A fiscal tax invoice has always been known to be a document provided by a registered operator and central to the claiming of input tax. Not only does it act as evidence of the supply of goods or services, but is also an essential document for the recipient to claim input tax on their VAT return.
It is mandatory for a VAT registered operator to issue a fiscal tax invoice to the recipient of goods or services and this should be within 30 days from the date of supply of such goods or services.
Additionally, the document should be retained by the operator along with other documents in the English language for at least a period of six years from the date of generation.
The recipient of the supply should also retain the document for the same period and only present it for inspection by the Zimbabwe Revenue Authority (Zimra) upon request. The fiscal tax invoice should not be sent to Zimra with the VAT return but should only be shown on the input tax schedule by reference to its invoice number, date, supplier name, description of goods supplied and amounts, among other things. The input tax schedule should accompany the VAT return on submission to Zimra.
The VAT Act has prescribed the minimum features a fiscal tax invoice should have, among them the words fiscal “tax invoice” in a striking position; the name, address and VAT registration number of the supplier; the name and address of the recipient and if recipient is a registered operator, the VAT registration number of the recipient; an individual serialised number and the date upon which the tax invoice is issued; a description of the goods or services supplied; the quantity or volume of the goods or services supplied; price and VAT charged and an electronic signature.
Such an invoice should be printed by a fiscalised electronic register or fiscal memory device used by a registered operator to be valid. The system of fiscal tax invoices works very well for VAT and is credited for curtailing or minimising false or fraudulent VAT claims.
The government has moved a step further to make the fiscal tax invoice one of the conditions to be satisfied for one to qualify for income tax deduction, this is with effect from January 1, 2023. Before this change, the law permitted the deduction of expenditure or losses that were incurred for purposes of trade or in the production of income exclusive of expenditure of a capital nature and prepayments.
Tax payers would deduct these, without presenting fiscal tax invoices, any purchase invoice would suffice to make an income tax deduction.
Therefore, while a registered operator could have been denied input claim on the basis of defective documentation or some other reasons there was really nothing that stopped it from claiming the same under income tax as long as there was no specific provision within the Income Tax Act that disallowed such claim.
In other words, before January 1, 2023, a fiscal tax invoice was only synonymous with claiming of input tax on a VAT return as one would go on and claim all expenses incurred for the purposes of trade or the production of income on the income tax return.
The new order escalates the importance of a fiscal tax invoice and ranks it high in tax compliance management.
This is in accordance with the Finance Act 2 of 2022, which states that expenses that are to be allowed for income tax purposes should be supported by fiscal tax invoices where the purchases are from a VAT registered operator, and this is with effect from January 1, 2023. It does not matter the recipient of the goods or services is VAT registered or not. This means expenditure for income tax purposes is only permissible when a taxpayer holds a valid fiscal tax invoice.
The income tax claim in respect of purchases from persons that are not required to be VAT registered is not affected by the new rules. Such purchases, acquisitions or constructions will continue to be claimed using the basic invoice.
There are serious tax ramifications for businesses that would fail to support their income tax and VAT claims with fiscal tax invoices.
Firstly, the business will miss out on the VAT claim and secondly, the whole invoice will not rank as income tax deduction. Additionally, claims using the defective documentation as aforesaid will be met with a 100 percent penalty under both income tax and VAT.
Our law also criminalises the offence. Therefore, it could result in a jail term for the public officer.
Taxpayers should heed the call to put measures in place to ensure that suppliers are scrutinised and only deal with VAT compliant registered suppliers with the ability to issue valid fiscal tax invoices.
Suppliers who may not be VAT registered but supplying taxable supplies and with potential to meet the US$40 000 annual turnover VAT registration threshold should be sniffed and screened out as these may increase the risk on non-compliance with this new law.
The law deems a person not VAT registered but meeting the registration threshold to be a VAT registered operator from the time they would have met the registration threshold, and this may include the time such operators have been issuing non-fiscalised invoices.
In summary, taxpayers should track the input tax schedules with valid fiscal tax invoices when preparing income tax returns for 2023 onwards.
If an invoice has been disallowed under VAT, it should also be disallowed for income tax purposes. Zimra is expected to reconcile input tax schedules to income tax claims when auditing taxpayers among other validations going forward.
Meanwhile Matrix Tax School is inviting you to its 7th Annual Tax Conference (ATC) to be held in Victoria Falls – Elephant Hills Hotel from May 24 to 28, 2023.
Tapera is the founder of Tax Matrix (Pvt) Ltd and the CEO of Matrix Tax School. He writes in his personal capacity.