Marvelous Tapera 
VALUE Added Tax (VAT) is an indirect tax on consumption, charged on the supply of taxable goods and services as well as on importation of goods and services. It is levied on transactions rather than directly on income or profit.
The VAT payable is the difference between output tax and input tax. Output tax is charged on taxable supplies made, while input tax is incurred by the registered operator on the acquisition of taxable supplies of goods and services. If input tax exceeds output tax, the result is a VAT refund.
VAT laws provide for a refund of excessive input tax i.e., input tax plus adjustments that exceeds output tax plus adjustments in any tax period as long as the claim is made within six years of the end of the relevant tax period. The refund should exceed the prescribed amount and carried forward to the next period if less than this amount.
Besides normal VAT refunds, other refunds may arise from additional tax, penalty or interest paid in excess of that required by the law or when an operator has been refunded less than the amount properly refundable to him. VAT refunds may also arise upon cancellation of the VAT registration.
A refund cannot be granted if the commissioner is of the view that this will result in an unjust enrichment to the VAT registered operator. This applies mainly to amounts erroneously collected from the operator’s customers, which may be difficult to be channeled back to such customers.
Instead of being paid to the taxpayer, a refund can be used to prepay taxes or offset against other taxes due by the taxpayer to the Zimra. It can be set off against any amount of tax, interest or penalty levied under any Act of Parliament administered by the Commissioner; namely against VAT due, income tax, PAYE, capital gains tax, customs duty, excise duty and other withholding taxes, etc, due by the registered operator. An operator must write a letter instructing the Commissioner to effect the set off.
The Commissioner has the powers to withhold the refund on the pretext of an outstanding return for any tax period, until such a return has been furnished. The decision by the Commissioner to deny a refund must, however, be communicated to an operator through VAT 12, which must be delivered to the registered operator.
In principle, Zimra should make refund within 30 days of the operator submitting a non-defective return. In practice, given the complex issues discussed in the preceding sections, many countries use their VAT laws and regulations to limit the right to immediate VAT refunds.
The right to immediate refunds may be general or restricted to specific registered persons only. General refunds are common in advanced economies with strong administrative mechanisms. Under many developing country laws, VAT refunds are limited to exporters who make a certain ratio of foreign sales and special cases such as VAT on substantive investments.
Under the non-immediate refund mechanisms, the other registered persons are required to offset the excess credit against future output VAT. The rolling offset continues over a specified period (e.g, three months) before a taxpayer is allowed to claim a refund of any net VAT balance still due. The offset mechanism enables tax agencies with weak administrative capacity to conduct audits before making the refunds. Hence, as a general rule, the refunds are paid upon completion of the audit and not at the expiration of the statutory period.
The Commissioner shall only sanction a refund if an application is made within six years of payment of the amount claimed to be refundable depending on whether the payment was made to Zimra in accordance with a “practice generally prevailing at the said date”.
This provision was the subject of the case Weare v the Commissioner for SARS (2005 (4) 488 SCA). Michael Weare, a bookmaker, alleged that he had overpaid an amount of VAT to the commissioner and wanted a refund covering a period of five years.
SARS alleged that the period of refund was six years because payment was made according to a practice generally prevailing at the time.
This was consistent with the scheme of the Act and was reflected in both editions of the VAT guide. At the time, there was a lacuna in the Act, which allowed for every bookmaker in the country to seek a refund of overpayment.
The issue to be decided was the period over which Weare was entitled to a refund. The court found that the overpayment made by Weare was based on the belief that the moneys were due to the receiver as per the situation generally prevailing at the time, and therefore, found that Weare was entitled to a refund for a period of only six months, and not five years.
The Commissioner will also not grant a refund of tax as aforesaid if he “is satisfied that any amount of output tax claimed to be refundable to a registered operator will, if such amount has been borne by any other person, in turn be refunded by the registered operator to such other person”. In other words, in order to avoid unjust enrichment, the commissioner will not grant an operator a refund of overpaid output if such output tax was collected from the customers, the refund will instead be made to such customer.
In conclusion, for quick processing of VAT refund claims, registered operators are required to submit completed VAT 7 return (preferably online), attach eligible and printable input tax schedule showing invoice date, invoice number, name of supplier, supplier VAT number, description of goods/services, value excluding VAT, VAT amount, and value including VAT and attach schedules for debit/credit notes and VAT withholding tax where such claims are applicable to Zimra through online services (where possible).
Meanwhile Matrix Tax School invites you to take part in the Matrix Tax Summer School at Troutbeck Inn. The summer school will run from October 20-22, 2022. Tapera is the founder of Tax Matrix (Pvt) Ltd and chief executive of Matrix Tax School. He writes in his personal capacity.
