Zimbabwe pouring cold water on cryptocurrency. A prudent move or a strategy to buy time

In order to foster economic recovery and development there is need to have serious players and embrace innovation. Without ignoring the fact that not every innovation is beneficial to the growth of the economy,  there is need to embrace it with caution. An outright technophobia is however an impediment to growth. With the prevailing liquidity crisis, some traders have resorted to virtual currencies to facilitate payments. This piece of writing is targeted at unfolding the mystic persona of cryptocurrency including the tax effect in Zimbabwe thereof.

A cryptocurrency is a digital virtual currency that uses very strong cryptography for security. A cryptograph is a sort of coded message. Cryptocurrency is thus difficult to counterfeit because of this security feature. The security features are not hack proof, consequently there are risks associated with trading in this currency which are worth knowing about. Cryptocurrency advocates canvass the use of this currency because of its anonymity, but we consider this feature to be a con and not necessarily a pro. The anonymity nature of the transactions makes the trade a haven for criminal activity such as money laundering and tax evasion. Due to the fact that cryptocurrency is virtual and does not have a central repository or storage, its digital balance could easily be wiped out by a computer crash if the backup copy of the holdings does not exist. There has been a lot of scepticism with this form of currency in many jurisdictions. The legal status of cryptocurrency is at variance from one country to the other. Others have legitimized the use and trade in cryptocurrency whilst others have banned or restricted its use. For those that have allowed or legitimized the currency, they have classified it differently in their jurisdiction for example as property or financial instruments. Others have banned the handling of cryptocurrency by financial institutions whist others have only illegalised the currency in respect of buying goods.

Arguably, the most appealing feature of cryptocurrency is that it is not issued by any central authority, rendering it in theory immune to government interference or manipulation. The most popular crypto currency is Bitcoin which was launched in 2009. There were over 17 million bitcoins in circulation, which have a total market value of over $US 140 billion as at May 2018.The benefits of cryptocurrency include but are not limited to: making it easier to transfer funds between parties in a transaction; minimal processing fees in transfer of funds in comparison to most financial institutions for wire transfers. For a nation like Zimbabwe, this is a sensible alternative method of payment for imports given the scarcity of foreign currency. Like any online technology, the obvious drawback is the risk of hacking.

In Zimbabwe, the Reserve Bank of Zimbabwe (RBZ) banned all financial institutions from accepting cryptocurrency as collateral, opening accounts of exchanges dealing with cryptocurrency; transfer or receipt of money in relation to purchase or sale of virtual currencies. From a tax perspective, it is a very prudent move by RBZ. The legal framework governing the collection of revenue in the trade of virtual currencies has not been set up yet. The anonymity nature of the transactions makes traders out of reach from the taxman. This is a particularly dangerous position for the fiscus because there is no way of keeping track of the transactions performed. The only way in which the taxman can know about how much income a taxpayer has made from the trade in virtual currencies is through full disclosure by the taxpayer. The major strength or allure of the virtual currency is the anonymity nature of the transaction.

Although the move by the RBZ was a sensible one, it was done hurriedly without proper thought of the legal consequences of the action. At the face of it, the RBZ had violated the administrative principle of audi alterem partem which places a responsibility on the Authority to listen to both sides of the story before passing on law. It could be that they wanted to buy time to allow them to formulate policy to govern the trade in cryptocurrency. The Reserve Bank simply had no law to stand on regarding the ban. The ban was just imposed without following proper administrative procedure. The void in the law regarding cryptocurrency leaves the country exposed to the vagaries of tax evasion and the consequent loss of revenue. It is critical for the legislature to quickly make law that either governs the trade or bans the trade in cryptocurrency.

There is a general lack of understanding of this virtual currency amongst many people, the world over. It can be deduced that the stance taken by the central bank is that of caution. In the United States of America, an arguably leading economy in the world, through its revenue authority, the Internal Revenue Service (IRS) ruled that virtual currency would be treated as property for tax purposes. This means that virtual currency would be subject to capital gains tax. Perhaps, Zimbabwe could pick a leaf from the way the Americans handle the virtual currency.

Our legislature must see this as an opportunity to collect revenue, perhaps by learning more of the currency and the technology, and then formulate a policy that is in tandem with the prevailing economic conditions of Zimbabwe. This obviously takes time as this is not a well understood trade and technology. There must however be a balance between open mindedness and caution given the high risk of scammers that roam the internet jungle on a daily basis.

Hybrid payroll could be fueling inflation

In the past the computation and declaration of PAYE was not an issue because the bond notes and the United States dollars were treated on a 1:1 basis and it also did not matter the currency of tax payment to the ZIMRA. In the advent of the promulgation of regulations governing monetary issues namely statutory instruments 32 and 33 of 2019, it has become difficult dealing with payroll issues especially in cases where earnings are both in RTGS dollars (RTGS$) and in foreign currency. An issue for concern is the hybrid payroll triggered by the use of multicurrency as it could be one of the reasons for the surge in the inflation rate. The article will dissect and ventilate the prognosis of hybrid payroll as a conduit for inflation and how employers could ameliorate the situation for the betterment of the employees and economy.

In essence, paying employees blended income results in USD tax tables being used. This is done by converting the ZWL component of gross income, deductions and deductions to USD equivalent using the official interbank rate of exchange and adding these to the actual USD earnings for the employee. USD tax tables are then applied to the combined USD earnings for determination of PAYE. However, the resultant PAYE should be remitted to the ZIMRA in proportion to currency of earnings. Where earnings are 100% in local currency, ZWL tax tables are used. If an employee receives any other foreign currencies other than USD, the amount is converted at cross rate to USD on the date the remuneration accrues to him. The fact that the official rate of exchange always trails the parallel market rate (normally at 50%) and the two rates keep moving there has a need to adjust the ZWL$ earnings to maintain purchasing power.

Effectively, this conversion of the ZWL earnings to USD at the official rate results in a higher USD earnings (artificial USD earnings) which pushes most employees in a higher USD tax bracket judging by the way the parallel market is currently surging and the need by employers to retain their staff. The cost of employment has become unbearable especially when the objective is to retain staff. A vicious cycle of chasing purchasing power by both employees and employers is one of the many factors also feeding the inflationary environment obtaining in our economy. While the foregoing suggests dollarizing, i.e., paying 100% of earnings in USD, it is obviously a non-sustainable option for most employers as the economy does not have much of the sought after USD in circulation.  The alternative of paying 100% ZWL earnings does not help either since the ZWL$ tax tables have remained stagnant from the time they were introduced (1 January 2023) till now. In terms of the current ZWL$ tax tables a maximum of 40% applies on earnings of ZWL$1,000,000 per month, an equivalent to at most USD1,000 per month based on the official exchange rate (and half that amount if parallel rate is applied). Technically paying employees 100% ZWL$ earnings pushes most of them into the maximum rate of 40% + 3% AIDS.

Consequently, employees are being overtaxed when payroll is in multicurrency and most companies are battling to retain their staff.  It may be worthwhile for employers, depending on their ability to generate foreign currency, to pay a greater proportion of employment costs in foreign currency to cushion both the companies and employees. The more the foreign currency the less artificial USD earnings resulting in lower PAYE, but employers must also be prepared to send a greater proportion of the tax to ZIMRA in foreign currency. Additionally, they should also consider maximizing nontaxable benefits to employees for example paying 100% medical aid cover, pay airtime and data for employees (70% of this is regarded for business use in line with Finance Act 7 of 2021 therefore nontaxable), pay 100% pension contribution among other benefits on behalf of employees to cushion them and reduce employment costs. An appeal is made to the Minister of Finance to widen the USD tax tables to  a position similar to the position obtaining prior to SI 33 of 2019 by setting the minimum tax threshold and highest rate of 40% at USD250 and USD5,000 per month, respectively instead of the current USD100 and USD3,000 per month respectively. This may be one way of curbing inflation and stabilizing the economy.  Advocating for the adjustment of the ZWL$ tax tables is not a solution as more transactions are now being made in foreign currency as confirmed by the Minister of Finance in his recent public announcement “Measures To Stabilize The Exchange Rate and Macro Economy” where he stated that total foreign currency receipts are expected to top USD13 billion this year. 

In conclusion, the multicurrency regime has put both employers and employees in a state of hysteria because the employers though it makes sense to pay 100% USD salaries, have limited capacity to do so in most circumstances and on the other hand hybrid payroll prejudices the employees due to the high volatile rates which wipes out the ZWL component of the salary. A continuation of hybrid payroll is the harbinger and perpetrator of the skyrocketing rates of inflation which show no signs of abating as they choke the livelihood out of employees who are relegated to the peripheries of penury. It is trite to compound that a juxtaposed hypothetical solution could be reached when both employees and employers renegade and reach a compromise in terms of matters of the payroll as it could benefit both as the adage says” with a heart wide open there is no obstacle we cannot overcome”.

Are partnership a tax effective way to structure a business?


Structuring a business as a company is often seen as a fashion without considering the tax and commercial implications that may arise from such a choice. To many, being in business is synonymous with running a company, when in fact a company is one among many ways of structuring a business. Choosing a structure that reflects your financial, tax and administrative needs is of paramount importance. Traditionally, limited companies have been selected as a way to secure the protection of limited liability and capital raising. However, if you are simply providing consultancy services, then a limited company might be unnecessarily complex and tax inefficient. This article demonstrates why partnerships may be better than companies when it comes to tax efficiency.

A partnership is similar to a sole trader – only it has more than one owner who lawfully carries on business. It is not itself a separate legal entity from its owners as with limited companies. For tax purposes, partnerships are viewed as a conduit pipe of the profits or losses of the partners. They are also excluded from the definition of a person by virtue of s 2 of the Income Tax Act (ITA) and because only persons are subject to income tax, it means that a partnership per se is not liable to income tax. Despite section 37(15) of the ITA requiring partners to submit a joint income tax return, each partner is separately and individually liable for the rendering of the joint return.

In practice, the taxable income of partners is first determined on the assumption that a partnership is a separate taxable person and then split between or amongst partners according to their agreed profit or loss sharing ratio, and each partner then becomes liable to tax on his share.

 A partnership is tax efficient than a company when it comes to assessed losses. Section 15(3) of the ITA makes provisions for the deduction of assessed loss. Any assessed loss which cannot be immediately deducted is carried forward and offset against future profits from the same trade. If it remains unutilised for a period of 6 years (except in the case of mining where carry forward is indefinitely), the assessed loss falls off. The assessed loss stays within the company and shall not be attributed to shareholders. The position is different with a partnership. In such cases the losses are attributed to the partners and can be offset against their other incomes.

Another distinction between a company and a partnership is in relation to tax on dividend. The profits left after paying corporation tax are stuck in the company. When such profits are distributed to shareholders a secondary tax in the form of dividend tax becomes payable. In a partnership the tax liability is at the partner level at the same tax rate applied on profits of the company with no further tax applied, effectively avoiding dividend tax.

Additionally, a partnership is unique in its tax treatment of remuneration paid to the partners.  According to paragraph 1(1) of the 13th Schedule to the ITA, salary and other benefits of a partner do not constitute remuneration. This stems from a principle that a man cannot be his own employer. A shareholder who is an employee in his company is taxed on his remuneration based on employees’ tax tables. The same earnings are also subject to National Social Security Authority (NSSA) rules. In contrast, partners are subject to income tax on the full amount of their profits regardless of how much money they draw out of the business as ‘salaries’ each year. This is achieved by deducting the remuneration in the joint statement of taxable income of partners and bringing it back in the taxable income of the partner. The same principle is applied to other private expenses of a partner such as medical insurance. Private expenses for owners of a company may be taxed under remuneration if these are employed in their companies or non-executive director’s fees if they are not employed in their companies. Nonexecutive directors’ fees are also subject to a withholding tax of 15%.

While partners in a partnership can make drawings from their business without further tax consequences, for shareholders in a company there are transfer pricing provisions which need to be considered. In line with the new transfer pricing rules in section 98A and B of the Act, the Commissioner can deem any loans and other payments made to shareholders, directors or an associate of a shareholder or director as dividend distributions by the company to its shareholder if such loans or payments were made free of interest or at concessionary rates or terms. Dividend tax thus arises.

There are other differences in tax treatment between companies and partnerships in respect of motor vehicles used wholly or partly for business purposes. Shareholders are assessed on the private use of company vehicles based on the engine capacity of the motor vehicle provided. In the case of a partner, use of partnership motor vehicle results in an arm’s length cost of running the motor vehicle multiplied by the percentage of private use being taxed to the partner but such costs are fully deductible to the partnership

While setting a business is synonymous with registering a company. if one is simply providing consultancy services, a limited company might be unnecessarily complex and tax inefficient. It may be necessary for owners to structure their business as a partnership. However, there are no hard and fast rules in choosing a business structure, a simple comparison of the tax efficiency of the two is only one of the many factors that should influence this key business decision.

30% Withholding taxes on contracts, possible threat to food security.

The pangs of the post COVID-19 crisis coupled with the recent Russia-Ukraine war has put unprecedented strains on the food supply worldwide. Zimbabwe has not been spared by the global economic woes which are further exacerbated by compounding effects of hyperinflation and onerous taxes that have left most taxpayers grappling to survive. One sector that is key to the decent survival of many is the agricultural sector. The sector contributes to securing people’s livelihood. In Zimbabwe largely influences the economic, social and political lives of the majority of people in the country. It is also the source of sustenance for most rural Zimbabweans who play a big part in providing food security to the country. At a commercial level, the sector produces export crops such as tobacco, cotton and horticulture products which bring in foreign currency and improves the balance of payment. The agriculture sector is one of the biggest employers in Zimbabwe and the key to the success of downstream industries, among them the manufacturing industry. Government has led efforts to minimise the tax burden on farmers by introducing suspension of duty, incentives, and special deductions. While most of these incentives are available for enjoyment by all farmers, some incentives have only been made available to a group of farmers. Incentives such as tax exemptions on harvest submitted to the Grain Marketing Board (GMB) are only enjoyed by farmers of edible crops submitted to the GMB, tobacco farmers and out growers for example, are excluded from this tax incentive. The presence of farmers who are still struggling to meet ends meet begs the question, “why not suspend more taxes especially the 30% withholding taxes on farmers?”


Withholding taxes on contracts is withheld on amounts payable to all persons who enter contracts. Withholding tax on contracts simply put is a tax which is deducted from payments due to suppliers that do not possess a valid tax clearance. The amount is withheld by the payer for remission to Zimra. This tax was enacted in terms of section 80 of the Income Tax Act and its basic purpose is to ensure payment of tax by all businesspersons. Withholding tax (WHT), also known as retention tax, is an effective tool to combat tax evasion and facilitate easy collection of tax by the fiscus. In recent years, the withholding tax on contracts was increased from 10% to 30% in a move which is seen as a measure aimed at increasing tax compliance by all businesspersons in the country. The threshold amount for which withholding tax has been levied currently stands at ZWL500 000 or USD1 000.00. These are aggregate amounts in a tax year.


It is a government requirement for the payer of income to withhold or deduct tax from the payment (income) accruing to the payee and remit that tax to Zimbabwe Revenue Authority (ZIMRA). The withholding collection mechanism is operated in such a way that it is the payer not the payee, who remits the tax to ZIMRA, thus, WHT is deducted at source, the payee receives the net of income after tax. Income which has suffered withholding tax on contracts is not subject to further taxation.


In Zimbabwe a dilemma is arising in which on one hand, there is the government trying to raise taxes to finance operations and on the other hand, raising costs of production, farmers have not been spared from this. As hyperinflation has eroded the value of the Zimbabwean dollar, prices for inputs, including seeds and fertilizer, have soared. That has left many small-scale farmers unable to close the gap between increasingly costly agricultural supplies and their little savings. With this background a submission that having withholding taxes levied on farmers is not helping the situation but causing insult to injury is not far-fetched.


While, we can imagine how the increased rate of withholding tax has caused alarm among the uncompliant, it would be important to note that the relationship between business survival and payment of taxes is of great importance. Most small-scale farmers do not have capacity to implement reporting systems that lead to tax compliance, hence a greater deal of them default to withholding tax on contracts.  These small-scale commercial farmers find themselves losing the income they could have used to increase productivity. This development is a drawback on the overall national prosperity as these farmers contribute significantly to the national agricultural productivity.


As the war continues, the potential scope of physical and economic disruptions to food and energy systems rises. These effects may have swift and severe consequences in regions and industries far from the initial occurrence. Unlike the previous global food-price crisis, driven by the 2007–2008 financial crash, the current upheaval comes after governments and households have spent two years coping with the COVID-19 pandemic, the most significant economic shock since World War II. The government needs to prepare for the likelihood of food shortages by positioning farmers at the forefront of agricultural intensification through even more tax concessions on the very punitive tax measures such as withholding tax on contract.


In conclusion, the obstacles that farmers face due to administrative difficulty in attaining tax clearances coupled with the lack of knowledge clearly proves that removing withholding taxes on farmers will be a major step in securing food security. Although the approach will be regarded as drastic for the fiscus, it should be viewed as a short-term solution whilst government speculate on finding long lasting solutions such as educational workshops to help farmers formalise and register their businesses.

Transfer pricing rules- Zimbabwean perspective and beyond!!


Transfer pricing is not an exact science. It involves the pricing of goods or services outside normal commercial parameters so as to gain some tax advantages.  Transfer pricing is anchored on the principle of the arm’s length. The arm’s length principle requires that compensation for any intercompany transaction should conform to the level that would have applied had the transaction taken place between unrelated parties, all other factors remaining the same. As the walls of the economies continue to be transparent through digitalisation, this has presented opportunities for tax avoidance and shifting of profits to lessen tax burdens. Multinational Entities (MNEs) are engaging in tax avoidance measures by shifting profits to jurisdictions with low profits due to variances in the rate of charging taxes across the different tax jurisdictions. Tax authorities worldwide are scrutinizing transfer pricing more closely than ever to ensure that tax is paid in the country in which the business activity has generated profits.


Transfer pricing: Zimbabwe perspective

Governed by the Income Tax Act, transfer pricing was introduced in Zimbabwe in January 2014. No specific transfer pricing regulations were in place before then. The country used to rely on other provisions of the Income Tax Act which govern carrying on of business which extends beyond Zimbabwe, rules on sale of any property, movable or immovable, at less than fair market price and rules for where there are business or financial relationships between interconnected parties here and outside Zimbabwe to mention but a few.  These provisions were at the aid of the Commissioner to try and deter profit shifting by companies. However, a major pitfall was proving that transaction was entered into with the main or sole intention of avoiding or post pone the payment of tax.

The introduction of transfer pricing methods was through Finance Act no. 2 of 2015 when Zimbabwe first adopted the OECD transfer pricing guidelines for Multinational Enterprises and Tax Administrations. At this point the OECD transfer pricing methods focused on giving rules for determining the arm’s length price. This became the cornerstone of the Zimbabwe transfer pricing rules as enshrined in the Income Tax Act. Since the first adoption in 2016, the transfer pricing in the Zimbabwe Income Tax Act have remained the same despite the changes that have happened on the international arena with regards to transfer pricing through the OECD and other organisations such as the United Nations (UN).  

Transfer pricing: An International perspective

Transfer pricing world over is governed by specific methods as set out in the Organisation for Economic Co-operation and Development (OECD) transfer pricing principles for Multinational Enterprises as well as the United Nations (UN) transfer pricing guidelines. The OECD enables co-ordination of creation of domestic and international policies through guidelines which are non-legislative but sets out commonly agreed principles. The UN produces a manual with principles for transfer pricing which is also principles based. Countries basically rely on these guidelines for development of legislation for transfer pricing. Although Zimbabwe is not a member of both, the transfer pricing rules currently incorporated in the Income Tax Act were developed with reference to both the OECD “Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations” and the UN Manual On Transfer pricing and this has been declared in the Income Tax Act.

Tax laws, along with the nexus and profits attribution rules, were built around traditional business forms and rely on their physical presence in a country. The existing international tax rules are based on agreements made in the 1920s and are enshrined in the global network of bilateral tax treaties. However, business models have evolved as a result of digitalisation and globalisation. It is imperative that the current international tax laws be reformed to address how the digital economy is taxed. The OECD, through the Inclusive Framework (IF), has in recent times worked on new measures to avoid tax avoidance by multinationals in a digital world. The OECD’s framework is focusing on addressing tax planning strategies known as Base Erosion and Profit Shifting (BEPS). BEPS refers to tax planning strategies used by multinational enterprises that exploit gaps and mismatches in tax rules to avoid paying tax. The OECD has on record that BEPS practices cost countries 100-240 billion USD in lost revenue annually, which is the equivalent to 4-10% of the global corporate income tax revenue.

The OECD has introduced a two-pillar approach (pillar one and pillar two) to help address tax avoidance, ensure coherence of international tax rules, and, ultimately, a more transparent tax environment. 

Pillar One and Pillar Two

Pillar 1 focuses on rules for taxing profits and rights, with a formula to calculate the proportion of earnings taxable within each relevant jurisdiction for MNE groups with an annual global turn over €20 billion and 10 percent profitability. This will reallocate certain amounts of taxable income to market jurisdictions, resulting in a change in effective tax rate and cash tax obligations, as well as an impact on current transfer pricing arrangements. Pillar 2 looks at global minimum tax levies of 15% for Multinational Enterprises with a turnover of more than EUR750 million to discourage companies from shifting profits to lower-tax countries through international trading structures. Developed countries are entering into political agreements on Pillar 1 and Pillar 2 accepting the two-pillar solution. With increasing globalisation and the upsurge of transactions with multinational companies, Zimbabwe stands to benefit if it continues to benchmark its transfer pricing rules to the international standards by adopting the OECD proposed two pillar approach.

IFRS 17, Accounting for Insurance Contracts- A look into the Tax effects

The International Accounting Standard Board recently issued IFRS 17 titled “Accounting for Insurance Contracts”, which establishes principles for the recognition, measurement, presentation and disclosures of insurance and reinsurance contracts issued and held by entities. The standard, like IFRS 4, focuses on types of contracts rather than types of entities and hence, generally applies to all entities that write insurance contracts. The adoption of IFRS 17, is a most significant change in financial reporting for insurers. A short snippet on the differences between IFRS 17 and IFRS 4 from a financial reporting perspective shows that under IFRS 4, entities were free to derive their own interpretations of revenue recognition and calculation of reserves. For example, it was at the discretion of the companies to include risk adjustment in the liabilities under IFRS 4, whereas it is now mandatory under IFRS 17. Also, under IFRS 17, insurers need to assess if a policy holder can benefit from a particular service as part of a claim or irrespective of the claim/risk event.

Before we delve into discourse of determination of the tax liability under IFRS 17, there is need to take a short glance on the current income tax reporting system in Zimbabwe. In general, the tax liability for all other businesses is determined by making a few tax adjustments to the accounting profit determined using the applicable International Financial Reporting Standards. In other words, the tax computation is based on the accounting matching concept, subject to a few adjustments required for tax purposes. However, for insurance business the tax system is sightly divorced from accounting matching concept. Taxation rules for insurance business are ring fenced to the rest of other businesses and are in terms of s 20 as read with 8th Schedule to Income Tax Act (ITA). The same Act also provides for separate taxation rules for taxation of life insurance business which are different from rules for short term insurance contracts.  Taxation of the short-term insurer is based on cash basis namely premium and other incomes received plus recoveries +/ (-) unexpired risk reserve (URR) LESS claims incurred, reinsurance premium paid, and operating expenses incurred. Whereas the income tax liability of a life insurance is based on actuarial liabilities that is average life actuarial liabilities multiplied by Internal Rate of return on investment (IRR) Plus/(Minus) profit/(loss) on sale of Zimbabwe investments LESS allowance for investing in prescribed asset. The critical question is whether IFRS 17 would warrant a revisit of the tax principles for insurance business for any alignment needed.

IFRS 17 replaced IFRS 4 and established new principles for entities to account for insurance contracts. It significantly altered the measurement of income from insurance contracts, particularly those that relate to life and other long-term insurance contracts. Under IFRS 17, reserves will continue to be determined actuarially when insurance contracts are sold. However, IFRS 17 introduced a new reserve, the contractual service margin (CSM), which represents a portion of the profits on underwritten insurance contracts that is deferred and gradually released into income over the estimated life of the underlying group of insurance contracts. Essentially, insurance revenue will now be reported on the basis of what has actually been earned or received during the period. The question is these measurement changes would also have an impact on the taxation of insurance contracts going forward?


The approach advocated by IFRS 17 appears to align the accounting treatment of short-term insurance to tax principles for insurance businesses as contained in the envisaged 8th Schedule to the Income Tax Act. This is critical in the computation of short-term insurance business’ tax liability going forward as it would mean there will be no need to adjust accounting profit with the outstanding premium debtors or reinsurance creditors. Reserve for future risks will now be reported as a single line item called liability for remaining coverage (LRC) and the reserve for past risks (comprised of IBNR, IBNER, NOC etc.) will now be reported as one line item called liability for incurred claims (LIC).  The changes envisaged will result in the disappearance of unexpired risk reserve (URR) a critical adjustment in the determination of income tax liability of a short-term insurer, but otherwise the taxation of short-term insurance will remain the same. In application, one will have to remember that though they cannot get the URR, these have been incorporated in the LIC.  From life insurance perspective, nothing has changed other than the fact that liabilities will be measured differently. Applying the current formula for taxation of life business as per 8th Schedule of the ITA, this may result in a very different profile of tax payment to ZIMRA from the industry. There may be a need for the Authority to revisit the rules in the 8th schedule to verify if they are still achieving the same goals i.e., if they are still taxing the same tax profile using the new terms and measurements methods brought about by IFRS 17.


A move to IFRS 17 demands a revisit by the government of terminology as per current Income Tax Act for alignment. In fact, income tax rules of the insurance sector, which remained constant since 1967 despite demutualisation of the sector in the 1990s, introduction of new and hybrids products, changes in the trading rules etc, requires a major overhaul. Short term insurers in the interim should be able identify the component of unexpired risk reserve within liability for remaining coverage so that they continue to enjoy this tax incentive. 

Assessed losses: A technical cushion for taxpayers in Zimbabwe

Assessed losses: A technical cushion for taxpayers in Zimbabwe

The tax treatment of assessed losses in Zimbabwe is an important issue for businesses operating in the country. With highly volatile economic conditions, companies should understand the tax treatment of assessed losses. Losses are not bad for tax purposes but what’s key is for a business to stay afloat and eventually turn fortunes. The law recognises that loss represents an expenditure that can be used to reduce one’s future taxable income and consequently tax bill. Such loss is referred to as assessed loss and is a situation where deductible expenditure exceeds taxable income. It can be carried forward to be deducted against taxable income in any subsequent year of assessment. Hence creating a tax holiday for the business until the assessed loss is fully utilised. A loss-making business is often a target for acquisition by a prospering business. Getting to utilise assessed loss is however not easy, there are conditions stipulated within the law that must be met.

Our law provides for separate taxation of persons with separate legal entity i.e., assessed loss is ring fenced to a taxpayer. Assessed loss is carried forward and deductible against future taxable income of the same taxpayer for a maximum period of six years from end of year of assessment in which the assessed loss first occurred. Assessed loss incurred first is claimed first, i.e., on first in first out basis. A much better olive branch is extended to mining operations as these are allowed to carry forward their assessed losses indefinitely.

Assessed loss is taxpayer specific but in rare circumstances the assessed loss can be shared within a group of companies if it is in of a scheme of reconstruction. Where there is a change in the shareholding of a company with assessed loss or which directly or indirectly controls any company with an assessed loss and the Commissioner is of the opinion that such change is solely or mainly in pursuance of or in connection with any scheme for taking advantage of such assessed loss, no assessed loss incurred prior to that change shall be deductible.  In other words, the taxman can sanction inheritance of assessed loss of one company by another as long as they are in the same group. (see: CIR v Ocean Manufacturing Ltd 1990 (3) SA 610 (A), 52 SATC 15). A taxpayer must prove that the change in shareholding is not influenced by existence of assessed loss. In ITC 983, 25 SATC 55, a company engaged in clothing manufacture bought shares in a company also engaged in clothing manufacture got its inheritance of assessed loss approved after it was proved that the main purpose of buying the shares was to enable the purchasing company to obtain a productive manufacturing unit for purposes of supplementing its capacity. The story was different in New Urban Properties Ltd v SIR, 27 SATC 175 where shareholders in successful land dealing companies bought the shares of another land dealing company which was hopelessly insolvent with an enormous assessed loss. It was held that the obvious intention was to channel profits of the successful companies to the unsuccessful one and, thereby, take advantage of the assessed loss.

Companies often set up a branch or permanent establishment (PE) when entering foreign markets. A branch or a PE is a taxpayer in Zimbabwe. A PE refers to a fixed place of business or dependent agent of a foreign business situated in the host country. If such a business decides to incorporate under the Zimbabwean laws, it is permitted to inherit assessed loss of such a branch or PE.  The law sanctions inheritance of assessed loss where a company formally incorporated outside Zimbabwe (non-resident company) and was carrying on its principal business within Zimbabwe is about to be wound up voluntarily in its country of incorporation for the purpose of the transfer of the whole of its business and property wherever situate to its successor, a Zimbabwean incorporated company. The new company should however have the same shareholders in the same proportion as the old company if the inheritance is to be sanctioned by the taxman.

A company which is converted into a Private Business Corporation (PBC) or vice versa is permitted to carry forward assessed loss into the new entity unless the conversion has been motivated solely or mainly by the existence of an assessed loss.

A rehabilitated person and their insolvent estate are two different tax payers. Therefore, a person declared insolvent or had his property or estate assigned for the benefit of creditors cannot carry forward their assessed loss. 

Our law operates separate capital gains tax and income tax systems i.e., capital loss is ring fenced to capital gains tax and cannot be set off against other tax heads. The same applies to assessed loss emanating from business, it can be offset against income from business of the taxpayer subject to the limitations stated above. Similarly, a person in employment is prohibited from setting off his/her employment against business income or vice versa.

Your assessed loss today represents a tax treasure to be used in days of plenty. It’s important however to have in place plans for harvesting assessed loss such as new businesses initiatives that bring income, deferring deductible expenditure, avoiding tax yields investment etc, bearing in mind that assessed loss has 6-year life span. However, perpetual losses often get the taxman talking “why should a taxpayer remain in business when he continues making losses”. This often invites a tax audit for purposes of scrutinizing whether the assessed loss is genuine and not a result a tax avoidance scheme or operation. Judge Kudya in  CRS (PVT) LTD v the ZIMRA HH-728-17, FA 20/2014 said that the main objective of a private company is to make profit and when  content with the untenable situation and continues to make losses with no prospects of profit this an indication the company is engaged tax avoidance scheme or operation.

Intensifying lifestyle audits a means to an end in detecting tax evasion in Zimbabwe?

Intensifying lifestyle audits a means to an end in detecting tax evasion in Zimbabwe?

It is trite to say that tax evasion is not only a problem in Zimbabwe but also in other countries. The twin devils, tax evasion and avoidance, are problems which seem to have defied solution and have bedevilled the Zimbabwe tax system since time immemorial. Tax evasion which is usually a precursor to corruption has a negative effect on the tax operating environment through reducing the compliance levels. Tax avoidance on the other hand involves action taken to lessen tax liability and maximize after-tax income, and this is considered legal. The main difference is that in the latter, there is deliberate illegal non-payment of taxes. Lifestyle audits can be a very important tool to detect undisclosed income and minimise tax evasion.

When anybody hides his/her income from the government and does not report the actual income to evade taxes, the hidden income then becomes black money. There are many other softer terms to denote the same thing, such as undisclosed income, unreported income, covered income. Black money is created in many ways with one of the most common being drug trafficking. Other illegal professions in which people engage in for black money creation are prostitution, human trafficking and smuggling to mention just but a few activities that are deemed as criminal offences in the eyes of law. In Zimbabwe, ZIMRA makes use of lifestyle audits to identify tax evaders and it keeps a running tab on the number of audits being conducted and their results.

Lifestyle audits, also known as lifestyle, checks or lifestyle monitoring are an accountability tool that can be used to detect and prevent tax evasion. Such audits are typically conducted when the visible lifestyle or standard of living of an individual appears to exceed their known income level. The detection of such discrepancies can raise red flags warranting closer inspection. In such instances, an assessment of the individual’s income, assets and investments can be undertaken to determine if such seemingly extravagant expenditures could have come from illicit gains. If the audit shows a mismatch between a person’s known income and assets compared to their lifestyle and spending patterns, then there is an increased risk that the person is deriving income that is not being disclosed for tax purposes. This might also point to the fact that the persons are engaging on illegal activities.

ZIMRA usually conducts its lifestyle audits through desk reviews of available information and/or field observation of the individual’s day-to-day life. Lifestyle questionnaires have also proven useful. Civil society and journalists can also play an important supporting role in the verification process.

A prognosis of the tax system in the country highlights prejudice to one class of people. The formally employed, formal businesses and a little on the informal sector are the group of taxpayers who engage in legal activities. Looking at it, none of these groups of people display wealthy lifestyles, but the country is amassed with elite group of people whose lifestyle involves driving latest editions of the expensive vehicle brands. There is no systematic process relating to wealth tax to make sure that those who have more pay significantly more taxes. There are also no systemic processes to track illegal activities and claiming fiscus from these before the law sees to it that these are put to halt. This means that the poor are now taking less home which contributes to the suffering of the majority. There is an urgent need for development of mechanisms for taxation of the wealthier in the society and not only focus on the formally employed and legal sources of income.

ZIMRA can intensify their lifestyle audits and use the whistle blower programme to nab tax offenders and smugglers. They can do an intensive lifestyle audit on some of the wealthier people. They have to produce their invoices on what goods or services they rendered, and this has to match the value of the acquired properties. They will also be checking if these people or their businesses were paying taxes.

People under investigation can go to the High Court to account for their wealth but failure to do so automatically results in seizure of their assets. This will not only improve the country’s fiscus, but also deter conducting of illegal activities which are the source of some of the social problems currently obtaining in the country such as drug abuse.

Adoption of a lifestyle audit is very noble move that aims to unearth undisclosed income and tax evasion practices that occur in Zimbabwe, however revenue departments need to train and consult with leading experts in forensic investigation, particularly in money laundering and financial auditors, to device modern tools and strategies to detect citizens who have red flags.

A call for government to incentivize solar projects

A call for government to incentivize solar projects.

The energy sector is undergoing a rapid process of systemic change. Green technologies have proven to be cheaper, and the deployment of low carbon has been a strategic advantage. The SADC region has been experiencing unprecedented powers cuts, with South Africa for instance having to downgrade its provision to only 4 hours per day in some parts of the country. Regionally, rolling power cuts have been caused by years of underinvestment. As SADC looks for energy self-sufficiency, there have been huge initiatives for investing in alternative source of energy that offers a sustainable solution such as solar energy.

Although renewable energy products have been recognised in statutory instruments in Zimbabwe, high costs compounded by custom duties on technology imports have made them inaccessible to the majority of people in Zimbabwe. There is need for government intervention through its enforcing authorities such as Zimbabwe Energy Regulation Authority (ZERA) and Zimbabwe Revenue Authority (ZIMRA) with incentive programmes that seek to ease the cost of investment in the energy sector. The government has established a Renewable Energy Feed-in Tariff (REFIT) framework which is designed to encourage and support greater private sector participation in power generation from renewable energy technologies, through the establishment of an appropriate regulatory framework.  This should be seen as a positive move towards encouraging investment into the energy sector.

An example of a recent regulation which seeks to ameliorate the energy crisis is SI131 of 2022 which was approved by the RBZ to allow the country’s power utility to bill exporters of goods and services in foreign currency. This position is not new, it was first mooted in 2019 at the height of foreign exchange shortage and was short-lived as it was in effect for six months. The downside of the statutory instrument is that if exporting companies are mandated to pay their utility bills in hard USD, they will pass on the cost to the consumer. It will not be surprising to find these exporting companies asking for hard currency in exchange for their goods and service even from local clients who have rationed USD income. This trend has already begun and will grow.

The average solar installation in the country is still very low whilst there is enormous potential. To date, this potential has not been sufficiently exploited, with approximately 1% utilised. However, the demand for solar PV and solar water heaters is expected to increase in the near future. Zimbabwe has several investment incentives through tax and customs exemptions, which can be used to support renewable energy projects. Solar and electrical equipment receive exemption from import duty, but a 15% VAT charge applies. The import duty exemptions are given to solar panels, inverters, solar lights, energy saving light bulbs and electricity generator. This has assisted in minimizing construction costs. Considering the current growth expectation there is need for investment in power generating projects such as small hydro and solar plants. The Minister of Finance and Economic Development has also made provisions for the zero rating of receipts of power generating projects in the first 5 years of operation of such project, with effect from 1 January 2018. Thereafter, a corporate tax rate of 15% will apply.

Zimbabwe has proposed incentives to accelerate 1,000 megawatts of privately owned solar energy projects worth about $1 billion as the country scrambles to plug an electricity deficit that threatens to compound its economic woes. According to the Minister of Finance, the incentives include guaranteeing of payment of dividends and foreign loan repayments to external investors and lenders. This project is to cover 27 solar power projects with sizes ranging from 5MW to 100MW and having a cumulative capacity of 998MW.

Solar is a sound investment and delivers significant economic benefits such as lower energy costs, a greener business footprint, greater independence from volatile energy markets, and contributes to the overall decarbonisation of our energy system. It’s also a great way to put underutilised assets like commercial rooftops and car park awnings to work.

Recently, in South Africa, the Finance minister Enoch Godongwana announced that National Treasury will be providing tax incentives to South African businesses and households to encourage a rapid move to renewable energy by providing massive rebates for businesses launching renewable energy projects and a smaller incentive for private households. The Treasury also said it would be offering R4 billion relief to individuals who install solar panels and R5 billion to companies. An expanded tax incentive for businesses of 125% of the cost of renewable energy assets used for electricity generation, brought into use during a period of two years from 1 March 2023 was also proposed. For private households, individuals who install rooftop solar panels from 1 March 2023 will be able to claim a rebate of 25% of the cost of the panels, up to a maximum of R15,000. In a practical example, an individual who purchases 10 solar panels at a cost of R40,000 could reduce their personal income tax liability for the 2023/24 tax year by R10,000.

A similar strategy if implemented in Zimbabwe will be welcome given the country is endowed with vast solar energy potential. Tapping into this resource would help the country meet the energy supply challenge. Although there is no national policy on renewable energy in Zimbabwe at present, there exists a great potential for the development of renewable energy in the country. Barriers to the diffusion of renewable energy technologies in the country can be addressed through a policy environment and supportive regulatory framework that is conducive. However, the development approach should be based on a model that is inclusive of both legal and financial institutions. Measures to overcome the barriers may be unique to a country. Thus, what works in South Africa may not necessarily work in Zimbabwe. The development of a competitive market for renewable energy technologies should be the main driver for the implementation of renewable energy in the country.