General Deduction Formula in Zimbabwean Income Tax Law (Section 15(2)(a)) Introduction

The general deduction formula in Zimbabwe's Income Tax Act [Chapter 23:06] is the fundamental rule that determines what business expenses are tax-deductible when calculating taxable income. It is encapsulated in Section 15(2)(a) of the Act, often called the "positive" deduction test, and allows deductions of "expenditure and losses to the extent to which they are incurred for the purposes of trade or in the production of the income", provided they are not of a capital nature. In essence, any revenue expense a taxpayer incurs in carrying on a trade or business to earn income is deductible unless the law specifically prohibits it or classifies it as capital (which generally must be handled under special capital allowance provisions). This lecture-style guide will break down each element of Section 15(2)(a) -- "expenditure and losses," "actually incurred," "in the production of income," and "for the purposes of trade" -- explaining the legal meaning of each term and illustrating them with real-world examples. We will also discuss how courts (in Zimbabwe and historically related jurisdictions) have interpreted these elements through landmark cases such as Port Elizabeth Electric Tramways, Joffe, New State Areas, Sub-Nigel, etc., and how those cases guide the application of the general deduction formula. Further, we will distinguish the general deduction rule from special deductions (specific allowances in tax law) and prohibited deductions (Section 16 of the Act), so you understand what falls outside Section 15(2)(a). Finally, we highlight legislative updates up to 2025 -- including the 2018 amendment on prepaid expenses -- and relevant 2026 budget proposals that affect deductions. The goal is to provide a clear, instructional resource on how the general deduction test is applied in Zimbabwean tax, with tables, examples, and case explanations for students and practitioners.

(For ease of reference, Section 15(2)(a) will often be paraphrased as allowing deductions of non-capital expenditure or losses "incurred in the production of income for the purposes of trade.")

Elements of the General Deduction Formula

Section 15(2)(a) sets out several criteria that an expense must satisfy to be deductible. We will examine each element in turn:

• Expenditure and losses
• Actually incurred (during the year)
• In the production of income
• For the purposes of trade
• (Not of a capital nature -- the capital limitation is discussed separately.)

"Expenditure and Losses"

Section 15(2)(a) covers "expenditure and losses" -- a broad phrase that includes most outgoings of a business. "Expenditure" generally means any amount of money (or money's worth) spent or costs incurred. "Losses" extends the deduction to losses not involving a payment, such as theft, embezzlement, damage, or other deprivation of assets occurring in the course of trade. Importantly, this term is not limited to accounting net loss on the income statement; it targets specific expenses or losses. For example, pilferage of stock or cash by employees, destruction of trading stock by fire, or money embezzled by a bookkeeper are treated as losses incurred in trade and can qualify. In the Zimbabwean context, a famous illustration is that losses from embezzlement by employees are deductible because they arise out of the trade operations. By contrast, losses that are intentionally incurred for personal reasons, or penalties for wrongdoing, do not meet the test (as discussed later under "purposes of trade").

"Actually Incurred" (Timing and Obligation)

An expense is only deductible when it is "actually incurred" by the taxpayer. This phrase means that the taxpayer must have a definite and legal obligation to pay the amount during the year of assessment, even if the payment is made later. Zimbabwe follows the general tax principle (drawn from case law like New State Areas Ltd v CIR) that "actually incurred" does not mean the expense must be paid in cash by year-end -- it is enough that the liability has arisen and is unconditional. For instance, if a business has received an invoice for goods or services delivered in December 2025, the expense is "incurred" in 2025 even if settled in 2026, because the obligation to pay existed in 2025. The courts have emphasized that "actually incurred does not mean actually paid".

Conversely, expenses that are contingent or conditional at year-end are not "incurred." If a liability will only arise upon some future event or decision, it has not crystallized in the current tax year. New State Areas is the leading case: the company had made a provision for bonuses and other costs that were contingent on future events, and the court held those were not incurred because the obligation was not unconditional by year-end. In simple terms, you cannot deduct anticipated expenses or provisions for which you are not yet definitively liable. For example, merely budgeting ZWL 100,000 for possible machinery repairs next year does not make it "incurred" now -- if the machines haven't broken yet and no repair contract exists, it's just a reserve. Similarly, an estimate of future retrenchment costs or pending lawsuit damages is not deductible until the amount is certain or legally due. The High Court of Zimbabwe echoed this principle in a recent case, ruling that prepaying a future liability doesn't accelerate the deduction: if a tax or fee is paid "early" before the law actually requires it, the payment is seen as a premature discharge of a contingent liability -- not yet incurred in the legal sense.

Prepaid expenses: In fact, Zimbabwe's law was amended to codify the treatment of prepayments. Section 15(2)(a) now explicitly excludes "expenditure that constitutes a prepayment for goods, services or benefits to be used in a later tax year," except proportionally when those goods/services are used. This means if you prepay a multi-year expense (say, a 3-year insurance premium or rent paid in advance), you may only deduct the portion relating to the current year; the rest is deferred to the subsequent year(s) of use. For example, if in December 2025 a company pays ZWL 600,000 to cover rent for Jan–Dec 2026, that payment is a prepayment for a benefit in 2026. Section 15(2)(a) would prohibit deducting the entire ZWL 600,000 in 2025 -- instead, the company would deduct it in 2026 (when the rental benefit occurs). This rule, introduced by Finance Act 1 of 2018, prevents taxpayers from front-loading deductions in one year for benefits that belong to future periods.

"Necessarily" incurred? Another nuance clarified by case law is that "actually incurred" does not mean "necessarily" incurred. The expense need not be absolutely necessary or unavoidable to count as incurred in the production of income. In other words, taxpayers have the commercial freedom to incur costs they deem fit for their business, even if some might argue the expenditure could have been avoided. As long as an expense is incurred with a genuine business purpose, it can qualify -- even if it was not strictly indispensable. For instance, spending on employee training or staff welfare might not be necessary in a narrow sense (the business could operate without it), but once the business incurs that expense for the sake of improved operations, it is "actually incurred" and (if it meets the other tests) deductible. The courts have rejected the idea that the tax authority or court should second-guess the business efficacy or strict necessity of an expense when determining deductibility. As long as the expense is bona fide and aimed at producing income (and not lavish or ultra vires), it being "unnecessary" is not a bar to deduction.

"In the Production of Income"

Perhaps the most litigated element is whether an expense is incurred "in the production of income." This is a purpose or causal test: there must be a clear connection between incurring the expense and the income-earning operations of the taxpayer. The expenditure should be aimed at producing the taxpayer's taxable income (or performed as part of the business operations which generate income). An early Zimbabwean case defined this as expenses incurred "for the purpose of enabling a person to carry on and earn profits in the trade". In practice, this means the expense must serve a business function -- it should be part of the cost of doing business and not serve some other private or ulterior motive.

The classic formulation comes from South African Judge Watermeyer in the Port Elizabeth Electric Tramway Co. case (often cited in Zim tax jurisprudence given the similar law). He stated: "the purpose of the act entailing expenditure must be looked to. If it is performed for the purpose of earning income, then the expenditure attendant upon it is deductible... Here, in my opinion, all expenses attached to the performance of a business operation bona fide performed for the purpose of earning income are deductible, whether such expenses are necessary for its performance or attached to it by chance or are bona fide incurred for the more efficient performance of such operation, provided they are so closely connected with it that they may be regarded as part of the cost of performing it." (Watermeyer J in PE Tramways).

In simpler terms, if you can show that an expense was a bona fide part of your income-earning process, it will satisfy the "production of income" test, even if it was not strictly inevitable or if it arose accidentally in the course of business. The expense should be closely linked to the business's operations. Some expenses are clearly in the production of income -- e.g. raw materials for a factory, wages for workers, advertising to attract customers -- these directly help earn income. Other expenses require judgement: for instance, paying for repairs of business equipment clearly supports producing income (keeping assets running), whereas paying a traffic fine incurred by a delivery driver does not produce income -- it arises from a legal offence, not from a need of the business (more on this distinction below).

Incidental business risks: A key insight from case law is that the "production of income" test covers not only expenses that directly generate revenue, but also those incurred as an incidental risk or consequence of carrying on the business. In Port Elizabeth Electric Tramway, the company paid compensation to the widow of an employee who died in a traffic accident while operating a tram. The court allowed the deduction: operating trams was the income-producing activity, and accidents were an inherent risk of that operation -- therefore the compensation payout, though not generating income itself, was "attached to the business operation" and regarded as part of the cost of performing it. By contrast, in Joffe & Co. (Pty) Ltd v CIR, a construction company sought to deduct damages paid when a wall collapsed due to their negligence, killing a bystander. The court disallowed it, essentially finding that such damages did not result from a necessary or bona fide business activity but from the taxpayer's capacity as a wrongdoer, not as a trader. In other words, negligence leading to legal penalties was not considered incidental to carrying on a lawful business -- it was outside the proper scope of producing income. These cases illustrate that an expense caused by a normal business risk (even a misfortune) can qualify, whereas an expense caused by wrongdoing or ultra vires acts will not.

Another pivotal case, CIR v Genn & Co., underscored that the taxpayer's intention and purpose in incurring the expense matters. If the purpose is to earn income (even in the long run), it may satisfy the test, even if no income results immediately or even at all. This was confirmed in Sub-Nigel Ltd v CIR, where a gold mining company paid insurance premiums to cover potential future losses of profits due to fire. The mine had no fire that year (so the insurance produced no payout/income), and the tax authority argued the premiums weren't "in production of income" since no income was produced by them. The court disagreed, famously holding that "'incurred in the production of income' does not mean that income must be produced as a result of the expenditure, or produced immediately... The test is simply whether the expense was incurred for the purpose of producing income." In Sub-Nigel, although the insurance premium didn't lead to any immediate revenue, it was considered a prudent cost to protect the ongoing income-earning operations of the mine (maintaining capacity to produce income if disaster struck). Thus it was deductible. This principle is very important: expenses incurred with a genuine profit-making motive are not disqualified just because they did not successfully generate income in that year. For Zimbabwean taxpayers, this means if you spend money in a failed attempt to earn income (for example, researching a new product that ultimately doesn't sell), the expense can still be "in production of income" because it was incurred with that aim, not for personal reasons.

Dual-purpose and apportionment: Often an expense might serve both income-producing and non-income purposes. Zimbabwe's law and practice allow apportionment "to the extent to which" an expense is in production of income. For instance, if a vehicle is used 70% for business deliveries (taxable income) and 30% for the owner's personal use, only 70% of its running costs are deductible. Similarly, if an expense relates partly to earning exempt income (say, certain interest or dividend income) and partly to taxable income, it must be split and only the portion producing taxable income is allowed. Section 15(2)(a) implicitly permits this by "to the extent" wording, and our courts expect a fair and reasonable basis of apportionment in such cases.

"For the Purposes of Trade"

The Act uses the phrase "for the purposes of trade" in tandem with "in the production of income." In fact, Section 15(2)(a) allows deductions of expenditure incurred "for the purposes of trade or in the production of income". This wording might appear to set two alternative tests, but practically they overlap: a "trade" is any business or income-earning activity, and almost any expense incurred in the production of income will also be for the purposes of that trade. The law's definition of "trade" is broad -- "anything done for the purpose of producing income" -- which effectively equates the two phrases. The inclusion of both ensures that even if an expense doesn't directly generate income (but is for carrying on the trade), it can qualify.

Trade vs. non-trade purposes: This element mainly serves to exclude private or domestic expenses and expenses unrelated to any business venture. An expense may be genuinely incurred (paid) and even beneficial for earning income, but if it's not incurred in carrying on a trade, Section 15(2)(a) won't cover it. For example, an individual salaried employee is generally not considered to be carrying on a "trade" in respect of employment income (their employer is the one trading). Thus, ordinary employees cannot deduct most personal expenses against their salary because those expenses, even if helpful in keeping their job, are not incurred in carrying on a trade by the employee. The Act specifically prohibits employees from claiming any expenses against employment income except a few allowable ones (pension contributions, etc.). Similarly, the cost of commuting from home to work is explicitly deemed a private expense, not for trade.

Business vs private boundary: If a taxpayer has both business and personal motives for an expense, only the part for business (trade) is deductible. For instance, if a sole trader uses her home internet 60% for business online sales and 40% for personal use, 60% of the internet bill is "for purposes of trade" and can be deducted; the rest is private consumption. The "purposes of trade" test is why personal living costs are never deductible -- feeding yourself, housing your family, personal insurance, etc., are not incurred in any trade (they are to maintain yourself, which the law views as personal responsibilities). Section 16(1)(a) reinforces this by prohibiting deduction of "the cost incurred in the maintenance of the taxpayer, his family or home". No matter if a well-fed, healthy taxpayer arguably earns more income, those costs are private, not part of a trade's costs.

Distinct multiple trades: If a taxpayer carries on two or more distinct businesses, an expense for one trade can't be deducted from the income of another. For example, if you run a restaurant and separately a farming operation, an expense on the farm is not "for purposes of" the restaurant trade. Travel between two separate businesses is specifically listed as non-deductible private expense (to prevent confusion, the law treats it like commuting between home and work). Expenses must be tracked and allocated to the trade they relate to, and only deducted there.

In summary, "for the purposes of trade" ensures the Act only subsidizes business-related outgoings. It often merges conceptually with "production of income," so courts usually discuss them together. A handy perspective is: Ask whether the expense would still be incurred if the taxpayer ceased the income-earning activities. If yes (e.g. you'd still pay your kid's school fees or home rent regardless of business), it's personal. If no (the expense exists solely because of the business), it likely serves the purposes of trade.

Capital vs Revenue: The "Not of a Capital Nature" Limitation

Even if an expense meets all the above criteria, Section 15(2)(a) expressly excludes capital expenditure: only revenue expenses are deductible under the general formula. Capital expenditures typically relate to acquiring or improving fixed assets, or otherwise enduring benefits for the trade, and these are governed by special deduction provisions (like wear-and-tear allowances) rather than the general rule. The rationale aligns with the matching principle and income/capital distinction: income tax is intended to tax revenue profits, so the cost of acquiring or enhancing the income-producing machinery (capital) is usually not immediately deductible against income (though it may be deducted over time through depreciation allowances).

Distinguishing capital vs revenue: Courts have developed tests to tell a capital outgoing from a revenue outgoing. One famous guideline from CIR v George Forest Timber Co. is: "Money spent in creating or acquiring an income-producing concern (i.e. the source of profit) is capital expenditure... money spent in working it (operating the source) is revenue expenditure." In other words, if you're establishing, improving, or adding to the profit-making structure, it's capital; if you're running that structure on an ongoing basis, it's revenue. Another test is the enduring benefit test: if the expenditure results in an asset or advantage of lasting value (e.g. building a factory, acquiring equipment, securing a long-term right), it's likely capital. If it's a short-term or once-off operational cost that doesn't give a long-term asset (e.g. buying inventory, paying salaries, routine repairs), it's revenue. Yet another lens is fixed vs. floating capital -- spending on fixed capital (the apparatus of business) is capital in nature, whereas spending on floating capital (trading stock, day-to-day circulating funds) is revenue.

Several cases illustrate the line: Purchasing a machine is capital (you've acquired a new income-producing asset), but repairing that machine is usually revenue (maintenance to keep it running). Building new premises or making structural improvements to your building is capital, whereas painting or routine maintenance of the building is revenue. Legal fees can be either -- legal costs to defend or establish ownership of a capital asset (say, defending your land title) are capital; legal fees to collect trade debts or settle disputes arising from trading operations are revenue. In New State Areas Ltd, the court noted that even if an expense occurs before income flows, it can still be revenue if it's part of the income-earning operations (e.g. interest on a loan used as working capital might be revenue), but interest on a loan used to acquire a capital asset could be capital (unless legislation says otherwise). Zimbabwe's law now has specific rules (Section 15(2)(f) etc.) for certain pre-productive expenditure and interest, often allowing some deductions to encourage investment, but under the general formula, capital remains disallowed.

Why capital matters: If an expense is disqualified as capital under Section 15(2)(a), it might still be deductible under a special provision. For example, depreciation of plant and machinery is not deductible as a normal expense, but Section 15(2)(c) (with the Fourth Schedule) grants capital allowances (wear-and-tear) on such assets. Similarly, mining development or exploration expenditure, which is capital by nature, is specifically deductible under Section 15(2)(f) and the Fifth Schedule, often at accelerated rates to encourage mining. The general rule's exclusion of capital thus pushes those items into their own regimes. If no special provision exists, capital costs simply aren't tax-deductible (though they may reduce capital gains if the asset is later sold, etc.).

In summary, to apply Section 15(2)(a), one must classify the expense correctly. Revenue (operational) expenses proceed with the other tests discussed, while capital expenses must be diverted to the appropriate capital allowance section or disallowed if no provision applies. As Judge Innes succinctly put it, "there is a great difference between money spent in creating or acquiring a source of profit, and money spent in working it. The one is capital, the other is not."

Case Law Illustrations of the General Deduction Test

Throughout the above explanations, we've referenced key cases. Let's briefly summarize a few landmark cases and their significance in interpreting Section 15(2)(a):

(The above is not an exhaustive list, but highlights how courts analyze different limbs of the test. Zimbabwe often looks to older English and South African case law where local precedents are lacking, due to the common heritage of our tax legislation.)

General vs. Special vs. Prohibited Deductions

It is crucial to distinguish general deductions under Section 15(2)(a) from special deductions and prohibited deductions elsewhere in the Act:

General Deductions (Section 15(2)(a)):

This is the default catch-all provision (the focus of this lecture) that covers ordinary trading expenses. If an expense meets the Section 15(2)(a) test (as we've broken down above) and is not capital or specifically disallowed, it's deductible in computing taxable income. Examples: rent of business premises, utility bills for the factory, office supplies, employee salaries, routine maintenance, raw material costs, etc. These are not individually listed in the Act but fall under the broad language of Section 15(2)(a). Tax planning often involves ensuring an expense qualifies here if no more specific rule applies.

Special Deductions (Section 15(2) paragraphs (b)--(r) and Schedules):

The Income Tax Act provides specific deduction allowances for certain types of expenditure, often overriding the capital prohibition or providing conditions. These include:

• Capital Allowances: Section 15(2)(c) and the Fourth Schedule allow depreciation (wear and tear) on fixed assets like plant, machinery, industrial buildings, etc., and Special Initial Allowances for certain assets (e.g. 25% or 50% upfront). Without these, buying equipment would be non-deductible capital outlay, but the Act permits it over time.
• Mining & Agricultural Development: Section 15(2)(f) with the Fifth Schedule provides for deduction of exploration, development, and certain capital expenditure in mining or farming. This encourages investment by allowing miners to write off shaft sinking, etc., which are capital but necessary to start production.
• Bad and Doubtful Debts: Section 15(2)(g)(i) allows bad debts (trade debts that became irrecoverable and were previously included in income) to be deducted. Notably, a historical special deduction for "doubtful debts" (provisions) in Section 15(2)(g)(ii) was repealed in 2010, meaning now only actual bad debts written off are allowed, not general provisions. This was a legislative change aligning with IFRS 9; banks can only deduct losses actually incurred, not expected losses.
• Retirement and Benefit Contributions: Section 15(2)(h) and the Sixth Schedule allow deductions for contributions to approved pension or benefit funds for employees. Without this, such payments might be seen as not strictly producing income, but the Act specifically permits them (with limits) to encourage social security.
• Donations and CSR: Certain donations are allowed if made to approved institutions (like research institutions or charitable trusts) as per other sections -- often capped at a % of income. For instance, donations to the Research and Development Fund, or to charities approved by the Minister, can be deductible under specific provisions, whereas unapproved donations are not.
• Others: There are special deductions for things like scientific research expenditure, training costs (e.g. a training allowance or investment allowance in training), and losses on disposal of certain assets. For example, an investment allowance (often in farming or tourism) might allow part of capital spend as immediate deduction. Also, assessed losses brought forward from prior years are, in effect, deductions allowed (they are past revenue losses applied to the current year).

In short, special deductions are targeted incentives or necessary accommodations written into law. They ensure fairness (e.g. bad debt deduction to match previously taxed income) or promote economic policy (e.g. capital allowances, export incentives). When analyzing a deduction, always check if a special provision applies, as it may override the general test or provide a deduction even if Section 15(2)(a) would fail (especially for capital items). For instance, wear-and-tear on a delivery van: Section 15(2)(a) disallows it as capital, but Fourth Schedule allows, say, 20% depreciation per year. Another example: mineral royalties paid by a mining company -- these are a cost of business but are often considered a form of tax. Historically they were deductible as a trade expense. If reclassified as a tax, they might become non-deductible under Section 16(1)(d) (unless the law is adjusted -- see 2025 changes below).

Prohibited Deductions (Section 16):

Section 16 of the Act lists specific items that are not allowed as deductions, even if they might seem to meet Section 15(2)(a). This section acts as a "negative test" or override, ensuring certain expenses cannot reduce taxable income for policy reasons. Some key prohibited deductions under Section 16(1) include:

• Private or domestic expenses -- as mentioned, any cost of personal or household nature (food, clothing, personal travel, school fees, home rent, etc.) is barred. Also, commuting from home to workplace is specifically private.
• Expenses recoverable under insurance or indemnity -- you can't deduct a loss if you have insurance covering it or someone indemnifying you. For example, if your stock is stolen but insurance pays out, you can't claim a tax deduction for the loss (since you didn't economically suffer it in the end).
• Taxes on income -- any taxes paid on income itself (income tax, CGT, etc.) are not deductible. It would be circular to deduct income tax from income. This also includes foreign taxes on income. Relatedly, withholding taxes that are final taxes (like non-resident taxes) can't be deducted by the payer either. Notably, this clause was expanded in 2019 to include the Intermediated Money Transfer Tax (IMTT) -- the 2% tax on electronic transactions. The Finance Act 2019 inserted Section 16(1)(d1) prohibiting any deduction of IMTT paid. So although IMTT is a cost to businesses, it's deliberately made non-deductible (the government wants the full 2% as a minimum tax on those transactions).
• Hypothetical interest on owner's capital -- Section 16(1)(h) disallows any notional interest that could have been earned on capital employed in the business. This means you cannot, for example, claim that your own money tied in the business has an opportunity cost and deduct some notional interest on it -- only actual interest incurred on debts is deductible (and subject to other limits).
• Rent or expenses of premises not used for trade -- e.g. your personal residence or a holiday home is not deductible (even if owned by the company) unless part is used for business, in which case apportion.
• Cost of securing exclusive rights -- e.g. paying for a monopoly concession or sole distribution rights is considered capital (and explicitly disallowed by (j)).
• Excessive leasing costs for passenger vehicles -- (k) disallows leasing payments beyond a certain ceiling for passenger cars. This prevents disguised purchases via inflated lease rentals to get full deduction. The law caps the deductible lease cost to what it would cost to finance a car worth $100,000 (a figure likely adjusted in local currency over time).
• Cost of company shares awarded to employees -- (l) prohibits a company from deducting the value of its own shares given out as employee incentives. This addresses schemes where companies would claim a "cost" for giving shares (which is not an outflow of assets from the company in the traditional sense).
• Entertainment expenses -- (m) is very important: it disallows expenses on entertainment or hospitality (like client meals, gifts, staff parties), except to the extent they are for employees' taxed benefits or specifically allowed. Even if you think taking a client to dinner helps get business (hence in production of income), the law forbids the deduction. The term "entertainment" is defined broadly (including hospitality of any kind), so this closes a common loophole where lavish personal consumption could be passed off as business promotion. Only certain promotional costs (like advertising) are allowed; entertainment crosses the line to non-deductible.
• Expenditure to earn certain exempt income: For instance, (n) prohibits expenses incurred to earn income from stocks and shares. In Zimbabwe, local dividends are generally subject to a final withholding tax and not included in gross income, so any expense to produce that dividend (like interest on a loan to buy shares) is not deductible. Similarly, (o) prohibits expenses to earn interest on deposits with local financial institutions (since such interest is often subject to withholding tax and may be final-taxed). The logic is: you can't deduct costs of producing income that isn't itself taxed (no deduction against other income for generating exempt income).
• Certain related-party or avoidance-related payments: For example, (r) disallows general administration and management fees paid by a local branch or subsidiary to its foreign parent engaged in local mining. This is an anti-avoidance measure to stop mining companies from eroding profits by hefty head-office charges. Another is (s) which limits interest on foreign loans by reference to exchange rates to prevent excessive interest via manipulated forex rates. These are targeted prohibitions ensuring fair taxation and curbing profit shifting.

The above list (from (a) to (s)) is not exhaustive here, but we have covered the most common prohibitions. The presence of Section 16 means even if an expense passes the Section 15(2)(a) general test, one must check Section 16 to ensure it isn't on the blacklist. A practical approach is: first ask "is it incurred in production of income for trade and not capital?" -- if yes, then ask "is there any clause in Section 16 that forbids this kind of expense?" If there is, the expense is not deductible despite meeting the general criteria. For example, entertainment: it might arguably be for business (client relations) and not capital, but Section 16(1)(m) flatly disallows it, so that's the end of the matter. Similarly, IMTT tax: a company pays thousands in 2% money transfer tax on its transactions (clearly a business cost, revenue in nature). But since 2019, Section 16(1)(d1) explicitly forbids deducting IMTT, so the company cannot deduct those taxes -- effectively they tax your tax. This was confirmed by the Minister and is a point of complaint by businesses.

To recap, Zimbabwe's deduction regime is a two-step filter: (1) Does it qualify under Section 15(2)? (general and specific allowances) and (2) Is it not disallowed under Section 16? One author aptly noted: "An item of expense may have passed the general deduction formula but is prohibited in terms of Section 16 of the Act." Taxpayers must satisfy both stages.

Recent Legislative Amendments and 2026 Proposals

Tax laws evolve, and it's important to reflect changes up to 2025 and consider proposed 2026 changes affecting deductions:

• 2018 -- Restriction on Prepaid Expenses: As discussed, Finance Act No.1 of 2018 amended Section 15(2)(a) to add paragraph (ii) excluding prepayments beyond the current year. Before this, there was case law (like ITC 1503) that disallowed prepaid expenses on an accrual basis, but now it's codified. This ensures taxpayers can't claim full deductions for multi-year benefits in one year. Businesses had to adjust by deferring such expenses in their tax computations from 2018 onward.
• 2019 -- IMTT made non-deductible: The Intermediated Money Transfer Tax (the 2% tax on electronic transactions) introduced in late 2018 was contentious. Initially, taxpayers hoped it would be deductible as a normal business expense (like other transaction fees). However, the Finance (No.3) Act 2019 explicitly inserted Section 16(1)(d1) to prohibit deduction of any IMTT paid. This took effect Feb 20, 2019. The Zimbabwe National Chamber of Commerce and others pointed out this effectively increases business costs (since IMTT is taken off gross and then you pay income tax on the gross as well). Despite lobbying to make IMTT an allowable deduction, the Government has maintained it as non-deductible to preserve revenue. Businesses must treat IMTT as a final tax hit, not reducing their profit for income tax purposes.
• 2020-2021 -- Adjustment of Allowances and Limits: Over these years, there were various changes (usually in annual Finance Acts) such as: removal of the doubtful debt provision deduction (noted above, actually in 2010 but effects felt later with IFRS 9), changes to capital allowances rates or qualifying assets, and specific incentives. For instance, one budget introduced a training allowance (additional deduction) for approved training costs of employees (to encourage human capital development). Such specific incentives come and go -- students should always check the latest Finance Act for any additional deductible allowances (e.g. a Youth Employment credit or allowance was introduced to give extra deductions per young employee hired, effectively a deduction incentive). These are beyond Section 15(2)(a) but affect the overall deduction landscape.
• 2025 -- Removal of SEZ Tax Holiday & Other Incentives: The 2025 Budget (effective Jan 1, 2025) eliminated the tax holiday for Special Economic Zones investors, replacing it with a flat 15% corporate rate. While this doesn't directly change deduction rules, it signals a policy shift. It also mentioned consultations for film industry incentives (likely future special deductions for film production). Additionally, from 2025, mineral royalties were reclassified as a "tax" under the Act. This means royalties (which mining companies pay on output) now fall under the Commissioner's administration of taxes, including penalty waiver provisions. There was concern this could imply royalties become non-deductible (as a tax on income) under Section 16(1)(d). However, royalties are typically based on production, not profit, and historically were deductible. The reclassification was mainly to allow penalty waiver on late royalty payments. The 2025 change likely didn't intend to disallow royalty deductions -- and mining operators would certainly clarify that, otherwise their taxable incomes would spike. So far, no explicit prohibition was added in Section 16 for royalties, so they should remain deductible as before (monitor Finance Bill notes for confirmation).
• 2026 Budget Proposals: Announced on Nov 27, 2025, these proposals (some to be effective in 2025, others in 2026) include significant changes:
  • Limiting Assessed Loss Deductions: Carried-forward business losses have traditionally been allowed to offset future profits (in Zimbabwe, up to 6 years carryforward for ordinary companies). The 2026 Budget proposes that for mining companies (both those under general mining and special mining leases), the deduction of carried-forward losses in any year will be capped at 30% of the assessed loss. This is somewhat oddly phrased, but likely means a miner can utilize only 30% of its brought-forward loss in a given year's taxable income calculation (perhaps ensuring at least 70% of its profit is taxable) -- a measure to prevent perpetual tax-free status from huge past losses. This mirrors global trends (South Africa recently implemented an 80% limitation for all companies' loss offsets). If enacted, mining firms that have large accumulated losses will now pay tax sooner, as they can't wipe out all profit with losses. This doesn't change Section 15(2)(a) directly, but it's a limitation on how much loss (a negative deduction) can be claimed. Other industries are not mentioned, so for now it targets mining, a sector where long loss periods are common due to heavy upfront capital allowances.
  • Mining Capital Allowance Changes: The budget also ends the "new mine" method for capital write-off (which allowed miners to write off capital expenditure against income from that mine as they chose). Going forward, unredeemed mining capital expenditure must be spread over the estimated life of the mine. This is a technical change to mining capital deductions -- essentially slowing deductions and preventing aggressive upfront write-offs beyond what SIA already gives. This again is sector-specific and doesn't alter the general formula but is part of special provisions.
  • Reintroduction of Withholding Tax on Interest: A 15% WHT on interest paid to non-residents is being reintroduced from 2026. For deductions, this means Zimbabwean companies paying interest abroad must still satisfy that the interest is at arm's length and in production of income (to deduct it), but now they also have to withhold 15%. The interest expense remains deductible to the payer (assuming it's not caught by thin-capitalization or the new Section 16(1)(s) foreign exchange limitation). The reintroduced WHT doesn't directly change deductibility, but it affects net cost. Similarly, dividends paid by building societies will be treated as dividends (no longer interest) -- a classification change that might affect whether those payments are deductible (dividends are not deductible; interest was, but building societies paying "interest" on certain shares can't deduct it now if it's a dividend). Corporates should note this when structuring capital: payments labeled as dividends are non-deductible distributions, whereas interest is deductible (subject to limits). So this change could remove a deduction that building societies used to take (interest to depositors now reclassified).
  • Miscellaneous: Other proposals like a Domestic Minimum Top-up Tax (for global tax rules), changes in VAT, and a new 2% corporate social responsibility levy on coal are more about tax computations and new taxes than about deductions. The CSR levy on coal (2% of gross) will be a tax, not a deductible expense (likely it will fall under non-deductible taxes on income in Section 16). The removal of SEZ holiday (as noted) means some businesses lose a special exemption, but they still deduct expenses normally at the 15% rate now. The broadening of transfer pricing methods doesn't change deductions, just how prices are evaluated. Lastly, Mutapa Investment Fund (sovereign wealth fund) income became tax exempt from 2025, which means any expenses to produce that exempt income wouldn't be deductible (by general principle or specific rule) -- though the Fund itself is exempt so it's a unique situation.

In summary, up to 2025 the main legislative impacts on Section 15(2)(a) have been targeted refinements: disallowing certain deductions (IMTT, entertainment, etc.), clarifying timing (prepayments), and providing incentives in specific areas. The 2026 proposals continue this trend: limiting loss utilization and tightening capital write-offs in mining are noteworthy for that sector; they don't rewrite the general formula but place ceilings around it. Students should keep an eye on annual Finance Acts for changes in deduction rules -- for example, government may in future cap interest deductibility (thin capitalization rules) or introduce new allowable deductions (like if they want to encourage renewable energy, they might allow 50% of solar equipment cost as deductible). Tax is dynamic, but the core concepts of the general deduction formula have remained consistent from the early cases to the present.

Conclusion

The General Deduction Formula in Section 15(2)(a) is a cornerstone of Zimbabwean tax law, and understanding it is essential for anyone involved in tax computation or planning. In essence, to be deductible, an expense must be a revenue expense incurred in good faith for the purposes of carrying on a trade and earning income, in the year in question, and it must not be caught by any specific prohibition or capital limitation. We examined how each part of that test works:

• "Expenditure and losses" covers a wide range of business outgoings, including unintended losses, as long as they stem from the business.
• "Actually incurred" emphasizes legal obligation and timing -- only deduct when the liability is real and present, not merely anticipated -- and introduced us to accrual concepts and the treatment of prepayments and provisions.
• "In the production of income" focuses on the purpose and business connection of the expense -- requiring a close link to income-earning activities and excluding costs that serve other aims (personal, punitive, etc.). We saw through case law the breadth of this concept, accommodating even preventative and incidental costs of business, while carving out egregious cases like fines.
• "For the purposes of trade" reinforces that only business-related expenses get in -- it filters out private expenditures and ensures an expense relates to a trade being carried on (no trade, no deduction).
• Capital nature is excluded from the general formula, steering such costs to special regimes or denying them, thus upholding the capital/revenue divide in taxation.

We also highlighted the interplay with Section 16's prohibited deductions, which is critical -- many an accounting expense that seems business-related (fines, certain taxes, extravagances) might be nondeductible by statute. Always cross-check the prohibitions list. The tax law, through cases like Port Elizabeth Tramways, Sub-Nigel, etc., has evolved principles that Zimbabwe applies to interpret these provisions. These cases remain illustrative: they show the allowance of genuine business costs even if indirectly related to income, and the disallowance of costs arising from personal capacity or capital restructuring.

From a practical standpoint, when analyzing any expense for deductibility: ask the key questions in order (maybe even refer to the flowchart above): Why was this expense incurred? Was it solely because of the trade and with the aim of earning income? Did the taxpayer have to incur it (and did so in the year)? Is it an ordinary operational cost (as opposed to creating an asset)? And finally, does any specific law forbid it? If the answers line up favorably, Section 15(2)(a) likely allows it. If not, the expense might be limited or disallowed -- but sometimes a special provision might rescue it (or defer it, as with capital allowances).

Legislative updates up to 2025 have refined the application but largely reinforced these principles -- disallowing abusive or non-economic deductions (like IMTT, excessive provisions) and encouraging genuine investments (through targeted allowances). The 2026 proposals signal a tightening in certain areas (mining losses, etc.), reflecting a balancing act between promoting investment and safeguarding the tax base.

For learners and practitioners, mastering the general deduction formula is foundational. It requires not just reading the statute, but understanding its context and the case law doctrines behind terms like "incurred" and "production of income." With that understanding, one can approach any expense in a tax computation and systematically evaluate its deductibility. The formula might be "general," but as we've seen, its proper application is nuanced -- combining statutory rules, accounting concepts, and judicial interpretation. Armed with this knowledge, you can confidently navigate Zimbabwean tax deductions, ensuring compliance and optimal tax outcomes.

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