Capital Allowances under Zimbabwe Income Tax Law Introduction to Capital Allowances in Zimbabwe

Under the Income Tax Act (Chapter 23:06), capital expenditures are generally not deductible as they are of a capital nature. Section 15(2)(a) (the "general deduction formula") allows deductions for expenses incurred in the production of income, but specifically excludes capital outlays. In other words, buying or improving a long-term asset (machinery, buildings, etc.) cannot be expensed immediately as a normal business cost. Instead, Section 15(2)(c) (read together with the Fourth Schedule of the Act) provides for capital allowances, which are tax deductions for capital expenditures spread over time. These allowances effectively replace accounting depreciation for tax purposes. By claiming capital allowances, both individuals (sole traders) and companies engaged in trade can deduct portions of the cost of assets used in the business against taxable income over several years, even though such costs are capital in nature.

Key concept: Accounting depreciation is not tax-deductible in Zimbabwe. Instead, taxpayers use the capital allowance system. Capital allowances are a form of tax depreciation with rates and rules defined by law. The allowances are available to any taxpayer (individual or corporate) carrying on a trade, who incurs qualifying capital expenditure for the purposes of that trade. Capital allowances serve to encourage investment by allowing the cost of assets to be written off against taxable income, albeit in a controlled manner and subject to various conditions.

Below we detail the main categories of capital allowances under Section 15(2)(c) and the Fourth Schedule, the qualifying conditions for each, how they are calculated (with examples), and other relevant rules (differences from accounting depreciation, disposal "clawbacks," etc.). We also touch on mining capital allowances (governed by Section 15(2)(f) and the Fifth Schedule) and other special allowances, as well as recent legislative changes (Finance Act 2025 and 2026 Budget proposals). Finally, we highlight notable case law that has clarified the interpretation of these allowance provisions.

Categories of Capital Allowances (Section 15(2)(c) & Fourth Schedule)

Zimbabwe's Fourth Schedule to the Income Tax Act enumerates the assets and rates for capital allowances. The main categories include: Special Initial Allowance (SIA); Wear and Tear Allowance (standard annual depreciation); Industrial Buildings Allowance; Commercial Buildings Allowance; Staff Housing Allowance; Farm Improvements Allowance (including tobacco barns); Mining Capital Allowances (under the Fifth Schedule); and other allowances such as those for leased improvements and scrapping of assets. We discuss each in detail below.

Special Initial Allowance (SIA)

Special Initial Allowance (SIA) is a form of accelerated depreciation available on certain assets. It is an optional one-time allowance that taxpayers can elect to claim in the first year an asset is used, instead of the normal wear-and-tear deduction. SIA is designed to front-load a portion of an asset's cost as a deduction, providing a tax incentive for capital investments. Key features of SIA include:

• Qualifying assets: SIA is allowed on specified new immovable assets that a taxpayer constructs (not purchases) and on movable assets that are purchased for business use. The immovable assets eligible are: industrial buildings, farm improvements, staff housing, railway lines, and tobacco barns (or additions/alterations to those). Notably, commercial buildings do not qualify for SIA (except historically if built in approved "growth point" areas, a provision now repealed). On the movable side, SIA applies to "articles, implements, machinery or utensils" purchased for the purposes of the taxpayer's trade. This term is defined broadly to include computer software (tangible or intangible) used in the business, as was clarified by a 2014 law change. In practice, this means equipment, vehicles, factory machinery, tools, and even acquired software can qualify for SIA, whereas land, inventory, and assets not used in trade (or specifically excluded) do not qualify.
• Optional election: The taxpayer must elect to claim SIA -- it is not automatic. If SIA is not claimed in the first year of use, the asset will instead go on the normal wear-and-tear (W&T) depreciation schedule by default. Once SIA is claimed for an asset, no wear-and-tear is allowed in that same year (because SIA essentially replaces first-year depreciation). Typically, taxpayers elect SIA when they have sufficient taxable profits to utilize the deduction or when faster write-off is desirable.
• Percentage and spread: The standard SIA rate is 25% of the cost of the asset. Importantly, this 25% isn't the full deduction of cost in one year; rather, it is the first slice of the cost that is deducted in Year 1. The remaining cost is then written off in subsequent years via wear-and-tear. In effect, for most taxpayers SIA leads to a 100% write-off over a four-year period: 25% in the first year (SIA), and the remaining 75% spread equally over the next three years as accelerated wear-and-tear at 25% per year. (This is quicker than the normal wear-and-tear rates, which typically take 20 or more years to fully depreciate an asset.) Example: If a machine costs USD $10,000, electing SIA allows a $2,500 deduction in Year 1 (25%), and then 25% of cost ($2,500) in each of Years 2, 3, and 4, totaling $10,000 by the end of year 4.
• Higher SIA for SMEs and certain investors: Since 2011, qualifying Small or Medium Enterprises (SMEs) enjoy a 100% SIA rate (accelerated) -- effectively a full write-off over three years. In such cases, 50% of cost is deducted in the first year of use, and 25% in each of the next two years (50+25+25 = 100%). Similarly, since 2017, any taxpayer classified as a "licensed investor" (as defined in the Act) also qualifies for a 100% SIA (50/25/25) accelerated write-off. These provisions are meant to stimulate small business growth and attract certain approved investments by allowing faster tax relief on capital outlays. Other taxpayers (large companies, etc.) remain on the standard 25% per annum SIA regime (25% × 4 years).
• Usage and timing conditions: To claim SIA, the asset must be used by the taxpayer in the year of assessment in which the allowance is claimed (simply purchasing it is not enough if it's not yet brought into use). If an asset is acquired but only first used in a later tax year, the SIA is deferred and allowed in that later year when use commences. Furthermore, the asset must be used at least 90% for the purposes of the taxpayer's trade in its first year of use. If an asset will be used significantly for private or non-trade purposes, SIA may be refused by the Commissioner. (In practice, this means assets like company vehicles or equipment should predominantly serve the business -- otherwise only the wear-and-tear allowance, apportioned for business use, would be available.) In the case of movable assets that are leased out (i.e. the taxpayer is leasing the asset to someone else), SIA is only granted if the taxpayer retains ownership and the rights to repossess the asset -- there must be no option for the lessee to purchase it at end of lease, and the lease should not be a disguised sale. This condition prevents abuse via sale-and-leaseback schemes or leasing to related parties with intent to transfer ownership.
• Exclusions: SIA cannot be claimed on commercial buildings (as noted) and generally not on second-hand immovable property (only construction costs qualify, not purchases of existing buildings). Additionally, a special restriction exists for fiscalised electronic registers (point-of-sale machines required under VAT law): only half the cost of such registers is eligible for SIA if the taxpayer also claimed a VAT rebate on them. (The other half of the cost is covered by a VAT Act incentive, Section 15(3)(k) of the VAT Act, so the tax law avoids giving a double benefit by halving the SIA in such cases.)
• Effect on wear-and-tear: If SIA is claimed, no wear-and-tear (W&T) is claimed on that asset in the first year. From the second year onward, the asset will attract wear-and-tear at an adjusted rate. Notably, after claiming SIA, the annual wear-and-tear rate becomes 25% of cost for the remaining years. This aligns with the idea that the asset will be fully written off over the four-year period (25% each year). We will discuss wear-and-tear more below, but in short: claiming SIA accelerates depreciation; not claiming SIA means the asset stays on the normal (slower) depreciation schedule.

Finally, it's worth noting that SIA is a true allowance, not a timing gimmick -- it ultimately gives the same total deduction as wear-and-tear (100% of cost), just sooner. Taxpayers in a profit-making position often prefer SIA for its immediate cash-flow benefit. However, a taxpayer expecting losses might defer SIA to avoid wasting it (given the 6-year loss carryforward limit for non-mining businesses -- more on that later). The election allows some flexibility in tax planning.

Wear and Tear Allowance (Depreciation)

The Wear and Tear (W&T) allowance is the standard annual depreciation deduction for capital assets. It applies to the same broad classes of assets as SIA (immovable and movable property used in the trade) and is governed by Paragraph 3 of the Fourth Schedule. Key points about wear-and-tear:

• When W&T is granted: Every full year that an asset is used in the production of income, after any initial allowances, it can earn a wear-and-tear deduction. If SIA is not claimed on an asset, then wear-and-tear is allowed from the first year of use onward. If SIA is claimed in year 1, then wear-and-tear for that asset begins in year 2. Essentially, W&T covers the cost not covered by SIA (or the entire cost, if no SIA).
• Qualifying assets: The coverage of W&T is similar to SIA but slightly broader for immovables -- notably, commercial buildings qualify for wear-and-tear (even though they don't get SIA). The Fourth Schedule lists the eligible immovable assets as: commercial buildings, industrial buildings, farm improvements, staff housing, railway lines, and tobacco barns, including any additions or alterations to those. All these, if used for trade, earn wear-and-tear allowances. On the movable side, articles, implements, machinery, utensils (incl. software) used in the business qualify, just as for SIA.
• Method of calculation: Wear-and-tear is calculated on original cost, using a straight-line method in Zimbabwe. This means the allowance is a fixed percentage of the asset's historical cost each year, rather than a diminishing balance on the undepreciated value. (Historically, if SIA wasn't claimed in the first year, one older practice was to calculate first-year W&T on cost and subsequent years on the reducing income tax value; however, current rules stipulate straight-line on cost, which simplifies things. In effect, for assets without SIA, the same fixed amount is deducted every year until the asset is fully written off or disposed. For assets with SIA, the "fixed amount" in subsequent years is adjusted as described below.)
• Rates of wear-and-tear: The standard rates are set by law (Fourth Schedule) and in practice are: 5% per annum on cost for most qualifying assets (this covers industrial buildings, farm improvements, staff housing, railway lines, tobacco barns, machinery, tools, etc.), and 2.5% per annum on cost for commercial buildings. At 5% straight-line, an asset is written off over 20 years. At 2.5%, a commercial building would be written off over 40 years. These rates reflect the assumption of the asset's useful life for tax purposes. A summary of key rates and limits:
  • Industrial, farm, staff housing, railway, tobacco barns, machinery, etc.: 5% of cost per year (unless SIA alters the pattern).
  • Commercial buildings: 2.5% of cost per year.
  • If SIA was claimed: For years after the SIA, wear-and-tear is taken at 25% of cost per year until the cost is fully depreciated. (Effectively, as noted, SIA + subsequent W&T writes off the asset in 4 years total: 25% + 25% + 25% + 25%.) This 25% rate in later years is a special accelerated rate applicable only because SIA was taken; it replaces the normal 5%/2.5% in those cases.
• Apportionment for non-business use: An important condition is that wear-and-tear is allowed only to the extent an asset is used for trade (business) purposes. If an asset is used partly for private use, the allowance must be apportioned and only the business-use portion is deductible. This typically applies to movable assets like passenger vehicles or equipment that see partial personal use. Example: A car used 60% for the business and 40% for the owner's personal use would only get 60% of the full wear-and-tear allowance each year. By contrast, for immovable property (buildings), the law historically did not apportion for partial private use -- instead, it set strict usage thresholds. For instance, a building must be at least 90% used for trade to be classified as a "commercial building" eligible for any allowance. If a building has a significant private/residential component (over 10%), it typically fails to qualify as a commercial or staff building, and thus no wear-and-tear is given on the private portion. In short, immovables have an all-or-nothing trade use test, whereas movables are prorated if dual-use. That said, if an immovable asset is, say, 95% business and 5% personal (within the 10% tolerance), it still qualifies fully as a business asset and the full allowance is given (no 5% disallowance).
• Apportionment for part-year usage: If an asset is brought into use or taken out of use part-way through the tax year (for example, business commencement or cessation during the year), the wear-and-tear can be pro-rated for the portion of the year the asset was in use for business. (By contrast, SIA is not apportioned -- if an asset qualifies, the full 25% is taken regardless of purchase date in the year, because SIA is a once-off allowance.)
• Ownership and registration: To claim wear-and-tear, the taxpayer should normally own the asset (or in the case of leasehold improvements, have the legal entitlement -- discussed later). For vehicles, ZIMRA typically requires the vehicle to be registered in the name of the taxpayer (company or individual) to allow the claim. This is an administrative point ensuring the taxpayer has title to the asset. If a company allows a director to register a company car in the director's personal name, for example, it could jeopardize the company's claim to the allowance.

In summary, wear-and-tear is the steady, default method of getting tax relief on capital assets, whereas SIA is an accelerated boost in the first year (with correspondingly higher W&T in the next few years). All assets that get SIA will also get W&T in later years (at accelerated rates), and assets that don't get SIA get W&T at standard rates from the start.

Industrial Buildings Allowance

Zimbabwe's tax law distinguishes industrial buildings from other buildings for purposes of allowances. An industrial building generally means a building used wholly or mainly for industrial or manufacturing purposes. The Fourth Schedule provides a definition and examples:

• Definition: Industrial buildings are those used mainly for manufacturing or processing of goods, or for industrial research related to such manufacture. The term also covers certain specific uses such as licensed hotels (hotels licensed under the Tourism Act are treated as industrial buildings for allowance purposes), buildings used in connection with computer data processing operations, and infrastructure like toll roads or bridges. Additionally, a storage building can qualify if it is used by the taxpayer to store goods which the taxpayer himself has manufactured. (A warehouse used to store the taxpayer's own factory output qualifies as part of the industrial building; but a third-party logistics warehouse or a depot storing goods not produced by the taxpayer is not considered an industrial building for that taxpayer.)
• Exclusions: Buildings that are used for commerce, offices, or residential purposes do not fall under "industrial" (they may fall under commercial or not qualify at all). Also, a warehouse that stores someone else's products (not the taxpayer's manufacture) is excluded. For example, a distribution center for trading stock may not count as an industrial building unless it's integral to the manufacturing process of that taxpayer.
• Allowances available: Industrial buildings qualify for both SIA and wear-and-tear. If a taxpayer constructs a new industrial building or an addition, they may claim Special Initial Allowance (25% cost) in the first year, and then 5% wear-and-tear in subsequent years (or 25% accelerated if SIA was claimed). If the taxpayer purchases an existing industrial building (constructed by someone else), SIA is not available (since SIA on immovables requires the taxpayer to have constructed or extended it). However, the purchaser can still claim the 5% wear-and-tear allowance on the cost of that industrial building going forward. The wear-and-tear on an industrial building is 5% of cost per year.

In summary, industrial buildings enjoy relatively favorable allowances (fast 20-year depreciation, or as fast as 4 years with SIA). This reflects their role in productive economic activity. Taxpayers must ensure the building meets the "industrial" use test -- if challenged, they need to show manufacturing or similar operations are the primary use.

Commercial Buildings Allowance

A commercial building is essentially any building used for business/trade other than those specifically classified as industrial, farm, staff housing, etc. The Act defines "commercial building" in a somewhat exclusionary way. Key points:

• Definition: A commercial building is a building constructed on or after 1 April 1975 which is used 90% or more for the purposes of trade or investment. It specifically includes "blocks of flats" (i.e. residential apartment blocks held for rental income) and any hotel registered under the Tourism Act (though hotels also qualify as industrial buildings, as noted).
• Exclusions: The definition excludes: any farm improvement, industrial building, staff housing, or tobacco barn (those fall in other categories), as well as any building used more than 10% for residential purposes. In other words, if a building has a significant personal residential component (like a mixed-use building where >10% of floor area or use is non-trade residential), it cannot be "commercial" for this allowance. It also excludes any building owned under the condominium principle (meaning, for example, individually titled flats or sectional title units are not treated as a single commercial building for the owner). So if you own one apartment in a condo, you cannot claim a "commercial building" allowance on that -- commercial building allowances typically require ownership of the entire building or a block that meets the criteria.
• Allowances: Commercial buildings do not qualify for SIA (except an old provision for "growth point area" buildings, which was repealed effective 2010). However, they do qualify for wear-and-tear at 2.5% of cost per year. This is a much slower write-off rate than industrial buildings. Essentially, a commercial building's tax life is 40 years. The allowance is taken on the cost of construction or purchase. If a commercial building was built before 1975, it falls outside the definition and typically no allowance is available for it (the law intentionally only incentivized new(er) commercial buildings to spur development after that date). Blocks of flats (residential rentals) are explicitly included as commercial buildings, which means landlords of residential flats can claim 2.5% depreciation as long as the block was constructed after 1/4/1975. Many older buildings in city centers (pre-1975) are thus not eligible for building allowance, whereas newer ones are -- a quirk one must check when dealing with very old properties.
• Use requirement: The 90% or more trade use condition means a small portion (up to 10%) of a building can be non-trade (typically incidental residential use) without losing the allowance. For example, an office building with a caretaker's apartment that is, say, 5% of the space would still be considered used 95% for trade (offices) and qualifies as a commercial building. However, if, say, 20% of the building's floor area is a penthouse flat used by the owner privately, then the building fails the 90% test and no commercial building allowance would be allowed at all. There is no apportionment; it's a threshold test. So taxpayers must be careful with mixed-use developments: if you want the allowance, keep the non-trade use minimal or in a separate legal building.

In summary, commercial building allowance is a relatively modest deduction (2.5%/yr) aimed at encouraging construction of income-producing buildings (commercial and residential rentals) post-1975. Taxpayers should ensure the building meets the definition and keep records of construction dates and costs.

Staff Housing Allowance

Staff housing refers to residential accommodation provided by a business for its employees as part of the business operations. The tax law encourages employers to build housing for their staff (particularly in farming, mining, or remote areas) by granting capital allowances on such staff housing. However, there are important cost limitations to prevent abuse by building luxury homes. Key points:

• Definition: Staff housing means any permanent building used by the taxpayer wholly or mainly for housing of the taxpayer's employees in the course of trade. So, these could be workers' houses on a farm or mine, company-owned houses in a town for staff, etc., as long as the housing is provided for employees of the business (not rented out to the public). If the building is used even partially for non-employee or private purposes, it may not qualify as "staff housing." In particular, a house occupied by the business owner or their family is not staff housing (that would be a private residence, no allowance). It truly must be for employees.
• Cost threshold (new rule from 2024): For buildings commenced on or after 1 January 2024, there is a cost ceiling of USD $25,000 per residential unit to qualify as staff housing. If the cost of a staff house (per unit) exceeds $25,000, then no capital allowances are granted at all on that building. In other words, you cannot claim on just the first $25k and ignore the excess -- the entire building is disqualified if it's above the threshold. This rule was introduced to ensure the incentive targets low-cost housing for employees, not high-cost executive villas. (The $25,000 is measured in USD or equivalent in local currency at the prevailing rate.) Example: If a company builds a new manager's house in 2025 at a cost of $40,000, that house exceeds the limit and therefore no SIA or W&T can be claimed on it. If instead they build a cluster of four small employee houses at $20,000 each, those are under the cap and do qualify.
• Allowances available: Staff housing (below the cost cap) qualifies for the same allowances as industrial/farm buildings -- i.e., SIA and wear-and-tear at 5%. Historically, many businesses (like mines and farms) would claim SIA on newly built worker houses. That remains possible provided the cost is within limit. For purchased staff houses, SIA isn't available (since not constructed by the taxpayer), but 5% wear-and-tear is claimable on the cost (again if the cost doesn't exceed the cap). If the cost did exceed the cap, the law says no allowance at all on that house.

Staff housing allowances often go hand-in-hand with incentives in specific industries (e.g. farming, mining) where providing worker accommodation is common. The introduction of the cap shows an effort to limit the benefit to normal worker housing rather than mansions labeled as "staff" houses.

Farming Improvements Allowance

The agricultural sector receives special treatment in several ways. Farm improvements generally refer to capital works on a farm (other than the farmhouse or farmer's personal residence) that improve the farming operations. These include things like barns, sheds, irrigation systems, fencing (to some extent), etc. We must distinguish between capital improvements on a farm that qualify under Section 15(2)(c) & Fourth Schedule and certain farmers' special deductions under the Seventh Schedule. Here we focus first on the Fourth Schedule "farm improvement" category, then note the additional special farming deductions.

• Definition of Farm Improvement: According to the Act, a "farm improvement" is any building, structure or work of a permanent nature on a farm used for farming operations, excluding a few items: (i) those items for which special full deductions are allowed under the Seventh Schedule; (ii) any dwelling or staff housing (to the extent defined separately); and (iii) tobacco barns (also defined separately). In plainer terms, farm improvements include structures like irrigation works, dams, water furrows, silos, barns (non-tobacco), milking sheds, roads on the farm, etc., which are permanent and used in farming. A farmhouse or farmer's personal homestead is not included (no capital allowance on the private homestead), and since staff housing and tobacco barns have their own categories, they are carved out. Another inclusion: any school, clinic, hospital or nursing home built on a farm for farm employees (commenced on or after 1 April 1988) is considered a farm improvement -- encouraging farmers to develop community infrastructure; these have a separate cost limitation (discussed below).
• Allowances: Qualifying farm improvements are eligible for SIA and wear-and-tear (5%) just like industrial buildings. If a farmer builds, say, an irrigation dam or a milking parlor, they can claim 25% SIA on the cost and then 5% p.a. wear-and-tear thereafter. If they don't claim SIA, they take 5% p.a. from the start. If a farm improvement was purchased (e.g. buying a farm that has existing infrastructure), the new owner can claim the remaining allowances (often via a formula with agreed values between buyer and seller for improvements).
• Deemed cost limits: The Fourth Schedule imposes some maximum deemed costs for certain farm improvements when calculating allowances, likely to avoid excessive claims. From the provided data: a school, clinic, etc. on a farm has a deemed maximum cost of USD $10,000 per such building for allowance purposes. This means if a farmer builds a school on the farm for $30,000, only $10,000 is considered for capital allowances (and the excess $20k gets no allowance) -- effectively a cap on that kind of improvement. This is similar to the staff housing cap but for social infrastructure. Also, a tobacco barn had historically some limit, but not in the excerpt (likely tobacco barns qualify fully or possibly capped per barn -- not explicitly seen, but none indicated apart from the school/clinic line). Passenger Motor Vehicles (PMVs) are not a farm improvement but worth noting here: PMVs have a deemed cost limit of USD $10,000 for capital allowances. So if a farmer buys an expensive pickup truck for farm use for $25,000, for wear-and-tear calculations it is treated as if cost $10,000 (we'll revisit vehicles in "other allowances" below). These deemed cost restrictions apply economy-wide, not just farms.
• Farmers' special deductions (Seventh Schedule): In addition to the above, Zimbabwe offers immediate deductions for certain farming capital expenditures under a different section (Section 15(2)(z) and Seventh Schedule). These special farming allowances allow a farmer to expense certain costs in one go (100% in the year incurred), which otherwise would be capital. According to paragraph 2 of the Seventh Schedule, a farmer can deduct expenditure on: soil erosion prevention works, water conservation works (like contour ridges, irrigation canals), land clearing and stumping, sinking boreholes or wells, aerial and geophysical surveys for the farm, and fencing. These are exactly the types of improvements critical for farming. Normally, such expenditures would be capital (e.g. clearing land or building a dam yields an enduring benefit), but the law specifically lets farmers write them off immediately. Moreover, these special farm deductions are not subject to recoupment on disposal of the farm -- they are a permanent deduction. This is a very generous incentive to encourage agricultural development. For example, if a farmer spends $50,000 on digging boreholes and putting up fences on a new farm, they can deduct the entire $50,000 in that year against farming income. These special deductions are in addition to the normal capital allowances on plant, buildings, etc. (So a farmer gets the best of both: immediate write-off for certain improvements plus SIA/W&T on others.) We mention it here because it's related to farm "capital" allowances, though technically authorized under a different schedule. In planning, farmers will use the Seventh Schedule first (full deduction items) and then claim SIA/W&T on the remaining capital items.

In summary, farming operations benefit from both the standard capital allowance system (SIA/W&T on farm buildings and equipment) and additional one-off deductions for specific improvements (which effectively function as 100% allowances in the year of expense). The combination makes the effective tax depreciation for agricultural infrastructure very rapid, recognizing the importance of agriculture. Importantly, not all taxpayers can use the Seventh Schedule -- you must be a "farmer" as defined (deriving income from farming operations). If an industrial company does similar things (dig a borehole, etc.), they cannot deduct it fully unless it's part of their normal trade expense (for instance, a factory sinking a well is probably capital without the special relief that a farmer would get). So these are truly sector-specific incentives.

Mining Capital Allowances

Mining operations have their own set of capital allowance rules under Section 15(2)(f) and the Fifth Schedule of the Income Tax Act. Mining is treated differently from ordinary trading businesses in order to account for the capital-intensive nature of mining and the wasting assets (mineral deposits) being exploited. Instead of SIA and wear-and-tear, miners claim a Capital Redemption Allowance (CRA) on "capital expenditure" for mining. In essence, CRA replaces SIA, wear & tear, scrapping, 18-month pre-production expensing, etc., for mines. Here are the key points:

• Capital expenditure in mining: The Fifth Schedule defines "capital expenditure" for mining broadly -- it includes expenditure on shaft sinking, mine equipment, development, etc., incurred in search for or production of minerals. It covers most outlays that are capital in nature specific to mining operations (except some items like private dwellings for mine owners, etc., which are restricted). For example, building a processing plant at the mine, constructing underground works, buying mining machinery -- all these are capital expenditure qualifying for CRA. (A notable restriction: residential houses for mine employees do qualify without limit, but a house occupied by an owner of a mine not held in a company is excluded as it's private use.)
• No 6-year loss limit: A big difference -- mining businesses can carry forward tax losses indefinitely (no 6-year limit that applies to other businesses). This complements the generous allowances by ensuring if a mine has heavy capex and low initial income, the resulting losses aren't wasted.
• CRA methods: The law provides multiple methods to calculate the Capital Redemption Allowance, and miners can elect which method to use (subject to some conditions). The main methods are:
  • Life-of-Mine Method: The default is to spread capital expenditure over the estimated life of the mine. The taxpayer submits an estimate of the number of years the mine will produce (based on ore reserves etc.). Each year's allowance is then the remaining unredeemed capital expenditure divided by the remaining life-of-mine years. This effectively gives a proportional write-off aligned with depletion of the resource. The estimate is revised each year as needed (if reserves change). If a mine was only in production part of a year, the full year's allowance is still given (no pro-rata). Life-of-mine ensures the mine's capital is fully written off by the time the ore is exhausted. Importantly, a taxpayer on life-of-mine can later switch to the mixed basis if desired.
  • New Mine (Immediate Write-off) Method: To encourage new mines, there's an option to deduct all capital costs as fast as incurred. Specifically, a miner who opens a new mine (production commences for the first time) may elect to deduct in the year production commences: (i) all the accumulated pre-production capital expenditure, and (ii) all capital expenditure incurred in that first production year. This "new mines basis" essentially gives a 100% immediate write-off for all capital expenditures (past and future) for that mine. It's extremely accelerated -- effectively no depreciation over time, just expense everything. This obviously can create large tax losses in early years which the mine carries forward without expiry.
  • Mixed Basis: As the name suggests, this is a hybrid of life-of-mine and current expensing. Under mixed basis, each year the miner deducts two components: (a) a portion of the unredeemed balance of past capital (like life-of-mine or another reasonable basis) and (b) all capital expenditure incurred in the current year. So you get to expense new capital immediately, while also gradually writing off the initial capital over the life or a fixed period. Once opted, the mixed basis is binding for subsequent years. The proportion for the unredeemed part can be based on life-of-mine or any fair and reasonable basis approved.
• replacement Allowance: Regardless of the above choices, there is an additional election that if the mine replaces any capital asset in the course of production, the cost of the new asset (up to $10,000) can be deducted in full immediately. Any cost beyond $10k goes into the normal pool for CRA. For closely held mining companies (≤4 shareholders), this immediate replacement write-off is limited to $1,500 per asset. This encourages miners to keep equipment up-to-date by giving an instant deduction for relatively small replacements.
• No SIA/W&T in mining: Because CRA covers it all, miners do not separately calculate SIA or wear-and-tear on each asset. All capital expenditure goes into the pot for whichever method is chosen. Also, typical lease premium or improvement allowances, and the 18-month pre-commencement expense rule that traders have, are subsumed in the mining regime. Mining has its own pre-production deduction method (new mine option). Essentially, Section 15(2)(f) is a self-contained capital allowance system for mining ventures.
• Prospecting and exploration: There is a special rule for prospecting costs (searching for minerals before production). Section 15(2)(f)(ii) allows a miner to deduct all exploration and prospecting expenditure in the year incurred, even if there is not yet income from mining. If there's no mining income yet, those exploration expenses can be set off against other income (so a company prospecting could deduct those costs against, say, investment income). However, a prospector may alternatively elect to carry forward the exploration expenses to use only against future mining income. This election might be made if the prospector has other income that they don't want to reduce (perhaps to conserve losses for a partner or to wait until a mining venture starts). If they do elect to defer and mining never commences, then unfortunately those deferred exploration expenses are lost (no deduction). The default is to just deduct it now. In practice, most prospecting costs are deducted immediately (given the risk of never finding anything). This is a very generous provision -- it essentially treats exploration as a business expense, which it ordinarily isn't (it's capital searching for an asset). This encourages mineral exploration activities by giving an upfront tax relief.
• Recoupment in mining: If a mining asset is disposed of or removed from use, the recoupment (recovery) rules differ from ordinary trade. Under Section 8(1)(l), any amount derived from the disposal of an asset on which mining capital allowances were claimed is included in income. However, for mines using life-of-mine or mixed basis, the recouped amount is first applied to reduce any remaining unredeemed capital expenditure pool, and only the excess (if any) is taxed as income. In contrast, if the mine was using the new mines (100% immediate) basis, effectively all capital was expensed, so any sale of an asset generates full recoupment (taxable income) up to the sale price, with no limit to previously allowed (meaning if a fully written-off asset is sold for some value, that entire amount is taxable, as there's no "unredeemed" left to absorb it). In simpler terms, for accelerated cases, the government claws back on sale; for life-of-mine cases, the sale mostly just reduces the remaining depreciation base. Another distinction: a mining recoupment is not limited to the original cost (in theory, if an asset appreciated and sold for more than original cost, that excess could be taxable as well under income for a miner). In non-mining, recoupment is capped at cost (excess would go to capital gain). But for mining, because all capital was deductible, the courts have held even amounts beyond original cost can be ordinary income (though typically mining assets don't appreciate beyond cost; the scenario is more relevant if a mine sold part of its rights etc. -- note also a special 20% capital gains tax now applies to transfers of mining rights from 2024 per Finance Act 13 of 2023, separate from income tax).
• Changes in 2025/26: The 2026 Budget proposals have significant reforms for mining allowances. The Minister of Finance announced that the election to use the "new mine" accelerated method will be removed going forward. This means new mines will no longer get the immediate 100% deduction of all capital. Instead, capital allowances for mines will be aligned to the useful life of the mining asset (effectively forcing something akin to the life-of-mine method). In other words, the accelerated deductions are being curtailed, likely to spread out the tax depreciation and increase short-term tax revenues from mining companies (especially given high mineral prices). So, from 2026, if this passes, all mining capital expenditure would be written off over the life of mine or fixed rates, rather than immediately. This is a major policy shift -- essentially repealing the special capital redemption allowances that allowed immediate expensing. Miners would still get full deduction over time, but they lose the time-value benefit of expensing. Also, from 2025, mining companies' use of carried forward losses will be limited to 30% of taxable income per year (previously, miners could use 100% of losses to offset income). These changes indicate the government's intention to slow down or defer some of the tax breaks historically given to mining, likely to ensure a steadier stream of tax from the sector.

Mining allowances are complex, but the key takeaway is: historically mines could deduct capital ultra-fast (even 100% immediate), whereas now the trend is moving to normalize it (match actual asset life). Tax professionals must keep abreast of these changes, as the differences in methods can drastically alter a mining project's tax profile.

Other Capital Allowances and Special Cases

Beyond the main categories above, there are additional allowance provisions and scenarios to note:

• Passenger Motor Vehicle Cost Restriction: As briefly noted, there is a deemed cost limit for passenger motor vehicles (PMVs) of USD $10,000 for claiming capital allowances. This typically applies to sedans, SUVs, and other vehicles designed for less than a certain load/passenger count (usually non-commercial vehicles). If a business buys a luxury car for, say, $30,000 for use in the business (sales visits, etc.), for tax depreciation purposes, the cost is capped at $10,000. So SIA (if claimed) would be 25% of $10k = $2,500, not 25% of $30k. Wear-and-tear would be 5% of $10k = $500 per year. The excess cost $20k is essentially non-deductible. This rule is to prevent excessive depreciation on luxury cars. Commercial vehicles (trucks, buses, etc.) not primarily designed for passengers are generally not subject to the cap. The law refers to "private motor vehicles" in some contexts. For example, if a company buys a small car used by a director 80% for business, and its cost is $25,000: first, limit cost to $10k; second, apply 80% business use. So effectively allowances are on $8,000 (80% of $10k). This yields SIA $2,000 and W&T $2,000×3 years, or no SIA -> $400/yr W&T, etc. This significantly reduces the tax benefit of expensive cars.
• Leasehold Improvements (Section 15(2)(e)): If a taxpayer is a tenant (lessee) and spends capital to improve the leased premises, those improvements belong to the landlord (lessor) legally, but the cost was borne by the tenant. The tax law (15(2)(e)) provides an allowance for such leasehold improvements under certain conditions. The key condition is that the expenditure must be incurred in pursuance of an obligation in the lease agreement to effect those improvements. In other words, if the lease contract requires the tenant to make certain improvements or return the property in a specified upgraded condition, then the tenant can claim an allowance for that capital outlay. If the tenant voluntarily makes improvements not obligated by the lease, no allowance is given (it's treated as a gift to the landlord). When allowed, the amount and timing of the deduction under 15(2)(e) is typically spread over the lesser of the lease period or a fixed term. Historically, such improvements were written off over the remaining lease term (including renewals if reasonably certain) or 10 years, whichever was shorter -- this comes from case law and practice. For example, if a tenant builds partitioning in a rented office for $50,000 under a 5-year lease, and the lease says they must leave improvements, the tenant could deduct $10,000 per year over 5 years as an allowance. If the lease were 3 years, $16,667 per year for 3 years. If the lease is very long (say 20 years), often a 10-year max is applied (so $5k/year for 10 years in that $50k example). These specifics come from interpretation and regulations. Case law: COT v Standard Merchant Bank Ltd (Rhodesia) dealt with leasehold improvement deductions -- the bank had claimed allowances for improvements to leased branches, which the Commissioner disallowed because the bank was not obliged by the lease to make them. The court held that since the lease had no clause forcing those improvements, the claim failed. This illustrates that tenants must ensure the lease agreement explicitly includes an obligation or they cannot claim the improvement cost. Landlords, on the other hand, claim allowances as normal owners on their properties (the fact that a tenant paid for it doesn't give the landlord an extra claim; only one party should get depreciation -- typically it's allocated to whoever incurred the cost, under the rules above).
• Scrapping Allowance: When a depreciable asset is disposed of for less than its tax written-down value, the shortfall is allowed as a "scrapping allowance" deduction. In other words, if an asset hasn't been fully depreciated for tax and you scrap or sell it for a low value, you can deduct the remaining unrecovered cost. For normal (non-mining) assets, the scrapping allowance is essentially the tax book value minus any salvage proceeds, if that is a positive amount. For example, a business machine cost $3,000, on which $2,000 of allowances have been claimed (ITV = $1,000), is sold for $200. The remaining $800 ($1,000 -- $200) is a scrapping allowance (deductible). Scrapping allowance is granted in the year of disposal. Note that if an asset is fully written off (ITV is $0) and then scrapped for $0, there's no further deduction (you already got full cost over time). If it's fully written off and you still manage to sell it for some amount, that entire amount is a recoupment (since book value is 0, all proceeds are profit, taxed up to original cost). If multiple assets are disposed of on cessation of business, and some have losses while others gains (recoupments), the practice is to net off losses and gains on the disposal within that class. They will tax the net gain if any, and disallow any net loss (you can't create a loss via scrapping beyond what offsets recoupments). Essentially, scrapping allowances can offset recoupments, but an overall net loss on disposal isn't deductible (this is to prevent a taxpayer from claiming depreciation plus an extra loss beyond cost).
• Clawback (Recoupment) on Disposal: We cover this fully in the next section on restrictions/clawbacks, but in context: if an asset is sold for more than its tax book value, the excess (up to original cost) is recouped as income. If an asset was never used for trade (and thus no allowances claimed), then selling it does not trigger any income -- it remains a capital sale. That means capital allowances claimed in prior years can be "clawed back" by taxation of recoupment when the asset is sold for a gain. However, the recoupment is always limited to the total allowances previously granted on that asset. You cannot be taxed on more than you originally deducted. Any excess beyond the original cost is typically a capital gain (if the asset is a "specified asset" like immovable property or shares, it may go to Capital Gains Tax; if a movable, excess beyond cost is often ignored or treated as capital gain under income tax -- but since recoupment stops at cost, practically one rarely sees taxation beyond cost under income tax for movables). In mining, as noted, the approach is a bit different (they can tax beyond cost as income in some cases), but for general trade, that principle holds.
• Group Assets Transfer (No recoupment): When assets are transferred between companies under the same control (e.g. in a group reorganization), there is a provision (Fourth Schedule paragraph 8(3)) that allows an election to treat the transfer at tax book value such that no recoupment is realized. The assets essentially carry over at their tax values to the new company, and the allowances continue as if nothing changed. This is useful for internal restructurings (mergers, demergers, etc.) to avoid immediate tax costs. Both transferor and transferee must jointly elect and notify the Commissioner. The law prevents abuse by requiring the companies be under the same controlling interest and typically that the transaction is not a normal sale to a third party. This kind of rollover relief keeps the capital allowances from unwinding on intra-group transfers.
• Historical allowances (now repealed): There were a few specialized allowances in the past that have since been removed:
  • A Training Investment Allowance (an extra initial allowance for training-related capital like training centers) was in paragraph 5 of the Fourth Schedule but was repealed effective 1 January 2001. Any allowances claimed under that in the past are not recouped on sale (the recoupment section explicitly says amounts deducted under that repealed para are excluded from recoupment).
  • A Growth Point Allowance (14th Schedule) gave extra incentives for building at designated growth point areas (often an additional 50% of cost deduction). This too was repealed by 2010. Recoupment of those special allowances is also excluded by law (meaning if you got a growth point allowance, you won't be taxed on it when you sell the asset -- a favorable treatment).
  • Export Processing Zone (EPZ) allowances: historically, companies in export zones got 100% investment allowances. Zimbabwe has replaced EPZs with Special Economic Zones (SEZ) with different tax regimes (like tax holidays rather than specific allowances).
• The 2026 Budget also proposes a new incentive for business process outsourcing (BPO) and knowledge process outsourcing companies: a special 15% tax rate and 100% capital allowances in year one for those operations. This effectively means if a company qualifies as a BPO operation, any capital assets they buy (presumably for that project) can be fully expensed in the first year -- an even faster write-off than normal SIA. This is a prospective incentive to attract outsourcing businesses.

All these "other" items show that while the core allowance system is SIA/WT for most assets, there are numerous tweaks and special cases. A tax practitioner must carefully consider the type of asset, who owns it, how it's used, and whether any special incentive applies or any limit (like the $10k car or $25k house cap) applies.

Differences Between Capital Allowances and Accounting Depreciation

It's crucial for students and practitioners to appreciate the difference between accounting depreciation (in financial statements) and capital allowances (for tax). Key differences include:

• Allowability: Accounting depreciation (the systematic write-off of an asset's cost in the books, per accounting standards) is not an allowable deduction for tax purposes. Tax law has its own prescribed rates and methods -- the capital allowances. Thus, in computing taxable income, any depreciation expense in the income statement is added back, and instead capital allowances are deducted. This ensures uniform treatment according to tax rules, rather than varying accounting policies.
• Rates and timing: Accounting depreciation rates are chosen to reflect an asset's useful life and usage pattern (for example, a computer might be depreciated 33% per year over 3 years). Tax capital allowances, however, follow statutory rates (like 25%, 5%, 2.5%) which might not match the true economic life. Often, tax rates are accelerated compared to accounting. For example, buildings might be depreciated over 50 years in books but tax allows full write-off in 40 years or even 4 years with SIA. Conversely, sometimes tax might be slower (if a company would normally write off a vehicle in 5 years in books, that's 20% per year, but tax allows only 5% or 25% with SIA -- actually tax could be faster with SIA or slower without). In general, capital allowances are driven by tax policy considerations (e.g. encouraging investment via accelerated write-offs), whereas accounting depreciation is driven by matching costs to revenue.
• Total amount: Over the life of an asset, accounting depreciation will write off the full cost (less salvage value), and capital allowances also, in principle, write off the full cost (subject to caps like car limits). However, accounting may not fully depreciate if an asset still has residual value; tax allowances will stop once cost is fully deducted (you can't depreciate below zero tax value). If an asset is still in use after fully depreciated for tax, accounting might still be depreciating it (if they gave it a longer life), but tax will have no more deductions (creating a gap).
• Profit impact: Because of these differences, a company's taxable income can differ significantly from its accounting profit. For example, high SIA claims can make taxable income much lower than accounting profit in early years (creating deferred tax liabilities on the balance sheet). Over the asset's life, these timing differences will reverse (accounting will continue to have depreciation expense even after tax depreciation is done, causing taxable income to exceed accounting profit in later years absent new assets).
• Policy and inflation adjustments: The Finance Act sometimes adjusts allowances (like the motor vehicle $10k limit or staff housing $25k) for policy or inflation reasons, which has no direct accounting equivalent. In hyperinflationary times, accounting might revalue assets, but tax typically sticks to historical cost in stable currency (with maybe occasional "rebasing" rules as seen in 2020/2021 for Zimbabwe to convert USD cost to ZWL). This can cause a divergence between book value and tax written down value.
• Component depreciation: Accounting often requires large assets to be broken into components (with different lives). Tax allowances don't usually do component depreciation (except you might separate a building's cost from machinery, etc., since they have different rates). But, for example, accounting might depreciate a roof separately from a building structure if it has different life; tax just sees one building cost (or improvements when replaced). Tax law does not recognize residual values; accounting might not depreciate an asset fully if expecting salvage.
• Optionality: Tax allowances sometimes allow choices (elections) -- e.g. to claim or not claim SIA, or which mining method to use, etc. Accounting depreciation does not usually have optionality; it's dictated by management's estimate of useful life but once set, you can't arbitrarily postpone depreciation (except maybe in rare impairment adjustments). Taxpayers can defer claiming certain allowances in some cases (for example, you might choose not to claim SIA if you prefer a steadier claim -- though practically you'd rarely forgo it unless to preserve losses). In Zimbabwe's context, if a taxpayer doesn't claim an available allowance, the law doesn't force them (except some jurisdictions like South Africa have "mandatory" wear-and-tear -- but Zimbabwe's Act doesn't explicitly say allowances must be claimed, though in practice ZIMRA expects you to claim what you're entitled or you may lose it for that year). It's generally in the taxpayer's interest to claim them.
• Presentation: From a teaching standpoint, remember accounting depreciation is shown on the income statement and reduces accounting profit, whereas capital allowances are only in the tax computation. When preparing tax returns or exam questions, one typically adds back the accounting depreciation and then subtracts the allowed capital allowances to arrive at taxable income.

In short, capital allowances are a tax construct that often accelerates or differs from accounting depreciation. This leads to temporary differences (deferred tax) in financial reporting. One cannot assume an asset's depreciation in books equals the tax deduction. For planning, this means purchase of assets can have immediate tax benefits (via SIA, etc.) even though in the accounts the expense is spread -- which can be a cash flow advantage. Conversely, disposing of assets can trigger tax costs (recoupments) that don't show up in the book profit (since book may have already depreciated a lot or uses a different carrying amount).

Restrictions and Clawbacks on Disposal of Assets

When an asset on which capital allowances have been claimed is sold or otherwise disposed of, the tax law imposes certain "recoupment" rules to claw back excess deductions or allow final losses. The main provision is Section 8(1)(j) of the Income Tax Act for general assets (and Section 8(1)(l) for mining). Here's how it works for general (non-mining) assets:

• Recoupment (Recovery) of Allowances: If an asset is sold for an amount that exceeds its Income Tax Value (ITV) (tax written-down value), the difference (selling price minus ITV) is called a recoupment and is included in gross income (i.e. taxable). This is essentially reversing some of the earlier depreciation deductions because the asset fetched more value than its tax book value. However -- the recoupment is capped at the total allowances previously granted on that asset. You cannot be taxed on more than you benefited. In formula: Recoupment = min(Sale Price -- ITV, Total Allowances claimed). Any portion of sale price beyond the original cost (which would make Sale -- ITV larger than allowances) is not taxable as recoupment (it may fall under capital gain if applicable). For example, if an asset cost $50k, has ITV $20k (so $30k allowances claimed), and is sold for $35k: Sale -- ITV = $15k, allowances claimed $30k, cap = $15k (since $15k < $30k). So $15k is recouped as income. If it sold for $60k (above cost), Sale -- ITV=$40k, allowances claimed $30k, so recoupment is capped at $30k (the rest $10k would typically be capital gain subject to CGT if a specified asset, or ignored if not subject to CGT, depending on asset type). The Act explicitly lists which prior deductions are excluded from recoupment: e.g. training allowances, pension contributions, farmers' special deductions, growth point allowances are not recouped. So those, if claimed, won't be clawed back.
• No double taxation: If an asset is subject to Capital Gains Tax (CGT) (like immovable property or marketable securities), typically the portion taxed as recoupment under income tax is excluded from CGT, and vice versa. For a building, for instance, the first portion of gain equal to depreciation claimed is taxed as recoupment under income tax, and any further gain above original cost is taxed under CGT at a lower rate. The specifics are in the CGT Act, but the principle prevents double-taxing the same amount.
• Scrapping (Loss on disposal): If an asset is sold for less than its ITV, then a scrapping allowance is granted equal to ITV -- Sale Price, i.e. the remaining unrecovered cost is deducted. This recognizes a loss on the asset. However, as mentioned earlier, when multiple assets are disposed in one go (like liquidating a business), the netting off approach is used: you offset scrapping losses against any recoupment gains among assets in the same class or event. Only a net recoupment is taxed, and a net loss is not deductible (to prevent an overall loss beyond depreciation). In normal ongoing business, if you scrap one asset at a loss, you do get the deduction (because it's net of itself; as long as there aren't simultaneous gains to offset). Example: Equipment ITV $5,000, sold $3,000 → $2,000 scrapping allowance (extra deduction) reduces taxable income.
• Private use apportionment: If the asset had mixed use, any recoupment or scrapping is apportioned to the business portion. For instance, a car used 50% for business that had allowances claimed only on 50% of its cost: if it's sold at a gain, only 50% of the gain relative to tax value is recouped. If sold at a loss, only 50% of the loss is allowed. This is fair since you only ever deducted 50% of depreciation.
• Damage or Destruction with Insurance: If an asset is damaged or destroyed and insurance or compensation is received, that compensation is treated as a deemed sale price for purposes of calculating recoupment. So if you insured an asset for $10k and it's written off, the $10k payout is like sale proceeds. However, there is an important relief (roll-over provision): If the taxpayer reinvests that compensation in a replacement asset within 18 months of the damage, and uses the new asset within 3 years for the trade, then the recoupment on the old asset is deferred or not triggered. Essentially, you avoid being taxed on the insurance if you restore or replace the asset. Any portion of compensation not used to replace is taxable (that portion is like pocketed money). If the taxpayer fails to meet the conditions (doesn't reinvest in time, etc.), then the recoupment is treated normally later. This encourages businesses to use insurance proceeds to continue productive capacity rather than just taking cash.
• Cessation of Trade: When a business ceases trading, all assets are either sold or retained for personal use. If an asset is kept by the owner or taken out of business use, the law typically deems a disposal at market value (so you'd have a recoupment if market value > book value). If sold, obviously that triggers recoupment or scrapping as above. The netting of recoupments and scrap losses is particularly relevant at cessation, as some assets might be sold at gains, others at losses. The practice is to sum all recoupments and all scrap allowances; if net is positive, that net is taxable; if net is negative, that net loss is not deductible. Essentially, you can't get a terminal loss beyond normal depreciation -- you either used the assets up or you didn't.
• Same-control transfers: As mentioned, assets moved within a 100% controlled group can be elected to transfer at tax value to avoid any immediate recoupment. The transferee just continues claiming allowances as if they stepped into the shoes of the old company. This is very useful in reorganizations (mergers, creation of a subsidiary, etc.). Without this, moving assets between group companies would trigger tax on the built-in gains.
• Mining recoupment: For completeness, recall that in mining, if on life-of-mine or mixed, any disposal recovery first reduces the unredeemed capital pool (so usually no immediate tax unless the sale price exceeds the remaining pool, which is rare), and if on new-mine basis, any sale is fully taxed (since pool is zero). Also, the 2026 proposals to remove new-mine basis will inherently remove the scenario of huge recoupments -- recoupments will be more measured as everything will be on life-of-asset.

In summary, whenever you dispose of an asset, you must perform a tax value vs. proceeds comparison:

• If Proceeds > Tax Value: Tax the lesser of (Proceeds -- TaxValue) and (Total Depreciation claimed). (That's recoupment in income.)
• If Proceeds < Tax Value: Deduct the difference as a scrapping allowance (subject to netting rules).
• Special rules: rollovers for replacement and group, exceptions for certain incentive allowances, partial use apportionment, and interplay with CGT for certain assets.

Practically, taxpayers should keep track of the tax book value of each asset or asset pool. Upon sale, careful computation ensures the correct recoupment or scrapping is accounted for. Good record-keeping of original cost and allowances claimed is essential, especially when assets have long lives or change hands.

Section 15(2)(a) vs Section 15(2)(c): General Deductions vs Capital Allowances

To avoid confusion, let's clearly differentiate the general deduction provision [Section 15(2)(a)] from the capital allowance provision [Section 15(2)(c)], as they address different kinds of expenses:

• Section 15(2)(a) is the general rule that allows deduction of any expenditure or loss to the extent incurred for the purposes of trade or in the production of income, provided it is not of a capital nature. This covers things like rent, salaries, utilities, raw material costs, routine repairs -- the day-to-day expenses of earning income. The moment an expense is classified as "capital", Section 15(2)(a) denies it.
• Section 15(2)(c) (with the Fourth Schedule) then carves out specific capital items and explicitly allows them in a controlled way. Essentially, 15(2)(c) says: notwithstanding the capital prohibition, you can deduct capital amounts in accordance with the Fourth Schedule (i.e. depreciation allowances on fixed assets). This is an exception to the general rule. Without 15(2)(c), buying a machine or building would get you zero deduction ever (except at disposal perhaps a capital loss). Thanks to 15(2)(c), you get to deduct it over time.

Thus, Section 15(2)(a) and 15(2)(c) work together: one handles revenue expenses, the other handles capital expenditures via allowances. It's important not to mix them. For example, repairs vs improvements: Repairs (restoring an asset to its original condition) are deductible under 15(2)(a) immediately, because they are not creating new capital value (they keep the asset going). Improvements (which increase value or extend life) are capital in nature, so 15(2)(a) denies them; but 15(2)(c) may allow them via capital allowances (e.g. if it's an improvement to a building, it gets depreciated as part of building cost). A classic case illustrating this was COT v British United Shoe Machinery (SA) Ltd, where the court distinguished repairs (revenue) from renewals or improvements (capital). Only the latter would fall under allowances.

Also, Section 15(2)(f) provides mining-specific allowances (so mining capital is allowed under that, not under (c)). Section 15(2)(e) provides the leasehold improvements allowance. So these are all separate sub-sections for capital items. Section 15(2)(a) explicitly says "except as otherwise provided" -- meaning if some other paragraph like (c), (e), or (f) allows it, then that governs.

To put it plainly: when analyzing a cost, first decide is it capital or revenue? If revenue (and not specifically disallowed elsewhere), 15(2)(a) lets you deduct it fully. If capital, 15(2)(a) says no -- then you look to see if 15(2)(c) or another specific provision covers that type of capital cost. If yes, you deduct according to that provision's rules (e.g. depreciation schedule). If no provision covers it (for example, the cost of purchasing goodwill or shares -- capital in nature and no allowance provided), then it's simply not deductible at all.

In summary, general deductions vs capital allowances differ in nature (revenue vs capital), but both ultimately reduce taxable income. They are separate lines in a computation. One should never try to claim a capital expense under the general provision -- it must go through the capital allowance mechanism.

Recent Changes (Finance Act 2025 and 2026 Budget Proposals)

Tax law is dynamic, and Zimbabwe has seen some changes up to 2025 and further proposals for 2026 affecting capital allowances:

• Staff Housing Cap Introduced: As discussed, the Finance Act No. 7 of 2024 (likely enacted late 2023 for 2024) introduced the USD $25,000 per unit cost limit for staff housing allowances (applicable to construction commenced on/after 1 Jan 2024). This is a significant new restriction aimed at disallowing allowances on high-cost housing. Taxpayers planning staff accommodations now need to budget within this cap or forego the tax benefit.
• Rebasing of Allowances to ZWL: Due to Zimbabwe's currency changes, Finance Act (No.2) 2020 and Act 7 of 2021 dealt with the conversion of unredeemed foreign-currency allowances to Zimbabwe dollar. In short, any unclaimed balance of allowances as of 1 Jan 2021 had to be "rebased" to ZWL at the official exchange rate. The same was repeated for 1 Jan 2023 for assets that were carried in USD previously. This was to ensure depreciation continued properly after the re-introduction of ZWL. For example, if an asset cost USD 10,000 and had 50% left to depreciate at end of 2020, that $5,000 was converted to ZWL at maybe 1:80 (just hypothetical), giving ZWL 400,000, which would be the opening tax value in 2021. This prevents a situation where using old USD figures during high inflation would distort tax claims. It's a technical adjustment but relevant for tax records accuracy.
• SME and Investor Incentives (2015 & 2017): Not new in 2025, but worth noting that the definition of "small or medium enterprise" for the 100% SIA may have threshold updates. Initially SME was defined by a certain turnover or number of employees (perhaps per Sec 2A of Finance Act). Finance Act 2025 didn't specifically change those definitions as far as we know -- it remains effect from 2011 that SMEs get accelerated SIA. Similarly, "licensed investor" 100% SIA from 2017 continues. The 2025 budget didn't propose removing these, so they're intact.
• Mining Reforms (2026 proposals): As detailed, the 2026 Budget (presented Nov 2025) proposes eliminating the new-mine immediate write-off option and requiring life-of-mine (or some useful-life) basis for all mining capital. Also limiting loss utilization to 30% per year for mines, which indirectly means a mine can't rapidly use huge depreciation to zero out income when it does start making money (it will only use up to 30% of its accumulated loss per year, ensuring some taxable income if it's profitable). This dramatically slows the tax shield effect of big initial allowances.
• Corporate Social Responsibility (CSR) and Other Incentives: The 2026 budget proposals also include some new deductions (outside capital allowances) like a deduction (plus 50%) for "anchor companies" supporting outgrower farmers (actually that was effective 2018) and possibly new ones in 2025/6 like tax credits for employing certain categories. While not direct capital allowances, they show a trend of using the tax system to incentivize investment and spending in priority areas. Specifically for capital allowances, another 2026 proposal is for special economic zone or 24-hour manufacturing firms -- the government signaled additional deductions for companies that move to 24-hour production. If implemented, this could take the form of enhanced capital allowances for companies that invest in capacity to run shifts around the clock (just speculative based on press statements).
• 100% First-Year Allowances for Priority Sectors: In the 2026 Budget, government proposes targeted incentives for BPO/KPO companies: a flat 15% tax rate and 100% capital allowance in year one. That essentially is like allowing SIA of 100% (similar to what SMEs already have, but here for any size BPO company presumably). If legislated, from 2026 such companies can fully expense capital costs immediately. This is clearly to attract outsourcing firms (call centers, etc.) to Zimbabwe.
• Removal of Capital Redemption Reserve (possibly): The line "capital redemption allowances have been repealed" in a news snippet suggests that within the mining reforms they might formally repeal the Fifth Schedule provisions for the flexible methods and replace with a single regime. It likely means going forward all mining capex just depreciates over asset life (like a straight-line or units-of-production method mandated). We'll know details once the Finance Act 2026 is passed, but miners should brace for reduced flexibility.
• Tax rates and context: Although not an allowance, note the corporate tax rate is 25% for 2025 (plus 3% AIDS levy = 25.75%), which affects the value of allowances. If one's making profits, an accelerated allowance saves tax at that 25.75% rate. There's talk of possibly reducing rates for certain sectors (like the 15% for manufacturing exporters remains for >51% export, etc.), but base rate is stable. Changes in rate can influence whether to accelerate deductions or not (if rates expected to rise, deferring deductions could save more later; if expected to fall, better to use deductions now).

In conclusion on updates: Finance Act 2025 did not overhaul general allowances -- it mostly maintained the structure but added the staff housing cap and continued currency rebasing adjustments. The 2026 proposals are more impactful for mining allowances and a few targeted industries (BPO). Always check the latest Finance Act for incremental changes: for example, every year or two the Minister might adjust the deemed cost thresholds (they haven't changed the $10k vehicle limit in a long time, but it's possible in future given inflation or policy on luxury vehicles). Also, budget speeches sometimes hint at reviewing the effectiveness of SIA in certain sectors, etc. At the time of writing (Dec 2025), the big changes on the horizon are the removal of accelerated mining write-offs and introduction of new targeted 100% allowances in specific sectors.

Tax practitioners and students should keep an eye on the Finance Act updates and budget pronouncements each year, as these can alter the capital allowance landscape (either broadly or in niches) -- for example, a prior year (2020) introduced the idea of "Regeneration / Re-tooling Allowances" where if a company had assets acquired in USD era, they allowed a once-off adjustment in ZWL. Understanding the intent (stimulus vs revenue raising) helps predict future changes too.

Notable Case Law on Capital Allowances

Several court cases have shaped the understanding of capital allowances in Zimbabwe (and previously Rhodesia) by interpreting what qualifies and how the rules work. Here we highlight a few significant ones:

• ZIMRA v. Stanbic Bank Zimbabwe Ltd (SC 13/19) -- Computer Software as Qualifying Asset: This recent Supreme Court case (judgment around 2019) is instructive on what assets qualify for SIA and the interaction of capital vs revenue claims. Stanbic Bank had incurred large expenditure on a new core banking software system. They initially treated it as a revenue expense (trying to deduct fully under general deductions), arguing software was an intangible that wasn't explicitly under capital allowances pre-2015. ZIMRA disagreed, classifying it as a capital investment. During the dispute, the law changed in 2014 to include computer software in the Fourth Schedule definition of "articles, implements, machinery or utensils", making it clear that software is a depreciable capital asset for tax. The High Court eventually ruled that the expenditure was indeed capital (so not deductible under 15(2)(a)), but since it was capital, the taxpayer was entitled to claim SIA on it under 15(2)(c) and the Fourth Schedule. The Supreme Court upheld that reasoning -- effectively saying even though Stanbic had not originally "claimed" SIA in its return (it was claiming as revenue), the court could allow the SIA as an alternative relief once it was determined to be capital in nature. ZIMRA's appeal was on a technicality that the taxpayer cannot approbate and reprobate (argue one thing and then another), but the court found that the ultimate correct tax treatment should prevail: the software was a capital asset, and since the law (as of 2015) allows software to get SIA, the bank should get that allowance. Importance: This case clarified that intangible assets like software are eligible for capital allowances (once defined in law) and also highlighted that a taxpayer's failure to initially claim an allowance doesn't forever bar them from it if justice and correct application require it. It also exemplified the capital vs revenue distinction -- the bank hoped it was revenue to deduct immediately, but since it was an enduring benefit (the software system), it was capital. The fallback was SIA (25% per year, or potentially 100% if treated as SME or the law did not give 100% at that time for banks). Stanbic also underscores that expenditure must fit one regime or the other: either fully deductible as revenue or capitalized with allowances -- and courts will ensure one of the paths is applied correctly to reach a fair taxable income.
• COT v. Standard Merchant Bank Ltd (1977) -- Leasehold Improvement Allowances: In this Rhodesian case, Standard Merchant Bank had spent money fitting out rented branch premises and claimed deductions under Section 15(2)(e)(i) (improvements on leased buildings). The leases did not explicitly oblige the bank to make those improvements; the bank did it to make the premises suitable for banking. The Commissioner disallowed the claim on the grounds that the statute required an obligation. The court held that indeed, to get the allowance the expenditure must be incurred in terms of a lease agreement obligation. Since in this case the improvements were voluntary (for the bank's benefit, not a contractual requirement), the bank wasn't entitled to the allowance. They essentially had to bear those costs with no tax relief (ouch!). The case illustrates the strict interpretation of incentive provisions -- if you want the special allowance, you must meet the letter of the law. It serves as a caution: tenants should negotiate lease terms to include required improvements if they intend to claim capital allowances on those improvements. Otherwise, even necessary fit-out costs might be nondeductible capital with no relief (because the asset belongs to the landlord and the tenant can't claim wear-and-tear either in absence of sec 15(2)(e)). The principle from this case still applies -- ZIMRA will ask, "show us the lease clause obligating this expense" before allowing a deduction under 15(2)(e).
• Processing Enterprises (Pvt) Ltd v. ZIMRA -- What is "manufacturing" for Industrial Building allowance? This case (if it exists as implied by the study pack) likely concerned a company engaged in some processing activity (perhaps packaging or assembly) that claimed an industrial building allowance or an investment allowance on machinery. ZIMRA possibly argued that the process did not constitute "manufacturing" in the strict sense, thus disqualifying the asset from the special allowance (maybe it was trying to get a now-repealed investment allowance which only applied if the machinery was used in manufacturing). The training note snippet suggests the Commissioner denied an "investment allowance" on machinery, saying it wasn't a process of manufacture. The case likely revolved around the definition of manufacturing -- perhaps the taxpayer was blending, or repackaging, or some light processing and claimed the additional allowance (back then, there was an investment allowance of 15% on new manufacturing plant over and above normal depreciation). The court would have examined the activity in detail. Many cases in tax law deal with this question (e.g. in other jurisdictions, turning printed cloth into garments is manufacturing, but slicing already made bread might not be considered manufacturing). If the court found the process was indeed manufacturing, the company would get the allowance; if just trading or simple processing, no allowance. The key lesson: qualifying for certain allowances (especially those targeted at "manufacturing") depends on the actual nature of operations, and disputes can arise if borderline.

To sum up some takeaways from case law:

• Always check definitions and conditions (Stanbic: is software included? Standard Merchant: is there an obligation? Processing Enterprises: is it manufacturing?).
• The courts often side with a purposive yet strict approach -- if a taxpayer fits within the incentive provision, they get it (even if they had argued differently initially, as in Stanbic), but if they fall outside, no sympathy (Standard Merchant).
• Documentation and substantiation are vital -- e.g. in lease improvements, having it in the contract; for proving use, keeping logs for vehicles perhaps (cases in other countries show disputes if a vehicle was truly 90% business -- in Zim one could imagine ZIMRA challenging SIA if usage was borderline; having records would be key).
• The case law also illustrates evolution of the law: e.g. after seeing issues like Stanbic (software not clearly included), the legislature amended the Act to address that. After seeing maybe luxury staff houses being claimed, legislature imposed a cap.

In teaching, quoting these cases helps show how principles are applied in real situations. They also underscore that tax law isn't just plugging numbers -- one must interpret terms and meet conditions, occasionally litigated if unclear.

Conclusion and Practical Application

Capital allowances are a cornerstone of Zimbabwe's tax system, enabling taxpayers to obtain tax relief for investments in capital assets. Both individuals and companies engaged in business can benefit from these allowances to reduce taxable income, but they must navigate the rules carefully:

• Summary of main allowances: Special Initial Allowance provides an upfront deduction of 25% (or even 50% for SMEs/investors) of cost, greatly accelerating tax relief. Wear and Tear then systematically writes off the balance, typically at 5% or 2.5% per year. Industrial buildings and qualifying assets can be fully written off in as short as 4 years with SIA, whereas commercial buildings take 40 years (no SIA). Staff housing and farm improvements enjoy the same rates as industrial, but with new limits (staff house cost cap $25k, farm schools $10k, etc.). Mining operations historically had extremely generous allowances (often immediate expensing), though reforms are dialing this back to a more evenly spread depreciation. Other allowances like lease improvements and scrapping allowances cover special situations (tenants' capital costs, losses on asset disposals). Throughout, one sees the theme: capital costs are not forgotten by the tax law, but are given special treatment rather than plain deduction.
• Difference from accounting and planning: Students should remember that accounting profit is not tax profit -- capital allowances cause significant differences. In planning, a company might buy assets before year-end to take advantage of SIA (since even one day of use can qualify you for the full SIA for that year, as there's no time-apportionment) -- a common tax planning strategy. Conversely, one must consider the recoupment upon sale -- if you claim max allowances and then sell an asset, you could face a tax charge. It might be wise to plan the timing of selling fully depreciated assets in a year when you have other losses to absorb the recoupment, or do an internal group transfer at book value if reorganizing. Also, loss limitation rules (like the 6-year loss rule for non-mining) mean you shouldn't create excessive losses via allowances that you can't utilize in time. For example, an individual entrepreneur might choose not to claim SIA on a vehicle if it would just create a loss they might not recover in 6 years -- instead take slower wear-and-tear to spread deductions. These are strategic considerations.
• Recent and upcoming changes mean that our mastery must stay current. In 2025, a taxpayer building staff houses needs to be aware of the $25k cap -- or else structure the project into smaller units or separate blocks to qualify. A mining firm evaluating a new project in 2026 can no longer assume they'll expense everything upfront; their financial models should incorporate a life-of-mine depreciation (which could significantly affect NPV and cash flow in early years). Meanwhile, a tech outsourcing startup in 2026 may be delighted to know they can deduct all their equipment and software costs immediately under the new incentive -- making Zimbabwe more attractive to set up shop. Tax consultants must incorporate these changes into advice and computations (for instance, QPDs -- Quarterly Payment Dates -- might be affected if allowances reduce taxable income more quickly or slowly).
• Compliance: To actually claim these allowances, proper record keeping is essential. Fixed Asset Registers should track for each asset: cost (and any deemed cost limits), date of acquisition and first use, whether SIA was elected, annual wear-and-tear claimed, and current Income Tax Value. This not only ensures correct computation but is needed if ZIMRA audits the claims. Also, businesses should maintain documentation like invoices (to prove cost and date) and usage logs (especially for vehicles, to justify business use percentage). If claiming staff housing, maintain that those houses are indeed occupied by employees and cost per unit calculations are available for ZIMRA.
• Case law lessons in practice: Before claiming an allowance, ask: Do I meet all conditions? e.g. Is my asset truly used for trade ≥90% (so I can claim full allowance)? Is my lease improvement obligatory? Is my "factory" actually doing manufacturing? By addressing these upfront, one can avoid disputes. If uncertain, one might seek a Binding Private Ruling from ZIMRA or take a conservative approach (e.g. if unsure if an activity is manufacturing, maybe not claim the special investment allowance and just stick to normal wear-and-tear, or get clarification).
• Tax vs. economic decisions: While capital allowances provide tax savings, businesses should still base investment decisions on economic merit. The tax tail shouldn't wag the dog. For instance, buying an unnecessary asset just to get a tax deduction usually isn't wise -- you spend real $ to save a fraction in tax (25%). However, if on the fence about an investment and year-end is approaching, the availability of SIA can effectively give you a ~25% discount (through tax saving) on that investment's cost in present value terms, which is a substantial incentive.

Conclusion: Mastering capital allowances means understanding both the letter of the law (the rates, definitions, formulae) and the intent (encouraging investment but with reasonable boundaries, preventing abuse). Zimbabwe's system, especially with recent adjustments, tries to balance generosity (100% allowances in some cases) with anti-abuse measures (caps, usage tests, recoupments on sale). From a policy perspective, capital allowances are a tool to spur growth -- for example, the 100% SIA for SMEs was aimed at promoting small business capital formation. The reduction of mining allowances indicates a shift to ensure miners pay a fair share of tax during boom times, instead of sheltering income entirely.

By applying the knowledge of these allowances, taxpayers can legitimately minimize their tax liability (which frees up cash flow for further investment), while tax professionals and revenue authorities ensure the rules are correctly adhered to. The system ultimately operates on trust that taxpayers will claim what they are entitled to and not more -- and ZIMRA's role is to verify and enforce the boundaries as seen in case law. With the information covered in this lecture, students, educators, and tax practitioners should be well-equipped to handle capital allowance computations, make planning decisions, and appreciate the rationale behind each rule. Always remember to cite the statute and relevant cases when justifying a tax position on capital allowances -- to show that one's interpretation is grounded in law.

With continual learning (keeping up with Finance Acts and court rulings), one can master capital allowances and effectively leverage them in Zimbabwe's tax landscape.

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