THE decision by Patrick Chinamasa to increase Pay As You Earn (PAYE) tax on the highest income earners’ bracket to 50% could have adverse effects on attempts to woo back Zimbabwean professionals in the Diaspora, a tax expert has said.
In his 2014 budget statement, Chinamasa increased the rate of tax for those earning above US$20 000 per month from 45% to 50%.
Tax Management Services MD Tendai Mavima expressed concern over the decision by Chinamasa.
“For us we feel the decision to increase the Pay As You Earn rate to 50% was not a good decision,” Mavima said.
“On one hand, we want to attract our foreign intellectual property for us to develop our country together but on the other hand you are saying if you come and you earn so much we will tax you heavily as if it is an offence to earn so much.”
He said this presented a conflict of interest and proposed that the maximum PAYE tax rate be set at 35%.
He said although the proposed Income Tax Bill was in line with international best practice, the government had included some clauses which were “not user friendly.”
One of the clauses Mavima cited is the restriction in the bill on companies to only claim on expenditure for the production of income unlike previously when companies could claim expenses for both production of income and purposes of trade. He said this scenario was not practical.
He added that the definition of the resident individual in the bill, which allows those in the Diaspora to be taxed, could be prohibitive.Mavima said as the business community, they have engaged the authorities on the need for further clarification and is probably why the bill has been postponed from coming into effect at the beginning of the year. He said they had approached the authorities to include practice notes in the bill that give clear interpretation of the bill to avoid confusion by being open to various interpretations.
“If the law is not clear, it will result in a lot of litigation and a lot of legal costs and objections which is not necessary,” he said.