Introduction
The Finance (No.2) Act of 2024 (“Finance Act”) which was enacted after presentation of the 2025 national budget at the end of 2024 by the Minister of Finance Professional Mthuli Ncube and became effective 1 January 2025 placed a limit on borrowings for a person or tax debtor who does not have a valid tax clearance certificate.
Borrowing limit if there is no tax clearance certificate
Section 19 of the Finance Act amended the Income Tax Act (Chapter 23:06) by inserting a new section, being section 60B after section 60A of the Income Tax Act.
US$ 20 000 limit
According to the new section 60B(2):
No financial institution shall, during any uninterrupted period of twelve months, advance any credit in excess of twenty thousand United States dollars or the local currency equivalent thereof, directly or indirectly, in one sum or cumulatively, or by a way of a loan, overdraft or other means, to any person, unless that person avails to that financial institution a valid tax clearance certificate.
Definition of person
A person for purposes of this section is defined in section 68B(1) to mean:
- a company or other corporate entity incorporated, registered or domiciled inside or outside Zimbabwe
- the trustee of a trust,
- any body corporate or juristic entity, in whatever legal form it operates, or however it is constituted, incorporated or registered.
Financial institution
According to section 68B(1), financial institution means:
- the Reserve Bank of Zimbabwe
- any banking institution registered or required to registered in terms of the Banking Act [Chapter 24:20]
- any building society registered or required to be registered in terms of the Building Societies Act [Chapter 24:02]
- an asset manager as defined in the Asset Management Act [Chapter 24:26]
- a collective investment scheme as defined in section 3 of the Collective Investment Schemes Act, 1997
- any statutory body authorised by its Act of Parliament to advance credit to members of the public.
Enforcement by ZIMRA
In order to enforce the borrowing limit placed by section 68B(2) above, the ZIMRA Commissioner may do the following:
- require any financial institution by means of a written disclosure notice served on it, to give Commissioner without delay details of its loan portfolio for the period of twelve months preceding the date of service of the disclosure notice.
- require the financial institution to furnish further particulars of any of its borrowers in receipt of credit from it in excess of twenty thousand United States dollars or the local currency equivalent thereof
Consequences of non-compliance
According to section 68B(5) and (6):
- A financial institution found by the Commissioner to have contravened subsection (2) [meaning section 68B(2)] shall be guilty of a civil default and liable to pay a penalty to the Commissioner of five per centum of the credit, or five per centum of the total credit advanced in any period of twelve months, which penalty shall be recoverable by the Commissioner as a debt due to the State, together with interest at the prescribed rate of interest, by action in any court of competent jurisdiction
- A financial institution that fails to give the access or make any disclosure required by virtue of a disclosure notice shall be guilty of an offence and liable to a fine not exceeding level fourteen, in default of payment of the fine the manager and every member of its governing board of the financial institution shall be liable to imprisonment for a period not exceeding six months.
Conclusion
The above borrowing limit will affect many companies. It follows therefore that a company has to manage its tax affairs carefully in order to obtain a tax clearance certificate. If the tax clearance certificate is not in place such a person or company will not be able to borrow above US$ 20 000.
Disclaimer
This simplified article is for general information purposes only and does not constitute the writer’s professional advice. It is general and not specific to any entity or people.
Godknows (GK) Hofisi, LLB(UNISA), B.Acc(UZ), Hons B.Compt (UNISA), CA(Z), ACCA (Business Valuations) MBA(EBS, Heriot- Watt, UK) is the Managing Partner of Hofisi & Partners Commercial Attorneys, chartered accountant, insolvency practitioner, commercial arbitrator, registered tax accountant and advises on deals and transactions. He has extensive experience from industry and commerce and is a former World Bank staffer in the Resource Management Unit. He was recently appointed to sit on the Council of Estate Administrators in Zimbabwe. He writes in his personal capacity. He can be contacted on +263 772 246 900 or ghofisi@hofisilaw.com or gohofisi@gmail.com. Visit www//:hofisilaw.com for more articles.
