Zimtax Vat Module 2010

8/3/2019 Zimtax Vat Module 2010

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VALUE ADDED TAX MODULE BCompt Honours Degree 2010

Compiled by The Institute of Chartered Accountants of Zimbabwe 1

B. COMPT HONOURS DEGREE 2010

VALUE ADDED TAX ZIMBABWE

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VALUE ADDED TAX COURSE OUTLINE

1 Background to VAT

2 Interpretation of Law

3 Definitions/Interpretation-Section 2

4 General Operational Aspects of VAT - Section 6

5 Supplies

6 VAT on Imported Goods and Services

7 Accounting Basis section 14

8 Calculation of VAT payable section 15

9 Deductions

10 Adjustments section 17

11 Acquisition of a going concern wholly or partly for purpose other than

making taxable supplies s18

12 Pre-incorporation Expenses Section 19

13 Tax Invoice section 20

14. Credit and Debit Notes: Section 21

15 Irrecoverable debts section 22

16 Registration for VAT- Section 23

17 Tax Periods Section 27

18 Assessments Sec 31

19 Objections and Appeals Section 32, 33, 34

20 Penalties and InterestSection 39

21 RefundsSection 44

22 Separate trades, branches and divisions- Section 51


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23 Separate persons carrying on same trade under certain circumstances

deemed to be a single person- Section 52.

24 Bodies of persons corporate or unincorporated- Section 53

25 Death or Insolvency of a Registered Operator: Section 55

26 Agents and auctioneers: Section 56

27 Records: Section 57

28 Powers of entry and search: Section 61.

29 Offences and Penalties Section 62


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INTRODUCTION

The VAT syllabus is fairly wide and any attempt to spot a particular area from which thequestions will be set will have a very small probability of success. It is, therefore, in thecandidate s interest to be familiar with virtually all areas of the syllabus. In any case thequestions are normally integrated and the candidates who have prepared for all possible topics are

the ones likely to be successful in their endeavors.

The notes and examples in this study pack are designed to assist the student prepare for theexamination by going through summaries of the relevant legislation and working throughpractical examples/questions. A number of the questions actually come from past examinationpapers. It is in the best interest of students to genuinely attempt the questions before referring tosolutions provided.

The professional accountant is involved in the interpretation and application of VAT lawprocedures and must be able to recognise potential VAT planning opportunities; and contribute tothe evaluation of existing ones. The accountant s approach to VAT matters should be temperedwith the recognition that the State is legally entitled to all taxes imposed upon taxpayers by the

statutes, but taxpayers are under no obligation to pay more than the legal minimum of such taxesimposed upon them. This must be borne in mind at all times when working through questions,which touch on the aspects of advice to clients on planning their VAT affairs.

It must be made clear from the outset that to become a VAT expert one requires furthercomprehensive study supported by sufficient practical experience. This package should set youwell on your way. Please note that the summaries have been prepared under the presumption thatyou have already had an encounter with the study of Zimbabwean Tax Law and Practice atundergraduate level, and will be based on legislation in effect as at 31 January 2010.

Good luck in your endeavours.


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1. BACKGROUND TO VAT

1.1 WHAT IS VAT?

Value Added Tax (more commonly known by its abbreviation VAT) is an indirect tax

levied on the supply of goods or services.

It is also levied on the importation of goods and, under some circumstances, on theimportation of services.

It is levied and accounted for at the prescribed rates and is borne by the final consumersof goods and services. For some goods and services a special rate of 0% is applied, whilea limited range of goods and services are exempted from the tax. Because the tax isborne by the final consumer, it can be called a consumption tax as the amount of tax onepays is directly related to the purchases made.

The Commissioner General of the Zimbabwe Revenue Authority is responsible for theadministration of VAT.

2. INTERPRETATION OF LAW

2.1 INTENTION OF THE LEGISLATURE

A study of tax cases shows that in the interpretation of a taxation statute, the intention ofthe legislature is sought. The courts are not prepared to depart from a literalinterpretation where there is doubt as to the legislature s intention, but where theintention is clear the courts will give effect to that intention, as is the case of all otherActs.

2.2 CONTRA FISCUM RULE

Should a provision of a taxing statute be ambiguous, the contra fiscum principle must beapplied. In other words, where a section of the act is reasonably capable of twoconstructions (interpretations), the court must allow the lesser imposition, or give thetaxpayer charged the benefit of the doubt.

This rule has often been applied by our courts. The judgment of Milner J in theBadnehorst case should also be noted in this respect:

Where there is an ambiguity which is manifest without resorting to

considerations of inequity, supposed or real, the court will, no doubt,interpret a taxing statute, as it did with others favorably to the subject and

so, contra fiscum


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2.3 DEFINITIONS OF WORDS

Like most statutes, the VAT Act contains a general interpretation section (section 2),where the meaning that certain words and phrases are intended to bear for the purposes ofthe Act is found.

The definitions contained are therefore of particular importance. As in all suchinterpretation sections, it is expressly provided that the meaning attributed to particularwords and phrases must be those given in the definition section unless the contextotherwise indicates.

In determining whether or not the context otherwise indicates, the whole of the Act mustbe considered, since other parts thereof may shed light upon the intention of thelegislature and may serve to show that the particular provision ought not to be construedas it would be if considered alone and apart from the rest of the Act.

2.4 MEANS AND INCLUDES

The definition in the VAT Act often provides that a word or phrase means something.In other cases it is stated that a word or phrase includes something, and in other cases,it is stated that a word or phrase means and includes

Generally, when a definition states that a word or phrase means something, suchdefinition is exhaustive and the word or phrase can have no other meaning than thatwhich appears in the definition. However, this is always subject to the proviso that acontrary intention may appear in the statute.

On the other hand, the word includes is normally used to enlarge the meaning of wordsor phrases occurring in a statute, but in some cases it may also be exhaustive and beequivalent to means and includes

2.5 NOTWITHSTANDING ANYTHING

When the words notwithstanding anything contained in this Act appear in a section orsubsection of a statute, the effect thereof is that such section or subsection must beinterpreted as if the rest of the Act is excluded.

In some cases the words may be in a subsection notwithstanding anything in this sectioncontained , and in such case the effect is that the subsection must be considered as if therest of the section were excluded. In addition, the word notwithstanding has been heldto mean even if


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2.6 SHALL AND MAY

The word shall is normally used as being equivalent to must . In other words it isimperative or peremptory, while the word may is usually used in a permissive sense.In general, in the more modern statutes, the word shall is used to create a duty. Where,

however, the expression it shall be lawful appears in a statute, it usually confers adiscretionary power.

On the other hand the word may is sometimes construed as imperative, or in otherwords may can be equivalent to must . However, in the absence of proof that thelegislature intended that the word may is to be interpreted as must , such word isgiven its natural meaning, that is a permissive and not an obligatory use.

2.7AND AND OR

It is important to take note of the words at the end of (and sometimes within the same)sentence, which indicate several criteria or conditions, which need to be evident before aparticular section (or part thereof) can be applied in any situation. When using, and ,this normally indicates a link between several conditions, all of which need to be evident.When using or this indicates an option between two or more conditions, where, ifeither one is evident, the law will or can apply.

Pay special attention to sections of the Act which have a combination of and and orlinking conditions, as these sections will be more difficult to interpret.

5 DEFINITIONS/ INTERPRETATION-Section 2

5.1 CONNECTED PERSON

There are six different relationships between different persons incorporated in thedefinition of connected person in the VAT Act. The term is important because if twopersons are connected in terms of the definition, it may be necessary to apply a specialvalue of supply rule which will force the supplier to charge VAT on the open marketvalue of the supply, rather than on the amount of consideration received.

Examples of connected persons: -

A company and its Directors Parents and their children A Trust and a beneficiary of that Trust Separately registered branches of a registered operator


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3.2 CONSIDERATION

This term refers to that which is given to the supplier as payment for the supply andincludes tax. Normally the consideration is in money but it also includes bartertransactions where other goods are given or services rendered to the supplier as payment.

Any act of forbearance whether voluntary or not for the inducement of a supply of goodsor services will constitute consideration, but it does not include any donation made as anunconditional gift to an association not for gain. Also excluded is a deposit which islodged to secure a future supply of goods or services. However, a deposit paid on areturnable container constitutes consideration.

3.3 ENTERTAINMENT

Means the provision of any food, beverages, accommodation, entertainment, amusement,recreation or hospitality of any kind by a registered operator whether directly orindirectly to anyone in connection with a trade carried on by him.

3.4 FIXED PROPERTY

Means land, together with improvements affixed thereto, any share in a company, whichconfers a right to, or an interest in the use of immovable property. It does not includefarmland.

3.5 GOODS

The term goods includes

Corporeal (tangible) movable things, goods in the ordinary sense Any real right in those corporeal movable things Fixed property, land & buildings Any real right in such fixed property e.g. servitudes, mineral rights, notarial leases

e.t.c. Sectional title units (including timeshare)- get title deeds to a share of flats Shares in a share block company- no title deeds but you own shares Postage stampsIt excludes: -

Money i.e. notes, coins, cheques, bills of exchange e.t.c. (Except when sold ascollectors item)

Value cards, revenue stamps etc which are used to pay taxes (except when sold as acollectors item)

Any right under a mortgage bond Farm land.


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3.6 IMPORTED SERVICE

Means a supply of services that is made by a supplier who is resident or carries onbusiness outside Zimbabwe to a recipient who is a resident of Zimbabwe to the extentthat such services are utilized or consumed in Zimbabwe for purposes other than of

making taxable supplies.

3.7 INPUT TAX

This is the tax paid by the recipient of the supply of any goods or services to the supplier.Input tax may be deducted by the recipient where the supply of such goods and/orservices is acquired by a registered operator for the purposes of making taxable suppliesin the following circumstances: -

Where the supplier (being a registered operator) has charged tax on the supply andhas provided the recipient with a tax invoice as required.

Where the importer (being a registered operator) has paid VAT on the importation ofgoods or services and is in possession ofa bill of entry as required.

Where second-hand goods have been purchased from a non-registered operator, andthe recipient has paid for the supply and has kept the necessary details of the supplierand the transaction in terms of the prescribed documentary requirements. This issometimes called a notional input and is calculated by multiplying the tax fraction(15/115) by the amount paid. There are special rules where the second-hand goodsconstitute fixed property. In this case the input tax is limited to the stamp duty. If 6%stamp has been paid on the fixed property (from a non-registered operator) notionalinput tax is limited to the stamp duty paid. It is not the notional VAT that should begranted.

Where goods are repossessed from a debtor (non-registered operator) by thesupplier of goods under an installment credit agreement (e.g. a bank). This iscalculated by multiplying the tax fraction at the time the supply was originally madeby the balance of the cash value still owing to the supplier.

Where goods or services were acquired only partly for taxable supplies and partly forsome other purpose, a fair and reasonable portion may be claimed. Furthermore, theamount of input tax claimable in any tax period will depend on whether the registeredoperator is registered on the invoice or the payments basis.

3.8 INSTALMENT CREDIT AGREEMENT

An agreement for the supply of goods under an installment sale or financial lease, whichis normally subject to some suspensive condition as to the passing of ownership. Thesemay be referred to as hire purchase agreements. The agreement will normally providefor the payment of the purchase price including finance charges at a fixed or determinableinstallment and the recipient accepts the risks attached to those goods insofar as loss or


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damage are concerned. In the case of a financial lease the term of the agreement must beat least 12 months. This type of agreement must be distinguished from a rentalagreement where the recipient does not become the owner of the goods at any stage.

3.9 OPEN MARKET VALUE

Is the consideration in money which the supply of goods or services would generallyfetch if supplied in similar circumstances at that date in Zimbabwe being a supplygenerally offered and made between persons who are not connected persons (Sec 3).

3.10 OUTPUT TAX

In relation to a registered operator means the tax charged under paragraph (a) ofsubsection (1) of section 6 in respect of supply of goods and services by the registeredoperator.

3.11 PERSON

The term person includes: -

Sole proprietor, i.e. an individual carrying on business in his own name or under atrade name

A company A partnership or joint venture A deceased estate or insolvent estate Trusts Incorporated body of persons e.g. an entity established under its own enabling act of

parliament Unincorporated body of persons, e.g. club, society or association with its own

constitution. Local and public authorities

3.12 REGISTERED OPERATOR

A Registered operator is a person who is registered or is required to be registered forVAT.

3.13 SECOND HAND GOODS

These are goods, which have been previously owned and used (excludes animals andcertain gold coins)


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3.14 SERVICES

Services means anything done or to be done.

The term services includes: - Granting, assignment, cession, surrender of any right Making available of any facility or advantage Certain acts which are deemed to be services in terms of Section 7 of the ActIt excludes

A supply of goods Money Any stamp, form or card which falls into the definition of goods

3.15 SUPPLY

The definition is very wide and includes all forms of supply irrespective of where thesupply is effected, (even including things that happen by law e.g. expropriation) and anyderivative of supply shall be construed accordingly.

3.16 TAXABLE SUPPLY

A supply (including a zero rated supply), which is chargeable with tax under the VATAct.

3.17 TRADE

Trade is a business in the broadest sense. It includes any activity carried on: -

Continuously or regularly By any person In or partly in Zimbabwe In the course of which goods or services are supplied to any other person for a

consideration, i.e. some form of payment.

Whether or not for profit.It therefore includes

Business transactions to start or close down business Ordinary businesses such as: manufacturers, traders, auctioneers, lessors,

construction, etc


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Trades and professions builders, electricians, plumbers, doctors, lawyers,accountants, etc

Nonprofit organizations- sporting/ social clubs, charitable organizationsAs well as the following special inclusions: -

Public authorities government departments, provincial authorities Local authorities Charitable organizationsA number of activities are excluded from the definition of trade , namely: -

Services rendered by an employee (who earns remuneration) to his employer or bythe holder of any office in performing the duties of office, e.g. salary/wage earners ora company director. A private independent contractor does not fall within thisexclusion.

The supply of goods or services by a concern from a branch or main business whichis permanently located at premises outside Zimbabwe if the branch or main businesscan be separately identified and maintains its own system of accounting.

Private or recreational pursuits or hobbies (unless structured like a business) Private occasional transactions, e.g. occasional sale of domestic/household goods,

personal effects or private motor vehicle Any activities to the extent that they are of exempt supplies.The definition of trade is one of the most important definitions in the VAT Act and everyperson who is required to register or who applies for voluntary registration must meetthe criteria in the definition.

4 GENERAL OPERATIONAL ASPECTS OF VAT - Section 6

Value Added Tax is levied under the Value Added Tax Act (Ch 23:12). The tax is leviedat prescribed rates on the following: -

The supply of any goods and/or services in Zimbabwe on or after the commencementdate by a registered operator in the course of furtherance of an enterprise (trade).

Goods imported into Zimbabwe in certain circumstances, and Services imported into Zimbabwe in certain circumstances.Persons liable to pay VAT (section 6(2))

In terms of section 6(2) of the VAT Act the following are liable to pay the VAT: Persons registered in terms of section 23 of the Act. An importer of goods. In the case of imported goods VAT is levied on the

value for duty purposes, i.e. initial cost plus freight, insurance,etc. Recipient of imported services.


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It is levied on excisable goods (section 6(3)). In the case of excisablegoods, VAT is levied on value for excise purposes plus excise duty.

5 SUPPLIES

5.1 Zero Rated Supplies (section 10)

Zero rated supplies are taxable supplies made by a registered operator, which are taxedat the rate of 0%. There is no output tax actually collected in respect of the supply.Since a zero-rated supply is a taxable supply, registered operators making zero ratedsupplies may claim full input tax in respect of goods or services acquired to make thezero rated supplies. Traders who supply exclusively zero rated supplies are required toregister for VAT in terms of section 23 provided their aggregate annual turnover is $60, 000 and above or is likely to be $60, 000 and above.

Zero rating applies primarily to exports and to certain other types of transactions mainlyfor social and economic reasons.

Section 10 (1) Goods

a) Goods exported to an address in an export countryb) Goods (including consumables) supplied to repair goods temporarily admitted into

Zimbabwe.

c) Goods supplied under a rental agreement if used exclusively in an export country.d) Goods supplied under a rental agreement if used in or paid for from an export

country. Only applies to foreign registered businesses.

e)

Supply of business as a going concern.f) Gold supplied to the Reserve Bank or any other registered banks.g)Regular agricultural inputs supplied to farmers e.g. herbicides, fodder and insecticide.h)Goods for disabled persons.

i) Goods supplied to an independent branch in an export country.j) Supply of gold coins issued by the Reserve Bankk) Drugs as defined in the Medicines & Allied Substances control Act.l) Building bricksm)Basic commodities, such as plain bread, plain buns, milk, cooking oil etc.Section 10 (2) Services

(a) Transportation of PASSENGERS or GOODS to, from and outside Zimbabwe.(b) Transportation of PASSENGERS from one place to another place in Zimbabwe byaircraft to the extent that the travel constitutes international carriage

(c) Transport and ancillary transport services supplied within Zimbabwe in respect ofimports and exports of GOODS, if supplied by the same supplier responsible for theinternational transport of those goods.

(e) Transportation services for the movement of goods through Zimbabwe from oneexport country to another, when provided to a non-resident (non-registered operator),


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who does not carry on a business in Zimbabwe (includes an ancillary transport servicesas defined).

(f) Services rendered in connection with land or improvements OUTSIDE Zimbabwe

(g) Services rendered in connection with movables situated in an export country: goodstemporarily admitted into Zimbabwe which are exempted from import duties, and certain

services relating to foreign going aircraft(h) Services comprising handling, pilotage salvage, towage and operation or managementof any foreign going aircraft: where the services are supplied to a non-resident and a non-registered operator.

(i) Services of arranging the supply of goods, services or transport of goods for a personwho is non-resident and a non registered operator.

(j) Services rendered in connection with the repair of a train operated by non-residents,not carrying on business in Zimbabwe

(k) Services rendered whilst physically outside Zimbabwe (other than telecommunicationservices utilized in Zimbabwe).

(l) Services supplied to a non-resident who is outside Zimbabwe at the time the servicesare rendered, except where related to land and improvements thereto, or movableproperty situated inside Zimbabwe. (There are some exceptions to this rule)

(m) Patents and other intellectual property for use outside Zimbabwe.

(n) Deemed Services in terms of section 7 (5) supplied by a charitable organisation to apublic or local authority.

(o) The supply of services by a registered operator to his branch situated in an exportcountry

(p) Transfer payments received from Government Departments

Section 10 (3) Documentation

The above goods and services can only be zero rated if the registered operator obtainsand retains the necessary documentary proof acceptable to the Commissioner, or asprescribed in the circumstances

5.2 Exempt supplies (section 11)

Exempt supplies are those supplies on which no VAT is chargeable. A trader of exemptsupplies is not required to register for VAT even if he reaches the registration threshold.

Types of Exempt Supplies

a) Supply of Financial Servicesb) The supply by an association not for gain of any donated goods or services OR where

the association manufactures goods, if at least 80% of the value of the materials usedconsist of donated goods.

c) The supply of residential accommodation in a dwelling under a lease or hire


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agreement OR, where an employer permits his employee to occupy theaccommodation as a fringe benefit for the duration of the employment.

d) The supply of leasehold land used to erect dwellings and for existing dwellingse) Sale or letting of land outside Zimbabwe. Note that any SERVICES relating to such

land is zero-rated. S10(2) (f)

f)

The supply of public road and railway transport to fare paying passengers and theirluggage. Note that the transport of passengers to an export country is zero-rated andthis will override the exemption.

g) Any educational services for pre-school, primary, secondary, tertiary and technicaleducation and the education or training of physically/ mentally handicapped personsat any institution, which meets the requirements of the Ministry responsible foreducation or higher education.

h) Medical services supplied by any person. This includes incidental and subordinateservices in respect thereof.

i) The supply of goods and services by an employee organisation to any of its membersto the extent that the consideration for the supply consists of membership

contributions.j) The supply of piped water, rates charged by a local authority and domestic electricityk) Supply of fuel and fuel products.

5.3 Standard Rated Supplies

These are supplies of goods and/or services that attract a VAT rate of 15%.Goods/services that are not specifically exempt or zero rated are standard rated.

5.4 Deemed supplies, Time of supply, Value of supply, (sections 7, 8 and 9)

General Rules:

Time of Supply: The earlier of an invoice being issued or any payment being made(section 8(1).

Value of Supply: Where the consideration is in money, the amount of money less VAT.Where the consideration is not in money, the open market value (OMV) (section 9(2, 3).

Deemed Supply Time of supply Value of Supply

7(1) Sale in execution of adebt

8(1) The earlier of aninvoice issued or paymentreceived

9(2) Consideration lessVAT.

7(2) Cessation of trade bythe registered operator

8(5) Day prior toderegistration

9(5) Lesser of cost or openmarket value.


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7(3) Door to door creditsale agreements

8(2)(b) Day after coolingoff period.

9(2) Consideration lessVAT

7(4)(a) Lay bye agreements

of a consideration notexceeding $25 includingVAT.

8(2) the time the goods

are delivered to thepurchaser.

9(2) Consideration less

VAT

7(4)(b) Cancelled lay byeagreement

8(2) The time theagreement is cancelled.


7(5)Subsidy paid by thestate or local authority


9(12) The amount of anypayment made from time totime on behalf of theregistered operator

7(6) Disposal of a businessas a going concern 8(1) The earlier of aninvoice issued or paymentsreceived


7(7) Indemnity paymentsreceived from an insurancecompany N.B thisprovision is no longer

applicable, but was not

repealed.



7(8) Transfers to

independent branches in anexport country.

8(2) (e) The time the goods

are delivered or the serviceis provided.

9(5) The lesser of cost or

open market value.

7(9) Repossessions fromdebtors who are registeredoperators.

8(8) The time ofrepossession

9(13) The outstanding cashvalue on date ofrepossession.

7(10) The granting of theright to use goods with orwithout a driver, crew, pilotetc.



7(11) Placing a bet 8(3)(f)The time the bet isplaced

9(14) Amount received forthe bet is the considerationless VAT

7(12) Prizes/winnings froma bet

8(3) (g) The time the prizeor winning is paid out.

9(15) Amount paid as prizeor winning is considerationless VAT.


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7(13) single supply whichattracts two rates of tax.



7(14) Supply of goods by aregistered operator 8(1) The earlier of aninvoice issued or paymentsreceived


7(15) Transfer of a loanobligation

8(1) The earlier of aninvoice issued or paymentsreceived


7(16) Supplies of shares toa developer

8(1) The earlier of aninvoice issued or paymentsreceived


7(17) Importations byagents acting on behalf ofprincipals

8(9)The time the taxpayable on the importationof goods is paid by theagent

9(22) Value for Dutypurposes.

Coin operated machines (juke boxes, mini soccer machines fruit machines section8(2) (d): For the recipient, the time of supply is deemed to be the time the coin is insertedin the machine and for the supplier, the time of supply is the time when the coins areremoved from the machine.

Rental agreement section 8 (3) (a): Where goods are supplied under any rentalagreement or where services are supplied under any agreement which provides forperiodic payment, the supply shall be deemed to be made for successive parts of theperiod of the agreement and each of the successive supply shall be deemed to take placewhen a payment becomes due or is received whichever is earlier.

Installment credit agreements section 8(3) (c): Time of supply is deemed to take placewhen the goods are delivered or when the supplier receives any payment. Value of supplyis the cash value of the supply.

Undetermined contract price section 8(4): The supply is deemed to take place whenany payment is due or received or an invoice is issued whichever is the earliest .e.g. thecases of GMB, COTTCO

Vouchers /Tokens section 9(16): Where a voucher or a token is issued in considerationof money, the supply of such token at the time at which it is issued is ignored for VATpurposes to the extent that it does not exceed the monetary value stated on such avoucher. Where the consideration exceeds such value, the registered operator account for


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VAT on the excess at the time of issue while on the face value of the voucher, VAT willbe accounted for when the voucher is redeemed as it now operates as a cash payment forgoods or services.

Where a dealer issues tokens or vouchers that may be exchanged for specific goods and

such vouchers are issued for a consideration in money, the issue of such a token is ataxable supply. The surrender of such a token is disregarded for VAT purposes. Section9(17)

6.0 VAT on Imported Goods and Services

6.1 Importation of goods section 12

VAT is levied and paid on the importation of any goods into Zimbabwe by any person.The importer of goods is liable to pay the VAT levied on importation.

All goods imported into Zimbabwe will be levied VAT except: Those that are exempt as prescribed and Those that are destined for consignees in countries other than Zimbabwe.Goods are deemed to be imported on the date the goods are entered for homeconsumption, (cleared through customs). This date is reflected on the customs bill ofentry. The VAT on importation must be paid at the same time as the customs duty.

The value to be placed on the importation is the value of the goods for Customs Dutypurposes (VDP), i.e. cost plus freight, insurance etc.

This is calculated as follows: -

1. The value of the imported goods 10 0002. Freight, insurance and other costs 5 000= Total value for VAT purposes 15 000

Total VAT payable = $15 000 X 15% = $2 250

6.2 Deferment of payment of VAT on imported capital goods, section 12A

The Commissioner may allow a registered operator who imports capital goods for use inthe production of taxable supplies to spread payment of import VAT over a period ofninety (90) days. The plant, equipment or machinery should be exclusively used formanufacturing, mining on a registered mining location, agricultural purposes or for theaviation industry. However this is subject to the importer having proved to the


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satisfaction of the Commissioner that the imported goods are of a capital nature and uponhaving fulfilled conditions that may be set by the Commissioner.

Where the importer disposes of the imported goods during the period of deferment, thewhole VAT becomes due and the Commissioner may impose 100% penalty plus interest

(section 12A (2). However, if the importer proves to the satisfaction of the Commissionerthat the sale was not motivated by the desire to evade payment of VAT, theCommissioner may waive in full or in part the penalty but interest remains payable.

6.3 Imported services section 13

Definition: means a supply of services that is made by a supplier who is a non resident ofZimbabwe or a resident of Zimbabwe who carries on business outside Zimbabwe to arecipient who is a resident of Zimbabwe to the extent that such services are utilised orconsumed in Zimbabwe for making exempt supplies.

Time of supply is the general rule of time of supply. Value of supply is the consideration of such supply or the open market valuewhichever is greater.

EXAMPLE 1: The National University of Science and Technology was sued by itslecturers that they had fired following an illegal industrial action. The university hiredAdvocate De Beers from South Africa to represent it. He charged them R14 500 for theservice. The open market value of the services rendered was R16 000. He raised hisinvoice for the service on 1 August 2009 but payment was made on 31 December 2009.

Required:

(a)Calculate VAT due if any.(b)When is the VAT due?(c)Who will account for the VAT?

Solution:

(a)VAT payable =15/115*R16 000 (greater of open market value or consideration).= R2 086.96

(b)The VAT was due on 1 August 2009, the general time of supply rule applies, i.e.the earlier of an invoice being issued or any payment being made.

(c)The university is required to account for the VAT.EXAMPLE 2: Mambo Life Assurance Company hires an IT consultant from SouthAfrica to work on new software. The software is used mainly in the Life Assurancebusiness of the company. He issued an invoice of R8, 200 on 31 October 2009. If similarservices were sourced locally, the company could have paid R7, 500.


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Required: What are the VAT implications of the transaction?

Solution: Mambo Life Assurance deals in services that are exempt from VAT, seedefinition of financial services hence it should account for VAT on the imported service.The VAT will be R1, 069.57 (15/115 * 8, 200).

N/B: The use to which the services are going to be put is very important in qualifying aservice to be an imported service. The service in other words should be used for exemptpurposes.

7 Accounting Basis section 14

7.1 Invoice Basis

VAT is generally accounted for on the invoice basis. The invoice (or accrual) basis of

accounting is that registered operators account for both cash and credit sales and cash andcredit purchases in the month in which transactions are made. This means that VAT hasto be accounted for when due irrespective of whether payment has been made orreceived.

The general time of supply rule is that registered operators will account for VAT at theearlier of: -

The time an invoice is issued, or The time any payment is received by the supplier

Example:

Kumusha (Pvt) ltd purchased a fridge for resale on 20 October 2009 and received a taxinvoice for $3450 (incl. VAT @15%). It paid the supplier $2300 on 31 October 2009and the balance on 30 November 2009.

It then sold the fridge for $ 5750 (incl. VAT @ 15%) on 31 October 2009 and issued atax invoice for the whole amount the same day. It received 70% deposit on the date ofinvoice. The balance was paid on 15 December 2009.

What is the VAT treatment of the transaction?

Solution

Kumusha (Pvt) ltd is entitled to an input tax claim of (15/115 * $3450) $450 and shouldaccount for output tax of (15/115 * $5750) $750 in the tax period ending 31 October2009.


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7.2 Payment/cash basis

The payments basis (or cash basis) uses the same time of supply rule mentioned above,but the registered operator only accounts for VAT on actual payments made and received

in respect of taxable supplies made during the period.

The payments/cash basis is currently available to local authorities, public authorities andassociations not for gain. Note: these will only use this basis upon being authorized bythe Commissioner to do so.

Example:

In the example above if Kumusha (Pvt) Ltd was authorized by the Commissioner to be oncash basis will claim input tax of (15/115 * $2300) $300 and account for output tax of(15/115 * $4025) $525 in the tax period ending 31 October 2009. However this will onlybe applied if Kumusha (Pvt) ltd is authorized by the Commissioner to use the payment

basis.

8 Calculation of VAT payable section 15

The tax payable shall, in terms of section 15(1), be in respect of each tax period duringwhich the registered operator has carried on a trade.

15(2) Documents required for claiming input tax:

Tax invoice, Debit note or credit note,

sufficient records in the case of second hand goods or repossessions, Bill of entry for imported goods.15(3) Calculation of tax payable or refundable: The amount of tax payable by theregistered operator in respect of a tax period shall be calculated by deducting from thetotal amount of output tax any sum of input tax incurred during the tax period. This isoften referred to as the mechanics of VAT. i.e.

Out Put Tax ***LessInput Tax (***)

VAT Payable / Refundable ***

15(3)(f) where a registered operator has previously been denied to claim input tax as aresult of not having a valid tax invoice and the Registered Operator has obtained it duringany tax period, he is entitled to claim input tax during that period in which he hasobtained it.


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15(3)(g) In the case of change of use from wholly or partly taxable to wholly exempt, theoperator is required to account for output tax on the open market value of the goods in thetax period in which the change occurs.

Example: An asset was used 75% for making taxable supplies. It was purchased for $15,

000.00 and input tax was claimed accordingly. The asset was later used 100% for makingnon taxable supplies. Its current open market value was $17,000.00. The operator willthus be required to account for output tax of $1,663.04 ($17, 000 * 75% * 15/115).

15(4) Input tax can be claimed in any later tax period provided that it had not beenclaimed before.

15(6) Where the refund due to the registered operator is less than $60.00, it will becredited to the account.

9 Deductions

9.1 Permissible Deductions section 16

16(1) allows for apportionment of input tax where goods are acquired and used for bothtaxable and non taxable purposes. Input tax is allowed to the extent to which the goods orservices are used for purposes of making taxable supplies.

Provisos: Where the intended use of goods or services in the course of making taxable

supplies is equal to not less than ninety per centum (90%) of the total intended useof such goods or services, the goods or services shall be deemed to have beenacquired wholly for the purpose of making taxable supplies. (Deminimus rule). Thistherefore means that full input tax is allowed.

Where goods or services are successively supplied and the calculation of input taxcannot be made accurately until the completion of the supply of the goods and/orservices, such input tax may be estimated subject to an adjustment on completion ofthe supply.

N/B: The apportionment in this case shall be based on turnover. Any other basis shall besubject to approval by the Commissioner.

9.2 Section 16(2) prohibited deductions

16(2) (a) registered operators are not allowed to claim input tax in respect of goods orservices acquired for the purpose of entertainment. This section shall not apply where:

The goods or services are acquired by such registered operator to the extent thatsuch goods or services are acquired for the purposes of entertainment which iscontinuously or regularly supplied to clients or customers for a consideration tothe extent that such taxable supplies of entertainment are made for a charge which


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covers all the direct and indirect costs of such entertainment or is equal to theopen market value.

Bona fide promotional activities not charged by the registered operator in respectof the supply to recipients who are clients or customers in the ordinary course of

trade of entertainment continuously or regularly supplied to clients or customersfor a consideration.

Food left over which had initially been acquired for making taxable supplies ofentertainment and is subsequently given to any employee of the registeredoperator or to any private voluntary organization.

Entertainment supplied to any employee or office holder of the registered operatoror any connected person, to the extent that such taxable supplies of entertainmentare made for a charge which covers all direct and indirect costs of suchentertainment.

Expenditure in respect of personal subsistence incurred by a registered operator inrespect of any night that such person or member is by reason of the registeredoperator s trade or in the case of such employee or office holder, he is by reasonof the duties of his employment or office, obliged to spend away from his usualplace of residence.

N/B: This shall not however extend to expenditure for amusement or recreation.

Goods or services consist of a meal or refreshments supplied by a registeredoperator to a passenger during a journey, if such meal or refreshment is suppliedas part of or in conjunction with the transport service supplied by the registeredoperator and the supply of such service is a taxable supply.

Goods or services consist of a meal or refreshment supplied by the registeredoperator as organizer of a seminar to participants to that seminar and a chargewhich covers the cost of such meal or refreshments is made by the registeredoperator to the recipient.

Goods or services are acquired by a local authority for the purposes of providingsporting or recreational facilities or public amenities through the payment of asubsidy.

Goods or services are acquired by a private voluntary organization for thepurposes of making supplies in fulfillment of its object.

16(2) (b) Fees or subscriptions paid by the Registered Operator in respect ofmembership of any club, association or society of a sporting or recreational nature.


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16(2) Goods or services acquired by a Superannuation scheme for the purposes ofthe supply by such scheme of any medical or dental services.

16(2) (d) Passenger motor vehicle supplied to or imported by the registered operator.

11 Adjustments section 17

10.1 In terms of section 17(1) an adjustment will arise where goods or services have beensupplied to or acquired, manufactured, imported or produced by a registered operatorfor the purpose of making taxable supplies and such goods are subsequently appliedor used wholly or partly for making non taxable supplies.

Conversion of use: In this case goods would have been bought for the purpose ofmaking a taxable supply and are subsequently used for making non taxable supplies.The conversion of use is deemed to be a supply in the ordinary course of trade andoutput tax should be accounted for, e.g. donation of goods by a registered operator or

in the case of manufacturers such as Delta beverages, the monthly allocations ofbeverages to employees.

Such change of application is deemed to be a supply of goods and therefore a registeredoperator should account for VAT. However where input tax had been previously denied,the goods are not deemed to have been supplied in the course of furtherance of a tradeand as such the operator is not required to account for output tax.

The time of supply is deemed to be the time that the goods are applied for non taxable useor the change of use has been made in terms of section 8(6).

The value of supply shall be deemed to be the consideration in money which is equal tothe open market value of such supply in terms of section 9(7) (see formula in 17(2)below).

10.2 Granting of benefits by an employer who is registered for VAT section 17(3)

Any registered operator who grants a benefit or advantage to an employee or officeholder which is taxable in terms of section 8(1)(f) of the Income Tax Act and such benefitor advantage consists of a supply of goods or services, shall be deemed to have suppliedgoods or services in the course of his trade and should therefore account for output tax.

This subsection shall not apply in respect of any supply of goods or services whichare exempt in terms of section 11.eg housing

Value of supply is deemed to be the consideration in money which is equivalent tothe cash benefit in terms of the Income Tax Act.

Time of supply: Where the benefit is considered on a monthly basis in terms of theincome tax act, then the time of supply is at the end of every month.


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Example of benefits and VAT treatment thereof

Benefit/ Advantage Taxable Not Taxable

Occupation of quarters Use of furniture Use of Motor Vehicle Loan Cell phone Entertainment

The benefits that therefore remain taxable in respect of the above example are themotoring benefit and the cell phone benefit.

10.3 Section 17(2) Reduction in the taxable use of capital goods:

Where the registered operator acquired, manufactured, assembled, constructed orimported capital goods for the making of taxable supplies, and their application fortaxable purposes is reduced in relation to their total application or use, then an adjustmentis required. A deemed supply of the amount of the increased non taxable use arises.

An adjustment is necessary if registered operator at the time of acquisition of suchgoods or services had been entitled to input tax deduction.

No such adjustment is necessary where the cost of such goods excluding VAT is lessthan $60.00

The value of adjustment is determined using the formula, A*(B-C) in terms of section9(8),Where:A: represents the lesser of cost or open market value,

B: represents the percentage taxable usage before reduction,C: represents the current percentage taxable usage of the goods.

Thus (B-C) is the extent of reduction.

Question: Tidy P/L is a registered operator. In January 2009 it purchased a computervalued at $700 including VAT. It calculated that the computer would be used 60%


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taxable supplies and 40% non taxable supplies and claimed input tax. By the end ofDecember revenue in respect of taxable supplies went down by 40% and the computerwas used 80% for non taxable purposes. The open market value of the computer was now$900.

Required: Calculate the adjustment that needs to be done.

Solution: A = 700B = 60%C = 20%

The adjustment to the made will be 700 * (60% 20%) =$280.00

Output tax thereon will be 36.52 ($280 * 15/115)

10.4 Section 17(4) (a) Goods acquired prior to the fixed date:

Where goods or services had been acquired before the fixed date wholly for the purposesof producing non taxable supplies , or goods which had been acquired in the course of anactivity which was not a trade but is now a trade in terms of the VAT Act, and no inputtax deduction in respect of such goods or services would have been denied in terms ofsection 16(2) , the person shall be allowed to make an input tax deduction in terms ofsection 15(3), provided the goods or services are used in the course of making taxablesupplies after the fixed date.

The input tax deduction is determined by applying the formula, A*B*C.Where:A is the tax fraction,B is the lesser of cost including tax and the open market valueC represents the ratio of intended use of goods in the making of taxable supplies

expressed as a percentage of the total supply.

Question: Prior to the fixed date, O and I Construction limited had sand worth $3,000.00. The open market value of the sand was $5, 000.00. It uses $1, 000.00 worth ofsand to build the director's house and the remainder to continue with its projects.

Is there any adjustment that O and I Construction need to make?

Solution: Yes, O and I Construction Limited will claim input tax as follows:

A = 15/115

B = $3, 000.00 (the lesser of cost or open market value

C = (3,000 1,000)/3, 000 * 100% = 66.67%


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Input tax claimable will thus be 15/115 * 3, 000 * 66.67% = $260.87

10.5 Section 17(4) (b) Goods acquired after the fixed date:

Where a registered operator has acquired goods or services and tax has been charged orgoods have been manufactured, assembled, constructed or produced and tax has beenincurred or goods have been deemed by section 7(2) (cessation of trade) to have beensupplied by him and no input tax deduction has been made, the person shall be allowed tomake an input tax deduction in terms of 15(3), provided the goods are used to maketaxable supplies after the fixed date.

The adjustment is made in the tax period during which the goods or services areapplied using the formula A*B*C (see formula above for what A,B and C stand for)

Question: Amazing P/L purchased a wheel balancing machine for $15,000 in April 2009

and no input tax was claimed as the company was not registered for VAT. The companyregistered for VAT in August 2009 and the machine was applied wholly for the purposeof making taxable supplies. The open market value of the machine was now $14,000.

Required; Calculate any adjustment if any.

Solution:

A = 15/115

B = $14, 000 (lesser of cost or open market value)

C = 100%

Input tax claimable will thus be 14, 000 * 15/115 * 100% = $1, 826.09

10.6 Section 17(4) Second hand goods acquired on or after the fixed date:

A registered operator is allowed under this provision to claim input tax on second handgoods. In the case of fixed property, it should be situated in Zimbabwe. The second handgoods should be used wholly or partly for the purpose of making taxable supplies. Thegoods shall be deemed to be supplied in the tax period during which they are used tomake taxable supplies. This adjustment shall be made using the formula A*B*C*D

Where:A: represents the tax fraction.

B: represents the lesser of cost or open market value,C: represent the percentage usage of the goods in the process of making taxable supplies,D: represents the percentage of the payment made to the total consideration in the case of

second hand goods which are fixed property.


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Question; Destiny Investments acquired a commercial building in August 2009 for $200,000 and registered for VAT in September 2009. The building was used 70% for makingtaxable supplies while the balance was used as a college registered with the Ministry ofeducation. It made a down payment in September of $100, 000. The market value of the

property was now $250, 000

Required: Calculate the adjustment if any

Solution:

A = 15/115

B = $200,000

C = 70%

D = 100, 000/ 200, 000 = 50%

Input tax claimable will thus be 15/115 * 200,000 * 70% * 50% = $9, 130.43

10.7 Section 17(5) Increase in the taxable usage of capital goods:

Section 17(5) is the opposite of 17(2).Where a registered operator acquired capital goods in order to make taxable supplies andthe actual taxable use of the goods tends to be greater than the initial expected usage, anadjustment to grant additional input tax must be made in the tax period during which suchincrease is deemed to take place in terms of subsection 6 (i.e. at the end of the financialyear).

The input tax is determined by applying the formula A*B*(C-D)

Where:A: represents the tax fraction,

B: represents the lesser of cost and open market value,C: represents the current taxable usage of the goodsD: represents the taxable percentage prior to increase.

Question: Muto (Pvt) Ltd purchased a computer on 20 May 2009 for use in its business.It operates a life assurance business and owns commercial buildings around town whichit lets out. The computer is used 30% in the letting business and the rest in the lifeassurance business. During the period ended 31 November 2009, its letting business grewresulting in it using the computer 65% for the letting business. The computer waspurchased for $1, 500 and its market value at the time of change of use was $1,100.

Calculate input tax claimable in the November tax period.


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Solution:

A = 15/115

B = $1, 100 (the lesser of cost or open market value)

C = 65%

D = 30%

Input tax claimable will thus be 15/115 * 1, 100 * (0.65 0.30) = $50, 22.

10.8 Section 17(6) Time of supply in respect of adjustments on the taxable use of

capital goods:

The time of supply is deemed to be the last day of the year of assessment and where the

registered operator is not an income tax payer, the last day of December or where suchperson draws financial statements before the last day of December, on the day he drawshis financial statement.

Section 17(7) the twelve month period in respect of reduction or increase in the taxableuse of capital goods shall be determined during the twelve month period ending on theday any reduction or increase in application takes place and where the period is less than12 months, it shall be deemed to be twelve months.

17(8) where a deduction had been claimed for second hand goods and subsequently thesale is cancelled, the sale is altered, the previous consideration has been reduced, thesecond hand goods have been returned to the supplier, the excess amount of input tax as aresult of one of the above happening is deemed to be tax charged and therefore theregistered operator should account for output tax.

11 Acquisition of a going concern wholly or partly for purpose other than making

taxable supplies s18

The sale of a business or part thereof which is capable of separate operation as a goingconcern by any registered operator to another registered operator is zero rated in terms ofsec 10(1)(e).

If any goods or services which have been acquired by such registered operator are usedwholly or partly for a purpose other than making taxable supplies , such goods or servicesshall be deemed to have been supplied by him , therefore the registered operator shouldaccount for output tax.

Where the goods are used for not less than 90% for making taxable supplies, the businessshall be deemed to have been acquired wholly for the purpose of consumption.


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Criteria for identifying a going concern: There must be an agreement in writing and it should be stated that the business is

being sold as a going concern. It must be stated or be apparent from the documentation that the business is going

to operate as an income earning activity at the date of transfer or transaction.

The business or part thereof must be capable of independent, continuousoperations without further action on the part of the purchaser.

N/B: Although not all assets need to be transferred, the essentials must betransferred together with the business.

18(2) where a registered operator acquires a trade as a going concern and thetransaction is zero rated, the registered operator must account for VAT if thegoing concern is going to be used partly for making taxable supplies and partlyfor non taxable supplies. The purchaser must account for VAT on the full cost ofthe purchase price by reducing it with assets which do not qualify for input tax

deduction and then further by the portion which represents taxable supplies andthen apply the rate prevailing.

Where the two parties are connected persons and no charge was made for thesupply or the price charged was below the open market value, the open marketvalue shall be used as the purchase price.

The time of supply in respect of a going concern is deemed to be the tax period inwhich the supply of the going concern is made in terms of section 18(3).

The value of supply shall be deemed to be an amount equal to the aggregate of thefair amount which represents the full cost to the registered operator of that tradeor part of that trade in respect of those goods which are deemed to have beensupplied by him and apply the rate of tax applicable at the time of supply section18(4)

Question:

Desire (Pvt) Ltd acquired a business in the central business district of Harare for $200,000. The two parties agreed that the business would continue to be an income earningactivity. All the assets for the business were transferred to the recipient as well as theemployees of the supplier. The purchase price was allocated as follows:

$150, 000 for stocks of material. $ 10, 000 for the buildings. $20, 000 related to equipment on which no input tax deduction had been allowed. $20, 000 relating to equipment in the canteen. The canteen provides food to

employees.


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Due to the economic hardships envisaged and the desire to register and operate a collegeregistered with the Ministry, the business was used 55% to make taxable supplies onacquisition.

Required:

Outline the VAT provisions governing such a transaction.Calculate the adjustment, if any that may need to be done by Desire (Pvt) Ltd.

Solution:Desire (Pvt) ltd is required in terms of section 18(2) to account for output tax on thesupply. The output tax will be determined by applying tax on the full purchase price,reduced by value of assets that did not qualify for input tax deduction and further by thepercentage of taxable use which will be:

$200, 000 less $20, 000 (equipment that did not qualify for input tax deduction) less$20,000 (canteen equipment) less 55% (taxable use).

= 200,000 (20,000 + 20, 000) (200,000*55%)

= 160, 000 - 110, 000 = $50,000

Output tax will thus be: $50,000 * 15% = 7,500

12 PRE-INCORPORATION EXPENSES Section 19

A company is allowed to claim input tax on goods purchased by another person before itsincorporation. The company is deemed to be the recipient of the goods or services and tohave paid for the supplies. However this may be done if the person:

Was reimbursed by the company for the whole amount paid, and Acquired the goods or services for the purpose of trade to be carried on by the

company.

The company may claim such input tax in the tax period during which the reimbursementis made.

It may not, however, claim the deduction under section 19 of the Act where: - The supply of the goods or services by the person to the company is a taxable supply,

or is a supply of second-hand goods not being a taxable supply The goods or services were acquired more than six months before the date of

incorporation, or The company does not hold sufficient records (in this case no input tax can be

claimed at all under any section of the VAT Act)


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13 Tax Invoice section 20

13.1 Definitions

Invoice: a document notifying an obligation to make payment.

Tax invoice: a document provided as required by the Act to enable the registeredoperator to claim input tax

13.2 Requirements for Tax Invoice

In practice, a registered operator is normally required to issue a tax invoice whichsatisfies the requirements of the Commissioner and the requirements of the contractingparties.

A registered operator is required to issue a tax invoice within 30 days from the date ofsupply, but it may not be necessary to issue a tax invoice where the consideration in

money does not exceed $10. However, in such cases, some type of source document isrequired in order to claim input tax e.g. till slip, petty cash slip. e.t.c.

A tax invoice is a special tax document and certain details about the taxable supply towhich it relates must be stated on the tax invoice. (See below for details).

Requirements: tax invoice {Section 20 (4)}

The words TAX INVOICE in a prominent place Name, address and VAT registration number of the supplier Name, address and VAT registration number of recipient Individual serialised number and date of issue

Description of goods and /or services Quantity or volume of goods or services supplied Price & VAT **** There are 3 methods allowed for reflecting the price & VAT as follows: -

Method 1 Method 2 Method 3

The amount excludingVAT, plus the VATcharged and the amountincluding VAT

Where VAT is included inthe final price, theconsideration, together witha statement that VAT is

included and the rate of tax.

Where VAT is included inthe final price, the amountcharged including VAT andthe amount of VAT charged

13.3 Tax Invoices Prepared by the Recipient

In some instances the Commissioner may allow the recipient of a supply to issue taxinvoices for the supplies received. The invoice issued by the recipient will be deemed tobe a tax invoice for VAT purposes. These invoices are normally issued in situations


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where the contract price can only be determined by the recipient after fulfillment of someconditions, e.g. supplies to GMB where price of the goods supplied can only bedetermined after the goods have been graded.

The Commissioner may allow the issuance of such invoices upon the parties having

fulfilled the following conditions which are set out in section 20(2) of the Act:

Both the recipient and supplier must be registered operators The Commissioner must have granted prior approval for the issue of the tax invoice

by the recipient The supplier and the recipient must agree that the supplier will not also issue a tax

invoice; and The tax invoice must be provided to the supplier and a copy retained by the recipientIn the case of goods being repossessed from a registered operator as contemplated interms of Section 7 (9) and section 20(3), the person repossessing the goods (a registered

operator) is required to create and furnish the defaulting debtor with a tax invoice.

13.4 Special Cases

Although the general rule is that a registered operator must have a tax invoice before he isallowed to claim any input tax in relation to the supply, there are a few exceptions to therule which are:

13.4(i) Second hand goods as defined (section 20(7))

A registered operator that purchases second hand goods from a non-registered operator isrequired to record the following in order for him to support his input tax claim:

Name address and I.D. no. of the supplier (I.D. no. of the representative person if it isa company)

Date of acquisition Quantity or volume of goods Consideration for the supply Recipient must verify the person s I.D. no. or passport number Where the amount of the supply is $10.00 or more, the recipient must obtain and

retain a copy of the person s I.D., and, in the case of a company, a business letterheador similar document is also required which shows the name and registration numberallocated by the relevant authority.

Where the goods concerned have been repossessed from a non-registered operator, theperson (registered operator) exercising his right of repossession is required to keep detailsas mentioned above.


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13.4(ii) Other cases

Where the purchase price is less than $10.00 and the total consideration is in money,no tax invoice is required.

Where the Commissioner is satisfied that there will be sufficient records and that itwill be impractical for a tax invoice to be issued, he may grant permission for taxinvoices not to be issued.

No tax invoice need be issued where a supply is exempted from VAT. Where a tax invoice is issued which includes zero rated, exempt and standard rated

supplies, the document must clearly distinguish between the various supplies. Therelevant values of each supply must be indicated separately.

13.5 Copies of Tax Invoices

A registered operator is not allowed to issue more than one tax invoice for a singlesupply. If the need arises for him to issue another tax invoice for same supply, he is only

allowed to issue a copy invoice clearly marked copy . A facsimile of a tax invoice or acopy sent by e-mail is not acceptable as a basis for claiming input tax..

14. Credit and Debit Notes: Section 21

Credit notes are often issued by a supplier when the consideration for a supply is reduced.

Debit notes are also issued by the supplier when the consideration is subsequentlyincreased.

The issue of a debit note or credit note when a tax invoice has previously been issued isgenerally used to show the increase or decrease in tax (as the case may be) on the supply.This is done whether or not the supplier accounts for tax on an invoice or payments basis.The issue of a credit note is not required when a prompt payment (settlement) discount isthe reason for the reduction in the consideration, provided the terms of that discount areclearly shown on the tax invoice.

14.1 Requirements for Credit and Debit Notes

Credit and debit notes are required to be issued in one or more of the followingcircumstances: -

The cancellation of a supply of goods or services The nature of that supply of goods or services has been fundamentally varied or

altered The previously agreed consideration for the supply of the goods or services has been

altered by agreement with the recipient (including a discount)


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Part of or all the goods or services are returned to the supplier. This does not apply onreturnable containers, unless such containers form part of the goods supplied onwhich a tax invoice was issued by the supplier to the recipient.

and the supplier has:

Issued a tax invoice and the tax charged is incorrect as a result of the abovementioned circumstance(s) or Furnished a VAT return in which he accounted for the incorrect amount of output tax

as a result of the above mentioned circumstance (s)

14.2 Details to be reflected on Debit/Credit Notes

The details are almost exactly the same as the details for a tax invoice, however theamount of the adjustment (consideration and VAT) must also be reflected and it mustrefer to the original tax invoice which is going to be affected by the adjustment i.e.invoice date and number.

14.3 Adjustments in respect of Debit/Credit Notes

The VAT Act makes provision for debit and credit notes to be issued in respect of asingle supply. It must be remembered that the consideration for a supply can only bealtered by means of a debit or credit note. It is not correct practice to merely issueanother tax invoice in the same way that it is an offence to issue more than one taxinvoice for a supply.

The rule for reflecting the VAT in respect of debit and credit notes is as follows:-

Credit notes issued and debit notes received are to be reflected as input tax on theVAT return

Debit notes issued and credit notes received are to be reflected as output tax on theVAT return

Credit notes issued may not be offset against the sales made or debit notes set off againstpurchases. However, when a debit/credit note is issued in the same tax period in whichthe supply has taken place, then the amount of such debit/credit note may be set offagainst the consideration. This concession is to allow for the computerised accountingpackages of certain industries, which would automatically offset the amounts.

15 Irrecoverable debts section 22

Where a registered operator makes a credit supply and the amount becomesirrecoverable, the registered operator can claim input tax on the irrecoverable debtprovided that all of the following conditions are met:

The supply was a taxable supply.


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A return was furnished or submitted and VAT was properly accounted for in respectof such supply.

The debt has been written off from the books of accounts.In the case of an installment credit agreement, the deduction is restricted to the VAT the

cash value that has become irrecoverable.

The tax fraction is applied to the outstanding balance of the cash value after removing thefinance charges and interest.

Where a registered operator transfers an account receivable on a non recourse basis toanother person, no deduction is allowable. The factoring of debt by a registered operatordiscounting his debts on a non recourse basis does not give rise to an input tax deduction.

On the other hand, where account receivables are transferred at face value on a recoursebasis, an input tax deduction may be made but only when the account receivable is

transferred back to the owner.

Where the registered operator has repossessed the goods, or accounts for VAT onpayment basis, no input tax deduction will be allowed.

Section 22(3), If the registered operator subsequently recovers some or the entire amountpreviously written off, output tax should be accounted for.

Section 22(4), Where a registered operator who is on an invoice basis has claimed inputtax but at the expiry of 12 months has not paid the full consideration in respect of thatsupply, output tax should be accounted for, but contracts in respect of payment termsshould be respected.

17 Registration for VAT- Section 23

17.1 Introduction

Any person who on or after the fixed date (effective date of the VAT Act) carries on orintends to carry on any trade (s) and whose taxable value of supplies exceed or is likely toexceed 60,000.00 or the prescribed amount is required to register for VAT in terms ofsection 23 of the Act.

NOTE

It is the person not the trade, who is registered for VAT. A person is only registered

once for all the trades/divisions/branches carried on; unless permission is granted to

register them separately (branch registration repealed w.e.f. 1.1.10).


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16.2 Liability for Registration

A person is liable to register if: - At the end of any month, the total value of supplies of goods or services (turnover)

has exceeded $60,000.00 or the prescribed amount in the preceding period of 12

months, or There are reasonable grounds for believing that the total value of supplies of goodsand services, which will be made in the following 12 months, will exceed theprescribed amount.

Unless it can be shown that the prescribed amount was exceeded as a consequence of: -

The sale of stock or other assets due to any cessation of or substantial and permanentreduction in the size or scale of any trade.

The replacement of plant and machinery or other capital assets used in the trade Abnormal circumstances of a temporary nature16.3 Calculation of the Value of Taxable Supplies

The value of taxable turnover (supplies) is calculated on an on-going basis. Two periodsneed to be considered, the past 12 months and the next 12 months.

The value of Taxable Supplies for Registration Purposes:

Includes Excludes

Goods and services supplied inZimbabwe.

Goods exported to any country. Services rendered outside Zimbabwe

Deemed supplies

The sale of stock or assets in respect ofcessation of or substantial and

permanent reduction in the size or scaleof any trade. The replacement of plant and

machinery or other capital assets usedin the trade.

Exempt supplies. Unconditional gifts received by

associations not for gain and charitableorganisations

VAT16.4 Voluntary RegistrationA person can apply for voluntary registration even if the total value of taxable supplies isless than the prescribed amount per annum. As a general rule of thumb, it will beadvantageous for a person to register if they supply goods or services mainly to otherregistered operators. The person must satisfy the Commissioner that they are carrying ontrade.


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16.5 Registration Procedure

Application for compulsory and voluntary registration must be made on the prescribedregistration form together with any other documents, which the Commissioner mayrequire from time to time (i.e.. company registration particulars, bank details, etc) For

compulsory registration, this must be completed no later than 30 days from the date onwhich the registration threshold has been reached or the date it is established that thethreshold is likely to be reached.

16.6 Refusal to Register a Person Voluntarily

The Commissioner may refuse to register a person for voluntary registration if any of thefollowing criteria is not met: -

The person has no fixed place of abode or business The person does not keep proper accounting records

The person has not opened a banking account The person has previously been registered as a registered operator under VAT or interms of the repealed Act (Sales Tax) and failed to perform his duties under eitherAct.

Such refusal must be communicated to the applicant in writing.

16.7 Separate Registration (repealed with effect from 1 January 2010)

16.8 Cancellation of Registration- Section 24

A registered operator may be deregistered if: -

If the value of his taxable supplies falls below the registration He ceases to carry on any trade and will not carry on any trade within 12 months after

that date Where he has applied for registration in anticipation of commencing a trade and has

not commenced that trade. A registered operator has successfully applied for voluntary registration and it

subsequently appears that he has not complied with the requirements. (See paragraph16.6 above)

Cancellation of registration, with the approval of the Commissioner will take effect fromthe last day of the tax period on which the application is made.

A person who ceases to be registered remains responsible for any duties or obligationsunder the Act while he was registered.

A registered operator s separately registered trades/division/branches may be cancelledif:


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The registered operator being the parent body applies in writing to the Commissioner. When for any reason, the main (parent body) registration is cancelled. It appears to the Commissioner that the duties under the VAT Act have not been

carried out by the separately registered trades/divisions/branches.

The effect of the cancellation is that all duties under the VAT Act revert to the registeredoperator (parent body). A separately registered trade/division/branch may become themain branch if it continues to trade after the main branch has deregistered ( see notesabove)

17 Tax Periods Section 27

17.1 Submission of Returns and Payments

All registered operators are required to submit returns and account for VAT to the

Commissioner at regular intervals. These intervals are called tax periods.

A registered operator`s first tax period will commence on:

The commencement date of VAT, or The date on which he becomes a registered operator, if he was not liable or carrying

on any trade at the commencement date of VAT.

The month in which a registered operator`s tax period ends will be determined by theCommissioner. Tax periods do not all end at the same time for all registered operators.

These are as follows: -

Category A & B =2 months (i.e. every 2 months) Category C=1 month (i.e. monthly) Category D= Any other tax periodThe VAT return form is completed to show the taxable supplies made and received aswell as any tax adjustments for the period. The form (whether there is an amount payableor a refund claimed) is to be completed and returned to the Zimbabwe Revenue Authoritywithin the period allowed.

A special return for sales in execution (in terms of Section 7 (1)) to be made within 10days from date of sale. Such sales to be excluded from ordinary Return.

17.2 Two month Tax Period (Category A or B)

Most registered operators will be allocated a standard tax period of 2 months unlessotherwise requested, but such persons can elect to be on Category C (monthly).


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Registered operators may choose between the 2 categories, but if no choice is made theCommissioner will allocate them either category A or B automatically. The tax periodsend as follows: -

Category A: The last day of: - January, March, May, July, September and November

Category B: The last day of: - February, April, June, August, October and December

17.3 One Month Tax Period (Category C)

Larger enterprises whose taxable supplies exceed $240, 000.00 or the amount prescribedwill be required to submit returns on a monthly basis. N.B with the advent of inflationin the year 2008, all registered operators automatically exceeded the then Category

C threshold and were subsequently placed in category C. This has not changed even

though the majority of them are now trading below the Category C threshold.

Other trades such as those who expect regular refunds of VAT (e.g. exporters and

charitable organisations) may also, on application, be allowed to adopt a one-month taxperiod.

Where a person operates more than one trade or a trade in branches or divisions, it isnecessary that all the taxable supplies be aggregated to ascertain the total turnover. Thisapplies whether or not the separate trades/divisions/branches are registered as separateregistered operators.

The Commissioner may allocate a one-month tax period to a registered operator whorepeatedly defaults in performing his duties as a registered operator.

Any other registered operator may on application in writing also be allocated Category C.The one-month period will be effective from a date determined by the Commissioner.

17.4 Any Other Tax Period (Category D)

Registered operators will qualify for any other tax period if: -

The registered operator s trade consists solely of farming activities; or The registered operator whose separately registered trade, branch or division consists

sorely of farming activities, provided any other trades, branches or division carried onby that registered operator do not consist of farming activities; and

The total turnover from all farming activities must not exceed $120, 000.00 or theprescribed amount.

This tax period is not available to any registered operator who has been allocated aCategory C tax period

*Note


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Pay attention to the bolded words and andor and the interpretation thereof.

See Chapter 2 of this document for more details

17.5 Change of Tax Periods

The Commissioner may, on application by the registered operator, approve a change oftax period from either one of the two-month tax period to the other (that is from CategoryA to B, or vice versa) or from Category D to Category A, B, or C. The first return afterthe change should not include any period for which a return has previously been made.The effect of this is that an irregular period for the return is made for the change overperiod.

NOTE:

Under certain circumstances registered operator does not cease to qualify for tax

period merely because the value of taxable supplies has temporarily increased beyond a

threshold point. Refer to paragraph 16.2 under Registration for more details.

17.6 Submission of Returns

With effect from 1 February 2009, all registered operators were required to pay VAT for

a tax period twice a month. The first payment (mid-term tax) was paid on the 15

th

of themonth and the final was payable on the 5th of the month following the end of the taxperiod. The payment for the 5th of the month following the end of the tax period was to beaccompanied by a VAT return (VAT 7). The mid-term tax was however scrapped witheffect from 1 September 2009. This meant that VAT was due for payment by the 5th ofthe month following the end of the tax period.

Administration sections

18 Assessments Sec 31

Registered operators are required to calculate and pay VAT on a self-assessment basis.However, in certain circumstances it will be necessary to raise an assessment, forexample when: -

Any person fails to submit any return The Commissioner is not satisfied with any return or declaration furnished


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The Commissioner believes that a person has become liable for the payment of taxand has not paid such amount

A non registered person charges VAT on supplies and has not paid the tax over to theCommissioner (issue a temporary number)

A registered operator charges VAT on a supply, where the supply is zero rated orexempt and has not paid the tax to the Commissioner.

The assessment must be a written notice and must state the following: -

Amount upon which tax is payable Amount of tax payable Amount of additional tax payable The tax period to which the assessment relates Date by which the tax must be paid

21 Objections and Appeals Section 32, 33, 34

21.1 When Can Objections be Made

Zimtax Vat Module 2010

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