Part 1 Highlights’
In Part one we discussed how and why business operators should always try to comply with laws and regulations. I promised to give three examples of laws that generally affect all business operators. These were the VAT Act, Income Tax Act and the Labour Act. The VAT Act was however explained in Part 1. In Part 2 I will elaborate on the remaining two and finalise by explaining the steps and sources of assistance an operator should take or consider when they wish to begin observing laws and regulations. Some special definitions of terms were given in Part 1, readers who come across unusual terms in this article may need to check in Part 1 definition of terms to determine the special definition of such terms, if listed, if not, readers may use the English dictionary.
2. Income Tax Act
This is an Act which governs the payment of tax on all income earned by any person (Individual tax) or business organisation (Corporate tax). Income is more or less profit earned. For individuals, it is salaries and wages earned and for businesses, it is profit earned. According to this Act, any income earned by an individual from employment should be taxed by the employer using rates prescribed by the Act and the employer should remit the tax to ZIMRA on behalf of the employee. This tax is normally referred to as PAYE, Pay as you earn, but officially it is called Income tax and PAYE simply means you are taxed as you earn it on a monthly or weekly basis. I will not get into the technicalities of computing this tax. Corporate tax should also be calculated by the business operators and remitted to ZIMRA. The search powers of the commissioner explained in VAT (Part 1) also apply in this Act, hence no one can hide away from their income tax obligations and remain uncovered.
What are my obligations in terms of this Act as a business operator and/or employer?
Every business operator registered in Zimbabwe should furnish tax returns with ZIMRA declaring their income and tax computation. Technicalities and rates are prescribed in the Act. I will not get into the technical explanation of this type of tax. I encourage readers to do a further research on this tax head for it is again a critical law to comply with.
In terms of tax for individuals (PAYE), the obligation lies with the employer. The Act states that any employer who employs one or more people and whose gross pay including benefits and allowances exceeds $300 per month or the daily, weekly or annual equivalent, is required to register with ZIMRA within two weeks of becoming an employer, withhold PAYE from employees and remit it to the commissioner general by the tenth of the month following deduction. Readers should note that any person who has employed another person earning the amount described above has an obligation to deduct and remit PAYE for the employee concerned to zimra and failure to do so is an offence.
When exactly will I be deemed to have breached the Income Tax Act?
For Corporate Tax, an operator is deemed to have breached this Act when they fail to submit tax returns within prescribed dates as stated in the Act (readers should pay special attention to QPDs as explained in the Act). For individual tax, an operator is deemed to have breached this Act when they fail to register with ZIMRA as an employer within two weeks of becoming an employer. Assuming the operator has registered, a breach of the Act may come by failing to deduct PAYE or failing to remit it to ZIMRA within prescribed due dates. Other breaches include failing to bring all taxable income or benefits into consideration when computing the PAYE.
What will happen if I do not comply with the Income Tax Act?
Fundamentally all the charges applicable in the VAT Act are also applicable in the Income Tax Act (explained in Part 1). Readers who did not read Part 1 of this series may need to read it from the link above in order for them to appreciate the charges they are exposed to should they breach the provisions of this Act.
3. Labour Act
This Act is administered under the ministry of Labour (Not ZIMRA this time). I am not really a specialist in the Labour issues as I am in the VAT and Income Tax issues but it would be an injustice to leave out the Labour Act in my examples of laws that may be gruesome to operators if not adhered to. Arguably the labour act can actually be considered as the most aggressive law against business operators who are employers. The provisions of this act generally give a manifest biased advantage in favour of employees. This is a fact and employers and labour activists can agree with this notion. However, the government is said to have began working on a project of adjusting the act to correct the imbalance for it has been making life difficult for employers, (report not confirmed). I encourage employers never to think that they own employees and can toss them to and fro because once an employee take any employment contract related issue to the courts, the employer is more likely to lose than to win. Major issues relate to unfair dismissals, wrong treatment of employment contract classes and nature in terms of permanent or contract basis, adherence to regulated salaries in case of some particular labour categories, non provision of prescribed allowances in case of some particular labour categories etc.
Labour issues if won by employees normally come with “good” penalties and conditions against employers. An example is how an arbitrator recently ordered PSMAS to pay the popular Cuthbert Dube a whopping $3million dollars for a compensation of “unfair dismissal” which is claimed to have happened when he was dismissed last year, (I assume readers know the Cuthbert saga). Who could think Dube will be paid more money? Only the labour act knew it because it knows how strong it is against employers. Another recent issue is the ordering of ZOU to pay its dismissed Chief finance officer an amount in excess of $600,000 in compensation of “unfair dismissal” which is claimed to have happened a few years ago.
Small business operators should remember that they are not exempted from these acts and should not take it for granted that they employ informally. Similar issues involving SBOs are at the courts daily but it’s unfortunate that the cases are not published in the public media because the amounts involved may be immaterial though very material for a SBO. E.g. a SBO being ordered to pay a compensation of $1,500 to a distressed employee may be material to the operator but not material to the public. The labour act has no boundaries; it fishes out any sour employer-employee relationship and will make life difficult for the employer. I encourage all SBOs to research on the Labour Act and by all means try to comply because when non-compliance turns sour, the operator will regret the day they hired that guy by the street corner.
4.So where do I start if I want to really start to comply or improve my compliance with laws and regulations?
All laws are very difficult to interpret, let alone to apply. To solve this challenge, there are various organisations which provide services to operators who wish to have compliance advices. These experts spend time studying and researching on interpretation and application of laws and regulations. For all ZIMRA related laws, a good source of advice may be obtained from business management consultants. Firms of Chartered Accountants are the most known and publicly trusted consultants in these issues. I am a consultant in a firm of Chartered Accountants and we have a fully fledged Tax department with which its sole purpose is to provide Tax services.
However, almost all firms of Chartered Accountants have invested in much brain in these issues so as to provide lasting Tax solutions and advice to their clients. It is also true to say that any professional accountant can provide fairly adequate assistance on these issues especially to SBOs which may be constrained financially to hire a firm of Chartered Accountants. I encourage SBOs to seek services of accountants either part time or permanently so as to assist them in tax compliance issues. For labour issues, there are labour experts also. These include lawyers and/or Human Resources Management experts either by training or by experience. Always remember, the cost of non-compliance is always greater than the cost to comply.
This marks the end of this particular series. Thank you for reading.
About the Author
Archbold Musamadya is a Trainee Chartered Accountant and he is currently serving Articles with a firm of Chartered Accountants in Zimbabwe. He holds a B. Comm Accounting Honours degree with NUST (2013). He also holds a Post Graduate Diploma in Advanced accounting with UNISA (2014). He is currently studying for a Post Graduate Diploma in Applied Accounting with UNISA and also a ZCTA accreditation with the Institute of Chartered Accountants of Zimbabwe (ICAZ).
The information in this article is provided for general guidance only and on the understanding that it does not represent, and is not intended to be, advice. Any views or opinions presented in this article are solely my own and do not necessarily represent those of my employer, ZIMRA, StartupBiz Zimbabwe or any other person or organisation. Whilst care has been taken in its preparation, it should not be used as a substitute for consultation with professional accounting, tax, legal or other advisors. Before making any decision or taking any action, you should consult with an appropriate specialist or professional. No warranty is given to the correctness of the information contained in this article, or its suitability for use by you. To the fullest extent permitted by law, no liability is accepted by Archbold Musamadya for any statement or opinion, or for an error or omission or for any loss or damage suffered as a result of reliance on or use by any person of any material in the article