In the world of Zimbabwean business, few things are as stressful as a surprise letter from the Zimbabwe Revenue Authority (ZIMRA) demanding an explanation for large sums of money sitting in your bank account. For many entrepreneurs, consultants, and legal practitioners, this money often doesn’t actually belong to them—they are simply holding it as an
agent for a third party.
However, to ZIMRA, a credit in your bank account is “guilty until proven innocent.” This article breaks down the legal reality of third-party funds, how the law protects you, and—most importantly—how to protect your business from the crushing “burden of proof.”
1. The Golden Rule: What is “Gross Income”?
To understand how ZIMRA treats your bank balance, we must look at the Income Tax Act [Chapter 23:06]. The law says you are taxed on your “Gross Income.” Under Section 8(1), Gross Income is defined as the total amount “received by or accrued to” a person. This sounds simple, but the magic lies in those two phrases. For over 40 years, Zimbabwean courts have argued over what “received by” actually means.
The “Conduit” Principle
The most important lesson for any business owner is this: Receipt does not always mean ownership. In the landmark case of Commissioner of Taxes v G (1981), the court ruled that for money to be “received,” the person must receive it for their own benefit. If you are just a “conduit”—a pipe that the money flows through to get to someone else—it has not been “received” by you in the eyes of the tax law.
Layman’s Example: If a friend gives you $100 to give to their landlord, you have the $100 in your pocket, but you aren’t $100 richer. You cannot buy lunch with it. Therefore, that $100 is not your “income.”
2. How ZIMRA Views Your Bank Account
While the law is on your side, ZIMRA’s starting position is not. When ZIMRA auditors look at your bank statements, they follow a simple logic: Deposit = Revenue.
The Burden of Proof (Section 63)
This is where businesses get into trouble. Section 63 of the Income Tax Act explicitly states that the burden of proof lies with the taxpayer. This means if ZIMRA claims a $50,000 deposit in your account is taxable sales, you must prove it isn’t. You are not innocent until proven guilty; you are a taxpayer until proven an agent.
The “Pay Now, Argue Later” Trap
Zimbabwean law is famously tough on collections. In cases like ZIMRA v Packers International, the courts have reinforced that even if you are appealing a ZIMRA decision, you generally have to pay the tax first and get a refund later if you win. If you are holding $100,000 for a client and ZIMRA takes $25,000 of it as “income tax,” you are left with a massive debt to your client and a long legal battle to get that money back.
3. The Dangerous Side Effects: IMTT and VAT
Even if you prove the money isn’t “Income,” two other taxes often “leak” from third-party funds:
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IMTT (The 2% Tax): Under Section 22G of the Finance Act, this tax is triggered by the transfer of money. Even if you are moving money for a client, the bank will automatically deduct 2%. ZIMRA rarely grants exemptions for this unless you are a registered NGO or a specific government body.
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VAT Risk: If you are a VAT-registered operator, ZIMRA may see a large deposit and assume you’ve made a sale. They might demand 15.5% VAT on top of the income tax. Without a clear “Agency Agreement,” you could be taxed nearly 40% on money that wasn’t even yours!
4. How to Protect Your Business: A Practical Guide
To avoid the “over-burden of proof,” you need to move from a “trust me” system to a “prove it” system. Here is how to shield yourself:
A. Use “Trust” or “Escrow” Accounts
If your business frequently handles third-party money (like a real estate agent or a lawyer), do not put that money in your main trading account.
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Why? The Finance Act provides certain exemptions for “specified trust accounts.”
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Action: Open a separate bank account specifically for client funds and name it clearly (e.g., “XYZ Ltd – Client Trust Account”).
B. The Power of the Agency Agreement
ZIMRA loves paper. If you are receiving money for someone else, you must have a written Agency Agreement signed before the money hits your account.
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What it should say: It must clearly state that you have no “beneficial interest” in the funds and that you are strictly an intermediary.
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Case Law Support: Courts in cases like Geldenhuys v Commissioner for Inland Revenue have ruled that a clear legal obligation to pass on funds is the best defense against a tax assessment.
C. Accounting Separation
In your books (Xero, Pastel, or even Excel), third-party funds should never be recorded as “Sales” or “Revenue.”
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Correct Way: Record them as a Liability (Money Owed to Third Party). When you pay the money out, the liability clears. This ensures that when you produce your financial statements for ZIMRA, your “Gross Income” only reflects your actual earnings (like your commission or fee).
D. The “Disbursement” Rule on Invoices
If you are charging a client for your services plus expenses you paid for them, list them separately.
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The Pro-Tip: Mark third-party costs as “Reimbursements” or “Disbursements.” Do not add a markup to these, or ZIMRA will treat the whole amount as your taxable income.
5. Summary: Your Compliance Checklist
If ZIMRA knocks on your door tomorrow to ask about a deposit, you should be able to hand them a folder containing:
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The Agency Contract (The “Why”).
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The Bank Statement from a separate account (The “Where”).
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The Ledger/Reconciliation showing the money coming in and going out to the rightful owner (The “Who”).
Conclusion
Receiving money for a third party is a common business practice in Zimbabwe, but it is a tax minefield. By understanding that beneficial entitlement (the right to use the money for yourself) is the only thing that makes it taxable, you can stand your ground.
Don’t wait for an audit to start acting like an agent. Build your “paper trail” today so that ZIMRA sees a conduit, not a taxpayer.
