Presumptive tax explained
I am sure when the Minister of finance Hon P.A Chinamasa announced that the government had appointed the Zimbabwe National Road Administration agency (ZINARA) as a withholding tax collection agent for Presumptive tax, which means they are empowered to decline vehicle licence renewals for commuter omnibus operators, taxi cab, driving schools and Haulage truck operators who fail to present proof of compliance (tax clearance certificate), a lot of business operators in those fields had goose bumps taking into consideration the amount of taxes to be paid for example a person with a haulage truck is expected to pay USD 2,500 per quarter = USD 10,000 per year.
If you find your elf in that seemingly difficult situation don’t despair as this article will assist you with rectifying this scenario, in order to shed light on the subject lets start by the definition of the term presumptive tax.
“A presumptive tax is a tax levied on informal traders, small – scale miners, cottage industry operators, transport operators. A tax compliant operator ( who keeps proper books of accounts, furnish tax returns and pay taxes) is exempted from this tax, provided that he has a valid tax clearance”. ( Adapted from Tax Principles in Zimbabwe by M. Tapera).
The most important thing to note here is that Presumptive tax is charged on business operators who do not keep proper books of accounts; this means therefore Presumptive tax is not a final tax but collected in advance in the event the operator defaults on there tax obligations.
Comparison of Presumptive tax payers against Provisional tax payers
a) Provisional tax payers are tax payers who pay tax on income earned from operations through the Quarterly Payment Dates, they have the advantage of paying tax after deducting business operating expenses from gross income, and in other words they pay tax on net profit.
b) A Presumptive tax payer pays tax based on the rates stipulated by the ministry, which means even if the business makes a loss the tax payable still remains payable as per stipulated rates.
Remedies
I am pretty sure by now most are asking how to remedy the situation, this is achieved by becoming a tax compliant operator.
a) The operator must ensure that they start keeping proper books of accounts and submit annual income tax returns which are due by the 30 April of the following year after the tax year.
b) The operator must start submitting tax returns normally this involves submitting ITF12B forms for the payment of QPD (Quarterly Payment Dates), P2 returns for remittance of employee tax submitted monthly , ITF16 employee income reconciliation submitted by the 31st January of the following year after the tax year.
c) The operator must ensure that they pay their tax payments on or before the due dates to avoid penalties and interest charges raised on late payments.
d) After having adhered to the above the operator must approach Zimra requesting for a tax clearance certificate. Expired tax clearances can be renewed the last date of the year.
e) You are urged to use the services of tax consultants to assist in this transition period from paying taxes through the Presumptive tax to the Provisional tax system.
N.B – Please note the tax advice contained in this article is only applicable to companies operating in Zimbabwe.
Guest-Blogger: Fungai Mhlanga (MSAAA), Tax Advisor (Direct & Indirect taxes)