MIDLANDS STATE UNIVERSITY

DEPARTMENT OF ACCOUNTING

ACC212 HANDOUT:
LECTURER: E MASHIRI mashirie@msu.ac.zw

Payment of tax is a civic responsibility that distributes wealth and finances public goods and
services provided to the citizens of a country (Wahl, Kastlunger and Kirchler, 2010). Now
apart from taxation of individuals that students have covered in the preceeding tax module,
companies are also taxable persons. This module is set to accustom the students on the
various tax heads levied under the Zimbabwean tax legislation on companies. This is done
with an understanding that students have gone through introduction to taxation and know the
purpose of taxation. At this point we are going to discuss the various types of income which
include Interest, sale of goods, services rendered, director’s fees, rentals, royalties, donations,
recoupment etc, as taxed under different tax heads.
After completing this module students should understand Corporate Tax, Value Added Tax,
Capital Gains Tax, taxation of income from partnerships, farming and mining operations.

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.

Total amount

Is defined in section 2 of the ITA as money or any other property, corporeal or incorporeal
having an ascertainable monetary value.

Received by or accrued to or in favour of

An amount is received by a taxpayer if it is received by him or by someone for his benefit.

And an amount is accrued if it is yet to be received or paid.

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Deemed to have been received or accrued

An amount is deemed to have been received or accrued or in favour of if it has not been
physically handed over to him but probably dealt with in his name or collected on his behalf
for example partnership income and income of taxpayer’s minor child.

A Person

Included a natural person and an artificial person like a company, trust or cooperative.

From a source

Zimbabwean tax system is source-based. Amounts that originate from within Zimbabwe are
taxed in Zimbabwe irrespective of the person’s residence.

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.

Administration

Registration is required for a sole trader, partnership, private or public company. Once one is
registered with the registrar of companies, the company is required to be registered for tax
purposes within 30 days. Following are the requirements for a private company.

IN THE CASE OF A COMPANY

A completed Rev 1 form with the following attachments:
 Copy of certificate of incorporation
 Copy of memorandum of association
 Copy of articles of association
 CR 14 and CR6
 Copy of current Bank Statement
 Certified copy of identity documents for two directors and for the Public officer
 Proof of residence for the two directors and the Public officer in the form of utility
bills

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  Letter of appointment of Public officer (indicating his full name, ID number,
residential address and statement to the effect that the Public officer is a signatory to
the company’s bank account.
 The Public Officer should also complete the Rev 1 form and attach the following:
a) Certified copy of National ID
b) Current bank statement
c) Proof of residence in the form of utility bills (e.g ZESA / Telephone/ Council bill)

Important Points

 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

Specific type of transactions

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

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.

Illegal trade

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Profits from trading operations are taxable even if the trade is illegal [ CIR Vs Delagoa Bay
Cigarette Co (1918)]

Exemptions and reliefs

These may also referred to as tax incentives

Exporting manufacturers
A taxpayer who manufactures and exports at least 50% of his output is taxed at a favourable
rate of 20%.

Licensed Investors

A licensed investor is taxed at a rate of 0% for the first five years, then 15% after the 5 years
and thereafter.

Industrial park developer

This one is taxed at 0% for the first 5 years, then 10% thereafter and I allowed to carry
forward his assessed losses arising out of the first 5 years. H e 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.

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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

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 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

Repairs and Improvements

Repairs to articles, implements, machinery, utensils used and property occupied for the
purposes of trade and repairs resulting from the letting of property are deductible.
Improvements are non-deductible and qualify for capital allowances.

Lease premiums

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Lease premiums are taxed in the hands of the lessor and deductible in the hands of the lessee.

Lease Improvements
Lease improvements are allowable to the lessee.

Bad debts

Bad debts must be proved by the taxpayer to be irrecoverable and must have been included in
the taxpayer’s taxable income for them to be allowable. Doubtful debts are non-deductible.

Pension fund contributions

Pension fund contributions or contributions to NSSA are deductible to a maximum of $5400

per annum.

Medical Aid contributions

Medical contributions by the employer on behalf of employee are deductible to the employer.

Educational grants, scholarships and bursaries

Such amounts if incurred by the taxpayer are deductible if the education or training is related
to the taxpayer’s trade and if the trainee is not connected to the taxpayer.

Pensions, payable to former employees and their dependents

These are deductible if the expenditure is an annuity, pension or allowance of an ex-gratia

nature. The deduction is restricted to:
- $500 to a former employee,
- $200 to a former partner,
- $ 200 to one and all dependents of a former employee/ partner

DONATIONS

A donation is an expenditure made purely for humanitarian reasons. Since it is not

linked to the production of income or made for purposes, 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.
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  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
$100,000
 Payments made by the taxpayer to destitute, homeless persons rehabilitation
fund. Allowable deduction is restricted to $50,000

Subscriptions

Are fully deductible.

Preproduction expenditure

It is allowable if connected to the taxpayer’s business and utilized in the year the business
commences.

Assessed losses

Are carried forward to a maximum of six years on a First- Established- First- Extinguished
(FEFE) basis.

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.

Prohibited deductions

 Entertainment

 Depreciation

 Restraint of trade

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  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

Capital allowances in detail

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

STAFF HOUSING
A staff house is a permanent building used by an employer for purposes of his trade wholly or
mainly for the housing of his employees with a restriction of $50000.

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

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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.

Railway Lines

A railway line refers to the rails, sleepers and equipment pertaining thereto of any railway
track but does not include ballast, embankments, bridges, culverts and other railway
constructions.

A railway line that has been constructed by the taxpayer qualifies for S.I.A, where a taxpayer
has made an election for it; otherwise it qualifies for wear & tear rate of 5% on cost per
annum.

Assets not belonging to the taxpayer

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.

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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 computer software (both programs and data), 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
inherit 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.
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, but 150% for small and medium entities.
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.

Key points:
SIA is claimed upon election on:
 Cost of immovable asset constructed by the taxpayer, e.g. farm improvements,
industrial buildings, railway lines, staff houses and tobacco barns, excluding
commercial buildings. They must be new, unused and have been constructed by
the taxpayer,
 Costs of additions, alterations or improvements to the above qualifying
immovable properties,
 Purchased movable assets i.e articles, implements, machinery, utensils and motor
vehicles. There is no requirement that the above must be new and unused,
 SIA is 150% for SMEs

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  SIA is 50% of the cost of fiscal electronic register
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 leasing except under a finance lease.
 SIA is calculated on an asset which used at least 90% for business.

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;

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.

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The rate of wear & tear on a ranking commercial building is 2.5% on the cost of asset.
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

ASSET WEAR & TEAR

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
Bull dozers, Combine harvesters and Graders 25
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

NB: Wear and tear is 2.5% on cost for commercial buildings and 5% on cost for all the
other qualifying immovable assets

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.

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 2012.
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

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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)

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

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 $10500.
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-$10500
= ($1750)

Quarterly 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.

Quarterly payment dates (QPDs)

Installment Due
Due Date (as a % of the
QPD
(on or before) annual tax
payable)

1st QPD 10%

25th March

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 25th June 25%
2nd QPD

3rd QPD 30%

25th September

4th QPD 20th December 35%

Example

PRACTICE QUESTIONS

Example 1

Nah Ltd purchased, constructed and brought into use the following assets during the
year ended 31 December 2011

Asset Cost $
Commercial building 30000
Plant & Machinery purchased (new) 10000
Motor vehicle purchased (second hand) 15000
Delivery vehicle (new) 50000
Factory building constructed 20000
Warehouse (for storage of another company's goods) 40000
Dell Computer 1200

Required:
Calculate the maximum capital allowances claimable by the company for the
assessment year ended 31 December 2012 and the following two years. NB Nah 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
31st of December. They purchased, constructed and brought into use the following
assets:

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 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
 Donations to National Scholarship Fund $1500

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 an NBV of $4000 and an Income Tax Value of $3000. The sale
proceeds from this plant amounted to $2000.

Required:

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Calculate the taxable income of Sparks Ltd for the year ended 31 December 2013.

Practice Question

Firmhouse Pvt Ltd is a company which manufactures tables in Gweru. The company has a 31
December year-end. The statement of comprehensive income of the company in respect of
the year ended 31 December 2014 reflected a profit of $2850000 for the year. The profit was
arrived at after deducting expenses and crediting income which included the following items:

Expenses $ $
Depreciation of assets 25000
Donations:
Methodist church 5000
National Bursary Fund 120000
Ministry of Health and Child Welfare for the 150000
purchase of drugs at Gweru Provincial Hospital
Ministry of Education and culture for the building of 150000
a library at Midlands Government School
Standards Association of Zimbabwe 20000
Entertainment:
Prospective clients 10000
Staff Christmas Party 2500
INCOME
Profit on sale of sewing machine 7200

The sewing machine was acquired for $16000 in the 2013 tax year and was sold for $30000
in the 2014 tax year.

Assets on hand as at 1 January 2014 Income Tax Value 1 January 2014

Industrial building: Cost $29000 in 2009 tax year Nil
Plant and Machinery: Cost $150000 in the 2008 tax year Nil
Sewing machine: Cost $16000 in the 2013 tax year $4000
Furniture and fittings: Cost $5000 in the 2011 tax year Nil
Factory canteen: Cost $25000 in the 2012 tax year $6250
Commercial vehicles: Cost 120000 in the 2013 tax year $60000
Current additions $
Delivery truck-Mazda B1800 70000
Mazda 626 for use by the Finance Manager 25000
Second-hand printing machine 80000
New computer 5000
1 unit of staff housing 96000
1 unit of staff housing 50000

Required:
Compute the company’s taxable income/ assessed loss in respect of the tax year ended 31
December 2014, assuming the company claims the maximum tax allowances available.

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PARTNERSHIPS

Introduction
A partnership can be described as a legal relationship created by an agreement between two
or more but not more than 20 natural persons. For tax purposes, a partnership is not a legal
person, and therefore is not taxed as a separate taxable entity. Each partner is taxed in his
personal capacity in respect of their appropriate share of profits.
A partner’s assessed loss from partnership activities is allowed to be set off in his hands
against his taxable income from other trade or investment and vice versa.
Partners are taxed as investment income and their salaries from the partnership are not
remuneration but income from trade.

Death of a partner
If a partner dies and accounts are prepared to show the results of the partnership for the
period to his date of death. There will potentially be4 an accrual of profits to all the partners.
However, only the estate of the deceased partner is liable at that stage, on his share of those
profits. Accrual of the surviving partners’ shares is deemed to be delayed until the normal
accounting date.

Debtors
An incoming partner will not be allowed a deduction in respect of his share of debts which
become bad and which existed at the date of his admission, since no part of such debts will
have been included in his income.
Such portion of bad debts, if acquired by him will also not be claimable by the existing
partners since it will no longer belong to them.
The incoming partner will not be liable on his portion of a recovery of any bad debt which
was allowed to the partnership prior to his entry. Likewise, the existing partners will not be
taxed on his portion of a recovery.

Determining tax liability of a partner

a. Assume the partnership to be a legal entity and calculate the joint taxable income
b. Distribute each partner’s personal income, applying the agreed profit and loss sharing ratio
as per deed of partnership
c. Add to ‘b’ income personally received from the partnership and all income from other
sources
d. Deduct any personal allowable expenses for each partner to obtain each partner’s taxable
income
e. Apply the tax rates to determine the partner’s tax liability (credits are also deducted and
AIDS levy is added)

Key points
Details Expenditure Incurred Treatment In The

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 By The Partnership Hands Of The
Partner
Salaries Allowable Taxable
Interest on capital Allowable Taxable
Insurance premiums on ceded/ joint Not allowable Not taxable
lives
Insurance premiums borne by the Allowable Taxable
partnership for the lives of
individual partners
Partner’s life policy- partnership is Not Allowable Not Taxable
beneficiary
Medical Aid contributions/ Allowable Taxable as the
expenses exemption only
applies to employees.
Grant credit
Pension funds, NSSA , RAF Allowable Allowed a maximum
of $5400
Rent payable to a partner Allowable Taxable
Attendance at trade mission or Allowable to a maximum Not taxable
convention (section 15(2)(w) of 2,500 per partner.
Voluntary payment to former Allowable to a maximum Tax the full amount
partner or dependent thereof who of $500 per former partner
has resigned from the partnership and $200 per dependent
because ill-health, infirmity or old (s) of one former partner.
age, (section 15(2)(q)
Partner’s private use of a motor Allowable Taxable
vehicle
Passage benefits-partner’s business Allowable Not taxable – refer to
trip where he uses the a Harare objection of
opportunity to take a P J A Cunningham
holiday after the business (84/74)
Passage benefits – partnership bears Allowable Taxable
the cost of a holiday for a partner

Example 1
Tee and Kay practice as quantity surveyors in Harare. Their Accounts in support of tax
returns for the year ended 31 December 2015 reflect a profit of $40000 (Tee 60%; Kay
40%). To arrive at the profit, the following incomes were added and deductions charged:
Income $
Fees accrued 7250
POSB Interest (Harare) 425
Dividend from Zimbabwean quoted company 550
Deductions

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 Partners salaries: Tee 960
: Kay 840
Insurance premiums: loss of profit 400
: partners joint life policy 400
: Life policies for each
partner’s benefit: Tee 300
: Kay 360
Medical Aid Society contributions for Tee 7200
Kay 5200
Staff 3100
Interest on capital accounts: Tee 2500
Kay 2200
Depreciation 4475
Additional Information
1. The partnership during the year purchased and used technical equipment which cost
$4000
2. Tee borrowed funds to purchase his share in the partnership practice. Interest payable
by him during the year amounted to $130
3. Tee contributed $60000 to the partnership pension fund and Kay not being a member
of the latter contributed $50000 to a retirement annuity fund. These amounts have not
been charged in the accounts.
Required:
Compute the partnership joint taxable income and the individual partners tax liability.

Example 2
Max and Dubs are in partnership, sharing profits and losses in the ratio 2:3,respectively.Their
income statement for the year ended 31 December 2015 showed a net profit of $ 800 000.

The following information is available:

Included in their income are the following:
“$”
Interest on tax reserve certificates 40 000
POSB interest 35 000
Dividends received from Zimbabwe companies 60 000
Expenses deducted in the income statement were
“$”
Depreciation on non-current assets 100 000
Insurance premiums:
Partnership joint life policy 50 000
Life policies for the benefit of partners
Max 20 000

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 Dubs 30 000
Interest on capital accounts Max 64 000
Dubs 30 000
Medical expenses incurred Max 20 000
Dubs 25 000
Salaries Max 90 000
Dubs 85 000
Additional information
1, During the year, the partnership purchased the following assets
Office furniture $300 000
Mazda 626 $400 000
2, Max borrowed the amount he used to purchase his share in the partnership practice and
paid $5 000 interest.
3, During the year, the partnership made the following donations, which were not taken into
account when determining the above profit figure: “$”
National scholarship fund 10 000
Ministry of Health and Child Welfare for purchase of drugs
At Gweru Hospital 120 000

Required
Calculate the partnership’s joint taxable income and the taxable incomes of the individual
partners.

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

*For the definition of key terms refer to Tax Made Easy Volume 2 page 61.
Deemed disposals
These are disposals other than by way of sale and are regarded by the Commissioner as a
sale. There are 5 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

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.

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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.
VALUE ADDED TAX

Taxable supplies are supplies that are taxable at the following rates:
 Zero rate 0%
 Standard rate 15%
Zero rated Supplies
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.

Exempt Supplies
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.

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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.

Deemed Supplies
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 installment credit agreement that have been re-possessed by the
seller.
• Transfer of goods between independent branches

INPUT TAX CREDIT

Which amounts may be claimed as input tax?

Any VAT paid 0n local purchases or 011 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 11011-taxable
supplies, only the VAT attributable to taxable supplies can be claimed as input tax.

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.)
• 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 01
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

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supplies, the importer must be in possession of the Bill of Entry

TAX INVOICE

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.
• 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

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 $1.50 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.

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