vat withholding tax - icaz vat withholding tax...absence of an itf 263 (tax clearance certificate)...
TRANSCRIPT
VAT WITHHOLDING TAX
LEGAL BACKGROUND
Latest update
Statutory Instrument 149 of 2016 introduced VAT Withholding Tax
• Issued as supplement to Government Gazette dated 2 December 2016
• Per mid-term fiscal policy effective date should have been 1 October 2016-no legislation to back it then
• According to the statutory Instrument the effective date is 1 November 2026
• ZIMRA has indicated that there is an error on the date and efforts to correct the effective date are in progress.
• Date needs to be confirmed
Details of SI 149 of 2016
• It is responsibility of an appointed agent to collect the VAT withholding tax
• The Commissioner may designate any person to be a Value Added Tax agent and may at anytime revoke the appointment if he deems it appropriate to do so.
• No agents have been appointed yet.
-Not yet clear on ZIMRA’s criteria of appointment
-Harare-no one appointed
-Other regions-1 taxpayer appointed before promulgation of law!
• Agent to withhold 10% of the amount payable to a VAT registered operator
Details of SI (cont)
Example
• Value of taxable supply $20 000
• VAT at 15% $3 000
• Total amount payable $23 000
• At the time of paying the supplier, the VAT Withholding Agent shall compute withholding VAT as follows:
• Withholding VAT at 10% =$23 000 x 10%=$2 300
• It means of the $3 000, $2 300 is being paid in advance
• More than 50% of the VAT is collected in advance!
Details of SI (Cont)
Example (cont)
• What is the link to the 10% withholding tax on contracts?
• The 10% on contracts is deducted on amount of $23 000 in the absence of an ITF 263 (tax clearance certificate)
• So both are levied in some instances-VAT and WHT on contracts
• Certificates are issued in both respects
• Difference is the 10% WHT on contracts is set off against income taxes on assessment (end of year)whilst VAT is set off more frequently on VAT 7 returns.
Details of SI 149 (cont)
• The withholding tax to be remitted on or before 15th of following month or subject to Commissioner fixing any other date.
-It appears the agent remits tax on or by 15th after the end of the tax period(SI says by 15th of following month)
• Agent submits the tax and the return (Rev5) together with a schedule of the suppliers from whom the tax has been withheld with each payment on or before 15th after the end of the tax period.
Category
A December/January 15 February
B January/February 15 March
C January 15 February
• Normal VAT is due on the 25th of the following month
• 15% withholding tax is due by the 15th
Clarity is required from ZIMRA on the actual due date e.g
• it on 15th monthly or follows the tax period?
• Tax compliance costs will increase as agents and registered operators will be paying or accounting for VAT twice within a month.
• A VAT schedule will be prepared by the agent in respect of the 15% withholding tax.
Admin issues: Agent
Supplier name
BP No. Invoice No Certificate No
Date paid Amount paid Withholding tax
• Above assumes that by the time payment is made and submission of the return is made, a certificate would have been issued.
• Question-Do you issue a certificate before you pay?
• Not an easy exercise to issue certificates especially in cases where the registered operator makes numerous payments e.g 1 000 invoices per month.
Admin issues: Agent
• Agent issues a withholding tax certificate to the registered operator
• The certificate should be designed and generated by the agents and should have the following fields:• Certificate Number
• Name of agent
• BP Number of the agent
• Physical address of the agent.
• Name of supplier.
• BP Number of supplier
Admin issues (cont)
• Address of supplier
• Invoice Number
• Date of Invoice
• Date Paid
• Taxable Value
• Registered operator will be required to draw up a return in the normal way and claim a credit on certificates received from the agent.
• Where a claim of credit has been made, registered operator provides proof of the value added withholding tax deducted by the agent.
• Excess credit can be set off against any tax due from other tax heads or can be refunded
• Only payments towards the supply of standard rated supplies are liable to withholding VAT.(Exclude value of exempt and zero rated goods)
Default by Agents/any other persons
• Failure to withhold or pay the tax leads to:
-payment by agent of the tax; and
-liability of amount equal to the VAT withholding tax (100% penalty)
• Non-compliance of the regulations leads to:
- Fine not exceeding level 7 (US400);or
- Imprisonment not exceeding 12 months; or
- Both fine and imprisonment.
Other countries that have this system
• Kenya – 2004 & 2014. The rate is 6% and paid weekly
• Turkey – the rate is between 1/3 and ½ of vat due
• It is not clear to what extent these countries have been successful in implementing this withholding tax.
• QUESTIONS?