ACC212 Student Notes 2019

\MIDLANDS STATE UNIVERSITY
FACULTY OF COMMERCE
DEPARTMENT OF ACCOUNTING
MODULE TITLE: TAX LAW & PRACTICE 11 (ACC 212)
1. PREAMBLE
This module is intended to assist students understand taxation law in Zimbabwe as guided by the
relevant statutes. Students must be able to know the relevant documents and sources of
information where relevant guidelines are obtained and apply these in tax payable or refundable
computations. This will equip students with the relevant technical knowledge that is a stepping
stone towards being tax experts or tax consultants in their careers.
2. PREREQUISITE MODULE: Tax law and practice 1 (ACC 202)
3. MODULE ASSESSMENT
Continuous Assessment will be based on two in-class tests. The final exam mark will
contribute 70% and of the final module grade while continuous assessment will
contribute 30%
4. PURPOSE OF MODULE
 It serves to equip students with knowledge on the application of tax and tax laws in
Zimbabwe.
 Understand the legislation with regards to taxation through a study of the various Acts
available
 Calculation of tax liabilities and presentation of such information
5. MODULE OBJECTIVES
 Identify gross income, exemptions and deductions from corporate income and calculate
tax liability or assessed loss
 Describe the computation process and steps for Capital Gains income
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ACC212 NOTES BY E MASHIRI
 Apply these steps to practical situations relating to calculation of tax payable on Capital
Gains income.
 Calculate tax liability for mining income
 Describe the computation process and steps for Value Added Tax (VAT)
 Apply these steps to practical situations relating to calculation of tax payable relating to
traders registered for VAT
 Understand tax planning strategies for various tax heads
 Understand transfer pricing concepts and processes
6. TEACHING STRATEGIES
 For the theoretical content a combination of the lecture method and assigned tasks to be
researched on will mainly be used
 For practical application group discussions will form the main strategy
 Student to content interaction will be initiated through giving students notes well in
advance and tasks that facilitate them to read the notes in order to get the solutions
 Student to teacher interactions will be facilitated by allowing students to give feedback in
class on areas that they have been tasked to research on
 Student to student interaction will be facilitated through giving the students tasks that
require them to work on in groups
MODULE OUTLINE
7.1 VALUE ADDED TAX

Taxable and non-taxable supplies, Standard-rated, Zero-rated, Exempt supplies, deemed
supplies, calculation of VAT, registration of operators- compulsory and voluntary, registration
denial, merits for registration, administration of VAT, accounting for VAT- invoice basis and
payment basis, features of Tax Invoice, features of Debit/ Credit Note, Fiscalisation
7.2. CAPITAL GAINS TAX

Gross capital amount, capital amount, capital gain, calculation of CGT, tax rates, Specified
assets, deemed disposal, exemptions, deductions, elections, rollover relief- full/partial and CGT
implications, disposal of PPR and Business property, damaged property, sale of mining claims
7.3 CORPORATE TAX

Gross income, Capital Allowances; exemptions and reliefs, prohibited deductions, donations
Determination of taxable income and tax liability
7.4 MINING
Deductions relevant to the miner, Computation of capital redemption allowance, prospecting
expenses, special mining lease, royalties, recoupment, cessation of mining operations
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7.5 TAX PLANNING
Identifying tax planning measures in the above tax heads, thin capitalisation, tax havens,
permanent establishments, treaty shopping, round tripping, tax incentives
7.6 TRANSFER PRICING

Transfer pricing rules, Associates, un/controlled transactions, income splitting, Arm’s length
principle, transfer pricing methods, Formulary Apportionment, Comparable data,
Documentation, International transfer pricing guidelines (OECD, UN)
Recommended reading texts

Tapera, M and Majachani, A,F. 2017. Unpacking Tax Law & Practice in Zimbabwe. Tax Matrix,
Harare
Tapera, M. 2017. VAT Concepts and Practice. Tax Matrix, Harare
Mashiri, E et al. 2012. Tax Made Easy
Mangoro and Hore. 2006. Students guide to tax.
Latest tax bulletins (by Deloitte, KPMG, Ernst & Young)
Zimbabwean Acts: - VAT Act
- Income tax Act
- Capital gains Tax Act
- Finance Act
Module Instructor: E. Mashiri [email protected]
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ACC212 NOTES
“Austerity for Prosperity”
VALUE ADDED TAX
Value added Tax is a tax levied on consumption, therefore unlike other forms of taxes VAT is
triggered where a taxpayer makes a purchase or consumes products and services. The Value
Added Tax Act (Chapter 23:12) came into effect from the 1st of January 2004 replacing the old
sale tax. In terms of the VAT Act ordinarily only registered operators are permitted to charge
output VAT on the supplies which they make and claim input VAT on their purchases.
With effect from 1 January 2018 Supply of imported services also means supply made by a
person who is not registered to a person who is a registered operator.
Taxable supplies are supplies that are taxable at the following rates:
 Zero rate 0%
 Standard rate 15%
Zero rated Supplies (sec 10)
These are supplies on which VAT is chargeable at rate at 0%
Some of the examples of zero rated supplies are:-
• Exports of goods from Zimbabwe to an address in an export country.
• Basic foods stuffs such as: uncooked beef, uncooked fish, milk and milk products,
fresh buds' eggs, plain bread, mealie meal. etc.
• Goods used for agricultural purposes such as: animal remedy, fertilizers, pesticides
etc.
• International transport services provided by a registered person.
• Services physically rendered outside Zimbabwe.
A full list of zero rated goods are prescribed in terms of Section 10(1) as read with the 2 nd
schedule to the VAT Regulation, while zero rated services are prescribed in terms of Section
10(2) of the VAT Act.
Note:_VAT_incurred in making zero-rated supplies may be claimed as input tax.
Standard-rated Supplies
These are supplies of goods on which VAT is chargeable at 15%.
Generally all goods and services are standard rated unless specifically exempted, zero-rated
or subject to VAT at a special rate.
* For supplies that were once zero-rated but are now standard rated refer to Tax Made Easy
Volume 2 page 52.
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Exempt Supplies (sec 11)
These are supplies of goods or services on which VAT is not chargeable and do not form part
of the taxable turnover. A trader who makes only exempt supplies is not required to register
for VAT.
Note: VAT incurred on any expenses in order to make exempt supplies cannot be claimed as
an input tax.
Some of the examples of exempt supplies are:-

• Financial services.
• Provision of electricity for domestic use
• Provision of piped water for domestic use
• Rates charged by Local Authorities.
• Educational services
• Medical services supplied by any person or institution.
• Residential accommodation
• Rates
A full list of exempt supplies is prescribed in terms of Section 11 of the Act as read with first
schedule of the VAT Regulations.
Registration
There are two forms of registration:

a. Compulsory
b. Voluntary
Pre-requisites for registration
Requirements on registration
Input tax
This is VAT paid on either domestic or foreign purchases (goods/services) made to a vendor.
Registered operators can claim input tax on eligible supplies.
Output tax
This is VAT charged by a vendor and must be paid over on any taxable supplies made by a
vendor.
Imposition of VAT (Section 6(1))

Section 6 is the charging section which stipulates that:
a) supplies by a registered operator, supplied by him on or after the fixed date in the course
or furtherance of any trade carried on by him
b) importation of any goods into Zimbabwe by any person on or after the fixed date
c) the supply of any imported services by any person on or after the fixed date
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Deemed Supplies (section 7)
These are transactions, which do not generally appear as actual supplies but regarded by law
to be supplies.
The following are examples of deemed supplies
• Goods or services taken for own use.
• Motoring benefit.
• Closing stock and assets on hand at the time of de- registration.
• Subsidies or grants received from the state or local authority.
• Goods acquired under an instalment credit agreement that have been re-possessed by
the seller.
• Transfer of goods between independent branches
Time of supply (Sec 8)

The general rule of time of supply is the earliest of:
 The date the invoice is issued or
 The date of payment of the consideration
The date of the delivery of goods or supply of service does not determine the time of supply
except in cases of connected persons.
Exceptions are where the supplier and recipient are connected persons, a supply shall be deemed
to take place:
 At the time of removal of goods
 At the time when goods are made available to the recipient in case of a supply of goods
which are not to be removed
 At the time services are performed
Value of supplies (Sec 9)

Value of the supply of goods or services is the consideration (i.e. the amount of money or the
open market value of such supply) less the amount of VAT included in the consideration.
Therefore the tax fraction is [ ].
Example
2Ltr bottles of Mazoe at PnP Stores cost $5.69 including VAT. Calculate the value of supply of
the bottle of Mazoe.
INPUT TAX CREDIT

Which amounts may be claimed as input tax?
Any VAT paid on local purchases or on the importation of goods for making taxable supplies
may be claimed as input tax.
If goods or services are acquired for the purpose of making both taxable and non-taxable
supplies, only the VAT attributable to taxable supplies can be claimed as input tax.
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Where goods or services are acquired by a registered operator to make both taxable and exempt
supplies, full VAT incurred may be claimed as Input Tax if the ratio of the value of taxable
supplies to total supplies exceeds 90%.
Which amounts may not be claimed as input tax?

VAT incurred in respect of the following purchases may not be claimed as input lax:
• Entertainment which includes staff meals. Christmas parties and customer entertainment of
all kinds (this includes equipment purchased to provide staff refreshments, e.g. canteen
utensils.)
• Exceptions:
• Meals or refreshments supplied by operators of transport
• Registered operators in such business of supplying entertainment
• Meals or refreshments by organisers of seminars and similar events subject to costs being
covered by entrance/ admission fees.
• Goods or services acquired exclusively for making exempt supplies.
• Club subscriptions fees or subscriptions incurred by a registered operator for membership of
a club or association of a sporting, social or recreational nature.
• Acquisition of passenger motor vehicles as specified
When to claim input tax

Input tax should be claimed in the tax period during which goods and/or services are acquired or
imported. To be able to claim input tax, one must be in possession of a valid tax invoice that
meets the requirements as set out in section 20 of the VAT Act. If goods are imported for making
taxable supplies, the importer must be in possession of the Bill of Entry.
TAX INVOICE (section 20(4)
A valid tax invoice must contain the following features:

1. The words "Tax Invoice" should be inscribed in a prominent place.
2. The name, address and VAT number of the supplier.
3. The name and address of the recipient.
4. The invoice must have an individual serialized number and date on which the invoice
was issued.
5. The quantity or volume of the goods supplied
6. A description of the goods or services supplied
7. The value of the supply, the amount of tax charged and the consideration for the supply
DEBIT AND CREDIT NOTES

Debit or credit notes may be issued under the following circumstances:
Where a supply of goods or services is cancelled on goods are returned to the seller.
• Where an incorrect price was charged on the tax invoice.
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• Where a discount is granted to the purchaser.
• Where the nature of the goods or services is changed resulting in a change in the
transaction.
Requirements of a valid debit or credit note

The following details must be shown on a debit or credit note issued by a registered
operator:
• The words “debit note' or ‘credit note’ must appear 011 a prominent place.
• The name, address and VAT registration number of the supplier or service provider.
• The date 011 which the debit or credit note was issued.
• The value of supply shown 011 the invoice, the correct amount of the transaction, the
difference between the two amounts and the tax charged on the difference.
• Brief explanation of the reason for issuing the debit or credit note.
Adequate information to identify the tax invoice to which the debit or credit note relates
Contemporary Issues
Value Added Tax Witholding Tax and appointed vendors
EXAMPLES
1. Explain in your own words what you understand by:

a. VAT registration
b. Input and output tax
2. Explain the differences between standard rated, zero rated and exempt supplies
3. 100ml of Colgate at Pick n Pay cost $2.50 including VAT. Calculate the value of supply
of the dish wash
4. Mr Moyo wants to register for VAT. His income meets the threshold for VAT
registration and he does not deal with exempt supplies. Provide 4 situations that may
result in a prospective vendor not being eligible for registration.
ACCOUNTING FOR VAT (sec 14 & 15)

VAT is accounted for on either the invoice or the cash basis.
INVOICE BASIS
The invoice basis is where the registered operator must account for output tax on both credit and
cash sales. The operator must also claim input tax on both credit and cash purchases and
expenses incurred for making taxable supplies.
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Where payment is received before the issuance of a tax invoice, the general time of supply rule
applies, that is the earlier of an invoice being issued or payment being received.
Example
AB Ltd sales a computer for $1 150 000.00 including VAT, The company issues a tax invoice
dated 15 May 2004. Payment is received on 20 June 2004.AB Ltd. Accounts for $150 000.00($1
150 000.00 x 15/115) in the tax period covering 15 May 2004.This is because the date of issue of
an invoice is earlier than the date of payment.
CASH OR PAYMENT BASIS

The cash or payment basis is where the registered operator claims input tax or accounts for
output tax on the actual payments made or received. The cash or payment basis is only
applicable to local authorities, public authorities and private voluntary organizations on
application. The application must be in writing.
Example
XYZ Ltd sells a television set for $1 500 000.00 including VAT on 15 May 2006. It issues an
invoice for the supply that date. A payment of $150 000.00 is received on 2 June 2006.A second
payment of $342 000.00 is received on 5 July 2006.A balance of $658 000.00 is received on 7
August 2006.XYZ Ltd accounts for $19 565 VAT(150 000 x 15/115) in the tax period covering
2 June 2006 and $44 608 VAT($342 000.00 X 15/115) in the tax period covering 5 July
2006.VAT on $658 000.00 of $85 626.00(658 000.00 x 15/115) will be accounted for in the tax
period covering 7 August 2006.
Practice Questions
1. Kumusha (Pvt) ltd purchased a fridge for resale on 20 October 2016 and received a tax invoice
for $3450 (incl. VAT @15%). It paid the supplier $2300 on 31 October 2016 and the balance on
30 November 2016.
It then sold the fridge for $ 5750 (incl. VAT @ 15%) on 31 October 2016 and issued a tax
invoice for the whole amount the same day. It received 70% deposit on the date of invoice. The
balance was paid on 15 December 2016.
What is the VAT treatment of the transaction (include calculations and the dates) if:
a. The company uses invoice basis.
b. The company uses cash basis.
2. Nash Ltd sells a bicycle for $1 500 including VAT on 10 April 2011. It issues an invoice for
the supply that date. A payment of $800 is received on 12 May 2011. A second payment of $500
is received on 15 June 2011. A balance of $200 is received on 17 July 2011. Nash Ltd uses the
cash basis, how does it account for VAT?
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3. CC Ltd sells a DVD player for $150 including VAT, The company issues a tax invoice dated 5
June 2011. Payment is received on 21 July 2011. CC Ltd uses the payment basis, how does it
account for VAT?
FISCALISATION (SI 104 of 2010)
 What is fiscalisation?
• What are fiscal devices?
• Role of registered operators
Fiscalisation
 refers to configuring of fiscal devices to enable them to record sales and other tax
information on the read-only fiscal memory at the time of sale.
• It is used by ZIMRA in Value Added Tax (VAT) administration.
• Initially, the law required that all operators who qualify to register under vat category C,
i.e. those with turnover of US$240 000.00 and above per annum, record their sales using
fiscal memory devices.
• However, in the mid-term fiscal policy review statement, the Minister of Finance and
Economic development proposed to extend the fiscalisation programme to Value Added
Tax (VAT) registered operators in categories ‘A’, ‘B’ and ‘D’ with effect from 1st
January 2017.
Fiscal Devices
Every registered operator other, for the purposes of recording his or her taxable transactions,
shall use:
(a) an electronic signature device; or
(b) a fiscalised electronic register; or
(c) a non-fiscalised electronic register together with a fiscal memory device
Roles of a registered operator include

• register fiscal device
• record all sales using the device once it has been fiscalised and not to use any alternative
systems without the approval of ZIMRA
• prepare daily, monthly and annual reports of sales and vat
• keep records for six years
• keep a record of the servicing of the device
• ensure that no other person uses the fiscalised device
• report all faults to ZIMRA promptly or no later than eight hours from time of occurrence
and get reference numbers for all faults reported
• ensure that any breaking of the seal is approved and always done in presence of ZIMRA
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EXERCISES
Question 1
You are a tax adviser and have been approached by Mr. Amanzi the CEO of Vat (Pvt) Limited.
The business is considering three business opportunities. Insurance business, retail business sells
of vegetables, and sale of electrical gadgets. Each of the alternatives will yield a sales value of
$125 500 (exclusive of tax) per year and expense of $16 000 (inclusive of tax) per year.
Required
(i) To advise for each alternative whether registration is required (3 marks)
(ii) To calculate output and input tax applicable (7 marks)
(iii) To advise on the best business opportunity (2 marks)
(iv) Indicate whether the company qualifies for fiscalisation, and provide two possible
deductions that the company can get if it fiscalises (3 marks) [Total: 15 marks]
Question 2
BMX Pvt Ltd carries on business as a distributer of bicycles. The company is a registered
operator under category C.
The following transactions were carried out in June 2015:
$
Purchase of Toyota corolla sedan for the marketing
manager (2200cc) 85000
Purchase of Mazda B2500 delivery truck 100000
Purchase of staff teas and lunch 3000
Purchase of bicycles for resale 140000
Payment to Regency Hotel for the company's sales team
in Gweru during a sales campaign 20000
The team took a day off and toured Pangolin hive a resort
centre. The company paid the bill for the tour 4000
Payment for subscriptions to Bata sports club for the
directors 6000
Purchase of office furniture 50000
Bank charges 800
Interest on bank overdraft 1200
The company only deals with VAT registered suppliers and the above figures are exclusive of
VAT.
Additional information
i. The company offers its employees free usage of the following vehicles
Managing director Mazda 626 (2000cc)
Marketing Manager Toyota Corolla (2200cc)
The company has also purchased and used fuel of $650 for business.
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ii. Standard rated sales for the month amounted to $966000 inclusive of VAT.
iii. The company issued a credit note for $46000 inclusive of VAT to one client who had
been over-invoiced. The company exported bicycles valued at $200000 to Botswana.
iv. Standard rated purchases amounted to $115000 inclusive of VAT
Required:
a. Determine the VAT payable or refundable for the month of June 2015. (20 marks)
b. Advise BMX management on the penalties that arise if it fails to comply with the
requirements of installing fiscalised electronic registers. (5 marks) [25 marks]
Penalties for failure to comply with VAT regulations
 Failure to register
 Failure to remit VAT
 Failure to file returns
 Failure to fiscalise
 Payment of tax in the currency of trade- failure to comply attracts a civil penalty of
USD30 PER Day not exceeding 181 days
Where the operator continues in default after 181 days= shall be guilty and liable on
conviction to a fine not exceeding level 10 or to imprisonment for a period not exceeding
6 months or both such fine and imprisonment.
CAPITAL GAINS TAX
Capital gains tax is tax levied on the capital gains that arise from the disposal of specified assets.
Specified assets being:
 Marketable securities
 Immovable property
With effect from 1 January 2017 the definition of specified assets was amended to include:
any right or title to property whether tangible or intangible that is registered or required to
be registered in terms of- (i) the Mines and Minerals Act [Chapter 21:05];
or (ii) the Patents Act [Chapter 26:03]

or Trade Marks Act etc.
*For the definition of key terms refer to Tax Made Easy Volume 2 page 61.
NB: No tax credits apply, and no Aids levy is chargeable under this Act.
Deemed disposals
These are disposals other than by way of sale and are regarded by the Commissioner as a sale.
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Following are the deemed disposals according to the capital gains tax Act which are:
Deemed disposal Valuation
Donation Market price
Expropriation Compensation
Assets sold in execution of a court order Selling price
Maturity or redemption of stock Selling price
Transfer under deed of sale Transfer value
Section 8(2)(g): Transfer of a stand – transfers to another person of his or her rights in a
residential, commercial or industrial stand, whether or not the stand is serviced and whether or
not his or her title to the stand is registered under the Deeds Registries Act [Chapter 20:05], he
or she shall be deemed to have sold a specified asset to that other person for an amount to equal
to the whole amount received by or accruing to him or her as a result of the transfer.
Section 8(2)(h): relinquishing of one’s interest in a condominium – where a person

relinquishes a membership interest in a condominium in favour of another person, he or she
shall be deemed to have sold a specified asset to that other person for an amount equal to the
whole amount received by or accruing to him or her as a result of the relinquishment. [Paras (g)
and (h) inserted by Act 1/2014 w.e.f 1st January 2014.
Key Note
The general tax rate for capital gains tax is 20% on the capital gains with the exception of
specified assets acquired prior to 1 February 2009 and disposed of after that date which attract a
tax rate of 5% on the selling price.
Examples
1. Chinyemba aged 59 is ordinarily resident in Zimbabwe. He sold his unquoted shares in
November 2013 for $100000. The shares had been acquired in June 2009 for $30000. He
also incurred $2000 in agents fees and $4000 in advertising costs for the same
transaction. Calculate Chinyemba’s capital gains tax liability arising from the disposal
2. Telicia purchased her house in November 2007 for $35000, and constructed a durawall
around it for $5000 in December 2007. She sold in January 2010 for $55000. She
incurred agents costs of $1000 for this transaction. Calculate Telicia’s capital gains tax
liability arising from the disposal.
Calculation Of Capital Gains Tax

Calculation of CGT
Gross Capital Amount XXX
Less Exemptions XX
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Capital Amount XX
Less Allowable deductions XX
Capital Gain XXX
CGT @ 20% XX
Section 38 Of The Finance Act – Rates Of Capital Gains Tax:

Sale of a specified assets 20%
Section 39 of the Finance Act – Rates Of Capital Gains Withholding Tax:

Sale of listed security 1% of sale price
Sale of non-listed 5% of sale price
Sale of immovable property 15% of sale price
Provided that, in respect of the sale or disposal of a specified asset that was acquired before
the 1st February, 2009, by the person selling or disposing of that asset -
i) the person selling or disposing of that asset shall be deemed to have made a capital gain
equivalent to the gross capital amount realised from the sale or disposal of that asset; and
ii) The capital gains tax chargeable in respect of the sale or disposal of such asset shall be at the
rate of five percent of the capital gain referred to in proviso (i).
In this instance, no deductions in terms of Section 11 of the CGT Act shall be allowed.
Note: For specified assets acquired prior to 1st February 2009 Gross Capital Amount = Capital
Gain (i.e. no deductions are allowed in determining the Capital Gain).
Definition Of Terms
In understanding the CGT Act it is necessary that the correct interpretation be given to the
following terms:
 Specified Asset
 Marketable Security
 Gross Capital Amount
 Person
 Assessed Capital Loss
 Year of assessment
 Approved employee housing trust fund
EXEMPTIONS
Section 10
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a) Receipts and accruals of bodies referred to in paragraphs 1, 2 and 3 of the 3rd Schedule to the
Income Tax Act other than those under sub-paragraphs ((a) institutions and societies not
operating for the private benefit of the members), ((c) building societies) and ((f) employees
saving scheme approved by the Commissioner) of paragraph 2.
b) Distributions by the executor of a deceased estate of a specified asset.
c) Sale of bond or stock in respect of a loan to the state, a company wholly owned by the state, a
local authority, or a statutory corporation.
e) Sale of shares in the Zimbabwe Development Bank by an institutional shareholder who is not
ordinarily resident in Zimbabwe.
g) The receipts and accruals of a licensed investor from the sale of a specified asset to which the
investment license relates.
h) The receipts and accruals of an industrial park developer from the sale of a specified asset
forming part of the industrial park.
i) Sale of shares held by an insurance company where the proceeds thereof are taxable under
the Income Tax Act.
j) ------------ repealed.
k) Amounts received by or accruing to an employee from the sale or disposal of his shares or
interest in an approved employee share ownership trust where such sale or disposal is to the
trust.
l) Receipts or accruals from the sale of a “principal private residence” by a person who has
attained the age of 55 years on the date of such sale.
m) The first $1,800 received or accruing, during the year of assessment, to an elderly person on
the sale of marketable security other than listed security.
n) With effect from 1st February, 2009, amounts received by or accruing to a person on the sale
of any marketable security which was subject to withholding tax in terms of Section 39(b) of
the Charging Act.
o) The amount by which the fair market price of shares sold to an indigenisation partner or
community share ownership trust or scheme exceeds the actual price at which those shares
were sold. [Paragraph (o) inserted by Act 1/2014 with retrospective effect from 1 st January,
2013]
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ALLOWABLE DEDUCTIONS:
Section 11(2) – General Deductions
a) Cost of acquisition or construction of a specified asset excluding costs deductible under the
Income Tax Act. Initial costs include bond interest, architect fees, interest on loan used to
finance the construction of the building.
 Where an asset was inherited the cost shall not exceed the amount shown in Final
Liquidation and Distribution Account, of the deceased estate, in respect of that asset.
 The cost of donated assets may be determined as follows:
i) If the donation was prior to 1st August 1981 (note that this is the date when Capital
Gains Tax came into being) the deemed cost price shall be the fair market price at the
time of acquisition.
ii) If the donation was made on or after 1st August 1981 the deemed sale price shall be:
a) The gross capital amount in the hands of the donor if he was taxed under this Act.
b) The gross income in the hands of the donor if he was taxed under the Income Tax
Act.
b) Additions, alterations or improvements of assets mentioned in (a) above. This also includes
such expenses, which can be capitalised to the cost of such improvements. Where a taxpayer
sells shares in a company, which owns immovable property, any improvements to the
immovable property shall be deemed to be expenditure incurred on addition to the shares.
c) Selling expenses e.g. Advertising, Agent’s commission etc.
d) Bad debts (set conditions have to be fulfilled – refer to Section 15(2)(g) of the Income Tax
Act).
e) Taxpayers who appeal against any decision made by the Commissioner and whose appeal is
allowed in full in the Special Court or the High Court may deduct their legal costs (allowed
by the registrar of the court as being in accordance with the proper scale for such costs). In
the year of assessment in which the costs are so “taxed”. If the appeal is allowed to a
substantial degree but not in full, the court may direct that the costs be deductible.
f) Should an appeal be taken further (by either party) to the Supreme Court, and the taxpayer’s
case be upheld in full a deduction is allowed. Where the taxpayer wins to a substantial degree
the court may at its discretion permit the costs to be deducted.
g) If the Capital gain realised after allowing the above deductions is less than or equal to $50
there shall be allowed a further deduction equal to the Capital gain thereby reducing the
Capital gain to Nil. Only an Assessed Capital Loss of not more than $100 is considered as
Nil.
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h) For the purposes of determining the capital gain received by or accrued to or in favour of any
person in a foreign currency, no amounts shall be deducted there from that are allowed to be
deducted in terms of section 11 of the Capital Gains Tax Act [Chapter 23:01], other than-
i) the amount referred to in section 11(2) (a), (b), (d), (e), (f) and (g); and
ii) in respect of each year or part of a year of assessment from—
The date of acquisition of the specified asset to the date of sale, an amount of 2½% of the
purchase price of the specified asset; and (ii) where any additions, alterations or improvements to
the specified asset were made, an amount of 2½% of the cost of the additions, alterations or
improvements to the date of sale of the specified asset.
Seller or transferor should

• Apply for registration using Rev 1 form
• File a Capital Gains Tax return (CGT 1 form)
• Pay the Capital Gains Tax as assessed in full
Obtain the Capital Gains Tax Certificate for change of name for title deeds
Ways of minimising CGT
1. Transfer between companies under the same control [sec 15(1)]

2. Transfer between spuses [ sec 16]
3. Transfer of business property used for purposes of trade by an individual to a company under
his control [sec 17]
4. Sale under suspensive conditions [sec 18]
5. Rollover relief
Rollover relief
Taxpayers have the option to elect for rollover relief in order to defer their current tax obligation
to the next tax assessment periods. However the rollover relief allowance is not available in all
situations. It is only exercisable if:
- the tax payer exercises the election
- if he/she replaces the specified asset before the end of the next year of assessment from the date
the old asset was disposed. If he/she uses all the proceeds this is referred to as full rollover.
Where only part of the proceeds is used on the new PPR, capital gains arise on the unexpended
amount and this is referred to as partial rollover.
Rollover relief =
Where: A is the expended amount
B is consideration received/accrued
C is the capital gain on the sale of old PPR
5.9.1 Principal Private Residence (sec 21)
Principal Private Residence (PPR) is the individual’s sole or main residence and land which does
not exceed 2 hectares.
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If a taxpayer disposes of his old PPR and expects to use the proceeds to construct/acquire a
similar PPR before the end of the next year of assessment, he/she can elect to defer the capital
gain accrued.
Capital gain =
Where: A is the unexpended amount
B is consideration received/accrued
C is the capital gain on the sale of old PPR
Example:
Mr. F. Phiri purchased his PPR in May 2009 for $120 000 and constructed a durawall around it
for $20 000 in November 2009. He sold it in February 2010 for $300 000 and purchased another
one for $315 000. He made the election to minimize his liability.
Calculate his tax liability if:
a) the second PPR had been purchased in March 2010.
b) He had sold the second PPR in April 2010 for $450 000 and not replaced it by 31 December
2011.
Solution:
a) Since he replaced the PPR not later than the end of the next tax year from the date the old
PPR was sold and the amount he spent on his new PPR exceeded the proceeds received
from the old PPR, no tax liability arises since the capital gain would be fully rolled over.
b) The capital gain rolled over would have been calculated as follows:
$
Proceeds 300 000
Less:
Cost 120 000
Improvements 20 000
Inflation allowance on:
Cost- 120 000 × 2,5% × 2yrs 6 000
Improvements- 20 000 × 2,5% × 2yrs 1 000 (147 000)
Capital gain 153 000
Therefore the allowable deductions would be reduced by the capital gain rolled over on the sale
of the 1st PPR as follows;
Proceeds 450 000
Less cost-2nd PPR 315 000
Minus gain on old PPR rolled over (153 000)
162 000
Inflation allowance:
315 000 × 2,5% × 1yr 7 875 (169 875)
CGT @ 20% 56 025
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Example 2:
Mr. G. Z purchased his PPR in May 2012 for $150 000 and constructed a durawall around it for
$30 000 in March 2013. He sold it in November 2013 for $350 000 and purchased another one
for $380 000. He made the election to minimize his liability.
Calculate his tax liability if:
a) The second PPR had been purchased in January 2014.
b) He had sold the second PPR in April 2015 for $420 000 and not replaced it by 31 December
2016.
5.9.2 Business property (sec 22)

If a taxpayer disposes his immovable property used for business and uses the proceeds to
purchase another immovable property, he can make the same elections as given in Section 21
above.
Example:
Size Holdings constructed a factory building on 1 January 2010 at a cost of $300 000. On 31
January 2012, it sold the building for $1,2m. The company bought another factory building on 2
April 2013 at a cost of $900 000. Calculate the minimum tax liability due.
Solution:
W1
$
Cost 300 000
SIA @ 25% (75 000)
ITV @ 31/12/10 225 000
Acc W & T @ 25% (75 000)
ITV @ 31/12/11 150 000
Selling Price 1 200 000
Potential recoupment 1 050 000
Actual recoupment 150 000
Calculation of CGT
Gross capital amount 1 200 000
Less recoupment (150 000)
1 050 000
Less:
Cost 300 000
Less capital allowances (75 000 +75 000) (150 000)
150 000
Inflation allowance
$300 000× 2,5% ×3yrs 22 500 (172 500)
Potential Capital Gain 877 500
Less rollover relief [ × $877 500] (658 125)
CGT liability @ 20% 43 875
* Partial capital gains would arise because the amount expended on the new PPR was less than
the proceeds received.
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Example:
Mrs. Dee disposed of her interest in Neshpark Ltd for $15 000 on 20 May 2009 which she had
acquired for $10 000 on 1 June 2008. Calculate her tax liability arising from the transaction.
Solution:
CGT = 5% ×$15 000
= $750
This is because CGT for a specified asset sold after 1 February 2009 and having been acquired
before that date is calculated at 5% of the selling price.
Activity
Mr. Charles Rusere a resident of Zimbabwe got a job in South Africa in December 2015. He
decided to sell his shareholding of 20,000 shares in Bravo (Private) Limited, an unlisted
Zimbabwean company. The shares were valued at $0.25 a share on the date of sale and the
shares had been purchased on 1 March 2015 for $0.05 a share. He paid brokerage commission
of 2% on the amount in connection with the sale. On 20 November 2015, he again donated his
1,000 shares in Econet Wireless, a company listed on the Zimbabwe Stock Exchange.
Withholding tax was deducted from the listed shares. The market value of these shares was $5
each on date of donation. The 1,000 shares had been acquired in April 2012 for $500.
Required:
a) Calculate the capital gains payable by Mr. Charles Rusere on the shares from Bravo
(Private) limited.
b) Calculate Capital Gains Tax on the Econet Wireless shares.
Activity
Mrs. Botam bought a flat in Harare on 11 April 2014 at a cost of $100,000. She repainted the
flat in May 2014 at a cost of $7,000 and in September 2014 she constructed a brick wall
surrounding the flat for $12,000. She put burglar bars and a driveway in January 2015 at a cost
of $1,800 and $1,600 respectively. In February 2015 her employer transferred her to Bulawayo.
She advertised the Harare flat on 1 March 2015 and thus incurred $150 advertising costs. She
managed to get a buyer on 11 March 2015 and sold the property for $180,000. Wobron Real
Estate, the estate agents who facilitated the sale, charged her 5% as agent‘s commission. The
estate agent also withheld 15% withholding tax.
Required:
Calculate her capital gains tax payable or refundable, if any.
Section 11(3) – Assessed Capital Losses

This subsection allows for a deduction of any assessed capital loss determined in respect of
previous tax years. However the following provisos have to be taken into consideration:
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Proviso (i) – Taxpayers trafficking in shares of companies with assessed capital losses would
normally engage themselves in such activities so as to take advantage of the losses. Whenever
the exchange of shares of such a company takes place the onus lies with the taxpayer who
acquires the shares to prove that the transaction was devoid of a motive to take advantage of the
loss. If any shares are transferred in a company with an assessed capital loss (or in its controlling
company) and the Commissioner is satisfied that the sole or main reason for the transfer was to
take advantage of the assessed capital loss, the loss will be cancelled.
Proviso (ii) – An Assessed capital loss may not be carried forward where a taxpayer has been
adjudged (declared or become) insolvent or where he has assigned his assets or estate for the
benefit of his creditors. Where a taxpayer has become insolvent or has assigned his estate for the
benefit of his creditors (but not a company in liquidation) any assessed capital loss incurred
before the date of insolvency or assignment is eliminated.
Proviso (iii) – An assessed capital loss may be carried forward where a company is converted to
a private business corporation or vice versa. In all cases there should be no change in control.
Section 11(4) – Election for a deduction

Where a deduction is allowable under two or more sections the taxpayer may elect under which
section he wants the deduction allowed.
Section 11(5) – Cost for Property improved by Lessee

Where the lessor sales immovable property where the lessee, in terms of an obligation in the
lease agreement, effected improvements to the lease property the cost of the lease improvements
shall be allowed as a deduction for the purposes of calculating the capital gain of the lessor.
Section 12 – Expenditure on Exempt Specified Assets

No deduction shall be allowed on a specified asset whose sale is exempt from Capital gains tax.
EFFECTS OF EXCHANGE RATE VARIATIONS

Section 8(2)(a) – Effect of Exchange Rate Variation on Sale Price
In the case of foreign transactions the Gross Capital Amount is the amount expressed in
Zimbabwean currency. If due to a fluctuation in rates of exchange, the amount received differs
from the amount due, the amount received expressed in Zimbabwean currency constitutes the
recipient’s gross capital amount. If the receipt and the accrual occur in different years of
assessment effect must be given to the increase or decrease in the year in which the amount
accrued (not when it was received as is the case under the Income Tax Act).
Section 11(1) – Effect of Exchange Rate Variation on Purchase Price

In the case of foreign transactions the amount deductible is the amount actually paid expressed in
Zimbabwean currency. If due to a fluctuation in rates of exchange, the amount paid differs from
the amount due, the amount paid expressed in Zimbabwean currency is the amount allowable as
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a deduction. If the payment and the incurring of a liability fall in different years of assessment
effect must be given to the increase or decrease in the year in which the amount was incurred
(not when it was paid as is the case under the Income Tax Act).
Section 14 – Determination of fair market price

The Commissioner has authority to determine the fair market price where he has reasons to
believe that the sale price has been understated or the cost price has been understated and
calculate capital gains tax accordingly.
Section 13 – Damage or Destruction to a Specified Asset

Where a specified asset is damaged or destroyed and compensation is received the compensation
so received shall constitute a deemed sale price for purposes of calculating capital gain under this
Act. This however may not be the case if the compensation received is used, within two years
from the time when the asset was damaged or destroyed, to construct or purchase another
specified asset of a like nature in replacement or repair of the existing specified asset. The cost of
repairs would not qualify for a deduction when the asset is sold later since the taxpayer never
incurred the cost.
Where the compensation does not exceed the cost of acquisition (plus additions or alterations
thereto) the asset shall not be deemed to have been sold. However when the asset is finally
disposed of at a later date the initial cost shall be reduced by such compensation such that even
the inflation allowance will be calculated on the reduced sale price from the time when the
specified asset was damaged or destroyed.
The Gross Capital Amount should not include amounts channelled towards repairs. Any amount
not expended on the construction of the new specified asset shall be considered for Capital Gains
Tax purposes such that section 13(1) and (3) shall apply.
Section 13(4) – Expenditure to which subsection (3) relates shall not be allowed as a deduction
in terms of Section 11 upon subsequent sale of the asset concerned.
It is important to note that where a specified asset is damaged or destroyed and no compensation
is received the restoration costs are supposed to be considered as a deduction when the replaced
asset is finally sold.
Activity Error! No text of specified style in document.:1

A 50 year old retail shop was destroyed by fire on 25 March 2014, it had been bought on 1
March 2013 for $250 000. The compensation was received on 1 May 2014 and the building was
replaced on 30 December 2015. Consider the following:
Compensation Cost of Sale

Received Replacement Price
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1. $550,000 $600,000 $1,000,000
2. $350,000 $200,000 $ 800,000
The building was sold during the year ended 31st December 2015. Calculate the
Capital gains, if any for 2014 & 2015 tax years.
Circumstances where CGT liability may be postponed

Section 15 – Transfer of Assets Between Companies Under The Same Control
If the parties to the sale so elect, which election shall be binding, capital gain shall be regarded as
Nil where:
1) A foreign incorporated company having carried on its principal business in Zimbabwe
intends to wind up voluntarily and members’ shareholding is exchanged for shares in the new
company (formed in Zimbabwe). This is acceptable as long as the shareholders in the new
company formed will retain the same proportionate shareholding and no new shareholders
shall be entertained.
2) There is a transfer of a specified asset between companies under the same control under a
scheme of reconstruction of a group of companies or a merger or some other arrangement,
which the Commissioner considers to be of a similar nature.
3) A company is converted to a private business corporation and vice versa. In all cases there
should be no change in terms of control.
4) There is exchange of marketable securities between companies in situations described in (1)

or (2) above.
The section ensures that when the transferee sells the specified asset to a third party the Capital
gain shall be calculated as if he/she owned the property from the time it was first owned by the
first transferor.
Section 16 – Transfer of Assets between Spouses

Where any specified asset is transferred between spouses or a “principal private residence” is
transferred to a former spouse in compliance to a court directive, the transferor and the transferee
may elect that the sale price be deemed to be equal to the deductions allowable such that in the
hands of the transferor nothing will be taxable under this Act.
gain shall be calculated as if he/she owned the property from the time it was first owned by the
first transferor.

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Mr. and Mrs. Moyo married in December 2013. Mr. Moyo bought a house in Hatfield, Harare,
in March 2013 at a cost of $70,000. Subsequently he made the following additions to the house:
 Domestic Quarters (May 2013) $20,000
 Electrified Durawall (June 2013) $10,000
 Drive Way (July 2013) $ 5,000
Mr. and Mrs. Moyo divorced in January 2015. The court awarded the house to Mrs. Moyo who
has custody of the couple‘s two minor children. The market value of the house was $100,000. On
10th March 2015, Mrs. Moyo sold the house, put the children in a boarding school and
immigrated to England. The selling price of the house was $135,000. And she incurred the
following selling expenses:
a) Repainting (5 March 2015) $1,000
b) Agents commission $6,750
Required:
Calculate the capital gains tax due to be paid by Mrs. Moyo on the above transactions assuming
an election had been made in terms of Section 16 of the Capital Gains Act.
Section 17 – Transfer of Business Property by an Individual to Company

Where a specified asset, which an individual uses for the purposes of trade is transferred to a
company under that individual’s control the individual transferor and the transferee company
may elect that the sale price be deemed to be equal to the deductions allowable such that in the
hands of the individual transferor nothing will be taxable under this Act.
gain shall be calculated as if second transferor owned the property from the time it was first
owned by the first transferor.
The election under this section should be made by the time of submitting the tax return.
Section 18 – Suspensive sales

In this case ownership of an asset passes upon payment of the full or a certain portion of the
purchase price. The full purchase price shall constitute Gross Capital Amount and will accrue on
the date on which the agreement is signed. As a concession the taxpayer will be taxable only on
that part of the sale price, which accrues to him in terms of the agreement and this amount shall
be determined by the following formula:
A x (B-C)
where
D
A. Amounts not due and payable, in terms of their agreement, during the year.
B. Capital amount or sale price
C. Deductions allowable under this Act.
D. Sale price.
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Note:
Any amount, which escapes tax in one tax year, due to the provisions of this section, becomes
the Capital amount in the following year. Where there is cancellation of the agreement the
difference between the amounts received and taxed over the years is taxable in the year the
agreement is cancelled.

In a Suspensive sale arrangement a taxpayer sold a specified asset for
$200,000 payable as follows:
- $50,000 in year 1
- $100,000 in year 2 and
- $50,000 in year 3
Suppose the total deductions allowable amount to $80,000 (inclusive of inflation

Allowance and selling expenses).
Calculate the capital gain for the three years.
EXERCISES
Question 1
Trace and Bruce are an elderly couple in their late forties and in March 2013 they moved into
their town house in Windsor park in respect of which they had signed a purchase agreement at a
price of $180000 in April 2012. Although they had not yet paid the purchase price they were
planning to settle the purchase price once proceeds from the sale of their previous PPR in
Southview, Gweru which they had sold in November 2011 for $220000 was released after the
determination of their capital gains tax status. The couple had originally purchased the house in
September 2009 for $115000. The couple had incurred the following expenses on the Southview
house:
a. Between January and March 2010, they had erected a durawall around the property at a
cost of $15000
b. In February 2011, they had added a gazebo at the back yard for $25000
c. In October 2011 they painted the house at a cost of $3000 to make it attractive for the
sale
d. They appointed an agent whose commission amounted to $8000
e. The couple also agreed to pay 50% of the sale legal fees and this portion amounted to
$20000
The couple has approached you for advice on their capital gains status and how they can
minimize capital gains tax liability, given the above transactions.
Required
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a. Write a brief report on the tax advice you would give the couple in order to minimize
their tax liability (5 marks)
b. Compute the minimum capital gains tax payable by the couple in relation to the
transaction outlined above (20 marks)
Question 2
a. Martha purchased a house for $40000 on 24 August 2010 and sold it on 16 February 2013 for
$60000 under a three-year suspensive sale agreement. The buyer paid an initial deposit of
$20000 on the date of sale, and promised to pay the balance in equal annual instalments by the
end of 2015, the year which ownership would pass to her. Calculate Martha’s capital gains tax
liability for the three years. (20 marks)
b. Advice Martha of 5 more ways of minimising capital gains tax in Zimbabwe (5 marks)
Question3
You are a tax advisor, and a couple approaches you regarding the disposal of their house.
Immediately after marrying each other, Mr Erik and Mrs Jane Gomo jointly purchased a
principle private residence (“PPR”) in October 2016 in Eastlea for an amount of $69 000. The
mortgage loan finance for acquiring the house was obtained from a building society. Interest paid
in 2016 and 2017 was $1 800 and $1 200 respectively. Substantial improvements were carried
out in the property in February 2017 at a cost of $8 000.
They divorced in November 2017 at which time the PPR was sold for $120 000. Expenses for
advertising the house in a local daily newspaper amounted to $600. The net proceeds were
shared equally between them. Capital Gains Withholding Tax of $4 000 was withheld by the
depository and remitted to ZIMRA. From his proceeds, Erik acquired a bachelor’s flat on the
outskirts of the city for $20 000 whilst Jane decided to go and live with her parents.
Required
a. Calculate the capital gains tax payable (refundable) individually by Erik and Jane. Erik
made an election in terms of Section 21 of the Capital Gains Tax Act for the applicable
part (if any) of his gain. (20 marks)
b. Outline 5 circumstances in which a taxpayer is deemed to have disposed of a specified
asset for capital gains tax purposes (5 marks)
Question 4
Chihera a widow aged 53 was diagonised of cancer on 15 March 2012. She decided to plan for
her fate and move into a retirement home at Batanai Home in Gweru. On 23 April 2012, she sold
her entire shareholding of 20000 shares in Econet wireless, a listed company. The shares were
quoted at $6 a share on the date of sale and had been purchased as follows:
Number of shares Date Total cost
26
purchased
10000 12-Nov-08 17000
10000 26-Aug-10 28000
Withholding tax rate for this transaction was 1%.

On 30 April 2015, Chihera further disposed of her 30000 shares in Museyamwa Ltd, an
unquoted company. She sold all these shares for $120000 and, 10000 of these shares had been
purchased on 21 January 2009 for $25000 while the other 20000 shares had been purchased on
19 June 2013 for $50000.
Chihera incurred the following expenses in connection with the disposal of the Museyamwa
shares:
Transfer fees 7200
Estate agent's commission 4500
Advertising 1000
Required:
a. Compute Chihera’s capital gains tax liability arising from the disposal of the shares (18
marks)
b. Define PPR for Capital gains tax purposes (7 marks)
CORPORATE TAX
Corporate tax is levied on taxable income which is obtained by deducting exemptions and
allowable deductions from Gross Income. Currently it is levied at 25% of the taxable income.
The Income Tax Act (Chapter 23:06) section 8 (1) defines gross income as the total amount
received by or accrued to or in favour of a person or deemed to have been received by or to have
accrued to or in favour of a person in any year of assessment from a source within or deemed to
be within Zimbabwe excluding an amount of a capital nature.
From a source
• A country can adopt either a source based or a residence based tax approach.
• A residence based tax approach is adopted by a country that seeks to levy tax on
income, capital; property etc. accruing to its residents regardless of its source.
• A country that adopts source based tax system levy taxes only on income, capital,
property etc. that comes from within the boundaries of its borders irrespective of the
person’s residence.
Zimbabwean tax system is source-based.
What are the pros and cons of source based and residence based tax systems?
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Capital nature
Receipts of a capital nature are not taxed under the Income Tax Act. Examples of receipts and
accruals of a capital nature include income form disposal of immovable property and marketable
securities which are dealt with under the Capital Gains Tax Act. In addition, it may also include
income from speculative transactions e.g. sale of mining claim for speculative reasons.
Important Points
 Tax is levied at 25%

 Aids levy applies to companies at 3% therefore the effective tax rate becomes 25,75%
 Assessed losses are carried forward to a maximum of six years
Determination of tax liability for corporates.

• Net profit as per accounts XX
• Add: Tax income XX
• Disallowable deductions XX
• Other income (investment income, e.g. Interest) XX XX
• Less: Exempt income (XX)
• Accounting income (XX)
• Allowable deductions (XX) (XX)
• Taxable income XX
• Tax @ 25% XX
• Add: 3% Aids Levy XX
• Tax liability XX
• Less: Cumulative QPD‘s paid (XX)
• Tax payable / (refundable) XX
NB: If Income < Deductions = Assessed loss

Income > Deductions = Taxable Income
The Taxman and the Accountant
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• Accounting concepts applied by an accountant, in arriving at net profit differs from that
of the taxman in arriving at taxable income.
• As such net profit is not equal to taxable income.
• The difference between net profit and taxable income is caused by two items: temporal
differences and permanent differences.
 Temporary differences arise when business income or expenses are recognized by both
accountant and taxman but in different periods. These differences might include revenue
recognition, expenses incurred but not yet paid or depreciation calculation differences.
Interest collected in advance may be taxable in the period which it is received but for
accounting purposes credit may be taken only in latter days when it is earned.
 Permanent differences involve items which are taken into account by either one of them
and yet including the item at all. For instance exempt income- income that is taken into
account by an accountant but excluded by the tax man such as dividends from
Zimbabwean source.
Contemporary issues
With effect from 1 Jan 2019

Additional deemed source provisions proposed:
1. Amounts received by or on behalf of a satellite broadcasting service domiciled outside
Zimbabwe from persons resident in Zimbabwe in respect of provision of delivery of television or
radio programmes shall be deemed to be from a source zithin Zimbabwe
2. Amounts received by or on behalf of an electronic commerce platform domiciled outside
Zimbabwe from persons resident in Zimbabwe in respect of the provision or delivery of goods or
services
3. Intermediated Money Transfer Tax- With effect from 13 October 2018 a 2% transfer tax is
levied on all transfers from $10, where the amount transferred exceeds $500 000 a flat fee of
money transfer tax of $10 000 shall be chargeable.
NB. The money transfer tax does not apply to
- Transfers for the purchase or sale of marketable securities
- The transfers for the purchase or redemption of money market instruments
- The transfers of money on payment of remuneration
- Transfers to and from ZIMRA for the payment of refunds
- For the purchase of a petroleum product
- Between an individual’s mobile wallet account and his or her bank account
Other specific income for corporates
(a) Trading stock: Sect 8(1)(h)

• Trading stock is defined in section 2 of the Act as including goods and other property,
including livestock, which are acquired, manufactured, produced, bred, constructed or
29
improved in the ordinary course of trade for the purpose of disposal in the ordinary
course of trade.
• To be included in gross income is the value of trading stock:
 At hand at the end of the year (i.e. closing stock).
 Has been taken by the taxpayer for domestic or private consumption.
 Has been donated by the taxpayer to some other person.
 Has been attached in pursuance of an order of court.
 Has been disposed in pursuance of an order of court or has been disposed on winding up
of a business.
• The Second Schedule to the ITA gives guidance to valuation of trading stock.
Property income
• Some corporates are in property business realising income in the form of rentals.
• Such rentals are gross income, taxed after deducting expenses such as rates and cost of
maintaining the property.
EXEMPTIONS AND RELIEFS
Exempt income of corporates

Interest
• Interest from organization such as POSB, class ‘C’permanent shares from building societies,
etc. as defined in paragraph 10(1) of the 3rd Schedule is exempt.
• Interest accruing to a resident company which has been subjected to Resident Tax on Interest is
also exempt(interest from financial institutions).
Treasury bills
Interest earned by financial institutions on treasury bills
Dividends
• Any dividend paid by a company incorporated in Zimbabwe that pays tax is exempt.
These may also be referred to as tax incentives
Description Relief
Exporting manufacturers A taxpayer who manufactures and exports at least
50% of his output is taxed at a favorable rate of 20%.
Licensed Investors Taxed at a rate of 0% for the first five years, then
30
15% after the 5 years and thereafter.
Industrial park developer Taxed at 0% for the first 5 years,

then 10% thereafter and are allowed to carry forward
his assessed losses arising out of the first 5 years. He
is also exempted from withholding any tax on
dividends, interest and fees.
Build, Operate, Own and Transfer This is an arrangement where a taxpayer undertakes
to construct an infrastructure for the benefit of the
state or a statutory corporation. The taxpayer is taxed
at 0% in the first 5 years, 15% in the second 5 years
and 30% thereafter.
ALLOWABLE DEDUCTIONS
These can be split into three;

i. General- according to the general deductions formula ( which deals with expenditure
which is broad and not highlighted in the Act and,
ii. Specific- which is specified and included in the Act
iii. Disallowed- these are prohibited deductions for tax purposes
General deductions formula [Section 15 (2) (a)]
General deductions allowed shall be expenditure and losses to the extent to which they are
incurred for the purposes of trade or in the production of income, except to the extent to which
they are of a capital nature.
Incurred
Means expenditure or loss are deducted if incurred and not necessarily when paid.
For the purposes of trade
The expenditure and losses must be related to the taxpayer’s business transactions. Expenditure
can be apportioned where it is incurred for dual purposes, for example where:
 It relates to the business transactions and acquisition of capital
 It is incurred to produce taxable and exempt income
 It is incurred for business and private purposes
In the production of Income

31
This is expenditure arising from business operations and transactions. Losses from
embezzlement of funds by employees and related losses are allowable while expenses incurred in
the production of income of a capital nature and in producing exempt income are not allowable.
Expenses under the general deductions formula include:
Legal expenses- are generally of a capital nature

Penalties and fines- Penalties, fines, bribes are non-deductible.
Employment expenses- Payments made by the employer to or on behalf of employees are
deductible in full to the employer and taxed in the hands of the employee. Such expenses include
bonuses, gratuities, fringe benefits, incentives etc.
Insurance policies- Insurance costs incurred for the purposes of trade or in the production of
income are deductible for example, loss of profits, public liability policies, fire or theft insurance
covers.
Employee expenses- Employees are prohibited from claiming expenses that are not outlined in
the Act against their employment income. Such expenses include:
- travelling expenses incurred from home to the work place
- costs incurred in advancing oneself academically
- expenses incurred in securing employment or relocating
Specific Deductions
Section 15(2)((g) Bad debts – A deduction can be claimed in respect of debts, which are
irrecoverable as long as all the following conditions are met:
i) The debt must be due and payable to the taxpayer,
ii) The debt must be proved, to the satisfaction of the Commissioner, to be irrecoverable as at
the end of the taxpayer’s financial year
iii) The debt must have been included in the taxpayer’s income either in the current or any
previous year of assessment.
NB: Provision for bad debts repealed with effect from 1 January 2010.
Section 15(2)(h) (arw 6th Schedule) – Pension and Retirement Annuity Fund Contributions
If a member joined a pension fund (on or after 1 July 1960) or a retirement annuity fund his
deduction is restricted to the lesser of $5,400 per annum and 7½% of annual emoluments.
Annual emoluments refer to earnings on which the ordinary contributions are calculated.
Where a taxpayer’s contributions were in respect of two or more retirement annuity fund policies
the deduction allowable shall not exceed $2,700.
Summary on restrictions:
 Contributions to one Pension fund (plus NSSA) – Paragraph 15 restriction $5,400
32
 Contributions to one Retirement annuity fund – Paragraph 16 restriction $5,400
 Contributions to two or more Pension funds – Paragraph 18(2) restriction $5,400
 Contributions to two or more Retirement annuity funds – Paragraph 18(2) proviso restriction
$2,700
 Contributions to Pension fund(s) and Retirement annuity fund(s) – Paragraph 18(2)
restriction $5,400
 NSSA 3.5% of $700*12=$294
Section 15(2)(i) Arrear Pension Fund Contributions – Payments in respect of past service,
may be deducted in the year of payment, subject to restrictions reflecting the ceilings applicable
to deductibility in past years. Interest charged thereon is not allowable as a deduction for tax
purposes.
Section 15(2)(j) Medical Aid Societies – The amount of any contributions paid to a Medical
Aid Society by an employer in respect of his employees or their dependants.
Section 15(2)(m) Experiments and Research – A taxpayer may deduct expenditure incurred
during the year in carrying out experiments and research relating to his trade, other than
expenditure of a capital nature incurred on plant, machinery, land or premises or on the
acquisition of rights.
Section 15(2)(o) Scientific Research and Experimental Work – An amount equal to the sum
contributed to approved scientific or educational bodies with the condition that they be used for
industrial research or scientific experimental work connected with the taxpayer’s trade.
Section 15(2)(p) Educational Grant, Bursary or Scholarship – A deduction is allowed of

grants, bursaries, or scholarship paid for a person undergoing technical education, provided that:
the course is related to the taxpayer’s trade and that the beneficiary is not the taxpayer, his
spouse or near relative of either spouse. If the taxpayer is a company, the beneficiary should not
be a near relative of the individual controlling the company, his spouse or near relative of the
spouse unless the director works full time for the company and controls not more than 5% of the
share votes.
Ex-gratia payments: Sect 15(2) (q)

• This is a payment by a taxpayer, whether as an annuity, allowance or pension, to a former
employee, the dependent of former employee or a former partner as a result of retirement
due to ill-health, infirmity or old age or as a result of death of the former partner of
employee.
• The following are the maximum permissible deductions
 Former employee – US $500
 Former partner – US $200

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 Dependant of former partner - US$200
DONATIONS (section 15 (2) (r)
A donation is an expenditure made purely for humanitarian reasons. Since it is not linked to the
production of income or made for purposes of trade, the expenditure is disallowed. Examples of
disallowed donations include donations to political parties, churches or social clubs etc, though
there are exceptions:
The following donation are specifically provided as deductible in terms of Act.

 Medical donations to the state or to the fund as approved by Minister of health The
maximum deduction in the year of assessment is $100,000.
 Donations for education purposes to the State or to the fund approved by Minister of
education. The maximum deduction in a year of assessment is $100,000.
 Any amount paid by the taxpayer during the year of assessment, to a research institution
approved by the Minister responsible for higher or tertiary education. The maximum
deduction in year of assessment is $100,000.
 Any amount paid by the taxpayer during the year of assessment to a Public Private
Partnership Fund. The maximum deduction in year of assessment is $50,000
 Payments made by the taxpayer to destitute, homeless persons rehabilitation fund
established by the Ministry of Finance under the Audit and Exchequer Act. Allowable
deduction is restricted to $50,000
 A deduction shall be granted for payments made to the National Scholarship Fund,
National Bursary Fund or a trusts administered by the Minister responsible for either
Social Welfare or Health.
 Any amount not exceeding $100,000 paid by a taxpayer during the year of assessment,
without any consideration at all, to the State or a fund approved by the Minister
responsible for education, for any of the following operated by the state, local authority
or religious organisation:
 the purchase of educational equipment
 the construction, extension or maintenance of a school
 The procurement of school books or other educational materials
Section 15(2)(s) Subscriptions – A deduction is allowed for subscriptions paid by a taxpayer in
respect of his continued membership to any business, trade, technical or professional association.
Entrance fees are not allowable.
Section 15(2)(t) Preproduction expenditure
It is allowable if connected to the taxpayer’s business, and incurred 18 months prior to

commencement of business and is claimed in the year the business commences.
Section 15(2)(u) Opening stock is deductible

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Section 15(2)(v) Trading Stock Acquired Other Than In The Ordinary Course Of Trade:
 In the case of donated stock the deduction shall not exceed the value available from the
person from whom it was acquired.
 In the case of inheritance the deduction shall not exceed the valuation as shown in Final
Liquidation and Distribution Account of the deceased.
Section 15(2)(w) Conventions And Trade Missions – The cost of attending a convention or
trade mission is allowed as a deduction subject to the following:
 The deduction is restricted to $2,500 p.a and must be in connection with the trade carried on
by the taxpayer or one trade mission.
 In the case of a partner, where the partnership bears the cost the limit of $2,500 is applicable
to one visit by each partner.
Example
Mrs Martins is a corporate affairs manager with Homemate (Pvt) Ltd, during 2017 year, she
attended a seminar in Germany the cost to the employer was $7 900, she also attended the 2017
Zimbabwe International Trade Fair (ZITF) at a cost of $4 500.
What is the amount deductible in the hands of Homemate (Pvt) Ltd in respect of the
expenses for trade fairs?
Solution
• Trade fair cost allowable $2 500
• Note* deduction is only allowed for the first trade mission attended max permissible
deduction is $2 500 per person
Legal cost of income tax appeal: Sect 15(2)(aa – bb)

• Legal cost incurred by a taxpayer in pursuit of an appeal to either the High Court or the
Supreme Court is allowed as a deduction, provided that:
 (i) Such appeal was allowed in full by the responsible court; and
 (ii) The court directs that such cost should be allowed as a deduction.
(v) Export market development expenditure: Sect 15(2)(gg)
• Export market development expenditure means expenditure that have been incurred for
the purpose of seeking opportunities for the export of goods from Zimbabwe or of
creating or increasing the demand for such exports.
• A taxpayer is allowed to deduct expenditure in respect of export- market development

together with an amount equal to 100% of such expenditure.
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In other words export market development expenditure qualifies for a double deduction
Example
• McBowells Ltd is a company engaged in the manufacture of blankets for local and export
market; the company incurred the following marketing expenses in 2015 tax year.
$
• Newspaper advertisements 1 200
• Erecting billboards in major roads in Harare CBD 12 000
• Cost of samples sent to Malawi 3 000
• Payment for a right to advertise in bays of sports stadiums 15 000
• Research expenses in exploring Botswana market 23 000
• Show the amount deductible in the hands of the company.
• Solution $
• Newspaper adverts 1 200
• Billboards (capital nature) -
• Samples (3 000*2) # 6 000
• Right to advertise in bays (capital nature) -
• Market research expenses (23 000*2) # 46 000
• Total deductible expenses 53 200
• # These expenses are export market development expenditure and qualify for a double
deduction.
Share ownership schemes: Sect 15(2)(jj)

• To be allowed as a deducted is an amount representing the fair value of any stock, shares,
debentures, units or other interest paid or given by the taxpayer to an employee of the
taxpayer or for the benefit of an employee of the taxpayer pursuant to an approved
employee share ownership scheme or trust.
• Example
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• ZBB Bank granted its 10 senior managers 100 shares each through its employee-share
ownership scheme. The nominal value of the shares is $2.00 each and the current market
value of each share is $10.
• Show the amount which is deductible to ZBB Bank.
• Solution
• The fair value of shares is deductible= $10*10*100 = $10 000.00
Maintenance expenditure incurred on local authority: Section 15(2) (kk)

• To be allowed as a deduction is expenditure incurred by the taxpayer on maintaining the
following amenities owned and managed by a local authority:
 Buildings; roads; bridges; sanitation works; water works; public parks; any other utility,
amenity or item of infrastructure approved by the Minister responsible for local
government.
Such expenditure is allowed to a maximum of US$50 000
Example:
FBC bank recently incurred the following expenses as part of its corporate social
responsibility.
Donation to Harare Mayor Christmas fund $12 000
Maintenance of roads in Harare CBD $28 000
Refurbishment of Harare City Library $30 000
Donation to Harare City football club $10 000
What total amount is deductible to FBC Bank in respect of the above expenditure?
Solution
Donation to Harare Mayor Christmas fund (a) -
Maintenance of roads in Harare CBD 28 000
Refurbishment of Library 30 000
Donation to football club (b) -
Total 58 000
Maximum permissible 50 000
Notes
(a) Donation to Mayor Christmas fund does not qualify because for such a fund raising
programme, the proceeds of are normally used for charity work e.g. helping orphans
(b) Donation to a football club does not qualify because the amounts so donated are not used
for maintenance of local authority facilities.
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Section 15(2)(ll) Community Share Ownership Trust or Scheme – the amount of any
contribution or donation paid by a taxpayer in the year of assessment to a community share
ownership trust or scheme established by the taxpayer in compliance with the Indigenisation and
Economic Empowerment Act [Chapter 14:33]; equivalent to the value of the shares of a
corporate taxpayer that are lent in the year of assessment to an indigenisation partner of the
taxpayer pursuant to a corporate vendor-financed loan; (of) interest payable by an indigenisation
partner in the year of assessment on any loan advanced to him or her to purchase shares in the
company of which he or she is an indigenous partner. [Inserted by Act 1 of 2014 gazetted on the
4th April, 2014 with deemed effect from the year of assessment beginning on the 1st January,
2013]
Specific types of transactions

Here we discuss income from compensation and fortuitous receipts such as gifts and gambling.
Type of income Treatment

Compensation Generally, compensation is a receipt of a
capital nature. If it is paid as reimbursement
of trading profits lost, it is a receipt of a
revenue nature and where it is paid as
reimbursement of lost capital or asset, it is
capital in nature. Compensation for injury,
death or sickness is also a receipt of a capital
nature and does not fall under the definition
of gross income.
Gampling, Lotteries and Prizes These are fortuitous receipts and are capital
in nature unless if such receipts are won by
professional punter and gamblers. However,
a prize won because of employment is
taxable.
Gifts and Inheritance These are fortuitous receipts and are capital
in nature. However, with the exception of an
annuity paid of a ‘will’ of a deceased person
or not of legacy.
Restraint of Trade Such an amount is neither taxable nor
deductible.
PROHIBITED DEDUCTIONS
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Section 16 – While the “general deduction formula” contains its own restrictions further
restrictions on deductibility arise under this section, parts of which forbid a deduction despite the
expense passing the tests of purposes of trade, non-capital nature, etc. Other parts merely ensure
a disallowance of certain items of expenditure, the deductibility of which might be in doubt.
It is for this reason that no deduction shall be allowed in respect of the following expenditures:-
• Entertainment
• Depreciation
• Restraint of trade
• Expenditure on exempt or non-Zimbabwean source income
• Tax and Interest on late payments
• Expenditure on dividend from foreign source
• Legal costs
• Cost of shares
• Cost of incurred by a taxpayer in maintaining himself, his family or his establishment.
• Private expenses- which includes the cost of travelling between his home and the place
at which he carries on a trade and, in the case of a taxpayer who carries on two or more
trades which are distinct in nature, between the places at which such trades are carried on.
• Any loss or expense which is recoverable from an insurance contract or indemnity.
• Tax levied upon the income of a taxpayer or interest on overdue tax payable thereon.
• Transfers to reserves – profit which has been transferred to reserves is not deductible
• Expenditure or loss including assessed losses, incurred in the production of income which
is exempt from tax.
• The rent of, or cost of repairs to, any premises not occupied for the purposes of trade, or
any dwelling house or domestic premises.
• Cost of securing sole selling rights (capital in nature).
• The cost of any shares awarded by a company to an employee or director.
• Any expenditure incurred by any taxpayer on entertainment.
• Expenditure incurred in the production of any income arising from stocks or shares of
any company.
• Expenditure incurred in the production of income consisting of interest payable by a
bank, finance house , discount house or building society on any loan or deposit with such
institutions.
• Provisions for anticipated or contingent losses or expenditure.
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• Mining Royalties - With effect from 1 January 2015, royalties paid during the year of
assessment will no longer be tax deductible
Quartely Payment Dates (QPDs)
 Taxpayers who are not employees, but are in receipt of other income, (e.g. sole traders,
consultants and companies), are required to be on QPDs (Section 72).
 Under this scheme the taxpayers pay their estimated tax liabilities, for the current tax year
in which they are trading, in four instalments on dates allocated throughout the year.
Company tax returns are submitted on a quarterly basis as follows:
Installment Due
Due Date (as a % of the
QPD
(on or before) annual tax
payable)
1st QPD 10%

25th March
25th June 25%

2nd QPD
3rd QPD 30%

25th September
4th QPD 20th December 35%
o These payments are based on estimates of annual tax due and the payments are
accompanied by the return form ITF12B.
o At year end, after completion of financial statements the actual tax must be calculated
and any underpayments must be remitted to ZIMRA on before the 30th of April of the
following year.
o A final return (ITF12C, which is a self-assessment form for VAT registered clients and
ITF12 for clients not registered for VAT), must also be submitted on or before the 30th of
April of the following year.
• For the purpose of calculating provisional tax, a taxpayer should estimate his or her
annual taxable income and then calculate estimated tax.
• Provisional tax for each quarter is thus a percentage of the estimated tax as shown in the
above table.
• Estimated annual taxable income for each quarter is obtained by projecting the actual
taxable income for that quarter to the year end.
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• On assessment any provisional tax paid will be set off as a credit against any tax liability
of the taxpayer and a refund is made to the taxpayer were provisional tax paid exceeds his
tax liability.
Example 1
• ALG Water Ltd, had an estimated taxable income of 320 000 throughout 2015 tax year.
• Show the amount payable in its third QPD and the due date.
Solution
Estimated annual tax = 25.75%*320 000 = $82 400
Instalment (3rd QPD) 30%*82 400 = $24 720, payable on or before 25 September
Example 2
• XYZ paid $23 700.55 at its first QPD of 2015 tax year. Assuming the annual projected
taxable income of the company did not change. What is the amount that the company
should pay in its third QPD?
Solution
• 1st QPD - instalment is 10%
• 3rd QPD – instalment is 30%
• Amount payable in 3rd QPD = 30/10*23 700.55 = $71 101.65*
• *The calculation involved simple direct proportion.
Example 3
i. ABC paid $11 850.28 at its first QPD of 2016 tax year. Assuming the annual projected taxable
income of the company did not change. What is the amount that the company should pay in it’s
a. Third QPD?
b. Second QPD?
Capital Allowances Sec 15 (2) (c), 3rd schedule
Because depreciation is disallowed as a deduction, taxpayers are allowed to claim capital

allowances on their capital expenditure for tax purposes. These are deductions in respect of
buildings, improvements, machinery and equipment used for commercial, industrial and farming
purposes. Some of the assets that qualify for capital allowances include commercial buildings,
staff houses, farm improvements, machinery and equipment. Special Initial Allowance (SIA) is
at 25% per annum for four years.
Capital allowances in detail Sec 15 (2) ARW 4th schedule
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Capital allowances are given on an asset in the first year in which such assets is put into use e.g.
where an asset is constructed or acquired in one tax year but put into use in a later tax year, then
the taxpayer gets allowances in the year of first use of asset. No allowances are granted in the
year of disposal.
Net profit shown in the financial statement must be adjusted by adding back depreciation, loss on
disposal of assets and deducting profit on sale of assets. Capital allowances and scrapping
allowances are then deducted, while recoupment is added to the adjusted net profit
RANKING ASSETS
Immovable Assets Movable Assets

Commercial Buildings Articles
Farm improvement Implements
Industrial Buildings Machinery
Railway lines Utensils
Staff housing
Tobacco barn
Software acquisition and development
With effect from 1 January 2015 taxpayers can also claim capital allowances over a period of
4 years on software acquisition and development.
Commercial Building
This is a building constructed on/ after 1 April 1975 and 90% or more for trade. It may be a
block of flats, or a hotel or warehouse used by the taxpayer to store goods not manufactured by
him. NB: A building used 10% or more for residential purposes does not qualify as commercial
building.
Industrial building
Buildings used mainly in connection with manufacturing or industrial research. Industrial
buildings include storage buildings used by the taxpayer for the storage of goods manufactured
by the taxpayer.
Staff Housing
It means any permanent building used by the taxpayer for the purposes of his trade wholly or
mainly for the housing of his employees, but does not include in the case of any such building
the erection of which was commenced on or after the 1 st January, 2009, any building comprising
or incorporating any residential unit the cost of which exceeds US$50,000.
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Residential Unit means an apartment, flat, house whether detached, semi-detached or terraced,
or similar unit of residential accommodation; In order to qualify as Staff housing each
‘residential unit’ should not exceed $50,000 and capital allowances shall be granted on actual
cost. This means that no capital allowances are granted where the cost exceeds $50,000.
Passenger Motor Vehicle
A PMV is defined as “any motor vehicle propelled by mechanical or electrical power intended or
adapted for use or capable of being used on roads mainly for the conveyance of passengers”. It
included station wagons, estate cars, vans, double cabs.
Exclusions
 Vehicles used for conveying passengers for gain (taxis, commuter buses, etc),
 Vehicles used by hotel operators to convey their guests (hotel courtesy cars),
 Vehicles carrying 15 or more passengers excluding the driver,
 Vehicles purchased by a taxpayer for leasing under a finance leases,
 Caravans ambulances
Capital allowances on a PMV are calculated on a maximum cost of $10, 000 and a vehicle which
is not a PMV qualifies for capital allowances based on its full cost.
NB: All motor vehicles (PMVs or not), qualify for SIA, upon election if used at least 90%
for purposes of trade. Where SIA has not been granted, they are granted wear and tear at
20% based on reducing balance (“on ITV).
Articles; implements, machinery and utensils
Capital allowances are granted on implements, machinery, and utensils belonging to and used by
the taxpayer for the purposes of this trade. An article includes a movable asset with an
independent identity, despite it being an integral part of a building. It can be mounted or
demounted.
A taxpayer is also allowed to claim capital allowances on expenditure on additions or alterations

to articles implements, machinery or utensils not owned by him, but are used by him for the
purposes of trade.
Assets not belonging to the taxpayer
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A person is allowed to claim capital allowances on assets that do not belong to him. Therefore
capital allowances on an asset which is acquired for leasing purposes can only be claimed by the
lessor, but must use it wholly or almost for the purposes of trade and accordingly the lessor.
However, a lessee is only allowed to claim capital allowances on the cost of additions, alterations
or improvements on movable assets if used by him for the purposes of trade and on lease
improvements, when elected as an alternative to lease improvement allowances.
NON-RANKING ASSETS
Generally, an asset must be used by the taxpayer for purposes of his trade to be granted capital
allowances.
We have already seen that a commercial building must be used at least 90% of its floor area to
qualify for capital allowances and the threshold for an industrial building ceases to be a ranking
asset. A warehouse is only a commercial building if used to store other people’s goods.
Expenditure on structures and on works involving the alteration of land does not qualify as
ranking assets.
Capital expenditure on acquisition of patents, goodwill and other intellectual property do not
qualify as expenditure ranking for capital allowances.
Donations or inheritances
The fact that the asset was acquired without paying a valuable considerations e.g. by the way of
inheritance or donations, does not preclude it from qualifying for allowances. For purposes of
computing the allowances, the value of estate duty purposes is used in the case of an inherited
asset. For an asset acquired through a donation or gift, the cost used in the retail value of asset at
the time of such donation or bequest.
NB: Asset acquired by these means do not qualify for SIA. This means you should grant wear
and tear on asset acquired by the way of inheritance on donation.
Special Initial Allowance

Businesses which construct ranking immovable property or purchase ranking movable property
are entitled to an investment allowance of 25% p.a of the capital expenditure incurred, over 4
years.
Special initial allowance (SIA) is a first year investment allowance granted on constructed
ranking immovable assets and ranking movable assets purchased by a taxpayer. SIA is 25% of
the cost incurred.
Once SIA has been granted, the taxpayer will automatically qualify for an accelerated wear
& tear, which is 25% of the cost incurred, over the next 3 years.
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Key points:
SIA is claimed upon election on:
 It is granted on the construction (excludes purchased) of and additions or alterations to
farm improvement, industrial building, railway line, staff housing or tobacco barn. SIA is
not allowed on Commercial buildings unless it is built at a growth point area
 Costs of additions, alterations or improvements to the above qualifying immovable
properties,
 SIA cannot be apportioned according to usage or time of operations or between business
and private use. If an asset is in use at the end of tax year, even for a single day, a full
year SIA is granted.
 SIA is not granted on assets acquired by way of inheritance or donation, the taxpayer
must incur the cost.
 SIA cannot be claimed on movable assets purchased by a taxpayer for the purposes of
finance leasing.
 SIA is calculated on an asset which used at least 90% for business.
• Small and Medium Enterprises (SME) are an exception were S.I.A is charged at a rate of
50% in the first year and 25% in each of the succeeding two years.
• Special initial allowance shall be allowed in respect of half of the capital expenditure
incurred in the purchase of any fiscalised electronic register whose purchase qualifies for
relief in terms of section 15(3)(k) of the VAT Act .
• Is charged in the first year an asset is brought into use.
• The rate is applied on the cost of an asset, i.e. straight line basis
• Is never granted on purchased immovable assets.
• Is granted on purchased movable property whether purchased new or second hand.
• Is never granted on assets acquired through donation or inheritance.
Wear & tear allowance
Business which incurs ranking capital expenditure will automatically qualify for wear & tear
allowance. The allowance is computed on the cost of immovable and on the written down value
of the movable assets.
Wear & tear is a method of writing off capital expenditure through the passage of time or use
against trading and investment income. The allowance is granted where SIA has not been
granted. Unlike SIA, a trader need not elect to be granted wear & tear; he/she qualifies for this
allowance automatically.
Wear and Tear is NOT apportioned on immovable assets. It is only apportioned on movable
assets;
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Wear and Tear is apportioned between business and private only on the taxpayer (owner or
shareholder of the company) and is not apportioned if used by employee.
Wear & Tear is also apportioned in the year of commencing or ceasing to trade.
Key points
Wear & Tear is claimed on:
 Cost of immovable purchased or constructed by the taxpayer
 Cost of additions, alterations or improvements to the above qualifying immovable
properties,
 Purchased movable assets i.e articles, implements, machinery, utensils and motor
vehicles, belonging to and used by a taxpayer in trade.
Computation of wear & tear

When computing wear & tear, the following principles must be observed:
Wear and tear of immovable property is calculated on the cost i.e using straight line method.
Wear & tear on movable property is calculated on the written down of value asset (ITV) i.e on
reducing balancing method.
NB: Wear and tear is 2.5% on cost for commercial buildings and 5% on cost for all the
other qualifying immovable assets. Wear & tear is never apportioned at all on immovable
assets.
The general rate of wear & tear on a ranking movable asset is 10% on the reduced balance
of the asset, subject to some of the following exceptions:
WEAR & TEAR

ASSET RATE (Where SIA has
not been claimed) %
Motor vehicles 20
Tractors, Televisions & Caravans 20
Computers 10
Heavy lorries & Bicycles 25
Library books 331/3
Carpets (not fitted) 25
Cranes (mobile) 15
Farm Implements 5
Articles and Implements 10
Commercial Building 2.5
Industrial Buildings 5
Plant and Machinery (movable) 10
Staff housing 5
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Bull dozers, Combine harvesters and Graders 25
Railway line 5
Machinery running day & night (working 1 shift) 10
Machinery running day & night (working 2 shifts) 17.5
Machinery working 24hours a day (working 3 shifts) 25
When the question is silent about capital allowances policy and has not demanded
minimum tax liability or maximum capital allowances or gave a similar hint, you must
compute wear and tear and not SIA.
• Wear & Tear is the main form of capital allowance granted on assets unless the assets
qualify for SIA.
• Wear & Tear is calculated at a rate of 10% per annum on movable assets and a rate of 5%
per annum on immovable assets, unless if a specific rate applies.
Important notes on Wear & Tear:
• Is granted where no S.I.A is elected.
• Is calculated based on cost on immovable assets.
• Is calculated based on reducing balance for movable assets.
• It is never apportioned on immovable assets
• Is apportioned on movable assets on time or usage basis.
• A commercial building is an exception with a rate of 2.5% on cost
Example
A taxpayer bought a new computer on 1st January 2008 for $80 000. This computer was first
used on 1st January 2012 for the purpose of business. Determine the ITV of the computer on 31st
December 2013.
Recoupments and scrapping allowance
Losses on disposal are a prohibited deduction and profits on disposals are disregarded for tax
purposes. Scrapping allowance and Recoupment replaces these.
Recoupment (Section 8(1)(J)

A recoupment is a recovery of an expense previously allowed as a deduction for income tax
purposes. Recoupment of capital allowances arise where an asset is sold at a price which is
above the Income Tax Value. It is limited to capital allowances previously claimed. Where the
asset has been sold and the proceeds exceed the original or deemed cost, the sales proceeds are
restricted to the cost of the asset.
Scrapping allowance (Paragraph 4, 4th Schedule)

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Scrapping Allowance is the difference between the selling price and the income tax value at the
time of sale. It arises where an asset is sold at less than the income tax value. It represents that
part of the cost or deemed cost of the asset that has not been recovered by way of the disposal of
the asset. No scrapping allowance is granted where a taxpayer ceases to trade.
Example 1
Zayne Pvt Ltd sold its Mazda B1800 for $21000, originally purchased for $24000. Its qualifying
cost for purposes of claiming capital allowances was restricted to $10000. The ITV on the date
of sale was $8500.
Required: Calculate the recoupment or scrapping allowance.
Solution
Deemed sale price = Deemed Cost/Original cost x Actual sale price
= $10000/24000 x $21000
= $8750
Recoupment/ (Scrapping Allowance)
= $8750-$8500
= $250
Example 2
XIM Ltd has been trading for the past 10 years. The company had purchased furniture for $2 900
in the year 2014 in which wear & tear had been granted. It sold the furniture for $3340 during the
year 2016. Calculate recoupment/scrapping allowance.
Example 3
Desny Ltd has been trading for the past 10 years. The company had purchased a Toyota Fortuna
for $80 500 in the year 2016 in which wear & tear had been granted. It sold the Fortuna for
$60000 during the year 2018. Calculate recoupment/scrapping allowance.
PRACTICE QUESTIONS
Example 1
Obx Ltd purchased, constructed and brought into use the following assets at the beginning of the
year 2018:
Asset Cost $
Commercial building (constructed) 30000
Plant & Machinery purchased (new) 10000
Motor vehicle purchased (second hand) 15000
Delivery vehicle (new) 50000
Factory building purchased 20000
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Warehouse (for storage of other company's goods) 40000
Dell Computer 1200
Required:
Calculate the maximum capital allowances claimable by the company for the assessment year
ended 31 December 2018 and the following two years. NB Obx Ltd has a habit of electing SIA
where possible.
Suggested Solution
Example 2
Latex Ltd commenced business on 1 July 2013. They decided that their year end be the 31 st of
December. They purchased, constructed and brought into use the following assets:
Asset Cost $
1 May 2013 Commercial building 300000
15 June 2013 Plant & Machinery purchased (new) 100000
11 June 2013 Motor vehicle purchased 15000
5 August 2013 Isuzu KB (for the sales manager) 24000
19 May 2014 Director’s Toyota Hilux (new single cab) 50000
14 June 2014 Factory building purchased 200000
10 May 2013 Warehouse 400000
Additional Information:
1. The warehouse was used for storing goods manufactured by the company
2. The plant and machinery was used 24 hours per day
3. The vehicles are used 60% in business and the Director has 35% voting rights in the company.
Required:
Calculate Latex Ltd’s capital allowances claimable in 2013 and 2014.
EXAMPLE
Sparks Pvt Ltd scored a net profit of $30 000 during the year ending 31 st December 2013. This
profit was arrived at after charging the following expenses.
 Depreciation $1000
 Loss on sale of plant $2000
 Cost of a successful tax appeal $ 500
 Salaries and Wages $9000
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 Donations to National Scholarship Fund $1500
 Donations to destitutes fund $130000
The income of the company was made up of the following other items:-
 POSB Interest $4 000
 CABS Class "C" Permanent Shares $ 500
 Donation $1 500
 Subsidy $9 000
During the year, the following assets were bought.

 Defender Landrover $10 000
 Computer $ 4 000
The plant that was sold had a carrying amount of $4000 and an Income Tax Value of $3000. The
sale proceeds from this plant amounted to $2000.
The managing director was using the Landrover 60% for business and 40% for private purposes.
Required:
Calculate the taxable income of Sparks Ltd for the year ended 31 December 2013.
Practice Question
JD Plc is a company engaged in the manufacture of blankets for local and export market. The
company incurred the following expenses during the year ended 31 December 2017.
Details Amount($)
4
Marketing expenses 53,000
Maintenance expenditure incurred on Masvingo Municipality5 54,000
6
Donations 480,000
Christmas party for the staff 2,500
Ex-gratia payment to former employee 1,700
Restraint of trade 8,000
Cost of land 345,000
Stamp duty on the purchase of land 5,000
Legal charges on the land sale and purchase Agreement 3,000
Acquisition of a fiscal machine 24,000
1
Acquisition of a Toyota Belta 15,500
Cost of constructing the buildings2: A Factory 300,000
: A storage building3 54,000
: A canteen and rest rooms 36,000
: Commercial building 65,000
: Living quarters for factory workers (2units) 120,000
: Living quarters for administrative staff (2units) 100,000
Additional Information
50
1. There is always a 30% private use for the Toyota Belta by the Managing Director.
2. The construction of all the buildings was completed in February 2017 and the buildings
were put into use for the business from March 2017.
3. The storage building is adjacent to the factory and is used for the storage of the finished
products.
4. Marketing Expenses $
Erecting bill boards in major roads in Harare CBD 15,000

Cost of samples sent to Kenya 4,000
Payment for a right to advertise in bays of sports stadium 12,000
Research expenses in exploring Tanzanian market 22,000
5. Maintenance Expenditure
Maintenance of roads in Masvingo CBD 18,000

Refurbishment of Masvingo Museum 26,000
Extension of Masvingo City Library 10,000
6. Donations
To the National Scholarship Fund 160,000

To Victoria High School for construction of school building 115,000
To Homeless persons rehabilitation fund 120,000
To Masvingo General Hospital 85,000
7. The Company also made sales amounting to $1 800 000 during the year ended 31
December 2017.
Required:
Compute JD Plc’s minimum tax liability for the year ended 31 December 2017. (25)
MINING
INTRODUCTION
The mining sector is one of the major economy drivers in Zimbabwe as it contributes immensely
to the Gross Domestic Product (GDP). As such this industry attracts a lot of concessions,
allowable deductions and tax holidays. Zimbabwe has both small-scale and large-scale miners
whose output is mainly consumed by the export market. Income from mining can be derived
from the following sources;
a) Recoupment
b) Sale of Minerals
This chapter is going to look at how to calculate tax liability from mining operations and the
presentation thereof.
51
DEFINITION OF TERMS
Mining operation - is one carried out for the purpose of extracting a mineral from the ground or
from any substance or constituent of the earth. subsequent smelting and refining , by the same
taxpayer of minerals won from the earth and any other operation recognized by the
Commissioner, such as re-working of mine dumps.
Minerals - includes any valuable crystalline or earthly substance found within the earth’s surface
or deposited there by natural causes excluding petroleum or any substance extracted through
quarrying with the exception of fire clay or limestone.
Mining location- means a mining place registered in terms of the Mines and Minerals Act.
Ring fencing - an allowance or deduction in respect of mining operations shall only be claimed
in respect of expenditure or losses attributable to a particular mining location and shall not be
claimed in respect of any other mining location.
Taxation of miners
Miners are assessed like other traders except that;
- the rate of tax on mining income is currently 25%
- Aids levy applies from 1 January 2017, and
- their assessed losses can be carried forward indefinitely.
The general rules that apply when determining taxable income or assessed loss for other
taxpayers also apply to miners except for special provisions relating to mining. These are as
follows:
Capital Redemption Allowance (CRA)
Other tax payers claim capital allowances, while miners claim what is termed capital redemption
allowance in respect of capital expenditure incurred. It can only arise after commencement of
production. There are four methods that can be used in calculating the CRA: (a) new mine
method paragraph 4 (4) and 4 (8) of the 5th schedule (b) life of mine basis paragraph 2 of the 5 th
schedule (c) the mixed method paragraph 4 (2) and 4 (3) of the 5 th schedule and (d) replacement
method paragraph 6 of the 5th schedule.
Capital expenditure (Para 1 of the 5th schedule)
Capital expenditure for mining includes:
 Expenditure on shaft sinking (including sumps, and ore bins accessory to a shaft)
 Expenditure on land, buildings, works or equipment including premium paid for the use
of these
 Expenditure incurred prior to commencement of production or during any period of non-

production on preliminary surveys, boreholes, development and general administration
including interest on loans utilized for mining purposes, i.e. expenditure is capitalized as
long as expenditure is incurred prior to commencement of production or during a period
of non-production and forms the Unclaimed Balance of Capital Expenditure (UBCE)
when production commences.
52
 A maximum of $50 000 ranks for capital expenditure if incurred on staff housing for staff
at a school, hospital, nursing home or clinic. If one or more attached units of a block
exceed the qualifying cost, the whole block is disqualified even if the total cost does not
exceed the cost obtained after multiplying $50 000 by the number of units within the
building. Staff house being any permanent building used by the taxpayer for the purposes
of his trade wholly or mainly for the housing of his employees, according to the 4 th
schedule of the Income Tax Act.
 A maximum of $10 000 for dwelling by one or more individuals controlling the company
where he is one of not more than 4 individuals controlling the company
 No restrictions on dwellings for mine employees
 The cost of passenger motor vehicle (PMV) is restricted to $10 000. The PMV being any
motor vehicle propelled by mechanical or electrical power and intended or adapted for
use or capable of being used on roads mainly for conveyance of passengers, and includes
van or estate car and includes the Land Rover or Pajero type of vehicles though these
were previously not included as PMVs. However it excludes vehicles for conveyance of
passengers for gain, hotel cars for conveying guests, vehicles with capacity to carry 15 or
more passengers excluding the driver and where the vehicle is leased and where the
taxpayer/ lessee has the option to buy the vehicle.
 A school, hospital, nursing home or clinic is only allowable to a maximum of $50 000 if
used by not less than 50% of the mine pupils or people
Prospecting Expenses Section 15(2)(f)(ii)
The section applies to expenditure incurred by a miner other than that which is allowable
under Section 15(2) (f) (i) on operations either in search of mining claims or for minerals
after a mining claim has been pegged. Such expenditure is allowable in the year of
assessment in which it is incurred and in the absence of income from such operations such
expenditure maybe set off against other income from trade or investment.
A prospector who at a later date intends to eventually carry on mining operations may elect
that prospecting expenditure incurred be carried forward and be allowed only against
income from mining operations. If mining operations were to fail to materialize,
deductibility of the prospecting expenditure would have been lost. The election is binding
for any year of assessment for which it is made but not for any subsequent year.
The expenditure allowable under this section may take the form of surveys, sinking of
boreholes, digging of trenches and pits, and other prospecting and exploratory works
53
undertaken for the purposes of acquiring rights to mine minerals or incurred on a mining
location in Zimbabwe.
Methods for calculating CRA

New mine or current basis paragraph 4(4) & 4(8) of the 5 th schedule
A new mine is:
i. One which commenced regular production on or after 1 April 1968
ii. A mine that has closed down and has been reopened
iii. A mine that has changed ownership and has been recognized with substantially new
development and new plant
A taxpayer carrying on mining operations in a new mine may elect to claim CRA on a new mine
basis once production on the new mine commences. The capital expenditure claimed is
calculated as follows:
Unredeemed balance of capital expenditure (UBCE) at the beg of the yr XX
Less any recoupments from capital expenditure (XX)
Add current capital expenditure XX
= CRA XX
NB: Where the mining asset has been damaged or destroyed and compensation is received,
recoupment is restricted to the cost of the asset.
Under the new mine basis the total capital expenditure ranking for capital redemption is
allowable as CRA.
NB: Election can be made by: (a) mine owning individual
(b) mine owning company
(c) tax payer who tributes the mine
Life of mine basis (paragraph 2 of the 5th schedule)

Where a taxpayer adopts this method he submits to the Commissioner General an estimate of the
number of years for which operations are expected to continue, based on certified estimates of
ore reserves. The Capital Expenditure ranking for C.R.A. (less any recoupment) is divided by the
life of the mine calculated from the commencement of year of assessment concerned. This
calculation is used even if the mine was in production for only a portion of the year. A new
estimate of the life of the mine is required for each year of assessment. A taxpayer who adopts
the life of mine basis in respect of a particular mine is permitted to change subsequently to the
“mixed basis”.
The above provisions relate to mine owning companies. In most other instances the position is (i)
in the case of a company working a mine which it does not own, the Commissioner General
usually grants the allowance on the basis of the shorter of either the life of the mine or the period
of tribute.(ii) in the case of an individual who is the owner there is a right to claim on the life of
mine basis; where he is not the owner, as in the case of most small-workers, the Commissioner
General recognizes accumulated shaft sinking and development costs in the first productive year
and thereafter grants an allowance either over the period of tribute or on a wear and tear basis.
54
CRA = where; UBCE is the Unredeemed Balance of Capital Expenditure
R is Recoupment
CCE is Current Capital Expenditure
Estimate of life of mine means the number of years not exceeding:
a) in the case of a mine operated for the purpose of producing lead or zinc or lead and zinc,
ten years
b) in the case of a mine operated for the purpose of producing iron, 5 years
c) in the case of any other mine, 20 years
Example
A company had an unredeemed balance of capital expenditure of $400,000 as at 1 Jan
2016.
Current capital expenditure is $240,000 ;
During the year the company sold machinery for $80,000.
The mine estimates its life of mine to be four years from the end of the year
of assessment. Calculate CRA
Mixed basis (paragraph 4(2) 4(3) of the 5th schedule)

As implied by the term, this method is a combination of the life of mine and the new mine basis.
Once a taxpayer elects for this basis the election is binding for subsequent years of assessment.
The CRA under this method is calculated as follows:
CRA =
i.e. Unredeemed Balance of Capital Expenditure B/F XX

Less recoupment (XX)
Net XX
Portion of CRA = XX
Add CCE XX
CRA XX
Replacement election 5th schedule paragraph 6

This is an election which can be made concurrently with any of the three methods above. This
election gives a taxpayer with a producing mine an option to further deduct in full the cost of
replacing any capital asset (building, works or equipment), provided that such costs do not
exceed $10 000 in any year of assessment.
55
Provided that where the mine is owned, tributed or leased by a company under the control of not
more than four individuals, such renewal or replacement cost should not exceed $1 500 on the
renewal or replacement of any building used mainly as a dwelling by one or more of the
individuals. Any recoupment arising from an asset which was subject of a replacement election
is limited to allowances previously granted.
Depletion fees
A depletion fee at the rate of 2.5% to 5% on the gross value of the proceeds of the sale of any
minerals will now be payable to the consolidated revenue fund with effect from 1 January 2017.
Change of Ownerships (Para 8)
When a mine is sold the parties are required to furnish the Commissioner General with a jointly-
signed statement as to the proportion of the price relating to ―capital expenditure. The
Commissioner General has powers to determine the proportion, if he is dissatisfied with the
statement or if no statement is submitted.
The amount so determined constitutes a recoupment from Capital expenditure in the hands of the
transferor and ranks for redemption in the hands of transferee.
Where the ownership of a mine is transferred for no consideration such as in the case of a
donation the transferor‘s unredeemed balance of capital expenditure if any is effectively
eliminated in his hands and recognised for redemption in the hands of the transferee and may be
allowed to take over the assessed loss, if any, of the foreign company.
Where a foreign incorporated company which has carried on its principal business in Zimbabwe
and, is being voluntarily wound up, and, is transferring all its business to a Zimbabwean
company with the members’ shareholding being exchanged for shares in the new company.
Any unredeemed balance of capital expenditure effectively passes to the new company.
Recoupment from Capital Expenditure Section 8(1)(l)

When a miner disposes of or recovers any asset or expenditure on which he has obtained
allowances, there are usually income tax consequences as is the case with other tax payers.
A miner‘s recoupment is in full not restricted to amount previously allowed for. A miner’s
recoupment is generally the proceeds on disposal. The recoupment is brought into income in the
case of any miner whose expenditure has been allowed on the new mines basis but would first be
set off against unredeemed balance of capital expenditure in the case of a miner on either the life
of a mine or mixed basis, with only the excess recoupment, after exhaustion of such balance
being brought into income.
Where the recoupment comes on the sale of an asset which has been the subject of a replacement
election and a recovery, usually by way of insurance proceeds in respect of damage to or
destruction of an asset, the recoupment is restricted to cost.
Note: Where the asset, which is sold, has been subject to a restriction of its cost the
Commissioner General accepts an apportionment of proceeds for recoupment purposes.
A recovery from insurance in respect of a damaged or destroyed asses is restricted to the

deductions claimed.
56
Restriction if the asset has been subject to a limit. For example A motor vehicle purchased for
$25000 and sold for $18000.
Sale of Mining Claim Section 9

Proceeds from sale of mining claim are brought in full into gross income in the year of disposal.
Cessation of Mining Operations
If the cessation is due to the life of the mine having come to an end, or in the case of a mine
worked under concession, the concession having expired, the balance of the unredeemed capitall
expenditure is allowable as a deduction in the year of cessation. If however, the taxpayer has
abandoned the mine that is by forfeiture of the claim, before its life has come to an end, the
unredeemed balance of capital expenditure is not deductible unless he can show that there has
been a material change of circumstances necessitating a revision of the life of the mine.
Related party transactions
Thin capitalization
Expenditure incurred by a local branch or subsidiary of a foreign company or by a local company
or its subsidiary in servicing debt contracted in connection with the production of income to the
extent that such debt causes the person to exceed a debt-to-equity ratio of 3:1 is disallowed.
Transfer pricing
Sec 98B a.r.w 35th schedule specifies whether a transaction has been carried out at an arm’s
length transaction for the exchange of goods or services between companies.
Royalties Section
With effect from 1 January 2017 royalties paid during the year of assessment will no longer be
tax deductible.
General administration and management fees

a. To be prohibited as a deduction is general administration and management fees paid by a local
branch or subsidiary of a foreign company engaged in mining operations. The restriction pertains
to expenditure incurred prior to commencement of production or during any period of non-
production as share of head office expenses. The excess of 0.75% of the amount determined by
the following formula is disregarded:
A-(B+C)
Where A- is the total expenditure that qualifies for deduction
B- Expenditure on the administration or management paid outside Zimbabwe by such local
branch or subsidiary
C- Capital reduction Allowance qualifying for a deduction
b. In the case of such expenditure as incurred after commencement of production to the extent
that it exceeds 1% of the above formula is prohibited.
Examples (adopted from Tapera & Majachani, 2017)

Example 1
57
A mine owning company operates a Zinc mine. Its balance of unredeemed capital expenditure
ranking for redemption on 1 January 2017 was $400 000 and incurred capital expenditure of
$430 000 during the current year and sold some of its worn out equipment for $20 000. The life
of the mine was agreed with the commissioner as 17 years from 1 January 2017.
Required: Calculate CRA.
Example 2
Jet mines is a lead mine owned by 8 shareholders. On 1 January 2017, it had an estimated life
span of 14 years from I January 2017. It incurred the following capital expenditure in 2017:
Shareholders’ houses (7 units of $10000 each) 70 000

Toyota Fortuner for the mine supervisor 22 000
Employees housing 95 000
Required: Calculate Jet mines’s maximum CRA in 2017?
Practice Questions
Question 1
Unki mine carries on mining operations in Shurugwi and commenced production on 1 January
2011. The following are details of the capital expenditure incurred during the year:
$
Mining buildings 80 000
Mining equipment 120 000
Staff clinic 62 000
Dwelling for one of the shareholders 25 000
Shaft sinking 2 500
Houses for the clinic staff 40 000
A staff bus 15 000
Notes:
1) The staff bus carries a maximum of 12 passengers
2) The company recouped $40 000 from the sale of one its mining claim
3) The Unredeemed balance of capital expenditure (UBCE) at the beginning of the year was
$1 100 000
4) The estimated life of mine from the end of the current year of assessment is 19 years.
Required:
Calculate the capital redemption allowance (CRA) using:
1. The new mine basis
2. The life of mine basis
3. The mixed basis
Practice Questions
58
Question 2
Metrion (Pvt) Ltd is a Zimbabwean registered company which operates a gold mine in Mashava,
Zimbabwe. 60% of its issued share capital is owned by Kinako Ltd a company registered in
Uganda.
During the tax year ended 31 December 2016, Metrion (Pvt) Ltd borrowed $50 million from a
Ugandian bank in order to finance the acquisition of new mining machinery. The loan was
guaranteed by the Ugandan shareholders.
The Statement of Comprehensive Income for the year ended 31 December 2016 showed a net
profit figure of $900,000 after taking into account the following adjustments:
Income $
Profit on sale of generator 2,000
Insurance proceeds 20,000
Sale of minerals 300,000
Expenses
Administration expenses 120,000
Depreciation 165,000
Development expenditure 230,000
Donations 72,000
Interest payable 186,000
Mining and milling expenditure 400,000
Mining claims acquired 90,000
Preliminary surveys and boreholes 130,000
Prospecting expenditure 150,000
Shaft sinking 65,000
Other information
1. Administration expenses
Administration expenses include a payment of $20,000 which was to terminate the service
contract of a former mine manager as part of a reorganisation programme and $5,000 for the cost
of materials donated by the company to the mine sports club towards the construction of a
swimming pool.
2. Interest payable
The interest was payable to the Ugandan Bank. The average debt to equity ratio of Metrion (Pvt)
Ltd during the year ended 31 December 2016 was 4:1.
4. Donations $
Donation to the Masvingo Mayor’s Cheer Fund 12,000

Donation to the Masvingo Town Council bursary Fund 20,000
Donation to Masvingo city football club 40,000
Total 72,000
59
5. Additions to buildings
Residence for managing director 250,000

Extension to mine hospital 60,000
Staff Canteen 34,000
Sports club renovations 25,000
Total 369,000
1. Profit on sale of generator
The generator had been acquired in 2013 for $7,000 and had a book value of $6,300.
It was sold for $8,300.
3. Insurance payment
A Toyota X-trail which had been purchased for $25,000 in May 2013 was written off in an
accident. Insurance proceeds of $20,000 were received.
Required
Calculate the company’s minimum taxable income or maximum tax loss for the year ended 31st
December 2016 assuming that the company claims capital expenditure using “new mine basis”.
(25 marks)
QUESTION 2 [25 MARKS]

Texas mine Pvt Ltd mines emerald. At the close of business on 31 December 2016, the company
recorded a loss of $467 500 after deducting the following expenses:
Administration 1 300 000
Extraction costs 3 700 000
Salaries 5 000 000
Depreciation 900 000
The company had an unredeemed balance of capital expenditure of $600 000 as at 1 January
2016. During the year, it sold a Mazda 626 for $150 000 which was bought on 1 January 2015
for $100 000.
Capital expenditure during the year included:
$
Clinic 500 000
Shaft sinking 20 000
Boiler (replacement
$30000) 35 000
Plant and equipment 50 000
House occupied by Mr
Benson 25 000
Mules 10 000
Earth moving equipment 25 000
Administration block 3 000
60
Sales of minerals amounted to $300 000 after deducting selling expenses of $10 000. Mr Benson
is one of three shareholders who own the mine.
The mine estimates its life of mine to be 4 years from the end of the year of assessment.
Calculate taxable income if
a. Paragraph 4 (4) of the 5th schedule is elected
b. Paragraph 2 and paragraph 6 of the 5th schedule are elected
c. Paragraph 4 (2) of the 5th schedule is elected
TRANSFER PRICING
Section 98B arw the 35th schedule prescribes the rules pertaining to transfer pricing.
With effect from 1 January 2019

It is proposed to charge penalties in respect of related party adjustments raised by the
commissioner as follows;
- A 100% penalty where there is evidence of fraud or evasion or
- 30% penalty in the absence of fraud or evasion, where a transfer pricing document does not
exist or does not comply with TPG
- 10% penalty where documentation exist and complies with the guidelines
Definition
Source: Section 98 arw 35th Schedule of the Income Tax Act
Transfer Pricing Methods
1. Which of these is not an example of income splitting?

A. The taxpayer transfers income directly or indirectly to an associate.
B. The taxpayer transfers property, directly or indirectly to an associate with the result
that the associate does not receive or enjoy the income from that property
C. The taxpayer transfers property, directly or indirectly to an associate with the result
that the associate receives or enjoys the income from that property
2. Which of the following does the commissioner consider in determining whether the
taxpayer is attempting to split income?
A. The sole or main reason of transfer of income or property to an associate?
B. The value, if any, given by the associate for the transfer of the income or property
concerned
C. All the above
3. Which of the following is not a controlled transaction?

A. Transaction between spouses
61
B. Transaction between near relatives
C. Transaction between a customer and a supplier
D. Transaction between a person and a company they control
4. For a person who is a trustee of a trust, any persons who benefit or may benefit
under the trust are associates?
A. True
B. False
5. All partners are associates?

A. True
B. False
6. A company controlled by a person together with more than one associate is an

associate to that person?
A. True
B. False
7. Which of the following is an indicator of a person controlling a company?

A. Majority voting rights
B. Direct or indirect influence that if exercised result in the person and his associates
factually controlling the company
C. All the above
8. Which of these is not a person as per the Income Tax Act?
A. Company
B. Partnership
C. Corporate bodies
D. Deceased/insolvent estate
9. An uncontrolled transaction is comparable to a controlled transaction

A. Where there are no differences between them that could materially affect the
financial indicator being examined under the appropriate transfer pricing method.
B. Where there are differences but a reasonable accurate comparability adjustment is
made to the relevant financial indicator of the uncontrolled transaction to eliminate
the effects of such differences on the comparison.
C. All the above
10. Which of the above is not a transfer pricing method per the 35 th schedule?
A. Resale Price method
B. Negotiated Price method
C. Transactional net margin method
D. Transactional profit split method
62

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\MIDLANDS STATE UNIVERSITY

MODULE TITLE: TAX LAW & PRACTICE 11 (ACC 212)

2. PREREQUISITE MODULE: Tax law and practice 1 (ACC 202)

7.1 VALUE ADDED TAX

7.2. CAPITAL GAINS TAX

7.3 CORPORATE TAX

7.6 TRANSFER PRICING

Recommended reading texts

“Austerity for Prosperity”

VALUE ADDED TAX

Some of the examples of exempt supplies are:-

There are two forms of registration:

Pre-requisites for registration

Imposition of VAT (Section 6(1))

Time of supply (Sec 8)

Value of supplies (Sec 9)

INPUT TAX CREDIT

Which amounts may not be claimed as input tax?

When to claim input tax

TAX INVOICE (section 20(4)

A valid tax invoice must contain the following features:

DEBIT AND CREDIT NOTES

Requirements of a valid debit or credit note

1. Explain in your own words what you understand by:

ACCOUNTING FOR VAT (sec 14 & 15)

CASH OR PAYMENT BASIS

FISCALISATION (SI 104 of 2010)

Roles of a registered operator include

Penalties for failure to comply with VAT regulations

CAPITAL GAINS TAX

or (ii) the Patents Act [Chapter 26:03]

Section 8(2)(h): relinquishing of one’s interest in a condominium – where a person

Calculation Of Capital Gains Tax

Gross Capital Amount XXX

Less Allowable deductions XX

Capital Gain XXX

Section 38 Of The Finance Act – Rates Of Capital Gains Tax:

Section 39 of the Finance Act – Rates Of Capital Gains Withholding Tax:

b) Distributions by the executor of a deceased estate of a specified asset.

c) Selling expenses e.g. Advertising, Agent’s commission etc.

Seller or transferor should

Ways of minimising CGT

1. Transfer between companies under the same control [sec 15(1)]

5.9.2 Business property (sec 22)

b) Calculate Capital Gains Tax on the Econet Wireless shares.

Section 11(3) – Assessed Capital Losses

Section 11(4) – Election for a deduction

Section 11(5) – Cost for Property improved by Lessee

Section 12 – Expenditure on Exempt Specified Assets

EFFECTS OF EXCHANGE RATE VARIATIONS

Section 11(1) – Effect of Exchange Rate Variation on Purchase Price

Section 14 – Determination of fair market price

Section 13 – Damage or Destruction to a Specified Asset

Activity Error! No text of specified style in document.:1

Compensation Cost of Sale

Circumstances where CGT liability may be postponed

4) There is exchange of marketable securities between companies in situations described in (1)

Section 16 – Transfer of Assets between Spouses

Activity Error! No text of specified style in document.:2

Section 17 – Transfer of Business Property by an Individual to Company

Section 18 – Suspensive sales

Activity Error! No text of specified style in document.:3

Suppose the total deductions allowable amount to $80,000 (inclusive of inflation

Calculate the capital gain for the three years.

• The fair value of shares is deductible= $1010100 = $10 000.00