is reclaimable. At issue is the mechanism for reclaiming this VAT by registered operators and this is the subject matter of discussion.

The Finance Act no 3 of 2019 amends the definition of input tax to include VAT on imported services (VIS). It also amended the section of the VAT Act which deals with claiming of input tax, to allow the claiming of VAT incurred on services imported by registered operator if such services are utilised, consumed or used wholly for the purpose of consumption, use or supply in the course of making taxable supplies. To the extent the services are acquired by the registered operator partly in the production of taxable supplies and some other purpose the only part of VAT on imported services to be claimed is that which relates to production of taxable supplies. The basis of apportionment should be fair and reasonable and in this case it should be based on the invoice value of the imported services.   

The law requires that the registered operator to be in possession of an invoice and to have paid the tax to the ZIMRA to qualify for the input tax claim. The payment should be made to the ZIMRA within 30 days of time of supply of the imported services. The time of supply is defined by the date of the invoice or the date the supplier of the services is paid, whichever comes first. The mechanics however are that the operator will declare the VIS on the VAT 7 or 9 return and remit this tax to the ZIMRA before he can claim it as deduction. This creates financial implication for the operator due to deferral of input tax claim until the VIS is fully paid to the ZIMRA. Registered operators should note further that VIS is payable within the 30 days of time of supply whereas input tax can be claimed any time after the VIS has been paid to the ZIMRA. There is no limit as to how far in the future it can be claimed because the claim is made on the basis of an invoice as opposed to a tax invoice whose life span for purposes of the claim should not exceed 12 months from the date of the tax invoice. The amendment by the Finance Act no 3 of 2019 has therefore reinstated the position of registered operators prior to 1 January 2019 except that it comes with some administrative burden and cashflow implications of having to declare and pay VIS first to the ZIMRA before a claim can be made. Before 1 January 2019, registered operators did not have to declare and pay VIS to the extent the services were utilised or consumed by them in the production of taxable supplies.

The new law creates an administrative and cashflow burden on the part of the registered operators of having to pay the VAT first to ZIMRA before they can make the claim. This adds to the cost of doing business for the registered operators, let alone the cashflow implication compared to the position that existed prior 1 January 20219.  Companies need working capital to survive the current economic onslaught. Any leakages would worsen the situation for the already struggling companies.  Additionally. Zimbabwe is the only country in the world that made registered operator to pay VIS, which was the case in 2019 and even now it among the few countries that requires VIS to be paid and then claimed later. These features are unique throughout the world and actually place our businesses at less competitive edge compared their counter parties. This could impact on our exports. The country needs foreign currency and growth in production and anything short of this does not tell a good story of the country. Besides, the claim may prompt investigation of taxpayers’ affairs by the ZIMRA from time to time, resulting in management time spent on defending tax issues. The Minister should consider restoring position of prior to 1 January 2019 or allow concurrent claiming and declaration of VIS on the same return for the sake of easy of doing business and promoting business growth.

As indicated in one of our previous articles, a decrease or increase in VAT rate triggers a variation in the time of supply rules in order to accommodate pipeline transactions. Such rules supersede the normal time of supply rules. Goods will be deemed supplied (provided) when they are delivered, in the case of services when they are rendered and for supplies such as rental agreements (operating lease) etc supply takes place when the recipient takes possession/ occupation thereof. Therefore if delivery of goods or possession/ occupation of property took place before the date of change in tax rate, the supply will be levied to tax based on the rate before change (old VAT rate). Where this has occurred after the rate change, the new rate applies, unless the payment or invoice has already been issued against the supply.  We further indicated that for some transactions both rates would be applied and that even after 1 January 2020 registered operators will have to keep both rates in their system to deal with some reversing transactions.  Examples of transactions where both rates would be applied are services, rental, construction etc contracts whose performance began before the rate change and ends after the rate change. The supply will be apportioned according to the time of performance with part of the supply subject to the old rate and the other part based on the new rate.  Cognisant to the administrative difficulties emanating from the variation in the rate, the Zimbabwe Revenue Authority issued Public Notice No 9 of 2020 to provide guidance for the filing of returns by operators in Category A. The public notice has directed them to file two returns manually to avoid mixing the tax rates. However nothing has been stated of errors in application of wrong rates. We guess there was no need because taxpayers are expected to be vigilant and secondly there are rules within the VAT Act to handle variation in the value of supply. This is the subject of this article as fully explained below:

Despite the announcement by the Minister of  Finance of the rate change as early as the second week of November 2019, some suppliers may find themselves caught up in the mix and may apply the old rate on transactions on which the 14.5% rate should be applied or may fail to apply the transitional rules correctly. The question that stands to be addressed is, what happens when a supplier is caught up in the dilemma of mixing VAT rates? The integrity of the VAT system is based on documentation of which the primary document is the tax invoice. This is the document that originates transactions. The secondary documents are the credit and debit notes and their purpose mainly is to vary transactions made through the tax invoice. Journals have no place in the VAT system.  Therefore where the tax charged on the tax invoice is different from the actual tax chargeable, an adjustment by way of a debit or credit note is required without having to cancel the original tax invoice. These documents are meant to alter the original consideration agreed upon for a past taxable supply, after the tax invoice has already been issued. They are used when a supply is cancelled, the nature of that supply has been fundamentally varied or altered; the previously agreed consideration for that supply has been altered by agreement with the recipient, the goods or services or part of the goods or services supplied have been returned to the supplier etc.Therefore to deal with incorrect application of the VAT rates, registered operators should make use of credit and debit notes which are basically mechanisms for dealing with errors on original invoices. The registered operator should issue a credit note to the buyer where it incorrectly charged 15% instead of 14.5%. This has the effect of reducing the supplier’s output tax and increase the buyer’s input tax. Where the reverse occurs, the seller should issue to the buyer a debit note in order to charge extra VAT required. A debit note to reduce the value of the supply can also be issued from the buyer’s end. These documents should be tax compliant. Features of compliant credit or debit note includes the name, address and registration number of the registered operator and that of the recipient, the date on which the credit/debit note was issued; either the amount by which the value of the said supply shown on the tax invoice has been reduced or increased and the amount of the excess tax; or either the amount of the excess tax or a statement that the reduction includes an amount of tax and the rate of the tax included; a brief explanation of the circumstances giving rise to the issuing of the credit note; information sufficient to identify the transaction to which the credit/debit note refers.

However, it is difficult to apply credit or debit note in the case of closed transactions, i.e. over the counter transactions or where the buyer is not traceable. The complication is that a credit or debit note cannot be issued to a non-existent buyer.  One of the key attributes of the VAT system is that it is not meant to create unjust enrichment. By this we mean, a supplier who has collected VAT from customers at higher rate cannot keep it to himself/herself. He or she should remit the money to the fiscus as it is. Where on the other hand, a registered operator has charged a transaction to tax at a lower rate, this becomes a compliance issue. He must apply the correct rate and remit out of his own pocket the extra VAT required, in which case the operator should issue a debit note. In a nutshell, some suppliers who are caught in the mix of applying a wrong rate should seek refuge in the tax compliant credit or debit note. Where these cannot be utilised they have to forward the VAT overcharged to the fiscus because the VAT system is not meant to create unjust enrichment and if for some reason VAT was under charged the correct tax must be paid otherwise there will be a compliant gap which may result in penalties and interest.

Access to healthcare is provided for as a right in terms of our law and there are different ways this right can be realised. Employees incur medical costs which are resultantly strenuous on their income which has already been reduced by other various taxes thus prejudicing them from accessing healthcare services. This burden can also be lessened contributions made by the employer. To reduce the cost to employees and employers, the government has provided tax incentives on medical expenses and medical contributions as a progressive measure in the realisation of the right of access to health care as enshrined in the Constitution of Zimbabwe. Healthcare costs are incurred by everyone at some point in their lives hence the tax incentives reduce costs of receiving healthcare services. These tax incentives come in the form of tax exemptions, credits and deductions. Tax credits and exemptions are granted to employees, whilst tax deductions are granted to employers as fully explained below. There are two main classes of medical costs namely medical expenses (cost of drugs, treatment and invalid appliances) and medical contributions which are the focus of this article.  

Medical expenses that are recognised by the fiscus are comprised of hospitalization cost, treatment costs, drugs and expenditure on invalid appliances.  Cost of invalid appliance covers expenditure on purchase, hire, repair, modification or maintenance of an invalid appliance or fitting which are for use by a taxpayer or his spouse or any child by reason of his or her mental or physical defect or disability.  Where the employer has paid for these costs on behalf of the employee, he/she obtains a tax deduction in the computation of its income. To the employee, the amount paid by the employer represent a fringe benefit however the law exempts from tax this benefit in the hands of the employee. On the other hand, an employee gets 50% tax credit in respect of medical expenses incurred by him/her for himself or herself, his/her spouse or child. Only expenditure paid in respect of prescribed drugs qualify for the tax credit. The employee should forward the original invoice of the incurred expenditure, which has not been recovered from any source to the employer to facilitate the claiming of the credit. The bill will be entered in the payroll and the employee’s payable tax will be reduced by 50% of that bill.

Turning to medical contributions. These can be made by the employer on behalf of the employee, or the employee can contribute or pay for them out of his/her own funds.  Medical contributions are defined as payments made to various medical aid societies to cover medical expenses of employees or their close relatives and dependents. When an employer makes medical contributions for its employees, the benefit gained by the employee is exempted from PAYE. These expenses are deductible to the employer when computing income tax on profits. Where the medical contributions are paid to an unapproved medical aid society the employee will be taxed on the benefit and the employer would not be granted the deduction in respect of those medical contributions. The law requires medical aid societies to be approved annually by the Commissioner for both employer and employee to have the fiscal benefits as aforesaid. This makes contributions made to unapproved funds such as in-house medical schemes or foreign medical aid society not qualifying for tax credit and non-deductible. The Commissioner approves a medical aid society or scheme if he is satisfied that it is a permanent society or a scheme established for the purpose of providing benefits for its members and their dependents in respect of expenditure incurred on medical, dental or optical treatment, including treatment prescribed by a medical or dental practitioner, the provision of drugs for medical, dental or optical purposes, the provision of medical, surgical, dental or optical appliances or the provision of ambulance services.

Medical contributions made by an employee using his own funds qualify for 50% tax credit provided they consist of contributions made to an approved medical aid society. Non-residents are disqualified from claiming medical expenses, except medical contributions made to a medical aid society. Where the taxpayer is deceased and the estate has made any payment of medical expenses those expenses should be claimed in the person’s pre-death period of assessment.

In a nutshell, tax incentives on medical costs of employees is a way of promoting employees’ access to healthcare by the government. Both employers and employees are urged to take advantage of these incentives. They should fully understand the tax implications of the medical costs thereof as this enable them to minimise their respective tax bills and structure the remuneration efficiently, which may result in increased productivity. 

The returning students rebate on importation of motor vehicle has over the years enabled returning students to afford to buy and import motor vehicles into Zimbabwe at a reasonable cost. Whilst the rebate has been beneficial to returning students and residents, the rebate has been subjected to abuse by third parties importing vehicles duty-free. This abuse has resulted in the government losing out potential revenue to these 3rd parties and has now reacted by putting a cap on the value of motor vehicles which can be imported by returning students duty free. This cap is fixed at US$5000.00. If a student imports a motor vehicle exceeding this value he/she will forego the rebate and pay the full duty on the imported vehicle. This article unpacks some of the conditions that students should meet to qualify for this duty rebate.

A returning student is a person who has previously resided in Zimbabwe and returns to Zimbabwe after having completed a course of study. He or she should be above the age of 16years and should have resided outside Zimbabwe for a period of not less than 2 years. The time of arrival is critical in determining whether or not the student qualifies for the rebate and this can only be ascertained from the returning student. This is the first occasion of entering Zimbabwe by the student after successfully completing the course of study. Upon arrival at any entry point, immigration officers will ask the returning student if he or she wishes to claim the returning student status. If the students wishes to claim returning students status, the immigration officer will stamp his/her passport with RR which indicates that he or she is a returning resident. The stamp determines the student’s first occasion of entry and will determine whether or not the student can claim the motor vehicle rebate.  If the student does not import the vehicle on first occasion as aforesaid he or she forgoes the duty rebate. In practice, the ZIMRA will request the returning student to produce academic transcripts, certificates or any other evidence to prove that he or she has successfully completed studies. The rebate is therefore not available to returning students who have not completed their studies for whatever reason. The vehicle must be in physical existence and fully paid for by the returning resident before the time of his arrival. Therefore if one purchases the motor vehicle after his return he or she may miss the opportunity to get the duty rebate, unless one did not declare that he has returned for good as fully stated in Goba v ZIMRA & Another (HC 4561/12) [2015]. The rebate only applies to the importation of one motor vehicle by the returning student within a period of four years.  The imported vehicle may not be disposed in any manner by the returning student for a period of up to 24 months from the date of entry. In the event that the returning student wishes to dispose the imported motor vehicle within the first 24 months, he or she will be required to obtain written permission from the Commissioner. If the student disposes the vehicle within the first 24 months he or she will be exempted from paying duty from the time he used the vehicle up to the time of disposal. In this instance duty will be apportioned from the time he disposed the vehicle up to the 24th month.  Where the returning student subsequently departs from Zimbabwe after getting the rebate, he or she will be required to pay duty he should have paid at the time of entry of the vehicle.  The duty free facility for returning students is inclusive of VAT. Thus, in the event of disposal of the vehicle or the returning student leaving the country for a period exceeding 6 months and above from time of arrival, the retuning student will be required to pay duty and VAT which he or she had been previously exempted from the time of entry.

In a nutshell, the cap on the rebate on importation of motor vehicles by returning residents is the government’s way of saying that students are not deemed to afford expensive and luxury vehicles hence there should be a cap on the expected maximum value of motor vehicles they can import. The measure is meant to curb abuse by third parties who are not intended beneficiaries of this rebate. However, this move will result in an increase in the importation of second-hand motor vehicles which may pose environmental impacts such as emissions.

Traditionally, driving a company car has always been regarded as being cost efficient to an employee because the employee will only have to suffer the tax element of the benefit whilst the acquisition, repairs and maintenance, fuelling, insurance, licensing etc costs are all borne by the employer. Furthermore, being able to use a company vehicle provides an employee with greater transport flexibility and helps them avoid the need to rely on public transportation. However, the recent increase in motoring benefits through Finance Act no 3 of 2019 and cost of running the motor vehicle is making both employees and employers reconsider whether the motoring benefit is still cost efficient. Nevertheless, a company car remains a cheaper option to an employee. Our law has made it clear that anything granted to the employee that saves him from an out of pocket expense is deemed a taxable benefit. Where an employee uses a company motor vehicle for private business or uses company accommodation at no cost, such benefits are deemed taxable because the employee is saved from expenses such as paying rentals and transport costs. The benefit is not restricted to use but extends to acquisition of such assets as houses and motor vehicles from the employer. The focus in this article is the possible disposal of motor vehicles in light of these developments and the associated taxes thereof.

The current economic environment has not made it easy for both the employer and the employee to enjoy the traditional benefit of use of company vehicles. For some employees, the recent increase in motoring benefits has resulted in them being in an unfortunate predicament where their salaries and wages have not been increased by the same proportion as the motoring benefits such that their net earnings are being eroded by the tax applicable on the motoring benefit. Employers are the most affected by the use of company vehicles because the running and maintenance expenses, such as licences, fuel and insurance have also since increased and they are also required to pay extra taxes in the form VAT on motoring benefit. As a result some employers are opting to dispose their existing fleet to employees so as to cut down on costs.

It is apparent that use of company vehicles brings insurmountable convenience to both the employer and the employee despite the recent motoring benefit cost increases that have been triggered by the Finance Act No. 3. To the employer the company car can be used as motivation tool, allows employees to come early and stay extend their working hours, which can result in increased productivity. The benefits to the employee include flexibility, prestige and cost efficiency among other conveniences. .

The disposal of existing fleet to employees has tax consequences depending on whether the employee acquires the vehicle through cash settlement or a loan.  Where the employee makes a cash settlement the benefit to the employee would be the difference between the market value and actual sale value for the particular vehicle. The market value should be obtained from motor vehicle dealers recognised by the Commissioner General.  Although not specifically provided for in terms of our law, it has become standard practice for the ZIMRA to require three quotations of the market value and to use the highest market value when determining tax payable in the sale of a motor vehicle by the employer.  Employers will be required to present these quotations when the ZIMRA conducts its audit. In terms of our law employers should retain documents for a period of six (6) years. In the event that the employer fails to present these quotations, the ZIMRA is empowered in terms of the law to make an estimate of the market value.  

Where the employee is offered an option to pay for the purchase price over a long time, this may result in taxable benefit. The option will be regarded as a loan advance to the employee. If the loan or advance is for free or is below LIBOR plus 5%, the benefit is deemed to accrue to an employee and will be processed through the payroll. 

Elderly persons who are 55 years of age and above can buy motor vehicles from their employer and no tax is charged. This is another class of persons to whom employers may sell their fleet to and minimise costs on motor vehicle benefits. Notably, employees who are 55 years and above are not restricted to enjoy this benefit when they leave their place of employment, instead they can enjoy the benefit whilst they are still employed. 

In the event that the employee decides to use his vehicle on the business of the employer, such use does not attract tax to the extent the business mileage shall be recovered by employee using the automobile association of Zimbabwe rates (AA rates). Any expenses borne by the employer on the vehicle of the employee, including payment for employees’ private mileage constitutes a taxable benefit to the employee which should be processed through payroll.

In a nutshell, employers are left with little option but to sell their fleet to employees so that they do not incur the high maintenance and running costs that come with providing company cars to employees. On the other hand employees can enter into financing arrangements to buy motor vehicles from their employers and avoid the current predicament whereby motoring benefits are now higher and resulting in negative net salaries.

The government reduced the VAT rate from 15% to 14.5% with effect from 1 January 2020. Whilst this is a welcome move to the tax paying community, it inherently triggers transitional issues crossing over to the new rate. Accounting systems must be configured in order to accommodate the new order. The fact that VAT rate change has not been experienced in the recent times means that some taxpayers may experience challenges crossing over to the new rate.  The aim of this article, is to provide a brief overview of some of the challenges that may be encountered by VAT registered operators as a result of this change as fully explained below.

A bit of some background, VAT liability is triggered in Zimbabwe by either the general or specific rules of time of supply, collectively known as the “ordinary rules of time of supply”. The general rule of time of supply dictates that VAT liability is triggered on the date an invoice is issued by the supplier, the payment is received for supply, of delivery of goods, of taking possession of immoveable goods and of performance of services, whichever occurs first. Specific rules of time of supply are applicable to specific transactions among them lease agreements, construction contracts, instalment credit agreements, lay-bye sales etc. They vary the general rule of time of supply to accommodate other trigger points such as the date the payment for the supply becomes due, date the agreement is terminated etc.  The third category of time of supply rules applies for purposes of dealing with transitional issues whenever there is an increase or decrease in VAT rate. This is the subject of discussion in this article following VAT reduction from 15% to 14.5% with effect from 1 January 2020.

According to the transitional rules, goods are deemed supplied (provided) when they are delivered and in the case of rental agreement (operation lease) when the recipient takes possession/ occupation thereof. This means that VAT liability may be triggered by the delivery or occupation/possession thereof, despite none of the ordinary time of supply rules has taken place. Therefore if delivery of goods or possession/ occupation took place before 1 January 2020, then the old VAT rate of 15% will be applied. On the other hand, if delivery or possession took place after 1 January 2020, new rate applies, unless the ordinary rules of time of supply occurred before this date.

Furthermore, with regards to specified items VAT rate may not necessarily be confined to one rate, instead the rate may vary according to the time of supply. With regards to specified items such as service, operating leases (rental agreements) or construction, manufacturing, repair etc contracts, if performance began and ended before 31 December 2019, the old rate of 15% will be applied. If, however, performance began in 2019 and ended or ends in 2020, the supply will be apportioned according to the time performance was done. Part of the supply will be subject to the old rate and the other part based on the new rate. The Act has not stated how apportionment shall be done except to say that the basis of apportionment should be fair and reasonable.

The two rates will also be required to be kept for some time in order to deal with reversing transactions e.g credit or debits notes issued after 1 January 2020 for supplies made at 15%, settlement and volume discounts, bad debts written off and recovered etc.

With regard to input tax claim, a registered operator is entitled to deduct input tax equal to the tax charged to him on goods or services acquired for purposes of its trade that makes taxable supplies. The transitional rules do not change this principle: the rate at which the operator claims input tax will therefore depend on the rate at which its suppliers levied VAT on the supplies. However, invoices issued at the incorrect rate and subsequently corrected by suppliers may pose a challenge to operators who claimed input tax in respect of such invoices. It is therefore possible that the ZIMRA may reject some of the claims if no sufficient documentation is available.

Besides the legislative implications outlined above there are other transitional issues brought about as a result of the decrease in VAT rate. Particularly, entities need time to update their systems and procedures to properly implement the VAT rate change. There is need to train relevant personnel handling tax issues and properly configure systems that cater for both the old and new rates in order to ensure a smooth transition. Thus, the change in VAT rate will have a major administrative impact such as changes to accounting systems, including considering new tax codes, changes to tax invoices, debit and credit notes, changes to product labelling and price lists etc.   

In conclusion taxpayers should watch transactions such as operating lease, contracts providing for periodic payments, construction, manufacturing, repair etc contracts these are affected by transitional rules which may entail application of the old rate or of both rates. Therefore even after 1 January 2020, the old rate of 15% may still be applicable. In addition they should review all existing contracts that provide for ongoing or periodic supplies of goods and/or services for the implications of the VAT rate change


The concept of interest on late paid taxes is found in most civilised communities as it reflects the interest which would have accrued to the State had the correct amount of tax been paid at the right time. It compensates the State of the opportunity cost of money and in an inflationary environment, the opportunity cost plus loss of monetary value. With this in mind, the Minister of Finance and Economic Development Prof Mthuli Ncube has issued several Statutory Instruments whose effect is to increase interest rate on tax due and refunds across most tax heads as fully explained below. The SIs were published in the government gazette of 31st of December 2019 and immediately revoked the old interest rate of 10% per annum. 

Customs and Excise Duty

The Customs and Excise Act imposes interest on unpaid duty where goods have been released from customs control or are found to be liable to seizure because they were smuggled. The new rate of interest has been fixed at 25% of the duty for any month or part thereof during which the duty remains unpaid. However, it only becomes payable after the first 30 days of the date of release from customs control of goods on which duty was not paid. In other words the government has granted a grace period of 30 days from the date goods are released from customs control. The Commissioner General may suspend the payment of interest as a result of an incomplete or defective return whereupon he is satisfied that such incompleteness or defect was not due to any negligence or intent to evade the payment of duty on the part of the person responsible for paying the duty. The taxpayer has 30 days from date of notification to him by the Commissioner General to resubmit correct returns. Meanwhile refunds from ZIMRA are also subject to interest at the same rate if not made within 30 days of the date duty subject to refund was paid, unless the overpayment was due to an incomplete or defective declaration and taxpayer has been advised of this by the Commissioner within that period.

Capital Gains Tax

Late paid capital gains tax is subject to interest and this has been increased to 25% for any month or part thereof during which tax remains unpaid provided it shall only become payable after the first 30 days of the date the tax became due. This gives a grace period of 30 days from the date capital gains tax becomes due. The interest is suspended where, as a result of incomplete or defective return submitted, the Commissioner General is satisfied that such incompleteness or defect was not due to any negligence or intent to evade the payment of tax on the part of the taxpayer. A taxpayer has 30 days from the date of notification by ZIMRA of defective or incomplete return to correct and resubmit the return. Interest on delayed capital gains tax refunds has also been fixed at the same rate. Refunds are delayed if not paid within 30 days of the date capital gains tax was paid, unless the overpayment was due to an incomplete or defective return which has been notified to the taxpayer by the ZIMRA.

Income Tax Act

Similarly late paid employees’ tax, provisional tax (QPDs), 10% withholding tax, non-resident shareholders tax, resident shareholders tax, non-resident tax on fees, non-resident tax on remittances, non-resident tax on royalties, property insurance commission etc attract interest. The new interest is 25% of tax due for any month or part thereof during which tax remains unpaid. The same interest rate applies on reduced assessments and refunds that are delayed by the Commissioner General. Refunds are deemed delayed if they are not paid to the taxpayer within 30 days of the date of receipt of return by the Commissioner General (CG) unless this was as a result of submission of incomplete or defective return which has been brought to the attention of the taxpayer. The interest will start to accrue after 30 days from the date fresh returns are submitted.

Value Added Tax

Generally VAT is due on or before the 25th of the month following the end of the tax period. If taxpayer fails to meet the deadline he/she will be charged both interest and penalty. The new law revises upwards the interest to 25% of the VAT due for any month or part thereof. The same rate shall also apply to VAT refunds. However, the Commissioner General is not liable to pay interest if it emanates from defective or incomplete returns and shall only start to run after 30 days of resubmission of the corrected returns. In conclusion interest will be computed based on old rates up to 31st of December 2019 and new rates thereafter. For instance a tax debt which accrued prior to 31st of December 2019 but remains outstanding in full or in part after this date will be subject to old rate up to 31 December 2019 and new rate after this date. The fact that the interest rate is per month or any part of a month thereof signifies a higher annualised interest rate of at least 300%. This is by far more than the current penalty rate of up to 100%.  A taxpayer that pays its tax late could therefore be found paying the tax due plus 4 times that tax inclusive of both penalty and interest. This a serious message from the government against late payment of tax. Taxpayers should take heed and pay their taxes on time in order avoid such cost. Interest is a non-negotiable (are not subject to waiver) debt due to the State.  Further, the fact that the Minister has not ring-fenced the new rate to Zimbabwe dollar taxes makes the interest unbearable for persons liable to pay their taxes in foreign currency. We urge the Minister to revisit this and ring fence the new rate to Zimbabwe dollar tax debts.

At the beginning of 2019 the government extended the VAT on imported services burden to persons who are registered operators to the extent such persons use the imported services to produce taxable supplies. Prior to 2019, only persons who were not VAT registered and those consuming or utilising imported services to produce exemption exempt would bear the VAT on imported services. Barely 12 months later the Minister of Finance Honourable Professor Mthuli Ncube seeks to repeal the same law. As he seeks to return to the law as held prior 1 January 2019 through the back door. The law proposing this amendment is contained in the Finance Bill no 3 of 2019 which passed its second reading on the 17th of December 2019 and now being moved to the third reading. This change is the main focus of this article, as fully explained in detail below.

As alluded to above, the laws on imported services as they applied prior to 1 January 2019 affected only persons who utilised, consumed or used imported services in the production of non-taxable supplies. Non-taxable supplies refers to supplies which are VAT exempt or which are outside the VAT scope. Essentially organisations such as banks, insurance companies, pension funds, educational institutions, medical aid societies, registered operators to the extent they produced exemption supplies, individuals importing services for personal consumption etc were the bearer of the VAT on imported services. The playing field shifted on 1 January 2019 to include services imported by registered operators were such services are also used to produce taxable supplies. This is because the definition of imported services was changed to refer to “supply of services that is made by a supplier who is not resident in Zimbabwe or carries on business outside Zimbabwe to a recipient who is a resident of Zimbabwe to the extent that such services are utilised or consumed in Zimbabwe.” This new definition entails that the recipient of the services must be a resident of Zimbabwe who acquires services from a non-Zimbabwean resident or from a Zimbabwean supplier who carries on business outside Zimbabwe and such services are utilized or consumed in Zimbabwe. Therefore any person who imports services as defined, is required to account for VAT on imported services. The Finance Bill no 3 of 2019 is not proposing any change to repeal this position. Everybody who imports services, unless such services are the type which would be zero rated or exempted if the supplier had been a resident of Zimbabwe, should self-assess and pay VAT on the imported services to the ZIMRA within 30 days of time of supply of the imported services. Time of supply is defined by the date of the invoice or the date the supplier of the services is paid, whichever comes first.

So what has changed? The Finance Bill no 3 of 2019 which will become law once gazetted, possibly to commence on 1 January 2020 is proposing an input tax claim for registered operators to the extent they have utilised, consumed or used the imported services in the production of taxable. It seeks to achieve this by proposing an amendment to the definition of input tax to include imported services. Secondly, by amending section 15 (2) of the VAT Act to allow claiming of VAT incurred on imported services. The services concerned should have been acquired by a registered operator wholly for the purpose of consumption, use or supply in the course of making taxable supplies. To the extent the services are acquired by the registered operator partly in production of taxable supplies and some other purpose the only part of VAT on imported services to be claimed is that which relates to production of taxable supplies. A registered operator needs to be in possession of an invoice and should have paid the tax to the ZIMRA to qualify for the input tax claim. The invoice is not in the strict sense a tax invoice. In essence registered operators will be allowed to recover VAT on imported services with effect from 1 January 2020 which they would have incurred and paid to the ZIMRA. The effect is that the impact of VAT on imported services payable by the registered operator will be reduced by the refund to the extent the imported services are utilised, used or consumed in the production of taxable supplies. This means that the Minister would have turned the full circle if the proposed change is signed into law. This was the law prior to 1 January 2019 with the only noticeable change being that a registered operator will first declare and pay VAT on imported services for him to be allowed to make the claim.  

Whilst the new law will provide relief to registered operators, a position which existed prior to 1 January 2019, albeit this is coming at an administrative cost compared to the previous law. Improving the regulatory environment and reducing cost of paying taxes are among the topical issues to facilitate the easy of doing business in Zimbabwe. It appears the manner in which the proposed change will be administered will add to cost of doing business for the registered  operators, let alone the cashflow implication compared to the position that existed prior 1 January 20219.  Companies need working capital to survive the current economic onslaught and the Minister should heed the call for a rescue package for job creation and survival of companies. Any leakages would worsen the situation for the already struggling companies. The proposed change also challenges the permanency of the government policies for planning and sustainability purposes. No matter a policy is for the benefit of the business community it should have a reasonable shelf life for it to bear fruits. In the first place policies should be well thought out before they are introduced.  

In conclusion, despite there being no relief in 2019 for registered operators supplying standard rated and zero-rated supplies, 2020 brings good news to this group of operators as they can now claim VAT they paid on importation of services. However this has not been conveniently drafted because the relief comes at a cost. The operator must pay the tax, complete and file returns and then claim the VAT back.