“Digital Tax” further explained

ZIMRA through Public Notice 5 of 2026 has demystified application of “Digital Tax” . While the scope of “electronic services” remains largely the same, the government has transitioned from a self-assessment model—which was difficult to enforce—to a withholding tax mechanism managed by local financial institutions.

Below is a thorough analysis of the notice, broken down by key pillars and their specific impacts.

1. The Transition to a Withholding Mechanism

Previously, non-resident suppliers (like Netflix or Google) were expected to voluntarily register and remit VAT if they met the threshold. Under the new rules, the responsibility shifts to Intermediaries (banks and mobile money operators) to deduct tax at the source of payment.

• Impact on Revenue Collection: This drastically reduces tax evasion. By moving the “point of collection” to the local bank processing the payment, ZIMRA ensures it captures revenue from every transaction, even from suppliers who haven’t registered locally.

• Impact on Compliance: The burden of “enforcement” moves from ZIMRA (trying to chase foreign companies) to local banks, who are easier to regulate and audit within Zimbabwe.

2. Expanded Definition of Digital Services

The notice provides an exhaustive list of services now explicitly captured, ranging from AI platforms and streaming to ride-hailing and cloud storage.

• Impact on Emerging Tech: Explicitly mentioning AI platforms and cloud computing ensures that the law remains future-proof as businesses move away from physical software to “Software as a Service” (SaaS).

• Impact on Gig Economy: Services like Uber, Bolt, or inDrive (transport hailing) and digital marketplaces are now firmly in the net. This levels the playing field for local transport companies that were already paying domestic taxes.

3. Dual-Rate Tax Structure

The tax rate depends on the registration status of the foreign supplier:

1. 15.5% for unregistered suppliers.

2. Tax fraction of 3/23 (approx. 13.04%) for registered suppliers.

• Impact on Pricing: Consumers will likely see an immediate 15.5% increase in the cost of subscriptions (e.g., Netflix, Spotify, or Starlink) if the supplier is not registered.

• Impact on Registration Incentives: Foreign companies are incentivized to register for VAT to benefit from the lower tax fraction (3/23) and to allow their customers to receive valid fiscal tax invoices for input tax claims.

4. Role and Obligations of Intermediaries

Intermediaries include banks, building societies, and mobile money platforms (e.g., EcoCash). They must withhold the tax, remit it to ZIMRA, and issue withholding certificates to consumers.

• Impact on Financial Institutions: Significant operational costs. Banks must update their payment processing systems to automatically identify and “top-slice” tax from international digital payments.

• Impact on Transparency: The requirement to issue withholding certificates to the payer ensures that the consumer knows exactly why they were charged extra, reducing disputes between customers and banks.

5. Registration and Thresholds

The threshold for compulsory registration for non-resident suppliers is USD 25,000 in a 12-month period.

• Impact on Small/Niche Providers: Smaller foreign startups or niche service providers making less than $25,000 from Zimbabwean users are not required to register. However, they will still be taxed at the higher 15.5% rate via the bank, as the bank cannot easily verify their global turnover at the point of transaction.

• Impact on Efficiency: Use of the TaRMS (Tax Administration and Revenue Management System) and the simplified e-commerce module makes it easier for foreign entities to comply without needing a physical office in Zimbabwe.

6. Currency and Input Tax Claims

All Digital Services Tax must be paid in United States Dollars (USD). Local VAT-registered businesses can claim this tax as “Input Tax” if they have a valid fiscal invoice.

• Impact on Local Businesses: Companies using foreign software (like Microsoft 365 or AWS) for business operations can offset this tax against their own VAT liabilities. This prevents “tax cascading” (tax on tax) for the local business sector.

• Impact on National Reserves: By demanding payment in USD, the government is utilizing the digital economy to bolster its foreign currency reserves.

7. Exemptions and Zero-Rating

The notice maintains consistency by exempting or zero-rating services that would be tax-free if provided locally, such as educational and medical services.

• Impact on Social Services: This ensures that online degrees, medical consultations, and essential financial services remain affordable and accessible to the public, preventing the tax from becoming a barrier to education or health.

• The following are exempt services

Summary Table: Key Changes at a Glance