A nuanced understanding of new tax laws

by | Jan 10, 2022 | Business | 0 comments

 

Nevanji Munyaradzi Chiondegwa

 

The Minister of Finance and Economic Development Professor Mthuli Ncube recently made pronouncements that introduced changes to the Finance Act 24:03 which have a bearing on taxes payable and how they shall be levied.

 

The Finance Act is an ACT to make provision for the revenues and public funds of Zimbabwe and to provide for matters connected therewith or incidental thereto.

 

Perhaps the Tax that is of concern to many a Zimbabwean is the one that affects their pay check, the Pay As You Earn.

 

The Pay As You Earn (PAYE) system is a method of paying Income Tax on remuneration. The employer is mandated to deduct tax from salary or pension earnings before paying out the net salary or pension to beneficiaries.

 

One’s Gross Income, that is, all that a person earns, be it in cash, benefits, or an item of value given instead of cash – is subject to some form of tax. However, the determination of the value and its associated tax liability in respect of any of these forms of payments will differ in some cases.

 

The Income Tax Act [Chapter 23:06] specifies what elements of an employee’s remuneration or earnings are subject to tax and at what rate of tax. It also deals with what income is exempt from tax and what deductions are allowed from these earnings, prior to tax being calculated.

 

The rates of tax applicable each year are provided for in the Finance Act and the tax deduction tables can be obtained from the ZIMRA website. The official tax table operates on an escalating scale basis, this means the higher your earnings, the greater percentage tax you pay on each bracket of earnings.

 

When one’s earnings reach a certain amount, the percentage stops increasing and a flat rate of tax becomes applicable for any earnings above this level – that is Marginal Tax Rate (MTR).

 

2022 income tax brackets, presumptive tax and other adjustments in Local Currency

 

Up to ZWL$300 000 – 0%

 

ZWL$300 001 to ZWL$720 000 – 20%

 

ZWL$720 001 to ZWL$1 440 000 – 25%

 

ZWL$1 440 001 to ZWL$2 880 000 – 30%

 

ZWL$2 880 0001 to ZWL$6 000 000 – 35%

 

ZWL$6 000 001 and over – 40%

 

 

Income Tax Brackets in US$

 

Up to US$ 1 200 – 0%

 

US$1 201 to US$3 600 – 20%

 

US$3 601 to US$12 000 – 25%

 

US$12 001 to US$24 000 – 30%

 

US$24 001 to US$36 000 – 35%

 

US$36 000 and over – 40%

 

 

According to Act No.7, Finance Act the taxable income for a person that receives their salary partly in United States Dollars shall be taxed as if the income was in USD.

 

“For the purpose of section 14(2)(a) of the Finance Act, the taxable income from employment of a person who receives such income partly in Zimbabwe dollars and partly in United States dollars shall be taxed as if the income was all denominated in United States dollars, with the Zimbabwe dollar portion of the income being converted to United States Dollars at the prevailing interbank rate, and aggregated to the part of the income denominated in United States dollars.”

 

The above provision seems to have created much noise with many persons misinterpreting it.

 

However, the provision is intended to encourage a wider acceptance and usage of the ZWL Currency among the transacting public.

 

Also the rate that will be used to convert the money is the official bank rate.

 

Once the total amount is accounted for, then the normal procedures for calculation of PAYE kick in.

 

Allowable Deductions

 

The allowable deductions include pension contributions, subscriptions to professional, trade or technical associations and cost of tradesman’s tools, among others.

 

Credits

 

Credits include mentally or physically disabled person’s credit, elderly person’s credit, blind person’s credit, medical expenses and cost of purchasing invalid appliances.

 

Take all forms of remuneration into account before subjecting the income to tax.

 

PAYE is calculated as follows:

 

Determine gross income for the day/week/month/year.

 

Deduct exempt income, for instance bonus: You get => Income

 

Deduct allowable deductions, e.g. pension: You get => Taxable Income.

 

Please refer to tax tables. You get => Tax on Taxable Income.

 

Deduct tax credits e.g. elderly, blind or disabled persons and medical credit $1.00 of every $2.00 paid: You get => Tax after credits.

 

Calculate 3% Aids Levy and add to tax after credits: You get actual tax payable.

 

In ZWL, if one earns $25,000, he is not taxed as this is the tax-free threshold.

 

If one earns $100 USD, he is not taxed.

 

Now here is an example of USD earnings.

 

If an employee earns $1 800 per month the tax is calculated as follows;

 

$1800 x 30% – $85 = $455.00

 

In ZWL terms:

 

If an employee earns $220 000 the tax is calculated as follows:

 

$220 000 x 30% -$14 000 = $52 000.