The tax system currently enforced in Zimbabwe under the authority of the Income tax Act Chap 23. 06 with Acts like the Capital Gains Act Chap 23. 01, Finance Act Chap 23. 04 and the Excise duties Act as complimentary. The system evolved from traditional ideologies perpetuated from pre pre-colonial era up to now. The incidence of tax from a traditional perspective occurred from as far as the Rozvi State who was allowed to maintain their power and control by the Portuguese Traders which resulted in the development of the tributary system.
In which tribute was to be paid in form of farm produce, animal skins, fish and various goods. Every person under the protection of the kingdom and within the chief’s jurisdiction was to pay tribute from their occupational activity. This tributary system was mainly instigated by military control and any person revoking this tradition was punished. This traditional view is reflected in the modern tax system as there are some synonymous traits which have of course been duly developed over time.
The presence of the British settlers saw the tax system being inclined towards politics and social classes or race in other words. In 1894 Hut Tax was introduced and was set at 10 shillings per hut and this tax was imposed on each adult male. The tax was paid to the British South Africa company which was the agent of the colonial government in the area even though it was initially authorised by the Colonial Office in London. Hut Tax was paid in the form of money, labour, grain or livestock and the colonial Authorities in this case the British were the beneficiaries.
This tax benefited the white minority as they raised money, enhanced their economy’s liquidity (cash wise, thus supporting the currency), facilitating further development of the white minority. The whole purpose of a tax system to benefit the people at large through the services provided by the government was rather defeated as the greater proportion of tax was paid by the black majority for the benefit of the white minority. Poll tax was also another type of tax introduced by the colonial authorities again aimed at the male adult. It was set at 1 pound per male adult; 10 shilling tax on each excess wife was also introduced.
Administering of tax policies was mainly set to compel the African to surrender his labour power to the settler economy so as to depend on them for the money with which they could meet their tax obligation. Initially Blacks owned the most cattle, sheep, had a bigger population thus consumed more meaning more sales tax was expected to be paid. Under the bid to frustrate black expectations of prospering and to reduce the chance of them gaining economic advantage over the whites a host of other taxes were recommended by the Southern Rhodesia Native Affairs Committee (these were later approved).
The recommendations were made up of a plot to: * Introduce Dog tax * Implementing the taxation of all cattle * The continuation of poll tax * Progressive taxation of polygamous wives * A marriage fee of 5 pounds was to be set to be paid by the husband with an allowable remittance of 5 shillings for every month worked for a European Employer. (African Heritage,pg 65) At face value without any need for a comprehensive analysis it is quite evident that accumulating more of anything from cattle, increase in consumption, children and even another wife meant more tax due to be paid to the colonial authorities.
Cattle tax was to be paid on the cattle owned by the people and dog tax likewise had to be paid for every dog kept. Penalties were applied through acts of confistication of cattle on most cases. The Southern Rhodesian Tax Ordinance of 1918 was not very different from the tax policies which were implemented in South Africa and the United Kingdom, though the income tax rates were not very high. Deductions were allowable for the contributions that were made to the pension funds and also generous primary abatements for dependants and as well as the secondary abatements for dependants.
Insurance premiums and medical expenses were also allowed as a deduction The Pay as You Earn (P. A. Y. E) system of collecting Tax income was also adopted and it mainly operated with reference to an employed person. The definition of person in this regard mainly focuses on the natural person as it is the natural person and not the Juristic (for example Companies) that earn the employment income on which P. A. Y. E will be charged. Companies were also taxed in their own capacity and were required to pay a standard rate of 7s. 3d. n the ?. Special incentives for investment and exports were also given to benefit international trade and encourage investments in the companies established in the Zimbabwean Economy.
Personal tax obligations were payable by individuals on a sliding scale ranging from £2 per annum to £12 per annum, this range was dependant on the income Death duties were relatively low by world standards, and were payable on a sliding scale rising to a maximum of 2s. 6d. in the pound currency, which is reached on a taxable amount of approximately £42,000. Stamp duties were set on numerous documents recording transactions between persons and on services provided at various registries. These included a transfer duty at the rate of £1 per cent, for the first £4,000 of the value of property transferred and £2 per cent, on the excess over £4,000. Customs duties were imposed in a single column tariff on the bulk of the goods that were imported into Rhodesia. The customs duties covered protective duties for Rhodesian industries and revenue duties over a wide range of consumer goods.
Almost all raw materials for industry had a 0 % duty (that is they were free of duty), as were the variety of capital goods. Excise duties were imposed on all wines, spirits, beer, cigarettes, manufactured tobacco, and motor spirit produced in Rhodesia. The consumption based sales tax, was mainly levied at the retail stage, and was the buying and selling actually occurred. The tax rate charged was 8d. Some goods were exempted from tax and thus immune to tax, these include basic food stuff, raw materials for production and capital goods for use by the industry
Motor vehicle tax ranged from £12 per annum for ordinary passenger vehicles to £72 per annum for the heaviest public service vehicle with a charge of £144 for diesel-powered vehicles. The Motor Vehicle tax could be paid in three instalments at the beginning of each licensing term of four months. Tax was also imposed on minor duties like trading activities, betting, and television and wireless receivers. The local government of the colonial authority attested that the tax will be confined to the field rates on the property.
The accumulation of the tax payable by blacks on everything and every income that accrued to them led to an uprising (among other causative factors) resulting in the Chimurenga war which ended in 1980 the year in which Rhodesia became Zimbabwe. The tax system applied by the new regime and government was not very different from the one administered in the colonial era except that it was altered to shift the benefit to the black majority at large. Taxation cannot be divorced from economic conditions and indicators and to some extent politics.
The post independence period was highly characterised with many developmental projects implemented by the Zimbabwean government through provision of social services, drought reliefs, subsidies for companies owned by the government. However this government expenditure engineered a budget deficit which had a negative impact on the tax as higher taxes were now required to meet the expenditures. Tax rates in the 1980s additions The tax system evolved gradually being influenced by economic conditions that occurred like the hyper inflationary era in 2007, 2008.
The evolvement of Zimbabwe’s Tax system has seen the emergence of the Department of Taxes and the Department of Customs and Excise to form the Zimbabwe Revenue Authority (ZIMRA) in Jan 2001 but which started operating in September 2001. ZIMRA was established to enhance revenue collection and trade facilitation. (FORE 2006, pg 3) Currently, the Ministry of Finance is directly responsible for the fiscal management and thus have a direct impact on the tax system. In reference to the Constitution of Zimbabwe (Sec 102 and 201) all fees and other public revenues are paid to the Consolidated Reserve fund.
The proceeds from this fund enable the government to meet its expenditure, provide services to the people. The legal framework, the administration of tax policies and the collection of taxes has been placed under the Zimbabwe Revenue Authority (ZIMRA) in the authority of the Commissioner General. The tax system under the provisions of the Income tax Act stipulates that tax is not levied on profits as in some countries but it is levied on taxable income. Zimbabwean Tax system use a source based approach in which tax is levied from income whose source is deemed to be from Zimbabwe.
Not every income of every person is taxable; income from Local Authorities or institutions like POSB, Reserve Bank of Zimbabwe (RBZ) is exempt from tax this is according to sec14 of the Income Tax Act. Dividends from a company incorporated in Zimbabwe are also exempt from tax. The government has implemented reactive approaches towards taxation rather than a proactive one this is seen y the Fiscalisation of cash registers in order to reduce the losses in Value added tax (VAT) Collection as VAT is the major contributor of tax revenue mainly because it is consumption based, and orrowing from principles of micro economics it can be proven that people consume whether they have income or not from the marginal propensity to consume concept .
The fiscalisation of cash registers can increase the amount VAT collected from businesses as the transactions incurred can be monitored through a memory card placed in the registers which are linked to the revenue authorities. The Value Added Tax Act [Chap 23. 11] is the main authority which governs the collection of VAT Tax bands are used on individual income in countries like South Africa, Zambia and Botswana.
The use of tax bands makes PAYE a progressive tax which is redistributive. This leads to the reasoning that the proportion of tax revenue from PAYE should be higher than that from the non progressive taxes such as VAT and customs duty. In Zimbabwe tax is classified under proportional tax, progressive tax, regressive tax and direct tax. Individuals’ income from employment is taxed using tax bands, while income from trade or investment has been taxed at the same rate as that for corporate tax which was a flat rate 30% in 2009 and has gone down to 25% in 2010.
The tax free band for income from employment was set at US$150 a month when the economy was dollarized in 2009 and was increased marginally to US$160 a month The advent of the Inclusive Government in 2009 in the post inflationary period where the tax and revenue base were dwindling resulted in the implementation of tax reforms to revive the tax system. This was difficult especially in the collection of corporate tax as most companies were operating below capacity.
Corporate tax currently charged at 25% . Since tax is highly linked to development, tax incentive to foreign companies willing to invest in the country have been made so as to alleviate development. Tax concessions under special mining licences are also given, windfall gain tax is also charged in the mining sector. The holder’s of special mining rights are charged at a lower rate of 15% and are subject to Windfall Gain Tax which is levied on the additional profits.
This profit is not attributable to production but occurs when the price of a certain commodity rises above a certain level (AFRODAD 2011, pg19). This tax charge is currently set at 31. 176%. The government once made an attempt to exempt ZIMPLATS from paying tax on additional profit tax but ZIMRA never implemented this action and still went on to collect tax from it. The Income Tax Act is revised and reformed from time to time this is the responsibility of the Tax Steering Committee which was set up soon after the Inclusive
Government was established. This Committee comprises of the minister of Finance Mr. T Biti, some representatives from the private sector and ZIMRA itself. The committee aims to solve the challenge faced by tax authorities in Zimbabwe of trying to broaden tax base and at the same time simplify tax collection and easing the debt burden. The Final Deduction system is also a notable development of Zimbabwe’s tax system. It is a system in which the employer is required to deduct P. A. Y. E from the employee’s income in a way that it becomes the final tax. The final deduction system (FDS) was implemented in 2000 but it was initially introduced in 1997/98 (AFRODAD 2011, pg 18). The directive governing the deduction of P. A. Y. E under the F. D. S system is taken from the 13th schedule of the Income Tax Act. There is then no need for the employees to submit tax returns at the end of the tax year.
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