Katarina Panaishe, Zimbabwe Revenue Authority (ZIMRA)

1. AN ASSESSMENT OF VALUE
ADDED TAX (VAT) SYSTEM IN
ZIMBABWE
PRESENTED BY
KATARINA PANAISHE
RESEARCH & DEVELOPMENT OFFICER
AFRICAN TAX ADMINISTRATORS’ RESEARCH DAY: 19TH OCTOBER- ENTEBBE, UGANDA

2. PRESENTATION OUTLINE
•Background
•Research methodology
•Data analysis and results
•Conclusion
•Policy implications
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3. INTRODUCTION
• The Zimbabwe Revenue Authority (ZIMRA) is a quasi-government institution under the Ministry
of Finance and Economic Development.
• Its primary mandate is to collect revenue including value added tax (VAT).
• Over 80% of government expenditure is funded from ZIMRA collections.
• VAT was introduced in Zimbabwe in 2004 to replace the Sales Tax.
• VAT contributes an average of 23% to total revenue in Zimbabwe as compared to about 27% in
RSA(SARS,2016) and 21% in OECD countries (OECD, 2016).
• VAT/GDP ratio in Zimbabwe 7% as compared to 7% in RSA and 6.2% in ATO countries (ATO
PUB, 2017).
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4. RESEARCH PROBLEM
Target vs Net Annual
Collections
•Total revenue
collections have been
declining
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2011 2012 2013 2014 2015 2016
Net Collections (US$ Bln) 2.60 3.26 3.43 3.60 3.50 3.25
MOF (US$ Bln) 2.50 3.23 3.64 3.82 3.76 3.61
% Variance 4.00% 0.93% -5.77% -5.76% -6.91% -9.97%
-0.50
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
US$Bln
Target vs Net Annual Collections
Net Collections (US$ Bln) MOF (US$ Bln) % Variance

5. RESEARCH PROBLEM
Refunds
• Refunds have been increasing from 2011 to
2016 on gross VAT collections.
• VAT refunds paid to VAT registered operators
contributed an average of 24% of the gross vat
revenue collections over the period 2011-2016.
• Refunds reached their peak in 2015 mainly due
to refunds claims by the mining sector.
• Overally, refunds indicate an upward trajectory
up to 2016.
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2011 2012 2013 2014 2015 2016
VAT Refund (US$ Bln) 0.2 0.2 0.14 0.23 0.28 0.21
Gross VAT (US$ Bln) 1.29 1.28 0.7 0.74 0.83 0.81
% Refunds/ Gross VAT 16% 16% 20% 31% 34% 26%
0%
5%
10%
15%
20%
25%
30%
35%
40%
0
0.2
0.4
0.6
0.8
1
1.2
1.4
%Ref/GrossVAT
AmountUS$Bln
2011-2016 VAT Refunds
Linear (% Refunds/ Gross VAT)

6. RESEARCH PROBLEM
•Revenue forgone on zero-rated supplies contribute 50% of
potential VAT collections.
•There is, therefore, need to relook at the structure of VAT
zero-rating and exemption in order to discover changes that
can maximize revenue collections .
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7. OBJECTIVES
Key Objective:
To establish the feasibility of widening the tax base by focusing on lists of zero-rated and exempt supplies.
Specific objectives being:
To analyze the structure of the VAT system in Zimbabwe
To establish major suppliers of exempt and zero rated goods and services in Zimbabwe
To benchmark the Zimbabwe structure with the generally acceptable VAT taxation principles.
To carry out statistical simulations (modelling) to establish different relationships that can create base
case for Zimbabwe.
To give practical recommendations for widening the tax base in Zimbabwe.
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8. SCOPE
The research covered:
VAT system in Zimbabwe focusing on VAT
on local sales data for year 2016.
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9. SIGNIFICANCE OF THE STUDY
The study is important in bringing out the following benefits:
•Widening of tax base through policy change.
•Determining industry/sector linkages in relation to supplying points that
maximize revenue within the supply chain.
•Manage retroactive zero rating which does not only write off taxes due, but
reduces the tax base.
•Benefits to the body of knowledge/academia
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10. METHODOLOGY
•Desk study
•Type of data
Primary data from SAP system
Secondary data from ZIMRA reports and Zimbabwe Statistics Agency
(ZIMSTAT)
•Population size
To test for preliminary results, data for 2016 was used and
Focus was put on population for zero-rated suppliers for 2016 because of
their impact on revenue collections.
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11. METHODOLOGY
Sample size
•The data on zero rated supplies was sorted according to
sector/industry.
•Data then ranked according to Value of Supply (VOS).
•Top 10 sectors/industries with the highest VOS were selected.
•Top 2 sectors (mining and manufacturing) were selected.
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12. METHODOLOGY
Sample size
•Identified top 10 suppliers within manufacturing and mining sectors
according to VOS.
•Picked first companies from each for analysis. In-depth research will
be done on many other supplies
• Industry linkages for sugar & gold were established using Input-
output tables.
•Different simulations were done on the supply chain to identify
possible scenarios that can be adopted to widen tax base.
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13. DATAANALYSIS AND RESULTS
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VAT simulations introduction
Preliminary testing was done on sugar manufacturing and gold
mining to illustrate the different industry linkages and the
possibility of changing zero-rating or exemption points within
the supply chain to widen tax base.

14. DATAANALYSIS AND RESULTS
Gold VAT simulation
•Most of the mining output in Zimbabwe is for export.
•Gold exports are zero-rated to promote exports and this
has seen huge VAT refunds to mining companies.
•The current and proposed scenarios on supply of gold are
shown in next slide.
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15. DATAANALYSIS AND RESULTS
Current Scenario
(US$) Proposed Scenario (US$)
Scenario
Curren
t Rate
Propose
d rate Value of Supply
VAT
charge
d VAT due VAT charged VAT due
Imports
Supplies 15% 0% 1,000,000.00
150,000
.00 150,000.00 0.00 0.00
Local
supplies exempt 15% 70,000,000.00 0.00 (150,000.00) 10,500,000.00 10,500,000.00
Miner 0% Exempt 120,600,017.67 0.00 0.00 0.00 0.00
Export 0.00 10,500,000.00
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Current And Proposed Scenarios For Gold Supplies

16. DATAANALYSIS AND RESULTS
Gold current situation
• Miner receives inputs from both local and imports suppliers.
• Some of imports supplies are covered by customs rebates which make them VAT
exempt while other inputs are standard rated or zero-rated.
• Miner exports gold through the authorised agent.
• Exportation of gold is zero-rated and this results in refunds which erode the tax base.
• Miners also receive 5% export incentive from the central bank.
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17. DATAANALYSIS AND RESULTS
Gold proposed scenario
•Nine simulation scenarios for inputs were carried out to assess the impact
of each.
•The proposed scenario suggests exempting supply of gold both locally
and on exports.
•Exemption on local and export is done to ensure the principle of fairness
is upheld on both exporters and production for local consumption.
•The scenario makes savings on revenue through reducing refunds since
there are no refunds on inputs for exempt supplies.
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18. DATAANALYSIS AND RESULTS
Gold proposed scenario
•Exporters continue to benefit from:
The export incentive scheme offered by Central Bank.
Rebates concessions on specified expenditures for mining.
•The option of exempting gold supplies is well in line with the
destination principle.
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19. DATAANALYSIS AND RESULTS
SUGAR VAT SIMULATION
Current (US$) Proposed (US$)
Scenario Current
Rate
Propo
sed
rate
Value of
Supply
VAT
charged
VAT
due
VAT charged VAT due
Sugar cane producer 0% 0% 20,000,000.00 0.00 0.00 0.00 0.00
Sugar Manufacturer 0% 15% 90,383,160.51 0.00 0.00 13,557,474.08 13,557,474.08
Wholesaler/Retailer 0% 15% 100,000,000.00 0.00 0.00 15,000,000.00 1,442,525.92
0.00 15,000,000.00
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20. DATAANALYSIS AND RESULTS
Current scenario
•Supply of sugar is currently zero rated.
•Zero-rating is a tax expenditure in that 15% of potential revenue is
forgone.
•Refunds are also claimable on standard rated inputs and this negatively
affects the tax base.
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21. DATAANALYSIS AND RESULTS
Proposed scenario
•The scenario proposes standard rating of sugar in subsequent
linkages in the supply chain.
•Has capacity to minimize the refunds bill hence widening the tax
base
•Supplies of sugar for export will also be exempt from VAT to
enhance revenue collection by reducing the refunds bill.
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22. PRELIMINARY FINDINGS
1. Major suppliers of zero rated goods and services were
identified from mining and quarrying; manufacturing;
agriculture, forestry and fishing; transportation and storage;
and administration and support services.
2. Repositioning of VAT zero-rating and exemption a supply
chain determines the amount of vat revenue to be collected
in an economy.
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23. PRELIMINARY FINDINGS
3. Exempting both local and export mineral supplies
(e.g. Gold) reduces refunds bill thereby widening the
tax base.
4. Standard rating of sugar supplies increases revenue
collections thereby widening the tax base.
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24. CONCLUSION
•The success of the VAT cannot be taken for granted; it requires good design and
implementation Kayaga (2007).
•In like manner, the current VAT system in Zimbabwe requires fine-tuning and
continuous improvement.
•Broadening the tax base may not necessarily have to depend on increasing tax
rates but rightfully determine the ideal category within a supply chain that can
ensure more revenue is realised to fiscus.
•The success of a VAT regime therefore requires good design, implementation and
continuous review.
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25. TAX POLICY IMPLICATIONS
•Changing the current VAT Taxing scenario to the
proposed scenarios calls for legislative changes that
can allow for lawful implementation.
•A strong political will is also key for success of policy
implementation.
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