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Introduction
The general design of the VAT system is that businesses with certain prescribed taxable turnover or supplies are required to levy and collect VAT on such supplies and to reclaim input tax incurred on their purchases. Where the VAT collected from their customers exceeds input tax, the result is a VAT payable to the ZIMRA and VAT refund when input tax for a tax period exceeds output tax. VAT refund is sanctioned by s 44 of the VAT Act, Chapter 23:11. Getting the VAT refund is one of the insurmountable tasks for businesses in almost every tax jurisdiction and Zimbabwe is not an exception. Tax authorities require to be reasonably assured that only genuine cases of refunds are made to taxpayers and often carry an audit of VAT refunds. The World Bank Group Flash Report (16th Edition): Doing Business 2019 Zimbabwe highlighted that it takes about 48.6 weeks for VAT to be processed and paid to an operator by the Zimbabwean Authority Revenue and about 75%-100% of the refunds are audited. The refund period allowed by the law is 30 days. Even in instances where taxpayers have supplied all the required documentation as requested by the authority for verification, delays are still experienced. Delayed refund creates cash flow problems for businesses. This piece of writing ventilates the law on VAT refunds and offers some tips to businesses on how to reduce the VAT refund cycle.
Law regulating refunds
Section 44 of the VAT Act provides for refund of excessive input tax i.e. input tax plus adjustments that exceeds output tax plus adjustments in any tax period as long as the claim is made within 6 years of the end of the relevant tax period. The refund should exceed the prescribed amount of US$60 and carried forward to the next period if less than this amount. Besides normal VAT refunds, other refunds may arise from additional tax, penalty or interest paid in excess of that required by the law or when an operator has been refunded less than the amount properly refundable to him. A refund cannot be granted if the Commissioner is of the view that the refund of the amount will result in an unjust enrichment to the registered operator. This applies mainly to amounts erroneously collected from the operator’s customers which may be difficult to be channeled back to such customers. VAT refunds may also arise upon cancellation of the VAT registration and this shall be refunded in full. A refund can be used to prepay taxes or offset against other taxes due by the taxpayer to the ZIMRA. It may be set off against any amount of tax, interest or penalty levied under any Act of Parliament administered by the Commissioner; namely against VAT due, income tax, PAYE, capital gains tax, customs duty, excise duty and other withholding taxes, etc. due by the registered operator. An operator must write a letter instructing the Commissioner to effect the set off. The Commissioner has the powers to withhold the refund on the pretext of an outstanding return for any tax period, until such a return has been furnished. The decision by the Commissioner to deny a refund, must be communicated to an operator through VAT 12 which must be delivered to the registered operator.
VAT audits
Generally the ZIMRA has been paying refunds after completion of the audit. The commonly cited reasons for refund rejection include outstanding returns, tax payments, defective returns (not properly completed), wrong physical address, no banking details supplied by the operator, among others. Taxpayers must also ensure they have e-filed an input tax schedule and maintain original tax invoices claimed as input tax as these are often required to complete refund audit. Other important documents are valid debit and credit notes. Input tax should be claimed on the basis of a valid tax invoice or fiscalised invoice with an electronic signature, which must be original copies. The ZIMRA officials may visit the operator’s premises as part of refund verification process and failure to locate operator can result in the refund being rejected or withheld.
Interest on delayed refunds
Interest is payable on delayed refunds. Section 20 of the VAT General Regulations, 2003 (SI273 of 2003) also provides for the ZIMRA to pay interest to a registered operator who has not been refunded within 30 days of the Commissioner receiving the tax return or the tax refund application. This does not however apply in cases where the delay is caused by the operator’s fault such as submitting incomplete or defective information in any material. Under such circumstances, interest shall start to accrue from the date the registered operator rectifies the return and satisfies the Commissioner that the incompleteness or defectiveness thereof does not affect the amount of refund, or the date on which the Commissioner makes an assessment upon the registered operator reflecting the amount properly refundable, whichever occurs first. Interest is also not payable in situations where the Commissioner is prevented from determining the amount refundable due to inability to gain access to the registered operator’s books of accounts. The Commissioner has on reasonable time from the receipt of the tax return, made a written or verbal request to the registered operator to access such books and records. Under such circumstances the 30 day period of refund will be suspended from the date the letter is delivered or posted, by registered mail or verbal request is made until the date on which such access is granted.
Tips
In order to facilitate speedy processing of their refunds operators should note the following: All invoices must reflect correct VAT registration numbers for the supplier and receiver of goods and services – this will ensure that all invoices (inter alia) are correct and in order. Turnover as per VAT returns must match the one in the financial statements; variances may require explanation which may delay processing of the refund. Maintain documents as evidence of proof of writing off bad debts where you have written back the VAT paid on bad debts. Keep documentary proof of zero-rating where you have supplied zero rated goods or services to be entitled to claim input otherwise the ZIMRA will raise a red flag. Submit returns regardless of whether there is no VAT liability and no VAT payment due, as this is a prerequisite to every registered operator.
Conclusion
It is a prerequisite for a VAT registered operator to keep up to date and authentic documentation because for one to get a refund there is need for supporting documents. You should approach professional accountants to handle your tax affairs and make sure you have complied with the VAT compliance requirements prescribed by the law and the standard of risk based refund, respectively.