Professional Documents
Culture Documents
1.0 INTRODUCTION
Taxation is the means by which the
government collect revenue for
financing public expenditure.
Tax is also levied to discourage
demand of demerit goods i.e.
tobacco, alcohol etc, and promote or
protect local industries
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Features (Principles) of a
good tax system
a) Equity principle- every member of
society should pay tax according to
his or her ability to pay. i.e tax
payers in the same economic
circumstance should receive the
same tax treatment and those
earning more should pay more tax
b) Simplicity principle-system should
be in simple and easy to understand
language. Should also be stable and
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2. TYPES OF TAXES
Direct taxes
Indirect taxes
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Direct Taxes
These are taxes levied on income and
wealth of individuals and companies. The
burden of these taxes is borne by the
person or organisation responsible for
paying taxes,
Direct taxes are progressive in nature. The
more you earn the more tax you pay.
Examples:
Corporate tax tax on business income
(profits)
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Indirect Tax
Are levied on one set of individuals or
organisations, but may be partly or wholly
passed onto others and are largely related
to consumption.
The person who is charged the tax is not
the one responsible for paying it to the
authorities
Indirect taxes are regressive. i.e they have
a relatively greater impact on the poor
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ADMINISTRATIVE FRAMEWORK
1. ADMINISTRATION
. Administration of all taxation fall under
the responsibility of ZIMRA.
. The Commissioner-General of Taxes is
vested with the power and
responsibility of
administering the tax statutes.
. He does this through regional offices and
ports established across the country.
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Returns and
Assessments (Contd)
Employees paying PAYE under the
FDS are not liable to furnish self
assessment returns
The employer is responsible for
deducting the correct amount of
PAYE for the year,
Commissioner is empowered to
estimate any taxpayers taxable
income if one fails to submit a return
and also to impose penalties for any
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Returns and
Assessments (Contd)
The penalty for late payment of PAYE
is 100% of the tax payable, and
interest is also charged on late
payment at a rate prescribed by
statutory instrument
Taxpayers who are not employees,
but are in receipt of other income,
(e.g. sole traders, consultants and
companies), are required to be on
Quarterly Payment Dates(QPDs)
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Returns and
Assessments (Contd
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, as
follows:
25 March
10% of tax payable
25 June
25% of tax payable
25 September
30% of tax payable
20 December
35% of tax payable
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LEGAL FRAMEWORK
calculation of a taxpayers tax liability
is based on the following:
a) taxable income of taxpayer in year of
assessment
b) the appropriate rates of tax per the
charging act for the year
c) the credits* to which taxpayer is
entitled to per the charging act for
that year. (section 7
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TAX CREDITS
These are concessions granted to
taxpayers due to certain life
disadvantages, notably:
a) physical and mental disability,
b) Illness,
c) Old age,
d) Blindness.
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Medical contributions
No credit is granted where the
medical aid cover is for the benefit of
some other persons other than the
taxpayer, spouse or child.
No credit is awarded on contributions
made by someone else including the
employer for the benefit of taxpayer,
spouse or child.
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Summary of credits
Type
Apporti Transfera Non
of
on
ble
-reside
Credit
nts
Blind
No
Yes
Yes
Elderly
Yes
No
Yes
Disable
No
Yes
No
d
Med.
No
No
No
Exp
Med.
No
No
Yes
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Example: credits
Mr Moyo, who is a 58 year old
disabled university employee received
a salary of $28 000 during the current
year of assessment. He is married to
Lisa who is blind. During the year they
paid $220, medical contribution to
CIMAS and bought a wheel chair worth
$1 000 for their son who had been
temporarily injured.PAYE paid during
the year amounted to $4 550.
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Solution
Cumulative tax up to $18 000
$4 104
($28 000-$18 000) x 35%
$3 500
$7 604
Less credits:
Elderly person(Mr Moyo)
Disabled person(Mr Moyo)
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$900
$900
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Solution(contd)
Total credits
310.00
Tax liability
294.00
Add 3% Aids levy($4 294x0.03)
128.82
$4 422.82
Less PAYE
$4 550.00
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$3
$4
AIDS LEVY 3%
Aids levy is applied on tax liability
after deducting tax credits
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Calculation of Taxable
Income
Total receipts and accruals in tax
year
less Amounts proved by taxpayer to
be capital in nature
= Gross Income
less Exemptions = Income
less Allowable Deductions
= Taxable Income
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Gross Income
Gross Income is defined as :-the total
amount ..received by or accrued to
or in favour of a person..or deemed
received or accrued..
in any year of assessmentfrom a
source within or deemed to be
within Zimbabwe
excluding amounts proved by the
taxpayer to be of a capital nature
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Key elements in
definition of Gross
income
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key elements:Gross
income(contd)
one becomes entitled to something
on the date of agreement or contract
(date of signing
sale agreement) no matter whether
payment has been received or not.
e) Source of income-means the
originating cause of income , i.e what
gave rise to the income.
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key elements:Gross
income(contd)
f) Capital nature-proceeds received
by a taxpayer on sale of a fixed asset
or his income generating machinery.
A disposal of such items will not
attract any income tax, unless they
constitute trading stock to the
taxpayer.
The intention of the taxpayer is also
material in deciding whether an item
is a receipt of a capital nature or not.
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key elements:Gross
income(contd)
Also not taxable are items like,
proceeds from insurance policies,
lottery wins or amounts accruing as
a result of a hobby, or amounts
received in restraint of trade.
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Source of specific
income(contd)
c) Partnership income-the place
where the services to earn partnership
income are rendered.
d) Sale or rental of immovable
property-is the country where the
property is situated
e) Rent from movable property-the
place where the lessee uses the asset.
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source of specific
income(contd)
f) Service rendered-place where the
services were rendered
g) Directors remuneration-where
the head office is situated.
h) Royalties -the place where these
items were created or perfected.
i) Interest-place where the credit or
loan was provided
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Specific inclusions in
Gross income
Specific
inclusions
in Gross
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1. ANNUITIES [(S8(1)(a)]
Annuity- an annual payment in
perpetuity for the life of grantee or for
a limited period .
Characteristics
claimable from another person or
body
must be a fixed annual amount
(which can be divided into monthly
or weekly payments)
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Specific inclusions(S8)
(contd)
must be repetitive for a period.
An annuity can arise from the
following:
i. Purchased from an insurance
company i.e. retirement annuity
ii. Granted by way of gift or legacy
iii. Granted as a consideration for the
sale of business, of an asset or
surrender of a right.
iv. For services rendered(pension).
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Purchased annuity
only interest content is taxable if
there was no tax deduction or credit
allowed at or during time of payment
of contributions.
I =(PXN)-A
N
I = interest
P= Annual payments(annuity received
per year)
N = number of annual payments
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Purchased
Annuity(contd)
A = purchase price of annuity
(excluding any deductions granted
when making contributions).
Example :Mr Amos purchased a
retirement annuity fund (RAF), from
Old Mutual. Over the years he
contributed $2400 to purchase it, the
contributions were not allowed as
deduction. The policy matured
beginning of current tax year and is
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Purchased Annuity
(contd)
Required : Calculate the amount to be
included in gross income
Solution
I = (300X10)-2400 = 60
10
Only 60 is taxable but for only 10
years and thereafter the whole annual
amount (300) will be taxable.
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Employment Benefits
[S8(1)(f)]
Allowances granted by an employer to
the employee or to a director, which is
paid over and above the persons
salary
Examples :
i. Occupation of quarters or a
residence
ii. The use of furniture or a motor
vehicle
iii. The use or enjoyment of any
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Employment Benefits
(contd)
all benefits granted to civil servants
or persons employed by the state are
exempted
licensed investor employees (In an
EPZ) are also exempted but up to a
maximum of 50% of total
remuneration paragraph 4(q), 3rd
schedule.
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Valuation of benefits
Generally benefit to the employee is
the cost to the employer except in
the following where it is value to
employees :
a) Housing Benefit;
b) Furniture Benefit;
c) Loan Benefit;
d) Motoring Benefit;
e) Entertainment Allowances;
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Housing Benefit
A house granted to an employee as a
place to live by employer is a benefit
to the employee as follows:
1) The open market rentals for a house
located in municipal area;
2) 12.5% of salary of the employee for
a house located outside municipal
areas;
3) In the absence of above, the benefit
is 7% of cost of construction of the
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Housing benefit(contd)
The benefit is reduced by any rentals
paid by employee to the employer.
There is no benefit where the
taxpayer pays rentals above the
market rate
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Furniture Benefit
Where the employer provides
furniture to the employee free of
charge ;
Annual benefit is 8% of cost of
furniture items.
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Loan Benefit
The benefit in respect of a loan free
interest from employer or his
associate to an employee.
Over $100 - benefit is 5% plus
LIBOR p.a. less any interest paid
(LIBOR is currently around 5.3%)
The benefit is reduced where period
of the loan is less than a year.
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Loan benefit(contd)-libor
rate
Definition: LIBOR is the interest rate
that banks charge each other for onemonth, three-month, six-month and
one-year loans. LIBOR is an acronym
for London Inter Bank Offered
Rate. This rate is that which is
charged by London banks, and is then
published and used as the benchmark
for bank rates all over the world.
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Example: Soft
loan(contd)
The loan was repaid on 31 August
2011.Assume the LIBOR rate was
5.26%%
Required
Calculate the lecturers loan benefit to
be included in the gross income
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Motoring Benefit
It is the benefit to an employee on
use of a company car
The figures below represent a full
years benefit, and are reduced
proportionately where the period of
use is less than a year, or where the
car is used for both business and
private use
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Engine
Benefit
Capacity
($/p.a)
Up to 1 500cc
1 800
1 501cc to 2
2 400
000cc
2 001cc to 3
3 600
000cc
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Example :Motoring
benefits
An employee was provided with a
motor vehicle with an engine
capacity of 2 700cc by his employer.
He ascertained that 80% of the
usage is private. He joined the
company on 1 February 2010 and
was employed up to the end of the
year.
Required
Calculate motoring benefit taxable in
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Solution: Motoring
benefits
Deemed annual benefit on 2 700 cc $ 3 600
Les s Business usage(20% x$3 600)
$720
$ 2 880
Less Period not used(1/12 x2 880)
$240
Taxable income
$ 2 640
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Entertainment
Allowances benefit
It is an expenditure of hospitality of
some nature incurred by the
employer.
It covers expenditure on groceries for
employees, drinks for business
clients etc.
The employee is taxed on amount
consumed by him, his spouse or child
privately, excluding so much as has
been expended on business of
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Entertainment
Allowances (contd)
The cost of a normal daily meal,
office teas whether there is a
canteen or not, are exempted
benefits.
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Passage Benefit
This is the cost of any journey
undertaken by an employee, his/her
spouse or child as is paid by an
employer such as;
i. A journey for taking up employment
ii. A journey on termination of
employment
iii. A journey made during
employment, i.e. business trips,
holiday trips.
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Exempted passage
benefits (non-taxable)
a) The first journey for taking up
employment by the employee with
each employer.
b) The first journey on termination of
employment with each employer.
c) All journeys made by employee on
the business of the employer.
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Passage Benefits(contd)
A benefit will only arise where the
journey does not benefit the
employer, but the employee, his/her
spouse or child.
Where the journey made during
employment is both private and
business there will be an
apportionment and only the private
component is part of gross income.
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Passage
Benefits(contd)
Where the period spent on the
business exceeds 10% of the total
period of the journey, the amount of
an employees passage benefit
applicable to the period spent on
business will be exempt from tax and
will be determined in accordance
with the following formula
AxB
C
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Passage benefit(contd)
A is the number of days spent on
business
B is the amount of passage benefit
money applicable to the employee
C is the total days spend on the
journey
If the time spent on business does
not exceed 10% of the total
period ,the whole of the passage
benefit is taxed, whether paid for the
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Example: Passage
benefit
Mr Mari was sent on a business trip to
USA for 10 days. He however decided
to pass through UK, where he spent 5
days seeing his girl friend. The total
amount for the trip paid by the
employer was $5 000.
Required
Calculate the amount to be included in
Mr Maris gross income
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Solution: Passage
benefit
Total passage benefit
$5 000
Less spent on business (10 x5 000)
- $3 333
15
Taxable income
=
$ 1 667
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Other benefits
Subscriptions in respect of an
employees continued membership
of business, trade, technical or
professional i.e. ACCA, CIS etc paid
on behalf of the employee by the
employer are exempted and
therefore not part of gross income
Subscriptions to clubs such as sports
clubs are included in gross income
and therefore taxable .
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Other benefits
An employee who receives
ownership of a motor vehicle or
some other property as a gift from
his employer in respect of services
rendered is taxable on the market
value of the car, or property, after
reducing it by amount paid by
employee towards acquiring it if any.
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4. PENSION RECEIPTS
[ S8(1)(a) S8(1)(c),S8(1)
(n),S8(1)(r)]
i. Pension on retirement
s8 (1) (a)
ii. Pension on retirement
s8 (1) (n)
iii. Pension on retirement
s8 (1) (r)
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Pension on retirement
s8 (1) (a) (From Pension
fund)
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Pension on retirement
s8 (1) (a)
The disallowed portion should be
deducted equally over the life of the
pension from the annual pension
being received
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Solution
Gross pension accrual/receipt [$500x9]-
$4 500.00
Less Disallowable(9/240months)x$3 500
131.25
Taxable income
4 368.75
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Commutation of pension
from retirement Annuity
Fund[S8(1)(n)
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Commutation of
pension(contd)
(Retirement Annuity
The 1/3 of pension
entitlement is
Fund)
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Example :Commutation
A lecturer from BUSE retired on 30 July
2010, and received lump sum payment
$250 000 from a retirement annuity
fund as pension. His pension
entitlement was $570 000.
Required: Calculate the lecturers
taxable income in 2010 if he elects to
be availed commutation
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Solution: Commutation
Lump sum payment
$250 000
Less 1/3 of pension
$190 000
Taxable income
$60 000
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Pension on retirement
s8 (1) (r) (Commutation:
Pension fund)
the source of the pension is the
pension fund and not retirement
annuity fund.
A pension fund is the fund to which
both the employer and employee
contributes during the employees
working life.
The commutation is 1/3 of the
members pension entitlement
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Example: Commutation:
Pension fund
A Professor from BUSE retired on 1
July 2010 and elected to commute his
pension.BUSE is a contributor to Old
mutual pension fund. The Professor
received $200 000 on 31 July 2010,
and a reduced monthly pension of
$1600 in arrears with effect from 27
August 2010. His total pension
entitlement is $420 000.
Required: Compute his taxable
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Solution: Commutation
Pension fund
Lump sum payment
$200 000
Less 1/3 of pension
$140 000
$60 000
Add monthly pension(1 600x5mnths)
8 000
Taxable income
68 000
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Lease Premiums[S8(1)
(d)]
A lease premium is paid by a lessee
to a lessor
for the right of use of the lessors
property and is distinct from rent , and
is paid over and above the normal
rent.
A lease premium is gross income in
the hands of the lessor, and is taxed
in full in the year of accrual or
receipt, and is never spread.
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Example: Lease
premiums
A lessor entered into a lease
agreement on 1March 2010 for the
leasing of his property for a period of
11 years commencing 1 April 2010.
The terms of the lease agreement
requires the lessee to pay monthly
rentals of $6 000 and $5000 as deposit
on inception of the lease. The deposit
is a premium paid over and above the
nominal rent. Required: To show the
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Solution-lease premium
b) Taxable income for the year
ended 31December 2011
Lease premium ------Add Rentals [6 000 x12)
72 000
Taxable income
72 000
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Lease Improvements
[S8(1)(e)]
Refers to a structure put up by the
lessee on the premises owned by
someone else(the lessor).
The structure will benefit the lessee
during the period of lease and
eventually the lessor on termination
of the lease agreement.
Not all structures will qualify as lease
improvements but only those
structures with a value agreed
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Treatment of lease
improvements in the
hands of lessor
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Treatment of lease
improvements(contd)
Where the agreement is silent on the
lease period use 10 years.
Where the value of the
improvements is varied prior to
completion of the building the actual
amended value is used.
Where the value is varied after
completion of the building, only the
original value will qualify.
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Treatment of lease
improvement
If the actual cost ends being less
than the value per agreement ,the
lessor is taxable on the value per
agreement.
Where no variation is effected to the
agreement and the building costs are
more than the value per agreement,
but it meets specifications or it is a
specific building then the actual cost
of the building will be taxable in the
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Lease
improvement(contd)
Where the initial period is renewed
only the initial period of the lease is
considered.
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Example: lease
improvement
Two parties entered into a fifteen-year
lease agreement on 1 January 2012.
The lessee agrees to construct a
building to the value of $15000.Prior to
completion of the building the value is
amended to $20 000.If the Buildings is
completed in 6 months and put into
use on 1 November 2012,calculate the
taxable income in the hands of the
lessor.
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Solution: lease
improvement
Value of improvement
$20 000
Unexpired period(120mths-6mths)
-114months
Value to be taxable per month- 20
000/114mths
=$175.44
Taxable in 2012 =(6x$175.44) =$1
052.64
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Recoupment in leasing
s8(1)(l)
On the acquisition of the ownership
of the property previously let, the
lessee will cease to qualify for any
allowance in the tax year following
the acquisition.
Any allowances (rent, premium or
improvements) previously claimed
which have been applied in reducing
the purchase price is brought into
gross income, and may be taxable
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Recoupment in
leasing(contd)
All outstanding instalments are
brought into gross income if the
property is disposed off before the
expiry of six years
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Closing stock
TYPE OF STOCK
METHOD OF
VALUATION
Donated
Consumed by taxpayer
(drawings)
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Closing Stock
All above types of stocks are
regarded to be gross income in terms
of s 8 (1) (h), notwithstanding the
fact that some of it will no longer be
available at the year-end.
Cost price includes freight;
insurance, duty and other expenses
paid in acquiring the stock
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mining recoupments
[S8(1)(i)]
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Recoupment/scrapping
allowance [S8(1)(J-K)
Recoupment is a term used by the
taxman to refer to profit on the sale
of an asset
It is the difference between the
selling price of an asset and the
income tax value of an asset. (NBV).
The income tax value (ITV) is arrived
at after deducting from cost the
taxman depreciation i.e. capital
allowances
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Recoupment
Where an asset had its cost
restricted for purposes of calculating
allowances, its selling price must also
be restricted for purposes of
calculating recoupment, as follows:
Deemed cost x Actual
selling price
Actual cost
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Recoupment/scrapping
allowance
Scrapping allowance is the
taxmans loss on the sale of assets
RECOUPMENT/SCRAPPING
ALLOWANCE
Ass SP ITV P/R All A/R
et
0
A XX XX XX XX XX
B XX XX XX XX XX
C XX XX XX XX XX
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Recoupment/Scrapping
allowance
KEY
P/R= Potential Recoupment = Selling
price ITV;
A/R =Actual recoupment = the lesser
of allowances and potential
recoupment;
Allo = tax depreciation (capital
allowances claimed in previous
periods) .I .e Cost ITV.
9/18/15
By Mabhungu I
114
Recoupment(contd)
Potential recoupment is the
difference between selling
price(s/price) and ITV.
Actual recoupment(A/recoupment) is
the lesser of allowances and
potential recoupment
Selling price should be restricted in
order to match the deemed cost.
Usually the commissioners practice
is not to grant allowances in the year
9/18/15
By Mabhungu I
115
Recoupment (cont)
Deemed costs used are in respect of
the year of purchase of the assets.
9/18/15
By Mabhungu I
116
Example :Recoupment
with deemed cost
A taxpayer purchased the following
assets in the 2011 tax year, a
passenger motor vehicle for
$15000,staff housing 1 unit $20 000.
During 2012-tax year he sold them for
$20,000 and $50000 respectively.
Required: To calculate his recoupment
to be included in gross income.
Assume no SIA was claimed.
9/18/15
By Mabhungu I
117
Solution: Recoupment
with deemed cost
Asset
Actual Cost
Deemed Cost
Wear & Tear
rate
Wear & tear
allow
9/18/15 Income tax
Motor
Vehicle
US$15
000
US$10
000
20%
(US$2
000)
By Mabhungu
I
US$8
Staff
House
US$20 000
US$10 000
5%
(US$500)
118
US$9 500
Solution: Recoupment
with deemed cost
Calculation of selling Prices:
PMV = 10 000X 2O OOO = 13 333.33
15 000
Staff housing = 10 000 x 50 000 = 25
000
20 000
9/18/15
By Mabhungu I
119
Solution: Recoupment
deemed cost
Asset
PMV
Staff
Housin
Totl
Recou
p
9/18/15
Deem
ed
Selling
Price
13 333
25 000
Incom
e Tax
Value
8 000
9 500
Potent
ial
Recou
pm
5 333
15 500
Capita
l
allowa
nc
2 000
500
Actual
Recou
pm
2 000
500
2 500
By Mabhungu I
120
By Mabhungu I
121
Example (contd)
Required: Calculate
recoupment/scrapping allowance to be
included in gross income.
9/18/15
By Mabhungu I
122
Solution:
Recoupment/Scrapping
allowance
Asset Selling Incom Potenti
Price
e Tax al
Value Recoup
ment
Bus
60 000 45 000 15 000
Tracto 25 000 30 000 (5 000)
r
Buildi 60 000 30 000 30 000
ng
Total
9/18/15
By Mabhungu I
Allowa
nces
Claime
d
55 000
15 000
Actual
Recou
pment
15 000
(5
000)
5 000 5 000
15 000
123
Recoupment/scrapping
allow (contd)
NB
Recoupment of an asset is the
lesser of profit as per the taxman
and the actual capital allowances
claimed on the asset
The above determination of
recoupment applies to all types of
business except mining.
9/18/15
By Mabhungu I
124
Grants or subsidies
[S8(1)(m)]
Any subsidies or grant paid in
respect of expenditure allowed or
allowable as a deduction is gross
income in terms of s8 (1) (m).
9/18/15
By Mabhungu I
125
9/18/15
By Mabhungu I
126
9/18/15
By Mabhungu I
127
DEEMED ACCRUALS [S
10]
It is income, which the taxpayer, has
not received, but which remains
taxable in his
hands.
Deemed means assumed or
considered to be.
9/18/15
By Mabhungu I
128
EXEMPTIONS [SECT 14
3RD SCHEDULE]
Exemptions are accruals and receipts
of revenue nature, which are free of
income tax.
Examples are revenue of:
1) State owned companies
2) Non-profit organisation
3) Foreign governments and world
organisations,etc
9/18/15
By Mabhungu I
129
Exemtions:State owned
companies
All receipts and accruals earned by all
companies whose shares are held by
the state or the Reserve Bank of
Zimbabwe are non-taxable including
profits of local authorities and such
other organisations like:
(a) POSB
(b) Reserve Bank of Zimbabwe
(c) The Zambezi River Authority
(d) The Natural Resources Boarded
9/18/15
By Mabhungu I
130
Non-profit organisation
Companies not operating for gain and
whose objective is that of enhancing
the welfare of its members are not
taxable on their profits:
Church organizations, education
institution of a public character.
Trade Unions, trusts of a public
character.
Building societies, benefit funds.
CIS, ACCA, ZAAT, IAC ,commercial
9/18/15
By Mabhungu I
131
By Mabhungu I
132
By Mabhungu I
133
Exemption-Employed
person
Any benefits or allowances granted
to a minister, spouse of President or
a Vice President(s) in respect of state
duty, the leader of opposition party
etc.
An allowance payable to a chief or
headman
Value of a scholarship, bursary paid
on behalf of a student to a college,
school or university
9/18/15
By Mabhungu I
134
Exemption-Employed
person
Benefits granted to persons
employed by a licensed investor up
to 50% of total remuneration.
the first $5 000 or one third of
approved retrenchment package
whichever greater, subject to a
maximum exemption of $15 000
1/3 of retrenchment package up to
$1 800
9/18/15
By Mabhungu I
135
Exemption-Presidential
pension
Any pension or allowance payable to
any President of Zimbabwe and
which is provided to him upon his
retirement is exempted from tax.
9/18/15
By Mabhungu I
136
By Mabhungu I
137
By Mabhungu I
139
By Mabhungu I
140
9/18/15
By Mabhungu I
141
By Mabhungu I
142
Interest accruing to
foreigners
Any interest received or accruing to a
non-resident who does not carry out
business in Zimbabwe shall be
exempted from tax, provided that it is
in respect of a loan made to:
a) Any person carrying mining
operations
b) The state or a company whose
share are fully controlled by the
state.
9/18/15
By Mabhungu I
143
Interest accruing to
foreigners(contd)
e) Building society provided it was
made before 16 July 1976
NB:The interest is exempt provided
the amount will be taxable in the
taxpayers home country by reason of
its being exempted from this country.
9/18/15
By Mabhungu I
144
Maintainance - Alimony
Amount paid for the maintenance of
wife, husband or dependents in
terms of the court is exempted from
tax in the hands of the beneficiary.
9/18/15
By Mabhungu I
145
Exempt: Entertainment
allowance
Any amount received as
entertainment allowance as is used
by an employee on the business of
employer is exempted in the hands
of an employee.
However, where the taxpayer has
used the amount for private purpose
it is a taxable benefit under section
8(i) (f). In both cases, i.e. whether
used for business or private, an
By
146
ALLOWABLE
DEDUCTIONS[S15(2)]
Deduction allowable 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 there are
expenditure or losses of a capital
nature.
There will be apportionment where
the expenditure is incurred for both
9/18/15
By Mabhungu I
147
By Mabhungu I
148
By Mabhungu I
149
Capital nature
This is an expenditure incurred on
acquisition of fixed assets or income
generating units of an organization
and is not allowable as deduction.
This includes any expenditure
necessary to bring the asset to its
working condition like traveling cost to
purchase the asset, installation cost ,
freight charge on the asset, VAT or
import tax chargeable on the asset
9/18/15
By Mabhungu I
150
By Mabhungu I
151
By Mabhungu I
152
Bad debts(contd)
A claim in respect of debts sold
together with business will not
succeed
A claim on debts sold with a
condition that the taxpayer was
obliged to repossess and reimburse
the purchaser for debts which the
purchaser was unable to collect
within a specified time is allowed
9/18/15
By Mabhungu I
153
By Mabhungu I
154
Pension contributions(contd)
No contribution by employer to a
retirement annuity fund is allowable
as a deduction
No contribution by employee to a
benefit fund is allowable as a
deduction.
NSSA contributions are allowable to
both the employer and employee
subject to rates fixed by the
authority from time to time.
9/18/15
By Mabhungu I
155
9/18/15
By Mabhungu I
156
By Mabhungu I
157
By Mabhungu I
158
By Mabhungu I
159
9/18/15
By Mabhungu I
160
By Mabhungu I
161
By Mabhungu I
162
Voluntary Payments To
Former Employees and/ or
their dependants
By Mabhungu I
163
9/18/15
By Mabhungu I
164
By Mabhungu I
165
Donations[S15(2)(r)]
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.
9/18/15
By Mabhungu I
166
Donations-Health [S15(2)
(r1)]
Any amount not exceeding
US$100,000 paid by a taxpayer during
the year of assessment to the State or
to a fund approved by the Minister of
Health for, any of the following
operated by the state, local authority
or religious organisation:
a) the purchase of medical equipment,
b) the construction, extension or
maintenance of a hospital or
9/18/15
By Mabhungu I
167
Donations-Education
[S15(2)(r2)
Any amount not exceeding
US$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:
a) The purchase of educational
9/18/15
By Mabhungu I
168
Donations-Education(contd)
b) the construction, extension or
maintenance of a school
c) the procurement of school books or
other educational materials.
9/18/15
By Mabhungu I
169
Donations-Public Private
Partnership Fund[15(2)(r4)]
Any amount not exceeding US$50,000
paid by a taxpayer during the year of
assessment without any consideration
to the Public Private Partnership Fund.
9/18/15
By Mabhungu I
170
Donations[S15(2)(r5)]
Any amount not exceeding US$50,000
paid by a taxpayer during the year of
assessment without any consideration
to the Destitute Homeless Persons
Rehabilitation Fund established by
the Ministry of Finance under the Audit
and Exchequer Act.
9/18/15
By Mabhungu I
171
Subscriptions [S15(2)(s)]
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.
9/18/15
By Mabhungu I
172
Expenditure Prior To
Commencement Of
Business[S15(2)t
A deduction is allowed for expenses
incurred by the taxpayer 18 months
prior to commencement of business, in
the course of establishing the
business, and would have been
allowed as a deduction had it been
incurred after beginning the business
and it is claimed in the year of
assessment in which business
9/18/15
By Mabhungu I
173
By Mabhungu I
174
9/18/15
By Mabhungu I
175
Closing stock(contd)
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.
9/18/15
By Mabhungu I
176
By Mabhungu I
177
By Mabhungu I
178
By Mabhungu I
179
By Mabhungu I
180
9/18/15
By Mabhungu I
181
9/18/15
By Mabhungu I
182
Maintenance On Behalf Of
Local Government .[S15(2)
Expenditure not exceeding US$100
million approved by the Minister
responsible for local government on
the maintenance of buildings, roads,
bridges, water works, sanitation works,
public works and any other utility,
amenity or item of infrastructure.
9/18/15
By Mabhungu I
183
By Mabhungu I
184
9/18/15
By Mabhungu I
185
By Mabhungu I
186
NON ALLOWABLE
EXPENSES[S 16]
a) Maintenance of a taxpayer & his
family [sect. 16(1) (a)]
b) Domestic and private expenses
[sect. 16(I) (b)]
c) Losses recovered under insurance
contract [sect. 16 (I) (c)]
d) Tax and interest thereon [sect. 16 (I)
(d)]
e) Transfers to reserves [sect. 16(1)
(e)]
9/18/15
By Mabhungu I
187
NON ALLOWABLE
EXPENSES[S 16]
g) Lease payments for passenger
motor vehicle [sect. 16(1) k]
h) Cost of shares [sect.16 (1) (l)
i) Expenditure for exempt income
[sect.16 (1) (f)]
j) Contributions to unapproved funds
[sect. 16(1) (g)]
k) Private rent or repairs etc [sect. 16
(1) (I)]
l) Restraint of trade [sect. 16(1) (j)]
9/18/15
By Mabhungu I
188
NON ALLOWABLE
EXPENSES[S 16]
m) Entertainment Expenditure [sect.
16 (1) (m)]
n) Expenditure on foreign dividends
[sect. 16 (I) (n)]
p) Expenditure on interest payable
[sect. 16(1) (o)]
9/18/15
By Mabhungu I
189
Maintenance of a taxpayer
& his family [sect. 16(1) (a)]
No deduction shall be permissible for
the cost incurred by the taxpayer in
maintaining himself, his family or
establishment.
All private expenses i.e. medical
costs, rent for own accommodation,
groceries etc are not allowable as
deduction.
9/18/15
By Mabhungu I
190
By Mabhungu I
191
9/18/15
By Mabhungu I
192
Entertainment Expenditure
[sect. 16 (1) (m)]
A deduction shall be prohibited of
any expenditure incurred by the
taxpayer on entertainment.
Entertainment includes the concept
of hospitality in any form, such as
provision of lunch to customers,
directors, staff members etc.
However deduction shall be
permissible in respect of cost of
canteen meals provided to members
9/18/15
By Mabhungu I
193
CAPITAL ALLOWANCES
The cost of acquiring assets used in
trading is an expenditure of a capital
nature, which is not allowable as a
deduction. Depreciation is also not
an expense to the taxman. It is
replaced by the following capital
allowances:
a) Special Initial Allowance (SIA)
b) Wear & Tear (W&T)
c) Scrapping allowance (loss on
9/18/15
By Mabhungu I
194
By Mabhungu I
195
Commercial Building
A building constructed on or after 1
April1975
A building used 90% or more of its
floor area for purposes of trade
A hotel without liquor license
The following are not commercial
buildings:
A farm improvement, industrial
building,
staff housing etc
9/18/15
By Mabhungu I
196
Industrial Building
Is a building used mainly in connection
with manufacturing or industrial
research including:
Licensed hotels
Fencing , tarmac concrete or sealing
surrounding such industrial building
Building used in connection with
computer international or data
capture
Storage building used by the
9/18/15
By Mabhungu I
197
Industrial Building
Toll bridges and roads e. g Limpopo
river bridge
Staff welfare buildings i.e. canteens,
garages , drawing offices etc
A hotel with a liquor license including
permanent structures used together
with it i.e. swimming pool
Tennis courts(permanent), golf
courses and bowling greens
9/18/15
By Mabhungu I
198
Industrial Building
*NB :
Warehouse does not qualify as an
industrial building if they store
goods, which have not been
manufactured by the taxpayer.
Showrooms are regarded to be
commercial buildings.
9/18/15
By Mabhungu I
199
Staff Housing
Means any permanent building used
by the taxpayer for the purposes of
his trade wholly or mainly for the
housing of his employees, excluding
any building erected after 1 January
2003, which comprises or
incorporates any residential unit the
cost that exceeds $25 000. Thus for
a staff housing to qualify as a staff
housing its cost must not exceed $25
9/18/15
By Mabhungu I
200
Staff Housing
The existence of a unit or units in a
residential block, which cost more than
$25 000, will result in the whole block
being disqualified
9/18/15
By Mabhungu I
201
By Mabhungu I
202
By Mabhungu I
203
9/18/15
By Mabhungu I
204
Farm improvements
This refers to expenditure on
permanent farm roads, clinic or
hospital and school constructed on the
farm or mine. The restricted cost for
purposes of calculating allowances for
a hospital/clinic or school is $10 000
9/18/15
By Mabhungu I
205
By Mabhungu I
206
By Mabhungu I
207
By Mabhungu I
208
.
Wear and tear allowance paragraph 3
Where the taxpayer has not made an
election to claim S.I.A. on assets
used for business, the Commissioner
will automatically grant wear and
tear allowances as follows : immovable assets :- generally 5%
straight line except for commercial
building (2.5%).
movable assets :- generally 10% on
reducing balance with some
9/18/15
By Mabhungu I
209
9/18/15
By Mabhungu I
210
9/18/15
By Mabhungu I
211
By Mabhungu I
212
INVESTMENT INCOME
This is income derived by individuals
and companies from trade and
investments, other than business
operations notably interest,
dividends, fees or rentals.
9/18/15
By Mabhungu I
213
Rental Income
Rental income is treated in the same
way as profits from business
operations. It is taxable at the rate of
25% plus 3% aids levy. However, only
rental income from an immovable
property
situated in Zimbabwe is taxable.
9/18/15
By Mabhungu I
214
Interest Income
Generally, interest from trade and
investments is taxable at the rate of
25% plus 3% aids levy effectively
making it 25.75%. Accordingly
interest on debentures, loan stock or
other form of indebtness accruing to
non-residents and residents alike
from a source within Zimbabwe is
taxed at 25%. Also taxable at that
rate is income from a foreign source
9/18/15
By Mabhungu I
215
Dividend income
Dividends from a source in
Zimbabwe are exempted in the
hands of the shareholder because
tax is withheld by the distributor
(payer) at the time of distribution.
Dividends from a foreign source
accruing to Zimbabwean residents
s12 (2) are also taxable at the rate of
15% in the hands of the recipient.
9/18/15
By Mabhungu I
216
By Mabhungu I
PARTNERSHIP
A partnership is not a legal person. In
practice the taxable income of the
partnership is first determined on the
basis that it is a separate taxable
person and the profits are then
apportioned based on their profitsharing ratio as is agreed in the
partnership agreement and each
partner is liable individually on his or
her own share of profits.
9/18/15
By Mabhungu I
218
By Mabhungu I
219
ACCRUAL OF PARTNERSHIP
INCOME
Partnership income accrues to the
partners at the end of tax year /
agreed accounting period.
Partnership income may also accrue
to the partners on date of dissolution
unless this has been varied by any
other agreement.
9/18/15
By Mabhungu I
220
By Mabhungu I
221
Payment of insurance
premiums joint life policy
If a partnership takes out a policy on
the joint lives of the partnership
and charges the premium as an
expense in the partnership account,
the amount of such premium is not
an allowable deduction where the
partnership is the beneficiary.
9/18/15
By Mabhungu I
222
By Mabhungu I
223
Separate policies on
partners lives
If each partner separately takes out a
policy for his own benefit and the
premiums are paid by the partnership;
this is considered as allocation of
partnership profits. The premium will
be allowed as a deduction in
computing the partnerships taxable
income. Each partner becomes taxable
on the premium paid on his policy. The
same treatment is accorded to
9/18/15
By Mabhungu I
224
By Mabhungu I
225
By Mabhungu I
226
Subscriptions
The subscription is always allowed to
the partnership and taxable in the
hands of the partner. The partner can
then seek a deduction in respect of
the amount. A prerequisite of its
deductibility is that the partner
should establish that his membership
is dictated by business consideration.
9/18/15
By Mabhungu I
227
9/18/15
By Mabhungu I
228
9/18/15
By Mabhungu I
229
Passage benefits
Where a partnership bears the costs
of a partners business trip and the
partner takes the opportunity to take
a holiday after the business trip has
been concluded, no amount is
taxable in the partners hands.
But where a partnership bears the
cost of a holiday for a partner this
will be considered as disbursement of
partnership profit, and such cost is
9/18/15
By Mabhungu I
230
Attendance at trade
conventions 15(2)(w)
Expenditure incurred by the
partnership in respect of not more than
one convention attended by a member
of such partnership shall be allowed to
the partner up to a maximum of $2
500. This being allowed to partners in
their profit sharing ratios.
9/18/15
By Mabhungu I
231
TAXATION OF FARMERS
A farmer is taxable in terms of
provisions stated in the 2nd & 7th
schedules, as stated below. .
9/18/15
By Mabhungu I
232
LIVESTOCK VALUATION
At every tax year-end there is
valuation of livestock closing stock
and the method most commonly
used by the commissioner is the
fixed standard Value method (FSV).
Where this method is adopted each
farmer is required to come up with
his standard value for each class of
herd, which must be approved by the
commissioner. Once this method has
9/18/15
By Mabhungu I
233
Livestock valuation
The other methods occasionally used
are:
a) Cost and maintenance value
method (CMV).
b) Purchase price value method (PPV)
The purchase price value
(PPV)method is commonly used in the
valuation of stud livestock and
bulls. While cost and maintenance
value is used as an alternative to fixed
9/18/15
By Mabhungu I
234
By Mabhungu I
235
By Mabhungu I
236
By Mabhungu I
237
9/18/15
By Mabhungu I
238
EXAMPLE:FARMING
A farmer commenced livestock farming
on 1 January 2011 and his first year
return showed the following:
Purchases:
9/18/15
Numbe
r
Herd
bul cow
l
s
Cost
each
50
0
300
20
15
30
oxen heife
rs
tollie
s
calv
es
400
200
150
By Mabhungu I
10
350
239
By Mabhungu I
240
Herd Cow
s
FSV 600
each
Required:
a) To compute his closing stock value
b) To compute his taxable income
9/18/15
By Mabhungu I
241
Solution
a) Closing stock valuation
9/18/15
Class
No in
stock
FSV/PPV Value($
($)
)
Bull
Cows
Oxen
Heifers
Tollies
Calves
Total
1
500
5
600
20
460
10
450
15
300
30
200
81
By Mabhungu I
500
3000
9200
4500
4500
6000
27 242
700
b)Taxable income
Livestock trading a/c for the year
Purchases:
Sales
ended 31 Dec
--------Bull(1x500)
500
Closing stock
27 700
Cow(5x300)
1500
Oxen(20x400)
8000
Heifers(10x350)
3500
Tollies(15x200)
3000
9/18/15
By Mabhungu I
Calves(30x150)
243
9/18/15
By Mabhungu I
244
By Mabhungu I
245
Example
A farmer commenced business on 1
Jan 2011 and submitted the following
accounts for the year ending 31 Dec
2011.
a) Livestock purchases during the year:
9/18/15
Numb
er
100
90
50
70
40
Herd
bull
cows
oxen
heife
rs
Tollies
calves
Total($ 900
)
4000
0
4050
0
2100
0
17500
6000
By Mabhungu I
246
calve
s
200
By Mabhungu I
247
By Mabhungu I
248
Solution
a) Livestock Reconciliation Account
Detail bu Co
s
lls ws
Oxe
n
Tolli
es
heif
ers
calv
es
tot
al
Purch
90
70
50
40
352
30
30
100
Births
Pro in
Total
30
2
Death
15
10
10
130 105
80
60
Pro
out
15
sales
9/18/15
c/stoc
k
30
70
98
35
By Mabhungu I
65
70
447
4
30
20
65
100
63
30
50
249
278
By Mabhungu I
250
Special
concessions
applicable to
farmers
9/18/15
By Mabhungu I
251
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SOLUTION
Epidemic sales
$40 000
Less: Cost of herd sold
Cows: 10 at $150
Oxen: 25 at 130
1 500
3 250
4
750
Less: Expenses related to herd sold
5 420
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Example: Restocking
allowance
Due to favorable weather conditions, a
Farmer restocked his herd which was
depleted by drought. He purchased
300 herd for $93 000.The ACCL as
approved was 500 herds. The herd on
hand before purchases was 300.
Calculate the restocking allowance.
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Solution
Restocking allowance = B x A x 50%
C
(500-300) x $93
000 x 50%
300
=$31 000
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TAXATION OF MINERS
The computation of taxable income for
miners is basically the same as any
other class of taxpayer. The
determination of allowances on capital
expenditure for miners are outlined in
the 5th schedule.
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Prospecting expenses
Section 15(2)(f)(ii) provides for the
deduction of expenditure incurred
during the tax year on surveys,
boreholes, trenches, pits and other
prospecting and exploratory works
undertaken for the purpose of
acquiring rights to minerals in
Zimbabwe.
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Capital redemption
allowances - (5th schedule)
Capital expenditure for mining
purposes is defined as expenditure on
buildings, works or equipment, lease
premiums, shaft sinking (including
sumps, pump chambers, stations and
ore bins accessory to a shaft) ;
expenditure incurred prior to
commencement of trade on
preliminary surveys, boreholes,
development, general administration
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calculation of capital
redemption allowances
The redemption allowance can be
calculated using either of three
methods commonly referred to as : Life of mine
Mixed method
New mine method
The taxpayer has to make an election
of the method preferred.
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Mixed Method
(paragraph 4(2))
This is a mixture of the new mine
basis and life of mine basis.
The effect is to grant current capital
expenditure in full, while capital
expenditure brought forward less
recoupment is spread
over the life of the mine.
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Other
provisions
about mining
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Recoupment-s 8(1)(i)
Miners recoupment is not restricted to
allowances previously granted. It is
simply sale
proceeds less ITV. In most cases a
miners recoupment is equal to sale
proceeds. Recoupment is brought into
gross income when expenditure has
been claimed using new mine basis,
but would first be off set against
unredeemed balance of capital
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In respect of damage to or
destruction of an asset, the
recoupment is restricted to
allowances previously granted.
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Ring Fencing
a) With effect from the year of
assessment beginning on 1 January
2001 the computed taxable income or
loss for the year from each mine
location of a particular operator must
be separately calculated. Thus a loss
on operations in one mine would not
be available for set off against taxable
income from another but would be
carried forward.
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Example: Capital
Redemption Allowances
Korokoza Mining (Pvt.) Ltd situated
20kms Northwest of Zvishavane,
incurred the following capital
expenditure, year 1 and 2 being preproduction. Production stage was
reached in the
current year i.e. year 3.
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YEAR 1 & 2
$
Plant and Machinery
40 000
Shaft Sinking
10 000
Mine Building
30 000
Salaries and wages
50 000
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CURRENT YEAR
Salaries and wages
000
Passenger Motor Vehicle
000
Lease premiums
000
60
16
10
86 000
Life of mine is 3 years from the end of
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VALUE
ADDED TAX
ACT
[Chapter
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WHAT IS VAT?
VAT is an indirect tax which is levied
on:
local supplies of goods and, or
services made by a registered
operator;
Goods imported into Zimbabwe.
It is collected at each stage of
production, distribution and
importation.
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Calculation of VAT
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Example
Suppose a supermarket buys a bar of
soap from a manufacturer for $1.It will
pay VAT of 15cents ($1 x 15%) on the
purchase. The total purchase price will
be $1.15. The 15cents VAT becomes
the supermarkets input tax and the
manufacturers output tax. If the
supermarket sells the bar of soap for
$1.50 it would charge VAT of
22.5cents($1.50 x 15%).This 22.5cents
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Separate registration of
Branches
Branches can be registered separately
when each branch is carrying on a
separate trade by reference to the
nature of the business activities or
geographical location of each branch
and such branch maintains
independent accounting system.
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Cancellation of registration
VAT registration can be cancelled if:
The annual taxable turnover falls
below the prescribed turnover for
clients that were
registered compulsorily
One ceases trading
One was registered voluntarily but
no longer meets the voluntary
registration conditions.
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Responsibilities upon
registration?
One will be obliged to comply with the
following requirements of the VAT Act:
Keep accounting records for a period
of at least six (6) years after the tax
period to which the records relate.
Complete and submit VAT returns as
required.
Calculate and pay the VAT due to the
Commissioner on or before the due
date.
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TAX PERIODS
A registered operator is required to
submit returns and account for VAT to
the Commissioner according to the
allocated tax period.
At registration, one will be allocated
one of these tax periods:
1. Category A: A two-month period
ending on the last day of January,
March, May, July, September, and
November
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category C
Under category C, VAT returns are
submitted on a monthly basis.
One will be registered according to
Category C when:
The turnover of taxable supplies
exceeds the prescribed amount per
annum. Where the
registered operator has more than one
business, or operates a business with
branches, the
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Category D
A registered operator will be allowed
this category upon written application
to the
Commissioner. In order for one to be in
this category, ones trade should
consist solely of
farming, agricultural or pastoral
activities and ones turnover should
not exceed or is not
likely to exceed the prescribed amount
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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.
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Exempt Supplies
Exempt supplies are supplies of
goods and services on which no VAT
is chargeable at all. VAT incurred on
goods and services acquired to make
exempt supplies shall not be claimed
as input tax credit.
Traders who exclusively provide
exempt supplies are not required to
register for VAT purposes.
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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
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PRICING
Registered operators are required to
include VAT in advertisements or
quotations. It must be
explicitly stated that VAT is included in
the prices advertised or quoted. If both
the price
including VAT and the price excluding
VAT are shown, then each amount
must be shown
with equal prominence.
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Determination of price of
goods and services
In determining the price of goods and
services to charge customers, input
tax incurred should
not be considered as a cost since it
will be claimed as a credit.
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Example
A Retailer bought a bicycle valued at
$115 for resale. His mark up is 50%.
His selling price will thus be:
Purchase price $115
Less VAT paid (115 x 15/115) $15
Actual Cost
$100
Add 50% mark-up
$50
Selling price before VAT
$150.00
Add VAT at 15%
$22.50
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$172.50
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