HOW DO WE PLAN FOR TAXES
1. Know your tax obligations. It is vital and critical that you know your tax obligations, the nature and quantum thereof.
2. Know your tax payment dates. You must always know when your different taxes are due and payable otherwise you may pay double or treble in penalties and interest.
PAYE -To be paid on or before the 15th of the month following the month in which it is withheld.
VAT -to be paid on or before the 20th of the month following the end of the tax period. There are different VAT categories granted by ZIMRA. You must ensure you know your category and the due date.
3. Plan your cash flow
With the knowledge of when and how much tax you are liable for, you must plan your cash flow accordingly.
4. Avoid penalties
ZIMRA charges a 100% penalty on all late payments (except QPD’s which only attract interest)
5. Avoid interest. ZIMRA changes interest on all late payments on the most recent monthly average rate of interest on treasury bills and the “in duplum” rule does not apply to ZIMRA debts.
6. Do not plead ignorance of the law. Ensure all your taxes are paid on or before due dates and obtain & keep receipts for all payments. Avoid unnecessary penalties and interests and undue attention from ZIMRA
7. Plan your estate
Estate planning is a strong tax planning tool. You must understand your estate, and seek professional advice to limit your death duties.
8. Structure your remuneration package appropriately
There are not many tax-free remuneration schemes remaining. ZIMRA has over the years clamped down on all legal and “illegal” initiatives.
a) There exists a crossover level where a person paying P.A.Y.E. as an employee, pays progressively more tax than a self-employed person.
It is not advisable for the younger executive to take themselves off the Final Deduction System (FDS) of paying PAYE to go into a self-employment consulting contract to take advantage of this reduction in tax payable. The reasons being that records and vouchers will have to be retained to claim allowable expenses which might cost accounting fees and reduce any advantage. More importantly ZIMRA will probably deem you to be what you are, an employee of the business, and then assess you on what PAYE should have been deducted with a 100% penalty and interest.
Obtaining a loan from your employer for the purposes of education, technical training, or, medical expenses for self, spouse or a child is a tax-free benefit to the employee.
Obtaining a loan from the employer for the purposes of building, purchase or investment where the interest paid by the employee to the employer is 16% or more on the loan, no tax liability arises. If the loan is tax free, and is above a certain limit, the loan is a taxable benefit with the value of the benefit calculated at 16% per annum of the loan.
c) School Fees for Child
School fees paid by an employer for employee’s children’s education: –
– cost is deductible to employer;
– employee is taxable on the cost to the employer.
d) Housing Benefit
Companies are sometimes prepared to subsidize heavily the employees’ rental costs. This usually takes the form of charging a sub-economical rent for the use of the employer’s accommodation. The Income Tax Act utilizes the “value to the employee” method for this particular benefit in determining the taxable amount of the benefit.
e) Security Guards
Many organizations offer the facility of security guards to senior employees, either, when they are away on business or annual leave, or, as a permanent benefit. This is usually not viewed as a taxable benefit, when the guard is protecting company assets such as a house, car, computer or documents.
f) Professional Membership & Publications Subscriptions
Professional membership subscriptions and to professional or technical publications relative to his duties and responsibilities can be paid by the employer with no taxable benefit accruing to the employee.
g) Telephone Account
With this benefit the company pays the home telephone account of the executives if business communication after hours is required by the organization. It is advisable the employee concerned pay an amount for private phone calls.
h) Company-owned Holiday Facilities
Employees should pay a nominal rental for the use of these facilities. The employers may claim all the running costs they incur, whilst the employee could be taxed on the value to him if this considered greater than the rental paid
i) Car Benefit
Having the use of a company-owned motorcar is accepted as a useful benefit as the present cost of fuel and vehicle parts and repairs is becoming more and more expensive. The value of the benefit is a deemed value for the different size of motorcar set in every year’s Budget and Finance Act.
This is an entirely tax free benefit to the employee which covers the medical aid subscriptions and shortfalls on the cost of hospitalization, doctor’s fees, prescription drugs, ambulance, invalid appliances for the employee, his wife and children. The cost is allowable to the employer in full.
The tax-free portion of the aggregate of bonuses received is set every year during the annual budget presentation.
l) For Executives approaching 55 years of age:
– In the Capital Gains Tax Act there is an exemption from liability to pay any capital gains tax for an individual who reaches the age of 55 years when they sell the house which has been their principal private residence. They can then purchase another principal private residence more suitable to their retirement requirement.
– But be careful of purchasing a home which is held as an asset in a property owning company and which shares are bought in the company. In any subsequent sale of that principal private residence there is no exemption to the company or any shareholder of whatever age (e.g. over 55 years) to the liability to pay capital gains tax.
– The pension income of an individual of the age of 55 years or over is exempt from personal income tax (PAYE).
– Another tax free benefit, which may be received by an individual who has reached 55 years or older is the receipt of a company owned motorcar by the employee during, or on termination, of the employee’s employment. This was effective from 1st September 2006.
m) Export Processing Zones – Tax Free Benefits
These were very clear up to 31st December 2006 when all benefits from employment with a licensed operator in a gazetted Export Processing Zone were not subject to income tax (PAYE) up to the value of fifty percent of the taxable income (before the inclusion of the value of the benefits).
With the promulgation of the Zimbabwe Investment Authority Act No. 4/2006, with effect from 1st January 2007, the Export Processing Zones Act (Chapter 14:07) was repealed. The legislation in the Income Tax Act and Finance Act refers to the licensed investor as defined in the repealed Act.
This new Act 4/2006 has continued this advantage of free benefits for the first six months of 2007. It is expected new legislation will be promulgated under the new Act 4/2006 to entrench the benefits presently enjoyed by Export Processing Zone employees.