Churches must comply with the laws of the land and must not be exempted from paying taxes for their commercial ventures; Zimbabwe Council of Churches General Secretary Reverend Dr. Kenneth Mtata said.
Rev Dr. Mtata emphasized that as the country’s oldest ecumenical consortium they were ensuring that the church plays its part on the rules set by the Government.
“Compliance to national regulations is not negotiable even for the church. Everyone must comply with the laws of the land. Our view is that the laws of the land are clear in terms of taxation of earnings and the church should do the right thing and pay tax for earnings from their commercial ventures which are non-core,” he said.
Zimbabwe Revenue Authority (ZIMRA) issued a directive that compelled all churches within business ventures to pay Value Added Tax as they were recording profits.
Tithes, donations, offerings were, however, exempted from taxation.
The churches were also required to remit ‘‘Pay As You Earn’’ for their employees’ salaries.
Zimra notes that every person who becomes an employer is required by law to register for PAYE in 14 days of becoming an employer.
“Once a church becomes an employer and it pays any type of remuneration, for instance, a salary, wage allowance — among others — to its employees, the church will be required to deduct the correct employees’ tax or PAYE every month, in accordance with the tax tables, and remit to Zimra by the 10th day of the following month,”.
Last year at a business symposium convened by the Seventh Day Adventist Harare City Centre Church wherein taxation policy was the prime subject, ZIMRA Commissioner for Customs and Excise, Mr. Happias Kuzvinzwa, pointed out that tithes and offerings were not material to tax, but specified business adventures.
“What we tax are business adventures by churches. We, therefore, expect our churches to make that clear distinction between church and business since this will help you to understand how taxation of churches operates,” he said.
Churches and other religious organizations that omitted or failed to declare any amount of income on returns submitted were encouraged to make a voluntary disclosure.
PHD’s Tax Evasion Trial The First In Zimbabwe
Prophetic Healing and Deliverance Ministries(PHD.) is the first to be investigated by the State and the matter has spilled to the courts.
The Prophet Walter Magaya-led ministry is facing charges of contravening the Value Added Tax Act.
Alternatively, the church’s representative is accused of breaching the Income Tax Act, failure to keep proper records, declare records and failure to uphold the Employees Act.
It is the State’s case that Ph.D. Ministries raises revenue through selling church regalia, anointing oil and holy water, among other products, and it also operates guest houses at Yadah Hotel and various places in Harare.
Is Taxing Churches Justified Though?
A tax is a compulsory, not optional, contribution, imposed by the legislature or other competent authority upon the public or a substantial sector thereof, with the revenue from the tax to be utilized for the public benefit or to provide a public service.
The purpose of taxation includes financing of government spending, reduction of the gap between the rich and poor, reduction of consumption of goods, inflation control and protection of local industries.
The main taxes levied by the Zimbabwe government include Income Tax, Capital Gains Tax (CGT), Pay As You Earn (PAYE), Value Added Tax (VAT) and Withholding Taxes.
The church is exempt from capital gains tax on any sale of specified assets. The exemption, however, does not cover a situation where the church carries on a trade through a company or other statutory corporation.
In Zimbabwe, every employer who pays remuneration to an employee must withhold employees tax (PAYE) from remuneration paid. The definition of what makes up remuneration is wide and includes salaries, bonuses, overtime and all kinds of fringe benefits that may be granted to employees during their employment.
A church may qualify as an employer where it pays any type of remuneration e.g. by way of a salary, wage, allowance to priests, pastors, caretakers, gardeners, secretaries, and bookkeepers e.t.c. In this case, the organization is required to register with the ZIMRA and ensure that the correct PAYE is deducted every month and remitted to the tax authority by the 10th of the following month.
VAT is an indirect tax charged on the consumption of goods and services. A church is not exempt from the payment of VAT.
Whether or not churches should be exempted from paying tax is one which has sparked hot debate, not only in Zimbabwe but in other jurisdictions as well.
The tax exemption for churches can be traced back to the Roman Empire, when Constantine, Emperor of Rome from 306 to 337 AD, granted the Christian church a complete exemption from all forms of taxation following his conversion to Christianity.
Church property used for religious purposes was also tax-exempt in medieval England, based on the rationale that the church relieved some governmental functions, and therefore deserved a benefit in return.
The Zimbabwean Constitution, however, lacks a provision exempting churches from paying tax. This then entails that the exemption of churches from paying tax is not a constitutional right, but a privilege which can be stripped off any time.
One rationale of not taxing the church is that the church is a non-profit making organization. Non-profit making organizations are exempt from income and other taxes because their principal purpose is not profit oriented. Taxing churches would be discriminatory as there are other non-profit making organizations, such as political organizations, NGOs, and social welfare and service organizations which are also exempt from tax.
Requiring churches to pay taxes would place government above churches, hence endanger free expression and violate the provision of Section 60 of the Constitution which recognizes freedom of conscience and religion. By taxing churches, the government would be empowered to penalize and/ or shut them down if they default on their payments.
The argument however that Section 60 would be violated is not entirely convincing because all the rights in the Constitution are not unfettered and freedom of expression/religion will have to be balanced by the State’s need to collect revenue.
It must be noted also that churches earn their tax exemption by contributing to the public good. Churches offer numerous services to people in need. These efforts relieve the government of doing work it would otherwise be obliged to undertake. Certain churches are involved in building schools, hospitals, and orphanages. Some churches give back to the community by offering aid to the underprivileged and disabled.
However, there are other churches which are not contributing to the community in any meaningful way. It can be argued even so that churches do not exist primarily to undertake charitable work. Their primary reason for existence is for religious worship and instruction, therefore, the government may tax them.
Forbye, some contemporary churches are being formed mainly for the purpose of profit-making and financial gain hence these entities are more of profit-making organizations. This then follows that, like any other business enterprise, they should be taxed.
Moreover, the cost of government must be shared equally by all. As has been highlighted earlier, one purpose of taxation is to reduce the gap between the rich and poor. We are either equal under the law or we are not. Exemptions from paying tax cause distortions, which reduce equality. We must discontinue the free ride if we are to be free.
We must, however, take note that church members who make the body of the church already share the burden of the cost of government through them being taxed their income and also through VAT and Capital Gains Tax.
Resources: Sunday News, Obert Gutu’s except on taxation (2015)
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