Withholding VAT

Zambia introduced Withholding VAT (WVAT) on 1st January 2017. This is a method of collecting VAT which deviates from the traditional method, where the supplier of goods or services has the legal obligation to account for the VAT on their sales. With WVAT, the legal obligation of accounting for VAT is shifted from the suppliers of the goods and services to the receivers. The WVAT method only applies when a VAT registered taxpayer is making supplies to an appointed WVAT Agents. When supplying to a non-appointed agent, VAT must be accounted for in the normal way.

Administrations that implement the WVAT method of collecting VAT target large organization that make large volumes of purchases from multiple, relatively small taxpayers ,that have a tendency of eluding the tax administration. This substantially erodes the VAT revenue that governments should be collecting.

By targeting the relatively few large organization to be accounting for VAT, tax administrations are able to secure the tax revenue in the hands of the few mostly compliant and reachable taxpayers as opposed to the numerous, mostly evasive taxpayers.

Operation of the Zambian WVAT System

There are many variants of the WVAT mechanism. The one that the Zambian administration adopted operates as follows.

  1. A supplier to a WVAT Agent declares all the VAT on sales and all the VAT on purchases and indicates the net liability on the face of the return, which is the difference between the VAT on sales and the VAT on purchases.
  2. The supplier files the return without making the payment for the liability indicated on the return. This is becausese the supplier did not receive the VAT, or the VAT did not accrue to the supplier.
  3. The suppliers VAT account ledger is debited with the liability that is indicated on the face of the return.
  4. The WVAT agent prepares a WVAT schedule, that lists all the withheld VAT, and files it with ZRA together with a full payment of the total amount on the schedule.
  5. The amount paid by the WVAT Agent on account of purchases from the agent is posted to the suppliers.
  6. Because the VAT that was withheld is greater than the actual liability for the supplier, the supplier’s period balance is in credit position.
  7. The supplier has to apply for a refund from ZRA.

See illustration below.

The accounting period for the WVAT is a callender month and the due date for the filing of returns and making payments is the 16th day of the month following the accounting period.