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VAT WITHHOLDING TAX - ICAZ VAT WITHHOLDING TAX... absence of an ITF 263 (tax clearance certificate) •So both are levied in some instances-VAT and WHT on contracts •Certificates

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Text of VAT WITHHOLDING TAX - ICAZ VAT WITHHOLDING TAX... absence of an ITF 263 (tax clearance certificate)...

  • 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?