VAT GUIDE

FOREWORD

Every country in the world needs revenue to provide health, education, social
services, roads, and a wide range of other facilities for all its citizens. One of the
ways Government mobilizes revenue is through taxation and one such tax is a
consumption tax called Value Added Tax (VAT).

VAT is an indirect tax which was introduced in Zambia on 1st July 1995 to
replace sales tax. The advantages of VAT for businesses can be summarized as
follows:

VAT is largely invoice based and therefore uniform and uncomplicat-

ed, offering a sound financial management system with less collection
weaknesses. As a result of increased tax compliance, brought about by
the ‘self-policing’ nature of VAT, there is less distortion of trade.

VAT gives the potential for a stronger home manufacturing industry

and more competitive export prices.The input credit mechanism gives
registered businesses back much of the tax they pay on purchases and
expenses used for making taxable supplies.

It is a fairer tax than most General Sales Tax largely because it avoids
the ‘tax on tax’ characteristic of most indirect taxes. A wider tax base
has resulted in less distortion of trade and a greater sharing, across all
sectors of the business community, of the costs of collecting indirect
taxes and remitting them to the Government.

VAT in Zambia is administered under the Domestic Taxes Division of Zambia

Revenue Authority (ZRA). The primary Law relating to VAT is contained in the
Value Added Tax Act Chapter 331 of the Laws of Zambia. The subsidiary
legislation comprises General Regulations made by the Minister through
Statutory Instruments and Administrative Rules made by the Commissioner
General through Gazette Notices.

The purpose of this booklet is to provide general guidance and it does not
replace or amend the law. Further, the guidance is not exhaustive and does
not, therefore affect any person’s right of appeal on any point concerning their
liability to tax, nor does it preclude any discretionary treatment which may be
allowed under the Act.

KINGSLEY CHANDA
COMMISSIONER-GENERAL
CONTENTS

PART 1
1.0 Explanation of Value Added Tax (VAT)
1.1 The Mechanisms of VAT
1.2 VAT Computation
1.3 Supplies for VAT Purposes
0.1. Liability to VAT: Taxable & Exempt Supplies
0.1.1. Taxable Supplier
1.4.2 Taxable Supplies
1.4.3 Examples of Taxable Supplies
1.4.4 Exempt and zero-rated supplies
1.4.5 Difference between Zero-rated and exempt supplies
0.1. Imported goods
0.2. Export of goods
0.1. Place of supply
0.1.1. Place of supply of goods
0.1.2. Place of supply of services
1.7.3 Reverse Charge on services supplied to registered suppliers in
Zambia by non- resident suppliers
0.1. Tax point -the time when taxable supplies are made
1.8.1 Tax points for particular transactions
1.9 Taxable Value
1.10 Minimum Taxable Values

PART 2
2.0 Registration for VAT- Registration Rules
2.1 Businesses making only Zero-rated supplies: Waiver of registration
2.2 Supplies to take into account when calculating taxable turnover
2.3 Effective Date of Registration (EDR)
2.4 Late Registration penalties
2.5 Reclaiming of VAT prior to Registration
2.6 Intending traders
0.1. The obligations of a VAT registered supplier
2.8 Entities to be registered for VAT
2.8.1 Businesses with branches
2.8.2 Group Registration
2.8.3 Special Rules relating To Government Agencies
2.9 Registration procedure
2.9.1 Conditions for cancellation of VAT registration
2.9.2 Effective Date of cancellation (De-registration)
2.9.3 Payment of VAT on assets on hand at De-registration
2.9.4 Applications for De-registration
2.10 Changes not requiring cancellation of registration

PART 3
3.0 Claiming back the tax paid on business purchases and expenses -
Input Tax
3.1 Restrictions on the Input tax that can be claimed
3.1.1 Business Use/Private use
0.0.1. Three months time limit for claiming input tax
0.0.2. Evidence for claiming input tax
3.1.4 Exceptions on charging of VAT on Imported goods
3.1.5 Input Tax must relate to taxable supplies
3.2 Specific items on which input tax cannot be claimed -Non-deductible
items
3.2.1 Telephone and internet services
3.2.2 Motor Cars
3.2.3 Business entertainment
3.2.4 Input tax incurred for the benefit of Directors, employees etc.
3.2.5 Input tax incurred on petrol expenses
3.2.6 Input tax incurred on diesel expenses
3.2.7 Input tax not allowed on construction of dwelling houses for
staff
3.2.8 Input tax incurred on electricity expenses
3.2.9 Input tax incurred for purchase of consumables

PART 4
4.0 Retailers -Accounting for VAT on supplies made output tax
0.1. Retailers -Concession not to issue invoices for retail supplies
4.2 Restrictions on the concession
4.3 Retailers making mixed supplies
4.4 Retail price to include tax

PART 5
5.0 Non-Retailers - Accounting for VAT on supplies made
0.1. Non-Retailers -The invoice basis
0.2. Non-Retailers - Payment or Cash Accounting basis
9.2 Agents recording transactions in their own name
9.3 Invoicing for supplies made through a selling agent
0.1. Invoicing for supplies obtained through a buying agent
9.5 Auctioneers
PART 10- INSURANCE
1. Insurance Premium levy:
10.1 Submission of returns by insurance businesses

PART 11
1. Bad debt relief
11.1 Rules for claiming bad debt relief
11.2 How to claim the bad debt relief
11.3 Records to be kept for bad debt relief

PART 12
12.0 Appeals and requests for review
12.1 ZRA internal review
12.2 The Tax Appeals Tribunal
12.3 Appealable matters
12.4 Appeal conditions

PART 13 - Appendices

PART 1

1.0 Explanation of Value Added Tax (VAT)

This part explains the basic mechanisms and how VAT is levied, charged and
collected.

1.1 The Mechanisms of VAT

The VAT system is applicable to all businesses in the production chain that is
from manufacture through to retail. VAT is also levied on imports.

VAT is collected at each stage in the chain when value or an incremental figure
(mark-up) is added to goods or services, hence the name “Value Added” Tax.
Goods or services sold or rendered at values less than their purchase amounts
will still attract VAT at the prices they are traded at, subject to certain excep-
tions i.e the Open Market Value. It is thus not true that VAT will only apply to
a transaction when a good or service fetches more than it cost the business in
purchase amount.

The essential mechanism of VAT is as follows:

For VAT purposes the sale or disposal of goods, or the rendering of

services is called supplies.
When a business that is registered for VAT supplies goods or services,
VAT is charged and collected by the business, the VAT on these supplies
or sales is called output tax.
When a business that is registered for VAT purchases goods or services,
the VAT incurred on these supplies received or purchases is called input
tax.
At the end of each tax period, the VAT due is arrived at by deducting the
total input tax on supplies received (purchases), from the total output
tax on supplies made (sales).
Where the output tax exceeds the input tax for the period, the
difference must be paid to ZRA.
If the input tax exceeds the output tax a VAT refund is due. VAT refunds
will normally be made within thirty (30) days from the date of lodgment
of the return. However, if a taxable supplier has outstanding tax
liabilities, the refund may be offset against such liabilities.

1.2 VAT Computation

The following example shows how VAT works through the chain from
Manufacturer to retailer.
A manufacturer makes copper trays which are sold through a wholesaler to a
retail supermarket and then on to the consumer. The VAT rate is 16%:

The Manufacturer sells the copper tray to the Wholesaler for K2, 900.00 VAT
inclusive, being K2, 500 for the item and K400.00 VAT. He uses his own labour
both to mine the copper and make the tray so he makes no purchases. The tax
position of the manufacturer is as follows:

a) Manufacturer:

Sales (supplies made) K2,500 Output VAT K400.00

Purchases (Supplies received) Nil Input VAT Nil
Value Added K2, 500
VAT payable to the ZRA (output tax minus input tax) K400.00

Assuming the Wholesaler sells the copper tray to the supermarket for
K4,640.00 VAT inclusive (K4,000.00 for the item and K640.00 VAT). The VAT on
purchases was K400.00. The net VAT paid to ZRA by the wholesaler is (output
tax minus input tax) K640.00 - K400.00=K240.00

b) Wholesaler:

Sales (supplies made) K4,000 Output VAT K640.00

Purchases (Supplies received) K2,500 Input VAT K400.00
Value Added K1,500 K240.00

VAT payable to the ZRA (output tax minus input tax) K240.00

The retailer puts a mark-up of K1,000 and sells to the final consumer at a VAT
inclusive price of K5,800. Since he suffered K640 VAT on his purchase, he only
pays K160.00 to ZRA as illustrated below.

c) Retailer:

Sales (supplies made) K5,000 Output VAT K800.00

Purchases (Supplies received) K4,000 Input VAT K640.00
Value Added K1,000 K160.00

VAT payable to the ZRA (output tax minus input tax) K160.00

So ZRA finally collects the K800 on a VAT inclusive total sales value of K5,800 in
3 stages, i.e. K160.00 from the supermarket on a value added amount of
K1,000; K240.00 from the wholesaler on a value added amount of K1, 500; and
K400.00 from the manufacturer on a value added amount of K2, 500.00.

This example illustrates that although VAT is collected in stages, by a VAT

registered business, it is a tax on consumer expenditure.

The final consumer has paid the full tax of K800.00 in the retail price. VAT is
collected in the chain that begins with the manufacturer or importer and goes
through the distribution and retail stages to the final consumer.

1.3 Supplies for VAT Purposes

VAT is a tax charged on taxable supplies of goods and services. The example
above shows VAT being charged and collected on a chain of supplies on the
sale of a tray. However there are many business transactions in addition to a
straight sale, which are also viewed as supplies under VAT Law, e.g.
• Gifts of goods (subject to conditions provided in the
Regulations)
• Business goods taken for own use
• Business goods taken for own consumption
• Lease or Hire services
• Treatment of any goods
• Imported goods
• Imported services.

1.4 Liability to VAT: Taxable and Exempt Supplies

Not all supplies or sales are liable to VAT. The VAT law classifies supplies as
either taxable or exempt:
• Taxable Supplies are those which are liable to VAT.
• Exempt supplies are not subject to VAT

1.4.1 Taxable Supplier

A taxable supplier is a person who is registered or is required by the VAT Act

to be registered and includes tax agent or recipient of imported services. To
be a taxable supplier, a person or business must deal in taxable supplies or a
combination of taxable and exempt supplies but not solely exempt supplies.

1.4.2 Taxable Supplies

A taxable supply is a supply of goods or services that are liable to VAT.

Taxable supplies are subject to VAT at one of two rates:
 • Taxable supplies are either subject to VAT at the standard rate or
zero rated i.e. charged at the rate of 0%.
• All supplies of goods and services that are not exempt or zero
rated are standard rated. Currently the Standard rate is 16%.
• All supplies of goods and services that are listed in the Zero
Rating Order are taxed at 0%.

Thus taxable supplies consist of the following two categories:

• Standard rated goods and services; and
• Zero-rated goods and services taxed at 0%.

1.4.3 Examples of Taxable Supplies

The sale of new or second-hand goods.
Business samples or business gifts for promotional or publicity purposes (of a
value above K100 to a person in a particular accounting year).

1.2 VAT Computation

The following example shows how VAT works through the chain from Manufac-
turer to retailer.

A manufacturer makes copper trays which are sold through a wholesaler to a

retail supermarket and then on to the consumer. The VAT rate is 16%:
The Manufacturer sells the copper tray to the Wholesaler for K2, 900.00 VAT
inclusive, being K2, 500 for the item and K400.00 VAT. He uses his own labour
both to mine the copper and make the tray so he makes no purchases. The tax
position of the manufacturer is as follows:

a) Manufacturer:
Sales (supplies made) K2, 500 Output VAT K400.00
Purchases (Supplies received) Nil Input VAT Nil
Value Added K2, 500
VAT payable to the ZRA (output tax minus input tax) K400.00

Assuming the Wholesaler sells the copper tray to the supermarket for K4,
640.00 VAT inclusive (K4, 000.00 for the item and K640.00 VAT). The VAT on
purchases was K400.00. The net VAT paid to ZRA by the wholesaler is (output
tax minus input tax) K640.00- K400.00=K240.00

b) Wholesaler:
Sales (supplies made) K4, 000 Output VAT K640.00
Purchases (Supplies received) K2, 500 Input VAT K400.00
Value Added K1, 500 K240.00

VAT payable to the ZRA (output tax minus input tax) K240.00

The retailer puts a mark-up of K1, 000 and sells to the final consumer at a VAT
inclusive price of K5, 800. Since he suffered K640 VAT on his purchase, he only
pays K160.00 to ZRA as illustrated below.

c) Retailer:
Sales (supplies made) K5, 000 Output VAT K800.00
Purchases (Supplies received) K4, 000 Input VAT K640.00
Value Added K1, 000 K160.00

VAT payable to the ZRA (output tax minus input tax) K160.00

So ZRA finally collects the K800 on a VAT inclusive total sales value of K5, 800
in 3 stages, i.e. K160.00 from the supermarket on a value added amount of K1,
000; K240.00 from the wholesaler on a value added amount of K1, 500; and
K400.00 from the manufacturer on a value added amount of K2,500.00.

This example illustrates that although VAT is collected in stages, by a VAT

registered business, it is a tax on consumer expenditure.

The final consumer has paid the full tax of K800.00 in the retail price. VAT is
collected in the chain that begins with the manufacturer or importer and goes
through the distribution and retail stages to the final consumer.

1.3 Supplies for VAT Purposes

VAT is a tax charged on taxable supplies of goods and services. The example
above shows VAT being charged and collected on a chain of supplies on the
sale of a tray. However there are many business transactions in addition to a
straight sale, which are also viewed as supplies under VAT Law, e.g.
• Gifts of goods (subject to conditions provided in the Regulations)
• Business goods taken for own use
• Business goods taken for own consumption
• Lease or Hire services
• Treatment of any goods
• Imported goods
• Imported services.

1.4 Liability to VAT: Taxable and Exempt Supplies

Not all supplies or sales are liable to VAT. The VAT law classifies supplies as
either taxable or exempt:
• Taxable Supplies are those which are liable to VAT.
• Exempt supplies are not subject to VAT

1.4.1 Taxable Supplier

A taxable supplier is a person who is registered or is required by the VAT Act

to be registered and includes tax agent or recipient of imported services. To
be a taxable supplier, a person or business must deal in taxable supplies or a
combination of taxable and exempt supplies but not solely exempt supplies.

1.4.2 Taxable Supplies

A taxable supply is a supply of goods or services that are liable to VAT.

Taxable supplies are subject to VAT at one of two rates:

• Taxable supplies are either subject to VAT at the standard rate
or zero rated i.e. charged at the rate of 0%.
• All supplies of goods and services that are not exempt or zero
rated are standard rated. Currently the Standard rate is 16%.
• All supplies of goods and services that are listed in the Zero
Rating Order are taxed at 0%.

Thus taxable supplies consist of the following two categories:

• Standard rated goods and services; and
• Zero-rated goods and services taxed at 0%.

1.4.3 Examples of Taxable Supplies

The sale of new or second-hand goods.
Business samples or business gifts for promotional or publicity
purposes (of a value above K100 to a person in a particular
accounting year).
The transfer of ownership or possession of goods, or the
provision of services to persons involved with a business (employees,
directors, partners, etc).
The sale of business assets, for example by companies in liquidation
and receivership.
The hiring or loan of goods within Zambia including hiring, leasing
or loan of goods out of Zambia.
Delivery, packing and postage charges.
Treatments applied to any goods.
The rendering of services (including building services; professional
services; service charges; management and consultancy services.
 Imported services (Reverse VAT)
Club membership fees and subscriptions.

1.4.4 Exempt and Zero-rated supplies

(a) Exempt Supplies

These are supplies of goods, services or importation of goods not subject to

VAT such that even when a VAT registered business supplies them, no VAT is
chargeable. These are specified in the Exemption Order issued by the Minister
responsible for Finance.

(b) Zero-rated Supplies

These are supplies of goods, services or importation of goods that attract VAT
at zero per cent. These are specified in the Zero Rating Order issued by the
Minister responsible for Finance.

1.4.5 Difference between Zero-Rated and Exempt Supplies

There is no VAT on exempt supplies whereas zero-rated supplies are taxed
at 0%. The difference is that when dealing in zero-rated supplies, a business
can register for VAT and reclaim input tax, which is not the case with exempt
supplies.

• A business making only zero-rated supplies
Since zero-rated supplies are taxable supplies, a VAT registered business that
deals in them is still entitled to claim input tax on purchases made. This means
that taxable suppliers dealing only in zero-rated goods and services will have
input tax and nil output tax, as such will be in a refund position. A good exam-
ple is a business dealing only in medical supplies which are all zero-rated that
has purchases which are standard rated. However, the Commissioner – General
may by notice in writing exempt a supplier from the requirement to be regis-
tered if he is satisfied that all the supplies of a business would be zero-rated.
The Commissioner-General may likewise rescind at any time any such exemp-
tion granted.

• A business making only exempt supplies
Since exempt supplies are not taxable supplies, a business dealing exclusively
in such supplies is not entitled to register for VAT. This means that this business
will have no opportunity to reclaim input tax on purchases.

• A business making both taxable and exempt supplies
A business supplying both taxable and exempt goods and services is described
as “partially exempt”. Where the taxable portion exceeds or is expected to
exceed the threshold required for registration the business must apply to be
registered. There are special rules that govern how a partially exempt supplier
may reclaim input tax (Refer to the appendix).

1.5 Imported Goods

VAT is chargeable on all importations of taxable items whether by private per-

sons or by businesses (and whether or not they are registered for VAT).

1.6 Exports

1.6.1 Export of Goods

Subject to certain conditions, the export of taxable goods is zero-rated for VAT.
To zero-rate at exportation, the goods must be supplied (i.e. sold) direct to a
business abroad by or on behalf of the supplier. To qualify for zero-rating the
following proof of exportation will be required to be produced:

(a) copies of export documents for the goods, bearing a certificate of

shipment provided by the Authority;

(b)copies of import documents for the goods, bearing a certificate of

importation into the country of destination provided by the customs authority
of the country of destination or copies of transit documents for goods bearing
a certificate of transit provided by the Customs authorities of the country of
transit;

(c) tax invoices for the goods exported;

(d) documentary evidence proving that payment for the goods has been made
in the exporter’s bank account in Zambia; and

(e) such other documentary evidence as the authorized officer may reasonably
require.

1.6.2 Freight services for exports

To zero rate freight services for exports, the following evidence must be
produced:

(a) copies of export documents for goods, bearing a certificate of

shipment proved by the Authority; and
(a) consignment notes;
 as a mandatory requirement, and shall in addition provide any two of
the following;
(a) tax invoices indicating the starting point and destination of the trip
undertaken;
(b) transport waybills;
(c) proof of payment by the customer for the services rendered; and
(d) contracts or agreements in respect of the transportation of goods.

1.7 Place of Supply

To be within the Zambian VAT system a supply or sale must be made or deemed
to have been made in Zambia.

There are rules that govern the determination of place of supply for VAT pur-
poses. These are set out below:

1.7.1 Place of Supply of Goods

The place of supply of goods is Zambia if the goods are allocated to a custom-
er within the Republic or they are exported from the Republic.

If the goods are not in Zambia when you allocate them to the customer, the
supply is normally outside the scope of Zambian VAT.

If you supply goods that are assembled or built for the first time on site, then
the place of supply is the place where the assembly or building takes place.

1.7.2 Place of Supply of Services

You supply services in the place where you belong. You belong where you have
a business or some other fixed establishment, including a branch or agency. If
you have no such establishment you belong where you usually live. In the case
of a company this is where it is legally constituted. If you have establishments
in more than one country, the supply takes place at the location of the estab-
lishment most directly concerned with the supply.

Where services are supplied wholly or partly in Zambia, but on or near the bor-
der between Zambia and another country and whether or not the services are
paid for in Zambia, the Commissioner-General may, by notice, determine that
they shall be regarded as supplied in Zambia where:
− The business supplying the services is registered in Zambia; or
− The business operates on a de facto basis in Zambia;
− The services are imported. Services are imported when they are
 performed, undertaken or utilized in Zambia or when the benefit
of their supply is for a recipient in Zambia; or
− Other circumstances, as the Commissioner-General considers
relevant, exist.
The place of supply of radio, television, telephone or other information, com-
munication and technology (ICT) services, where the signal or service origi-
nates outside Zambia, shall be treated as being supplied at the place where
the recipient receives the signal or service, provided that a consideration is
payable for receiving the service or signal.

1.7.3 Reverse charge on services supplied to registered suppliers in Zam-

bia by non-resident suppliers

Reverse VAT is charged on the supply of services, including consultancy,

research, advertising, management fees, royalties, etc., rendered by non-
resident suppliers where the non-resident supplier does not appoint a tax
agent. The purpose is to promote equity and fairness between the
non-resident suppliers and the local suppliers.

The taxable value for imported service that are subject to reverse VAT is a
full consideration or open market value for the services rendered whichever is
greater. Refer to the leaflet on VAT Reverse Charge for more details.

1.8 Tax Point - The time when taxable supplies are made

The tax point is the time when tax is due and payable. It is the earliest of the
following:

For goods:
• the time when they are removed from the seller or supplier’s
premises;
• the time when made available to the person to whom they are
supplied;
• when a payment is received; or
• the time when a tax invoice is issued.

For services:
• the time when a payment is received;
• the time when a tax invoice is issued; or
• the time when they are actually rendered or performed.
1.8.1 Tax point for particular transactions

Deposits

Most deposits serve primarily as advance payments and will create tax points
when you receive them. However, certain deposits are not a consideration for
a supply and their receipt does not create a tax point, e.g. when a deposit is
taken as security to ensure the safe return of goods hired out and the deposit
is refunded when the goods are returned safely.

Continuous supplies of service

If you supply services on a continuous basis and receive payments regularly or

from time to time the tax point is the earliest of the conditions in paragraph
1.8 above being met. Examples include supplies of water, gas or any form of
power, heat, refrigeration or ventilation, etc.

Services supplied in units at frequent intervals, such as metered supplies.

If you cannot determine the time when each unit was supplied, the tax point is
taken as the time when you issue an invoice or receive a payment for services
performed up to a specified date, or the time when the meter is read, which-
ever happens first.

Sale or return consignments

When a business supplies goods on “sale or return” agreements, the goods

have not been sold and the supplier still owns them until such a time as the cus-
tomer adopts them. Adoption means the customer pays for them or otherwise
indicates willingness to keep them. Until the goods are adopted, the customer
has an unqualified right to return them at any time, or unless there is an agreed
time limit. The tax point for these consignments is the earliest of the date of
adoption, payment or invoicing.

Goods taken for personal or other non - business use.

When goods are taken out of the business, for personal use or for non-busi-
ness use, the tax point is the time when goods are taken or set aside for that
purpose.

Staged payments and part payments

Staged payments or part payments, such as is the practice in the construction

industry, create a tax point at the time the payment is due or is made; which-
ever occurs first.

Property and leasehold

If you receive periodic payments of commercial rent, the tax point is that pre-
scribed by the contract, i.e. when the service is performed, or the date you re-
ceive a payment, or the date of issue of a tax invoice, whichever happens first.

1.9 Taxable value

The taxable value is the price that is charged for goods and services onto which
VAT at the prescribed rate (which currently is 16%) is added. For goods and
services, which attract Excise Duty, it is the net selling price plus Excise Duty.
Below is an example illustrating the taxable value concept where item 1 does
not attract Excise Duty and item 2 attracts Excise Duty at 10%.

Item 1 Item 2
Net Selling Price K2, 000 K2, 000
Excise Duty [at 10%] nil K 200
Taxable Value K2, 000 K2, 200
VAT K 320 K 352

Total Selling Price K2, 320 K2, 552

For imported goods the taxable value is the value for duty purposes with the
addition of any duties and other charges. On duty free goods on which VAT is
applicable, the taxable value is the value for duty purposes.

There are some circumstances where the taxable value is calculated differently.
For example:
• When goods are supplied as a gift;
• In barter or part exchange transactions;
• Where goods or services are supplied at a reduced price to
employees and others persons associated with a business.

In such cases, the open market value must be used. The open market value is
the price at which the goods or services concerned would have been supplied
in the ordinary course of business, to a person independent of the supplier.

1.10 Minimum taxable values (MTV)

VAT is charged on the recommended retail price namely the MTV for products
listed in the third schedule of the VAT Act such as carbonated and non-car-
bonated soft drinks, Maheu and like products, beers, cigarettes, Air time, min-
eral water, Sugar, and cement. The effect is that if these items are sold for a
price less than the MTV, VAT due is based on the MTV. If they are sold for more
than the MTV, VAT is due on the actual selling price. Refer to Appendix 1.
PART 2

2.0 Registration for VAT - registration rules

Statutory registration
• A supplier must apply to register if the value of taxable supplies in
the course of business exceeds or is likely to exceed the statutory
registration threshold (currently K800,000 in any twelve consecutive
months or K200,000 in any consecutive three months).
Voluntary Registration
• A taxable supplier with annual turnover of less than the
statutory registration threshold has option to register under
the voluntary registration upon satisfaction of prescribed conditions.
A supplier registered under voluntary registration is required to:
• renew the registration every twelve (12) months and;
• notify the Commissioner-General in writing thirty (30) days before the
expiry of the twelve (12) months period of the intention to renew
the registration.

2.1 Businesses making only zero-rated supplies - waiver of registration

• Where the Commissioner-General is satisfied that all supplies of a
supplier are zero-rated he or she may by notice waive the
requirement of the business to register. However, the Commissioner
-General reserves the right to rescind the decision any time he
deems necessary.

2.2 Factors to take into account when calculating taxable turnover are:

• Value of standard rated supplies
• Value of zero-rated supplies

In estimating the future “level of taxable supplies, account should be taken of

seasonal variations or one-off receipts that have either occurred or are expect-
ed to occur during the year.

2.3 Effective Date of Registration (EDR)

The date when a business becomes eligible for VAT is as follows:
• For a new business - If the turnover threshold is likely to exceed
K800,000, from the date of commencement of trading
• For a continuing business which has exceeded the turnover
thresholds:
− Within one month of an application being made or from the date
the application was received or,
 − Where the application is not made within one month of first
becoming liable to register, on the day following the first period
during which the limits were exceeded.

2.4 Late Registration Penalties

Late registration fee

Late registration for VAT attracts automatic penalties consisting of ten thou-
sand fee units for each standard tax period the supplier remains unregistered
after meeting the registration threshold.

Assessment of Tax Due on supplies made prior to registration

Where a supplier who is eligible for registration, fails to register, tax due on the
supplies made shall be assessed from the time the supplier was due for regis-
tration to the date of the assessment and interest payable thereon.

Failure to comply with registration conditions

A supplier who contravenes the conditions of registration or holds oneself out

as a registered supplier when not will be liable upon conviction to a fine not
exceeding ten thousand penalty units or to imprisonment for a term not ex-
ceeding twelve months

2.5 Reclaiming of VAT prior to Registration

Tax incurred on goods or services purchased prior to a business registering for

VAT is not claimable or deductible as input tax.

However, a supplier is expected to charge VAT on stock available at

registration.

2.6 Intending Traders

Intending traders are suppliers who are registered for VAT before they com-
mence trading activities. Such registration is normally for the sole purpose of
claiming input tax, which relief is granted as follows:
• up to ten years for traders engaged in exploration;
• up to four years for traders engaged in electricity generation,
farming and mining; and
• up to two years for all others
ZRA may request any such suppliers to give security as a condition for repaying
input tax.

2.7 The Obligations of a VAT registered supplier

A VAT registered supplier is required to:

• Display the tax registration certificate in a prominent place of the
business. Similarly copies of this registration must be displayed at all
other places of business that the registration applies to.
• Charge VAT on taxable supplies.
• Submit returns and pay VAT on or before the due date to ZRA as
follows:
o A return with less than ten transactions may be lodged
manually and shall be submitted within five (5) days after the
end of the prescribed accounting period to which it relates.
o A return with ten or more transactions shall be lodged
electronically within eighteen (118) days after the end of the
prescribed accounting period to which it relates.
• Provide “tax invoices” containing the details required by law
• Maintain required records, and retain them for a minimum period of
6 years to enable ZRA verify the VAT liability.
• Advise ZRA of any change in business details e.g. change of
address or telephone number, addition of new partner, including
cessation of business, etc.
• Allow officers of ZRA to enter the business premises and examine
goods and all business records.
• Provide information about the business as required by ZRA.

2.8 Entities to be registered for VAT

The entities that can be registered as suppliers or taxpayers for VAT purposes
include:
• Individuals (e.g. sole proprietors).
• Companies.
• Partnerships.
• Trust.
• Groups of persons (associations and clubs).
• Joint Ventures.

2.8.1 Businesses with branches

Normally only business entities are registered for VAT and not their individual
outlets or branches. This means that businesses with a number of branches
or outlets will normally have a single registration and make one return and
payment for each tax period, keeping administration burdens to a minimum.
However, where for some practical reasons it is more convenient, a branch or
division of a business may be separately registered and carry on the obliga-
tions of a registered supplier if:
• It maintains an independent system of accounting; and
• It can be separately identified in terms of the nature of the activities
carried on or location thereof.
If this is done VAT has to be charged on supplies between separately registered
divisions or branches.

2.8.2 Group Registration

Group registration for VAT purposes has been abolished. Therefore, each
member of a Group of Companies that meet VAT registration requirements
shall be required to be registered separately.

2.8.3 Special Rules Relating To Government Agencies

Government agencies engaged in making taxable supplies are required to reg-

ister for VAT if the meet the VAT registration threshold. Government Agencies
not engaged in providing taxable supplies and are thus not registered for VAT
cannot claim input tax incurred on their purchases from the Ministry of Finance.
Government agencies include:

• Any Ministry or Department of the Government.

• A statutory corporation or board.
• Local authorities,
• Any institution or body in which the government has direct or indirect
control; or which
is wholly or partially owned by the government.

2.9 Registration procedure

All businesses that qualify for registration are required to complete a manual
registration form or undertake an e-registration. On registration, businesses
will be allocated a VAT account and a tax registration certificate will be issued.
Note: There is no fee charged for registration.

2.9.1 Conditions for cancellation of VAT registration

Cancellation of VAT registration can occur under the following circumstances: -

 • When the taxable supplier’s turnover falls below the VAT
registration threshold in the course of an accounting year
• When there is a change in the legal status of an entity (e.g. a
partnership is dissolved).
• If the business ceases trading permanently.
• If the business is sold.
• If you are registered as an intending trader and your intention
to make taxable supplies ceases.

2.9.2 Effective Date of Cancellation (De-registration)

Where the taxable supplier meets the conditions for cancellation or de-reg-
istration of VAT registration as set out in 2.9.1 above, the effective date of
cancellation of registration will take effect at the end of the accounting year.

2.9.3 Payment of VAT on Assets on Hand at De-registration

VAT registered businesses are required to pay VAT on the value of any stocks
and assets on hand at the date of de-registration. This is because the regis-
tered supplier is, in effect, making a taxable supply to himself as a newly un-
registered business. However, no VAT will be paid on motor cars (saloon cars,
station wagons and twin cabs) in respect of which input tax deduction was not
allowed.

2.9.4 Application for De-registration

Requests for de-registration should be made to the Commissioner-General, ei-

ther in writing or online stating the TPIN, full details of the circumstances giving
rise to the request and the contact details.
De-registrations initiated by the Commissioner-General shall require sub-
mission of a Final Return (VAT 99) on receipt of notice of de-registration. For
de-registrations initiated by the taxable supplier the applicant will be required
to submit a VAT 99 after approval.

2.10 Changes not Requiring Cancellation of Registration

• A change in the trading name of the business or the name and/or address of
any partner in the business
• A change in the address of the principle place at which the business is carried
on.

However, the transfer of a business as a going concern will not always require
cancellation of registration:
For such changes, a supplier should notify the nearest Domestic Taxes office
for amendment of details and update such details online.

PART 3

3.0 Claiming back the Tax paid on business purchases and expenses -
Input Tax

VAT incurred on supplies received such as purchases and expenses is called

Input tax.

3.1 Restrictions on the Input Tax that can be claimed

To ensure that only input tax which relates to taxable business activities is
claimed and to protect the revenue from inappropriate claims, there are some
restrictions on what can be reclaimed: -

3.1.1 Business Use/Private Use

The expenditure must be for the purposes of the business i.e. not for private
use. Where Purchases are partly for business and partly for private use, only
the business proportion can be reclaimed. For example, if a business pays for
diesel for a car used by a director or employee both for private (which includes
travelling to and from home to work) and business use and the private use is
25% of the total mileage, only 75% of the input tax on the diesel may be re-
claimed.

3.1.2 Three Months’ Time Limit for claiming Input Tax

Input tax cannot be reclaimed after a specified period (currently three months)
from the date of issue of the tax invoice or, for imported goods three months
from the date of importation. Note that input tax cannot be claimed on a return
for a period before the tax invoice date (premature input tax claim).
Supporting documents for claiming of input tax include Tax invoices, Credit
Notes, Bank Statements and Import Bills of entries.

3.1.3 Evidence for Claiming Input Tax

Any taxable supplier claiming input tax must be in possession of a valid tax
invoice or Customs and Excise form CE 20, receipt and Release Order, showing
the amount of VAT paid before any claim can be made. Photocopy documents
are not acceptable.
3.1.4 Exceptions on charging of VAT on Imported Goods

When goods are imported into Zambia (which includes removing from an ap-
proved bonded warehouse), VAT, together with any import duties, is payable
at importation to ZRA. VAT is chargeable on all imports except exempt goods.
There are also some exceptions for goods imported under The Customs and
Excise (General) Regulations 2000 as amended. The following are the goods
which are not subject to VAT:

• Goods destroyed or lost by accident while under Customs Division

control.
• Goods found to be of defective or faulty manufacture after release
from Customs Division control.
• Goods temporarily imported.
• Petty consignments
• Goods imported temporarily by visitors and tourists
• Motor vehicles imported by visitors and tourists
• Commercial traveller’s samples
• New residents effects
• Traveller’s effects
• Aircraft stores and equipment
• Warehoused goods not worth the duty
• Goods re-imported into Zambia
• Goods and personal effects of a deceased person imported by a
duly appointed administrator
• Goods used in occupational therapy or training
• Imported airline and airline operator’s documents

Change of ownership of goods in bond does not attract VAT, but import VAT is
payable to ZRA when goods are removed from bond.

3.1.5 Input Tax must relate to taxable supplies.

Purchases or business expenses on which VAT input credit is claimed must re-
late to taxable and not exempt supplies. Businesses that deal only in exempt
supplies are not eligible to register for VAT and therefore have no opportunity
to claim input tax.

Businesses that deal partly in exempt supplies and partly in taxable supplies
are Partially Exempt businesses. Partially exempt businesses are not allowed to
claim all their input tax except the portion relating to taxable supplies.
Inputs that clearly relate to either taxable or exempt supplies are called di-
rectly attributable inputs while inputs which are not directly related to taxable
supplies are called non-attributable inputs; e.g. overheads which cover all the
supplies of the business.
Special methods are available to assist partial exempt businesses to calculate
the amount of input tax that may be claimed and all partially exempt busi-
nesses must adopt one of the methods – refer to leaflet on Partially Exempt
Suppliers or to Appendix 2

3.2 Specific Items on which Input Tax cannot be claimed: Non- Deductible
Items

In addition to the general rules on input tax there are also specific items on
which VAT cannot be claimed.

3.2.1 Telephone and Internet Services:

Input tax credit is not allowed on telephone bills and internet services except
on: -
• Interconnection fees and other services provided between tele
phone or internet service providers;
• Telephone and/or internet services provided by a hotel, lodge and
similar establishment to its clients if such an establishment accounts
for output tax on the supply of the telephone service to its clients.

3.2.2 Motor Vehicles

Input tax credit is not allowed on motor vehicles, however car dealers who buy
cars:
• for resale;
• to be leased by leasing businesses or financial institutions
engaged in leasing;
• for hire;

may claim input tax in the normal way.

Input tax on maintenance and repairs to motor vehicles, used solely for busi-
ness purposes can be claimed. Where a motor vehicle is used partly for per-
sonal purposes e.g. to transport business executives, VAT incurred on vehicle
maintenance and repairs must be apportioned and only that part which directly
relates to the business can be claimed.

Note that motor vehicles are defined as those that have side windows or a seat
to the rear of the driver’s seat. This restriction will therefore apply to saloon and
estate cars, station wagons, and twin cabs. It will not usually apply to pick-up
trucks and to other commercial vehicles such as vans.

3.2.3 Business Entertainment

Input tax may not be claimed on business entertainment. Business entertain-

ment includes the provision of food, beverage, entertainment, amusement,
recreation or hospitality of any kind and any incidental transportation provided
to any person by a taxable supplier whether directly or indirectly, in connection
with a business carried on by a taxable supplier.

3.2.4 Input Tax incurred for the Benefit of Directors, Employees Etc.

VAT incurred on any food, beverages, transportation or hospitality of any kind,

or goods or services provided for directors, managers, partners, proprietors,
employees, customers or potential customers etc. cannot be claimed e.g. the
tax on furniture, electricity bills, or house rented by a business.

5. Input Tax incurred on petrol expenses

Input tax on petrol is not claimable except where the petrol is meant for resale
by a registered supplier. Input tax incurred on petrol for resale may be claimed
in full.

6. Input Tax incurred on diesel expenses

Input tax incurred on diesel for business purposes by companies other than
mining and mineral processing companies is claimable at 90% of the total
amount. For the mining and mineral processing companies it is limited to 70%
.
However, input tax incurred on diesel for resale by a registered supplier may
be claimed in full.

7. Input tax not allowed on construction of dwelling houses for staff

Tax charged on the supply to the taxable supplier of construction of dwelling

houses for staff is excluded from any claim, deduction or credit as input tax
except when such a supply is for the sale of a dwelling house by a person car-
rying on business of constructing dwelling houses for sale.
8. Input Tax incurred on electricity expenses

Input tax claims by mining and mineral processing companies on electricity are
limited to 80%.

9. Input tax incurred for purchase of consumables

Input tax on consumables such as stationery, lubricants and spare parts for all
entities are non-deductible, except where these products are stock in trade.
PART 4

4.0 Accounting for VAT on supplies made: Output Tax

All taxable suppliers must account for VAT on the supplies they make. De-
pending on the nature of the business there are some options as to how this is
done. Types of suppliers can be divided into two broad categories: - Retailers
who make sales directly to the consumer and non-retailers who normally issue
invoices, such as manufacturers and wholesalers.

4.1 Issuance of Tax Invoices for supplies made

The law requires all VAT registered suppliers to use Electronic Fiscal Devices
(EFD) to record their daily sales. Any supplier who defaults on the requirement
to use EFDs for sales will be subjected to the prescribed penalties. In addition,
the law provides for accreditation of EFD manufacturers, distributors and virtual
EFD software suppliers and vendors.

NOTE:

A taxable supplier who fails to issue a tax invoice in the form and manner pre-
scribed by the Commissioner-General from an approved computer package,
a pre-printed tax invoice book or EFDs, commits an offence and is liable, on
conviction, to a penalty not exceeding three hundred thousand penalty units or
to imprisonment for a term not exceeding three years or to both.

4.2 Restrictions on the Concession

There are no exceptions to the requirement to operate a Fiscal cash register.

4.3 Retailers making Mixed Supplies

If the business is making a mixture of retail and non-retail supplies e.g. whole-
sale and retail supplies, it will still be required to use the Fiscal cash register for
both categories of supplies.

4.4 Retail Price to include tax

The law requires that at the retail level all prices be shown as inclusive of VAT.
Businesses however, may display notices in strategic places of the business
premises stating that VAT is included in all prices displayed as an alternative to
stating on each price tag that VAT is included in the price.
PART 5

1. Non-retailers - Accounting for VAT on supplies made

5.1 Non-Retailers -The Invoice Basis

Businesses which use the invoice basis must account for output tax on all tax-
able supplies (sales), both cash and credit, whether or not payment has been
received for the supplies made. A supply of goods and services is deemed to
take place once the tax point occurs. Similarly, input tax can be claimed on
cash and credit purchases at the time the tax invoice is obtained. However, if a
payment or part-payment is received before an invoice is issued a tax point has
occurred and the tax is due on that payment.

For transactions for which payment is not made wholly in cash, e.g. barter, part
exchange, business gifts, etc. a tax point is created at the time of transaction
and the tax payable at the open market value.

5.2 Non-Retailers - Payment or Cash Accounting Basis

All VAT registered businesses are required by law to account for tax based on
the invoices issued except where the law has given relief for cash accounting.
The businesses, which are permitted to use the payment or cash accounting
basis are required to account for VAT to the extent that payment has been
made or received. In other words, output tax is accounted for on payments
received and input tax is recovered only on those invoices where payment has
been made for taxable supplies received.

Cash accounting concession is restricted to members of the Association of

Building and Civil Engineering Contractors (ABCEC) that are required to apply
to ZRA for approval to use the scheme. Intending traders are automatically
required to adopt cash accounting and these include business in exploration,
electricity generation, farming, and other businesses granted this status.
PART 6

6.0 Tax Invoices

VAT is “invoice driven”. In other words the calculation of VAT is based upon
the issuance and retention of tax invoices. All VAT registered suppliers should
issue tax invoices for every taxable supply, whether or not they have been
granted the Cash Accounting concession. Complete copies of invoices must
be retained for a minimum period of 6 years and must be produced to an au-
thorized ZRA officer on request.

6.1 Time for Issuing Invoices

Ideally, a tax invoice must be issued at the point of transaction.

6.2 Issuance of Tax Invoices

Not more than one tax invoice may be issued for the same taxable supply.
A customer is entitled to ask for a duplicate invoice, which must be marked
prominently duplicate.

3. Details to be shown on tax invoices

The following details must appear on the tax invoice:

• The words “tax invoice” in a prominent place.
• The name, address and Taxpayer Identification Number (TPIN) of
the supplier.
• The name or business name, TPIN and address of the recipient
(purchaser).
• The serial number of the invoice and date of issue.
• The quantity or volume of the goods or services supplied.
• A description of the goods or services supplied, and either.
• The selling price, excluding VAT and any discount.
• The total amount of the VAT charged.
• The selling price including VAT.

• The total charge on the invoice inclusive of VAT, any discount and
the rate of VAT.
6.4 Example - (Tax Shown Separately):

QUALITY TYRES LIMITED TPIN: Tax Invoice No. 9238

Cairo Road
P.O Box 30000
Lusaka

To: Speciality Cars Ltd TPIN Date: 10th May 2012

Freedom Way
PO Box 20000
Lusaka

Quantity Description Unit Cost (K) Total(K)

2 165/70x13 Tyres 25,000 50,000

4 175/70x14 Tyres 30,000 120,000
170,000

VAT at 16% 27,200

Total 197,200

Note: Businesses should record separately on the tax invoice any sup-
plies that are zero-rated or exempt.

In situations where it is impractical to include certain information and suffi-

cient detail on the invoice, other records are maintained in support of the
invoice.

Tax invoices received, and copies of those issued, must be retained for a mini-
mum of 6 years and produced to the ZRA on demand.

6.5 Manual Tax Invoices

It is mandatory that manually issued tax invoices be taken from a serially num-
bered pre-printed invoice book.

6. Computer-Generated Tax Invoices

Suppliers with computerised accounting packages (in-house or off-the shelf)

that have not already been approved by the Commissioner-General shall ap-
ply for approval. Eligible accounting packages must have the capacity to:

(i) Print tax invoices, credit notes and debit notes bearing all the mandatory
features of a Tax Invoice;
(ii) Generate automatic and consecutive document numbering with inbuilt
safeguard against reallocation or resetting of the numbers in any circum-
stance; transactions, once posted and a tax invoice printed, become read-on-
ly to all user or, where editing is possible a read-only audit trail showing
original details is in-built:

(iii) Produce periodic transaction reports showing invoice number, invoice
date, customer’s name, description of goods or services supplied, value
before VAT and VAT amount.

7. Bank Statements

Banks registered as Commercial Banks under the Banking and Financial Ser-
vices Act (Cap 387 of the Laws of Zambia) shall issue bank statements as their
tax invoices to their clients which will show the following features:
(i) Name of the bank in a prominent place of the bank
statement;
(ii) Taxpayer Identification number (TPIN) of the bank;
(iii) Month of transaction;
(iv) Date of the transaction;
(v) Description of the service rendered, tax liability (standard rated,
exempt, or zero-rated), the amount charged before tax and the VAT charged.
(vi) Total supplies for the month split into standard rated, exempt and
zero-rated supplies;
(vii) Total VAT charged in the month
(viii) Page number(s) of the bank statement e.g. 1 of 3, 2 of 3 and 3 of
3.

8. Issuance of Credit Notes

The issue of a credit note is required where:

• The supply has been cancelled.
• The supply has been varied or altered.
• The purchase price has been varied or altered
• The goods have been returned to the supplier.

Note, when purchasers receive discounts for prompt payment (details of

which must be stated on the face of the tax invoice) credit notes need not be
issued to cover the cash discount given.

The Tax Credit Note shall contain the following features:

(i) The words ‘credit note’ displayed in a prominent place;
 (ii) The registered supplier’s name and address;
(iii) Taxpayer identification number;
(iv) The date of issue of the credit note;
(v) The credit note serial number;
(vi) The customer’s name and address;
(vii) A description sufficient to identify the goods or services supplied
which includes the quantity of the goods or the extent of the service
supplied, the exclusive amount charged for each description of
goods or services supplied and the rate or rates of tax;
(viii) Number of the invoice being adjusted;
(i) Statement of the reason for the credit; and
(ii) The amount of credit

Credit notes not meeting these requirements shall not be accepted as evi-
dence for tax claims or other tax adjustment purposes.

The VAT on Credit notes issued should be deducted from the total output
tax in the period in which the credit is given. Complete copies of credit notes
must be retained for a minimum period of 6 years and must be produced to
an authorised ZRA officer on request.

6.9 Receipt of Credit Notes

If a credit note has been received, the customer must ensure that input tax is
not claimed, or if it has already been claimed that it is corrected by deducting
the VAT amount from the input tax claimed in the same period in which the
credit note is received. There are severe penalties for claiming input tax to
which one is not entitled.
PART 7

7.0 Records and Accounting Systems

For VAT purposes, as far as possible the ZRA relies on the records and ac-
counts ordinarily kept by businesses. However to make sure that businesses
keep appropriate records the law prescribes some minimum requirements.

7.1 Records that Must Be Kept

ZRA officers will visit to examine records to be satisfied that the business is
accounting for the tax correctly. It is important that the business retains
sufficient records to enable ZRA do this effectively. If the business is
accounting for VAT for the first time some modifications to the normal
accounting records will probably be necessary. Under the law a VAT
accounting system must: -

• Record the nature, quantity and value of both supplies made and
supplies received e.g. Purchase and Sales day books, plus daily
sales records, recorded from till rolls for a retailer
• Be able to distinguish between taxable and exempt supplies.
• Record payments for both supplies made and supplies received
e.g. a Cash Book.
•Include a summary of the output tax, input tax and the net tax
payable or reclaimed i.e. a VAT Account.
• Contain adequate proof that goods have been exported
e.g. copies of export documents, copies of documents showing
importation into the receiving country and proof of payment by the
customer.
• Contain adequate proof that goods have been imported
e.g. in addition to a commercial invoice, a Customs CE 20 form.
• Contain adequate evidence for zero rating of supplies made.
Purchase and Sales Day Books should include columns
for the following:
• Invoice number.
• Invoice date.
• Supplier’s name (purchase day book) or customer’s name
(sales day book).
• Taxable value.
• The amount of VAT.
• The gross invoice value.

Partly exempt businesses will need to add extra columns to separate exempt
sales and purchases relating to them.

7.2 Records to be maintained by retail businesses

Retail businesses must keep copies of all daily retail transactions, such as till
rolls, books etc. and copies of any invoice or receipt books used.
Retailers are warned that failure to use a fiscal cash register to record all sales
made and the under recording of takings will be treated as a serious offence
and heavy penalties imposed.

7.3 The VAT Account

This is a summary of transactions for an accounting period showing the

source of the figures on the VAT return. It is invaluable in demonstrating how
a business arrives at the figures.

Example VAT Account: Period Ending 31st December, 2012

Output VAT on sales and other outputs (Box 1 of the VAT Retum):

Cairo Road shop VAT on cash sales K1, 000

Plus Northmead Shop VAT on cash sales K2, 500
Plus VAT on Invoiced Sales K1, 500
Sub Total VAT on Sales K5, 000
Less VAT on credits given for returned goods K 300
Total Box 1 K4,700

Input VAT on domestic purchases and other inputs (Box 2 of the VAT Return):

VAT on domestic purchases and expenses K2, 500

Less VAT on credits received for returns K200
Sub Total Input VAT K2,300
Less VAT accidental overclaim in June K100
Total Box 2 K2,200

Input VAT on Imports (Box 3 of the VAT Return):

Imports K700
Total Box 3 K700

Total Input VAT total of Box 2 and Box 3 (Box 4 of the VAT return):
Box 2 K2,200
Plus Box 3 K700
Total Box 4 K 2,900

Total VAT payment or Repayable Box 1 Minus Box 4 (Box 5 of the VAT return):

Total Box1 K4,700

Minus Total Box 4 K2,900
Total Box 5 K1,800

7.4 Retention of Records

All records and accounts, including tax invoices and credit notes, must be
preserved in English for a minimum of 6 years and made available for
inspection to authorised officers of the ZRA on demand.
PART 8

8.0 Making VAT Payments and Returns

A VAT return for each tax period, and any VAT payable, must be rendered to
ZRA not later than the 5th day after the end of a tax period for returns submit-
ted manually and not later than the 18th day after the end of a tax period for
returns submitted online.

Failure to make a return and/or to pay the tax due by the due date will result
in penalties and interest charges being applied as follows:

• For late submission of a return the penalty is K200, or 1/2%

(0.5%) of the tax payable (whichever is greater) for each day that
the return is not submitted.

• For late payment of VAT the penalty is 1/2% or (0.5%) of the tax
due for each day the VAT is unpaid

• Interest is chargeable for each month or part of a month that
a payment is overdue and is charged at the Bank of Zambia
discount rate plus 2%.

Where a repayment return or a ‘nil’ return is made late, late submission penal-
ties are still chargeable.

1. Enforcement of un-paid tax

Tax due including interest and penalties is a debt to the Republic and is re-
coverable by the Commercial-General. To recover the debt, the Commission-
er-General may use any or a combination of the following enforcement tools:

• Offset of tax: The tax debt may be recovered by offsetting the
liability against any tax refund due to the taxpayer
• Time to pay: The Commissioner-General may allow a taxpayer to
pay the tax debt over a specified period of time. Note that
where a time to pay agreement has been entered into any
outstanding balances will attract interest.
• Garnish: A tax debt may be recovered from any person whom the
Commissioner-general knows that he owes the defaulting taxpayer
some money.
 • Warrant of distress: The Commissioner-General may distrain
movable goods and chattels belonging to the taxpayer in order
to recover a debt.
• Charge on land: The Commissioner-General may register a caveat
on land belonging to the taxpayer who owes a tax debt until
such time that the debt has been paid in full.
• Court proceedings: The Commissioner-General may obtain an
order of the court to recover a tax debt due.

2. Errors and omissions

Interest is chargeable at the Bank of Zambia discount rate plus 2% on

amounts under- declared on VAT returns e.g. under-declarations discovered
and assessed following a VAT inspection visit.

Also, a taxable supplier is required by law to include on his next VAT return all
under-declarations; and over-declarations discovered on previous returns. In
applying any interest or penalty in relation to such corrections the Commis-
sioner-General shall take into account circumstances of the correction.

8.3 False returns, documents, information, statements etc. and

fraudulent evasion

Under VAT law it is a criminal offence to make incorrect or false returns and
declarations. It is also a criminal offence to produce any false document,
statement or information and on conviction this is punishable by heavy penal-
ties and/or imprisonment for up to two years. Fraudulent evasion is
punishable by heavy fines including up to three years imprisonment.

8.4 Non-Standard Tax periods

8.4.1 Accounting at a time of supply

Except as otherwise allowed or directed by the Commissioner-General, a tax-

able supplier whose annual turnover does not exceed the statutory threshold
(currently at K800); or who is involved in farming of seasonal crops may apply
for quarterly tax accounting periods.

The quarterly tax accounting periods will be January to March, April to June;
July to September; and October to December.
8.4.2 Accounting for VAT by Oil Marketing Companies

Except as otherwise allowed or directed by the Commissioner-General, taxable

supplier, being an Oil marketing Company (OMC) shall withhold output tax on
hydrocarbon oils and oil products supplied by TAZAMA Pipelines Limited and
remit the output tax to the Commissioner-General within ten (10) days follow-
ing the end of the accounting period in which the output tax is withheld.

A schedule of the output tax withheld shall be lodged within five days follow-
ing the end of the accounting period, or within such period as approved by
the Commissioner-General in writing to the taxable supplier. The schedule of
uplifts constitutes a return for purposes of output tax on hydrocarbon oils and
oil products supplied by TAZAMA pipelines Limited whose accounting periods
shall be as follows:

First to the tenth day of each calendar month for the first return of the
month;
Eleventh to the twentieth day of each calendar month for the second
return of the month; and
The remaining days of the calendar month for the third return of the month

8.5 Accounting for VAT withheld by appointed agents

The Commissioner-General may appoint a taxpayer as an agent to withhold

tax on Payments made to taxable suppliers of goods and services received in a
particular Month and lodge a return relating to Value Added Tax withheld in
the form and manner prescribed by the Commissioner-general within six-
teen (16) days following the end of the month in which the output tax is with-
held. The appointment by the Commissioner-General shall be by written notice
and the agent will account for the tax withheld and pay the tax in a manner
specified by the Commissioner-General. An agent who discovers that errors
were made on previous schedules may adjust the subsequent schedule and
provide a statement in writing to the Commissioner-General explaining the
circumstances under which the errors were made. The Commissioner-General
shall take into account the reasons for errors made in determining the amount
of any interest or penalty to be charged.

8.6 Repayment of VAT

When the input tax of a business exceeds the output tax in any given account-
ing period, the difference is refunded to the supplier. Legally, refunds should
be made within 30 days after lodgment of the return. Taxpayers are advised to
submit such returns immediately after the accounting period and not wait for
the due date.

In order to detect incorrect claims and to discourage fraud before making re-
payments ZRA verifies selected refund claims. Every effort is made to ensure
that such verifications are done as quickly as possible but some delay may be
there before some repayments can be made.

It should be noted that the Authority may sometimes require a taxpayer to pay
some form of security before a refund can be paid.
PART 9

9.0 Supplies made by or through agents

An agent is someone who acts for, or represents someone else (a principal) in

arranging supplies of goods or services. Supplies arranged by an agent are
made by or to the principal he represents. The principal cannot avoid the liabil-
ity to account for VAT on supplies made or to pay VAT on purchases by using
an agent.

People who carry on a business on their own account sometimes use the words
‘agent’ and ‘agency’ to describe their trading style. For example, distributors,
sole concessionaires and motor agents usually trade as principals on their own
account, and employment agencies and travel agents are not usually agents
in all their activities. On the other hand, some people who normally trade as
principals, such as solicitors and architects, may occasionally arrange supplies
as agents for their clients. Whatever the trading style, the procedures in
this section can only be used where an agent arranges supplies, which are
made by someone else.

To be an agent, one must have agreed with the principal to act on behalf of
that principal in relation to a particular transaction. This may be a written or oral
agreement or merely inferred from the way the parties conduct their business
affairs. Whichever form this relationship takes:

• It must always be clearly established between the two parties, and the agent
must be able to show to ZRA that the transactions are being arranged for the
principal, rather than on the agent’s account.
• The agent will not be the owner of any goods that are being bought or sold.
• The agent will not alter the nature or value of any of the supplies made
between the principal and third parties.

9.1 Accounting for VAT on agency services

An agent will usually be involved in at least two separate supplies at any one
time:
• Supplies arranged by an agent between the principal and a third party.
• The supply of the agent’s services to the principal for which the agent
charges a fee or commission.

It is important to distinguish between supplies made by the agent on behalf

of the principal and the third party and the supplies for the agent to the
principal.
As the agent is making or receiving the supplies arranged as an agent for the
principal, it is the responsibility of your principal (or the third party) to account
for output tax on the supplies.

The normal VAT rules apply and the agent must account for VAT on the ser-
vices for which a fee or commission is charged to the principal.

9.2 Agents recording transactions in their own name

Agents often issue invoices in their own name (or receive invoices made
out to them) for supplies they arrange on behalf of their principals. In these
circumstances they may, for VAT purposes, be treated as though they were a
supply by the seller to the agent and by the agent to the buyer provided:
•. Both the seller and agent are registered for VAT; and
• The supplies are taxable

3. Invoicing for supplies made through a selling agent

The following example illustrates the accounting procedure used when tax is
due on supplies made through a selling agent.

A registered person sells standard-rated goods for a taxable value of K1,000

to another registered person. The seller uses an agent who acts in his own
name. The agent takes a commission of 10%.

The seller must issue a tax invoice to the agent, showing:

Goods K1, 000

VAT 160
Total K1,160

The seller accounts for K160 output tax. The agent may claim K160 as input
tax.

The agent must issue a tax invoice to the buyer showing:

Goods K1, 000

VAT 160
Total K1, 160

The agent accounts to ZRA for K160 output tax. The buyer may reclaim K160
as input tax.
The agent must also issue a tax invoice when he makes his charge to the sell-
er, his principal, for his own services showing:

10% Commission K100

VAT at 16% 16
Total K116

The agent accounts to ZRA for K16 output tax. The seller can claim input tax
of K16.

In this example, the amount of money that passes between the agent and
the principal (the sale) may only be K1, 044, since the agent might deduct his
commission from the amount collected from the buyer, paying the balance to
the principal. But the full VAT invoicing procedure must still be followed.

9.4 Invoicing for supplies obtained through a buying agent

The following example illustrates the accounting procedure used for such
transactions;

A registered business uses an agent to buy goods with a taxable value of

K1,000 on their behalf from another registered business The agent is regis-
tered for VAT and charges K50 for his services.

The seller issues a tax invoice to the agent, showing:

Goods K1, 000

VAT 160
Total K1, 160

The seller accounts to ZRA for K160output tax. The agent may claim K160
input tax.

The agent must also issue a tax invoice to his principal with VAT for the supply
of his service.

Commission K50
VAT 8
Total 58

Secondly, the agent issues another tax invoice with VAT to the buyer for the
supply of goods.
Goods K1, 000
VAT 160
Total K1, 160

9.5 Auctioneers

The rules in this section apply when an auctioneer offers goods for sale as the
agent of the seller. If, an auctioneer sells own goods as a principal, the normal
VAT rules will apply.

Some auctioneers also charge a “buyer’s premium” as an additional charge to

a successful bid, which for VAT purposes is consideration for a separate sup-
ply of services by the auctioneer to the buyer and it is always standard rated.
An auctioneer may be asked to arrange sales of goods in satisfaction of a
debt e.g. under a court order. If the debtor is a registered person and the
goods are part of his business assets, this is a taxable supply and the pro-
ceeds of the sale are treated as tax inclusive and the seller must account for
the tax. The seller must issue a normal tax invoice.
PART 10 - INSURANCE

10.0 The arrangement, provision, or transfer of insurance services is ex-

empt from VAT. The exemption from VAT extends to all types of commissions
charged by Insurance Brokers in the course of arranging insurance services.

In addition to being exempt from VAT, commission earned by Insurance Bro-

kers from the arrangement of insurance services (brokerage services) will not
be subject to an insurance premium levy.

However, insurance premiums in respect of insurance policies for all classes of

insurance business carried on by insurers, insurance agents or brokers except
reinsurance are subject to an insurance levy at the rate of 3%.

10.1 Submissions of Returns by Insurance businesses

All registered suppliers are required under the VAT Act - Section 16(3) to sub-
mit returns on monthly basis unless the Commissioner-General by notice in
writing to a particular supplier determines another accounting period. The due
date for the submission of the return for the Insurance Premium Levy is the 18th
day of the month. This is in accordance with section 7 of the Insurance Premium
Levy Act which provides for the application of the Value Added Tax Act provi-
sions in respect of filing of returns for the levy. However, the due date for the
payment of the levy remains the 14th day of the month.

The obligation to remit the levy lies with the insurer, insurance agent or broker.
PART 11

11.0 Bad Debt Relief

The general rule is that all VAT registered suppliers (except those authorised
to use Cash Accounting) should remit to ZRA VAT due on VAT return. How-
ever, VAT paid to ZRA but not received from a customer may, subject to the
rules below, be claimed back.

11.1 Rules for Claiming Bad Debt Relief

VAT paid to ZRA but not received from the customer can be claimed back if:
• The claim is made on or after 27th January 1996.
• The debt has been outstanding for 18 months or more.
• The debtor has been declared insolvent by a court of law i.e.
− If the defaulting customer is a person, sole trader or partnership,
who has been declared bankrupt by the courts or,
− If the debtor is a limited company, the court has ordered it’s
winding up and an appointed liquidator or receiver has issued a certificate to
the effect that in his opinion the company would not meet the debts of unse-
cured non-preferential debts.

11.2 How to Claim Bad Debt Relief

A supplier who wishes to claim relief for bad debts must:

Step1
Make a claim to the administrator, receiver or liquidator against his debtor for
the VAT inclusive amount that he is owed by the insolvent debtor.
Step2
Obtain a written statement from the administrator, receiver or liquidator to
the effect that the debtor is insolvent and that he cannot pay the debt.
Step 3
Claim a credit for the amount of VAT remitted in respect of the bad debt by
adding the Bad Debt Relief to the input tax incurred on domestic purchase on
the VAT Return.

11.3 Records to Be Kept For Bad Debt Relief

For ZRA to be satisfied that claims to Bad Debt relief are correct, VAT regis-
tered suppliers claiming Bad Debt Relief should retain the following docu-
mentary evidence:
• A copy of the tax invoice issued to the debtor in connection with
the supply that later became a bad debt.

• Evidence that the VAT being claimed as Bad Debt Relief was remitted
to ZRA
• Copies of correspondence referred to in steps 1 and 2 above.
PART 12

12.0 Appeals and Requests for Review

If you disagree with a decision or determination made by ZRA in relation to

VAT you may request an internal ZRA review and if still aggrieved by ZRA’s
decision the taxable supplier may appeal to the Tax Appeals Tribunal.

12.1 ZRA Internal Review

In order to avoid unnecessary costs being incurred by both parties, the Do-
mestic Taxes Division of ZRA has put in place an internal review mechanism.
Taxable suppliers are encouraged to ask the Commissioner Domestic Taxes
to review any decisions, or tax amounts assessed by officers, before lodging
an appeal with the Tax Appeals Tribunal. The tax and interest charged on a
taxpayer is recoverable after or within the review period immediately after the
Commissioner-General’s determination of an objection whichever is earlier.
The review period is thirty days from the date of notice of the assessment.

12.2 The Tax Appeals Tribunal

A taxable supplier who is not satisfied with the decision made by ZRA may
appeal to the Tax Appeals Tribunal within thirty days of notice of determina-
tion by ZRA.

12.3 Appealable Matters

For VAT a taxable supplier may make an appeal on decisions or determina-

tions made by ZRA in relation to:
• Registration or cancellation of registration or refusal to register a supplier.
• The tax assessed to be payable on any supply of goods or services or the
importation of any goods.
• The amount of any input tax that may be credited to any taxable supplier.
• The application of any rule providing for the apportionment or disallowance
of input tax; or
• Any notice requiring early payment of tax or security.

12.4 Appeal Conditions

An appeal shall be lodged with the Tribunal within thirty days from the date
of the decision or determination of the Commissioner of Domestic Taxes and
must comply with the Tax Appeals Tribunal Regulations, (Statutory Instrument
No. 143 of 1998).
PART 13 - Appendices

APPENDIX 1
GOODS ON MINIMUM TAXABLE VALUE

SPECIFIED SUPPLIES

(1) Bulk and bagged cement (local and imported)

(2) Carbonated drinks (local and imported)
(3) Non-carbonated drinks (local and imported)
(4) (Clear beer (local and imported, bottled and canned)
(5) Opaque beer (bulk and packed)
(6) Cigarettes (local and imported)
(7) Air time
(8) Mineral water (local and imported)
(9) Sugar

APPENDIX 2

PARTIAL EXEMPTION METHODS OF APPORTIONMENT OF INPUT TAX

First Method

Step 1 - Calculate the value of the taxable supplies made in the prescribed
accounting period

Step 2 - Calculate the value of all supplies made in the prescribed accounting
period

Step 3 - Calculate the amount of tax payable on supplies (purchases) made to

the supplier in that accounting period.

Step 4 - Divide the amount obtained in Step 1 by the amount obtained in

Step 2, i.e.

Taxable supplies in period

All supplies in period

Input tax that can be claimed in the accounting period is the product ob-
tained by multiplying the amount obtained in step 3 by the amount obtained
in step 4 i.e.

Taxable supplies in period x VAT payable on purchases in period

All supplies in period
Second Method

Step 1 - Divide input tax for the prescribed accounting period into catego-
ries:-

a. Category A - Input tax directly attributed to taxable supplies

b. Category B - Input tax directly attributable to exempt supplies

c. Category C - Input tax that is paid for the purposes of the business but is
not directly attributable to either taxable or exempt supplies (e.g.. VAT on
electricity bills, rental bill, etc.)

Step 2 - Calculate the value of taxable supplies made in the prescribed ac-
counting period.

Step 3 - Calculate the value of all supplies made in that period.

Step 4 - Divide the amount obtained in Step 2 by the amount obtained in

Step 3, i.e.

Taxable supplies in period

All supplies in period

Input tax paid for the purposes of the business but is not directly attributable
either to taxable or exempt supplies (input tax in Category C), equal to the
proportion mentioned in Step 4 is deemed to be attributable to taxable sup-
plies and may be claimed as a deduction with the amount of tax in Category
A, i.e.

(Taxable supplies in period X Input tax not directly attributable to

exempt) (All supplies in period or taxable supplies)

+ Input tax directly attributable to taxable supplies.

(Step 4 X Category C) + Category A

Third Method

Step 1 - Calculate the value of taxable supplies made in all prescribed ac-
counting periods in the accounting year

Step 2 - Calculate the value of all supplies made in that period.

Step 3 - Calculate the amount of tax payable on supplies made to the suppli-
er in that period.

Step 4 - Divide the amount obtained in Step 1 by the amount obtained in

Step 2.

Taxable supplies made in periods in accounting year

All supplies made in accounting year.

Input tax that can be claimed as a deduction or credit in the prescribed ac-
counting periods is the product obtained by multiplying the amount obtained
in
Step 4 by the amount obtained in Step 3, less the amount already reclaimed
in earlier accounting periods in that accounting year.

(Taxable supplies made in periods in accounting year X amount tax

(All supplies made in accounting year. payable on
supplies in that
accounting year)

Less amount reclaimed in earlier accounting periods in that accounting

year
Fourth Method

Step 1 - Divide input tax for the prescribed accounting year into categories:-

a. Category A - input tax that is directly attributable to taxable supplies

b. Category B - input tax that is directly attributable to exempt supplies

c. Category C- input tax that is paid for the purpose of the business that is not
directly attributable either to taxable or exempt supplies.

Step 2 - Calculate the value of taxable supplies made in the prescribed ac-
counting year.

Step 3 - Calculate the value of all supplies in that year.

Step 4 - Divide the amount obtained in Step 2 by the amount obtained in

Step 3, i.e. Taxable supplies in period

All supplies in period

A proportion of input tax in Category C above, equal to the proportion

mentioned in Step 4, is deemed attributable to taxable supplies and may
together with the amount in Category A be claimed as a deductible or credit
for the prescribed accounting year, to the extent that is exceeds any amounts
already deductible or credited in earlier prescribed accounting periods in that
accounting year.

input tax directly

Taxable supplies X Category C + attributable to taxable
in accounting year supplies (Category A)
Supplies in that year
Call Centre Client Services Centre Client Services Manager
New Revenue Hall Nchanga House – Large Taxpayer Office
Private Bag W136 P. O. Box 20454 6th Floor, Revenue House
Lusaka Kit we P.O. Box 35710
Tel:021 1 381111 Tel: 021 1 384500 Lusaka
Mobile: 0971281111 Mobile: 0971284500 Tel: 021 1 382609
Fax: 021 1 222717 Fax: 021 2229301 Mobile: 0971282609
Fax: 021 1220283
Senior Inspector
Assistant Director Assistant Director
Design & Monitoring -
Design & Monitoring – Design & Monitoring –
Taxpayer Services
Processing and Processing and
P .O .Box 35710
Enforcement Enforcement
Lusaka
P .O .Box 35710 P .O .Box 35710
Tel: 021 1 382540
Lusaka Lusaka
Mobile: 0971282540
Tel: 021 1 382502 Tel: 021 1 382502 Mobile:
Fax: 0211 221075
Mobile: 0971282502 0971282502 Fax: 021 1
Fax: 021 1 221493 221493

Assistant Director Assistant Director Assistant Director

Design & Monitoring – Large Taxpayer Office – Large Taxpayer Office –
Audit Non-mining Audit Unit Processing and
P .O .Box 35710 P .O .Box 35710 enforcement
Lusaka Lusaka P .O .Box 35710
Tel: 021 1 382506 Tel: 021 1 382602 Lusaka
Mobile: 0971282506 Mobile: 0971282602 Tel: 021 1 382604
Fax: 021 1 221493 Fax: 021 1 220283 Mobile: 0971282604
Fax: 021 1 220283

Assistant Director Assistant Director Assistant Director

Large Taxpayer Office – Small Taxpayer Office - Small Taxpayer Office -
Mining Audit Unit Lusaka Copperbelt
P .O .Box 35710 P .O .Box 35710 P.O. Box 70181
Lusaka Lusaka Ndola
Tel: 021 1 382605 Tel: 021 1 383237 Tel: 021 1 384200
Mobile: 0971282605 Mobile: 0971283237 Mobile: 0971284200
Fax: 021 1220283 Fax; 211 229744 Fax: 021 2 614096

Assistant Director Assistant Director Provincial Manager

Medium Tax Office – Medium Tax Office – Small Taxpayer Office -
South North Central
P .O .Box 35710 P .O .Box 20855 P.O. Box 80909
Lusaka Kitwe Kabwe
Tel: 021 1 382100 Tel: 021 1 384500 Tel: 021 1 381005
Mobile: 0971282100 Mobile: 0971284500 Mobile: 0971281005
Fax: 021 1 229621 Fax: 021 2 229942 Fax: 021 5 223642
Provincial Manager Provincial Manager Provincial Manager
Small Taxpayer Office Small Taxpayer Office Small Taxpayer Office
- Western - Eastern - Southern
P.O. Box 910110 P.O. Box 510632 P.O. Box 60597
Mongu Chipata Livingstone
Tel: 021 1381601 Tel: 021 1381900 Tel: 021 1 383812
Mobile: 0971281601 Mobile: 0971281900 Mobile: 0971283812
Fax: 021 7 221662 Fax: 021 6 221155 Fax: 021 3 320772

Provincial Manager Provincial Manager

Small Taxpayer Office Small Taxpayer Office
- Luapula – North-Western
P.O. Box 710112 P.O. Box 110368
Mansa Solwezi
Tel: 021 1 381700 Tel: 021 1384900
Mobile: 0971281700 Mobile: 0971284900
Fax: 021 2 821147 Fax: 021 8 821682
For more information contact:

+260 211 381111/0971-281 111/

5972 / 0962 251 111

Email us at: [email protected]

Website: www.zra.org.zm

Revenue House: P.O Box 35710

Lusaka, Zambia