Marvelous Tapera 
THE government has through Finance Act 2 of 2020 gazetted a new Valued Added Tax Withholding Tax (VAT WHT) rate, which will see its agents withholding 100 percent of VAT charged to them.
For the business, the VAT WHT is tantamount to withdraw of free government credit.
This is with effect from this year. VAT WHT is collected by persons who have been appointed agents by the Zimbabwe Revenue Authority (Zimra) whenever they pay their suppliers for the acquisition of taxable goods and services. These agents are mostly large corporates in mining, manufacturing, wholesalers, retail etc.
Each time the agent is making the payment to its supplier, it must withhold a certain portion of the VAT charged to it and give the supplier a withholding tax certificate for the amount withheld.
The supplier would then use such certificate as a credit against the VAT due to the Zimra upon submission of its VAT return for the respective tax period. The process enhances and guarantees revenue collection for the government well as ensuring collection efficiency because tax will be collected from fewer payers, as opposed to a much greater number of payees.
For the business, the VAT WHT is tantamount to withdraw of free government credit. The system was introduced in 2017, with the rate of withholding tax initially fixed at two third of the VAT, but reduced to one-third of the VAT in later years. The one-third rate is what the Finance Act 2 of 2020 is substituting with 100 percent of the VAT charged by the supplier. This is not good news for the business especially at a time it is battling with the effects of Covid-19 pandemic.
The measure may compromise cashflow of the affected businesses. It may also trigger VAT refunds from the Zimra for such businesses because the output VAT withheld by their debtors will not be available for offsetting against their input tax. This in turn could exacerbate the cashflow problem for them should there be delays in those refunds.
While it is appreciated that the government through the Finance ministry is seeking to accelerate revenue collection to enable the continued sustenance of public services, the new law creates a potential for huge VAT refunds. Any delays in processing these refunds could create cash flow problems for the business and consequently reduces future government revenue.
In this era of Covid-19 most businesses are struggling especially with the imposition of second wave of lockdowns. They need working capital and any stimulus package from the government to survive the current storm. The economic consequences of the Covid-19 pandemic call for urgent policy responses to keep the economy afloat and enable people to retain their jobs and incomes.
Some of the fiscal measures by governments across the globe to save jobs and businesses from collapsing include broad-based tax relief (e.g. VAT reductions and deferred payroll charges), wage subsidies, unemployment benefits, the deferment of utility bills and rent payments, mortgage relief, lump-sum payments to households, loans and loan guarantees to businesses, as well as equity investments by governments in distressed companies.
Zimbabwe has also unveiled an $18 billion economic rescue and stimulus package for “scaling up production in all the sectors of the economy in response to the adverse effect of Covid-19”, as well as cushioning small businesses, improve health facilities, reduce poverty and hardships and assist vulnerable members of society. The new VAT law in our view may not be in sync with the current realities.
It may potentially put strain on or choke the same business which the government is attempting to rescue should there be undue delays in VAT refunds.
Delays in processing VAT refunds by revenue authorities is not unique and even refunds for the most compliant taxpayers are sometimes delayed because of the process that is required to mitigate against any risk of making the wrong refund.
Zambia for instance has been experiencing a huge crisis regarding the same matter for some time now. In 2018 its Finance minister, Margaret Mwanakatwe announced that the VAT regime would be abolished and a new sales tax would be introduced, effective April 1, 2019. This was in a bid to resolve the unsustainable VAT refund debt owed by the government to the private sector.
For the period 2015 to 2019, the net contribution of VAT in Zambia far surpassed the amount paid out in refunds resulting the country accumulating a heavy debt to the private sector especially the mining sector in the form of VAT refunds, which got to about 2,8 percent of GDP in 2017 (IMF, 2017). It is our esteemed view that Zimbabwe is not in need of Zambian experience.
The new law and the potential VAT refund, if not harnessed properly, could however take us there. Thus, the delay in VAT refunds coupled with the need to remit VAT on imported services at an earlier date could choke businesses and in turn have a negative fiscal effect. The time for remittance of VAT on imported services was reduced by same Act with effect from January 1 this year from 30 days to 25 days.
Given the challenges faced by businesses on a day to day basis, as a result of the pandemic, and the general decline in economic activity, businesses are more in need of support and working capital in order to save jobs — which is also needed to sustain government revenues. VAT is one of the largest contributor of the tax revenue. It is then imperative that the VAT be administrated in an efficient manner, one of which includes expediting VAT refunds for businesses and creating laws that facility easy of doing business.
Meanwhile, Matrix Tax School (Pvt) Limited will be hosting a webinar seminar on “2021 Tax Developments and December MTU” on January 20, 2021. Do not miss out on this very important event!!!
● Tapera is the Founder of Tax Matrix (Pvt) Ltd and the chief executive of Matrix Tax School. He writes in his personal capacity.
