When a registered operator acquires goods and services which are subjected to Value Added Tax (VAT), the registered operator may claim input tax depending on the intended use.
When the use of these goods and services are changed from making taxable supplies to making exempt supplies, the registered operator must account for VAT previously claimed as output tax.
This is treated as a deemed supply and an adjustment is necessary to tax this deemed supply.
No adjustments should be made where:
The cost of the goods, excluding VAT is less than the prescribed amount of US$60.
The use of capital goods and services is changed from making standard rated supplies to making zero rated supplies or vice versa.
The client had been previously denied claiming of input tax in terms of Section 16(2) of the VAT Act.
Situations which give rise to Adjustments?
Where goods or services have been supplied to or acquired, manufactured or produced by a registered operator for the purpose of making taxable supplies and such goods are subsequently applied or used wholly or partly for making non-taxable suppliers.
Where goods that are acquired for making taxable supplies and subsequently applied for a purpose in respect of which input tax is denied.
Where capital goods that had been acquired for making taxable supplies and their application for taxable purposes is reduced in relation to their total application previously made.
When a registered operator reduces the taxable use of capital goods by increasing the non-taxable use.
When there is total change from making taxable supplies to non-taxable supplies, the registered operator accounts for VAT
When a registered operator is deregistered for VAT and is now dealing entirely in exempt supplies.
What is time of supply?
For the purposes of accounting for VAT, the change in use is deemed to be a supply made at the time the goods the goods or services are applied to make non-taxable supplies.
What is the value of supply?
For the purposes of accounting for output tax, the value of supply shall be the open market value. The open market value is the arm’s length consideration in money which a supply of those goods or services would generally fetch.
Computation of an adjustment where there is a reduction in taxable use of Capital Goods. The amount of adjustment is determined according to the following formula:
A x (B-C)
Where
A = lesser of cost or open market value
B = The percentage of taxable usage in the 12 months preceding the period referred to in C below
C = The percentage decrease in taxable usage is deemed to have taken place.
Where the difference between B and C is greater than 10 percent and the capital goods cost more than the prescribed amount, an adjustment must be done.
Our valued clients are reminded that Pay As You Earn (PAYE) for the month of June 2016 is due on the 10th of July 2016.
Disclaimer
This article was compiled by the Zimbabwe Revenue Authority for information purposes only. ZIMRA shall not accept responsibility for loss or damage arising from use of material in this article and no liability will attach to the Zimbabwe Revenue Authority.
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