Fiscal incentives made available to investors

investment capital to certain economic activities or particular areas in a country”. Generally, tax incentives must confer an advantage on the beneficiary while at the same time imposing a cost on the Government.
The Zimbabwe Revenue Authority administers various tax incentives aimed at promoting investment while the Ministry of Industry and International Trade, the Industrial Develop-ment Corporation and the Zimbabwe Invest-ment Authority are the main administrators of non tax incentives.
Revenue incentives in Zimbabwe apply equally to both domestic and foreign investors and the major goals of incentives in place are:
l Income generation;
l Export promotion;
l Employment creation and sk;
l Industrial development;
l Revenue inflows.
Like many other developing countries, Zimbabwe offers a number of tax and customs incentives in the form of tax holidays, reduced tax rates, and accelerated depreciation. The incentives are given by sector, type of activity, form of organisation, and geographical location of investment as follows:
INCOME TAX
Build Own Operate and Transfer (BOOT) and BOT Arrangements
l Contractors may enter into contracts with State or statutory corporations under which he undertakes to construct infrastructure for the State or statutory corporation;
l This will be in consideration for the right to operate or control for a specified period after which the contractor will transfer ownership or control of the item to the State or statutory corporation;
l Enjoys tax holiday for first five years;
l Taxed at 15 percent for the second five years.
Manufacturing Companies
Taxable income from manufacturing or processing company which exports 50 percent or more of its output taxed at a special rate of 20 percent
Mining Companies
l All capital expenditure on exploration, development and operating incurred wholly and exclusively for mining operations is allowed in full.
l There is no restriction on carryover of tax losses; these can be carried forward for an indefinite period.
l Taxable income of a holder of special mining lease is taxed at a special rate of 15 percent.
Special Initial Allowance (SIA)
l This is a capital allowance which ranks as a deduction.
l Allowed on expenditure incurred on construction of new industrial buildings, farm improvements, railway lines, staff housing and tobacco barns. Also allowed on additions or alterations to existing items as already mentioned.
l SIA is also allowed on articles, implements, machinery and utensils purchased for purposes of trade.
l Allowance is optional and once claimed this replaces wear and tear.
l Allowed at the rate of 25 percent of cost for from year one.
Farmers’ Special Deductions
l Farmers are allowed special deductions over and above the normal deductions.
l Examples include expenditure on fencing, clearing and stamping land, sinking boreholes and wells and on aerial and geophysical surveys.
Double Taxation Agreements
l Zimbabwe has signed several Double Taxation Agreements.
l These are meant to avoid or mitigate double taxation of the same income in the two parties to the agreement, that is where a business entity operates in the two territories.
l The agreements restrict some withholding taxes to the amounts specified.
l The DTA’s offer reduced rates of withholding taxes on dividends, interest, royalties and technical fees.
l As an example, almost all the DTA’s signed limit the rate of tax on technical fees to 10 percent or less
VALUE ADDED TAX
Services Supplied by Designated Tourist Facility Operator [Section 10(2)q]
Tourist facility operators conducting business in approved tourism development zones or an operator of a hunting safari is required to charge VAT at 0 percent for services offered to persons who are not residents of Zimbabwe and who are required under the Exchange Control Act to pay for such services in foreign currency. Such operators end up in a refund position for goods and services acquired locally.
Farming inputs and equipment are subject to VAT at 0 percent [Section 10 a. r. w. 2nd Schedule of the Regulations].
Most farm inputs such as animal feed, animal remedy, fertiliser, plants, seeds and pesticides and equipment or machinery used for agricultural purposes are zero rated.
Deferment of Collection of VAT on the Importation of Capital Goods [Section 12A].
Value added tax can be deferred on some capital equipment for the exclusive use in mining, manufacturing, agricultural and aviation industries whose investment generally relies on imported capital. The whole amount becomes due within 90 days from the date of deferment.
VAT Relief to Certain Diplomats and Diplomatic and Consular Missions [Section74]
VAT refund may be granted to:
l Any person who is not a citizen or permanent resident of Zimbabwe, and enjoys full or limited rights or privileges, in terms of the Privilege and Immunities Act: or
l Any diplomatic or consular mission of a foreign country, established in Zimbabwe for official supplies. The refund shall not be payable to a citizen or permanent resident of Zimbabwe.
l To be continued next week
For further information, please contact your nearest Zimra office.
Article submitted by Zimra’s Legal and Corporate Services Division. Their contact details are as follows:
Zimbabwe Revenue Authority
Legal and Corporate Services Division
6th Floor, ZB Centre
Cnr First Street/Kwame Nkrumah Avenue
P O Box 4360
Harare
Tel: 04 – 790811-4
Fax: 04 – 774087