adminWhere a registered operator makes a taxable supply for consideration in money and the debt is irrecoverable. The registered operator can claim input tax on the irrecoverable debt in terms of Section 22(1) of the Value Added Tax (VAT) Act [Chapter 23:12], provided that:
The supply was taxable;
A return was furnished or submitted;
VAT was properly accounted for, and
The debt is written off.
The registered operator should apply the tax fraction to determine the input tax to be claimed on the irrecoverable debt.
Example
A registered operator makes taxable supplies of $5 000 including VAT and properly accounts for output tax on the supply to a customer.
The customer then pays $3 500 000 only and absconds, leaving the balance unpaid.
All efforts to trace the customer are unsuccessful and the debt becomes irrecoverable and is then written off.
Input tax computation:
Total Sales $5 000 000
Less Amount
Paid $3 500 000
Outstanding Amount/Irrecoverable: Debt $1 500 000
Input tax
claim 15/115*1 500 000 = $195,652.17
Please take note of the following:
In the case of an instalment credit agreement, the deduction is restricted to the VAT in respect of the cash value that has become irrecoverable;
The tax fraction is applied to the outstanding balance of the cash value after subtracting so much of the payments made by the debtor;
Where a registered operator transfers an account receivable at face value on a non-recourse basis to another person, for instance a shop, no deduction is available under this provision — i.e. the factoring cost of a registered operator discounting his debtors on a non-recourse basis does not give rise to an input tax deduction.
The deduction provided in terms of Section 22(1) of the Value Added Tax Act shall not be made in respect of any amount which has become irrecoverable in respect of an instalment credit agreement if the registered operator repossesses the goods supplied in terms of that agreement.
Our valued clients are reminded that Pay As You Earn (PAYE) for the month of September 2014 is due on 10 October 2014.
Disclaimer
This article was compiled by the Zimbabwe Revenue Authority for information purposes only.
ZIMRA shall not accept responsibility for loss or damage arising from use of material in this article and no liability will attach to the Zimbabwe Revenue Authority.
Please contact us as follows:
Visit our website: www. zimra.co.zw
Follow us on Twitter: @Zimra_11
Like us on Facebook: www.facebook.com/ZIMRA.11
Send us an e-mail: [email protected] <mailto:[email protected]> or [email protected]
Call us (Head Office): 04 –758891/5; 790813; 790814; 781345; 751624; 752731
Online Reporter