The number of churches in Zimbabwe has recently increased over the past few years and their economic impact cannot be ignored hence the need to look into tax issues affecting churches. A significant number of church organizations in Zimbabwe are operating at large economic scales with income streamed from tithes and offerings. The question that stands to be answered is that if churches play an important role in the economy, how are they affected by tax? In this article we look at the different taxes affecting churches and those that don’t affect them.
In essence, the main streams of income ordinarily for a church are the church’s offerings, donations and tithes, which are exempt from income tax in terms of the Income Tax Act. This, however, does not exclusively mean that all other church activities will not be affected by tax, instead there are various situations where churches are required to pay tax. One of the situations is when a church carries trading activities that produce profits. Income tax is then chargeable on business profits as they are not income from a donation, a tithe or an offering. Such income is taxable if they are derived from, or deemed to be from a source within Zimbabwe. Another tax that greatly affects churches will be the employees’ tax (PAYE).
Churches are organizations that are run by a group of individuals employ individuals who ensure the organization keep running. In some instances individuals work on a voluntary basis, without getting paid, and in some cases, individuals receive salaries or benefits in exchange for their services. In cases where churches do pay remuneration to individuals for services delivered, be it in the form of salaries, wages or benefits, the respective churches become employers. Every person who becomes an employer is required to register for PAYE within 14 days of becoming an employer and will be required to deduct the correct PAYE every month according to the existing tax tables and remit it by the 10th of the following month. Any stipends given to, for instance, pastors constitutes remuneration and therefore subject to PAYE.
Another tax that can raise the question of whether it affects churches is Capital Gains Tax (CGT). CGT is payable on capital gains realized from the sale of specified assets (immovable property, shares and other securities). In relation to churches, CGT exempts the latter as in accordance with section 10 (a) of the CGT Act. Therefore a church is exempt from CGT in respect of any sale of specified assets by it. However, the exemption does not cover a situation where the church carries on a trade through a company or other statutory corporation and sells a specified asset through that company or statutory corporation.
Churches are exempt from income tax and CGT but they may be liable to Value Added Tax (VAT) if they qualify to register for the VAT. Entities and organizations may qualify to be registered for VAT if they undertake various trading activities and their annual turnover exceeds ZWL 1,000,000 per annum. On the other hand, since VAT is an indirect tax levied on goods and services, church organizations are not exempt from the payment of VAT when they purchase goods or services from their suppliers, the goods or services being subject to VAT (that is neither zero rated or exempt.) The VAT Act provides that churches are exempt from VAT for supply or manufacture of goods if at least 80% of the value such goods and services consists of donated goods. In the event that the church sells some of its ware, VAT is payable. VAT is chargeable on the qualifying church organizations at the rate 14.5% (the standard rate). VAT payable should be remitted to ZIMRA by the 25th of the following month.
A church is also not exempted from withholding taxes as they may be applicable. There are a number of Withholding Taxes chargeable in terms of the Income Tax Act. Examples are Non –Residents Tax on Fees, Non-Residents Tax on Royalties, Non-Residents Tax on Remittances and Withholding amounts payable under contracts. A church will be expected to withhold the WHT and remit it to ZIMRA in cases where a payment is made to a non-resident of Zimbabwe, a resident of Zimbabwe etc. Withholding taxes are generally supposed to be remitted by the 10th of the following month after payment or a deemed payment is made. In general, tax plays an important role is nearly every entity operating in an economy. This applies to churches and other religious organizations. Although the latter are usually created for nonprofit making reasons, they are still greatly affected by various taxes as evidenced above. Hence it is necessary that every individual is well versed of the taxes affecting them to keep up with the tax environment surrounding them.
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