Amendments to the Income Tax Act and introduction of new transfer pricing regulations

ZIMBABWE -Amendments to the Income Tax Act and introduction of new transfer pricing regulations

February 2019

The New Minister of Finance issued a number of proposals to the Income Tax Act [Chapter 23:06] most of which take effect from 1 January 2019.

What was proposed in the 2019 Budget?

A) Withholding tax on contracts

The current legislation requires registered businesses to withhold and remit to ZIMRA, 10% of the payment of USD 1,000 in aggregate per annum made to a local business not in possession of a tax clearance certificate (ITF 263). This requirement extended to payments made to non-residents.

The Minister proposed an exemption on the withholding of 10% for payments to non- residents. Non-residents do not submit income tax returns hence there was no way they could recover the 10% WHT.

B) Intermediary Money Transaction Tax (IMTT)

  1. With effect from 13 October 2018, IMTT has been amended by Statutory Instrument 205 of 2018, and is now calculated at the rate of USD 0.02 on every dollar transacted (2%). The tax is charged on transactions greater than USD 10 and a maximum limit has been set at USD 10,000 for transactions greater than or equal to USD 500,000. Exemptions are provided for specific listed transactions.
  2. The 2% tax will not be allowed as a deduction in computing taxable income.

C) Transfer Pricing - Requirement to file annual Transfer Pricing return and documentation.

With effect from 1 January 2019 proposed transfer pricing changes include the following:

  1. The requirement to file an annual transfer pricing related return.
  2. ZIMRA to provide guidelines for transfer pricing documentation requirements.
  3. Penalties for non-compliance with transfer pricing legislation are:
    • 10% of the shortfall in tax liability where the taxpayer  complied with the 35th schedule and contemporaneous transfer pricing documentation.
    • 30% of the shortfall in tax liability on non-compliance with the 35th schedule or non-existence of contemporaneous transfer pricing documentation.
    • 100% of the shortfall in tax liability on tax evasion and deliberate postponement of tax liability where no transfer pricing document exists.

D) Deemed income – Provision of Satellite broadcasting service and e-commerce platforms

A 5% digital tax on revenues is levied on foreign satellite broadcasters and e- commerce platforms supplied to local residents from offshore sources. The tax is applicable to entities whose revenue exceeds USD 500,000.

E) Mining allowances for non-contiguous mines

An allowance or deduction is provided for mining operations which are inseparable and interdependent if both or all mining locations are held by the same taxpayer and the minerals produced at the locations are part of an integrated process of beneficiation under the control of the taxpayer.

Charity Machiridza
[email protected]

Maxwell Ngorima
[email protected]