Proposed changes to the Time of Supply Rules in the VAT Act
The proposed amendments to the Finance Act [Chapter 23:04] are contained in the Finance Bill, 2019 (the “Finance Bill”), and, if approved by Parliament, will give effect to certain fiscal measures mentioned by the Minister of Finance and Economic Development in the National Budget Statement delivered on the 22nd of November 2018.
Presently, section 8 of the Value Added Tax Act [Chapter 23:12] (the “VAT Act”) provides that a supply of goods and services shall be deemed to be made at the time an invoice is issued by the supplier or the recipient in respect of that supply or at the time any payment of consideration is received by the supplier in respect of that supply (the “Trigger Events”), whichever time is earlier.
The so called “time of supply” provisions outlined above are particularly relevant because the time at which a supply is deemed to be made determines when the obligation to remit VAT to ZIMRA comes into effect.
The Finance Bill proposes to add more Trigger Events to the time of supply, as defined, by providing that in the case of a supply of moveable goods, the time of supply shall also be the time of removal of that moveable good from the place of sale; and in the case of supply of immovable goods the time of supply shall also be the time when the recipient takes possession; and in the case of a supply of a service the time of supply shall also be time when the service is performed.
The above amendments were, ostensibly, introduced to avoid instances where taxpayers, particularly in the supply of goods would defer payment of VAT by delaying the issuing of an invoice or delaying payment for the goods notwithstanding that the goods would have been transferred from the seller to the purchaser. Through the proposed amendments to the VAT Act, the acquisition of possession by the purchaser shall also trigger the payment of VAT.
The issue is slightly more complex with respect to the supply of services. The proposed amendment states that, with respect to services, the time of supply shall also be the time at which the service is performed. There is, however, the question of when a service shall be deemed to have been performed. If a service is deemed to be performed at the time that the service provider completes the provision of the services, the revenue collector may find that deferment of an obligation to pay VAT will still occur. Service providers, looking to pay VAT at a later stage, may devise methods of prolonging the rendering of the service in order to defer payment of tax. The taxpayer would, in such instances, have to defer the receipt of payment as well because payment for services is also a Trigger Event and this could prove counter-intuitive.
If, on the other hand, the time at which a service is performed is interpreted by ZIMRA to mean the date on which rendering of the service begins then this could lead to an onerous state of affairs for taxpayers who will incur the obligation to settle VAT before payment has been received from the purchaser and before the service has actually been completed. For the avoidance of doubt on the issue, lawmakers must make it explicitly clear that the time at which a service is performed shall be regarded as the point at which rendering of the service is completed. Ambiguity in this regard can potentially have devastating consequences for taxpayer’s in the service industry.