UNISA TAXATION STUDY SCHOOL 4

– 10/07/2016

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 Part 1 - Menu
1. Introduction
2. Key Definitions
3. General operational aspects – sec 6
4. Deemed supplies – sect 7
5. Time of supply – sect 8
6. Value of supply – sect 9
7. Zero rated supplies – sect 10
8. Exempt supplies – sect 11
9. Importation of goods – sect 12
10. Imported services – sect 13
11. Input tax – sect 16
12. Tax periods
13. VAT Registration requirements – sec 23 & 24

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 Introduction
 Value Added Tax is an indirect tax on consumption and is charged
on value added on a product at each stage of production and
distribution.
 VAT is borne by the final consumer and therefore can be referred
to as a consumption tax as the amount of tax one pays is directly
related to the purchases made.
 Generally there are two broad classes of transactions being:
 Income
 Expenses.
 For transactions which generate income to the taxpayer think of
Output VAT.
 For transactions which generate expenses to the taxpayer think of
Input VAT.

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 VAT Mind map
Whenever you are tackling a VAT question you need to ask yourself the
following questions:
1. Have you identified and understood the details of the transaction;
2. Has the transaction been effected as part of the taxpayer’s trading
activities?;
3. Is the taxpayer a registered operator?;
4. Has the transaction resulted in income or an expense for the taxpayer?;
a) Income : Output VAT
b) Expenditure: Input VAT
5. Determine whether the transaction is either Zero rated, standard rated
or Exempt;
6. Determine the time of supply based on the information provided;
7. Determine the value of supply based on the information provided; and
8. Where applicable calculate the Output VAT or Input VAT arising from the
transaction.

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 Key definitions – sect 2
i. Trade;
ii. Consideration;
iii. Entertainment;
iv. Open Market Value;
v. Financial services;
vi. Installment credit agreement;
vii. Rental Agreement;
viii. Educational services;
ix. Imported services;
x. Connected persons; and
xi. Fixed property;
Please make sure you study and understand the meaning of these
terms as defined in section 2 of the VAT Act.

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 General Operational Aspects of VAT –
Sect 6
 VAT is levied on:
a. the supply of goods and services.
b. Imported goods
c. Supply of imported services
NB!!! VAT is not levied on the sale of second hand motor vehicles buy a registered operator
operating in Zimbabwe.
 The VAT charged (on income items) is called output tax and the VAT paid (on
expense items) is called input tax.
 VAT is levied mainly by registered operators and any other person who is required
to do so in terms of the Act.
 VAT payable to the Zimbabwe Revenue Authority is established by finding the
difference between Output tax and Input tax. This principle is often referred to as
the “VAT formula”
Generally goods or services made by registered operators are treated in one of the
following two ways.
1. Taxable supplies : Standard rated and zero rated supplies
2. Non Taxable supplies : Exempt supplies

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 Zero rated supplies (sect 10)
These are taxable supplies (transactions) that attract VAT at a rate of 0%
and examples are:
1. Exports
2. Goods supplied to repair goods temporarily imported into
Zimbabwe.
3. Goods supplied under instalment credit agreement and
are utilised in an export country.
4. Goods supplied under a rental agreement if paid from an
export country
5. Supply of business as a going concern
6. Drugs prescribed in the Medicines and Allied Substances
Control Act
7. Transportation of goods or passengers to and from an
export country (international carriage)
8. Transportation of goods and passengers transiting Zim
9. Domestic electricity

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 Exempt supplies (sect 11)
These are supplies that are not subject to VAT. Suppliers of
exclusively exempt supplies are not required to register for VAT.
Examples are:
1. Financial services
2. Educational services
3. Supplies by an association not for gain of goods where such
goods were manufactured using at least 80% of donated
goods.
4. Transport Services for fare paying passengers
5. Medical Services
6. Supply of goods and services by an employee organisation to
its members to the extend that consideration of supply is
limited to membership contributions
7. Supply of residential accommodation in a dwelling under a
lease or hire agreement.
8. Supply of piped water, rates charged by local authorities and
9. Supply of fuel and fuel products

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 Standard Rated supplies
These are supplies which are neither exempt nor
zero rated and they attract VAT at a standard
rate of 15%.

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 Time of Supply – Sect 8
 Time of supply rules determines when a registered operator is
required to account for Out VAT for the purposes of lodging returns
with ZIMRA.
 Time of Supply General Rule: The earlier of an invoice being issued
or any payment being made. This means that if a registered tax
payer receives a prepayment from a customer on a taxable supply
they will be required to account for output tax at the point of
receiving the cash and not wait until they actually provide the
goods or services to the customer.
 Exceptions to this general rule:
1. Cessation of trade
2. Repossessions
3. Instalment credit agreements

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 Value of Supply – Sec 9
Where consideration is in money, the value is the consideration less VAT
Where consideration is not in money, the open market value of the goods supplies
becomes the value of supply
 Special value of supply considerations:
 Sales to connected persons: OMV where purchaser cannot claim input tax and amount
paid where input tax is claimable. ( Think of transaction between companies in the same
group or under common control).
 Fringe benefits: The value of supply is the cash equivalent of the benefit for PAYE
purposes.
 Goods applied to own use: the value of the supply is the open market value of the
goods. ( How do you account for goods acquired by a company with the intention to use
the items as part of trading stock and these are later on used in-house by the company?)

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 Deemed supplies (section 7)
These are supplies(transactions) that by their nature do not seem to be supplies
but are deemed by the VAT Act to be supplies made in the furtherance of a trade.
If a transaction has been deemed to a supply in terms of section 7, a registered
operator is required to account for the appropriate Output VAT. Examples of
deemed supplies are as follows:
1. Cessation of trade by a registered operator;
2. Reduction in taxable usage of capital goods.
3. Sales in execution of a debt.
4. Application of goods to own use
5. Granting of fringe benefits to employees
6. Repossessions in terms of an instalment sale agreement
7. Granting of fringe benefits to employees
8. Placing of bets
9. Indemnity payment from insurance contract

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 Sect 12 – Importation of goods
When taxable goods are imported into Zimbabwe they are
subject to an import VAT, which is levied and collected at the
port of entry.
The import VAT is calculated on Value for tax purposes
arrived at as follows:
 Value for Duty Purpose: Cost plus insurance and freight
(CIF)
 Add Duty
 = Value for Tax Purposes
NB:If the import VAT is paid by a registered operator, they
will be able to claim it as input VAT subject to the conditions
in sect 16.

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 Section 13 – Importation of services
VAT is charged on imported services where such
service is imported for making non taxable
supplies.
E.g. suppliers of exempt supplies importing
services for their purposes.
The value of supply is the greater of omv or
invoice value of the service
Vat is payable by the recipient of the services.

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 Input Tax – Sect 16
Sec 16 (1): Input tax is generally claimed on all goods/services acquired (expenses) by
a registered operator provided they are utilised in the production of taxable supplies
(i.e. zero rated and standard rated supplies).
Where it is incurred for mixed supplies, apportionment will be done
 Basis of apportionment e.g. turnover basis
 De minimus rule applies if use is 90% and above.
Sect 16 (2): Prohibited deductions
 Entertainment: the provision of any food, beverage, entertainment, amusement,
recreation or hospitality. Generally input tax may not be claimed in respect of
goods or services acquired for the purposes of entertainment, e.g. Provision of
lunches to employees. Can we claim input tax on the following:
 Lunches for CAA delegates attending a training course.
 Lunches provided to employees in a staff canteen
 Acquisition of a fridge to be used in general managers office.
 Purchase of passenger motor vehicles
 Subscription fees to clubs or associations of a recreational nature

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 Requirements for claiming Input Tax
• The purchases should have been made from VAT
registered operators.
• The input tax claim should be supported by a
Valid Tax Invoice – (see next slide)
• Input tax only claimable to the extend the
purchase is used in the making of taxable supplies
(i.e zero rated and standard rated supplies).
• Input tax can not be claimed if the supply is going
to be used to make exempt supplies.
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 Requirements for a tax invoice
 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 **
 NB!!!
 A registered operator is not allowed to issue more than one tax
invoice for a single supply.
 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”.

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 Recording in the general ledger
During October 2014 CAA purchased spare parts worth $23,000 (Inc. VAT).
$ $
Scenario 1 : Able to claim input tax
Dr Stock/ R&M ($23,000 * 100/115) 20,000
Dr VAT Control 3,000
Cr Supplier 23,000

Scenario 2 : Unable to claim input Tax

Dr Stock/ Repairs and maintenance 23,000
Cr Supplier 23,000

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 Tax Periods
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:
1. The commencement date of VAT (1 January 2004), or
2. 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 the Commissioner.
Tax periods do not all end at the same time for all registered operators
and they are as follows:

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 Tax periods (cont.)
Two – month Tax Period (Category A or B)
Most registered operators will be allocated a “standard tax period” of 2 months unless otherwise requested,
but such persons can elect to be on Category C (monthly).
Registered operators may choose between the 2 categories, but if no choice is made the Commissioner will
allocate them either category A or B automatically. The tax periods end as follows: -
1. Category A: The last day of: - January, March, May, July, September and November
2. Category B: The last day of: - February, April, June, August, October and December
One – Month Tax Period (Category C)
Larger enterprises whose taxable supplies exceed $240, 000.00 or the amount prescribed will be to submit
returns on a monthly basis.
Any Other Tax Period (Category D)
Registered operators will qualify for any other tax period if: -
a) The registered operator’s trade consists solely of farming activities; or
b) The registered operator whose separately registered trade, branch or division consists sorely of farming
activities, provided any other trades, branches or division carried on by that registered operator do not
consist of farming activities; and
c) The total turnover from all farming activities must not exceed $120, 000.00 or the prescribed amount

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 Filing of returns
• The VAT return and any tax due should be submitted and paid before the
25th of the month following the end of tax period.
• Example: The return for the tax period of March to April (Category B) will
be due on before the 25th of April.
• Penalty and interest for failure to pay tax when due:
– If the tax is not paid within the prescribed period, an amount equal to the
unpaid tax is charged as penalty for that month in which it was required to be
paid (i.e. 100%). The penalty is a once off amount and is not recurring.
– For any month(s) while it remains unpaid an additional percentage interest at
the prescribed rate (LIBOR plus 5% with effect from 1.09.09) per month or
part thereof will become payable.
• A fine of $30 per day is also payable for each day that the VAT return
remains not submitted.
• If the return remains outstanding for a max of 180 Days the officers of the
company will be held personally liable and can face criminal prosecution.

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 VAT Formula
When a registered operator is submitting their
tax return to ZIMRA the amount payable or
refundable is calculated as follows:
$
Output VAT XXX
Less Input VAT (XXX)
VAT payable/refundable XXX

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 Statutory duties of registered
operators
1. Complete and submit the VAT return as well as the
remittance by the 25th day of the month following the
end of a tax period.
2. Issue tax invoices for taxable supplies.
3. Keep accounting records for a minimum period of six
years after the relevant tax period.
4. Advise ZIMRA of any changes in business related issues
such as change of address, cessation of trade, etc.
5. Allow ZIMRA officials access to business records and entry
to business premises on request.
6. Account for VAT on closing stock on cessation of trade.

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 VAT Registration requirements
Registration for VAT – Section 23
 Any person who on or after the “fixed date” (effective date of the VAT Act) carries
on or intends to carry on any trade (s) and whose taxable value of supplies exceed
or is likely to exceed $60,000 or the prescribed amount is required to register for
VAT in terms of section 23 of the Act.
Liability for Registration
A person is liable to register if: -
a) At the end of any month, the total value of supplies of goods or services (turnover) has
exceeded $60,000 or the prescribed amount in the preceding period of 12 months, or
b) There are reasonable grounds for believing that the total value of supplies of goods and
services, which will be made in the following 12 months, will exceed the prescribed
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 permanent
reduction 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 nature

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 VAT Registration requirements
Voluntary Registration
 A person can apply for voluntary registration even if the total value of taxable supplies is less
than the prescribed amount per annum.
 As a general rule of thumb, it will be advantageous for a person to register if they supply
goods or services mainly to other registered operators.
 The person must satisfy the Commissioner that they are carrying on trade.
 Advantages of voluntary registration
 The VAT registration certificate is a prerequisite by most suppliers for consideration to participate in
tenders.
 Being VAT compliant is also a consideration by ZIMRA for the issuance of a tax clearance certificate
which saves on potential withholding tax of 10% from invoices issued to customers.
 Avoidance of potential penalties and interest from late VAT registration.
 Input tax claim from purchases obtained from VAT registered suppliers
Registration Procedure
 Application for compulsory and voluntary registration must be made on the prescribed
registration form together with any other documents, which the Commissioner may require
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 on
which the registration threshold has been reached or the date it is established that the
threshold is likely to be reached.

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 Circumstances under which voluntary
registration may be denied
The commissioner may deny registration under the following circumstances:
• has no fixed place of abode or business; or

• does not keep proper accounting records relating to any trade carried on
by him; or

• has not opened a banking account with any bank, building society or other
similar institution for the purposes of any trade carried on by him; or

• has previously been registered as a registered operator in respect of any

trade, whether in terms of this Act or in terms of the repealed Act, but
failed to perform his duties under either of the said Acts in relation to such
trade;

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 Deregistration – Sect 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.
 Cancellation of registration, with the approval of the Commissioner
will take effect from the 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 obligations under the Act while he was registered.

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 VAT Tax Planning opportunities
• Purchases supplies from registered operators,
this allows the company to claim Input Tax.
• Claim input tax before the expiry of 12 months
from the issuance of an invoice from supplier.
• Ensure that you always receive a Tax Invoice
for all taxable purchases.
• Avoid pre-invoicing of customers i.e invoice
customer when you have supplied the service.

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 Part 2 (Adjustments) - Menu
1. Decrease in use of goods acquired to make taxable
supplies – sect 17(1).
2. Reduction in use of capital goods – sect 17(2).
3. Fringe benefits – sect 17(3).
4. Goods acquired prior to fixed date – sect 17(4) (a).
5. Goods acquired after the fixed date – sect 17(4) (b).
6. Fixed Property Transactions -
7. Increase in taxable use of capital goods – sect 17(5).
8. Sale of a business as a going concern – sect 10(e) and Sect
18.
9. Pre-incorporation expenses – sect 19.
10. Irrecoverable debts – sect 22

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 Decrease in use of goods acquired to
make taxable supplies – sect 17(1).
Where goods were acquired to make taxable supplies and are
subsequently utilised to make exempt supplies an adjustment for
output tax is done.
1. The value of supply is deemed to be the Open Market Value;
2. The time of supply will be the tax period in which the reduction of
usage is effected.

In the case of reduction in taxable use the formula A * (B-C) is used.

Where A is the OMV, B is the initial %age use and C is the reduced
%age use.
NB!! Where input tax was previously denied, the goods are not deemed
to have been supplied in the furtherance of trade, hence no output tax
adjustment is required.

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 Reduction in use of capital goods –
sect 17(2)
1. Where there is a reduction of %age use of
capital goods and adjustment is necessary
where the operator was initially allowed to
claim input tax.
2. Adjustment not necessary where cost of goods
is less than $60
3. Formula: A *(B-C) is applied.
A is the lesser of cost or OMV, B is initial taxable use and
C is the current taxable use
4. Time of supply : Shall be deemed to be 31
December of that particular year of assessment.
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 Fringe benefits – sect 17(3).
An employer who provides fringe benefits to employees is deemed to have
supplied goods or services on which output tax should be accounted for.
 Value of supply will be the value determined for PAYE purposes ito section
8(1)(f) of the Income Tax Act.
This subsection shall not apply to any such benefit if it is;-
a) The supply of goods or services which are exempt in terms of section 11,
e.g. residential accommodation [section 11(1) (c)], or
b) The supply of such goods or services attract a rate of zero percent in
terms of section 10, e.g. supply of bread or sugar to employees [section
10(1)(g)], or
c) The supply of entertainment e.g. free meals
d) The benefit is granted by registered operators who are in the business of
making exempt supplies. e.g. furniture supplied to an employee by an
educational institution, which is not registered for VAT.

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 Fringe benefits – sect 17(3).
Discuss the implications of the following fringe
benefits:
1. Use of motor vehicle;
2. Sale of motor vehicle at below market value;
3. Housing benefit;
4. Cellphone allowance;

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 Goods acquired prior to fixed date –
sect 17(4) (a).
Input tax adjustment will be made if goods are eventually
utilised to make taxable supplies.
Formula: A * B * C is applied
 A represents a tax fraction, B lesser of cost or omv and C
%age or ratio of intended use to total supply;
 Where C is equal to or more than 90%, such % shall be
deemed to be 100%.
This section is not applicable if input tax would have been
denied in terms of section 16 of the VAT Act, e.g. a registered
operator takes a stove from his house for use in the
business’s staff canteen. Although the stove is now used in
the business, it relates to the supply of entertainment.

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S17(4)(b) Adjustment: Goods acquired
after fixed date.
This section applies to new VAT registrants or those registered operators
who would have been deemed by section 7(2) (cessation of trade)to have
made a supply and input tax has previously been denied or not claimed.
i. Where goods or services have been acquired by a person on or after
the fixed date and tax has been charged in respect of the supply; or
ii. Goods have been produced by a person on or after
the fixed date and tax has been charged in respect of
the supply of goods or services acquired by him for
the purpose of production; or
iii. When such goods or services are subsequent to the
fixed date applied in any tax period by that person
wholly or partly for use in the course of making
taxable supplies.
 Such goods or services shall be deemed to be supplied
in that tax period to that person and an input tax credit
shall be deducted in terms of S15(3)

Elliot T Wonenyika - Chartered Accountants

Academy
S17(4)(b) Adjustment: Goods acquired
after fixed date
The input tax deduction in terms of S15(3) shall be determined in
accordance with the following formula:
 A*B*C , where –
 A = the tax fraction
 B= represents the lesser of Cost (including tax) and the OMV
 C= represents the ratio of intended taxable usage to total intended
use of goods immediately after the supply.
Where ratio is equal to or more than 90%, such % shall be deemed to
be 100%.

NB!!! The above section (S17(4)(b), shall not apply where a R/O has
been previously denied input tax deduction due to him not producing
sufficient proof to support the claim but has now produced such proof
(section 15(2)).

Elliot T Wonenyika - Chartered Accountants

Academy
 Fixed Property Transactions
1. If the seller is a registered operator, VAT is chargeable on the
supply of both residential and commercial properties.
2. If seller is a registered operator who sales a commercial property
used for making both exempt and taxable supplies and was allowed
part of the input tax:
a) Will account for output tax on the sale;
b) Will be allowed an adjustment of input tax previously not
claimed.
3. If the sale is by way of instalments, output tax will be accounted for
as and when payment is received.
4. If the transaction is between registered operators and the sale
qualifies as a sale of a going concern, the sale may be zero-rated
5. If the seller is a non registered operator, no VAT is chargeable on
the transaction.

Elliot T Wonenyika - Chartered Accountants

Academy
Fixed Property Transactions (cont.)
If the purchaser is a registered operator and
acquires a fixed property from a non registered
operator, notional input tax may be claimed but
only where stamp/transfer duty was paid or is
payable.
 Notional input tax will be restricted to
transfer/stamp duty.
 Only claimable where the transfer/stamp duty
has been paid.

Elliot T Wonenyika - Chartered Accountants

Academy
Increase in taxable use of capital goods
(section 17(5)
An adjustment to claim input tax is permissible where
there is an increase in taxable use of capital goods.
 The adjustment is done as of the last day of December
– 17(6).
 The formula A * B* (C-D) is applied
 A represents tax fraction, B the lesser of cost or omv, C
the current %age use and D the %age use prior to the
increase
Note: A change in use resulting in the decrease in the
extent of taxable use results in an output tax deduction

Elliot T Wonenyika - Chartered Accountants

Academy
 Sale of a business as a going concern
In terms of sect 10(1)(e), if a tax payer decides to sell a cash generating
they will be allowed to charge VAT on the transaction at 0%.
Conditions for zero rating:
1. Parties to agree in writing that the sale is of a going concern;
2. All assets necessary for the carrying on of trade have been sold to
the buyer;
3. Parties to agree that the sale price includes VAT at 0%; and
4. Both parties are registered operators
Where the intended use of such trade, part, goods, services upon
acquisition is equal to 90% and above, of the total intended use, the
trade etc., is regarded as having been acquired wholly for taxable
purposes.

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Change in use of a business acquired as a going concern
zero rated in terms of sect 10(1)(e) - Sect 18

 Where after the sale has been zero rated, the

purchaser changes the use of the business, from
taxable to exempt, an output tax adjustment should be
made.
 Output tax to the extend of non-taxable use is payable
by the purchaser. The adjustment is calculated as
follows:
a) Value of supply: total cost originally incurred by the
purchaser.
b) Time of supply: the tax period in which there is that
change in use of the goods
c) Tax rate: the rate applicable at the time of supply

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 Pre-incorporation expenses – Sect 19
Input tax claimed on purchases made by another person
before the company’s incorporation.
Can only be done if:
a) Company has reimbursed the whole amount paid and
b) The goods/services were acquired for the purpose of
trade by the company to be incorporated.
Input tax not claimable where:
i. Supply is not a taxable supply or
ii. Goods/services were acquired more than 6 months
before date of commencement of trade or
iii. The company does not hold sufficient records.

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 Irrecoverable Debts (section 22)
A registered operator is allowed to claim input tax
on irrecoverable debts subject to the following
conditions:
a) The supply was a taxable supply and
b) A return has been furnished with the
Commissioner and VAT was accounted for on
the debt and
c) The debt belongs to the operator and has been
written off in his books
Only the VAT on the cash value of an instalment
credit agreement sale is claimable
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 Irrecoverable Debts (section 22) –
cont.
 Input tax deduction is not allowed where the debt has
been transferred to someone on a non recourse basis
 Input tax is allowed where the debt transferred to
someone on a recourse basis has been returned to the
operator and has been written off
 If the debt is subsequently recovered, an output tax
adjustment should be made
 A registered operator who claims input tax on a credit
supply should made an output tax adjustment if the
debt has not been paid after 12 months.

Elliot T Wonenyika - Chartered Accountants

Academy
 Class Example

5/7/2016 ELLIOT T WONENYIKA CA(Z) 47

 Questions

5/7/2016 ELLIOT T WONENYIKA CA(Z) 48