Understanding property or insurance commission tax

102

Simbarashe Hamudi

ZIMBABWE’S property or in­surance commission tax is a specialised withholding tax de­signed to capture revenue from com­mission-based earnings in the insur­ance and real estate sectors. It applies specifically to commissions paid to freelance agents who are not treated as employees under the Pay As You Earn (PAYE) system. By requiring tax to be deducted at source, the regime ensures that income earned through brokerage, agency and property nego­tiation activities is properly accounted for and taxed in a timely manner.

At the centre of the schedule is the definition of “commission.” Commis­sion refers to any amount paid or pay­able by an insurer or estate agent to a freelance agent for work performed on its behalf. This includes activities carried out by insurance agents, in­surance brokers and property negoti­ators. The tax does not apply to ordi­nary salaries or wages because those are already subject to PAYE. Instead, it targets independent contractors whose earnings may fluctuate and who operate outside formal employ­ment structures.

The law carefully defines the parties involved. An estate agent is a person registered under the Estate Agents Act, while an insurer is a per­son registered in terms of the Insur­ance Act. A “principal” for purposes of the schedule means either an estate agent or an insurer. It is the principal who bears the legal responsibility for withholding and remitting the tax to the Commissioner-General.

A freelance agent is broadly de­fined. It includes an insurance agent who is not registered as an employee of an insurer, as well as an insurance broker who is not registered as an em­ployee to the extent that the commis­sion earned is payable by the insurer. It also includes a property negotiator who is not registered as an employ­ee of an estate agent and who earns commission from facilitating the sale or lease of immovable property. The distinction between employee and freelance agent is crucial because it determines whether PAYE or com­mission tax applies.

Insurance agents are persons who initiate insurance business or perform tasks related to receiving proposals, issuing policies or collecting premi­ums on behalf of insurers. Insurance brokers negotiate insurance or rein­surance business on behalf of clients. Property negotiators, regardless of their job titles, introduce parties to property transactions or negotiate and conclude agreements relating to the sale or lease of immovable prop­erty. These roles are often commis­sion-driven, making them central to the operation of the tax.

The primary obligation under the schedule is imposed on principals. Whenever a principal pays a commis­sion to a freelance agent, the principal must withhold property or insurance commission tax from that commis­sion. The amount withheld must be paid to the Commissioner-General on or before the 10th day of the month following the month in which the commission was paid. This deadline, shortened by legislative amendment in 2010, aligns the tax with other withholding taxes and promotes con­sistent revenue collection.

In addition to remitting the tax, the principal must provide the freelance agent with a certificate showing the gross amount of commission paid and the amount of tax withheld. This cer­tificate serves as proof of deduction and enables the agent to claim credit for the tax when calculating overall income tax liability. The documenta­tion requirement enhances transpar­ency and reduces disputes between taxpayers and the revenue authority.

Although the law places the main responsibility on principals, free­lance agents also have obligations. If a commission is paid without tax being withheld, the agent must per­sonally remit the tax to the Commis­sioner-General by the same 10th-day deadline in the following month. This provision ensures that revenue is not lost where a principal fails to comply. It reinforces the principle that tax li­ability ultimately attaches to the in­come earned, regardless of withhold­ing failures.

Compliance is supported by ad­ministrative requirements. Payment of the tax by the principal must be accompanied by a prescribed return detailing commissions paid and tax deducted. Accurate record-keeping is therefore essential. Insurers and estate agents must maintain systems that clearly distinguish between em­ployees and independent agents to avoid misclassification and potential penalties.

The penalties for non-compliance are significant. A principal who fails to withhold or remit the required tax becomes personally liable for the un­paid amount. In addition, a penalty equal to the unpaid tax is imposed. This effectively doubles the financial exposure of the defaulting principal. The unpaid tax and penalty are treated as debts due to the State and may be recovered through court proceedings initiated by the Commissioner-Gen­eral.

The law does, however, allow for discretion. If the Commissioner-Gen­eral is satisfied that the failure to pay was not due to an intention to evade the law, he or she may waive all or part of the penalty. Interest may also be charged on unpaid penalties at a rate fixed by the Minister through statutory instrument, although time for payment may be extended in spe­cial circumstances without interest. This balanced approach recognises the difference between deliberate eva­sion and genuine administrative error.

Provision is also made for refunds. If it is established that tax has been overpaid, the Commissioner-General must authorise a refund of the excess amount. However, any claim for re­fund must be made within six years from the date of payment. This lim­itation period provides certainty while giving taxpayers adequate time to review their affairs and seek redress where necessary.

In practice, the property or insur­ance commission tax strengthens tax compliance in industries char­acterised by variable and perfor­mance-based earnings. For insurers and estate agents, it imposes clear ad­ministrative responsibilities. For free­lance agents, it ensures that tax obli­gations are met progressively rather than accumulating into large year-end liabilities.

Hamudi is Tax Partner at Baker Tilly Central Africa, based in Hara­re, Zimbabwe. He can be contacted at +263 775 399 536 or simbarashe. hamudi@bakertilly.co.zw