Tax incentives are generally defined as fiscal measures that are used to attract local or foreign 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 Development Corporation and the Zimbabwe Investment 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: -

• Income generation
• Export promotion
• Employment creation and skills transfer
• Small business development
• Industrial development
• 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 organization, and geographical location of investment as follows:-

INCOME TAX

Build Own Operate and Transfer (BOOT) and BOT Arrangements

• Contractors may enter into contracts with state or Statutory Corporation under which he undertakes to construct infrastructure for the state or statutory corporation
• 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
• Enjoys tax holiday for first 5 years
• Taxed at 15% for the second five years

Manufacturing Companies

Taxable income from manufacturing or processing company which exports 50% or more of its output taxed at a special rate of 20%

Mining Companies

• All capital expenditure on exploration, development, and operating incurred wholly and exclusively for mining operations is allowed in full.
• There is no restriction on carryover of tax losses; these can be carried forward for an indefinite period.
• Taxable income of a holder of special mining lease is taxed at a special rate of 15%.

Special Initial Allowance (SIA)

• This is a capital allowance which ranks as a deduction
• 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
• SIA is also allowed on articles, implements, machinery and utensils purchased for purposes of trade
• Allowance is optional and once claimed this replaces wear and tear
• Allowed at the rate of 25% of cost from year one

Farmers Special Deductions

• Farmers are allowed special deductions over and above the normal deductions
• Examples include expenditure on fencing, clearing and stamping land, sinking boreholes , wells, aerial and geophysical surveys.

Double Taxation Agreements

• Zimbabwe has  signed several Double Taxation Agreements
• These are meant to avoid or mitigate double taxation of the same income in the two countries to the agreement, that is, where a business entity operates in the two territories
• The agreements restrict some withholding taxes to the amounts specified
• The DTAs offer reduced rates of withholding taxes on dividends, interest, royalties and technical fees.
• As an example, almost all the DTA’s signed limit the rate of tax on Technical Fees to 10% 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% 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% [Section 10 a. r. w. 2^nd 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:

• 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,
• 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.