The income tax bands for those earning in foreign currency and so required to pay income tax in that currency have been gazetted, with a tax free threshold of US$70 a month and the top 40 percent tax rate applied to those earning more than US$3 000 a month or US$36 000 a year.
This comes as Finance and Economic Development Minister, Professor Mthuli Ncube, indicated in his 2021 national budget that Treasury will levy taxes in foreign currency on businesses that were trading in hard currency.
Treasury seeks to have its tax structure reflect what is happening in the economy. By law, all income in foreign currency has to be taxed in foreign currency.
Companies and individuals have to bank foreign currency and local currency income separately and keep dual accounts for all operations in foreign or local currency so they can pay the correct sums in each currency.
For many the system is simple since some taxes, such as company tax, VAT and most customs duties are a single percentage and most excise duties are either a percentage or a fix sum per volume unit. Personal income tax, which has different rates for each band of income, gave rise to concerns on what rate generated on what day to use to calculate those bands, hence the need for a separate table giving the bands that must be used.
Prof Ncube unveiled the foreign currency income tax bands in a Statutory Instrument gazetted last week, implementing the provision of the Finance Act that sailed through Parliament in December last year.
The Act seeks to give legal effect to the several measures that he introduced during the 2021 national budget that was presented in November last year.
The foreign currency denominated income tax structure will be applied simultaneously with those that would be levied in the Zimbabwean dollar.
The bands for monthly income are: 0 percent up to US$70; 20 percent from there up to US$300; 25 percent from US$301 to US$1 000; 30 percent for the band US$1 001 to US$2 000; 35 percent for US$2 001 and US$3 000; and 40 percent on that section of the monthly income over US$3 000.
Royalties on the sale of minerals are now specifically included on the list of taxes to be paid in foreign currency if the amounts from which they are withheld are foreign currency amounts.