TAX LAW & PRACTICE(CUAC

212)

PROG: BSCAC
LEVEL: 2.2
YEAR : 2020
CHAPTER 13: VALUE ADDED TAX
Munenzva (Pvt) Ltd is registered for VAT purposes under category A. In February 2018, the company bought a
2,500cc, Isuzu Twin-Cab vehicle for its marketing manager, who commenced to use it on 1 March 2018. The
vehicle costed US$276,000. During the month of March, the company incurred US$13,800 in running costs related
to the vehicle.

The company’s records for the two months ended 31 March 2018 reflected that the company had made gross
cash sales of US$460,000. The company also made credit sales amounting to US$56,000 to non-registered
operators. The company had also incurred the following costs:

Note US$
Diesel and petrol costs 2,070
Purchase of raw materials 115,000
Repairs to manufacturing machinery 11,500
Stationery purchases 23,000
Purchase of protective clothing for workers 34,500
Legal fees 2 2,500
Municipal rates 200
Salaries and Wages 20,000
Subscriptions 3 2,100
Cellphones 6 3,500
Motor Vehicles 5 45,000
Entertainment 4 1,500
NB: All amounts are inclusive of VAT where applicable.

Additional Information/Notes
1.The company issued debit notes valued at US$2,000 to a non-registered operator.
2.Legal fees were in respect of an amount deposited with the company’s lawyers for future services if need
arises. The company does not hold a tax invoice for the payment.
3.Subscriptions were as follows:

US$
Medical aid 1,000
ACCA subscriptions for Finance Manager 500
Mashonaland country club 600

4. Entertainment is made up of the following items;

 Meals bought from chicken inn for company employees who exceeded the company’s monthly
target for US$750.
 The other US$750 is in respect of expenditure incurred by the company’s sales representative in
hotel bills and food in Bulawayo on company’s business.
5. The company purchased a Ford Ranger double cab and Toyota Hilux single cab for business use for US$25,000
and US$20,000 respectively.
6.The five cell phones worth US$3,500 were bought for the company’s employees for use by sales representatives
during business trips.
7. 10 employees had use of company vehicles for both business and private use. The engine capacity for all the
vehicles ranged between 2,500cc and 2,900cc.

Required:
(a) State the due date for the submission of VAT return and payment of VAT for Munenzva (Pvt) Ltd for the
period ending 31 March 2018. (1 mark)
(b) Giving examples, distinguish between zero-rated supplies and exempt supplies.
(3 marks)
(c) Compute the VAT payable together with the company’s VAT return for the period ended 31 March 2018.
(16 marks)
CHAPTER 13: VALUE ADDED TAX (VAT)
Introduction

Engine capacity Benefit

(US$)
Up to 1 500cc 3 600

1 501 to 2 000cc 4 800

2 001 to 3 000 cc 7 200

3 001 and above 9 600

 CHAPTER 13: VALUE ADDED TAX (VAT)
Introduction
VAT is;
An indirect tax
Charged on the supply of goods and services in the course
of trade.
Also on some imports.
Levied on each stage of the value chain.
Levied under the Value Added Tax Act [Chapter 23:12].
 TRADE(Section 2)
Only persons carrying on trade are required to
register for VAT
 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.
 TRADE(Section 2)
Trade includes:
Business transactions to start or close down business.
Ordinary businesses such as: manufacturers, traders,
auctioneers, lessors, construction, etc.
Trades and professions – builders, electricians,
plumbers, doctors, lawyers, accountants, etc.
Non-profit organizations- sporting/ social clubs,
charitable organizations.
 TRADE(Section 2)
Trade also includes services by:
Public authorities – government departments, provincial
authorities.
Local authorities.
Charitable organizations.
 TRADE(Section 2)
Trade excludes:
Employment
Hobbies
Private occasional transactions, e.g. occasional sale of
domestic/household goods, or private motor vehicle.
Exempt supplies.
Supply to an independent branch outside Zimbabwe.
 MECHANICS OF VAT
VAT Formula (section 15)
$
Output Tax X
Less Input Tax (X)

= VAT Due/Refundable X
 MECHANICS OF VAT
Example Of VAT Formula
Output tax on sales
($60000 x 15%) = $ 9000
Less
Input Tax On Purchases
($50000 x 15%) = $ 7500
VAT Payable = $ 1500
 REGISTRATION(s23)
WHO MAY REGISTER?
 Every person trading.

Person includes:-
 Company,
 Deceased or Insolvent Estate,
 Partnership or Joint Venture,
 Body of persons, Trusts, Individuals, Welfare
Organisations, Local and Public Authorities.
 REGISTRATION(s23)
COMPULSORY
The prescribed annual turnover is reached (currently
$60,000), from normal trade activities.
The trader expects to reach the prescribed annual

turnover within the next 12 months.

A person is only registered once for all the
trades/divisions/branches carried on.
Must be completed within 30 days from the relevant date.

VOLUNTARY

Persons operating below threshold may apply.
It has several advantages.
 REGISTRATION(s23)
CONDITIONS FOR VOLUNTARY REGISTRATION

Fixed place of abode or business.

Proper accounting records.

Bank account.

Good track record under Sales Tax.

 DEREGISTRATION(s24)
WHEN ?

 Annual turnover falls below registration thresholds.

 On cessation of trade.

Voluntarily registered trader fails to meet registration

conditions.
 EXCLUSIONS FROM REGISTRATION(s23)
Private or recreational pursuit or hobby.
 Service by employee to employer.

 Providers of wholly exempt supplies.

 DUTIES OF A REGISTERED OPERATOR(s25)
Provide correct and accurate information.

Submit returns and payments on time.

Include VAT in advertisements and quotations.

Produce relevant documents when required by the

Commissioner.
Keep accurate accounting records for at least 6 years.
 DUTIES OF A REGISTERED OPERATOR(s25)
Issue tax invoices, debit and credit notes.

Notify the Commissioner of any changes in the

representative person.
Notify commissioner of any changes in business e.g address,

trading name, partners and bank details.

 TAX PERIODS(s27)
 Are regular intervals in which registered operators(R/O)
are required to submit returns and account for VAT.
 There are four categories of tax periods:

Category A
R/O whose tax period is two months ending Jan, Mar, May,
July, Sept & Nov.
Category B
R/O whose tax period is two months ending Feb, April,
Jun, Aug, Oct & Dec.
 TAX PERIODS(s27)
Category C
R/O whose tax period is one calendar month.
Registered operators’ annual sales amounting to at least
$240,000.00
Category D
Any other period as the Commissioner may approve after
written application.
Examples:
Farming, agricultural and pastoral activities whose
turnover does not exceed $120,000.00 p.a.
 DEEMED SUPPLIES(s7)
Goods sold by an auctioneer to recover debts,
Short-term insurance claims.
Repossession of goods sold under a credit agreement,
Subsidies or grants from a local or public authority used in
making taxable supplies,
A disposal of a business due to death or liquidation of an
operator,
Disposal of a business as a going concern.
Transfer of goods or services by a registered operator to an
independent branch situated outside Zimbabwe.
 DEEMED SUPPLIES(s7)
Repossessions of goods sold under hire purchase.
Betting.
Goods imported by an agent on behalf of a principal.
 VALUE OF SUPPLY(s9)
Value of supply = Consideration less tax.

Consideration is the selling price of a supply.

If consideration is in money = amount of money.

If not in money = open mkt value.

 TIME OF SUPPLY(s8)
The time of supply determines the tax period a transaction
will fall in.
The general rule of the time of supply is the earlier of;

The time an invoice is issued or

The time any payment is received.
 ACCOUNTING BASIS(Section 14)
VAT is accounted for on either the invoice or
cash/payment basis.
INVOICE / ACCRUAL BASIS
Registered operators must account for output tax on both
cash and credit sales.
Input tax is claimed on both cash and credit purchases.
written application and the Commissioner should approve
the same.
 ACCOUNTING BASIS(Section 14)
INVOICE / ACCRUAL BASIS
•Example:
Kumunda (Pvt) Ltd purchased a fridge for resale on 20 October 2016 and received a tax
invoice for $3 450 (incl. VAT @15%). It paid the supplier $2 300 on 31 October 2009 and
the balance on 30 November 2016.
It then sold the fridge for $ 5750 (incl. VAT @ 15%) on 31 October 2016 and issued a tax
invoice for the whole amount the same day. It received 70% deposit on the date of
invoice. The balance was paid on 15 December 2009.
What is the VAT treatment of the transaction?
 ACCOUNTING BASIS(Section 14)
INVOICE / ACCRUAL BASIS
•Solution
• Kumunda (Pvt) Ltd is entitled to an input tax claim of
(15/115 * $3 450) $450 and should account for output tax
of (15/115 * $5750)= $750 in the tax period ending 31
October 2016.
 ACCOUNTING BASIS(Section 14)
CASH / PAYMENT BASIS
Under this basis, the registered operator has to account for
output tax on cash sales only.
Input tax is claimed on cash payments or purchases only.
To use the cash basis, the register red operator should
make an application to the CG.
The cash basis is normally applicable to:
Association Not For Gain.
Local and Public Authorities.
 ACCOUNTING BASIS(Section 14)
CASH / PAYMENT BASIS
•Example:
•In the example above if Kumunda (Pvt) Ltd was
authorized by the Commissioner to be on cash basis will
claim input tax of (15/115 X $2300)=$300 and account for
output tax of (15/115 X $4 025)=$525 in the tax period
ending 31 October 2016. However this will only be applied
if Kumunda (Pvt) Ltd is authorized by the Commissioner to
use the payment basis.
 TAXABLE SUPPLIES
Supplies on which VAT is chargeable.
Zero rated supplies- 0%
Standard rated supplies- 15%
 If an amount is given inclusive of VAT(consideration),
apply the tax fraction(15/115).
 ZERO-RATED SUPPLIES(Section 10)
Zero rated supplies are charged VAT at 0%(output tax).
A supplier of zero rated goods can claim input tax.
Must be registered to be eligible.
Zero rating applies primarily to exports and to;
Certain other types of transactions mainly for social and
economic reasons.
 ZERO-RATED SUPPLIES(Section 10)
Exported movable goods
Repairs or renovations to goods temporarily imported into
Zimbabwe.
Goods supplied under a rental agreement and used
exclusively in an export country.
Sale of a business as a going concern
Supply to the Reserve Bank of Zimbabwe
International transportation of goods and passengers
Local air transport as part of international transport
Ancillary transport services for exports
 ZERO-RATED SUPPLIES(Section 10)
Certain basic foodstuffs
Farming products
Goods for use by disabled persons
Supply to a branch or subsidiary in an export country
Supply of medicines
Local diamond sales
 EXEMPT SUPPLIES(Section 11)
These are not charged VAT at all.
The operator cannot claim input tax.
The operator is not required to register for VAT.
 EXEMPT SUPPLIES(Section 11)
The following supplies are exempt from VAT:
(a) Supply of any financial services
(b) Donated goods/ services
(c) Supply of residential accommodation
(d) Supply of leasehold land
 EXEMPT SUPPLIES(Section 11)
The following supplies are exempt from VAT:
e) Supply of land together with improvements situated
outside Zimbabwe.
(f) Supply of transportation services to fare-paying
passengers.
(g) The supply of educational training services
(h) Medical supplies
(i) Supply by employee organisations e.g trade unions and
clubs.
 EXEMPT SUPPLIES(Section 11)
The following supplies are exempt from VAT:
(j)Supply of fuel and fuel products.
(k)Water and electricity for domestic use.
(l) Rates charged by a local authority.
 IMPORTS(Section 12)

Goods imported into Zimbabwe are charged VAT unless

they are by their nature specifically exempt or zero rated.
It is calculated as follows:
• Initial Cost X
• Plus costs of freight, insurance etc. X
• = Value for Duty Purposes X
• Add Duty X
• =Value for VAT purposes X
• Apply 15% VAT X
 IMPORTS(Section 12)
Example
• On the 16th of May 2015, the company imported 100
machines from India through Beitbridge and were put in
the bonded warehouse. The value for customs purposes was
$8 000 each and the rate of duty was 40% and VAT 15%
respectively. Calculate value for duty purposes. Show duty
and VAT payable to Zimra for the year.
 IMPORTED SERVICES(Section 13)
VAT may be levied on imported services
The recipient of the service will be required to account for
VAT
Value of supply: the greater of consideration less VAT or
open market value
Time of supply: earlier of invoice or any payment
 IMPORTED SERVICES(Section 13)
EXAMPLE 1
•Chinhoyi University of Technology was sued by its Lecturers that they had fired
following an illegal industrial action. The University hired Advocate Khama from
Botswana to represent it. He charged them 14 500 Pula for the service. The open
market value of the services rendered was 16 000 Pula. He raised his invoice for the
service on 1 August 2016 but payment was made on 31 December 2016.
•Required:
•(a) Calculate VAT due if any.
•(b) When is the VAT due?
•(c) Who will account for the VAT?
 IMPORTED SERVICES(Section 13)
•Solution:
•(a) VAT payable =15/115*16 000 Pula (greater of open
market value or consideration).
•= 2 086.96 Pula
•(b) The VAT was due on 1 August 2016, 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.
 FRINGE BENEFITS-MOTORING(S17(3))
Where an employer provides motor vehicle for use to its
employees as a benefit, VAT is chargeable on the deemed
motoring benefit at the standard rate.
The benefit is valued based on the deemed cost in the
hands of the employer in relation with the engine capacity
of the car.
The principle applies to any benefit which is granted by an
employer to an employee which is in the form of a good or
service, provides such goods or services are do not fall in the
categories of exempt or zero rated supplies or are of
entertainment nature.
 FRINGE BENEFITS-MOTORING(S17(3))
Example
• ABC Ltd is a VAT category C registered operator, at the beginning of 2015 tax
year the company acquired the following passenger vehicles used by its senior
management team: show the VAT implication of the purchase of the
passenger vehicle in the first tax period of 2015.
• Cost US$
• Two Toyota double cab vehicles, engine capacity 3200cc 90 000
• Three Nissan sedan vehicles, engine capacity 2000cc 35 000
• One Mazda sedan vehicle, engine capacity 1300cc 8 000
133 000
 FRINGE BENEFITS-MOTORING(S17(3))
Solution
• VAT output tax:
• Toyota double cab 2*9 600*15/115*1/12 = 209
• Nissan sedan 3*4 800*15/115*1/12 = 157
• Mazda sedan 3 600*15/115*1/12 = 39
• Total output tax 405
 INPUT TAX-PERMISSIBLE DEDUCTIONS(S16(1))
Input tax is VAT suffered by a R/O, as charged upon him by
any supplier on taxable supplies supplied to such R/O.
Input tax is claimable on any supplies provided it is
incurred for the production of taxable supplies.
Where it is incurred for mixed supplies, apportionment
will be done
Basis of apportionment: turnover basis
De minimus rule applies if use is 90% and above.
50% of the cost of fiscalised registers can be claimed as
input tax.
 INPUT TAX-PROHIBITED DEDUCTIONS(16(2))
Entertainment excluding:
Entertainment supplied to a client where fees to cover
direct or indirect costs are charged.
Promotional activities
Left overs
Entertainment supplied to employees where fees to cover
costs are charged.
 INPUT TAX-PROHIBITED DEDUCTIONS(16(2))
Meals supplied to a passenger during a journey.
Refreshments provided at a seminar if cost is inbuilt in the
seminar charge.
Goods acquired by a local authority for the provision of
recreational facilities through payment of a subsidy.
Goods supplied to a private voluntary organisation in
fulfilling its object.
Subscription fees to recreational clubs excluding
professional bodies.
Initial purchase, hiring and importation of passenger
motor vehicles.
 INPUT TAX-PROHIBITED DEDUCTIONS(16(2))
Medical services
 TAX INVOICE(S20)
A document as prescribed in the Act.
Basis for operators to claim input tax

FEATURES
 Words “TAX INVOICE” inscribed prominently.
 Supplier’s name, address and registered number.
 Recipient’s name and address and VAT number
 Serial number and date of issue
 TAX INVOICE(S20)
FEATURES(cont.)

Description of goods.

Quantity/volume of goods/services.

VAT-exclusive price, tax charged and total price paid OR

VAT-inclusive price and amount of tax paid or

VAT-inclusive price and a statement that VAT is included and rate

of tax.
 Rules of Issuing a Tax Invoice
 Issued within 30 days of making a supply.
 Only one tax invoice for each transaction.
 Any replacement copy to be written “COPY”.
 Not required for total amounts of $10 or less.
 CREDITS AND DEBIT NOTES(Section 21)

Credit notes: issued when consideration of supply is

reduced.
Debit notes: issued when consideration is increased.
 CREDITS AND DEBIT NOTES(Section 21)
• Assuming a Computerised System:
Credit notes issued-reduce sales made-reduce output tax

Debit notes issued-increase sales-increase output tax

Credit notes received-reduce purchases made-reduce input

tax

Debit notes received-increase purchases made-increase

input tax
 CIRCUMSTANCES WHEN CREDIT/DEBIT NOTES MAY BE ISSUED

The goods or services or part thereof have been returned to

the supplier. This includes the return of a returnable
container (e.g. return of defective goods and a return of
containers).
In all these instances, the supplier should have issued a tax
invoice and furnished a VAT return accounting for the
transaction. The section further allows for the manner in
which the debit or credit notes are dealt with.
 CIRCUMSTANCES WHEN CREDIT/DEBIT NOTES MAY BE ISSUED

Features of the credit/ debit note are similar to those of a

tax invoice
Additional details such as the reasons for the adjustment
and reference to the tax invoice being adjusted should be
included
 IRRECOVERABLE DEBTS(S22)
Registered operator who makes credit supplies is allowed
to claim input tax on irrecoverable debts that would have
been written off upon satisfying the following:
The supply was a taxable supply
Output tax was previously paid/declared
The debt has been written off.
In a instalment credit agreement, the amount claimed
should be the VAT on the outstanding cash value excluding
interest and other finance charges
 IRRECOVERABLE DEBTS(S22)
If the r/o subsequently recovers the bad debt, output tax
should be paid on the amount recovered.
If a registered operator has not paid his debt over a period
of 12mths, input tax previously claimed should be declared
as output tax.
 RETURNS AND PAYMENTS(S28)

Every registered operator is required to submit VAT return

together with the payment on or before the 25th day of the
month following the relevant tax period.
Late submission will attract a penalty a well as interest.
Penalty is 100% of the tax liability and interest is calculated
at a rate of 10% per annum.
 REFUNDS(S44)
A VAT refund arises where output tax is less than input tax.
The refund is done within 45 days from receipt of a claim.
A claim for any refund may be made within a period of six
years after which a claim for refund will not the honoured.
If a refund is not done within 45days, the Commissioner
becomes liable for interest at LIBOR plus 5%
A refund is not done where the amount claimed is less that
$60. Such amount will be credited against future VAT
payments.
A VAT refund may be offset against any tax liability.
 CHANGE OF USE OF GOODS/SERVICES(S17)
 Where goods or services are acquired by a registered
operator on which an input tax has been suffered and
claimed, and the taxpayer change the use of goods from
being a taxable supply or from making taxable supply to
private use.
 The taxpayer should nevertheless include the goods in his
computation of his output tax as if he had applied the
goods for the purpose indicated at the time of
acquisition.
 CHANGE OF USE OF GOODS/SERVICES(S17)
• TRD Mining (Pvt) Ltd imported 10 machines worth $8 000 each in March
2015. In June the company sold 8 of the machines to local mining companies
at a price of $14000 each, the remaining two machines were taken by two of
the directors of the company for their private use. Show the VAT implication
of the donation of the two machines to the directors.
Solution
• VAT output tax $
• Sales (15/115/14 000 *8) 14 609
• Adjustment: add VAT on change of use (15/115*14 000*2) 3 652
• Less: Input tax
• Importation (15*8000*10) (12 000)
• Tax payable 6 261
 OBJECTIONS(Section 32)
Any person who is not happy with an assessment or a decision by
the Commissioner may object to such assessment or appeal.
The objection must:
Be in writing
State the grounds of objection,
Cite applicable law and decided cases, if any.
Be lodged within 30 days of receipt of the Commissioner’s
assessment or decision
On receipt of the objection, the Commissioner may :
Accept it and make necessary adjustments
Disallow it
 APPEALS(section 33 &34)
If the person is not satisfied with the Commissioner’s decision, he
may appeal with the Fiscal Court.
The appeal must:
Be done within 30 days of receipt of the Commissioner’s decision
Be made in writing
Reasons of objection must be similar to the previous reasons.
The Fiscal Court may vary the decision by the Commissioner,
disallow it or uphold it.
If any person is not happy with the decision of the Fiscal Court, an
appeal may be made to the Supreme court.
 Format for Calculating VAT
Item Consideration/ Rate/Tax Output tax($)
Value of fraction
Supply
Sales
Fringe
benefits(s(17(3))
Deemed Supplies(s7)
Credit notes Issued-
(s21(2)(a)
Debit notes issued-
(S21(3)(b)
Total Output tax(a)
 Format for Calculating VAT
Item Consideration/ Rate/Tax Input tax($)
Value of fraction
Supply
Goods/Services
Second hand
goods(s15(3)(a)(ii)
Imported
goods(s15(2)(d)
Credit notes received-
(s21(2)(a)
Debit notes received-
recipient (S21(3)(b)
 Format for Calculating VAT
Item Consideration/ Rate/Tax Input tax($)
Value of fraction
Supply
Irrecoverable
debt(s15(3))
Betting
transactions(s15(3)(c)
Tax invoice received
late-now
claimed(s15(3)(f)
Total input tax(b)
VAT
payable/refundable(a
-b)
 Format for Calculating VAT
Item Consideration/ Rate/Tax Input tax($)
Value of fraction
Supply
Irrecoverable
debt(s15(3))
Betting
transactions(s15(3)(c)
Tax invoice received
late-now
claimed(s15(3)(f)
Total input tax(b)
VAT
payable/refundable(a
-b)
 Solution to Question 1
(a) By the 25th April 2018.
(b)
Zero-Rated Supplies Exempt Supplies
-VAT is charged at 0%. -VAT is not charged at all.
-Input tax can be claimed if the supplies -Input tax cannot be claimed.
are for making taxable supplies and a valid
tax invoice is available.

-Required to register for VAT either -No need to register for VAT
voluntarily or compulsorily.

e.g basic commodities e.g educational services

 Solution to Question 1
Munenzva( Pvt) Ltd

Computation of Value Added Tax payable/refundable for the period

ending 31 March 2018

Description of Item Note Consideration(U$) Tax Fraction Output Tax (U$)

Motor Vehicle Benefit-Marketing Manager (7,200X1/12) Opening 600 15/115 78

Debit Notes Issued 1 2,000 15/115 261

Gross Cash Sales Opening 460,000 15/115 60,000

Gross Credit Sales Opening 56,000 15/115 7,304

Motor Vehicle Benefit-Company Vehicles (10 employees) (7,200 X10x2/12) 7 12,000 15/115 1,565

Total Output tax 69,209

 Solution continues…
Input tax (U$)

Diesel and petrol costs 2,070 exempt -

Purchase of raw materials 115,000 15/115 15,000

Repairs to manufacturing machinery 11,500 15/115 1,500

Stationery purchases 23,000 15/115 3,000

Purchase of protective clothing for workers 34,500 15/115 4,500

Legal fees 2 2,500 Prohibited-No Valid Tax Invoice -

Municipal rates 200 exempt -

Salaries and Wages 20,000 Prohibited-Not Trade -

Subscriptions 3

Medical Aid 1,000 Exempt -

ACCA Subscriptions for Finance Manager 500 15/115 65

Mashonaland Country Club 600 Prohibited -

Cellphones 3,500 15/115 457

 Solution continues…
Motor Vehicles 5

Ford Ranger Double cab 25,000 Prohibited-PMV -

Toyota Hilux Single Cab 20,000 15/115 2,609

Isuzu Twin Cab for Marketing Manager 276,000 Prohibited-PMV

Entertainment 4

Chicken Inn-Monthly targets 750 Prohibited -Entertainment -

Sales representatives on business 750 15/115 98

Motor Running Expenses 13,800 15/115 1,800

Total Input Tax 29,028

Total Output Tax 69,209

Less Total Input Tax (29,028)

VAT payable 40,180

 THE END

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