Zim set to adopt new tax system

HARARE - Zimbabwe is a step closer to adopting a residence-based tax system from the current source principle after Finance minister Tendai Biti this week acquiesced to proposed amendments of the Income Tax Bill.

The Bill — unveiled in 2010 — is expected to enhance the country’s tax and accounting system in line with international best practices.

Biti agreed to 13 out of 15 concerns raised by Parliament’s budget, finance and investment promotion committee, on behalf of various stakeholders in the country.

“We will do the amendments on the things we have agreed and we are also going to include some input from the Chartered Certified Accountants in Zimbabwe ACCA, CBZ Holdings and other stakeholders,” he said.

The new tax regime, which is likely to be passed this year, will also facilitate the collection of taxes due to other countries with which Zimbabwe has double taxation agreements.

Residence-based taxation is applied to persons who are citizens of, live in or treat a jurisdiction as their home. It entitles taxation of both the domestic and worldwide income of those persons.

On the other hand, source-based taxation is applied to income made within the borders of the home nation, regardless of who made it.

A source-based claim only entitles the home nation to tax domestic income, not foreign income.

Since his appointment as Finance minister in 2009, Biti has reviewed existing legislation governing various financial sub-sectors in a bid to get rid of some discrepancies.

He has since amended the Banking Act, Securities Act, Microfinance Bill, Insurance Act, as well as the Pension and Provident Funds Act with the intention to strengthen the financial sector at a time when liquidity-induced economic challenges and corporate governance issues are affecting a number of financial institutions.

According to the Income Tax Bill, certain foreign sourced-income earned by a resident in Zimbabwe will be deemed to be from a Zimbabwean source.

The provisions are likely to especially affect income of a passive nature, such as interest earned on foreign bonds, bank accounts, as well as dividend income from shares held in foreign entities.

Analysts say the new tax law will create a wider tax net as the number of eligible taxpayers will increase, in turn increasing potential government revenue.

However, they say collection will be difficult and it will be a challenge to get people to declare their foreign income-earning assets.

The Bill makes a clearer distinction between the different types of income, such as employment income, business income (previously called income from trade) and property income.

It also clarifies that all tax-deductible expenses can only be those of a technical nature closely related to the production of the income in question and those that are tax expenditures.

This will change the method of calculating taxable income.

The measures are aimed at taxpayers who were deducting all manner of expenses incurred, irrespective of whether these were as a direct result of the income-generating activity.

The Bill will generally update and modernise outdated terms to take account of contemporary developments in the field of income taxation such as the changeover to the accrual basis of accounting.

The Income Tax Bill will repeal and replace the Income Tax Act (23:06) which was first enacted in 1967. - John Kachembere

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