Marvelous Tapera 
THE value of supply refers to the tax base on which Value Added Tax (VAT) rate is to be applied. The rule was introduced by VAT laws, which state that for the purposes of the VAT Act, this section shall apply for determining the value of any supply of goods or services.
The value to be placed on any supply of goods or services shall be the value of the consideration for such supply less so much of such value as represents tax. Value is an amount exclusive of VAT i.e. value is equal to consideration less tax.
The term consideration, however, excludes the value of any postage stamp as defined in the Postal and Telecommunications Act, which is used in the payment of consideration for any service supplied by the successor postal company or any postal licensee. “Consideration ”, in relation to the supply of goods or services to any person, includes any payment made or to be made, including any deposit on any returnable container and tax, whether in money or otherwise, or any act or forbearance, whether or not voluntary, in respect of, in response to, or for the inducement of, the supply of any goods or services, whether by that person or by any other person, but does not include any payment made by any person as an unconditional gift to any association not for gain: provided that a deposit, other than a deposit on a returnable container, whether refundable or not, given in respect of a supply of goods or services shall not be considered as payment made for the supply unless and until the supplier applies the deposit as consideration for the supply or such deposit is forfeited”.
The consideration should therefore, be in respect of, in response to or for the inducement of, the supply of goods or services.
A payment will therefore, not be treated as consideration if there is no direct link between such payment and the supply or where a supply of goods or services is absent. A donation would thus, not constitute a supply since there is no supply of goods or services to the donor.
Whereas a sponsorship payment, which involves the sponsor receiving clearly identifiable benefits in return, whether by way of advertising or publicity, constitute a consideration for the supply.
It was held that where a taxpayer receives money, goods and services from sponsors in return for providing branding and marketing services to the sponsors, VAT is applicable on the sponsorship receipts ― ABC (Pty) Ltd v CSARS Case No A 129/2014.
The taxpayer staged annual international jazz festivals in Cape Town. In doing so it was carrying on an enterprise and had registered as an operator in terms of the Act. It concluded sponsorship agreements with SAA, the City of Cape Town, the SABC and Telkom, who provided money, goods and services. In return, the taxpayer provided goods and services to the sponsors in the form of branding and marketing.
All the sponsors were registered operators under the Act. It was common cause that the transactions were barter transactions.
The values received by the taxpayer were evident from the sponsorship contracts. Equally, the values of the goods and services provided in return by the taxpayer were determinable from the contracts.
The court held that the sponsorship agreements constituted a taxable supply and the fact that the “sponsors failed to issue the invoices does not make it impractical to require that they be issued” and that on the contrary it was the Commissioner’s responsibility in the circumstances to compel their issue.
The term consideration is defined in terms of the VAT laws as the amount of money or open market of supply in cases where the supply cannot be expressed in money terms.
Therefore, when goods are exchanged for other goods with specified money value, the consideration shall be the money value so stated and where no monetary value is stated, and the consideration for the supply will be the open market value of the goods or services exchanged.
Hence, the value of supply is the amount of money or the open market value of the supply exclusive of VAT. Thus, when computing VAT on a consideration (unless it is stated that value is consideration) one should apply the tax fraction (14.5/114.5) to obtain the VAT, whereas on value VAT is determined as 14.5 percent of that value.
The term open market price is defined as the consideration in money, which the supply of those goods or services would generally fetch if supplied in similar circumstances at that date in Zimbabwe, being a supply freely offered and made between persons who are not connected persons namely the arm’s length price of goods or services supplied between two independent parties.
The VAT laws provide that the open market value of any consideration not expressible in money terms shall be ascertained in the same manner, with any necessary modifications, as the open market value of any supply of goods or services is ascertained under the same laws.
Where the open market cannot be ascertained, the VAT Act has provided that it shall be the consideration in money which a similar supply would generally fetch if supplied in similar circumstances at that date in Zimbabwe, being a supply freely offered and made between persons who are not connected persons.
If this also cannot be determined, the open market value shall be determined in accordance with a method approved by the Commissioner, which provides a sufficiently objective approximation of the consideration in money, which could be obtained for that supply of those goods or services.
Similar goods or services mean goods or services with the same characteristics, quality, quantity, functional components, materials and reputation with mentioned goods or services or are the same as, or closely or substantially resemble the goods or services in question.
In conclusion, it is important for taxpayers to know the correct value of supply in order to pay VAT on the correct amount.
Meanwhile, Matrix Tax School invites you to the upcoming Annual Tax School. The tax conference runs from May 25, 2021 to May 28, 2021 at Elephant Hills Hotels in Victoria Falls.
Tapera is the founder of Tax Matrix (Pvt) Ltd and the chief executive of Matrix Tax School. He writes in his personal capacity.
