Taxation for Non-Profit Organisations: Income Tax
Posted on 30 November, 2020 at 16:28
By Epaphras Chinyakuza
Introduction
The general notion that Non-Profit Organisations (NPOs) are tax exempt has a tendency to mislead practitioners into affording less attention to the taxation guidelines for their organisations. There exists a statutory relationship between the Zimbabwe Revenue Authority (ZIMRA) and Non-Profit Organisations (NPOs) whose intricacies are seldom clearly defined. With a view to shedding light on taxation for NPOs, we have embarked on a series of brief articles on taxation for NPOs to outline both the obvious and not-so-obvious tax responsibilites and obligations applicable to NPOs.
Income Tax
Income tax is a charge imposed by government on the annual
gains of a person, corporation, or other taxable unit derived through work,
business pursuits, investments, property dealings, and other sources determined
in accordance with the Internal Revenue Code or state law
The Third Schedule of the Income Tax Act [Chapter 24:06], (2014) specifies that receipts or accruals of clubs, societies, institutes and associations organized and operated solely for social welfare, civic improvement, pleasure, recreation or the advancement or control of any profession or trade or other similar purposes are exempt from income tax. As mentioned in the Third Schedule, the receipts or accruals indicated above would be specifically for the purposes mentioned. Any other income received is subject to taxation just as any other for-profit venture.
The pursuit of financial sustainability has complelled many NPOs to set up profit making ventures that build up reserves for future operations. These ventures do not enjoy the same tax emptions as mentioned in the Third Schedule. They need to be registered as separate entities and declare normal income tax just as corporates, i.e. 25% income tax plus 3% Aids levy on the calculated income tax. The profit making venture would therefore be required to submit quarterly returns (QPD – ITF 12B) and payments for income tax by the 25th of the month following the end of each quarter. The income tax self assessment return (ITF 12C) should also be submitted and corresponding payment made by the 25th of March of the succeeding fiscal year.
The profit-making venture can plough back into the NPO in the form of donations or dividends.
Key Returns and Due Dates for Income Tax (Applicable for profit-making ventures within NPO setup)
|
Return |
Form |
Basic
Calculation |
Due
Date |
|
1st QPD |
ITF 12B (online) |
10% of forecasted annual tax |
25 March (current year) |
|
2nd QPD |
ITF 12B (online) |
25% of forecasted annual tax |
25 June (current year) |
|
3rd QPD |
ITF 12B (online) |
30% of forecasted annual tax |
25 September (current year) |
|
4th QPD |
ITF 12B (online) |
35% of forecasted annual tax |
20 December (current year) |
|
Income Tax Self Assessment |
ITF 12C (online) |
Calculated Annual Tax less Total QPDs for same period |
30 April (Succeeding year) |
Bibliography
The Free Dictionary. (2017). Income Tax. Retrieved September
5, 2017, from http://legal-dictionary.thefreedictionary.com/income+tax
Zimbabwe Revenue Authority. (2017). Pay As You Earn (PAYE)
Tables for January to December 2017. ZIMRA. Retrieved September 5, 2017, from
http://www.zimra.co.zw/index.php?option=com_phocadownload&view=category&id=21:tax-tables&download=835:2017-tax-tables&Itemid=99
Income Tax Act [Chapter 24:06]. (2014, 11). Printflow. Retrieved
August 2017, from
http://www.zimra.co.zw/index.php?option=com_phocadownload&view=category&id=23:legislation&download=639:income-tax-act&Itemid=112
