Northrise University

30029 Kitwe - Ndola Dual Carriage Highway. P.O Box 240271, Ndola, Zambia.

ASSIGNMENT COVER SHEET

Student ID: 1905504

Student Name: Patrick Chibabula

Course Code: ACC 206

Course Title: Taxation 1

Instructor Name: Mr. Elisha Sakutemba

Essay/Assignment Title: Assignment Three

Due Date: 13th November, 2020

Declaration:
I acknowledge that submitting this document binds me to the following:
To the best of my knowledge, I assert that no part of this assignment has been copied from the work of anyone else, be it another stude
or any other author or from any source except where due credit is given in the text below, or has been written for me by someone else
except where the relevant instructors and authorities have explicitly permitted such collaboration .

SIGNATURE: P. Chibabula

Instructor’s Comments:

GRADE [ ]
Value Added Tax 2

This academic paper is going to describe the operations of the Value Added Tax System

in Zambia with examples of how the Value Added Tax liability arises and the filling in of

returns. Yet before that, the paper will start by giving a concise presentation on what Value

Added Tax is so as to give a clear and sound flow of scholastic data. From there, conclude the

academic paper.

Value Added Tax

A value-added tax (VAT) is a consumption tax placed on a product whenever value is

added at each stage of the supply chain, from production to the point of sale. The amount of

value added tax that the user pays is on the cost of the product, less any of the costs of materials

used in the product that have already been taxed (ZICA., 2007).

How Value Added Tax System Works in Zambia.

According to (ZICA., 2007), At the end of each tax period, which for most businesses is

at the end of each month, the value added tax due is arrived at by deducting the total input tax on

supplies received (purchases), from the total of output tax on supplies made (sales). Where

output tax exceeds input tax, the difference must be paid to the Zambia Revenue Authority and

where input tax exceeds output tax a Value Added Tax refund is due. In practice only refunds in

excess of K5 million are done by cheque. Refunds, which fall below this Deminimis Limit, are

just credited to the Tax Payer’s account and offset against future liabilities

Example of the Value Added Tax System Work

As per the forgone, value added tax is a tax on Consumer expenditure. To be more

specific, it is a tax on three different classes of transactions, each of which has its own collection

procedures; supplies of goods and services, imported goods and acquisition. Therefore, the

example below looks at the operations of value added tax from supplies of goods and services.
Value Added Tax 3

Manufacturer (Cost + VAT 1) – Retailer (Cost + VAT 1 + VAT 2) – Customer / Consumer.

(Bears VAT 1 & VAT 2)

From this diagram, it is noticed that value added tax is collected in stages, such as VAT1

and VAT2, by a value added tax registered business. Be that as it may, value added tax is a tax

on consumer expenditure. This can be seen in the supply chain above. The manufacturer charges

Output VAT1 on his Supplies to the retailer. The retailer is able to recover the VAT1 by

charging VAT2 on his supplies to the consumer – the final man in the line of consumption. Since

the consumer is not engaged in selling the Supplies, but to consume them, he bears all the burden

of this type of Taxation.

Supplies

Value added tax is a tax charged on taxable supplies of goods and services. The example

above shows value added tax being charged and collected on a chain of supplies. However, there

are many business transactions in addition to a straight sale, which are also viewed as supplies

under value added tax law, and these are; Gifts of goods (subject to conditions provided in the

Regulations), business goods taken for own use, business goods taken for own consumption,

lease or hire services, treatment of any goods, imported goods, and imported services.

Imported Goods and Exported Goods

Value added tax is chargeable on all importations of taxable items whether by private

persons or by businesses (and whether or not they are registered for value added tax). On the

other hand, Subject to certain conditions, the export of taxable goods is zero-rated for value

added tax in Zambia. To zero-rate at exportation, the goods must be supplied (i.e. sold) direct to

a business abroad by or on behalf of the supplier.

Value Added Tax 4

Liability to Value Added Tax

Not all supplies or sales are liable to value added tax. The value added tax law classifies

supplies as either taxable or exempt: Taxable Supplies are those which are liable to value added

tax. While, exempt supplies are not subject to value added tax.

Taxable Supplies

A taxable supply is a supply of goods or services that are liable to value added tax.

Taxable supplies are subject to value added tax at one of two rates Taxable supplies are either

subject to VAT at the standard rate or zero rated i.e. charged at the rate of 0%. All supplies of

goods and services that are not exempt or zero rated are standard rated, currently the standard

rate is 16%. All supplies of goods and services that are listed in the Zero-Rating Order are taxed

at 0%. Thus, taxable supplies consist of the following categories; Standard rated goods and

services at 16%; and Zero-rated goods and services taxed at 0%

Exempt to Supplies

These are supplies of goods, services or importation of goods not subject to value added

tax such that even when a value added tax registered business supplies them, no value added tax

is chargeable. These are specified in the Exemption Order issued by the Minister responsible for

Finance. Exempt to supplies are not taken into account whether the trader is taxable or not, and

the input tax attributed to them is not averrable for credit. Under the first schedule to the VAT

Act, the following items are exempt from VAT. Livestock, animal products, dairy products, and

fish just to name a few

Value Added Tax 5

Registration and Deregistration

Subject to statutory registration, a supplier must apply to register if the value of taxable

supplies in the course of business exceeds or is likely to exceed the statutory registration

threshold (currently K800,000 in any twelve consecutive months or K200,000 in any consecutive

three months). But if a taxable supplier has an annual turnover of less than the statutory

registration threshold, he or she has an option to register under the voluntary registration upon

satisfaction of prescribed conditions. Renew the registration every twelve (12) months and notify

the Commissioner-General in writing thirty (30) days before the expiry of the twelve (12)

months period of the intention to renew the registration.

On the other hand, A person ceases to be liable to be registered when; At any time, the

Zambia Revenue Authority is satisfied that the annual turnover will from that date be less than

K800,000, there is a change in the legal status of an entity. For example, when a partnership is

dissolved, when the business ceases trading permanently, when the business is sold as a going

concern, and when the person registered as an intended trader and his intention to make supplies

ceases.

Filling in of Returns

A VAT return for each tax period, and any VAT payable, must be rendered to ZRA not

later than the 5th day after the end of a tax period for returns submitted manually and not later

than the 18th day after the end of a tax period for returns submitted online. Thus, the due date for

payment of value added tax and submission of returns is the 21st day following the end of the tax

period to which the value added tax and return relate. For example, if the tax period in question

is April 2019, then the value added tax for the month of April 2019 must be paid on or before

21st of the month of May.

Value Added Tax 6

Penalties for Late Submissions

Failure to make a return and/or to pay the tax due by the due date will result in penalties

and interest charges being applied as follows: For late submission and payment of a return the

penalty is K200, or 1/2% (0.5%) of the tax payable (whichever is greater) for each day that the

return is not submitted, and interest is chargeable for each month or part of a month that a

payment is overdue and is charged at the Bank of Zambia discount rate plus 2%.

Conclusion

In summary, value-added tax (VAT) is a consumption tax placed on a product whenever

value is added at each stage of the supply chain, from production to the point of sale. Thus, this

academic paper has described the operations of the value added tax in Zambia, with the

following issues into consideration; the definition of value added tax, how the system works,

supplies, import and export goods, liability to vat, registration and finally filling in of returns.