The simplest definition of tax is “monies paid by people or firms to Government.”
The acts that govern tax in Zimbabwe are, Income Tax Act (Chapter 23;06), Value Added Tax Act (Chapter 23.12) Capital Gains Tax Act (Chapter 23.01) etc
WHO PAYS TAXES
Taxes are paid by individuals, corporates, sole proprietorships, partnerships, NGO’s and all other body entities that participate in the economy.
Different entities pay different taxes while some taxes are common to more than one entity.
WHAT DIFFERENT TAXES ARE THERE
1. P.A.Y.E – (Pay As You Earn)
This tax is paid by employed individuals according to laid down tax tables, reviewed annually or more regularly, by the Minister of Finance as part of Fiscal policy. This is tax in active income and therefore is heavily taxed. It is paid on gross income before expenditures. In Zimbabwe this varies with your income levels but is above 40% of your income averagely. The key is to reduce active income.
The current Income Tax Act is based on the “source principle” where tax is levied on income originating in Zimbabwe. Income earned outside of Zimbabwe falls outside of the tax base. This is similar to the UK (although this will likely change) but is contrary to the US, South Africa and Australia where residents are taxed on income earned globally. Zimbabwe’s new Income Tax Act will move to a residence based tax system and away from the source principle implying that all those resident in Zimbabwe will be taxed on their income earned outside of Zimbabwe as well as on that earned here.
That might be a scary prospect to many and may even tempt some to move to a country with a more favourable tax regime. But it need not necessarily be that way. The Zimbabwe authorities have a once-off opportunity to not only encourage residents to stay here but also to encourage income earners from other parts of the World, especially Zimbabweans, to return home. The answer is simple. As the new Income Tax Act is made law, introduce a simplified low flat tax system as a complimentary measure.
2. Corporate Tax
This is tax paid by companies on profits and is calculated according to rates gazetted by the Minister of Finance. This is paid quarterly after primary business expenditures have been deducted. By operating as a corporate you reduce your tax regime and manage when it is payable. So by choosing to run your business as a private limited company rather than as either a partnership or a sole proprietorship, one manages his taxes. Corporate tax is pegged at about 30%
You must at the beginning of the year, estimate the annual taxable income and the tax thereon and remit amounts as Provisional Tax on the following Quarterly Payment Dates (QPD’s) and relevant percentages of he tax estimate.
First QPD 25 March 10%
Second QPD 25 June 25%
Third QPD 25 September 30%
Fourth QPD 20 December 35%
3. Withholding Tax
This is tax levied and withheld on earnings and payments such as interest earned and dividends, fees, royalties and other remittances. All withholding taxes are to be paid within 15 days of date of distribution / payment / remittance or receipt of dividends / payment / fees / royalties whatever the case may be.
Withholding tax on contracts should be remitted on or before the last day of the month following the month in which payment was made.
This is generally lower than active income tax and corporate tax. It is therefore advantageous to slowly build your investments to a point that most of your income comes from these passive sources of income.
4. Estate Duties
This is tax levied on deceased estates. The tax you pay in your slumber of death. The first portion is exempt. Currently with the dollarization it is not yet clear how much that portion is. The rate thereafter is 5%. However one can reduce this through use of trusts or estate duty insurance.
5. Capital Gains Tax
This is tax levied on deemed capital gains on the disposal of immovable property and shares securities. Pegged at 20%.
6. Presumptive Tax
A legislated estimated deemed amount of tax paid by certain sectors in monthly payments, e.g. operation of taxicabs, omnibuses, goods vehicles, driving schools.
7. Customs and Excise Duty
Collected from imports into Zimbabwe and certain local manufactured products.