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4.1.3. VAT Implications on a sale in satisfaction of debt
Background
Accounting for VAT in transactions where goods or services are exchanged for consideration in the
ordinary course of business does not pose a challenge. Value Added Tax raises many issues in respect of
goods sold in execution of debt because a sale of goods in execution is not exactly a supply in the ordinary
meaning of the word, which is a supply in the course of trade. The legislature, however, saw it fit to deem
a sale in execution of debt as a supply for the purposes of Value Added Tax. In terms of section 7 of the
VAT Act, transactions which are not necessarily sales of voluntary disposal are brought within the scope
of the law by presuming that they are sales for the purposes of the VAT Act upon which VAT output tax
may be collected and sale in execution of debt falls amongst these.
Law and Interpretation
Section 7(1) of the VAT Act [Chapter 23:12] provides that: “(1) For the purposes of this Act, where—
(a) goods acquired, manufactured, assembled, constructed or produced by a person are sold, under a power
exercisable by another person, in or towards satisfaction of a debt owed by the person whose goods are sold; and
(b) the person whose goods are sold has not furnished, to the person exercising the power of sale, a statement in
writing that the supply of those goods would not be a taxable supply if those goods were sold by the person whose
goods are sold, and stating fully the reasons why that supply would not be a taxable supply; those goods shall be
deemed to be supplied in the course of a trade”.
The above mentioned provision treats an involuntary sale or a sale in execution of debt as sale which
gives rise to VAT despite it not being a sale in the ordinary course of business. The deputy sheriff or the
messenger of court who sales goods of a debtor in execution of a court order or a power exercisable by
another person in satisfaction of a debt is deemed to have made a supply in the course or furtherance of
trade. The law deems such a transaction a “deemed supply”. The term “deemed” is explained in the case
of Chotabhai v Union Government (Minister of Justice) and Registrar of Asiatics 1911 AD 13 as
follows:“The use of the word “deemed” was perhaps not a happy one, because that term may be employed to
denote merely that the person or things to which it relates are to be considered to be what they really are not, without
in any way curtailing the operation of a Statute in respect of other persons or things falling within the ordinary
meaning of the language used. If the word were so employed, the result would be artificially to extend the scope of
the expression referred to, without attempting to define it”. The case of CSARS v Marshall NO (816/2015)
[2016] ZASCA 158 further explained that: “the word ‘deemed’ is primarily appropriate when it is intended to
imbue a person or thing with features or qualities he or it does not, in reality, have and is not appropriate when the
person or thing actually has those features”.
The seller of the goods should charge VAT irrespective of the fact that he is a registered operator or not,
unless such person has received a notification in writing from the debtor (owner of the goods) specifying
that the supply of those goods would not be a taxable supply if those goods were sold by the debtor. The
debtor is mandated to state the reasons in full why the supply would not be taxable supply. VAT
accounted in a sale in execution of debt in terms of section 7(1) of the VAT Act must be declared in a
special return in terms of section 29 of the VAT Act. Section 29 of the VAT Act provides that:
“Where goods are deemed by subsection (1) of section seven to be supplied in the course of a trade the person
selling the goods, hereinafter referred to as “the seller”, whether or not the seller is a registered operator, shall,
within the period of 30 days after the date on which the sale was made— (a) furnish the Commissioner with a return in the prescribed form reflecting— (i) the name and address of the seller and, if registered as a registered operator, his registration number; and (ii) the name and address of the person whose goods are sold, hereinafter referred to as “the owner”, and, if the
owner is registered under this Act, the registration number of the owner; and (iii) the date of the sale; and (iv) the description and quantity of the goods sold; and (v) the selling price of the goods and the amount of tax charged in respect of the supply of goods under the sale,
being the tax leviable in respect of such supply in terms of paragraph (a) of subsection (1) of section six; and (vi) such other particulars as may be required; and (b) pay to the Commissioner the amount of tax so charged; and (c) send or deliver to the owner a copy of the return referred to in paragraph (a),
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and the seller and the owner shall exclude from any return which the seller or owner is required to furnish under
section twenty-eight the tax charged on the supply of goods under the sale in respect of which the return is furnished
under this section.”
As more fully appears in the above mentioned provision, the return must be submitted to ZIMRA within
the period of 30 days after the date on which the sale was made. The seller must also deliver a copy of
the return to the owner (debtor) of the goods within 30 days of the date of sale. Any tax due should be
remitted within the same timeframe and shall be computed at 15% of the value of supply.
Decision Impact
Taxpayers must be cautious of deemed supplies in order to avert penalties because naturally these are not
supplies within the ordinary meaning of a supply. The law artificially makes such transactions a taxable
supply. This poses a difficulty in the determination of whether VAT would apply in respect of transactions
of this nature. Every seller, whether registered VAT operator or not, must be on the lookout for these sort
of transactions and ensure that they collect VAT due on such transactions as provided for at law in order
to avoid tax snares.
4.1.4. Tax Amnesty gone and so what is next
Background
Tax amnesty gone and dust. The ZIMRA however is making frantic efforts to encourage taxpayers to be
compliant through different initiatives and this is still an ongoing process. The tax amnesty expired on
the 30th of June 2018 and now doors have been re-opened for voluntary disclosure from the 1st of July
2018 till the 31st of December 2018. Through voluntary disclosure, taxpayers are required to truthfully
and completely disclose income or items omitted from returns previously submitted or where there are
any tax obligations that the taxpayer may not have complied with. The voluntary disclosure should be
received before the commencement of an investigation or audit on the taxpayer, or before the Zimra
notifies the taxpayer of the commencement of a tax audit or investigation. The returns should be for the
period 30 June 2018 going back to any such period the income was omitted. The program is open to all
taxpayers; individuals, companies, associations, partners, partnerships, trusts, sole proprietors, etc.
Law and Interpretation
The voluntary disclosure programme is open to all the taxpayers who have at times committed punishable
offences against the Commissioner such as those highlighted in s81 of the Income Tax Act which reads: “(1) Any person who, without just cause being shown by him—
(a) fails or neglects to furnish, file or submit any return or document….
(b) refuses or neglects to furnish any information or reply, or to attend and give evidence as and when
(c) fails to show in any return made by him any portion of the gross income received by or accrued to or in favour
of himself…………..
(d) fails to show in any return prepared or rendered by him on behalf of any other person any portion of the gross
income received by or accrued to or in favour of such other person………………
(e) fails, refuses or neglects to show in any return made by him or her information required to; shall be guilty of an
offence and liable to a fine not exceeding level seven or to imprisonment for a period not exceeding three months
or to both such fine and such imprisonment”.
When one makes a voluntary disclosure, the information and documents provided should be true and
correct. Section 44 (11) of the Income Tax Act emphasizes this as follows: “Production of documents and evidence on oath The Commissioner is hereby empowered to administer oaths to persons examined in terms of this section. Any
person who, after having been duly sworn, willfully makes a false statement to the Commissioner on any matter
relevant to the inquiry, knowing such statement to be false or not knowing or believing it to be true, shall be guilty
of an offence and liable to a fine not exceeding level seven or to imprisonment for a period not exceeding two years
or to both such fine and such imprisonment”. The provision is very clear that the ramifications of presenting information that is not truthful on oath are
too hard to swallow. The taxpayer must disclose information truthfully and accurately during voluntary
disclosure.
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Section 46 of Income Tax Act highlights the additional tax in event of default or omission as follows: (1) A taxpayer shall be required to pay, in addition to the tax chargeable in respect of his taxable income— (a) if he makes default in rendering a return in respect of any year of assessment— (b) if he omits from his return any amount which ought to have been included therein, (c) if he makes any incorrect statement in any return rendered by him (d) if he fails to disclose in any return made by him any facts which should be disclosed
Instead of paying the additional tax as stipulated by the Law, making a voluntary disclosure will lighten
the tax burden. Taxpayers must take advantage of voluntary disclosure and enjoy the remission of
penalties. This is the most sensible way to proceed for taxpayers who have missed Amnesty.
Decision Impact
Voluntary disclosure gives taxpayers a second opportunity to clean up their tax affairs with a possibility
of full penalty waiver. Disclosure is required of different business flaws pertaining to registration,
submission of returns, payments, maintaining records and information, fiscalisation of operations, among
others. Any person who failed to declare goods and or services for duty purposes can also make a
voluntary disclosure. Where the taxpayer is in doubt of the way they are treating transactions for tax
purposes and require an opinion from ZIMRA they can voluntarily disclose such transactions. Once you
make a voluntary disclosure, this will not trigger an audit, investigation or prosecution. The voluntary
disclosure programme also waivers penalties, civil penalties, fines and additional tax in full but the
interest on outstanding debts remains due and payable. The outstanding tax debts will be paid on agreed
payment terms and businesses will be free from the burden of non-compliance. Making a voluntary
disclosure also enables taxpayers to access tax clearances leading to ease of doing business. We observe
that government through ZIMRA realizes that the need to give businesses an opportunity to straighten
out their tax affairs and retain business viability which translates to perpetual contribution to the fiscus.
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4.2 Announcements
4.2.1 India exempts all taxes on sanitary pads
Background
The teenage age of females is a difficult period that is characterised by radical body development that
includes the beginning of menstruation. For females this age, menstruation is a shocking experience to
an extent that when they are on their menstrual period, others fail to attend school. India introduced a
goods and services tax in which all goods and services save for a few exempt goods would attract tax at
a rate of 12%. This sparked an outcry amongst the people and resulted in the reverse of the decision.
India: huge relief for girls as officials scrap tax on sanitary pads
India on Saturday 21 July 2018 scrapped a controversial tax on sanitary pads, a move hailed by
campaigners who say it will help more girls to go to school during their periods and boost their job
prospects. “I think that all mothers and sisters will be very happy to hear that sanitary pads are now 100
percent exempt from tax and have been made tax-free. And now sanitary pads will not fall under any
category of Good and Services Tax”, said Indian’s interim Finance Minister, Piyush Goyal.
Activists say removing the tax on pads tackles one of the biggest barriers to education for girls, who are
often forced to stay at home due to a lack of access to clean hygiene products, while also facing stigma
and a lack of toilets in schools. I think that all mothers and sisters will be very happy to hear that sanitary
pads are now 100 percent exempt from tax and have been made tax-free. And now sanitary pads will not
fall under any category of Good and Services Tax. Periods are among the leading factors for girls to drop
out of school in a country where four out of five women and girls are estimated by campaigners to have
no access to sanitary pads. Sanitary pads were taxed at 12 percent under India’s Goods and Services Tax
launched in July 2017. The decision triggered protests, petitions and court cases that questioned why the
government taxed pads as a luxury rather than an essential item, such as condoms, which are tax-free.
Decision Impact
This is a big win for the Indian girls and Zimbabwe could possibly pick a leaf from India Kenya, Ireland
and Canada whose sanitary pads are tax free.Several calls have been made to the government to rebate
sanitary ware and raw materials used to manufacture sanitary ware. Recently, scores of girls and young
women embarked on a campaign dubbed “Happy flow campaign” advocating for health and wellness and
in particular the access to sanitary pads. In order to promote the girl child, it is provident for the
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government to follow the route followed by India which is in line with women empowerment for the
purposes of redressing the imbalances of the past. It has been noted that young girls sometimes miss
school during their menstrual cycle which takes them aback in the progression of their studies. Cheaper
sanitary ware would be a sensible way of giving effect to the constitutional mandate of redressing the
injustices of the past through the promotion of the girl child by provision of sanitary ware.
4.2.2 SARS ditches drop boxes and certain printed forms
PRETORIA, 29 June 2018 – The South African Revenue Service (SARS) will remove drop boxes for the
submission of income tax returns and other paper documents, in its drive to encourage taxpayers to use
e-Filing for all tax transactions where possible. As of 01 July 2018, it will also no longer provide certain
printed forms at its branches, including forms used to register as a taxpayer (IT77C for companies and
IT77TR for trusts), as a VAT vendor (VAT101), as an employer (EMP101), as well as forms used to
apply for tax directives (IRP3(a), (b), (c) and (d)).
These transactions, together with the filing of income tax returns, payments and the uploading of
supporting documents, can all be done electronically on eFiling with the support of Help-You-eFile and
the contact centre if taxpayers get stuck. SARS has increased the size threshold of files from 2 megabytes
to 5 megabytes in time for tax season. The increase in digital transactions means a significant saving on
paper, printing and courier costs for both SARS and the taxpayer. This will also reduce traffic in branches
– one of SARS’ objectives for Tax Season 2018.
A digital and paperless approach was initiated more than a decade ago when the internet-based eFiling
system was made available for the electronic submission of personal income tax returns. Drop boxes
were, however, provided in addition to the branch and electronic channels for taxpayers who chose to
submit their returns and documents manually. SARS will ensure that taxpayers switching to eFiling are
supported. Taxpayers will still be able to visit a SARS branch if they need an assisted filing experience.
However, they are encouraged to migrate to electronic submission. Original paper documents will be
handed back to the taxpayer for safekeeping.
SARS encourages taxpayers to use eFiling (www.sarsefiling.co.za), which is the most convenient method
for the majority of transactions with SARS, and is available 24 hours. There are also email addresses
available on the SARS website for taxpayers to interact with SARS, as well as the SARS Contact Centre
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