A General Anti-Avoidance Provisions (Section 98 Income Tax Act)

Zimbabwe’s Income Tax Act contains a general anti-avoidance rule (GAAR) in section 98. Under this provision, if any transaction, operation or scheme is entered into which has the effect of avoiding or postponing tax or reducing tax payable, and if that transaction is undertaken in an abnormal manner or creates rights that would not normally arise between arm’s-length parties, the Commissioner may recalculate tax as if the transaction had not occurred in that form[1][2]. In practice, this means ZIMRA can ignore or recharacterise artificial arrangements whose sole or main purpose is tax avoidance[1][3]. For example, if a sale of property between related parties is structured at a sham price solely to reduce tax, the Commissioner can impose tax as if the sale were at market value. The GAAR thus covers any scheme or transaction (including property transfers) that would not normally be employed in ordinary commercial dealings, if its main purpose is to save tax[1].

Unlike tax evasion (illegal tax fraud or misdeclaration), avoidance under Section 98 is not itself a crime, but a legal adjustment tool. No specific fine is prescribed in the Act for merely triggering GAAR – the remedy is to “determine the liability for any tax as if the transaction or operation had not been entered into”[3]. In effect, the Commissioner can re-calculate taxable income on a reasonable basis (for example by applying fair market values or commercial terms) and collect the resulting additional tax, interest and any civil penalties. Importantly, the Court will generally require a clear finding that avoidance was the taxpayer’s sole or main purpose; bona fide commercial objectives may not attract GAAR.

B Income Splitting (Section 98A)

Income splitting rules prevent taxpayers from shifting income to associates with lower tax rates purely to reduce liability. Section 98A targets individuals who transfer income (or income-yielding property) to a relative or associate for the main purpose of lowering combined tax[5][6]. If an individual “attempts to split income” with an associate, the Commissioner may adjust the taxable income of both parties to neutralize any tax reduction[5]. In particular, any transfer of income or income‑producing asset to a spouse, child, or other associate – without fair consideration – may be deemed income splitting if done mainly for tax benefit[6].

For example, if a parent transfers rental property to a minor child with much lower income tax rate and keeps paying the mortgage themselves, ZIMRA could treat all rental income as still taxable to the parent (since the “sole or main reason” was tax reduction)[6]. In applying Section 98A, the Commissioner must consider whether the associate paid fair value for any transferred asset[7]. Note that Section 98A(4) makes the same rule applicable to non-individuals (e.g. companies) that attempt splitting with associates. In short, income splitting schemes within families or related entities are scrutinized: if the arrangement departs from normal commercial terms and chiefly exists to shift income to a lower bracket, ZIMRA will re-assign the income for tax purposes[5][6].

C Transactions Between Associates (Section 98B)

Section 98B addresses related-party transactions. It empowers the Commissioner to redistribute or recharacterize income, deductions or tax credits among associated persons so as to reflect an arm’s-length outcome[8]. In any transaction between associates – or between an employer and employee – ZIMRA may apportion profits, losses or expenses as if the parties were independent[8]. For instance, if a parent company charges its subsidiary below-market fees (or vice versa), the Commissioner can reallocate taxable income accordingly. Special rules also apply to transfers or licences of intangible property (patents, trademarks, know-how): income from such transactions may be adjusted to what an unrelated party would have earned[9]. Crucially, when making these adjustments, the Act allows the Commissioner to re-characterise payments or losses (e.g. as capital vs. revenue) to reflect their true nature[10].

“Associates” is broadly defined (by section 98B and Section 2) to include relatives, partners, trusts, or any person under another’s control[11]. In practice, this means virtually any deal between entities with common ownership or family links is on ZIMRA’s radar. ZIMRA expects full disclosure of related-party transactions on tax returns and in TP documentation (see next section). If, for example, a company sells an asset to a related party at an inflated price, ZIMRA may reallocate the excess to the seller as taxable income. Likewise, if head-office costs are shifted between affiliates, the Commissioner can pro-rate them to match what arm’s-length parties would bear[8]. By catching abnormal terms and intragroup deals, Section 98B operates like an anti-abuse overlay on top of standard tax rules, ensuring the substance over form in related-party arrangements[8][11].

D Transfer Pricing (Section 98B and 35th Schedule)

Zimbabwe formally adopted transfer pricing rules in 2016 (Finance No.2 Act 2015), adding Section 98B and a 35th Schedule to the Income Tax Act[12]. The legal framework codifies the arm’s length principle: any cross-border transaction (or any deal between associated enterprises) must be priced as if between independent parties[13]. The Act specifically empowers ZIMRA to “distribute, apportion or allocate” taxes arising from controlled transactions in accordance with comparable independent transactions[8]. In other words, Zimbabwe’s TP law mirrors international guidelines (OECD/ATAF) to prevent base erosion.

Under the 35th Schedule, taxpayers must select an appropriate method (CUP, Resale Price, Cost Plus, TNMM, Profit Split) to determine arm’s-length prices[14]. In practice, companies engaging in cross-border trade with related parties must prepare and maintain transfer-pricing documentation (comparable analyses, contracts, etc.) to justify their pricing. ZIMRA’s TP Practice Notes emphasize that every taxpayer in scope must file an Annual Return on Transfer Pricing with their income tax return and keep supporting documentation[15]. The rules apply both to imports/exports and any related-party dealings – including services, royalties and financing – with affiliate entities. Notably, “associated persons” includes any person under another’s direction, close family members, trusts, partnerships, or companies under >50% control[11].

Zimbabwe’s TP regime also includes strict deadlines and penalties. Documentation proving arm’s-length pricing must be in place by filing date, and must be provided within 7 days if requested by the Commissioner[15]. Failure to file the TP return or to maintain adequate records may attract statutory penalties[16]. In essence, cross-border related transactions must be reported and defended. For example, if a Zimbabwean subsidiary pays royalties to its parent in a low-tax jurisdiction, it must prove the royalty rate is comparable to market practice. If ZIMRA finds the terms non-arm’s length, it will adjust taxable income under Section 98B so that “the results of a controlled transaction are consistent with independent persons”[13].

In summary, transfer pricing in Zimbabwe is governed by Section 98B and the 35th Schedule, with principles borrowed from OECD guidance[12][13]. ZIMRA’s audits of multinationals focus on these rules: it routinely examines intercompany agreements, applies comparable studies, and invokes Section 98B to re-allocate profits if necessary. Recent high-profile cases (e.g. Delta Beverages Ltd v ZIMRA) illustrate this process. In that case, the Zimbabwe Special Court largely upheld the taxpayer’s transfer pricing (finding its fees to affiliates were consistent with market practice), but cautioned that a complete failure to justify service fees under Section 98B would have led to disallowance[17].

E Reporting of Unprofessional Conduct (Section 98C)

Tax advisers and other professionals face an ethical reporting obligation under section 98C. This provision (inserted in 2017) authorizes the Commissioner to lodge a complaint with a professional controlling body (such as the Institute of Chartered Accountants or Law Society) if a professional, in advising a client, intended to assist that client to evade or unduly postpone any tax duty or negligently allowed tax avoidance, and such conduct contravenes the professional code[4]. In practice, if an accountant, lawyer or agent does something (or fails to do something) that enables a client’s tax evasion or wrong refund claim, ZIMRA will notify the relevant professional association.

For example, imagine a tax consultant knowingly advising a client to hide income offshore. Under Section 98C(2), the Commissioner, satisfied that this advice was aimed at evading tax, may file a formal complaint to the consultant’s regulatory body[4]. Before doing so, the Commissioner must give written notice to the advisor and client and allow 30 days for any objection[18]. Once the period expires, if the advisor has no valid defense, the complaint proceeds. The professional body then investigates privately; if it finds a breach of its conduct rules, it can impose sanctions (e.g. reprimand, suspension of licence). Throughout, secrecy is maintained per Section 98C to protect client confidentiality[19].

Though the Income Tax Act does not itself punish the advisor, Section 98C essentially says unethical tax advice that facilitates evasion is reportable. Tax practitioners are thus obliged by their own professional ethics to act lawfully: providing planning that pushes the limits may be tolerated, but advising fraud crosses the line. In effect, 98C reinforces normal professional standards (integrity, objectivity) by channeling suspected misconduct into the licensing bodies[4]. Practitioners should therefore be aware that aiding a client in violating tax duties can not only result in criminal charges for the client, but also disciplinary action against the advisor.

F Comparison: Avoidance vs. Evasion (Summary Table)

The table below highlights key distinctions:

This comparison highlights that avoidance is lawful (until adjusted by GAAR), whereas evasion is unlawful and punishable by the general offences provisions. In Zimbabwe, deliberate evasion (e.g. making false tax returns) can lead to fines or jail under Sections 84–86 of the Income Tax Act, whereas avoidance schemes simply trigger assessment corrections under Section 98[1][4]. ZIMRA’s practice notes and case law stress that intent and unusual form are key: an artificial transaction entered solely for tax benefit falls under Section 98[1][3], whereas genuine business dealings at arm’s length do not.

G Recent Updates and Emphasis

The 2026 Budget and recent ZIMRA guidance continue to underscore a tough stance on avoidance and compliance. In the 2026 Budget Strategy, the government emphasized broadening the tax base and reducing avoidance and evasion[20]. While no new general anti-avoidance provisions were introduced in 2026, the Budget included related measures (e.g. tighter withholding taxes) aimed at improving collection and deterring abuse. ZIMRA public notices have also reinforced compliance: for example, penalties on landlords not registering (to stop rental income hiding) or on employers failing to report payroll. In addition, ZIMRA’s Annual Compliance Policy and regular training seminars repeatedly warn taxpayers that GAAR and TP rules will be enforced strictly. Practitioners should note these signals – the authorities are gearing up with data analytics and information exchange (e.g. G-ABMS) to detect aggressive tax planning.

Finally, taxpayers should watch for new regulations and guidance. ZIMRA issues detailed Practice Notes and Public Notices periodically (e.g. updates on TP documentation, electronic invoicing, AML/KYC measures). Tax advisors should also track Finance Acts: the Income Tax Act is frequently amended to close loopholes (for instance, the introduction of domestic minimum top-up tax and tightening of loss carryforwards in 2026). Staying current ensures that legitimate planning remains compliant; creative schemes that once passed under the radar may now fall foul of the expanded GAAR and TP framework.

H Illustration and Examples

• Family Income Splitting: A business owner transfers 30% of his company shares to his spouse without adequate capital contribution, so that dividends fall into a lower tax bracket. Under Section 98A, ZIMRA may treat the dividend income as still belonging to the owner (since the transfer was primarily for tax benefit)[6].
• Controlled Transaction Adjustment: A Zimbabwean subsidiary underprices the royalty on intellectual property sold to its foreign parent. ZIMRA would require documentation to show that this rate is arm’s length. If no comparables exist, the Commissioner can invoke Section 98B to allocate more profit to the subsidiary (re-characterizing revenue)[8][9].
• Asset Revaluation: A farmer sells land to a relative at far below market value, and rents it back at a nominal rate. The Commissioner may apply GAAR and the special trading stock provisions to deem the sale price or lease payments at fair value, preventing disguised profit shifting[1].
• Professional Misconduct: An accountant knowingly prepares a client’s tax return with fraudulent deductions. Upon discovery, the client faces tax assessments and penalties, and the accountant is reported to the Institute of Accountants under Section 98C[4]. The accountant could then face disciplinary action (e.g. loss of licence) for breaching ethical standards.

I Practice Questions

1. GAAR Criteria: Under Section 98, what conditions must be met for the Commissioner to adjust a transaction? Explain with reference to “means not normally employed” and “sole or main purpose”[1][3].
2. Income Splitting: Describe a scenario of income splitting between family members. How does Section 98A empower ZIMRA to counteract it? (Hint: what if an individual shifts investment income to an associate)[5][6].
3. Associate Transactions: What powers does Section 98B give ZIMRA when it finds terms between related parties are not at arm’s length? List at least two specific actions (e.g. distribution of income, re-characterisation)[8][9].
4. Transfer Pricing Documentation: What documentation and reporting requirements do Zimbabwean taxpayers have for controlled transactions? When must they be filed, and what happens if they fail to comply?[15][16].
5. Ethical Obligations: Summarize the purpose of Section 98C. What must a tax professional be careful about in light of this rule, and what steps does ZIMRA take before lodging a complaint[4][18].
6. Avoidance vs. Evasion: In your own words, distinguish between tax avoidance and evasion. Give one example of each and cite the relevant provisions.