Did you know that exempt supplies and zero rated supplies are treated differently for Value Added Tax (VAT) purposes?
Did you know that generally, VAT is levied on the supply of goods and services on importation, exportation and local transactions? This edition looks at how exempt and zero rated goods are treated for VAT purposes.
Zero rated supplies are essentially taxable supplies taxed at the rate of 0%. The following are examples of some goods and services that are subject to VAT at the rate of 0%:
- Exports: the supply of goods for export by an operator in terms of a sale or instalment credit agreement
- Goods used or consumed in respect of temporary importations
- Leasing of goods used in an export country
- Disposal of a going concern
- Supply of gold to the Reserve Bank of Zimbabwe or any bank
- Prescribed agricultural goods and foodstuffs
- Supplies to branches in export countries
- Supply of gold coins by the Reserve Bank
- Drugs-medicines and allied substances
- International transportation of passengers or goods
- Local air transport as part of international transport
- Services to a foreign going aircraft
- Subsidies received by a welfare organisation
- Supplies to an independent branch in an export country
- Subsidies from the state
- Services supplied by a designated tourist facility operator
Electricity supplied for domestic use (with effect from 1 st August 2012)
Exempt Supplies are those supplies where no VAT is chargeable
Examples of exempt supplies are as follows:
- Services by associations not for gain
- Accommodation in a dwelling
- Leasehold land
- Land outside Zimbabwe
- Transportation by road or rail of any fare paying passengers
- Educational services
- Medical supplies
- Membership contributions
Our valued clients are hereby informed that the list of zero rated and exempt supplies given above is not exhaustive. You are therefore encouraged to check through the VAT Act and VAT Regulations in order to correctly classify and treat the goods and services. Clients may also enquire with their nearest Zimbabwe Revenue Authority Office for clarification if needed.
- Registration for VAT and deduction of input tax
Clients dealing in exempt supplies should not register for VAT purposes. These operators should also not charge VAT or deduct any input tax paid in respect of goods or services acquired by them to make exempt supplies.
Operators dealing in zero rated supplies should register for VAT. In addition, a registered operator making zero-rated supplies is allowed to deduct the input tax paid in respect of goods or services acquired to make such supplies.
In respect of zero rated goods and services, the operator is required to keep documentary proof in order to substantiate the zero rating and to claim input tax.
The following records should be retained where applicable: CD1, CD3, Bill of Entry Exports, sales invoices and input tax invoices. Such records should be kept for at least six years and the Commissioner General may request the client to submit the records and any other information as required under the law if needed.