Marvelous Tapera 
EVERY person who derives income from trade is required in terms of the law to pay tax on such income.
Finance Minister, Mthuli Ncube
A trade encompasses any profession, business, activity, calling, occupation or venture etc.
This makes informal businesses and self-employed persons duty bound to pay taxes on the profit they make.
However it has never been easy for these group of taxpayers to pay income tax on their profits, hence the government often imposes presumptive taxes on them in order to force them to comply with the tax law.
Finance and Economic Development minister Mthuli Ncube has proposed to hike presumptive taxes for self-employed individuals as a way of encouraging them to pay income tax.
He said that “Self-employed professionals provide valuable services that facilitate socioeconomic growth, hence complement other economic activities. Notwithstanding the valuable contribution to national development, there is considerable underreporting of incomes generated from such activities, hence, the contribution to the fiscus remains relatively low.
“In order to enhance the contribution of such professionals, I propose to introduce the following Presumptive Tax Structure for selected Self…”
This will result in professionals such as doctors being required to pay at least
US$5 000 per month in presumptive taxes to the government.
Other professionals affected by the new tax regime are lawyers, engineers, architectures etc.
This may be considered a heavy tax regime for the affected self-employed individuals and likely that most of them will not be able to sustain the tax.
It is evident that the world economy took a plunge in 2020 due to the coronavirus which ravaged economies and did not spare the Zimbabwean economy in the process.
Several businesses experienced losses with small businesses being the worst affected. Many of these self-employed professionals are struggling and may not earn that much to warrant such heavy tax.
However, while the proposed presumptive tax regime appears exorbitant, this is not the intended tax regime for them.
If one complies with the law and is in possession of a valid tax clearance certificate for the year of assessment, they are exempted from paying presumptive tax.
It is therefore, imperative to note that the minister is compelling self-employed professionals to formalise their tax affairs or ship out.
A presumptive tax is not a formal tax but a penalty for those not formally registered and paying taxes to the government.
It is therefore, unfortunate for one to complain that the new presumptive tax regime is steep when they have the option to pay less in income tax.
Proper records have to be kept for income tax and tax returns submitted.
Income tax is payable on the profit after taking into account operating expenses.
Meanwhile, income tax is paid on quarterly basis in advance, through a system known as the quarterly payment dates (“QPDs).
While income tax is paid on profit, presumptive tax is applied on turnover. In years where one has made loss there is no tax to be paid whereas presumptive tax is payable whether one is in a loss situation or not.
In addition, there is a withholding tax of 10 percent of total revenue of each transaction performed with other businesses that are registered for tax purposes.
For instance doctors will receive their claims from medical insurers less 10 percent if they have not availed a valid tax clearance to the medical insurers.
This represents an additional cost to the self-employed and may not be able to pass it on to their clients without making the cost of medical care expensive to many.
Further, the payment of presumptive tax does not exonerate the self-employed person from paying income.
The Zimbabwe Revenue Authority (Zimra) is entitled to audit the person and make an estimate of tax liability on the person’s affairs even after a period of six years.
The recent court cases have shown that the six-year prescription period for tax assessments is not applicable even in cases of innocent misrepresentation and more so in cases where one has not submitted an income tax return.
Therefore, staying out of the tax net does not guarantee the self-employed of peace of mind. It is possible that the Zimra can knock on the person’s door years after the income is earned. .
In order for these individuals to trade legally and pay less tax, it is advisable for them to register for tax purposes and obtain a tax clearance certificate from the taxman.
These individuals will be subject to tax and will be required to pay an effective tax of 24.72 percent of self-employment income (net profit) earned during the relevant tax year of assessment. There are other advantages of formalising trading besides paying less tax.
For instance, the self-employed will be able to identify any pilferage within their business, make informed decision, use accounts to access loans from the banks among other benefits.
You will need to speak to a tax expert or chartered accountant immediately to know more about the proposed presumptive tax and how to structure your affairs in order to minimise tax liability and optimise the value of your business. Matrix Tax School (Pvt) Limited will be hosting a webinar seminar on “Principles, Practices and Recent Developments (2021)” on January 20, 2021. Do not miss out on this very important event!!!
● Tapera is the founder of Tax Matrix (Pvt) Ltd and chief executive of Matrix Tax School. He writes in his personal capacity.
