A tax is a compulsory, not optional, contribution, imposed by the legislature or other competent authority upon the public as a whole or a substantial sector thereof, with the revenue from the tax to be utilised 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.
Income tax is payable on business profits, i.e. income derived from or deemed to be from a source within Zimbabwe. Receipts and accruals of churches are exempt from income tax. The exemption does not cover a situation where the church carries out a trade through a company or other statutory corporation.
A Capital Gains Tax is payable on capital gains realised from the sale of specified assets (immovable property, shares and other securities). A church is exempt from capital gains tax in respect of 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 is required to withhold employees tax (PAYE) from remuneration paid. The definition of what constitutes remuneration is very wide and includes salaries, bonuses, overtime and all kinds of fringe benefits that may be granted to employees in the course of 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 etc.
In this case, the organisation is required to register with the Zimbabwe Revenue Authority (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.
The issue of 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. My task is to contribute to this debate by exploring the pros and cons of taxing the church.Advertisement
The tax exemption for churches can be traced back to the Roman Empire, when Constantine, Emperor of Rome from 306-337 AD, granted the Christian church a complete exemption from all forms of taxation following his supposed conversion to Christianity. Church property used for religious purposes was also tax-exempt in medieval England, based on the rationale that the church relieved the state of some governmental functions, and therefore deserved a benefit in return.
It must be borne in mind that the Constitution does not have a provision exempting churches from paying tax. This then entails that the exemption of churches from paying tax is not a constitutional right but rather a privilege which can be stripped off at any time.
One of the major rationales of not taxing churches is that the church is a non-profit making organisation. Non-profit making organisations 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 groups, such as political organisations, NGOs, and social welfare and service organisations which are also exempt from tax.
Requiring churches to pay taxes would place government above churches and therefore endanger free expression and violate the provisions of Section 60 of the Constitution of Zimbabwe which recognises freedom of conscience and religion.
By taxing churches, 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 with the State’s need to collect revenue.
It has to 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 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.
Of all the hospitals in this country, more than 15% are mission hospitals. The top 100 schools in Zimbabwe in terms of academic performance have over 57% being mission schools at Ordinary Level and over 40% at Advanced Level. This shows that the church is contributing immensely to the community. However, there are other churches which are not contributing to the community in any meaningful way.
But it can be argued nonetheless 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. Furthermore, taxing churches when their members receive no monetary gain would amount to double taxation. Church members are already taxed
on their individual incomes so it would be unfair to tax them again for participation in voluntary organisations from which they derive no monetary gain.
However, the double taxation of church members is inevitable since individuals experience double taxation in their day-to-day lives. For example, an employee who receives remuneration is subject to income tax and when he uses the remaining income to buy groceries, he will be taxed under VAT.
On the other hand, some churches are being formed mainly for the purpose of profit-making and financial gain hence these entities are more of profit-making organisations. This then follows that, like any other business enterprise, they should be taxed.
However, not all churches are being formed primarily for the purpose of financial gain.
Moreover, the cost of government must be shared equally by all. As has been highlighted earlier, one of the purposes 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 of the fact 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.
To conclude, I recommend that churches should be taxed but special measures should be taken when taxing them. One way would be to give the Commissioner of Taxes the discretion on whether or not to tax a certain church.
Churches operating in the true spirit of charity organisations which have little to do with the pursuit of wealth should not be taxed. It is difficult however, to establish whether a certain church is operating for financial gain or for spiritual purposes.
Alternatively, churches may apply for an exemption certificate and when denied, may take up the matter to the Fiscal Court. This would serve as a measure of ensuring that the exercise of the Commissioner of Taxes’ discretion is not abused.
Obert Gutu presented this paper at a recent public seminar hosted by Mass Public Opinion Institute (MPOI) in Harare.