In Zimbabwe, the topic of taxation often brings complex jargon and detailed legal frameworks that can be challenging to navigate for the average person. One such area is the 1% Wealth Tax introduced through Finance Act 13 of 2023 with effect from 1 January 2024. This article unpacks who is affected by this tax, the role of city councils in its administration and other practical considerations.
At its core, the Wealth Tax is a form of taxation levied on the value of a dwelling other than one’s principal private residence. The term “dwelling” signifies a home, place of residence, domicile, or abode by natural persons such as houses, apartments, and condos. The premises should be used by natural persons and display physical characteristics demonstrating its suitability for, and capabilities of, being occupied as a residence or place where people live. In other words, the building, or any part of it should be used wholly or mainly for the purpose of residential accommodation. The fact that the dwelling should be a building, premises, structure, or any other place signifies a fixed place of abode or a specific location. This scopes out mobile houses such as caravans and houseboats. Commercial establishments such as hotels, motels, inns, boarding houses, nursing homes, camping sites, hostels or similar establishments are excluded.
Some grey areas exist regarding status of houses in the ownership of companies, unincorporated bodies, and trusts. It appears from our reading of the law that only houses owned by natural persons are within the scope of wealth tax. We quote part of the Finance 13 of 2023 as follows “(2) There shall be charged, levied and collected throughout Zimbabwe for the benefit of the Consolidated Revenue Fund a Wealth Tax paid by the owner of any taxable dwelling, that is to say any dwelling that is not his or her principal private dwelling” Underlined words our own emphasis. For this reason, we are inclined to conclude that wealth tax only applies to dwellings owned by natural persons.
Regarding buildings for use as students’ accommodation, it appears this may be included in the definition of a dwelling even if the contractual arrangement is between the institution and the owner of the property. In a nutshell, the two determining factors is the owner of the property and the use of the property regardless of the contractual arrangement. The registration status with city council as commercial or domestic property may assist but may not be the only deciding factor in determining whether a property is a taxable dwelling.
Not all dwellings are subject to wealth tax. The target are second homes, which are dwellings not used as owner’s principal private residence with a value of more than USD250,000. The tax is calculated at a rate of one percent of such value but may not exceed USD50,000 in a year of assessment.
The responsibility of collecting and remitting the Wealth Tax falls upon local council of the area the dwelling is located. The tax is collected by the local council on the first instance paying property rates by the person to the local authority. The local or city council plays a pivotal role in this process, utilizing the general valuation roll to determine the taxable value of dwellings within their jurisdiction. The General Valuation Roll is essentially a comprehensive list or register of properties situated within the boundaries of a given local authority. It is compiled for rating purposes and includes details such as the location, size, and value of each property. The lifespan of a Valuation Roll ranges from three to ten years but can be extended by a further five years with Ministerial consent. The Valuation Section, typically under the Department of the Chamber Secretary and led by the City Valuer, undertakes the task of valuing properties. This valuation covers a wide range of purposes, including rating, insurance, leasing, acquisition, and sale of council properties. Additionally, it involves estimating building costs and conducting inspections to ensure compliance with sale conditions of council stands.
Understanding the calculation, the maximum liability, and the role of local councils in the collection and remittance of this tax is essential for property owners. With local councils leveraging the general valuation roll for accurate property assessments, this system ensures a fair and efficient approach to taxing wealth in the form of real estate. For property owners and potential investors, grasping these fundamentals is the first step towards navigating Zimbabwe’s property tax landscape effectively.
