IN a significant move to stabilise its economy and streamline financial operations, Zimbabwe has introduced the Zimbabwe Gold (ZiG) as its new official currency.
This marks a monumental shift in the nation’s monetary policy, aiming to foster stability, restore market confidence, and enhance the functionality of monetary and tax systems. The initial phase of this transition, as explored in our previous discussion, laid the groundwork for understanding how ZiG would influence economic activities and tax obligations.
This follow-up article delves deeper into the latest updates and clarifications provided by Zimra. Recent communications from Zimra have shed light on critical aspects of the currency transition, addressing taxpayer concerns and outlining the operational changes in tax obligations and administration processes.
As Zimbabwe navigates through these changes, it is imperative for businesses, individuals, and stakeholders to stay informed and adapt to the evolving tax landscape. Zimra has embarked on a series of comprehensive updates to the nation’s tax compliance framework.
This transition not only signifies a shift from the Zimbabwe dollar (ZWL) to ZiG but also introduces a set of revised practices and guidelines that affect all taxpayers. All existing tax obligations previously denominated in ZWL have been officially converted to ZiG.
This conversion uses the prevailing exchange rates established by the Reserve Bank of Zimbabwe, ensuring a seamless transition in financial statements and tax records. For taxpayers, this means that every aspect of tax — from computation of liabilities to payment — must now be in ZiG.
The direct implication is that regardless of the original currency of transaction, the final tax payment needs to align with the new currency norms. It’s crucial for taxpayers to review their tax records to ensure that their liabilities are correctly updated to reflect this change. Taxpayers who have overpaid or are entitled to refunds from previous periods are also affected by this transition. Zimra has confirmed that any tax credits or refunds that were calculated in ZWL will be recalculated in ZiG.
This recalibration is intended to preserve the value of the amounts due to taxpayers, reflecting the exchange rate at the time of the original transaction. Zimra’s updates include significant changes to tax administration processes to accommodate the new currency system. These changes are expected to encompass modifications to online tax platforms, adjustments in tax filing systems, and the introduction of new tax forms specific to ZiG transactions. For instance, the ITF12C form, used for tax filings, will likely require specific guidelines on how to report in ZiG, ensuring that taxpayers are compliant with the new requirements.
Adapting to these new processes will require taxpayers to update their software systems for accounting and taxation. Businesses, in particular, will need to ensure that their systems are capable of handling transactions and tax calculations in both ZiG and any other currencies they transact in. This might involve software upgrades or even switching to new systems that are better equipped to manage these requirements.
The ZiG has widespread implications across various tax categories, each presenting unique challenges and necessitating specific adjustments. These changes not only affect the calculation and payment of taxes but also require taxpayers to understand the new dynamics of each tax segment. The shift to ZiG significantly alters the landscape for income tax calculations, particularly for businesses and individuals who earn or transact in multiple currencies.
For these taxpayers, the choice between using average auction rates and spot rates for currency conversions becomes crucial. This decision affects the annual and quarterly tax payments, making it essential for taxpayers to stay updated with the latest rates and guidelines provided by Zimra.
With the introduction of ZiG, the previous income tax values, including trading stock valuations, income tax values of assets, and assessed losses carried forward, must all be recalculated in the new currency. From the Pay-AsYou-Earn (PAYE) perspective, Zimra has published ZIG PAYE tax tables. However, one must appreciate that these figures are different from those found in SI 74 of 2024 and we will need further clarity from the officials.
Nevertheless, this change requires significant adjustments in payroll systems to ensure that employee taxes are computed correctly and that any transition from ZWL to ZiG within the tax year is handled seamlessly. Value Added Tax (VAT) and Capital Gains Tax also undergo adjustments in light of the new currency system.
VAT, which is heavily impacted by transaction currency changes, requires businesses to apply the correct rates and submit VAT returns in ZiG. Similarly, for Capital Gains Tax, the inflation allowance and other calculations previously tied to the ZWL must be revised to align with ZiG values.
While the rates of customs and excise duties remain unchanged, the conversion of these duties to ZiG presents a logistical challenge. Importers and exporters must now calculate their duties in ZiG, using the conversion rates provided by the Reserve Bank of Zimbabwe.
It is crucial for businesses involved in international trade to integrate these changes into their financial systems to maintain compliance. Each of these tax categories requires taxpayers to update their knowledge and systems in accordance with the new guidelines issued by Zimra. The changes necessitate a thorough review of financial practices, recalibration of tax computations, and continuous monitoring of legislative updates.
Taxpayers must also ensure that their internal systems, such as accounting and payroll software, are capable of handling transactions in ZiG to avoid errors in tax filings and payments. The transition to ZiG brings with it a host of challenges for taxpayers and businesses, stemming primarily from the need to adapt to a new currency system and the associated regulatory changes.
Understanding these challenges is crucial for effective adaptation and compliance. First, system upgrades where one of the immediate challenges is upgrading financial and tax software to handle ZiG. Secondly, ensuring that financial teams and tax professionals are well-versed in the implications of ZiG is essential. Businesses must allocate resources to training and continuous professional development.
Third, as assets and liabilities are recalibrated to reflect ZiG values, discrepancies can arise, particularly with assets valued in historical terms or transactions spanning the transition period. Addressing these discrepancies requires meticulous financial review and possible revaluation. In conclusion, taxpayers would need to consult tax advisors and financial experts who are knowledgeable about the new system for crucial guidance.
Leverage Zimra resources during this transition, participate in training sessions provided by Zimra, and keep abreast of any updates and public notices is critical.
Additionally, conduct comprehensive reviews by reviewing financial statements and tax records to ensure accuracy under the new system is also essential. Early detection of discrepancies allows for timely corrections, thus avoiding complications with tax filings. Also, internally, clear communication about the changes and what they entail for daily operations is vital.
l WTS Tax Matrix Academy will be hosting its 8th annual tax conference from May 22 to 25, 2024 at Elephant Hills Resort. Tapera is the founder of WTS Tax Matrix (Pvt) Ltd and CEO of WTS Tax Matrix Academy. He writes in his personal capacity.