Situations where Churches are Taxable in Zimbabwe.
Churches in Zimbabwe are generally exempt from income tax and capital gains tax, but they may be liable to value added tax (VAT) if they meet certain criteria.A significant number of church organisations in Zimbabwe are operating at large economic scales with income streamed from tithes and offerings.
The question that stands to be answered is that if churches play an important role in the economy, how are they affected by tax? In this article we look at the different taxes affecting churches and those that don’t affect them.
In essence, the main streams of income ordinarily for a church are the church’s offerings, donations and tithes, which are exempt from income tax in terms of the Income Tax Act. This, however, does not exclusively mean that all other church activities will not be affected by tax, instead there are various situations where churches are required to pay tax.
One of the situations is when a church carries trading activities that produce profits. Income tax is then chargeable on business profits as they are not income from a donation, a tithe or an offering. Such income is taxable if they are derived from, or deemed to be from a source within Zimbabwe. Another tax that greatly affects churches will be Pay As You Earn (PAYE)
Another tax that can raise the question of whether it affects churches is Capital Gains Tax (CGT). CGT is payable on capital gains realized from the sale of specified assets. In relation to churches, CGT exempts the latter as in accordance with section 10 (a) of the CGT Act. Therefore a church is exempt from CGT in respect of any sale of specified assets by it. However, the exemption does not cover a situation where the church carries on a trade through a company or other statutory corporation and sells a specified asset through that company or statutory corporation.
Churches are exempt from income tax and CGT but they may be liable to Value Added Tax (VAT) if they qualify to register for the VAT. Entities and organizations may qualify to be registered for VAT if they undertake various trading activities and their annual turnover exceeds US$40,000. On the other hand, since VAT is an indirect tax levied on goods and services, church organizations are not exempt from the payment of VAT when they purchase goods or services from their suppliers, the goods or services being subject to VAT (that is neither zero rated or exempt.) The VAT Act provides that churches are exempt from VAT for supply or manufacture of goods if at least 80% of the value such goods and services consists of donated goods. In the event that the church sells some of its ware, VAT is payable. VAT is chargeable on the qualifying church organisations at the rate 15%
To be exempt from income tax, a church must meet the following requirements:
- It must be a religious organization.
- It must be established and registered in Zimbabwe.
- It must not be a business or trading organization.
- It must not engage in any political activity.
To be exempt from capital gains tax, a church must meet the following requirements:
- It must be a religious organization.
- It must be established and registered in Zimbabwe.
- The asset that is being sold must have been acquired for the purpose of carrying out the church’s religious activities.
Churches may be liable to VAT if they meet the following criteria:
- They have an annual turnover of more than US$40,000.
- They sell goods or services that are subject to VAT.
- They are not registered for VAT relief.
If a church is liable to VAT, it must register with the Zimbabwe Revenue Authority (ZIMRA) and charge VAT on its goods and services. VAT must be remitted to ZIMRA on a monthly basis.
Churches that are exempt from income tax and capital gains tax are still required to submit annual returns to ZIMRA. These returns must include information on the church’s income, expenses, and assets.
Churches that are liable to VAT are also required to submit monthly VAT returns to ZIMRA. These returns must include information on the church’s sales, purchases, and VAT liability.
