Background
As an employee, the only tax issues that one usually takes into cogniscence are the taxes deducted on one’s payslip. A lot of people complain about how their income reduce drastically from gross to net but not knowing that they are forgoing tax credits that they can take advantage of in order to boost their net income. A tax credit is an amount of money that taxpayers can subtract from taxes owed to the government. The value of a tax credit depends on the nature of the credit. The Finance Act provides for medical expense, medical contribution, disability, elderly and blind credits. Because of minimum knowledge, a lot of taxpayers are losing out by not claiming tax credits especially medical expenses credits which apply to every employee. Credits are granted to individuals, whether in employment or receiving trade and investment income. Medical expenses cover the taxpayer, spouse and minor children of the taxpayer. Ann Plato pointed out that: “to remove ignorance is an important branch of benevolence”. This article is targeted at empowering our readers with knowledge and thereby allowing them to save by closing down this avenue in which they lose money.
Tax Credits
An individual, whether employed or receiving trade and investment income is entitled to a tax credit in respect of all medical expenses incurred. Medical expenses are defined as the sum of any payments made for the purchase, hire, repair, modification or maintenance of any invalid appliance or fitting which the Commissioner is satisfied is necessary for use by a taxpayer or his spouse or any child or the taxpayer as a consequence of any mental or physical defect or disability; and the sum of any payments made for— (i) services rendered to a taxpayer, his spouse and minor children or one or more of them by a medical or dental practitioner; and (ii) drugs and medicines supplied to a taxpayer, his spouse and minor children or one or more of them on the prescription of a medical or dental practitioner; and (iii) the accommodation, maintenance, nursing and treatment, including blood transfusions and X-ray and laboratory examinations, tests and the like, of a taxpayer, his spouse and minor children or one or more of them in or at a hospital, maternity-home, nursing-home, sanatorium, surgery, clinic or similar institution; and (iv) the conveyance by ambulance, including an air ambulance, of a taxpayer, his spouse and minor children or one or more of them; and the amount of any contributions paid to a medical aid society in respect of the taxpayer or his spouse or any minor children.” Medical expenses incurred by a taxpayer are deductible on the taxable income of such taxpayer at the rate of one dollar for every two dollars paid (50% of cost incurred). In respect of the cost of ambulance transport, a taxpayer must show that he used an actual ambulance and not a vehicle that was conveniently used as an ambulance for that specific time. The court has defined an ambulance in the case of JF Campbell v Commissioner of Taxes J 189, as “a vehicle or conveyance for the transport of the sick to a place of treatment.” In light of the above given definition of medical expenses, it is clear that most taxpayers incur these medical expenses.
Residents only benefit from the credit
A person must be ordinarily resident in Zimbabwe to claim medical expenses . The provision of legislation is clear that for a taxpayer to claim deduction of medical expenses on income tax due and payable, the taxpayer must have been ordinarily resident in Zimbabwe during the period of assessment. The Act however does not provide the definition of “ordinarily resident” but fortunately there is the common law interpretation derived from previously decided cases. In this case it was held that “if it is part of a person’s ordinary regular course of life to live in particular place with a degree of permanence, the person must be regarded as being ordinarily resident.”
Deceased estates also benefit
The provisions in respect of deductibility of medical expenses extend to a deceased’s estate. Legislation provides that a payment made from the deceased estate of a taxpayer by way of medical expenses which are incurred before the death of the deceased shall be treated as having been made immediately before the death of the deceased” This entails that when administering the estate of a deceased, tax credit in respect of medical expenses incurred before the death of the deceased shall be allocated to the period of assessment immediately before the death of the deceased. A taxpayer must not be refunded for medical expenses incurred. Furthermore, for a deduction on medical expenses to be allowed, the taxpayer must not be receiving a refund or payment whatsoever in respect of the medical expenses he would have incurred either in respect of himself, spouse or his children. Evidence must be provided for incentive to be allowed
For taxpayers to benefit from this tax credit, they must submit sufficient evidence to the Human Resources department which is usually tasked with the responsibility of calculating and remitting the correct PAYE to ZIMRA. In practice, ZIMRA requires the evidence of expenses claimed to be in their original form. The original invoices issued for a medical expense incurred as well as receipts for payment of same must be submitted to the Human Resources department. It is a punishable offence in terms of the law to falsely claim medical expenses. False claims of medical expenses will result in the claim being disqualified and will attract hefty penalties from ZIMRA and in some instances prosecution for criminal charges.
Decision Impact
Whilst tax credits are a good way of incentivising the taxpayers, the level of tax awareness in the country is very low which is evident in the non-utilisation of tax credits for medical expenses that are available at law.