A TAX expert has said government’s plan for a 10 percent withholding tax on output value added tax (VAT), which is to become effective next week, would likely worsen the situation for troubled companies.
Currently, companies in the country are required to charge and account for output VAT on supplies of goods and services and at the end of each tax accounting period, they are expected to remit output VAT to the Zimbabwe Revenue Authority (ZIMRA).
But now ZIMRA is going to collect output VAT much earlier than before.
Withholding tax is the tax withheld by the party making a payment (payer) to another (payee) and remitted to ZIMRA. The payee is taxed on the gross amount using the appropriate rate of tax, and the tax withheld (the withholding tax) is remitted to ZIMRA on or before the due date.
ZIMRA says the purpose of withholding tax is to facilitate or accelerate the collection of tax.
This is achieved by collecting tax from a reasonable and manageable number of payers rather than a much greater number of payees, and by collecting tax from payers that may be registered already for other revenue heads rather than payees who may be outside the statutory registration requirement.
Speaking at a KPMG IFRS and business seminar held last week in the capital, Steve Matoushaya, a tax director with KPMG said: “As from October 1 2016, a withholding tax of 10 percent is going to be introduced on VAT. This means before you pay for supplies, a company has to withhold 10 percent and remit it to ZIMRA immediately. This will make it difficult for business as VAT is now going to be collected earlier.”
Finance Minister Patrick Chinamasa said this was meant to minimise the loss of revenue due to failure by companies to fully declare and remit VAT.
“To minimise loss of revenue arising from failure to fully declare and remit VAT, with effect from October 1, 2016, we are introducing a 10 percent withholding tax on output VAT,” Chinamasa said during his mid-year fiscal policy review early this month.
He said ZIMRA would be responsible for designating agents to withhold the output VAT.
Chimamasa indicated that government had lost about US$40 million due to inaccurate VAT declaration during the last quarter of 2015.
He said: “An audit recently undertaken by ZIMRA in the fourth quarter of 2015 revealed that of the 3 311 suppliers to mining companies, State-owned enterprises and some local authorities, 2 239 did not make correct declarations of the sales made or output tax charged, thereby prejudicing the fiscus of about US$40,7 million in tax.”
ZIMRA has also been intensifying efforts to have all companies in the country fiscalise in a bid to improve tax collection.
It has so far connected more than 3 000 taxpayers to the fiscalised platform.
The fiscalisation project was introduced six years ago when government promulgated Statutory Instrument 104 of 2010 in an attempt to monitor economic transactions, targeting only those companies whose annual turnover was more than US$240 000.
But starting in January 2017, all taxpayers will be forced to be fiscalised.
This is provided for in Section 80 of the amended Income Tax Act.
Fiscalisation uses electronic fiscal devices to capture all sales information and automatically re-route it to the tax authorities who in turn are able to see how much they are owed by companies.
ZIMRA has a server linked to 33 selected large clients who are transmitting data real time, resulting in improvement of VAT collections and efficiency in audit checks and real time verifications.
ZIMRA is therefore planning to vigorously increase the availability of the fiscal gadgets to companies in the market.
It is understood this has come as a result of dwindling revenue, eroded by a shrinking economy, itself affected by company closures and increasing job losses.
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