ZIMRA, our beloved tax collector loves to shine the spotlight on Value Added Tax or VAT. Relax it is not one of those phenomena that are peculiar to Zimbabwe. It is an established practice around the world that also goes by the name Sales Tax or Goods and Services tax. In Zimbabwe, it is one of the biggest contributors to government revenue amongst the taxes and that’s why ZIMRA loves to talk about it. Here’s what you should know about VAT as a business operator.
A value-added tax (VAT) is a consumption tax placed on a taxable product whenever value is added at each stage of the supply chain, from production to the point of sale. This means that each time a product is handled in the value chain VAT is applied. As the definition suggests VAT does not cover all products. For example basic food, public transport, education, residential accommodation, donations and financial services. The VAT rate in Zimbabwe is 14.5% of the taxable supply.
Operators are required to register for VAT if their income is over or is expected to exceed ZW$1 000 000 within a 12 month period. Therefore if am operator consistently earns ZW$84 000 per month or month they are required to register. There is a provision for voluntary registration for VAT even if the income is not expected to exceed the 1 million dollar threshold. Operators who supply VAT exempt items are not required to register for VAT.
Input and Output VAT
The calculation of VAT liability is simple calculation that is settled at net value. When an operator pays for taxable supplies that include VAT this is called input VAT, as the name suggests this is VAT incurred in the process of procuring inputs. When the operator makes taxable supplies they are required to charge VAT, this is output VAT. When calculating the liability to ZIMRA the operator subtracts input VAT from output VAT to work out their liability.
A quick example;
An operator buys taxable supplies for $100 excluding VAT and goes on to sell them for $170 excluding VAT.
Input VAT = 100*14.5%
Output VAT = 170*14.5%
VAT liability = Output VAT – Input VAT
VAT filing schedules are split into 4 categories; A, B, C and D. Category A and B operators submit VAT returns and payments bi-monthly on alternating months. Category C submit returns and payments monthly while category D businesses submit and pay in intervals as determined by the commissioner such as farmers who submit and pay semi-annually (every 6 months). Payments are to be made on the 25th following the month end of the submission period. So if you pay monthly your March VAT submissions and payments are expected to be settled by the 25th of April.
Some things to note
While operators generally shy away from VAT registration there are instances where voluntary registration is not only merited but advantageous.
There are cases where purchasers of taxable supplies (as appointed by ZIMRA) are required by ZIMRA to withhold a portion of the amount they should pay to the supplier for VAT purposes if the supplier is VAT registered, should be VAT registered according to assumptions or fails to supply a VAT number. This has been the experience of many farmers who find buyers withholding amounts from invoices for VAT. This money is not kept by the buyer but instead remitted to ZIMRA and the supplier is issued with a withholding VAT certificate. As things stand ZIMRA requires agents to withhold 1/3 of the VAT due.
A quick example
A supplier supplies an appointed ZIMRA agent with taxable supplies worth $100
First, we calculate what portion of the supply is implied VAT
Implied VAT = 100/114.5*14.5
Note that the calculation assumes the$100 includes VAT.
Withholding VAT = 1/3*12.66
The agent will pay the supplier 95.78 (100-4.22) and remit the 4.22 to ZIMRA.
Hopefully the examples given illustrate the merits of registering for VAT, even voluntarily while making it clear that VAT registration is not only about getting more money from operators. VAT registration also allows operators to claim input VAT against output VAT, something unregistered operators cannot do. You can find out more about ZIMRA provisions for VAT here as well as contact ZIMRA for clarification.