Understanding withholding of Value Added Tax?
Withholding of Value Added Tax was introduced with effect from 1 January 2017 and some registered operators have since being appointed as VAT Withholding Tax agents. The VAT Withholding Tax agents’ role is to withhold a portion of the VAT when paying their suppliers who are registered for VAT.
What is Value Added Withholding Tax?
It is a value added tax withheld by appointed agents when they pay their suppliers for the acquisition of taxable goods and services. A list of appointed agents is available on the ZIMRA website.
From whom should the tax be withheld?
VAT withholding agents should withhold from their suppliers who are registered for VAT. VAT withholding tax shall be withheld on payments of standard rated supplies. No VAT shall be withheld on payment for the supply of exempt and zero-rated supplies.
What is the rate of Value Added Withholding tax?
The rate of Value Added withholding tax shall be the whole portion of output tax (VAT charged). In cases where payment of the supply is made in installments, VAT shall be withheld on the output tax on each installment.
27 Amendment of section 50A of Cap. 23:12 (FINANCE (No. 2) ACT, 2020)
With effect from the 1st January, 2021, the Value Added Tax Act [Chapter 23:12] is amended in section 50A (“Commissioner may appoint value added withholding tax agents”) by the repeal of subsection (2) and the substitution of—
“(2) Every value added withholding tax agent shall—
(a) withhold the portion of the full amount of output tax specified in the Charging Act from each amount to be paid to a specifed operator, in the currency in which the goods and services concerned were purchased; and
(b) remit each amount so withheld to the Commissioner on or before the 15th of the following month or any other date that Commissioner
may fix in the specifying notice or prescribe (and if the amount so remitted is not remitted in the currency in which the goods and services concerned were purchased, the value added withholding tax agent shall be deemed, for the purposes of subsection (6), not to have withheld and remitted the amount of value added withholding tax due in terms of this subsection).”.
What is the supplier supposed to do?
The supplier must:
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- Receive a VAT withholding tax certificate from the agent.
- Claim the VAT withheld as a credit on submission of VAT returns.
- Attach a schedule of amounts withheld by various agents to the VAT return.
- Keep the tax certificates obtained from withholding agents for a period of six years
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The VAT withholding tax deducted will reduce the amount of VAT payable during the tax period or increase the refundable amount.
Should a supplier supply less goods and or services because VAT has been withheld?
The amount withheld is VAT and it is remitted to ZIMRA by the agent. The supplier claims the tax as a credit on the VAT return which means the tax is an advance payment. Therefore the suppliers is not supposed to supply less goods or services following the withholding of the tax.
