Churches will have their income from trade and investments taxed from next year, but income will still be tax-free if it comes from donations, tithes, offerings and those church-owned companies whose profits are devoted entirely to church activities with no individual receiving dividends. Changes to the Income Tax Act that have been brought about by Finance Act signed into law last Friday by President Mugabe provides for the taxation of “any ecclesiastical, charitable or educational institution”, but retains tax exempt status for what in practice is almost the entire income of mainline churches.
The third schedule of the Income Tax Act was amended to make clear what church income was still exempt from taxes. Ecclesiastical institutions, and charitable and educational institutions of a public character will not have their income from donations, tithes, offerings or other contributions by the members or benefactors of the institutions taxed.
Also exempt are “receipts or accruals that are not receipts and accruals of income from trade or investment carried on by or on behalf of the institutions concerned”. Income from the special group of companies owned by churches, charities or educational institutions that are not designed to produce profits for individuals, what are known at companies licensed in terms of Section 26 of the Companies Act, is also exempt from taxation.
These Section 26 companies are set up to benefit the public or a section of the public with income devoted entirely to the purposes of the public benefit. They are usually set up to grant limited liability to a church asset or a school and ensure proper accounting. Once licensed they do not have to use the word Limited in their names and are forbidden to pay dividends to any individual or any purpose not connected with the church, charity, school or college that owns them.
Presenting the mid-term policy statement reviewing the 2015 National Budget in Parliament in July this year, Finance and Economic Development Minister Patrick Chinamasa announced several austerity measures that include new levies and taxes on churches, imported groceries, fertiliser and a ban on importation of second hand clothes.
On plans to tax churches, the minister said the tax would be on their income-generating projects, but said tithes and offerings were exempted.