https://lucent.co.zw/tax/what-are-the-requirements-to-for-vat/
The Tax Legislation is made out of three main sources which are;
- The legislation (Acts)
- Precedent / Case law / Court Decisions
- Statutory Instruments.
We have seen at fit at Lucent Consultancy to dissect some of the case laws to encourage awareness and compliance to our clients.
G (PRIVATE) LIMITED
versus
ZIMBABWE REVENUE AUTHORITY
HH 11-22
FA 6/20
Income Tax Appeal.
On 28 December 2017, the respondent’s Commissioner General disallowed the appellant’s objection to a number of VAT assessments made against it for the years 2015-2016 . This is an appeal against that decision and it is brought in terms of S 33 of the Value Added Tax Act . The appellant contends that the Respondent wrongfully decided that the appellant should account for VAT at the standard rate of 15% on services rendered to non-resident organizations, namely, foreign domiciled donor organizations implementing development projects in Zimbabwe with the assistance of the appellant. The appellant further contends that the penalty of 100% imposed by the Commissioner on the assessed VAT is excessive as there was no intent to evade or avoid paying any tax due.
The appellant is a local company registered according to the laws of Zimbabwe. Its functions include the implementation and monitoring of foreign donor-funded projects in Zimbabwe. To that end, and during the relevant period, the appellant concluded various contracts with a number of foreign entities among whom were the Commonwealth of Australia, Deutsche Weldhungerhilfe, a German organization and the British Council all through their offices in Harare.
The respondent is an administrative body established in terms of the Revenue Authority Act [Chapter 23:11]. It is tasked with the collection of revenues on behalf of the State in terms of the Act as well as various other statutes which it administers including the Act. In 2017,the respondent carried out an audit into the appellant’s affairs to ensure tax compliance.
The audit revealed that the appellant had an income above the prescribed $60 000.00 annual threshold and that it was not registered for VAT purposes. The respondent, therefore, registered the appellant for VAT in terms of s23(1) of the Act which registration had a retrospective effect dating back to 1 January 2015– and issued assessments for activities carried out by the appellant in 2015-2016 which called for the payment of VAT. These assessments, communicated to the appellant on 14 June 2017, included a 100% penalty . Interest at the rate of 10% per annum was payable on all outstanding amounts.
The issues for determination were agreed to be the following: Whether or not the services rendered by the appellant to foreign donor organizations were rendered for the benefit of and contractually to non-residents; and Whether or not the 100% penalty levied by the respondent was justifiable and appropriate in
the circumstances.
The sole witness called by the appellant was its managing director. He told the court that the role of the appellant was merely to monitor projects by certain donor organizations (hereinafter referred to collectively as “the organizations”) and to report to them. With regard to the Commonwealth of Australia, the appellant contracted with the Commonwealth of Australia, although the agreement was signed at their AusAID offices in Harare by their duly authorised representative. He told the Court that in terms of the contract, the appellant was to monitor, and report to the Commonwealth of Australia on, the impact of the agricultural input program in terms of which FAO funded and distributed agricultural inputs to rural communities in Zimbabwe. He referred to the agreement contained in the r 5 documents between the appellant and the Commonwealth of Australia and stated that the work performed by the appellant was
for the benefit of the Commonwealth of Australia to whom he submitted the reports and by whom he was paid.With regard to the German company Deutsche Welthungerhilfe, the appellant’s mandate was to monitor and report upon the water sanitation and hygiene program which was being implemented by that organisation but funded by AusAID.
As to the agreement with the British Council it was emphasized that the agreement was with London and not the local office in Harare although signed by the British representative at the British council offices in Harare. The appellant’s function in this agreement was to monitor and report upon an artists and youth program funded by the British Council in Zimbabwe. The appellant was to seek out partners with whom the organization could work. According to the witness, the appellant’s role was merely to organize workshops at which the would-be partners and the donors would meet. The appellant, he said, was not involved in the implementation of any projects.
With regard to all three organizations, the appellant contracted with foreign residents to do work for their benefit.Section 10(2) of the Act states as follows:
“(2) Where, but for this section, a supply of services would be charged with tax at the rate referred to in subsection (1) of section six, such supply of services shall, subject to compliance with subsection (3) of this section, be charged with tax at the rate of zero per centum where—
(a)-(k)..
(l) the services are supplied for the benefit of and contractually to a person who is not a resident of Zimbabwe and who is outside Zimbabwe at the time the services are rendered, not being services which are supplied directly in connection with…” (not applicable).From the above it appears that:
-
- i) there must be a service
- ii)supplied for the benefit of and contractually to a person who is not a resident of Zimbabwe; and
- iii) the recipient of the service in i) must be outside Zimbabwe at the time the service is rendered
The respondent contended that the services rendered by the appellant did not qualify to be zero rated in that the services were supplied for the benefit of, and contractually to, residents of Zimbabwe. The respondent submitted that while ordinarily the foreign organizations would not normally be regarded as residents of Zimbabwe they are deemed to be so by virtue of s 2 of the Act which defines ‘resident of Zimbabwe’ as follows:
“resident of Zimbabwe” means a person, other than a company, who is ordinarily resident in Zimbabwe or a company which is incorporated in Zimbabwe:
Provided that any other person or any other company shall be deemed to be a resident of Zimbabwe to the extent that such person or company carries on in Zimbabwe any trade or other activity and has a fixed or permanent place in Zimbabwe relating to such trade or other activity.
Accordingly, it is my view that the three organisations in question are residents of Zimbabwe for the purposes of the VAT Act. That being so, the services which the appellant claims were rendered for their benefit fall outside the ambit of s 10(2)(l) of the Act as they were rendered for the benefit of residents of Zimbabwe. In addition, the fact of their residence in Zimbabwe disqualifies the services rendered to them for zero rating since the requirements of s10 (2) (l) are cumulative and must all be present in order to qualify the services for zero rating.
