Introduction
A furious Tropical Cyclone Idai has claimed the lives in Chimanimani and Chipinge in Manicaland Province. Others are still missing and frantic efforts are being made to rescue the stranded. The cyclone has left a trail of destruction on roads, bridges and homes making rescue efforts a herculean task. It is in times like these that donations towards a humanitarian effort are called upon. It is on this background that we implore the business sector to donate towards the affected in Manicaland. Steve Maraboli said “A kind gesture can reach a wound that only compassion can heal”. Social responsibility is an ethical theory that an entity or individual; has an obligation to act to the benefit of society at large and is more evidently required for the affected people in Manicaland. To fulfill social responsibility duty, most business people are generous enough to give donations to various other institutions, sometimes as a way of enhancing brand awareness (marketing tool) and in some instances as a sign of humanity. Making a donation is a good gesture but the fiscus may not be prepared to be a partner in some of these good causes. The Manicaland disaster is a befitting occasion for the fiscus to actively participate in this good cause. The tax implications on donations are ventilated in this article to put you at ease in as far as the taxes on such acts of kindness are concerned.
Social welfare and humanitarian donations
Any amount paid to the Destitute Homeless Persons Rehabilitation Fund, being a fund established by the Ministry of Finance to alleviate the condition of destitute homeless persons is deductible up to a maximum of US$50 000 in a year of assessment. This entails that excess of US$50 000 paid to this fund will be disallowed for deduction. The Destitute Homeless Persons Rehabilitation Fund is the kind of fund designated for assistance of the victims of the cyclone Idai. However, any amount paid by the taxpayer during the year of assessment, without any consideration whatsoever, to a charitable trust administered by the Minister responsible for social welfare; or the Minister responsible for health is allowable as a deduction. There is no limit as to the amount that a taxpayer can claim in respect of this donation.
Other deductible donations
Medical related donation
The fiscus recognises amounts paid during the year of assessment, without any consideration, to the State or to a fund approved by the Minister of Health for the purchase of medical equipment, construction, extension or maintenance or the procurement of drugs, including anti-retroviral drugs, to be used in a hospital operated by the State, a local authority or a religious organisation. The deduction in this category should not exceed US$100,000 in a year of assessment.
Educational related donation
Also recognised are amounts paid during the year of assessment, without any consideration, to the State or to a fund approved by Minister of Education for the purchase of educational equipment or, the construction, extension or maintenance of school or the procurement of books or other educational materials to be used in a school operated by the State, a local authority or a religious organisation. The allowable donation in this category should nevertheless not exceed US$100,000 in a year of assessment.
Research related donation
In order to promote research and development the government has provided for a deduction of any amount paid by the taxpayer during the year of assessment, without any consideration whatsoever, to a research institution approved by the Minister responsible for higher or tertiary education. The maximum deduction allowable to a taxpayer in a year of assessment is US$100,000.
Infrastructure related donation
Any amount paid by the taxpayer during the year of assessment to a Public Private Partnership Fund. The maximum deduction in a year of assessment is US$50,000. The amount paid at the request of a local authority up to a maximum of US$50,000 in year of assessment and approved by the Minister of Local Government for the construction or maintenance of any building, road, sanitation works, water works, public works or any other utility, amenity or infrastructure works, which should be under the management or owned by a local authority is also income tax deductible.
Bursary and scholarships
The law also recognizes deduction of payments made by the taxpayer during the year of assessment, without any consideration whatsoever to the National Scholarship Fund and the National Bursary Fund that have been approved.
Disallowed Donations
Some donations are disallowed because they do not satisfy “in the production of income” condition. Therefore clear gratuitous payments such as political, church or social clubs donations are disallowed when computing income tax liability of a person.
Conclusion
Donations made to organisations which carry out public service activities are usually tax deductible in most countries, and Zimbabwe is not an exception. It should also be borne in mind by taxpayers that, donations can also only be income tax deductible if they are made to an approved organisations. Therefore taxpayers should understand that whenever they want to make a donation, they should consider that the income tax deductibility of the donation is being used as a marketing tool and not necessarily for the sake of humanity. Failure to take this into account can result in them having to bear an expenditure which will be disallowed by the Revenue Authority as a deduction, eventually resulting in a loss of funds which cannot be recovered. Let us remember our brothers and sisters in Manicaland who are bearing the wrath of Tropical Cyclone Idai.