Opinion / Columnist
Beware of VAT fraud - tax expert
26 Jun 2014 at 11:15hrs | Views
It is a fact that we are living in a challenging an economic environment and it is really proving difficult to run a profitable business in Zimbabwe especially for the SME sector to which I belong. I cannot wait to read the findings of the CZI survey on the cost of doing business in Zimbabwe. Due to the economic challenges, every business is trying hard to cut costs or spread the little income across a long list of recurrent expenditure and statutory obligations. Unfortunately some traders have resorted to playing around with their VAT returns with the aim to reduce their tax obligation. I have come across a number of traders who believe that a way to keep Zimra away from your offices is to just pay 'something' and keep your tax account active. This is a dangerous strategy as you may be committing a tax fraud unknowingly. Take VAT for example.
VAT is an indirect tax on consumption, charged on the supply of taxable goods or services and is levied by registered operators or other authorised person. Every registered operator is required to submit a return and pay VAT on or before the 25th day of each month, maintain proper accounting records and account for output tax on all taxable supplies made.
The VAT obligation is determined by subtracting input tax from output tax. Input tax is VAT charged to registered operator on goods or services for resale and output tax is VAT levied by the registered operator on sales. If I am a registered operator and sale goods to another registered operator, my customer can claim input tax using my invoice. If I then thumb suck my VAT obligation resulting in underpayments, where is Zimra getting the money to refund my customer? This means that I am granting myself a soft loan from government revenue without approval of the treasury. Putting it crudely, I am stealing from state coffers. As a registered operator, I act as an agent of Zimra to collect its VAT from my customers on its behalf and I should remit it in full. By not remitting VAT in full and on time, I will be breaching the trust bestowed on me by Zimra. This explains why penalties on VAT offences can go as high as between 100% and 200%. If Zimra comes and audit my accounts and I am found wanting, I would then realise that the VAT I did not pay was not a soft loan after all.
My advice to readers who find it tempting to use VAT funds entrusted to them is to make weekly reconciliations and bank the VAT funds into a Zimra bank account regularly and account for your weekly deposits on a monthly return due on the 25th day of each month. Some have found it prudent to open a 'trust account' where they deposit VAT funds and transfer them to Zimra account on due date. I know that in this current challenging economic environment, it is easier said than done but I still believe that this is the way to go if business is to save money by avoiding tax penalties and interests.
I have just given an example of VAT but this applies to all revenue heads. Our tax system is designed in such a way that it has checks and balances. A false declaration in one tax head may be revealed in another tax head. For example one may under declare values of his capital equipment on importation with the intention of paying less customs duty but which values is he going to use when claiming capital allowances when calculating his income tax, declared values on importation or correct values? If one under declares his wage bill with the intention of paying less PAYE, which value is going to use in his loss and profit account as cost of labour, the forged values on PAYE returns or the correct cost of labour? If I am a liar in tax matters, then I should have a sharp memory to link all my tax heads so that they tell the same story. My advice is that never do anything that will make you lose sleep.
Disclaimer: Please note that this article is not meant to create a consultant / client relationship. The author advises importers to consult their customs advisors or brokers when importing goods.
About the author: Elisha Tshuma is a customs, tax and trade facilitation consultant. He writes in his personal capacity. He can be contacted on tshumaelisha72@gmail.com or 04-701901.
VAT is an indirect tax on consumption, charged on the supply of taxable goods or services and is levied by registered operators or other authorised person. Every registered operator is required to submit a return and pay VAT on or before the 25th day of each month, maintain proper accounting records and account for output tax on all taxable supplies made.
The VAT obligation is determined by subtracting input tax from output tax. Input tax is VAT charged to registered operator on goods or services for resale and output tax is VAT levied by the registered operator on sales. If I am a registered operator and sale goods to another registered operator, my customer can claim input tax using my invoice. If I then thumb suck my VAT obligation resulting in underpayments, where is Zimra getting the money to refund my customer? This means that I am granting myself a soft loan from government revenue without approval of the treasury. Putting it crudely, I am stealing from state coffers. As a registered operator, I act as an agent of Zimra to collect its VAT from my customers on its behalf and I should remit it in full. By not remitting VAT in full and on time, I will be breaching the trust bestowed on me by Zimra. This explains why penalties on VAT offences can go as high as between 100% and 200%. If Zimra comes and audit my accounts and I am found wanting, I would then realise that the VAT I did not pay was not a soft loan after all.
I have just given an example of VAT but this applies to all revenue heads. Our tax system is designed in such a way that it has checks and balances. A false declaration in one tax head may be revealed in another tax head. For example one may under declare values of his capital equipment on importation with the intention of paying less customs duty but which values is he going to use when claiming capital allowances when calculating his income tax, declared values on importation or correct values? If one under declares his wage bill with the intention of paying less PAYE, which value is going to use in his loss and profit account as cost of labour, the forged values on PAYE returns or the correct cost of labour? If I am a liar in tax matters, then I should have a sharp memory to link all my tax heads so that they tell the same story. My advice is that never do anything that will make you lose sleep.
Disclaimer: Please note that this article is not meant to create a consultant / client relationship. The author advises importers to consult their customs advisors or brokers when importing goods.
About the author: Elisha Tshuma is a customs, tax and trade facilitation consultant. He writes in his personal capacity. He can be contacted on tshumaelisha72@gmail.com or 04-701901.
Source - The Zim Mail
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