Introduction
A tax credit is a type of tax incentive that reduces the tax liability of qualifying taxpayers as it is deducted from the income tax that would have been charged to the taxpayer. Tax credits relating to that year are deductible in terms of section 7(c) of the Income Tax Act [Chapter 23:06] with reference made to the Charging Act [Finance Act (Chapter 23:04)].
The Finance Act provides credits which are applicable to the employer and employees. Credits applicable to the employer include the youth employment credit and credit for employment of physically challenged persons as provided in sections 13A and 13B of the Finance Act.
Youth Employment Credit
Introduced by Finance Act No.3 of 2019, the youth employment credit is provided to a qualifying taxpayer who employs any additional employee aged 30 years or less during the year of assessment and who has completed 12 consecutive month’s employment with the claimant (qualifying taxpayer). The applicable credit is US$ 50 per month for each additional employee up to a maximum of US$ 2,250 in any year of assessment.
It should be noted that the definition of employee excludes a trainee, intern and apprentice and a managerial employee. According to the Labour Act [Chapter 28:01] a managerial employee means an employee who by virtue of his contract of employment or of his seniority in an organisation, may be required or permitted to hire, transfer, promote, suspend, lay-off, dismiss, reward, discipline or adjudge the grievances of other employees.
To qualify for the credit the company, trust, or individual taxpayer in trade or investment must be registered with ZIMRA for tax purposes and tax compliant in all the tax types he is registered for. However, a credit cannot be claimed for a taxpayer who has an annual turnover equal to or exceeding US$ 1,000,000.
Credit for employment of physically challenged persons
A qualifying taxpayer can also claim credit for employment of physically challenged persons during the year of assessment. A physically challenged person is defined in the Finance Act to mean an individual having a medically ascertainable physical condition or impairment that makes it difficult for him or her to do things that other individuals without the same physical condition or impairment can do easily.
The credit deductible for employment of physically challenged persons is calculated at the rate of US$ 50 per month (or local currency equivalent) for each additional employee up to a maximum aggregate amount of US$ 2,250 (or local currency equivalent) in any year of assessment. For the taxpayer to qualify for this credit, they should be compliant in every respect with the requirements of the National Social Security Act [Chapter 17:04]. The taxpayer should also provide proof that is satisfactory to the Commissioner in the form of a valid medical report, issued at the time a credit is claimed, by a medical practitioner employed in a Government hospital and the employee should have completed 12 consecutive months’ employment with the claimant.
Cases where credit exceeds the tax payable
Where the credit (youth employment credit and credit for employment of physically challenged persons) is more than the amount of tax payable, the taxpayer shall not be entitled to a refund, but the amount will be carried over to the next year of assessment. Similarly, the credit can be added to any assessed loss for the purpose of carrying it over to the next year of assessment.
In conclusion, these credits reduce the amount of tax payable by a qualifying taxpayer enhancing cashflows and promoting employment.
How Baker Tilly May Assist
Bakertilly will provide an advisory paper with an assessment on whether a company is eligible for the credit. Bakertilly will also assess the validity of medical reports in relation to physically handicapped employees to avoid potential penalties arising from erroneous credit claims.
Written by Nyashadzashe Ruimbe - Tax Consultant
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