TAX NEWS - JUNE 2010

Zimbabwe Tax: Govt seeks to tax Zimbabwe businesses abroad

Zimbabwe Government is redrafting the Income Tax Act with the intention of collecting tax from Zimbabwean businesses abroad following recommendations by the Steering Committee set by Government to find ways of expanding the tax base.

The Steering Committee, which comprises of tax experts from the treasury, Zimbabwe Revenue Authority and the private sector recommended that Government depart from source based tax system to the residence based system.

The source-based tax system is when tax is levied only on income generated in Zimbabwe.

The residence principle applies to all Zimbabweans' offshore businesses.

Speaking at the launch of the draft bill of the new Income Tax Act, Finance Minister Tendai Biti said the proposed law would help to increase country's tax base.

"As a developing country, Zimbabwe remains a net capital importer, subject, however, to the international phenomenon of mobile financial and human capital.

"A residence basis of taxation would thus bring a revenue advantage," he said.

Minister Biti said Zimbabweans were increasing the offshore elements of their investments especially in the service sector hence the need to introduce residence base of taxation.

He said the new law would have a comprehensive section on tax accounting principles that would ensure consistency in the tax treatment of financial transactions.

Minister Biti said the new simplified version of the law was expected to be in place before December this year after comprehensive consultations with all relevant stakeholders and members of the public.

"The current tax law is more complicated and through this bill we are trying to come up with a simpler law that is consistent with best international practices.

"Worldwide it has been proved that a simpler law is more effective than our current law," he said.

He said the bill was one of the many reforms Government intended to do in the finance sector.

The new Zimbabwe tax law, Minister Biti said, would encourage compliance levels by taxpayers.

The new Zimbabwe tax law would also look at principles of partnerships, gains and losses on disposal assets and collection and refund of taxation.