Value Added Tax (VAT) is an indirect tax that is charged on the supply and consumption of goods and services, as well as on the importation of goods and services into Zambia. VAT is currently levied at the standard rate of 16% on most supplies and importations, but there is a limited range of goods and services which are either exempt, or which are subject to VAT at the zero rate (for example, exports are taxed at 0% under certain circumstances).
Every taxpayer who is in the business of supplying taxable goods or services is obliged to register for VAT within one month upon attaining the K800,000 sales threshold in any 12 month period. In measuring the level of turnover, the following are ignored:
- Exempt supplies made by the business.
- The sale of capital assets which have been used in the business.
- Abnormal sale of inventory.
A “person” who is eligible to register but fails to register is liable to pay output tax that they should have collected from customers, together with any interests and penalty chargeable. Zambia Revenue Authority (ZRA) will backdate to the date of attaining the threshold and will call for VAT on all sales made.
Suppliers with turnover less than K800,000 p.a. may register voluntarily for VAT but subject to the prescribed conditions. A supplier registered under voluntary registration is required to:
- renew the registration every twelve (12) months and;
- notify the Commissioner-General in writing thirty (30) days before the expiry of the 12 months period of the intention to renew the registration.
The mechanics of the VAT system is based on a subtractive or credit input method which allows the registered supplier to deduct the tax incurred on purchases (input tax) from the tax collected on the supplies made by the supplier (output tax). There are, however, some expenses upon which input tax is specifically denied, such as on entertainment.
Every registered supplier is required to submit a VAT return to ZRA on or before the due date. A return with less than Ten transactions may be submitted manually within Five (5) Days after the end of the accounting period to which it relates whereas a return with Ten or more transactions should be submitted electronically within Eighteen (18) days after the end of the accounting period. i.e. by the eighteenth of the month following the end of the tax period. Failure to submit returns on time results in penalties being levied.
However, in certain circumstances, the tax computation for an accounting period may result in a refund, instead of an amount payable to ZRA. This happens, for example, where the registered supplier has incurred more VAT on expenses or purchases than has been collected on any taxable supplies made during the tax period, or where the registered supplier has mainly zero-rated supplies. However, most registered suppliers will not normally be in a refund situation, and should be paying VAT to ZRA on the prescribed date.
Registered suppliers are generally required to account for VAT on the invoice (accrual) basis, but the payments (cash) basis is allowed in some cases. Invoice basis is basically an accrual basis which means that the moment one account for goods or services provided he is already liable for VAT. It is required by law to account for output and input tax based on the invoices issued or received in respect of a supply at the earlier of the time an invoice is issued, or the time any payment is received.
Tax invoices for supplies made, bills of entry for goods imported and the general maintenance of proper accounting records and documents are all very important aspects of how the whole VAT system operates. These documents form an audit trail which ZRA uses to verify that the registered supplier has complied with the law. A tax invoice or bill of entry also serves as the documentary evidence of any VAT deducted by the registered supplier as input tax. A tax invoice must contain certain features to be able to claim input tax.
NB: THIS ARTICLE WAS PREVIOUSLY PUBLISHED BY HLB ZAMBIA IN ITS MONTHLY TAX FLASH OF MARCH 2022.
