Value Added Tax

VALUE
ADDED TAX
ACT
Chapter 23:12
10/27/2023 By S.Sabawu
SOME IMPORTANT TERMS
‘Trade’ means any activity or business which is carried on
continuously or regularly in or partly in Zimbabwe by any
person of which goods or services are supplied for a
consideration, whether or not for profit.
‘Exempt supplies’ means supplies which are immune from VAT

in terms of Section 11 of the VAT Act.
‘Input Tax’ is the tax a registered operator is charged on goods
or services acquired or imported for the purposes of making
taxable supplies
‘Output Tax’ is the tax charged by a registered operator on the

supply of taxable goods or services
Consideration’ includes any payment made or to be made for a
supply of goods and services made by the registered operator
Zero-rated supplies’ means supplies of goods or services where

the rate of 0% is applied.
‘Standard-rated supplies’ means supplies of goods or services

where the rate of 15% is applied.
‘Taxable supply’ means supplies of goods or services taxed at the
rate of 0% and 15% .
‘VAT Return’ is the form used to declare the value of supplies,

output and input tax of a registered operator to the Commissioner.
‘Registered Operator’ means any person who has registered or is
required to register for VAT purposes.
‘Tax periods’ means regular intervals in which registered

operators are required to submit returns and account for VAT,
‘Entertainment’ means the provision of any food, beverages,
accommodation, entertainment, amusement, recreation or
hospitality of any kind by a registered operator whether directly or
indirectly to any one in connection with the trade carried on by
him.
WHAT IS VAT?
VAT is an indirect tax which is levied on:
• local supplies of goods and, or services made by a registered
operator;
• Goods imported into Zimbabwe.

It is collected at each stage of production, distribution and
importation.
Where a person donates or gives any amount of money to
someone without receiving anything in return, there will be no
VAT implications on such donations.
• Only persons carrying out trade should be registered for VAT
The following requirements must be met for one to be deemed
to be carrying on trade:
• The activities must be carried on continuously or regularly.

• The business activities must be carried on in Zimbabwe or
partly in Zimbabwe.
• The goods or services must be supplied to other persons for a
consideration, i.e payment
The following activities shall not be regarded as trade for VAT
purposes:
1. Services supplied by an employee to an employer for which

remuneration received is subject to Pay As You Earn (PAYE)
2. The activities of a branch permanently located outside
Zimbabwe
3. Hobbies and private activities
4. Any activities to the extent that it involves the making of
exempt supplies
How does VAT work?
• All registered operators are required to charge output tax to
both registered and non-registered operators.
• Registered operators are entitled to claim input tax on

purchases of goods and/or services, which are for use in
making taxable supplies.
Calculation of VAT
OUTPUT TAX – INPUT TAX =VAT

Payable/Refundable
Example
Suppose a supermarket buys a bar of soap from a
manufacturer for $1.It will pay VAT of 15cents ($1 x 15%) on
the purchase. The total purchase price will be $1.15. The
15cents VAT becomes the supermarket’s input tax and the
manufacturer’s output tax. If the supermarket sells the bar of
soap for $1.50 it would charge VAT of 22.5cents($1.50 x
15%).This 22.5cents VAT is the supermarket’s output tax. VAT
payable by the supermarket will be 22.5-15 =7.5cents.
HOW TO REGISTER FOR VAT
Who must register?
Any person who carries on a taxable activity and whose
annual turnover exceeds or is likely
to exceed the prescribed amount(US$60 000 per year) must
apply to register for VAT purposes on form VAT 1.
A person includes any of the following:-
• Company
• Partnership or joint venture.
• Local and public authorities.
• Trust.
• Deceased or insolvent estates.
VAT Voluntary Registration
• A person whose turnover is below the prescribed
amount(threshold) can voluntarily register for VAT
• Voluntary registration can be denied where a person:
i. Has no fixed residential address or business address
ii. Does not keep proper accounting records for the business.
iii. Does not operate a bank account for the business
iv. Has failed to perform the duties under the repealed Sales
Tax Act or the VAT Act if one was registered under such Acts.
Benefits of Voluntary registration
1. It creates cordial relationship with Zimra
2. It helps the firm to easily get tax clearance certificate (ITF 263) this
is vital in helping the firm to win tenders.
3. It minimises the firm’s exposure to potential penalties/fines
Compulsory Registration
• The registration threshold for a supplier is an annual supply of $60 000.
A taxpayer who achieves that threshold for supplies made by him in the
previous 12 months is required to register within 30 days from the date
he becomes eligible.
• Again, a taxpayer is required to make a futuristic test as to whether he
is eligible to register for VAT. Thus, a taxpayer who believes that he is
likely to achieve the above threshold in 12 months is required to apply
for VAT registration.
• For instance, a taxpayer, who achieve, say, a monthly supply of $5 000,
should apply for VAT registration.
• A taxpayer should satisfy the Commissioner that such threshold will be
achieved not as a result of:
1. any cessation of, or any substantial and permanent reduction in the

size or scale of, any trade carried on by that person; or
2. the replacement of any plant or other capital asset used in any trade
carried on by that person; or
3. abnormal circumstances of a temporary nature.
Separate registration of Branches
Branches can be registered separately when each branch is
carrying on a separate trade by reference to the nature of the
business activities or geographical location of each branch and
such branch maintains independent accounting system.
Cancellation of registration
VAT registration can be cancelled if:
• The annual taxable turnover falls below the prescribed
turnover for clients that were registered compulsorily
• One ceases trading
• One was registered voluntarily but no longer meets the
voluntary registration conditions.
Responsibilities upon registration?
One will be obliged to comply with the following requirements of
the VAT Act:
• Keep accounting records for a period of at least six (6) years after
the tax period to which the records relate.
• Complete and submit VAT returns as required.
• Calculate and pay the VAT due to the Commissioner on or before
the due date.
• Account for VAT if one sells or retains stock or assets.
• Issue tax invoices for any taxable supplies where the value is
more than the prescribed amount.
• Advise the Commissioner of any changes in business details such
as change of address, addition of new partner, cessation of trade,
etc.
• Allow the Commissioner to enter the business premises and
examine goods and all business records.
Features of a Tax Invoice
• The word TAX INVOICE must be written on a prominent place (on top
and at middle)
• Name and address of the customer and of the registered operator.
• Description, quantity unit price, amount exclusive of VAT, VAT rate,
VAT amount, Total amount inclusive of VAT
• Serialised and carbon copies retained by the firm.
TAX PERIODS
• Upon registration, an operator is allocated a tax period. A tax period is a
regular interval for which a registered operator is required to submit
returns and account for VAT.
• There are four tax periods, under which a registered operator can
submit his/ her returns, namely, category A, B, C and D.
Category A
• Registered operators in this category are required to submit returns
for each of the two monthly periods ending on the last day of:
• January, March, May, July, September and November.
Category B
• Registered operators allocated to this category are required to submit
returns for each of two monthly periods ending on the last day of:
• February, April, June, August, October and December.
Category C
• Registered operators under this category are required to submit
returns at the end of each month.
• An operator with a turnover (excluding VAT) amounting to US$240 000
p.a. is required to have this one month tax period.
• A registered operator who apply to the Commissioner to be allocated a
one-month tax period or who is likely to exceed that amount in the
period of twelve months beginning on the first day of any such month.
• An operator who has repeatedly defaulted in performing any of his
obligations as a registered operator is also likely to be placed in this
category.
Requirements of Category C
• Submit VAT returns on a monthly basis by the 25th of the following
month.
• Fiscalise by buying a fiscal device/ cash register (machine which is
critical when accounting for VAT
Qualities of a good fiscal device/ cash
register
• Proper back-up facility including the requirements of uninterrupted
power supply for eight hours.
• A screen on which the customer can see simultaneously displayed the
input being made by the till operator
• It must incorporate a backup master audit facility
• It must incorporate or be capable of being upgraded to incorporate a
feature enabling the fiscalised electronic register to be linked to an
input facility operated by ZIMRA or any other network facility
• It must be capable of retaining a fiscal memory of total daily sales, total
VAT charged and total sales for at least 6 years.
• Must produce serialised documents and retain a copy.
• Identification- Name of operator, address, VAT number of the operator.
Category D
• Certain registered operators carrying on seasonal activities may apply for
this tax period. These include:
• Any registered operator whose trade consists solely of farming activities
• The activities of any such branch, division or separate trade consist solely
of agricultural, pastoral or other farming activities and activities of that
kind are not carried on in any other branch, division or separate trade of
the registered operator or the association not for gain.
• These submit returns quarterly, that is, after every 3 months
Consequences of failing to register for VAT
1. Zimra will back date output tax from the date of eligibility
2. Zimra forfeits input tax claim during the period of registration
default.
3. Penalties of upto 100% on the output tax exposure.
4. Interest of 10% per annum of the amount outstanding is levied.
ACCOUNTING FOR VAT
VAT is accounted for on either the invoice or the cash basis.
INVOICE BASIS
The invoice basis is where the registered operator must
account for output tax on both credit and cash sales. The
operator must also claim input tax on both credit and cash
purchases and expenses incurred for making taxable supplies.
Where payment is received before the issuance of a tax invoice,
the general time of supply
rule applies, that is the earlier of an invoice being issued or
payment being received.
CASH OR PAYMENT BASIS

The cash or payment basis is where the registered operator claims
input tax or accounts
for output tax on the actual payments made or received.
TAXABLE AND EXEMPT SUPPLIES
Taxable supplies are supplies that are taxable at the following

rates:
• Zero rate 0%
• Standard rate 15%
Zero rated Supplies
These are supplies on which VAT is chargeable at rate at 0%

Some of the examples of zero rated supplies are:-
• Exports of goods from Zimbabwe to an address in an export
country.
• Basic foodstuffs such as mealie-meal, sugar, milk, meat, salt,
bread, etc.
• Agricultural inputs such as fertilizer, seeds, and pesticides,
animal feed, animal remedy, plants, tractors, etc.
• Exported goods with the exception of un-beneficiated chrome
which is taxed at 15%.
• The supply of day old chicks weighing not more than 185g is
now zero-rated with effect from 1st September 2010.
• International transport services provided by a registered person.
• Services physically rendered outside Zimbabwe.
Note: VAT incurred in making zero-rated supplies may be claimed
as input tax.
Standard-rated Supplies
• These are supplies of goods on which VAT is chargeable at

15%.
• Generally all goods and services are standard rated unless

specifically exempted, zero-rated
or subject to VAT at a special rate.
Exempt Supplies
• Exempt supplies are supplies of goods and services on which

no VAT is chargeable at all. VAT incurred on goods and
services acquired to make exempt supplies shall not be
claimed as input tax credit.
• Traders who exclusively provide exempt supplies are not

required to register for VAT purposes.
Exempt supplies include the following services and products:
• medical services
• educational services
• rentals from residential properties
• transport of fare-paying passengers
• water for domestic use
• electricity for domestic use
• fuel
Deemed Supplies
These are transactions, which do not generally appear as actual

supplies but regarded by law
to be supplies. The following are examples of deemed supplies:-
• Goods or services taken for own use.

• Motoring benefit.
• Closing stock and assets on hand at the time of de- registration.
• Subsidies or grants received from the state or local authority.
• Goods acquired under an instalment credit agreement that have
been re-possessed by the seller.
• Transfer of goods between independent branches.
INPUT TAX CREDIT
• Any VAT paid on local purchases or on the importation of

goods for making taxable supplies may be claimed as input
tax.
• If goods or services are acquired for the purpose of making

both taxable and non-taxable supplies, only the VAT
attributable to taxable supplies can be claimed as input tax.
• Where goods or services are acquired by a registered operator
to make both taxable and exempt supplies, full VAT incurred
may be claimed as Input Tax if the ratio of the value of taxable
supplies to total supplies exceeds 90%.
Amounts which may not be claimed as input tax?
• Entertainment which includes staff meals, Christmas parties and

customer entertainment of all kinds (this includes equipment
purchased to provide staff refreshments, e.g. canteen utensils.)
• Goods or services acquired exclusively for making exempt
supplies.
• Club subscriptions fees or subscriptions incurred by a registered
operator for membership of a club or association of a sporting,
social or recreational nature.
• Acquisition of passenger motor vehicles as specified.
PRICING
• Registered operators are required to include VAT in
advertisements or quotations. It must be explicitly stated
that VAT is included in the prices advertised or quoted.
• If both the price including VAT and the price excluding VAT
are shown, then each amount must be shown with equal
prominence.
• It is a requirement for price tickets to indicate that VAT is
included in the selling price.
• However, where notices at all entrances to the premises and

at all pay points display that prices include VAT, the above
requirement can be dispensed with on the tickets.
Determination of price of goods and services
• In determining the price of goods and services to charge

customers, input tax incurred should not be considered as a
cost since it will be claimed as a credit.
Example
A Retailer bought a bicycle valued at $115 for resale. His mark up is
50%. His selling price will thus be:
Purchase price - $115
Less VAT paid (115 x 15/115) $15
Actual Cost $100
Add 50% mark-up $50
Selling price before VAT $150.00
Add VAT at 15% $22.50
Selling price including VAT $172.50
Computation of VAT Refundable or Payable for the
month
OUTPUT TAX $VAT
VAT on standard rated sales xxx
VAT on motor vehicle benefits xxx
VAT on Purchases Returns (debit notes) xxx
VAT on Sale of Fixed Assets xxx
xxx
Less INPUT TAX
VAT on Standard rated purchases (xxx)
VAT on Sales returns (credit notes) (xxx)
VAT on Purchases of fixed assets (xxx)
VAT on general expenses e.g repairs, rent (xxx)
VAT PAYABLE OR REFUNDABLE XXX
Points to note
1. Minimum VAT refund is $4800 (2021 figure)
2. The minimum invoice amount to issue a tax invoice is $800 (2021 figure.
3. Inter company sales are eligible for VAT/ are vatable
4. Motor vehicle benefit are inclusive of out tax = VAT portion per month
=15/115 x benefit x 1/12
5. The following expenses cannot claim input tax
a) Staff/payroll costs-wages and salaries, pension, medical aid.
b) Expenses which are of recreational in nature e.g gym subscriptions
c) Purchase cost of PMV (however VAT on maintenance of PMV can be
claimed).
Practice questions to be shared
The End

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VALUE

‘Exempt supplies’ means supplies which are immune from VAT

‘Output Tax’ is the tax charged by a registered operator on the

Zero-rated supplies’ means supplies of goods or services where

‘Standard-rated supplies’ means supplies of goods or services

‘VAT Return’ is the form used to declare the value of supplies,

‘Tax periods’ means regular intervals in which registered

• Goods imported into Zimbabwe.

• Only persons carrying out trade should be registered for VAT

• The activities must be carried on continuously or regularly.

1. Services supplied by an employee to an employer for which

• Registered operators are entitled to claim input tax on

OUTPUT TAX – INPUT TAX =VAT

1. any cessation of, or any substantial and permanent reduction in the

• Must produce serialised documents and retain a copy.

• Identification- Name of operator, address, VAT number of the operator.

VAT is accounted for on either the invoice or the cash basis.

CASH OR PAYMENT BASIS

Taxable supplies are supplies that are taxable at the following

These are supplies on which VAT is chargeable at rate at 0%

• These are supplies of goods on which VAT is chargeable at

• Generally all goods and services are standard rated unless

• Exempt supplies are supplies of goods and services on which

• Traders who exclusively provide exempt supplies are not

These are transactions, which do not generally appear as actual

• Goods or services taken for own use.

• Any VAT paid on local purchases or on the importation of

• If goods or services are acquired for the purpose of making

• Entertainment which includes staff meals, Christmas parties and

• However, where notices at all entrances to the premises and

• In determining the price of goods and services to charge

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