VAT WITHHOLDING TAX

LEGAL BACKGROUND

Latest update

Statutory Instrument 149 of 2016 introduced VAT Withholding Tax

• Issued as supplement to Government Gazette dated 2 December 2016

• Per mid-term fiscal policy effective date should have been 1 October 2016-no legislation to back it then

• According to the statutory Instrument the effective date is 1 November 2026

• ZIMRA has indicated that there is an error on the date and efforts to correct the effective date are in progress.

• Date needs to be confirmed

Details of SI 149 of 2016

• It is responsibility of an appointed agent to collect the VAT withholding tax

• The Commissioner may designate any person to be a Value Added Tax agent and may at anytime revoke the appointment if he deems it appropriate to do so.

• No agents have been appointed yet.

-Not yet clear on ZIMRA’s criteria of appointment

-Harare-no one appointed

-Other regions-1 taxpayer appointed before promulgation of law!

• Agent to withhold 10% of the amount payable to a VAT registered operator

Details of SI (cont)

Example

• Value of taxable supply $20 000

• VAT at 15% $3 000

• Total amount payable $23 000

• At the time of paying the supplier, the VAT Withholding Agent shall compute withholding VAT as follows:

• Withholding VAT at 10% =$23 000 x 10%=$2 300

• It means of the $3 000, $2 300 is being paid in advance

• More than 50% of the VAT is collected in advance!

Details of SI (Cont)

Example (cont)

• What is the link to the 10% withholding tax on contracts?

• The 10% on contracts is deducted on amount of $23 000 in the absence of an ITF 263 (tax clearance certificate)

• So both are levied in some instances-VAT and WHT on contracts

• Certificates are issued in both respects

• Difference is the 10% WHT on contracts is set off against income taxes on assessment (end of year)whilst VAT is set off more frequently on VAT 7 returns.

Details of SI 149 (cont)

• The withholding tax to be remitted on or before 15th of following month or subject to Commissioner fixing any other date.

-It appears the agent remits tax on or by 15th after the end of the tax period(SI says by 15th of following month)

• Agent submits the tax and the return (Rev5) together with a schedule of the suppliers from whom the tax has been withheld with each payment on or before 15th after the end of the tax period.

Category

A December/January 15 February

B January/February 15 March

C January 15 February

• Normal VAT is due on the 25th of the following month

• 15% withholding tax is due by the 15th

Clarity is required from ZIMRA on the actual due date e.g

• it on 15th monthly or follows the tax period?

• Tax compliance costs will increase as agents and registered operators will be paying or accounting for VAT twice within a month.

• A VAT schedule will be prepared by the agent in respect of the 15% withholding tax.

Admin issues: Agent

Supplier name

BP No. Invoice No Certificate No

Date paid Amount paid Withholding tax

• Above assumes that by the time payment is made and submission of the return is made, a certificate would have been issued.

• Question-Do you issue a certificate before you pay?

• Not an easy exercise to issue certificates especially in cases where the registered operator makes numerous payments e.g 1 000 invoices per month.

Admin issues: Agent

• Agent issues a withholding tax certificate to the registered operator

• The certificate should be designed and generated by the agents and should have the following fields:• Certificate Number

• Name of agent

• BP Number of the agent

• Physical address of the agent.

• Name of supplier.

• BP Number of supplier

Admin issues (cont)

• Address of supplier

• Invoice Number

• Date of Invoice

• Date Paid

• Taxable Value

• Registered operator will be required to draw up a return in the normal way and claim a credit on certificates received from the agent.

• Where a claim of credit has been made, registered operator provides proof of the value added withholding tax deducted by the agent.

• Excess credit can be set off against any tax due from other tax heads or can be refunded

• Only payments towards the supply of standard rated supplies are liable to withholding VAT.(Exclude value of exempt and zero rated goods)

Default by Agents/any other persons

• Failure to withhold or pay the tax leads to:

-payment by agent of the tax; and

-liability of amount equal to the VAT withholding tax (100% penalty)

• Non-compliance of the regulations leads to:

- Fine not exceeding level 7 (US400);or

- Imprisonment not exceeding 12 months; or

- Both fine and imprisonment.

Other countries that have this system

• Kenya – 2004 & 2014. The rate is 6% and paid weekly

• Turkey – the rate is between 1/3 and ½ of vat due

• It is not clear to what extent these countries have been successful in implementing this withholding tax.

• QUESTIONS?