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 1 January 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 to 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 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 limit 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. The amendment by the Finance Act no 3 of 2019 has therefore reinstated the position of registered operators prior to 1 January 2019 except that it comes with some administrative burden and cashflow implications of having to declare and pay VIS first to the ZIMRA before a claim can be made. Before 1 January 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 the VAT first to ZIMRA before they can make the claim. This adds to the cost of doing business for the registered operators, let alone the cashflow implication compared to the position that existed prior 1 January 20219. 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 operator to pay VIS, which was the case in 2019 and even now it 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 1 January 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.