Marvelous Tapera 
The introduction of gold coins attracted the attention of consumers, business people, and investors. Featuring high in the discussion is whether these can curb inflation that seems to be spiralling out of control or are a form of investment but still some people are not sure what they represent and have no confidence in them.
Two things are however clear, that the gold coins are an alternative investment product for those who want to store value and also that they are being used as a monetary tool to stabilise the exchange rate through the mopping of excess Zimbabwe dollars. This can be testified to by the parallel market rate that has remained stagnant following the introduction of the gold coin. Whatever the case may be, the subject of taxation regarding the buying and selling of gold coins has remained alien to most Zimbabweans and it is surprising that this so important aspect is not even discussed.
The authorities have also kept this a mystery to most of us since there is no specific tax legislation that covers the sale or purchase of gold coins.
The purchase of gold coins certainly has no income tax, capital gains tax, stamp duty, or value-added tax implications. What must be interrogated is whether intermediated money transfer tax (IMTT) is applicable whenever money is transferred for purposes of purchasing gold coins.
IMTT is chargeable on the transfer of money by whatever means through a financial institution subject to exemptions provided in terms of the law.
Exemptions that are relevant to the underlying discussion include the transfer of money for the purchase or sale of marketable securities or for the purchase or redemption of money market instruments. Marketable securities are defined in terms of section 2 of the Capital Gains Tax Act.
Securities are defined in terms of section 2 of the Securities Act (Chapter 24:25) as including any share or stock in the share capital of a company; or any debt security; any depositary receipt, that is to say, a certificate or other record; any future, that is to say, a right under a contract or any contract for differences, that is to say, a right under a contract, which does not provide for the delivery of securities or commodities but whose purpose or professed purpose is to secure a profit or avoid a loss or any other instrument declared by the minister in terms of subsection (2) to be a security for the purpose of the Securities Act.
The gold coin is of liquid asset status, meaning it is an asset that can easily be converted into cash in a short time. Liquid assets include things like cash, money market instruments, and marketable securities. The gold coins are issued by the central bank just like a TB and other marketable securities issued by the central bank. Logically, it would also mean the gold coin would qualify as commercial security.
However, it does not necessarily mean that if an asset is of liquid status it automatically qualifies as marketable security. The gold coin is being sold through normal banking channels. The law remains unclear and we expect the legislature to provide clarification on its status as it has a bearing on the tax implications arising therefrom.
Whether or not the proceeds from the sale of gold coins are subject to income tax depends on the facts and circumstances of the purchase and sale and the taxpayer’s intention. The taxpayer’s intention in acquiring the asset is a key contributing factor. Two tests wrestle against each other, the first being whether the gold coin was purchased as a long-term investment and the second is whether it was acquired to sell at a profit. The latter would be regarded as a profit-making scheme, with profits taxable as revenue.
The mere fact that gold coins do not produce an income tax return suggests that they are generally acquired with the intention of being sold at a profit, indicating taxation as revenue rather than capital. If the following factors apply, the taxpayer may be able to overcome the inference that the gold coins were purchased with profit-making intent i.e., the taxpayer has no history of dealing in gold coins, the clear intention of purchasing them was capital preservation rather than speculation; there was a lengthy holding period, and an intervening factor gave rise to the sale.
There is an exacting onus on the taxpayer to show that at all times there existed an intention to hold the coins. An analysis of South African cases with regards to Krugerrands has shown that where a taxpayer won in issues to do with the Krugerrands, there were special circumstances that forced the sale. Whenever the taxpayer lost, it was because of failure to show such circumstances.
The VAT implications on the redemption of gold coins depend on their categorisation as money or goods. Money is defined in the VAT Act as including “coins of current mass or bank notes which the Reserve Bank of Zimbabwe has issued in Zimbabwe and which have not been demonetised or any coin, other than a coin made wholly or mainly from precious metal, or bank note, which is the currency of any country, other than Zimbabwe, and which is used or circulated or is intended for use or circulation as currency. On the other hand, goods are corporeal movable things, fixed property, and any real right in any such thing or fixed property, but does not include money. The VAT Act has made reference to gold coins as not being second-hand goods.
In conclusion, there seems to be not much transparency with issues to do with the tax treatment of gold coins. The RBZ made it clear that the main reason the gold coins exist is to store value, but for whom is not clear? The purchase of gold coins is open to both domestic individuals and corporates. Last but not least, the subject of gold coins has not been well celebrated in Zimbabwe, probably because of the price tag or the obvious lack of market confidence.
Meanwhile, Matrix Tax School invites you to take part in the upcoming Summer School from October 20-23 in Troutbeck Nyanga, where the topic of taxation and accounting issues of gold coins will be high on the agenda.
Tapera is the founder of Tax Matrix (Pvt) Ltd and the chief executive of Matrix Tax School. He writes in his personal capacity.
