VAT dilemma of construction projects

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The construction industry plays a crucial role in the development of any economy. With Zimbabwe’s economic development agenda being premised on 14 pillars under the National Development Strategy, infrastructure development is said to be central to the achievement of the country’s economic goals. In pursuance of the same, the government set aside money for the sector in the 2023 national budget. There are therefore a number on going construction activities in the country.It is critical to stress that the sector, like other sectors of the economy, is not immune to the tax system’s issues and must negotiate its way through the complex tax rules. The VAT complexities of the construction industry stem from the time horizon disparities between the conclusion of the construction contract, the undertaking of the construction and the eventual settlement for the job done. This stands out as one of the construction industry’s distinctive complications, as well as a possible risk to tax compliance, liquidity, and profitability, particularly for small construction enterprises.


By their very nature, construction projects are long term, in some cases spanning several years before the project concludes. The law provides that VAT in the case of construction, manufacturing or construction and assembly work becomes chargeable upon payment being made in respect of any supply becoming due, is received, or any invoice relating only to that payment is issued, whichever is the earliest (underlined own emphasis). The interpretation of what is meant by “any supply becomes due” is critical. Because the construction project is often delivered in parts, it is impractical to expect the “supply which becomes due” to be the full project value.


The building contractor and the contracting entity must agree when the works have been finished for a supply to become due. The view currently embraced by tax authorities and courts is that construction or assembly work is completed when a certificate of completion or progress is issued. This may be viewed as the date of signing a handover protocol denoting the client’s acceptance of the work. In order for this to be achieved the following three conditions should be met : (a) a formal acceptance protocol should be stipulated by the parties under the contract, (b) such formal acceptance protocols are common commercial practice in the field in which the service is supplied and (c) it must not be possible to establish the consideration due by the client before the client formally accepts the construction or installation work. In the absence of a clause in the contract stipulating the acceptance protocols as aforesaid, it appears the date the “supply becomes due” is when the contractor announces to the buyer that the services are complete and ready for handover. How the agreement is worded is a critical consideration in the determination of a tax point underscoring the point in time, rights and obligations under the contract are exchanged by the parties.

The dilemma with construction contracts is that the process of works acceptance is often very long, consisting of multiple stages, and is never guaranteed to end successfully. When tax chargeability and invoicing date is to be conditional on the works becoming declared ready for acceptance, the contractor may find itself forced to issue an invoice and pay VAT although the contracting entity refused to accept the works and the invoice it received. If this happens, the contractor may find itself facing loss of financial liquidity as it will have to pay the VAT without itself being paid by the contracting entity for the work it performed. This stems from the fact that invoice is one of the three elements which may trigger VAT on a construction contract.

Moreso, VAT issue of front payments as indicated above is another problem, the time of supply is triggered when a supplier receives a payment. It is not relevant whether the goods or services were not physically supplied or performed at that time see: (Case L67 (1989) 11 NZTC 1,391). The fact that the contract is later cancelled does not void the supply. However, of essence is whether such upfront payment is a consideration for the supply or not. The VAT Act has defined term consideration to exclude a deposit, other than a deposit on a returnable container, whether refundable or not, given in respect of a supply of goods or services unless and until the supplier applies the deposit as consideration for the supply or such deposit is forfeited. Deposits are a customer’s way of reserving goods or services
or a sum payable as a first instalment on the purchase of something or as a pledge for a contract, the balance being payable later. The far-reaching consequence of this is that the contractor should be able to demonstrate that the upfront payment is a deposit which has not been appropriated to him/her as part of the supply. Where the amount is an advance payment it can be argued that VAT is triggered when such advance is received. In practice an advance payment helps the business to pay its actual costs during a contract. The issue of VAT on deposit is a topic which requires an in-depth analysis, and we will deal with it in our future articles.

In the final analysis the contractor will become liable to VAT based on the progress report as approved by the client, where billing or actual payment has preceded the certificate of completion such payment or invoice, whichever occurs first will trigger the VAT point. The certificate of completion as approved by the client or invoice will force the contractor to declare and pay the VAT long before receiving payment from the client which represents the biggest VAT dilemma within the construction industry. The upfront payment also, although a much better problem to deal with, will trigger VAT even when services has not been performed unless it can be demonstrated that the payment is a deposit as described above. All these are VAT intricacies bedeviling construction contracts which contractors should manage to avoid noncompliance penalties which may take a huge toll on the business liquidity as well threatening business going concern.

ZIMRA rolling out a new system – TaRMS!!!

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A new dawn beacons at the tax office of the country, ZIMRA. The Tax and Revenue Management System (TaRMS) will go live on the 12th of October 2023. A business re-engineering process committed at simplifying corporate operations for taxpayers’ benefit. Tax revenues are central to Zimbabwe’s national development and the attainment of the country’s vision of being a middle-income economy by 2030. As a result, ZIMRA’s operations must be re-engineered to facilitate efficient and effective revenue collection. TaRMS will replace the current system (SAP TRM) for automating domestic tax activities. When offering services to its taxpayers via SAP TRM under the Domestic Taxes Division, ZIMRA discovered a number of system difficulties, hence necessitating an upgrade. TaRMS is expected to drive up taxpayer registrations, improve the registration process, expand the taxpayer base, capture ITF 12B (QPDs), improve refunds management, tax return management, payment and debt management systems. The new system will be released in three stages on three different dates. The first phase will be the front end, with 80% of the program being delivered on 12 October 2023. The second stage will be the installation of the Tax Agent Module, which will be live on 1 December 2023. Finally, the third phase, which will include the back end, will go online on 1st August 2024.

It is expected TaRMS will have better features and functionalities compared to the outgoing SAP and there is no doubt that it will boost domestic revenue mobilisation. ZIMRA identifies various advantages of utilising the TaRMS system over the traditional SAP system. The enhancements are roughly classified as taxpayer registration, tax return administration, payments management, refunds management, and debt management. In registration, Duplicate Business Partner Numbers will be eradicated, there will be an online validation of company registration numbers integrated with Registrar of Companies, banks, and civil registry, Taxpayer Identification Number (TIN) and tax types registration will be automatic for all entities, the system will offer a self-service portal “SSP” that can save uncompleted taxpayer’s registration applications that can be completed later. Integration with Registrar of Companies will assist ZIMRA to grow taxpayer’s base as all registered companies will be automatically registered in TaRMS. The use of manual registrations forms done prior will now be eliminated through use of electronic forms on TaRMS. Taxpayers can update master data through SSP without requirement for ZIMRA’s intervention on editable fields. Taxpayers will use one TIN for both USD and ZWL, submit one return per tax period and post-tax obligations in both ZWL and USD, which is easy for the taxpayer. Except for those that are partially automated, such as capital gains on entities or individuals with diplomatic immunity, all returns/claim forms are totally automated. The solution will eliminate the problem of unallocated payments in ZIMRA bank accounts, as well as the need for
suspense accounts.

The taxpayer’s ledger will be automatically maintained by TaRMS. It will automatically identify refunds for processing, assess any outstanding liabilities (returns and payments), discover unpaid obligations, and maintain accounts automatically since a tax liability reported on the return is settled straight from the single account. The system will calculate interest on a daily basis, update and display the amount in the taxpayer ledger and post penalties from the due date to the taxpayer ledger. If the taxpayer has made any necessary corrections, the system will be able to automatically reverse interest and penalties on any
adjusted/amended tax liabilities. It will send reminders for payments and returns prior to, on, and beyond the due date, based on the escalation methods. Following the launch, the transition will be gradual, with no loss of existing capability. The new TIN update will be linkable with BP until the end of the project. TaRMS will already be split, with each currency (USD and ZWL$) residing in separate ledgers. A single return will result in two assessments. SSP a self-service site connected with TaRMS will ease business operations. Because Zimbabwe is designated as a multi-currency economy, TaRMS will only have two currencies: USD and ZWL$ however, if one’s currency of trade is different from the mentioned, it must be converted to USD, but just for tax reporting purposes. ZIMRA will only accept payments in either ZWL or USD i.e., if one trades in pounds, they have to convert their currency to USD for payment of taxes.

E-services and e-tax will be phased out on the 12th of October 2023.TaRMS will not necessarily amend the legislation. Refunds will be issued automatically, with the exception of those who exceed a specified threshold. Domestic payments will be processed online using domestic bank cards, buttressed by ZIMRA’s collaboration with ZIMSWITCH. Persons dealing with agents, as well as agents dealing with persons, must enter individual email addresses so that the TIN can be delivered directly to the individual. Otherwise, the TIN will be mailed to the current address. As with any new system that is implemented, there will be some flaws here and there. The current tax structure already presents certain difficulties for taxpayers. Complex tax regulations, complicated paperwork, and a lack of transparency have frequently led to taxpayer misunderstanding and dissatisfaction. The implementation of a new tax system should solve some of these concerns while also providing a more user-friendly experience. The revenue management system is intended to improve revenue management by streamlining tax collection. It intends to automate tax operations, improve efficiency, and limit the potential for fraud by integrating technology. However, the successful deployment of such a system is strongly dependent on taxpayers’ willingness to adjust to the changes, as well as the authority’s financial readiness to completely finance the system and manage its operations.

In summation, to be fully prepared for the system, taxpayers must collaborate with ZIMRA, attend training sessions, and follow all of their social media handles to stay up to date on developments and communicate any potential challenges they anticipate so that ZIMRA can either address them or reassure them that everything is in order. Backups by taxpayers of old data are critical moving into a new system to avoid disappointment. The new system promises to be fantastic and we hope it is not the same promise offered by all promoters of new systems. Our hope is that the promoters will leave to their billing and the government will commit resources to make the project a success. Does TaRMS offer a complete digitalised tax system capable of delivering features such as e-filing, e-matching, e-auding, e-accounting and e-assessing, watch out for our follow up article next week.

ZIMRA rolling out a new system – TaRMS!!!

by with No Comment News

A new dawn beacons at the tax office of the country, ZIMRA. The Tax and Revenue Management System (TaRMS) will go live on the 12th of October 2023. A business re-engineering process committed at simplifying corporate operations for taxpayers’ benefit. Tax revenues are central to Zimbabwe’s national development and the attainment of the country’s vision of being a middle-income economy by 2030. As a result, ZIMRA’s operations must be re-engineered to facilitate efficient and effective revenue collection. TaRMS will replace the current system (SAP TRM) for automating domestic tax activities. When offering services to its taxpayers via SAP TRM under the Domestic Taxes Division, ZIMRA discovered a number of system difficulties, hence necessitating an upgrade. TaRMS is expected to drive up taxpayer registrations, improve the registration process, expand the taxpayer base, capture ITF 12B (QPDs), improve refunds management, tax return management, payment and debt management systems.

The new system will be released in three stages on three different dates. The first phase will be the front end, with 80% of the program being delivered on 12 October 2023. The second stage will be the installation of the Tax Agent Module, which will be live on 1 December 2023. Finally, the third phase, which will include the back end, will go online on 1st August 2024.
It is expected TaRMS will have better features and functionalities compared to the outgoing SAP and there is no doubt that it will boost domestic revenue mobilisation. ZIMRA identifies various advantages of utilising the TaRMS system over the traditional SAP system. The enhancements are roughly classified as taxpayer registration, tax return administration, payments management, refunds management, and debt management. In registration, Duplicate Business Partner Numbers will be eradicated, there will be an online validation of company registration numbers integrated with Registrar of Companies, banks, and civil registry, Taxpayer Identification Number (TIN) and tax types registration will be automatic for all entities, the system will offer a self-service portal “SSP” that can save uncompleted taxpayer’s registration applications that can be completed later. Integration with Registrar of Companies will assist ZIMRA to grow taxpayer’s base as all registered companies will be automatically registered in TaRMS. The use of manual registrations forms done prior will now be eliminated through use of electronic forms on TaRMS. Taxpayers can update master data through SSP without requirement for ZIMRA’s intervention on editable fields. Taxpayers will use one TIN for both USD and ZWL, submit one return per tax period and post-tax obligations in both ZWL and USD, which is easy for the taxpayer. Except for those that are partially automated, such as capital gains on entities or individuals with diplomatic immunity, all returns/claim forms are totally automated. The solution will eliminate the problem of unallocated payments in ZIMRA bank accounts, as well as the need for suspense accounts.
The taxpayer’s ledger will be automatically maintained by TaRMS. It will automatically identify refunds for processing, assess any outstanding liabilities (returns and payments), discover unpaid obligations, and maintain accounts automatically since a tax liability reported on the return is settled straight from the single account. The system will calculate interest on a daily basis, update and display the amount in the taxpayer ledger and post penalties from the due date to the taxpayer ledger. If the taxpayer has made any necessary corrections, the system will be able to automatically reverse interest and penalties on any adjusted/amended tax liabilities. It will send reminders for payments and returns prior to, on, and beyond the due date, based on the escalation methods.


Following the launch, the transition will be gradual, with no loss of existing capability. The new TIN update will be linkable with BP until the end of the project. TaRMS will already be split, with each currency (USD and ZWL$) residing in separate ledgers. A single return will result in two assessments. SSP a self-service site connected with TaRMS will ease business operations. Because Zimbabwe is designated as a multi-currency economy, TaRMS will only have two currencies: USD and ZWL$ however, if one’s currency of trade is different from the mentioned, it must be converted to USD, but just for tax reporting purposes. ZIMRA will only accept payments in either ZWL or USD i.e., if one trades in pounds, they have to convert their currency to USD for payment of taxes.

E-services and e-tax will be phased out on the 12th of October 2023.TaRMS will not necessarily amend the legislation. Refunds will be issued automatically, with the exception of those who exceed a specified threshold. Domestic payments will be processed online using domestic bank cards, buttressed by ZIMRA’s collaboration with ZIMSWITCH. Persons dealing with agents, as well as agents dealing with persons, must enter individual email addresses so that the TIN can be delivered directly to the individual. Otherwise, the TIN will be mailed to the current address.

As with any new system that is implemented, there will be some flaws here and there. The current tax structure already presents certain difficulties for taxpayers. Complex tax regulations, complicated paperwork, and a lack of transparency have frequently led to taxpayer misunderstanding and dissatisfaction. The implementation of a new tax system should solve some of these concerns while also providing a more user-friendly experience. The revenue management system is intended to improve revenue management by streamlining tax collection. It intends to automate tax operations, improve efficiency, and limit the potential for fraud by integrating technology. However, the successful deployment of such a system is strongly dependent on taxpayers’ willingness to adjust to the changes, as well as the authority’s financial readiness to completely finance the system and manage its operations.


In summation, to be fully prepared for the system, taxpayers must collaborate with ZIMRA, attend training sessions, and follow all of their social media handles to stay up to date on developments and communicate any potential challenges they anticipate so that ZIMRA can either address them or reassure them that everything is in order. Backups by taxpayers of old data are critical moving into a new system to avoid disappointment. The new system promises to be fantastic and we hope it is not the same promise offered by all promoters of new systems. Our hope is that the promoters will leave to their billing and the government will commit resources to make the project a success. Does TaRMS offer a complete digitalised tax system capable of delivering features such as e-filing, e-matching, e-auding, e-accounting and e-assessing, watch out for our follow up article next week.

Is the country ready for Migration to TARMS?

by with No Comment News

The Tax Administration Revenue Management System (TARMS) holds significant potential for enhancing tax administration in Zimbabwe. However, before we blow the trumpet, it is crucial to assess the domestic tax terrain and evaluate its readiness for migration. Master data, internet, infrastructure, etc are critical for its success. To start with the Commissioner of domestic Taxes, through a public notice has requested individual or public officer information comprised of name, identification number, e-mail address and phone number. This data is essential for the new system to send information automatically to complete the registration procedure. This article is about a micro-assessment of the domestic tax terrain in Zimbabwe, examining key factors that may affect the successful adoption of TARMS.

Individual taxpayers and businesses having updated public officer Master Data will be issued a New Taxpayer Identification Number “TIN”, which will replace the Business Partner Number “BPN” on 9 October 2023.Taxpayers who have not obtained their TIN by the 12th of October 2023, must contact ZIMRA or their nearest office for assistance. As per the public notice issued on the 4th of October 2023, areas that should be updated urgently are the public officer’s name, identity number, email address of the public officer and contact details. This can be done by either contacting or visiting any ZIMRA office of convenience. One can posit that, with such developments on the ground it shows a fertile ground has or is being prepared for the new system to spearhead. The following question becomes: “Are both sides ready for the new system”.

It is our view that, for a new digital system to be a success there is a need to severe the digital maturity and development of the country. A country would need to analyse where they are on the digital transformation journey in order to establish the project’s baseline. The tax administration forum has created a “digital maturity” model that splits the transformation process into sections or stages. In this context, a country may establish its position on the digital maturity scale at the start of the project, plot where it wants to be at the conclusion and track progress based on where it maps to at any given time. This schema is only one step in the digital taxation path. The model can be said to include; e- filing, e-accounting; e- matching; e-assess and e-auditing. These can be said to suffice a complete revolution of a tax system and looking at our new tax system it covers partly of what a full system should encompass hence there will be a need to develop for it to be self-sufficient. The amount of money spent or available  in comparison to the cost of the plans can be used to gauge progress along the digital transformation route. Budgetary commitment for each phase reflects the government’s commitment to carrying out the transformation program and also serves as the foundation for monitoring progress. Under or sluggish disbursement, for example, is frequently indicative of either procurement concerns or problems with government commitment.

Governments at all levels of development are bound or limited by capacity in tax, technology, and data management, while this constraint is well proven to be especially severe in developing countries, Zimbabwe included. On the government side, limited capacity affects the ability to carry out day-to-day tax administration operations (including audit), and most developing-world tax administrations struggle to keep up with the basics income, VAT, and excise, let alone assessment, audit, debt collection, and taxpayer service. Adding to these responsibilities is the international tax agenda, which includes the BEPS agenda, adopting tax transparency requirements, and now the threat of digital taxes, which strains scarce resources even further hence ZIMRA should be fully prepared to avoid such. The issue of data availability and access is related to both capacity and technology. The ability of a tax administration to use different sources of data as they relate to taxpayers e.g., beyond tax and invoice filing, banking information, customs information, third-party information for profiling and adjudicating arms-length pricing is an important driver of efficiency. Data scarcity is a prevalent concern in Zimbabwe due to compliance issues, administrative issues, and even technology issues the inability to collect, store, and/or secure data is still prevalent hence a need to correct before moving forth.

To migrate to TARMS successfully, a robust tax collection infrastructure is also essential. This includes having a well-established taxpayer database, reliable IT systems, and trained tax personnel. In Zimbabwe, although some progress has been made in these areas, several challenges persist. The taxpayer database lacks comprehensive and accurate information, hindering effective tax collection. Furthermore, the IT systems require significant upgrades to handle the complexities of TARMS.

For a start, the tax administration may begin with a low level of technological use and digital maturity for a variety of reasons (money, capacity, strategic priority, or vision). Alternatively, and related to the mentioned, it is possible that the taxpayer does not or cannot use technological solutions to, for example, e-file returns, invoices, or stream data for a variety of reasons (including, potentially, financial resources, capacity, prioritization, or even a lack of adequate data bandwidth). Thus, even if the tax administration decides to go digital, it is possible that the source of data (the taxpayer) may be unable to participate. As part of the trip, taxpayers would need to be able to engage in the data streaming process. On the other hand, governance and transparency difficulties might be a challenge in all contexts; usually they are one of the most important barriers to compliance. As with the previous challenges, digital transformation is designed to increase transparency and better governance through “seamless” compliance (data streaming in real time). However, for a successful transformation journey, procedures and tax treatment centred on strong governance, compliance, and process transparency must be designed or strengthened.

Meanwhile amid the onboarding of TARMS Matrix Tax School can assist with facilitation of updating of taxpayer’s Master Data, assist with training on the use of TARMS and statement of account reconciliations to ensure correct balances are carried over to the new system in all tax heads.