Indirect tax snapshot
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Value Added Tax (VAT) is the main type of indirect taxation in Zimbabwe.
It is a tax on consumption which is applied during the production and distribution process to most goods and services. It is also applied to goods, and certain services, entering the country. Although VAT is ultimately borne by the consumer by being included in the price paid, the responsibility for charging, collecting and paying it to the tax authority at each stage of the process rests with the business making the supply, that is the sale.
A business registered for the tax will charge VAT (output tax) on its sales, and incur VAT (input tax) on its purchases (including any VAT paid at importation). The difference between the output tax and the deductible input tax in each accounting period will be the amount of VAT payable by the business to the tax authority. Where the input tax exceeds the output tax, a refund can be claimed.
A transaction is within the scope of Zimbabwean VAT if the following conditions are met:
Value Added Tax is charged on:
1. the supply of by any registered operator of goods or services supplied by him during the furtherance of trade carried on by him; or
• it is a supply of goods or services. The term ‘supply’ is defined in the legislation, and includes all forms of supply irrespective of where the supply is effected, (even including things that happen by law, e.g expropriation) and any derivative of supply is construed accordingly
• it takes place in Zimbabwe
• it is made by a registered operator. For these purposes, a registered operator is a person or an entity that is registered for VAT in Zimbabwe, or has a liability to become registered under the VAT Act
• it is made in the course or furtherance of any business carried on by that person or entity.
2. the importation of any goods into Zimbabwe by any person; or
• Most goods imported into Zimbabwe are subject to VAT at the standard rate. The tax is paid by the importer at the time of importation. Where the importation is for business purposes and the importer is registered for VAT, it is possible to reclaim the input tax using the bill of entry as the supporting document.
• The time of supply for goods imported into Zimbabwe is the date on which the goods are deemed to have been imported in terms of the customs and excise legislation. Where the goods are entered for home consumption in terms of the customs and excise act, they are deemed to have been imported on the date on which they are so entered. In the case of goods that are imported and are entered into a bonded warehouse; no VAT is chargeable until they are released for home consumption.
• The value of supply for goods imported into Zimbabwe is the value for duty purposes. The value for duty purposes will include insurance charges and transport charges.
3. the supply of any imported services by any person/recipient of imported services; and
• VAT is also charged on imported services. An imported service is a supply of services by a non-resident to a resident of Zimbabwe to the extent that such services are used for making non-taxable supplies.
• The time of supply for imported services is the earlier of an invoice being issued or any payment being made for the supply of the service at the time an invoice is issued by the supplier or the recipient in respect of that supply or at the time the service is performed.
• The responsibility to pay VAT on imported services lies with the recipient of the imported service. This must be declared and paid by the 25th of the month following the month of supply.
4. Goods sold through an auction by an auctioneer
There are two rates of VAT that are applied to goods and services in Zimbabwe; the standard rate of 14.5% and the zero rate. In addition, some goods and services are exempt from VAT.
Businesses that make exempt supplies are unable to claim all of the input tax that they incur, so the VAT paid to suppliers will be a cost to entity.
The act provides for both actual and deemed supplies of goods or services. The deeming provisions widen the range of transactions subject to VAT and clarify the fact that certain transactions are indeed taxable. Some of the deemed transactions that are deemed to be taxable supplies include:
sales in execution of a debt deregistration, door-to-door credit sales, subsidies by the local or public authority, sale of a going concern, receipt of an insurance indemnity and repossession of goods.
The general time of supply
(a) At the time an invoice is issued by the supplier or the recipient in respect of that supply; or
(b) the time any payment of consideration is received by the supplier in respect of that supply; or
(c) in case of a supply of an immoveable good, at the time the recipient takes possession of it; or
(d) in the case of a supply of moveable goods, at the time of its removal from the place of sale; or
(e) in the case of a supply of a service at the time the service is performed.
whichever time is earlier.
Note: Section 8 of the VAT Act has special time of supply for certain supplies.
The general value of supply
It is the value of the consideration for such supply less so much of such value as represents tax.
Note: section 9 of the VAT Act provides value of supply of selected supplies.
A ‘person’ who makes or intends to make taxable supplies of goods or services in the course or furtherance of a business must register for VAT if the value of its taxable supplies in Zimbabwe meets or exceeds the annual registration threshold or is expected to exceed the limit in the near future.
However, a business can register on a voluntary basis even if the registration limit has not been exceeded under certain conditions. A penalty may be imposed by the tax authority if a business fails to register at the correct time.
In terms of the VAT Act a ‘person’ includes:
• a sole proprietor, ie an individual carrying on business in his own name or under a trade name
• a company
• a partnership or joint venture
• a deceased estate or insolvent estate
• an incorporated body of persons, eg an entity established under its own enabling act of parliament
• an unincorporated body of persons, e.g. club, society or association with its own constitution
• local and public authorities.
Requirements for voluntary registration
The following are the requirements for voluntary registration:
• the person should be carrying on any trade
• the person should have a fixed place of residence or business
• the person should have a bank account
• the person should maintain proper books of accounts.
There is no differentiation between an established business and a non-established business.
Yes. Section 13 of the Value Added Tax Act (Chapter 23:12) requires a registered operator to account for VAT on imported services.
However, in terms of Section 13A of the Value Added Tax Act (Chapter 23:12) the supply of radio and television services from outside Zimbabwe to an address in Zimbabwe or of electronic services by an electronic commerce operator domiciled outside Zimbabwe to a person resident in Zimbabwe at the time of supply shall be deemed to be a supply made in Zimbabwe.
The tax authority in Zimbabwe requires that every company applying for VAT registration appoints a person to represent the company on VAT and all other tax affairs.
The general rule is that all registered operators will account for VAT on the invoice basis, unless the commissioner, on written application by the registered operator, has directed otherwise. Returns together with the payments are submitted on or before the 25th of the following month after the end of the tax period.
A tax period is two calendar months for most registered operators, while for large, registered operators it is a monthly tax period. Therefore, a registered operator accounts for both cash and credit transactions.
The Act also provides for an alternative accounting basis namely the payment basis. Registered operators in this category will account for VAT only to the extent they have received payment from such sales and claim input tax to the extent of payments made on purchases and expenses. The payment basis is only limited to public authorities, local authorities and not-for-profit associations. These registered operators, who wish to account for VAT on the payments basis, must apply to the commissioner in writing.
• Penalties relating to late submission of returns are ZWL $30 per return.
• Late payment of tax when due attracts a penalty of any amount equal to the said amount of tax plus 10% interest per annum.
• Where a taxpayer fails to pay tax in the currency of trade attracts a civil penalty for breach of payment equal to double the amount of tax payable in the foreign currency concerned.
Businesses that are registered for VAT in Zimbabwe are required to submit input tax schedules to accompany each VAT return submitted. The input tax schedule must show:
• the name of supplier
• a description of goods/services supplied
• amount excluding VAT
• amount of VAT charged
• invoice number/bill of entry number in the case of a bill of entry being used
• date of supply of the goods or services.
Yes. A range of penalties can be imposed where businesses do not comply with the VAT rules.
Civil penalties and interest can be applied for errors and omissions made on tax returns, or where the tax is paid late. Penalties can also be applied where the business has failed to maintain adequate records, provide information (including additional declarations), or makes repeated mistakes.
Criminal proceedings may be brought in the case of more serious matters.
Where a taxpayer fails to pay tax in the currency of trade attracts a civil penalty for breach of payment equal to double the amount of tax payable in the foreign currency concerned.
• VAT incurred in Zimbabwe can only be claimed by a resident operator.
• The tax authority will not refund VAT that has been incurred in other tax jurisdiction even where the goods are eventually consumed in Zimbabwe.
A Fiscal VAT invoice must show:
• the words ‘Fiscal tax invoice’ in a prominent place
• an invoice number which is unique and sequential
• the seller’s name and address
• the seller’s VAT registration number
• the invoice date
• the customer’s name and address
• a description of goods or services supplied to the customer
• the customer’s VAT number
• amount excluding VAT
• the total amount of VAT charged.
For each different type of item listed on the invoice, the following must be shown:
• the unit price or rate, excluding VAT
• the quantity of goods or the extent of the services
• the rate of VAT that applies to what’s being sold
• the total amount payable, excluding VAT.
Where a VAT invoice includes zero-rated or exempt goods or services, it must:
• show clearly that there is no VAT payable on those goods or services
• show the total of those values separately.
Where a business makes retail sales, a simplified VAT invoice can be issued.
There are no SAF-T requirements. However, registered operators are required to file their VAT returns online. All VAT registered operators are mandatorily required to have a fiscalized gadget for recording of sales. The fiscal gadget must be interfaced with the tax authority’s servers for recording of sales in real time.
For further information on indirect tax in Zimbabwe please contact:
Cynthia Portia Mutasah