A dive into some of Triggers of Audits by ZIMRA

🚩 Discrepancies and Inconsistencies (Risk-Based Selection)

ZIMRA increasingly relies on digital tools and data matching to identify inconsistencies between various records. This is one of the most common triggers.

• Inconsistent Tax Filings: Major discrepancies between your VAT returns and other tax filings (like Corporate Income Tax returns). For example, your declared turnover on the Income Tax return must reconcile with the total sales declared on your VAT returns.
• Bank Records Mismatches: Significant differences between your total bank deposits and the sales/income declared in your tax returns, especially concerning the use of foreign currency (USD) versus local currency (ZiG).
  • Example: Declaring sales only in ZiG but having high USD deposits in your bank account.
• Fiscalisation Data Discrepancies: ZIMRA’s Fiscalisation Data Management System (FDMS) receives real-time or near real-time data from your fiscal devices. Audits are triggered if:
  • The data submitted by your fiscal device does not match the sales declared on your VAT return.
  • There are frequent or unlogged malfunctions or inconsistencies in the daily Z-Reports.
  • You are VAT-registered but have not fully fiscalised or are not transmitting data
• Unusually High or Frequent VAT Refund Claims: While genuine refunds are paid, frequent or large claims for input tax refunds often flag a business for a detailed verification audit.

🚨 Compliance Failures and Red Flags

These are direct signs of non-compliance that often lead to an immediate audit or investigation:

• Late or Non-Filing of Returns: Consistently filing VAT returns late or failing to file them altogether will automatically raise a red flag.
• Incorrect Application of VAT Rules: Mistakes in classifying supplies, such as:
  • Incorrectly applying the zero-rate (0%) or claiming a supply is exempt when it should be standard-rated (currently 15%).
  • Incorrectly claiming Input Tax on purchases not wholly and exclusively for making taxable supplies, or using invoices that are not valid Fiscal Tax Invoices (lacking required features like the verifiable QR code).
• Weak or Incomplete Documentation: If your records are incomplete, not maintained for the statutory minimum of six years, or do not adequately support your input tax claims and declared sales.
• Unusual Expense Claims: Business expenses that appear personal (e.g., groceries, excessive entertainment) or large cash purchases with no supporting documentation.

💼 External and Other Triggers

• Third-Party Information/Whistleblowers: Tips or complaints from former employees, competitors, or other members of the public can lead to a targeted investigation.
• Information Sharing: Data received from other government agencies, industry regulators, or foreign tax authorities.
• Targeted High-Risk Sectors: ZIMRA often focuses audits on specific sectors identified as high-risk for non-compliance or evasion, such as:
• Retail
• Construction
• Mining
• Transport
• Cash-heavy industries.
• Voluntary Disclosure (Pre-Audit): While used to mitigate penalties, a voluntary disclosure must be managed strategically. If ZIMRA believes the disclosure is incomplete or only covers a minor part of a larger issue, it can open the door to a broader, formal audit.
• Random Selection: Audits are also conducted on a purely random basis to maintain general tax compliance awareness across all sectors.

To enhance your resilience against a VAT audit, it is crucial to conduct regular internal tax health checks, ensure your fiscal devices are compliant and transmitting data correctly, and always maintain clear, consistent, and well-supported financial records.