Simbarashe Hamudi
ZIMBABWE’S tax framework continues to evolve in response to changing corporate governance practices and income structures. One significant section of the Act is the 33rd Schedule to the Income Tax Act. This schedule, read together with sections 36J and 97C of the Act, establishes a distinct withholding tax regime specifically targeting non-executive directors’ fees. The measure was introduced to close gaps in the taxation of board-level remuneration and to ensure that such income does not escape the tax net.
Non-executive directors play a critical oversight role in corporate bodies, providing governance, strategic direction, and accountability without being involved in the day-to-day management of the organisation. Because they are not employees in the conventional sense, their remuneration does not always fall neatly within the Pay As You Earn (PAYE) system under the 13th Schedule. The 33rd Schedule addresses this by creating a separate tax mechanism that operates through withholding at source.
The schedule begins by defining key terms. A “corporate body” is broadly described to include anybody or association incorporated or registered under laws relating to asset managers, banks, building societies, unit trusts, companies, financial institutions, insurers, or pension funds, as well as bodies incorporated under special legislation. This wide definition ensures that the tax applies across the financial, commercial, and corporate sectors, leaving little room for exclusion based on technical classification.
The term “director” is equally expansive. It refers to any person who, by whatever name called, controls or governs a corporate body or is a member of a group that controls or governs it. The definition includes individuals occupying the position of director or alternate director. This means that even those who may not formally hold the title of “director” but perform governance functions may fall within the scope of the schedule.
Central to the schedule is the concept of “non-executive director’s fees.” These are defined as any remuneration paid by a corporate body to a director that is excluded from employees’ tax under the 13th Schedule or from which employees’ tax is not withheld for any reason. In essence, if PAYE is not deducted from a director’s fees, the 33rd Schedule steps in to ensure that tax is nevertheless collected. The tax imposed under this schedule is simply referred to as “tax on non-executive director’s fees.”
The primary obligation under the schedule rests with the payer. Every corporate body that pays non-executive director’s fees must withhold tax from those fees at the time of payment. The amount withheld must be remitted to the Commissioner within 10 days of the date of payment. This deadline was shortened from 15 days to 10 days by the Finance (No. 3) Act 10 of 2009, effective January 8, 2010, reinforcing the importance of prompt remittance and improving revenue collection efficiency.
In addition to withholding and paying over the tax, the payer is required to provide the director with a certificate in a form approved by the Commissioner. The certificate must show the gross amount of the non-executive director’s fees and the amount of tax withheld. This document serves as proof of deduction and enables the director to account for the income and tax when submitting annual income tax returns. Transparency and documentation are therefore integral to the system.
The schedule goes further by addressing situations where an intermediary may be involved. In some cases, non-executive director’s fees may be paid through an agent rather than directly to the director. To prevent avoidance, paragraph 3 of the 33rd schedule imposes a withholding obligation on any agent who receives fees on behalf of a payee where the payer has not withheld tax. The agent must deduct the tax and remit it to the Commissioner within 10 days of receiving the fees.
Where an agent withholds tax, the agent must also issue a certificate to the payee. This certificate must indicate the name of the original payer, the amount of the fees, and the tax withheld. The law even provides a deeming provision to determine who qualifies as an agent. A person is deemed to be an agent if his or her address appears in the payer’s records as the address of the payee and the warrant or cheque is delivered there. This prevents individuals from side-stepping withholding requirements through technical arrangements.
Despite placing primary responsibility on payers and agents, the schedule ultimately ensures that the director remains accountable. If non-executive director’s fees are paid without tax being withheld by either the payer or the agent, and the tax has not been recovered through other statutory mechanisms, the payee must personally pay the tax to the Commissioner. Payment must be made within 15 days of receiving the fees. This provision guarantees that the tax liability does not disappear simply because withholding did not occur.
Administrative compliance is further reinforced through reporting requirements. Payment of tax by a payer or agent must be accompanied by a prescribed return. The return provides details of fees paid and tax deducted, enabling the Zimbabwe Revenue Authority (Zimra) to reconcile records and monitor compliance across corporate entities.
A payer or agent in Zimbabwe who fails to withhold or remit the tax becomes personally liable for the unpaid amount. In addition, a penalty equal to the unpaid tax is imposed. This effectively doubles the amount payable and serves as a strong deterrent against non-compliance. The liability arises not at the time of detection but from the date on which the payment should originally have been made.
However, the Commissioner retains discretionary powers. If satisfied that the failure to withhold or remit tax was not due to an intention to evade the law, the Commissioner may waive all or part of the penalty. The Commissioner may also repay part or all of the penalty if circumstances justify such relief. This discretion ensures that the law distinguishes between deliberate evasion and genuine administrative error.
Provision is also made for refunds. If it is established that tax has been charged in excess of what is properly due under the schedule, the Commissioner must authorise a refund of the overpaid amount. However, any claim for a refund must be made within three years from the date of payment. This shorter limitation period, compared to other tax provisions, encourages timely review of tax affairs by directors and corporate bodies.
Hamudi is a Tax Partner at Baker Tilly. He can be contacted at simbarashe.hamudi@bakertilly.co.zw / 0775 399 536