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Paying VAT in forex

By Christopher Muzhingi

VALUE Added Tax (VAT) is a tax on consumption, payable on your purchases rather than directly on income unlike income tax.


hat is precisely why it is called an indirect tax. It is theoretically possible to avoid the tax by simply opting to consume non-vatable goods and services.

In practice, human beings have needs and wants that influence consumer behaviour and incidentally, most of the goods and services that satiate those needs and wants attract VAT, which in reality is not avoidable after all.

A selected list of goods in Zimbabwe and services are exempt from VAT and the rest of supplies are taxable.

Of those taxable, they either attract VAT at 0% or at a standard rated of 15%.

A further special rate of 22,5% applies on cellular phone usage (airtime).

Exemptions, zero-rated, and the standard rated supplies on which VAT is payable in Zimbabwean dollars are not of interest in this article.

When is VAT payable in foreign currency?

There are three circumstances under which VAT is payable in foreign currency as follows:

lWith effect from January 1 2006, the VAT law was amended to allow the levying of VAT in foreign currency on local supplies invoiced in foreign currency.

You charge a price for goods or services in foreign currency and you pay the relevant VAT in like currency.

Exports may be invoiced in foreign currency but they are zero-rated under VAT and therefore this law only applies on local supplies.

lThe recipient of “imported services” is obliged to pay VAT in foreign currency as well.

“Imported services” refers to services provided by foreign-based service providers who do not ordinarily trade in Zimbabwe and are not registered for VAT here and the imported services are applied for the purposes of making non-vatable supplies e.g. where the operators’ trade is exempt from VAT.

A special declaration other than the normal VAT return has to be filed with the tax authority. Tax on imports is the importer’s responsibility.

lImport VAT on goods listed in terms of Statutory Instrument 80A and 158 of 2007 is also payable in foreign currency. An example is a double-cab vehicle.

The impact of paying VAT in foreign currency

Interesting aspects that arise regarding the imposition of VAT in foreign currency on local supplies as outlined above are explored below.

The requirement to pay VAT in foreign currency came into being in terms of the Finance Act (Amendment No.6 of 2006) promulgated in October 2006.

The amendment to the principal VAT law was effected retrospectively to January 1 2006.

Introducing such a legal provision with far-reaching consequences with retrospective effect created a pandora’s box as many affected transactions had taken place over the preceding period of nine months.

lIn the first instance, all honest business players who had invoiced in foreign currency for transactions during the said period had potentially fallen foul of this legal requirement as they would have ordinarily paid VAT in local currency as was the norm between January and September 2006.

It will be very interesting to see how the Zimbabwe Revenue Authority (Zimra) will deal with the VAT liability related to foreign currency denominated invoices issued during the stated period.

One option which we would encourage Zimra from pursuing would be to disregard VAT payments made in local currency as per the existing practice and enforce collection of the tax in foreign currency retrospectively.

The law was not in existence then, nobody planned for it and in a country where foreign currency is not readily available to the generality of the business community many would not be able to obtain such monies from the formal system anyway.

Short of driving honest business people to the parallel market to meet a legitimate tax obligation, which is a breach of the foreign exchange regulations, it is inconceivable as to how else that tax obligation would be met.

Even if the central bank was to authorise the availability of foreign currency for this purpose, the exercise does not increase the foreign currency inflow into the country, which appears to be the rationale behind this legal requirement.

The harsh reality is that these are just persuasive arguments against enforcing this requirement in retrospect but at law nothing can stop the Commissioner from enforcing compliance by revisiting affected transactions and demanding payment in foreign currency in retrospect.

lAnother interesting observation is that from the time this legal requirement was enacted to date Zimra has not explained whether registered operators have to lodge two separate VAT returns (one for local currency and the other for foreign currency denominated invoices) for the same period or not.

If a separate foreign-currency VAT return is required, the taxmen has yet to unveil the relevant return and explain the compliance issues related to this issue one year after the law was promulgated.

We are aware that internally Zimra has had a discussion about possible solutions but a year after introduction, the affected VAT operators have not been appraised of the official position.

lOf even greater concern to the registered operator is whether the VAT input tax credit or refunds related to inputs incurred in foreign currency will be refunded in like currencies.

Prior to this change, all VAT was payable and input tax refundable in local currency.

It is likely that Zimra will want to make refunds in local currency but the position needs to be re-examined as the currency in which refunds are to be made is not legislated.

The business community sees no equity or fairness in refunding in local currency where the tax was actually paid in foreign currency. They are not asking for an extra allocation of the scarce foreign currency from treasury but just a merited return of a portion of what they would have paid in the first instance.

Perhaps the bone of contention has to do with the artificial exchange rates (even after the recent adjustment) more than anything else.

Given a more realistic exchange rate, the matter regarding which currency is applied when refunding would never have been an issue of concern.

The taxman may not have a reserve of foreign currency for the purposes of such refunds but more importantly is the question of whether the willpower to effect refunds in foreign currency exists.

The possibility to set-off a future debt against an existing credit is provided for in the law and perhaps that avenue can be explored as an alternative to outright refunds.


We are not aware of any VAT law which prohibits Zimra from refunding in foreign-currency-denominated transaction in like currency.

Given that the law has not legislated against refunding in foreign currency, it means that avenue is still open for exploration and it is entirely up to the business community to engage both the Commissioner and the Minister of Finance to agree on the way forward.


This publication contains information in summary form and is therefore intended for guidance only.

It is not intended to be a substitute for detailed research or the exercise of professional judgement.

Neither PricewaterhouseCoopers Zimbabwe nor any other member of the global PricewaterhouseCoopers organisations can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication.

For further information or comments please contact Marketing on 338362-8

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