.MR CHIKWANDA

By JOWIT SALUSEKI –

ONE issue that has of late sparked debate and made headlines in the media, is the value added tax (VAT) general administrative rule number 18 that affects exporters in Zambia.
Valued Added Tax Rule No. 18 has been in existence since 1997 with the intention of making Zambian exports competitive through VAT refunds on exports.
Under Rule 18, the requirement to obtain information from importers outside Zambia’s jurisdiction has proved impractical and results in delayed processing of VAT refunds.
According to a letter by Minister of Finance Alexander Chikwanda to President Michael Sata, seeking his guidance on VAT tax administrative Rule 18, he stated that the uncleared backlog with the mines was in excess of $600 million (K3.6 billion).
“Since our fiscal space is severely constrained , we can only clear this huge backlog by negotiating staggered repayments with companies after we have instituted a more prompt VAT refunds regime.
“The rule creates uncertainty and undermines confidence in the economy. Your excellence‘s blessing is sought for the ministry to instruct?the Commissioner General of Zambia Revenue Authority to streamline Rule 18 so that it is limited to regulation and verification of exports and bank certification of receipt of export proceeds”, reads Mr Chikwanda’s letter in part.
Against this backdrop , the Zambia Revenue Authority (ZRA) has amended Rule 18 of the Value Added Tax (VAT) General Rules of 1997 to safeguard Government revenue with effect from September 8, 2014.
ZRA commissioner general Berlin Msiska says Rule 18 affects exporters and the mining sector.
The commissioner has also withheld about K3 bilion on account of tax-payers who declared zero –rated sales on exports but have not provided documents to the authority as at July 31, 2014.
Mr Msiska said Rule 18 ensures that VAT fairness in international trade is achieved by not subjecting exporters to VAT zero –rating, while at the same time providing tax refunds in put taxes.
Mr Msiska says importers will also be taxed on the same basis and at the same rate as domestic suppliers.
“Rule 18 of the principal Rule is amended by the deletion of sub-rule (1) and the substitution thereof of the following:’ unless the commissioner general shall otherwise allow, a taxable supplier claiming that a supply is zero-rated under the second schedule to the?Act on the ground that the supply of an exportation of goods, shall be produced to an authorised officer,” he explains.
He said a taxable supplier shall be required to provide copies of export documents for the goods, bearing a certificate of shipment provided by ZRA and tax invoices for the goods exported.
ZRA has also paid out K762,747,465.47 in respect of tax –payers inclusive of the mining sector who have since provided the required documents.
Mr Msiska said refunds withheld on account of non-compliance with the existing Rule 18 can only be made when the legal documentation has been provided to ZRA.
He, however, advised tax-payers to adjust their suppliers from zero-rated to standard –rated and supply 16 per cent VAT rate.
“Consequently , non-compliance with the VAT rules on exports means that exporters are obliged to charge VAT at 16 per cent on the supplies but will still be entitled to claim input on VAT,” Mr Msiska said.
The ZRA received submissions and representations from public and private stakeholders with regards to the administration of Rule 18 of the Value Added Tax (General) Rules, 1997.
Among such submissions made to ZRA were from the Zambia Association Chamber of Commerce and Industry (ZACCI).
The ZACCI stated that over the past years, Zambian non –traditional export (NTEs), have been growing steadily with most of them directed to both regional and international markets.
A key incentive that helped facilitate growth in the exports is the refund of Value Added Tax (VAT).
In 2013, the Zambia Revenue Authority (ZRA) amended the rule by way of Gazette Notice No. 26 of 2013 which adjusted all VAT returns to standard rate export sales until proof of compliance to the rule has been made in order for exporters to claim VAT refunds.
According to a letter written by ZACCI president Geofrey Sakulanda to Minister of Finance Alexander Chikwanda, ZACCI highlighted some of the challenges of VAT rule 18 for the minister’s possible consideration.
Mr Sakulanda outlined that prior to the 2013 amendment act, compliance to this rule had been by way of providing to the Zambia Revenue Authority ( ZRA), the documentation of invoices issued by the exporting company, duly completed export documents (Form CE20), release orders by ZRA confirming exit at the border and proof of payment into the company’s bank account.
However, Mr Sakulanda noted that the amended VAT rule 18, in part, particularly Rule 18 (1) (b), requires that in addition to the requirements above, an exporting company must also provide copies of import documents for the goods bearing a certificate of importation into the country of destination provided by the customs authority of that country as proof of export.
He argues that the amended VAT rule No. 18, has its own challenges.
Among such challenges is the requirement to produce copies of import documents for the goods, bearing a certificate of importation into the country of destination provided by the customs of that country as proof of export.
Mr Sakulanda stated that exports made to clients in the export markets on such terms that once a consignment is handed over to the client’s agents, the responsibility of the exporter is terminated and the exporter has absolutely no control over the consignment from that point and export invoices are based on the terms of sale.
“It is challenging to obtain information documents to prove importation in most of the export markets for Zambian products. This situation is even worse in one of Zambia’s key export destinations, namely Democratic Republic of Congo (DRC).
“Exporters are not in any way averse to complying with the law but need special consideration to find practical solutions to dealing with this challenge. This situation is detrimental, as it erodes competitiveness especially that our competitors in the regional markets do not require that similar documents to be produced,” Mr Sakulanda said.