1.1 Introduction to Income Tax Exemptions In Zimbabwe

Income tax "exemptions" are specific types of income that are not subject to tax under the Zimbabwe Income Tax Act. Unlike deductions (which subtract expenses from income), exemptions completely exclude certain receipts or accruals from taxable income. They reflect policy decisions to avoid taxing particular entities or transactions -- for example, to prevent double taxation, to encourage public benefit activities or investment, or to ensure fairness for certain individuals. Section 14 of the Income Tax Act [Chapter 23:06] is the key provision on exemptions, and it works together with the Third Schedule of the Act, which itemizes the exempt amounts. In general, Section 14(1) provides that all amounts listed in the Third Schedule are exempt from income tax. However, Section 14 also contains important limitations: Section 14(2) clarifies that employees of many exempt organizations do not get their salaries tax-free (the exemption of the organization's income doesn't extend to wages or pensions paid to staff). And Section 14(3) provides that certain investment income exemptions (for dividends and interest in paras 9--11 of the Third Schedule) do not shield any annuity payments derived from those exempt amounts. With that framework in mind, we can examine each category of exempt income as updated to 10 February 2025, drawing on current legislation, Finance Act updates for 2025, and relevant case law illustrations.

Exempt Public Entities and Local Authorities

Paragraph 1 of the Third Schedule exempts the receipts and accruals of various public authorities and institutions. These include all income of:

• Local authorities (e.g. city councils, town boards) -- meaning that municipal revenues like rates or service fees are not subject to income tax. For example, the City of Harare's income from property taxes and utilities is exempt from tax. However, as noted, if the city pays salaries to its employees, those salaries are taxable in the employees' hands despite the city's income being exempt. This ensures employees of councils pay PAYE like anyone else, a point reinforced in Section 14(2).
• The Reserve Bank of Zimbabwe (RBZ) -- the central bank's earnings (such as interest on its loans or investments) are exempt. This recognizes the RBZ's public role.
• The Zambezi River Authority, a statutory authority managing the Zambezi, and the Environment Management Board (successor to the former Natural Resources Board) -- their income is exempt. These are cross-border or public agencies (the Zambezi Authority is jointly owned by Zimbabwe and Zambia) whose revenues (e.g. dam management fees) aren't taxed.
• The People's Own Savings Bank (POSB) -- a state-owned savings bank -- is exempt. POSB's interest income and fees are not taxed, supporting its mandate to provide affordable banking.
• The RBZ's wholly owned asset management arm, ZAMCO (Zimbabwe Asset Management Corporation) -- which was formed in 2014 to take over non-performing loans -- is also exempt. This incentivized ZAMCO's cleanup of bad debts during the financial sector stabilization.
• The Victoria Falls Stock Exchange (VFEX) -- a special securities exchange for trading in US dollar instruments -- is exempt. VFEX was established in 2020 to attract foreign investment; making its income tax-free (for example, listing fees or trading income) was meant to enhance its viability.
• Any qualifying Student Accommodation SPV -- specifically, an SPV initially wholly owned by the Infrastructure Development Bank of Zimbabwe (IDBZ) which partners with private investors to build on-campus housing -- is exempt on its receipts. This exemption (added in 2020) encourages private capital to support public university accommodation by granting a tax holiday to the project company.

All the above bodies thus do not pay income tax on their revenues -- essentially a form of government or public-sector immunity from tax. The policy rationale is that these entities carry out public functions (governance, central banking, infrastructure, etc.) and taxing them would just shift resources within the public sector. It is worth noting that employees of these entities remain fully taxable on their earnings (the law prevents an unintended perk where, say, a city council employee could claim their salary is part of the council's exempt income -- Section 14(2) closes that loophole).

In addition, the Minister of Finance has power to declare other statutory corporations exempt by Gazette notice. Under Paragraph 2(j) of the Third Schedule, "any statutory corporation which is declared by the Minister, by notice in the Gazette, to be exempt" enjoys tax exemption. The Minister may also limit an exemption to certain income streams of that corporation. In practice, this power has been used to exempt entities like the Zimbabwe Revenue Authority (ZIMRA) itself (by General Notice 364 of 2001) and others such as the National Oil Infrastructure Company (pipeline company in 2016) and the Rural Electrification Agency (2018). Those notices mean, for example, that ZIMRA does not pay income tax on fees or interest it earns (consistent with it being the tax authority), and the pipeline company's toll fees can be tax-free to keep fuel transport costs lower. Again, employees of these bodies do not get tax-free salaries by virtue of this -- only the entities' own receipts are exempt.

Non-Profit Organisations, Clubs and Charities

A large group of exemptions is aimed at non-profit institutions and public benefit organisations, reflected in Paragraph 2 of the Third Schedule. These exemptions recognize that certain associations, though not government, operate for social good or mutual benefit rather than profit. Key categories include:

• Agricultural, mining and commercial societies not operating for the private profit of members. This covers industry associations or commodity associations that use their funds for sector development or member services, not to enrich members. For example, the Commercial Farmers' Union (CFU), Zimbabwe National Chamber of Commerce (ZNCC), or the Chamber of Mines are cited examples. Their membership fees, grants or other income are exempt from tax. However, if such a society were to start distributing profits to members, it would fail the exemption test.
• Clubs, societies, institutes or associations organized solely for social welfare, civic improvement, pleasure, recreation, or the advancement of any profession or trade -- provided they do not permit distribution of profits to members (other than reasonable remuneration for services). This exemption typically covers recreational clubs (sports clubs, hobby clubs), charitable social clubs, professional associations and the like. For instance, a sports club that operates a clubhouse and uses any surplus only to improve facilities (and never pays dividends to its members) would not be taxed on club subscription fees or bar income. A Supreme Court case, ZIMRA v FC Platinum (22-SC-044), illustrated the limits of this: a football club (FC Platinum) lost its tax exemption after restructuring as a company limited by guarantee, which the court viewed as departing from the traditional "club" structure. The lesson is that to qualify, an organization must truly operate non-profit -- if it takes on a form that could allow profit distribution (even on winding up), it may be deemed taxable. (The court noted that once the club became a company -- even a guarantee company -- it ceased to fall within the exempt club category.) So long as a club remains a bona fide non-profit entity with no member benefiting from profits, its ordinary revenue (membership dues, donations, etc.) is exempt.
• Ecclesiastical, charitable, or educational institutions of a public character -- essentially churches, registered charities, and schools or colleges. The law, however, draws a line between their donative income and any business income. Paragraph 2(e) says that such an institution's income is exempt if it consists of things like donations, tithes, offerings or other voluntary contributions, or any other receipts not arising from trade or investment by the institution. In other words, the core charitable receipts -- e.g. church offerings, school donations, grants -- are tax-free. If the institution does have income from a business or investment activity, that portion is not automatically exempt, unless it is structured in a particular way. There is a further provision (often called the "business carve-out"): if the charity or church owns a company and that company carries on a trade or investment for the benefit of the institution, and the company is licensed under section 26 of the old Companies Act (now section 76 of the Companies and Other Business Entities Act) as a non-profit company, then the receipts of that company are also exempt. This allows, for example, a church to have a wholly-owned company running a mission farm or a school trust running a textbook store, and the profits remain exempt provided a charitable company license was obtained. The intention is to let charities conduct income-generating projects tax-free if they meet strict oversight conditions (licensing). If they do it informally without such a structure, the tax exemption won't cover the business income. A practical example: a charitable orphanage relies on donations (exempt). If it also operates a small factory to train and employ youths, and it incorporates that as a company limited by guarantee licensed under section 76, the factory's profits are exempt too. But if it ran the factory within the orphanage without that setup, the factory profits would likely be taxable (since that's "income from trade carried on behalf of the institution" outside the narrow licensed-company scenario). Notably, Trusts of a public character -- which often covers charitable trusts -- are separately mentioned as exempt in Paragraph 2(l). The Supreme Court case The Endeavour Foundation & UDC Ltd v COT (1995) concerned such an exemption. In that case, a trust (Endeavour Foundation) was held to be a public charitable trust and thus exempt from tax on its income, even though it had a corporate donor (UDC Ltd) involved. The case affirmed that as long as a trust's purposes are charitable/public and no private beneficiaries exist, its income falls under this exemption.
• Trade unions are exempt under Paragraph 2(k). For example, the Zimbabwe Congress of Trade Unions' subscription fees and other income aren't taxed. This recognizes unions as member-benefit organizations where funds are used for workers' welfare and representation, not profit.

In all these cases, the common thread is no private profit motive. The law ensures that genuine non-profits -- from churches and charities to clubs and unions -- can use all their funds for their missions rather than losing some to taxes. It's a social policy choice to encourage philanthropy, education, religion, and community activities. If any such entity strays from its non-profit nature (e.g. starts distributing profit shares, or fails to get a required license for its business arm), it jeopardizes the exemption.

Pension, Benefit and Mutual Funds; Development Funds

Paragraph 2 also exempts various funds and financial schemes that serve social or developmental purposes:

• Benefit funds and friendly societies: These typically refer to mutual benefit organizations like burial societies, benevolent funds, or other member-funded insurance-like schemes. Paragraph 2(b) exempts "benefit funds" and Paragraph 2(g) exempts "friendly, benefit or medical aid societies". For example, a workplace benevolent fund that pays grants to ill or deceased employees' families would not be taxed on the investment income or contributions it receives. Similarly, medical aid societies (non-profit health insurance pools) are exempt on their subscription income and any surplus. The idea is to keep healthcare and mutual aid costs lower by not taxing these pools.
• Employees' savings schemes or funds approved by the Commissioner are exempt. This caters to things like employer-sponsored thrift or share purchase schemes where employees contribute savings. If a company sets up, say, an employee housing savings fund and it's approved by ZIMRA, the fund's interest earnings or other income won't be taxed, so the full benefit goes to the employees.
• Pension funds are expressly exempt -- "pension funds, until such date as the Minister may specify by notice" remain tax-free (Paragraph 2(i)). Importantly, to date no such taxing date has been specified, so effectively all registered pension funds in Zimbabwe do not pay income tax on their investment income. This is a crucial incentive for retirement savings: contributions into approved pension funds are generally tax-deductible for employees, and the fund's own income (interest, dividends, capital gains) grows tax-free. Only when benefits are eventually paid out to individuals might tax apply (and even then, as we'll see, many pension benefits are separately exempt). The exemption for pension funds has been in place for decades -- even through various reforms, the Minister has refrained from invoking any end date, reflecting a policy to encourage and protect retirement funds. (Note: The old provision was repealed and re-enacted in 1999, but still with the "until Minister's notice" condition. As of 2025 no notice has lifted the exemption.)
• Funds established by the Treasury under the Public Finance Management Act are exempt (Paragraph 2(h)). This refers to special funds created by government for specific purposes (for instance, a National Disaster Fund, or an Educational Fund set up by the Finance Ministry). If the government pools money in a statutory fund for public use, that fund's income (like interest or donations received) is not taxed. Essentially the government isn't taxing itself; it ensures every dollar in those funds goes to the intended public purpose. An example is the National Disaster Fund for drought/relief: any interest it earns on its account would be exempt from income tax.
• Certain statutory insurance and protection funds: For instance, Paragraph 2(m) had exempted the Deposit Protection Fund (a fund insuring bank deposits). Although that specific fund was later dissolved and replaced by the Deposit Protection Corporation in 2012, the principle remained that such funds should not be eroded by tax. Likewise, Paragraph 2(n) exempts the Investor Protection Fund established under the Securities Act (to compensate investors in stock market insolvencies). This means the fund built from levies on securities trades, which is there to reimburse defrauded investors, isn't taxed on its income -- preserving it entirely for its protective purpose. (This was inserted in 2014 after the Fund was created by SECZ.)
• A more recent addition is Paragraph 2(o), which exempts the Insurance and Pensions Housing Company (IPHC). This is a company created (around 2014) to mobilize financing for housing, guaranteed by the State, with shareholders being the Ministry of Finance, the Insurance and Pensions Commission (IPEC), and associations of pension and insurance firms. In essence, the industry and government set up a special-purpose vehicle to fund home building for home-seekers. By exempting its income, the law aimed to lower its costs and encourage it to provide affordable housing finance.
• Another new exemption, Paragraph 2(p), covers the Agricultural Development Fund -- specifically a fund established to raise money to compensate former farmers under the Global Compensation Deed (for improvements on land acquired during land reform). This was added by the Finance Act 7 of 2021. The Fund's receipts -- which might include levies or donations earmarked for farmer compensation -- are exempt. This ensures the fund can accumulate and pay out the compensation in full, untaxed, as part of Zimbabwe's commitments to farmers under the compensation agreement.

In summary, these exemptions for funds and schemes reinforce social insurance and development policy. Pension and provident funds get tax relief to maximize retirees' eventual benefits. Medical and benefit societies are relieved of tax to keep member costs down. Government-created funds and investor protection pools are kept whole for their special purposes. And even newer vehicles like housing finance companies and compensation funds are given breathing room via tax exemption to achieve national policy goals.

It should be noted that if any of these funds veer from their intended function -- e.g. a pension fund engaging in unapproved business or a medical society demutualizing into a profit company -- their exemption might cease (either by law change or because they no longer meet the definition). But as long as they operate within their defined sphere, they remain outside the tax net.

International Organizations and Diplomatic Exemptions

Zimbabwe honors certain international and diplomatic immunities via Paragraph 3 of the Third Schedule, which exempts income of specified foreign governments or international bodies, as well as incentivizes foreign investment finance. Key provisions are:

• Foreign government agencies approved by the Minister (para 3(a)). This allows the Minister to gazette a notice exempting any agency of a foreign government. For example, the Income Tax (Exemption from Income Tax) (Foreign Government Agencies) Notice, 1981 listed certain foreign aid agencies as exempt. Typically, this has been used for entities like USAID or aid branches of other governments operating in Zimbabwe -- their operational funds won't be taxed, reflecting reciprocity and to encourage aid. Similarly, para 3(b) covers international organizations with privileges under the Privileges and Immunities Act that are approved by the Minister. In practice, organizations like United Nations agencies, the World Health Organization, etc., are exempted via statutory instrument (e.g. SI 417 of 1999 exempted the UN and its agencies). This is consistent with diplomatic practice -- international bodies and their officials typically aren't subject to host country tax. Indeed, Section 14(1a) and (a)(iii) of the Act, discussed later, also give effect to treaty-based exemptions for officials.
• International financial institutions: Paragraph 3(c), (d), (e) enumerate entities like those referred in the International Financial Organizations Act [Chapter 22:09], the African Development Bank, and the African Development Fund. These institutions (e.g. IMF, World Bank under the first category, and AfDB, ADF) usually have treaties guaranteeing they pay no local tax. Thus, any interest, project income, or other receipts they derive in Zimbabwe are exempt. For instance, if the African Development Bank lends money to Zimbabwe and earns interest, that interest is free from Zimbabwean tax by law. This encourages such institutions to operate in Zimbabwe without tax hindrance, aligning with international agreements.
• The South African Reserve Bank is explicitly exempt (para 3(e1)). This is a bit unusual, but historically SARB was involved in certain bilateral arrangements; exempting its receipts ensures no Zimbabwean tax complications in those dealings.
• Foreign development finance organizations approved by the Minister (para 3(f)). This is a broad category: any foreign organization that provides development finance in Zimbabwe can be exempted to the extent of receipts from an approved project. For example, a foreign NGO or development bank funding a water project could be granted exemption on any interest or fees it earns from that project. This mechanism helps lower the cost of foreign capital for development -- the foreign lender doesn't have to factor in Zimbabwean tax on the income from the project, making it more likely to offer cheaper finance. Approval is case-by-case via Ministerial certificate.
• Income subject to international agreements (Government-to-Government): Paragraph 3(g) provides that if Zimbabwe's Government enters an agreement with another country and, upon recommendation of the Public Agreements Advisory Committee, adopts that agreement, any person entitled to an income-tax exemption under that agreement shall indeed be exempt. In plain terms, this is a catch-all to honor tax exemptions promised in international treaties. A recent example is given in the Act: the Deka Pumping Station and River Water Intake System Upgrade Project agreement with another government came with a tax exemption, and SI 244 of 2023 was issued to give effect to it. Thus, if Zimbabwe signs a deal -- say with China -- that a Chinese contractor's fees on a funded project will be tax-free, this provision enables that. It prevents conflict between domestic law and international obligations by automatically exempting the income once the agreement is properly adopted. (The Finance (No.2) Act 10 of 2022 updated this paragraph to align with the new procedure under the International Treaties Act.)
• Foreign loans to the RBZ: Paragraph 3(h) exempts interest paid by RBZ to any foreign bank or financial institution on loans or credit facilities extended to RBZ under Section 9(1)(m) of the Reserve Bank Act. Essentially, if RBZ borrows from a foreign bank for its mandates (e.g. to maintain currency stability or fund critical imports) and that particular subsection (9(1)(m)) is invoked, the interest the RBZ pays is not taxed in Zimbabwe. This encourages foreign banks to lend to the RBZ, since they receive interest gross. It's a sovereign borrowing incentive.

Apart from these diplomatic and aid-related exemptions, Paragraph 3 also includes two important investment vehicles that enjoy tax exemption:

• Qualifying Venture Capital Companies or Funds -- Paragraph 3(i) (as substituted in 2019) provides that a venture capital fund or company meeting certain criteria will be exempt on its income. The law lays out conditions: the venture capital outfit and the investee must be Zimbabwean and tax-compliant; it must invest in genuinely productive businesses (not passive property deals, financial services, or other excluded sectors); it cannot invest in listed companies or control the investee (only provide growth capital); and equity (not debt) should be the primary mode of financing. If all conditions are met, the receipts and accruals (e.g. interest, dividends, capital gains) of the venture capital fund are exempt from income tax. The goal here is to stimulate venture capital -- high-risk investment in sectors like agriculture, mining, manufacturing, tourism or other critical areas -- by allowing the fund to operate tax-free (meaning it can pass more returns to investors or accept lower returns). For example, if a qualifying venture fund earns a profit by later selling its stake in a start-up, that profit is not taxed. This exemption, first introduced in the late 1990s and refined in 2019, aligns with economic policy to drive entrepreneurship and new enterprises.
• Real Estate Investment Trusts (REITs) -- Paragraph 3(j) establishes an exemption for qualifying REITs. A REIT, broadly, is a vehicle for collective investment in rental real estate. The exemption was introduced in 2020 to promote development of a property investment market. To prevent abuse, the law sets strict qualifying criteria: the REIT must be registered under the Collective Investment Schemes Act and dedicated to owning and managing real estate; it must derive at least 80% of its income from real estate and distribute at least 80% of taxable income as dividends each year; it should have a broad investor base (minimum 100 shareholders after the first year, with no five or fewer individuals owning more than 50%, except that pension funds can hold more); and it must be listed on a recognized stock exchange. If these conditions are met, the REIT's income is exempt from corporate income tax. The logic is to avoid double taxation (once at property company level and again on investors) and to encourage investment in real estate development. For example, suppose a qualifying REIT owns several commercial properties and earns US$1 million in rent, distributing 90% to its investors. Because of the exemption, the REIT pays no income tax on the rent; investors might then pay tax on the dividends they receive (unless they too are exempt like pension funds). This makes REITs an efficient conduit for property investment. The Finance Act 7 of 2021 adjusted some REIT rules (like permitting pension funds to own all shares). By 2025, Zimbabwe has seen the establishment of REITs on the VFEX to channel capital into real estate, leveraging this tax exemption.

Overall, the international and investment exemptions reflect Zimbabwe's openness to cooperation and investment. They ensure that foreign aid and diplomatic missions can function without tax friction, and that key investment funds (venture capital, REITs) can flourish under favorable conditions. It's a balancing act -- offering tax immunity to encourage beneficial activities while embedding qualifying criteria to prevent misuse.

Exempt Income of the President, Political Officers and Other Individuals

Beyond organizations, the law exempts certain income earned by individuals, particularly in official capacities. These are listed in Paragraph 4 of the Third Schedule, which, in numerous subparagraphs, spares various offices or allowances from tax. The aim is often to respect the dignity of high offices, avoid taxing state-granted benefits, or not to diminish certain public service rewards. The main exemptions in this category include:

• The President's salary and allowances: The salary and emoluments paid to the President of Zimbabwe, in respect of his office, are exempt. Likewise, any salary paid to a member of the President's staff that is paid directly by the President himself is exempt. In practice, the President's official salary (set by the Salary and Allowances Act) is not subject to PAYE. This exemption underscores the special status of the Head of State. Additionally, any allowance payable to the spouse of the President or a Vice-President for duties carried out on behalf of the State is exempt. For example, if the First Lady receives a travel allowance for representing Zimbabwe abroad, that allowance is tax-free. Similarly, an allowance paid by the State to the spouse of a former President is exempt, reflecting respect for former first families. These spousal allowances were inserted in the late 1990s to ensure such payments (often for protocol or charitable work) are not eroded by tax.
• Officials with Privileges and Immunities: Any person whose salary is exempt by virtue of the Privileges and Immunities Act [Chapter 3:03] is of course exempt (Paragraph 4(a)(iii)). This typically covers diplomats and officers of international organizations. For instance, a United Nations official based in Harare, or an ambassador of a foreign country, will have their official earnings exempt under that Act, and Paragraph 4 confirms it. Additionally, Section 14(1a) (inserted in 2023) explicitly exempts salaries of persons entitled to exemption under a government-to-government agreement. For example, if Zimbabwe hosts foreign experts whose salaries are paid by their home government and an agreement provides those salaries aren't taxable in Zimbabwe, that now has direct effect. This was likely to cover technical assistance personnel (like foreign engineers working on a bilateral project) without needing each case to rely on general treaty principles. A concrete case: Zimbabwe has a deal with Japan that JICA experts' salaries are not taxed locally; Section 14(1a) and Third Schedule para 4 give that legal effect.
• Members of Parliament and Ministers' allowances: Certain political allowances can be exempt if so specified. Paragraph 4(b) allows the President to issue a statutory instrument declaring that any allowance granted to a Minister, Deputy Minister, provincial governor (a role under the former constitution), the Speaker or Deputy Speaker of Parliament, the Leader of the Opposition, or a Chief Whip or MP is exempt. The President can even make it retrospective. In practice, a Parliamentary Allowances and Benefits Notice (SI 458 of 1980) was issued to exempt some allowances, and later notices have updated the list (for example, certain fuel or constituency allowances could be exempted). As of 2025, core components of an MP's remuneration (basic salary) are taxable, but specific allowances such as those for parliamentary business, if gazetted, become tax-free. This reduces the tax burden on public office-holders for the expense-related portions of their compensation. Additionally, Paragraph 4(c) exempts the value of any government-provided housing, quarters, furniture or vehicle to a Minister or the Speaker, if specified by the President by notice. This means if ministers are given official residences or vehicles, a statutory instrument can declare that benefit non-taxable. Indeed, SIs in the 1980s exempted housing and transport benefits for ministers and other senior officials. Without this, those benefits would be valued and taxed as fringe benefits. The policy here is that these are provided for official convenience and protocol, and taxing them would effectively reduce an official's net compensation, which the government chooses to avoid.
• Civil service allowances: Paragraph 4(c1) is a broad provision allowing any allowance or benefit granted to a State employee to be exempt if the President so specifies by statutory instrument. This has been used for various cases -- for example, an SI in 1984 exempted certain judges' allowances, and another in 1994 exempted certain public service travel allowances. In 2012, as noted in the training notes, an instrument was issued to exempt teacher's incentives (top-up allowances paid by parents) by deeming them State-granted. Essentially, the President can respond to remuneration issues in the civil service by declaring certain benefits tax-free. This tool was used to ensure, for instance, that when parents were paying teachers extra in hard currency during economic crisis, those amounts weren't taxed -- encouraging teachers to stay in service.
• Traditional leaders: Paragraph 4(e) exempts any allowance payable to a Chief or Headman in that capacity. Chiefs and headmen (community traditional leaders on government stipend) thus receive their monthly allowances tax-free. This is a long-standing privilege recognizing their semi-official status and often modest remuneration.
• Security forces' special allowances: Several subparagraphs relieve certain payments to part-time or wartime security personnel. Paragraph 4(f) exempts any allowance paid for overseas service by a member of the Defence Forces if that service is declared "active service". This would apply, for example, to peacekeepers or troops in a war zone -- their foreign service stipends would not be taxed, acknowledging the hardship and national service element. Paragraph 4(g) then exempts specific small allowances for those who serve part-time in the military or police reserves: a quarterly allowance for volunteer reserve officers, a "volunteers allowance" for Defence Forces volunteers, and an annual allowance for members of the Police Constabulary (reserve police). These are token payments for citizens who serve in auxiliary capacities, so the law exempts them likely to encourage such service.
• War and bravery awards: Paragraph 4(h) and (i) address gratuities accompanying certain medals. A gratuity given with the award of the Fire Brigade Long Service Medal or the Medal for Long Service and Good Conduct (Military) is exempt. Likewise, a small gratuity to a police officer who earns a long-service medal is exempt. These are one-time honoraria given to long-serving uniformed personnel -- by exempting them, the law ensures the full honor is enjoyed without a tax deduction. It's more symbolic than financially significant, but it aligns with the practice of not taxing symbolic rewards. Similarly, Paragraph 4(l) exempts any gratuity given with the grant of an honour or award under the Honours and Awards Act. So if a citizen receives, say, the Order of Merit along with a monetary award, that money is tax-free, reinforcing that it's a gift from the nation in recognition of service.
• Foreign service allowances: Paragraph 4(j) exempts allowances paid by the State to employees for working outside Zimbabwe. Specifically, if a government employee is posted abroad or sent on duty travel, any allowance covering their extra cost of living is exempt to the extent it exceeds what they would have spent at home. For example, a diplomat or a soldier on an external mission often gets a foreign service allowance; the law ensures they are not taxed on the portion that genuinely compensates higher expenses or hardship abroad. Only any savings beyond that threshold could be taxed (though in practice the formula usually makes the allowance exactly equal to estimated excess cost, rendering it fully exempt).
• Accommodation and ration benefits in the field: Paragraph 4(k) exempts the value of rations provided to members of the Defence Forces or Police while "in the field" on operations. So if soldiers are deployed on an operation and given food rations, the value of that food isn't treated as a taxable benefit. It would be impractical and poor for morale to tax a soldier for his combat rations, hence the exemption.

This category of exemptions is diverse but centered on government-related incomes. In short, Zimbabwe chooses not to tax the remuneration of its top office holders (President, etc.), nor certain allowances of officials, nor modest payments to volunteers and honorees. The policy intent is often to maximize the effectiveness of these payments (a tax on a government allowance is somewhat circular, and exempting it can be seen as effectively increasing the net pay to what government intended to give). It can also reduce administrative burden (small stipends and medal gratuities are easier handled if no PAYE is needed).

Importantly, these exemptions are specific -- a salary or allowance is only exempt if it squarely falls in the described category or has been gazetted by the President. For instance, an ordinary civil servant's salary is not exempt; only those allowances explicitly targeted (like a housing allowance if an SI says so) would be. The default for employment income is taxation under PAYE unless carved out here.

Two particularly notable exemptions in Paragraph 4 that have broad relevance to many employees (not just officials) are the bonus exemption and the severance pay exemption, which we address next in detail given their significance and recent updates.

Tax-Free Bonus and Retrenchment Payments (Paragraph 4(o) & 4(p))

To provide relief to employees, Zimbabwe's law exempts part of annual bonus payments and part of retrenchment packages from income tax. These provisions are highly pertinent to the average worker and have been frequently adjusted by Finance Acts, including the 2024/2025 updates.

• Bonus Exemption: Paragraph 4(o) exempts any bonus or performance-related reward paid to an employee up to a certain threshold. Currently, the threshold is US\$700 (or the equivalent in local currency) per year. If an employee receives more than one bonus in a year, it's the aggregate of bonuses that is capped at US\$700 exemption. This means: the first \$700 of bonus income is tax-free; any bonus amount beyond \$700 is taxable in the normal way. For example, suppose in December 2024 an employee earning in USD receives a performance bonus of \$600 -- that entire \$600 would be exempt from PAYE. If another employee gets a \$1,000 bonus, \$700 is exempt and only \$300 is taxable. This exemption has been in place (with varying limits) for many years to encourage employers to pay bonuses and to give employees a tax break during the festive season. Initially set much lower, it was increased to US\$700 with effect from November 2022, and remains at \$700 for USD earners (for ZWL earners, it's the ZWL equivalent at interbank rate). The Finance (No. 2) Act 2024 confirmed the US\$700 threshold. This is particularly important as a cost-of-living support measure in an economy with high inflation -- it ensures at least a portion of any annual bonus (often used for school fees or holiday expenses) is untaxed. Employers still must report the bonus, but when calculating PAYE, they deduct the exempt amount.
• Retrenchment and Severance Exemption: Paragraph 4(p) addresses amounts paid to an employee on cessation of employment due to retrenchment (workforce reduction). It exempts whichever is the greater of US\$3,200 or one-third of the severance package, up to a maximum defined amount. This provision has been adjusted by the Finance Act 13 of 2023 (effective 1 Jan 2024) to its current levels. Let's break it down: if an employee is retrenched, they might receive a severance payment, gratuity, or similar terminal benefit (excluding normal pension or cash in lieu of leave). Under para 4(p), the employee can exclude at least US\$3,200 from tax; if one-third of their total package is higher than \$3,200, they can exclude that one-third, capped at US\$15,100 total exemption. Furthermore, if the employee was remunerated in Zimbabwean dollars, the law deems an equivalent USD value for these thresholds by using the interbank rate (so they still get the benefit at prevailing exchange rate). The US\$15,100 overall cap (also updated in late 2023) means that no matter how large the severance, the maximum tax-free portion is \$15,100. For example, say an employee is retrenched in 2025 with a severance package of US\$9,000. One-third of that is \$3,000, which is less than \$3,200, so by the rule "whichever is greater, \$3,200 or one-third," the employee can exempt \$3,200 (the minimum). If another employee gets \$30,000, one-third is \$10,000, which is greater than \$3,200. That \$10,000 is under the \$15,100 cap, so the employee can exempt \$10,000. If a very senior employee got, say, \$60,000, one-third would be \$20,000, but the cap is \$15,100 -- so they can only exempt \$15,100 and the rest is taxable. The phrase "or 1/3, whichever is greater, of the amount... up to \$15,100" encapsulates this. This retrenchment exemption reflects compassion for those losing jobs -- it softens the tax blow on any golden handshake, allowing them to keep a larger portion to tide them over unemployment. Notably, until 2020 this exemption required the retrenchment to be under an approved scheme, but from 2021 that condition was removed, broadening the relief to all retrenchments. The Finance Acts of 2022 and 2023 then boosted the dollar thresholds in response to inflation and currency changes. Employers apply this exemption via PAYE at termination -- only the taxable portion of severance is taxed, and they issue a tax directive.

It's important that these two exemptions (bonus and severance) apply regardless of the reason for payment (except severance must be retrenchment-related; normal retirement or resignation packages might not qualify unless under retrenchment). They also interact with currency: if someone is paid in ZWL, the law deems them "remunerated in foreign currency" if they fall under certain Finance Act provisions (like Finance (No. 3) Act 2019 for USD equivalence) so that they still get these USD thresholds.

Real-life example (bonus): Tendai, who works for a mining company and is paid in USD, receives a performance bonus of US\$500 in December -- none of it is taxed, as it's below \$700. His colleague Rudo gets a US\$1,200 bonus -- she will enjoy \$700 tax-free and only \$500 is subject to PAYE. If another colleague is paid in Zimbabwe dollars equivalent to US\$800 at the time, she also gets the exemption up to that equivalent of \$700. This effectively gives all these employees a higher net bonus to take home.

Real-life example (retrenchment): Suppose a company is downsizing and gives a retrenched employee a lump sum of ZWL equivalent to US\$9,600. One-third of 9,600 is \$3,200 -- exactly equal to the minimum threshold. So \$3,200 is exempt, and the balance \$6,400 is taxable (after conversion to USD for tax calculation). If another long-serving employee gets US\$45,000, one-third is \$15,000 -- which is under the \$15,100 cap, so \$15,000 exempt, \$30,000 taxable. A very high executive gets \$90,000; one-third \$30,000 would exceed the cap, so "only" \$15,100 is exempt and \$74,900 taxed. While the cap might not fully shield big packages, for most ordinary workers the one-third rule means a substantial portion of a modest package (and at least \$3.2k) is tax-free -- a meaningful cushion when facing unemployment.

Zimbabwe's Finance Act 13 of 2023 (the 2024 Budget) specifically raised the retrenchment exemption from previous levels (it was formerly lower, e.g. \$1,000 or so at one point and a lower cap) to keep pace with currency depreciation and maintain real value. The bonus exemption in local currency is likewise adjusted as needed, though the US\$700 figure has held for those earning in hard currency.

In sum, these employee-focused exemptions demonstrate an effort to balance the tax system's revenue needs with equity and social protection. A bonus is often viewed as a once-off reward; taxing it fully could dampen morale, so a standard chunk is forgiven. A retrenchment package is given at a difficult moment; exempting a portion recognizes that the individual needs as much of that money as possible to re-establish themselves. Many countries have similar provisions, but Zimbabwe's are notable for being clearly quantified in USD terms in the statute (reflecting the multi-currency environment).

Exempt Pensions, Compensation and Other Social Payments

Certain pensions and compensatory payments are exempt under Paragraph 5 and 6 of the Third Schedule, in line with the principle that incomes derived from personal injury, old age, or similar social circumstances should not be eroded by tax. These include:

• Presidential pensions and benefits: Paragraph 5(a) and (b) exempt any pension or allowance payable in terms of the Presidential Pension and Retirement Benefits Act [Chapter 2:05], as well as the value of any service or facility provided under that Act. In effect, a former President's pension and perks (office, security, vehicles, etc.) are not taxable. This is to honor the office and ensure former Heads of State receive their full retirement package without tax deductions. It's comparable to how some countries treat their ex-leaders' pensions as honoraria.
• War veteran and military pensions: Paragraph 6 deals with a range of pensions related to war service or injury. It starts by exempting any war disability pension and any war widow's pension. These refer to pensions paid to veterans who were injured in war and to spouses of deceased war veterans, often under the War Veterans Act. Additionally, any pension or gratuity paid under the War Veterans Act schemes is exempt. (The law references section 7 of the War Veterans Act -- which had established a pension scheme -- and regulations under it for war veteran gratuities.) Although that Act was replaced by the Veterans of the Liberation Struggle Act in 2020, the exemption still captures those benefits. The idea is straightforward: payments made in recognition of war service or as compensation for war injuries are not taxed. If someone fought for the country and now receives a modest monthly war veteran pension or a one-time demobilization gratuity, the tax system lets them keep it all.
• Social welfare and injury compensation: Paragraph 6(e) exempts any award, benefit or compensation (including a pension) to any person or their dependants for injury, disease, disablement or death suffered in employment. This is a broad exemption covering workers' compensation payments. For instance, if a miner is injured at work and gets a lump-sum disability compensation from the NSSA Workers' Compensation Fund or under the law, that amount is tax-free. Similarly, if an employee's death leads to compensation to the family, that isn't taxed. It aligns with the principle that compensation for the loss of bodily capacity or life is not income or gain -- it's restitution -- and thus shouldn't be taxed. So a coal miner who develops pneumoconiosis and receives a compensation payout can use it entirely for treatment and livelihood without the taxman taking a share.
• War victims and disaster compensation: Paragraph 6(f) exempts any compensation (pension, benefit, etc.) paid under the War Victims Compensation Act. This Act provides compensation for civilians who were injured in the Liberation War. Those payments, often lump sums or pensions to disabled war victims, are not taxed. Likewise, paragraph 6(g) exempts any payment from the Wankie Disaster Relief Fund, a fund that was established after the Kamandama Mine disaster in Hwange (Wankie) in 1972 to support survivors and victims' families. If that fund disburses money to a victim, it's tax-free. These specific exemptions are somewhat historical but still in the law, ensuring those affected by those traumatic events aren't taxed on the relief given.
• Pensions on account of old age: A very significant exemption is in Paragraph 6(h): any pension paid from a pension fund or from the Consolidated Revenue Fund to a taxpayer who is 55 years of age or older at the start of the tax year is entirely exempt. In practical terms, if you have retired and you are at least 55, your monthly private pension from, say, Old Mutual or NSSA, or any government pension, is not taxable. This is a major tax concession for the elderly. For example, if a 60-year-old retiree gets a pension of ZWL equivalent US\$200 per month, none of that is included in income -- it's all tax-free. The rationale is to assist older citizens on fixed incomes, recognizing that pensions are effectively deferred wages they saved. Zimbabwe's system thereby spares senior citizens the burden of income tax on their retirement pay (a policy sometimes called "tax-free pensions for those over 55"). This exemption was introduced by Act 8 of 2005 and remains a cornerstone of elderly tax relief. It's worth noting that if someone took their pension as a lump sum, other rules may apply (lump sums often had partial exemptions elsewhere), but regular pension pay to over-55s is fully exempt.
• Retrenchment pension/annuity commutations: Covered by Paragraph 6(h1), this is a companion to the retrenchment gratuity exemption discussed earlier, but specifically for pension/annuity payments linked to retrenchment. It addresses the case where an employee is retrenched and opts to commute part of their future pension or receives an annuity as part of the package (for example, some companies convert severance into an annuity or pay from a pension fund). For those under age 55, such payments would normally be taxable (since they are like early pension benefits), but Paragraph 6(h1) gives a relief: it exempts the greater of US\$1,500 or one-third of the commuted pension/annuity, up to a package of US\$10,000, with an annual cap of US\$1,500 per year. In simpler terms, if a retrenched employee under 55 gets a lump-sum pension payout or an annuity due to retrenchment, they can exclude at least \$1,500 (or one-third of it, if that's more) from tax, limited to cases where the total amount is \$10,000 or less -- and even then, only \$1,500 exemption per tax year if it's paid over time. This is quite specific. For instance, a 50-year-old retrenchee is given an option to withdraw \$9,000 from the company pension fund as part of retrenchment: one-third is \$3,000, which exceeds \$1,500, so \$3,000 is exempt. However, the law says this exemption is applied on packages up to \$10k, and only \$1,500 per year. So if in one year he actually receives all \$9k, I interpret that the first \$1,500 of that year's payment is exempt (the wording is a bit complex -- effectively it ensures at least \$1,500 of any pension commutation due to retrenchment is tax-free, more if one-third is bigger, but spread out if needed). This provision was updated by Finance Act 8 of 2022 and 13 of 2023 to raise the amounts (previously it was lower, e.g. \$1,000). It complements Paragraph 4(p) by addressing not cash severance but pension withdrawals due to retrenchment, so younger workers don't lose a chunk of what is effectively their retirement money.
• Other war-related payments: Paragraph 6(i) and (j) at the end reiterate the war veterans pension and gratuity exemptions (they appear redundant due to earlier subparagraphs, likely due to renumbering errors in the Act). In essence, any veteran's pension or veteran's gratuity remains exempt, as already noted. These were inserted in late 1990s and even though the War Veterans Act has changed, the exemption endures (the Veterans of the Liberation Struggle Act of 2020 continues to provide those benefits, so the exemption effectively carries over).

The philosophy here is clear: do not tax compensation for loss or service. If someone is receiving money because they were injured, or because their spouse died in war, or because they are a war hero, or simply because they've grown old and are on a pension -- those monies are either morally earned or serve to alleviate hardship, and the tax system leaves them alone. This is quite generous especially with the over-55 pension rule -- many countries tax pensions (maybe with some credit or reduced rate), but Zimbabwe chose a full exemption, effectively subsidizing retirees.

From a case law perspective, these exemptions are usually straightforward (less litigation-prone since they are clear-cut). One can note that Matewu v Minister of Finance & Others (2024) challenged some aspects of the 2023 Finance Act's changes on constitutional grounds, but not specifically these exemptions (Matewu case was about process of passing the Act). The exemptions stand as of 2025, benefitting thousands of pensioners and compensation recipients.

Exempt Benefits from Employers (Medical, Transport, Education)

Recognizing that some employer-provided benefits are for the welfare of employees and their families, Paragraph 8 of the Third Schedule exempts certain employment benefits in kind or by reimbursement. Specifically:

• Medical treatment and transport provided by an employer for an employee or their dependent is not taxed. This includes the situation where an employer pays the hospital or doctor directly, or reimburses the employee, or even provides transportation (like an ambulance or bus fare) for the employee or a family member to get medical care. For example, if a company pays for surgery for a worker's child, or offers an in-house clinic free of charge, the value of that is not treated as taxable fringe benefit to the employee. Normally, non-cash benefits are taxable (like a company car), but the Act carves out medical support as an exception -- presumably to encourage employers to assist with health without the employee worrying about tax on that help. One limitation: this applies to employees, not to board directors who are not also employees (the Act notes a director who isn't an employee doesn't get this exemption, likely to prevent high-paid non-exec directors from getting free medical perks tax-free, whereas regular employees can).
• Medical Aid contributions: Paragraph 8(2) exempts any contributions an employer makes to a medical aid society on behalf of employees. So if your employer pays, say, \$50 per month to CIMAS (a medical aid) for your coverage, you are not taxed on that \$50 as a benefit. This encourages employers to provide medical insurance as part of remuneration packages -- a critical thing in Zimbabwe's context. It reduces the cost to the employee of having medical aid, effectively giving them a tax-free compensation element.
• School fees/educational assistance: Paragraph 8(3) provides a half exemption for a specific schooling benefit. The Income Tax Act defines in Section 8 certain "benefits" including where an employer pays school fees for employees' children. Here, para 8(3) says ½ of the value of any school benefit (as defined in sec 8's "advantage or benefit" definition, specifically paragraph (f)1(a)(vi) of that definition) is exempt, up to a limit of 3 children. In plainer language: if an employer pays school tuition for an employee's children, only half of that amount is considered taxable income to the employee, and if the employee has more than three children, only three kids' benefits get the half-exemption -- presumably the rest would be fully taxed. This provision was inserted in 2012. It reflects a compromise -- education assistance is partially for the employee's private benefit (so not fully exempt), but it's also socially beneficial (educated children), so the law gives a 50% break on it. For example, if a mining company pays US\$2,000 per term for an engineer's two children to attend school, ordinarily the \$2,000 each would be a taxable fringe benefit (like additional salary). Under this rule, the engineer would only be taxed on \$1,000 per child (half), and nothing on the other half. If they had four children, the first three could use the half exemption; the fourth child's fees might be fully taxed. This incentive likely helps families and encourages employers to invest in employee retention via schooling perks. It's capped at three children to prevent abuse (someone schooling a whole extended family at employer expense), and the assumption is that very large schooling benefits still face partial taxation.

All these exemptions in Paragraph 8 make up a "social package" of sorts. They encourage employers to cover critical social needs -- health and education -- by reducing the tax cost. Without these, an employee might decline a medical aid or school fees perk because the tax on it would be high; with these, it's attractive. It's also arguably easier on public services if employers voluntarily support their staff in these areas. Many companies in Zimbabwe do pay medical aids and sometimes schooling; the tax law thus complements that practice.

Local Dividend Income Exemption

Zimbabwe effectively operates a classical tax system with a relief for local dividends: companies pay corporate tax on profits, and dividends paid out of those taxed profits are then exempt in the hands of shareholders. This is codified in Paragraph 9 of the Third Schedule, which states that any amount received as a dividend from a company incorporated in Zimbabwe, which is chargeable to income tax, is exempt. In short, domestic dividends are not taxed again.

For example, if John owns shares in Delta Corporation (a local company) and Delta pays him a dividend of ZWL 100,000 (out of its after-tax profits), John does not include that dividend in his gross income -- it's completely exempt. The company Delta already paid corporate tax (currently 24% plus AIDS levy) on the profit that sourced that dividend, so this prevents double taxation of the same income. This rule has been in place for decades, although in the past there was a resident shareholders' tax (RST) which was a form of withholding on dividends. RST was repealed in 2009, moving Zimbabwe fully to the exemption system for local dividends. As a result, since 2009, if you are a Zimbabwe resident shareholder, no further tax is levied on your Zimbabwe-sourced dividends (foreign dividends are another matter -- they would be taxable unless a treaty or other exemption applies). Even non-resident shareholders pay only a withholding tax on dividends (15%), but no normal tax beyond that; effectively the withholding is the final tax for non-residents.

It is important to note an anti-avoidance caveat in Paragraph 9: deemed dividends under certain circumstances are not exempt. The Act specifies that amounts deemed to be dividends in terms of section 26(2) or 28(2) are excluded from the exemption. These sections typically refer to situations like undistributed branch profits or loans to shareholders treated as dividends. So, if a closely-held company tries to disguise a distribution (for example, by giving a shareholder an interest-free loan or assets), the Commissioner can deem it a dividend -- and in that case it won't get the tax exemption. This prevents abuse of the dividend exemption by mischaracterizing payments.

Otherwise, the dividend exemption is straightforward. Real-life example: Alice owns shares in a listed company, which declares a \$200 dividend to her in 2025. The company will not withhold any tax if Alice is a resident, and Alice will simply not count that \$200 in her tax return -- it's fully exempt. If Bob, a foreign investor, gets the same \$200, the company withholds, say, \$30 (15%) as non-residents' tax on dividends, and Bob has no further liability -- still aligning with the idea that the dividend isn't subject to normal tax computations beyond withholding.

This exemption makes equity investment more attractive, since individuals don't suffer incremental tax on dividend income (which might otherwise be taxed at up to 40% if treated as normal income). It also simplifies tax administration (few individuals would have to declare dividend income at all). The cost is revenue loss on passive income, but Zimbabwe has favored capital formation by taxing it lightly. One can compare that interest income, as we'll see next, is not fully exempt -- only certain interest is -- indicating a deliberate bias towards equity investment.

Interest Income Exemptions (Savings and Investment Instruments)

Interest earned can be taxable, but Paragraph 10 of the Third Schedule provides a long list of interest-bearing instruments and situations where interest is exempt. The objective is typically to encourage savings in certain vehicles or to lower government's borrowing costs by making interest tax-free to investors. Key interest exemptions include:

• Interest on government securities and similar savings instruments:
  • Savings certificates issued by law -- e.g. old government savings bonds or certificates -- interest on these is exempt (para 10(1)(a)).
  • Post Office Savings Bank deposits -- interest on money in the Post Office Savings Bank is exempt (para 10(1)(b)). The POSB traditionally offered savings accounts especially to small depositors, so exempting its interest was a pro-poor encouragement to save.
  • Tax Reserve Certificates (para 10(1)(c)) -- these were instruments taxpayers could buy to set aside money for future tax payments, earning interest. Their interest is exempt to promote their use (though they are less common now).
  • Any State loan where the interest is stipulated to be tax-free (para 10(1)(d)). Often when government floats bonds, it may declare the interest exempt to attract investors -- this clause gives legal effect to such terms. Similarly, para 10(1)(e) lets the Minister declare by statutory instrument that interest on a particular government loan is exempt. For example, the Interest on 4% Government Bonds (Non-Residents) Notice, 1984 declared those bond interest payments to non-residents exempt. This helped the government borrow internationally at lower rates.
  • Certain development bank loans: interest on loans made by the European Investment Bank (EIB) is exempt (para 10(1)(f)), reflecting an agreement with the EIB. Likewise, interest on loans to the Infrastructure Development Bank of Zimbabwe (IDBZ) by foreign institutional shareholders is exempt (para 10(1)(g)). This was inserted in the 2000s to encourage foreign investment into IDBZ's infrastructure projects.
  • Building society Class "C" shares: these are a form of savings share in building societies; interest (dividends) on Class C shares is exempt to the extent provided in their governing regulations (para 10(1)(h)). This historically helped building societies (like CABS, etc.) mobilize funds by offering tax-free returns on certain shares.
• Special financial instruments introduced at various times:
  • (h1), (i), (j) were repealed entries (they used to cover certain old bonds that no longer exist).
  • Agricultural bonds: para 10(1)(k) and (m) exempt interest on certain agricultural bonds issued by consortia of banks to finance agriculture. These were specific arrangements around late 1990s/early 2000s to fund resettlement and farming (e.g. a Syfrets-led consortium bond for land reform in 2000). The exemption was to entice banks to participate by making the interest they receive tax-free, improving their net return.
  • National Fuel Facility bonds: para 10(1)(l) exempts interest on bonds issued by RBZ on behalf of the National Fuel Investments Company. This was related to financing fuel imports; again, tax-free interest was a sweetener to investors in those bonds (inserted in 2000).
  • Diaspora bonds: para 10(1)(p) exempts interest on any "Diaspora Bond" issued by CBZ Bank. This was introduced by Act 5 of 2010. Diaspora bonds were aimed at Zimbabweans abroad to invest in national projects; making the interest tax-free was a way to encourage uptake.
  • AMA bills: para 10(1)(q) exempts interest on Agricultural Marketing Authority bills issued after 8 Nov 2011. AMA periodically raises money via bills for financing crop purchases (e.g. for Grain Marketing Board). The exemption helps them offer lower yields since investors don't have to pay tax on the interest (this was added in late 2011).
  • Small-scale gold miner loans: para 10(1)(r) (mis-lettered due to prior q) exempts interest on loans made to small-scale gold miners for mining or exploration. This was introduced in 2014 to boost gold production by making it attractive for banks to lend to artisanal miners -- the interest they earn is tax-free. Conditions include the miner qualifying as a "micro-enterprise" under SME Act schedules. Essentially, a bank could give a loan to a registered small miner to buy equipment and not pay tax on the interest income, hopefully leading to more lending in the sector.
  • Long-term deposits: para 10(1)(s) and (t) address interest on long-term deposits. Specifically, interest on deposits with a tenure over 12 months is exempt. This policy was introduced in 2014--2015 (and renumbered a couple of times) to encourage savings of over a year by not taxing the interest earned on such fixed deposits. Given Zimbabwe's historically short-term savings culture, this incentive was to promote longer-term funding in banks. For example, if an individual places money in a 18-month fixed deposit, the interest they earn will be exempt from tax (whereas a 3-month deposit's interest would be taxable via withholding). It's a significant incentive for those willing to lock away funds.
  • Loans to statutory corporations: para 10(1)(u) exempts interest on any loan to a statutory corporation, if that loan is approved by the Minister by notice. This broad power was (after some confusion in numbering) effectively backdated to apply from 2009, aimed at making it easier for parastatals to borrow money. For instance, if the Zimbabwe Power Company (a statutory corp) floats a bond and the Minister approves it for exemption, investors won't pay tax on the interest, making the bond more attractive (hence lower interest cost to the company). This has been used in practice for infrastructure bonds.

As one can see, Paragraph 10 is lengthy -- it essentially lists out all the scenarios over time where government said, "We want to make this borrowing/savings instrument attractive; let's not tax its interest." Some of these items are dated (like specific 2004 land reform bonds), but many are ongoing (like long-term deposits, diaspora bonds, AMA bills which are still issued, etc.).

For ordinary savers, the most relevant are the long-term deposit exemption and an important one in subparagraph (n) and (o) introduced in 2019/2020: the interest for senior citizens. These were highlighted in the training notes:

• Interest for taxpayers aged 55 or above: Paragraph 10(1)(n) exempts the first US\$3,000 of interest per year from any deposit with a financial institution, for individuals aged 55 or older. Paragraph 10(1)(o) does the same for interest from banker's acceptances or similar discounted instruments for those seniors. Essentially, if you are 55+, up to \$3,000 of your interest income in a year is tax-free (covering bank deposits, money market instruments, etc.). If you earn \$4,000 interest, \$3k is exempt, \$1k is taxable. If you earn exactly \$3k or less, you pay no tax on interest. This exemption was put to give a break to retirees and seniors who often rely on interest from savings as income. As of the end of 2023, the age threshold was lowered to 55 (it used to be 59) and the exempt amount standardized to US\$3,000 (which has changed over the years -- the notes show a history of adjustments from ZW\$ millions pre-dollarization to US\$ after 2009). This means a 56-year-old with fixed deposits and treasury bills, etc., doesn't pay tax on the first \$3k interest earned. It encourages savings for retirement and acknowledges that interest rates might be low, so a basic amount should be untaxed.

For resident individuals in general (not seniors), note that Zimbabwe imposes Residents' Tax on Interest (RTI), a withholding tax of 15% on bank deposit interest. However, Paragraph 10A then exempts any interest from which RTI is required to be withheld. In other words, if an interest income is subject to the 15% withholding at source, the law treats that interest as final-taxed and does not tax it again in the recipient's hands. So, for example, if a 40-year-old earns \$500 interest from a one-year bank deposit, the bank withholds 15% (\$75) and the \$500 interest is exempt from further income tax by virtue of para 10A -- the 15% was the final tax. This prevents double taxation and simplifies things (the person doesn't declare the interest or pay extra tax beyond the withheld amount). Essentially, RTI interest is exempt from normal tax because the withholding is the final liability.

So practically: an ordinary individual under 55 with a regular savings account -- the bank will deduct RTI on any interest and that's the end of it; that interest is not included in their taxable income calculation. If the individual is 55+, the first \$3k of interest should actually be free of even withholding -- banks usually have to apply the exemption and not withhold on that portion (the mechanics require perhaps filing a form). But even if withheld, the senior can get a refund or not be charged further.

All told, Zimbabwe's interest exemptions target government debt, development finance, and senior citizen savings. Interest that doesn't fall under an exemption -- e.g. corporate bonds held by a 40-year-old -- would either be subject to RTI (if through a financial institution) or normal tax if not captured by withholding. Non-residents' interest is generally subject to a 5% or 10% withholding tax (if not exempt by a treaty or by these rules, like EIB loans which are exempt, etc.).

Non-Resident Interest Exemption (Encouraging Foreign Loans)

Paragraph 11 of the Third Schedule provides a targeted exemption to encourage certain foreign loans. It says that, subject to some conditions, interest accruing to a person who is not ordinarily resident in Zimbabwe and who isn't carrying on business in Zimbabwe is exempt if the interest is on:

• a loan used by a person for mining operations or exploration in Zimbabwe,
• a loan to the State or a wholly State-owned company,
• a loan to a local authority,
• a loan to a statutory corporation,
• and formerly a loan to a building society made before a certain date (that part (e) was repealed in 2010 as it was outdated).

In simpler terms, if a foreign investor or bank lends money for mining in Zimbabwe, or lends to the government or municipalities or parastatals, the interest they earn is not taxed in Zimbabwe (no withholding, nothing). This is a big incentive: it effectively means these types of loans yield gross interest to the lender. For example, a UK bank lends \$10 million to Harare City Council for water infrastructure at 6% interest -- the \$600,000 interest annually is exempt from Zimbabwean tax, so the UK bank gets full 6%. If this exemption didn't exist, Zimbabwe might impose, say, 15% withholding leaving the lender only 5.1% effective, possibly deterring the loan or causing demand for higher interest. Similarly, if a Canadian mining finance company provides exploration funding to a Zimbabwean miner with interest, it can receive that interest free of local tax, presumably making it easier for the miner to attract the loan.

However, there are anti-avoidance clauses in Paragraph 11(3) to prevent misuse by residents routing loans through offshore or by foreign parents. The exemption does not apply if:

1. The interest would be taxable in the lender's home country solely because it's exempt in Zimbabwe. This is a bit complex, but it addresses tax haven scenarios. It implies that if the only reason the foreigner isn't taxed at home is because Zimbabwe didn't tax it, then Zimbabwe will also not exempt it (i.e. to avoid a double non-taxation). It seems aimed at situations where a treaty might allow the home country to tax interest only if Zimbabwe didn't -- though in practice not many cases like that.
2. If the foreign lender is actually a company controlled by Zimbabwe residents or doing business here, then no exemption (so locals can't just set up an offshore shell to give themselves a tax-free loan).
3. If the loan interest is paid from a Zimbabwe subsidiary to its foreign parent company, the exemption won't apply if certain conditions aren't met. Essentially, for a foreign parent to get interest from Zim tax-free, that interest must be taxable in the parent's country and the Zimbabwean tax that would have been paid (but for the exemption) would have been creditable in that country. This prevents a scenario where a multinational might capitalize a Zim subsidiary with loans to extract profits as untaxed interest rather than dividends -- unless they'd have paid tax anyway back home. If the parent is in a high-tax jurisdiction where the interest will be taxed and Zimbabwe's foregone tax would just be a credit, then it's okay to exempt it here. But if the parent is in a tax haven (no tax on interest), then Zimbabwe doesn't exempt -- it would want to tax it since no one else will. In practice, this is a safeguard to ensure the exemption is used genuinely to attract third-party loans and not intra-group profit shifting to zero-tax jurisdictions.

With those safeguards, Paragraph 11's exemption is a powerful tool to attract foreign capital for key areas: mining and public sector financing. Mining is capital-intensive and often funded by foreign venture capital or loans; offering interest exemption can tilt decisions in Zimbabwe's favor compared to other countries. Similarly, government and municipalities often borrow from development banks -- those banks usually demand tax-free interest via host country guarantees; this provision gives legal basis for that.

For example, if the City of Bulawayo issues a bond and a South African fund buys it, interest could be exempt under the local authority clause. Or if ZESA (a parastatal) takes a loan from a Chinese bank for power equipment, interest is exempt as it's a statutory corporation loan. These make borrowing cheaper for the borrower because the lender didn't ask for a higher rate to cover taxes.

The interplay of these interest exemptions (Paragraphs 10, 10A, 11) shows a pattern: Zimbabwe doesn't uniformly exempt all interest (that would open a tax loophole too wide). Instead, it selectively exempts interest that either furthers development goals (government bonds, infrastructure, agriculture, small businesses) or eases access to financing (foreign loans, long-term deposits), while generally taxing other interest (via withholding) to raise revenue from investment income.

Other Miscellaneous Exemptions

Finally, the Third Schedule contains several specific exemptions that don't fall neatly into earlier categories, but are important to note:

• Alimony (Maintenance): Paragraph *12 (implied)* -- the Third Schedule lists an item (un-numbered in our text but effectively Paragraph 12) that "An amount received by way of alimony, howsoever paid" is exempt. This means any spousal maintenance payments after divorce or separation are not considered taxable income to the recipient. For example, if a court orders a husband to pay his ex-wife ZWL 200,000 per month for maintenance, the ex-wife does not pay tax on that money. It is treated as a private support payment, not income earned. (Correspondingly, the payer cannot deduct it for tax either -- maintenance isn't deductible). This exemption ensures that someone (usually a divorced spouse) receiving funds for their upkeep -- which is more in the nature of personal support -- isn't treated like they earned income. It aligns with many tax systems that exclude personal maintenance and child support from taxation.
• Traditional Beer Sales for Community Benefit: Paragraph 13 exempts income from the sale of traditional beer under the Traditional Beer Act [Chapter 14:24], to the extent the proceeds are devoted to the purposes required by that Act. Under that Act, certain authorized brewers (often rural district councils or chiefs' councils) brew and sell traditional beer and must use the proceeds for community development (like building wells or roads in the communal area). This exemption means if, say, a rural township sells \$5,000 worth of traditional beer and, as legally mandated, spends it on local infrastructure or development, the \$5,000 isn't taxed. It would be counter-productive to tax money that by law must go to community projects. Essentially it facilitates grassroots fundraising for local improvements without the tax collector taking a share.
• Government Export Incentives (Export Bonus): Paragraph 14 exempts any amount paid by the State to an exporter of goods under an export development scheme (excluding any refund of import duty). This covers various export incentive programs the government might run. For instance, in the past the government had export incentives where exporters got a bonus or a premium for bringing in foreign currency. A recent example was the Export Credit Incentive (ECI) or Export Bonus Scheme around 2016--2017, where RBZ paid exporters a bonus in Bond Notes or credited accounts with a percentage of export proceeds (5% or so). Paragraph 14 ensures such bonuses are not taxed. If an exporter earns \$100,000 from exports and government gives a 5% bonus (\$5,000) in local currency, that \$5,000 is exempt. The rationale is obvious: it's a government grant to encourage exports, so taxing it would defeat its purpose. The training notes mention it's a percentage of exports and specifically not a duty refund, meaning it's truly an incentive, not a rebate (duty drawbacks are anyway not income but reimbursements). Thus any exporter's rebate or bonus funded by the State -- as long as it's under an official scheme -- comes tax-free to the exporter, maximizing the benefit to them.
• Business expense allowances: Paragraph 15 exempts any amount of an allowance referred to in section 16(1)(m) of the Act, to the extent that it is expended on the business of the employer. In practice, section 16(1)(m) refers to certain entertainment or similar allowances given to employees. What this means is: if an employer gives an employee an allowance to cover business-related expenses (like a client entertainment allowance, travel per diem, etc.), and the employee actually uses it for the employer's business, then that portion used is not taxable income for the employee. Only any unexpended portion (effectively, any personal benefit) would be taxable. For example, an executive is given a ZWL 100,000 monthly entertainment allowance to wine and dine clients. If in a month she spends ZWL 80,000 on actual client dinners and has ZWL 20,000 left over (or spends on herself), the ZWL 80,000 is exempt and only ZWL 20,000 would be treated as her income. The law essentially prevents employees from being taxed on money that merely passes through them for business expenses. It is similar to the principle that genuine reimbursements are not taxable. This is particularly relevant in cases like sales staff who get lump-sum allowances for fuel or entertainment -- they won't be penalized tax-wise for the portion they truly spend for work. The training material explicitly calls this "that portion of an entertainment allowance... expended on the employer's business" is exempt. It's a fair rule to avoid discouraging employers from giving such allowances or employees from using them properly.
• RBZ Export Incentive (EFI): Paragraph 16 (as substituted by 2018) exempts the export incentive premium paid by the Reserve Bank of Zimbabwe on export proceeds and certain foreign remittances. This refers to the scheme from around 2016 where RBZ paid exporters a bonus in bond currency (initially 5%, later varied) for earnings and also an incentive for diaspora remittances. The law was amended to exempt these receipts retrospectively from 1 June 2016. It was effectively a central bank policy tool to increase liquidity and encourage export and remittance inflows, packaged as a "Remittance Incentive". By exempting it, the policy's effect was preserved. (Note: The paragraph also notes it was repealed in 2005, then reintroduced in 2017 and changed in 2018 to cover this scenario. By 2020, with the bond note scheme ending, this incentive largely phased out; but for the period it applied, it was tax-free. If an exporter got a 5% bonus in 2017, none of that bonus was taxed.)
• Industrial Park Developer: Paragraph 17 exempts the receipts and accruals of an industrial park developer from their industrial park, for the first five years of operation. This incentive was introduced to spur development of industrial parks/zones. If a company establishes an approved industrial park (a cluster of factories or multi-industry zone), it gets a tax holiday for 5 years on the income directly from operating that park (like rental income from leasing factory shells, etc.). For instance, if in 2025 XYZ Properties sets up an industrial park and is approved by the Minister as such, then from 2025 through 2029, XYZ's rental and service income from tenants in the park is exempt. This significantly improves the project's viability and payback. This was part of a 2017/2018 drive to attract investment into manufacturing infrastructure, and effectively lowered the cost for developers to recoup their costs. After 5 years, the income becomes taxable normally.
• Duty Exemption Certificate Trading: Paragraph 18 exempts any amount received from the sale, disposal or transfer of a duty exemption certificate issued by the RBZ to an exporter qualifying for a duty rebate. This is a niche provision: at one time, exporters under certain incentive schemes were given certificates that allowed them to import inputs duty-free or at a rebate. Some exporters might not need to use the full certificate and could legally sell it to another importer. This paragraph makes sure if they sell that certificate (which is essentially selling the right to a duty rebate), the money they get is not taxed. It's a somewhat peculiar scenario, but consider: an exporter gets a duty-free certificate for \$100,000 worth of imports. If the exporter's own imports are only \$60,000, they might transfer \$40,000 of the certificate to another company for a fee. That fee is exempt from income tax (it's sort of an arbitrage of a government benefit). This was inserted around 2001 when such certificates were more common. It prevents underutilization of incentives (exporters wouldn't lose out by selling excess certificates), and acknowledges that the value comes from a government privilege, not normal trading income.
• Employee Share Ownership Trusts: Paragraph 19 exempts any amount accruing to an employee from the sale to (or redemption by) an approved employee share ownership trust of the employee's stake in that trust. In other words, if employees participate in a properly approved employee share ownership scheme (ESOP) -- often these are trusts holding shares on behalf of employees -- and later the employee cashes out their shares/units, the money they get is exempt. For example, a mining company sets up an ESOP trust that holds 10% of the company's shares for employees. When an employee leaves or after a lock-in period, the trust might buy back the shares from the employee or redeem units for cash. This payout is not taxed as income for the employee. The logic: it's meant to encourage broad-based empowerment and ownership by employees. If those pay-outs were taxed, it could discourage participation or reduce the benefit's impact. The exemption only applies if the trust is an "approved" one -- approval under indigenisation or empowerment laws or Commissioner's approval likely. The case Old Mutual Zimbabwe Ltd v ZIMRA (2016) dealt with such an ESOP issue, confirming that amounts employees got from an employee share trust were not ordinary taxable income. Essentially, it treats those distributions as capital (like sale of shares, which typically could be subject only to capital gains tax if at all, but here even CGT might be waived by this specific exemption). This encourages companies to set up employee ownership plans during indigenisation programs by ensuring employees truly benefit tax-free when value is realized.
• (Paragraph 20 was an exemption for certain power generation projects' income, introduced in 2018, but it was repealed in 2020 before it took effect). Thus, currently there is no Paragraph 20 exemption applicable -- any such projects now presumably negotiate tax incentives individually or fall under other provisions.

With that, we have covered all the categories listed in Section 14 and the Third Schedule. One can see that outdated items (like the repealed para 20, or the Deposit Protection Fund item replaced by a new Act, etc.) have either been removed or are noted as inactive. In compiling this 2025 lecture note, we have excluded thresholds or provisions that no longer apply -- for instance, any references to ZW\$ amounts from pre-2009 have been updated to the USD-based thresholds now in force, and the COVID-19 frontline risk allowance exemption (Paragraph 4(y)) which was time-bound for 12 months from April 2020 has run its course (we mention it here for completeness: it exempted the extra "risk allowances" paid to nurses, doctors and other health workers during the first year of the pandemic, reflecting national gratitude -- it expired after that year). We have also integrated Finance Act 2023/24 updates: for example, the bonus USD 700 threshold (Act No. 2 of 2024), the new retrenchment limits (Act 13 of 2023), the lowered senior interest age (Act 13 of 2023), and others, all of which are effective in 2025.

In conclusion, Zimbabwe's income tax exemptions are a patchwork reflecting historical, economic, and social policy goals. For a student or new tax practitioner, the key is to recognize the rationale behind each: public bodies (no point taxing government itself), charities and clubs (supporting public benefit and mutual activities), incentives for savings and investment (making certain bonds or deposits more attractive), relief for individuals (older persons, severance, etc.), and compliance with international norms (diplomatic immunities, foreign aid). Case law has occasionally clarified these -- e.g. FC Platinum case on club status, Endeavour on public trusts, Old Mutual on employee schemes -- underscoring that one must meet the exact requirements to enjoy the exemption. If an entity or person falls outside the narrow wording, normal tax applies. Thus, careful analysis is needed: for instance, if a company limited by guarantee doesn't strictly meet Paragraph 2(d) club criteria, it might be taxable despite non-profit intentions.

By keeping these exemptions in mind, one can legitimately minimize tax liabilities (tax planning often involves channeling activities into exempt forms where possible) but must also heed that the tax authorities and courts strictly interpret them (since exemptions are exceptions to the rule that income is taxable). Importantly, any Finance Act changes usually update threshold amounts rather than remove exemptions -- so the framework we've described is likely to persist, with figures like the bonus or retrenchment caps changing over time in response to inflation and currency changes.

This completes the comprehensive overview of income tax exemptions under Zimbabwean law as of February 2025. The Third Schedule serves as a checklist -- if an item of income fits one of its paragraphs (and none of the exclusionary conditions of Section 14(2) or (3) apply), then that income is simply not taxed. All other income will be part of gross income and potentially taxable. A solid grasp of these exemptions allows one to properly compute taxable income and also to understand the policy direction of Zimbabwe's tax system -- which oftentimes leverages exemptions as incentives or reliefs to achieve broader economic objectives.

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