VAT claims on imported services

VAT claims on imported services

Financial Gazette

12/3/2020

Marvellous Tapera

PRIOR to 2019, only persons who were not VAT registered operators and those consuming or utilising im­ported services to produce exempt supplies would bear the burden of VAT on imported services.

This changed with effect from January 1; 2019 when the government extended the tax burden to all importers of services notwithstanding some may be VAT regis­tered operators.

The Finance Act 3 of 2019 has restored the position prior to January 2019 by en­suring VAT registered operators do not suffer the burden of VAT on imported ser­vices.

Therefore, VAT on services imported by registered operators and utilised, consumed or used imported services in the produc­tion of non-taxable sup­plies is reclaimable.

At issue is the mech­anism for reclaiming this VAT by registered operators and this is the subject matter of dis­cussion.

The Finance Act no 3 of 2019 amends the definition of input tax to include VAT on import­ed services (VIS).

It also amended the section of the VAT Act which deals with claiming of input tax, to allow the claiming of VAT incurred on services imported by registered operator if such services are uti­lised, consumed or used wholly for the purpose of consumption, use or supply in the course of making taxable sup­plies.

To the extent the ser­vices are acquired by the registered operator partly in the production of taxable supplies and some other purpose the only part of VAT on imported services to be claimed is that which relates to produc­tion of taxable supplies.

The basis of apportionment should be fair and reasonable and in this case it should be based on the invoice value of the imported services.

The law requires that the registered operator be in possession of an invoice and to have paid the tax to the ZIMRA to qualify for the input tax claim.

The payment should be made to the ZIMRA with­in 30 days of time of supply of the imported ser­vices. The time of supply is defined by the date of the invoice or the date the supplier of the services is paid, whichever comes first.

The mechanics, however, are that the operator will declare the VIS on the VAT 7 or 9 return and remit this tax to the ZIMRA before he/she can claim it as deduction.

This creates financial implication for the operator due to deferral of input tax claim until the VIS is fully paid to the ZIMRA.

Registered operators should note further that VIS is payable within the 30 days of time of supply whereas input tax can be claimed any time after the VIS has been paid to the ZIMRA.

There is no II nit as to how far in the future it can be claimed because the claim is made on the basis of an invoice as opposed to a tax invoice whose life span for purposes of the claim should not exceed 12 months from the date of the tax invoice.

Before January 1, 2019, registered operators did not have to declare and pay VIS to the extent the services were utilised or consumed by them in the

Production of taxable supplies.

The new law creates an administrative and

cashflow burden on the part of the registered operators of having to pay VAT first to ZIMRA       before they can make the claim.

This adds to the cost of doing business for the

operators, let alone the cashflow implication compared to   the   position that existed prior to January 1, 2019.

Companies need working capital to survive the current economic onslaught. Any leakages would worsen the situation for the al­ready struggling companies.

Additionally, Zimbabwe is the only country in the world that made registered operators pay VIS, which was the case in 2019 and even now it is among the few countries that requires VIS to be paid and then claimed later.

These features are unique throughout the world and actually place our businesses at less competitive edge compared their counter parties.

This could impact on our exports.

The country needs foreign currency and growth in production and anything short of this does not tell a good story of the country.

Besides, the claim may prompt investigation of taxpayers’ affairs by the ZIMRA from time to time, resulting in management time spent on defending tax issues.

The minister should consider restoring position of prior to January 1, 2019 or allow concurrent claiming and declaration of VIS on the same return for the sake of easy of doing business and promoting business growth.

Meanwhile Matrix Tax School will be hosting a Seminar on “Tackling transitional issues of 2019 tax year” to discuss these and other practical issues on March 18, 2020 at Cresta Lodge (Sango Confer­ence) in Harare.

Tapera is the chief executive of Matrix Tax School. He writes in his personal capacity.