Farai → Blog

Three Questions About Zimbabwe’s Digital Witholding Tax

Note: I drafted this before ZIMRA posted a “notice” [PDF: 222KB] that didn’t help much. My questions still stand though I’ll try to answer my questions through it at the end of the post.

So Zimbabwe introduced a Digital Witholding Tax on all foreign online payments. My thinking is that while it can theoretically increase tax compliance since online services tend not to register for VAT, in practice it’s an implementation nightmare.

I wrote a much longer post, my issues can be summarized in 3 questions:

  1. Can the witholding tax be claimed as a VAT input? The way VAT works is that you pay VAT on your inputs and when you sell the finished product you can claim a refund on the VAT you paid for inputs hence the name value-added tax. Issue here is that if the foreign service was not levying VAT, can I claim the witholding tax I’ve paid as an input for VAT purposes?
  2. How can you tell if a payment was for a good or a service? Amazon lets you buy physical products in addition to digital goods. Heck, a video game can be physical or digital. If it’s physical, I’d be liable to VAT and duty once it’s imported hence the Witholding Tax shouldn’t apply here. How do the banks differentiate?
  3. How to dispute a misclassification? The implementation will obviously be a mess and will result in some purchases attracting the Witholding Tax despite not being subject to it. What can I do if this happens? Also, some platforms charge VAT already, can I ask the bank for a refund if that’s already the case?

Postscript

So, from the time of drafting this post to me publishing it, ZIMRA published a notice on the tax[PDF: 222KB].

As for how it addresses these questions (note that intermediary stands in for anyone processing the payment, i.e. banks):

  1. Can the witholding tax be claimed as a VAT input? It only says that VAT-registered operators in Zimbabwe may claim input tax using valid tax invoices issued by non-resident suppliers, subject to sections 15 and 16 of the V202AT Act. What if the supplier isn’t VAT registered? Can I get a refund based on the witholding certificate?
  2. How can you tell if a payment was for a good or a service? The intemediaries have to provide a certificate showing the date of the transaction, supplier’s name, payer’s name, amount paid, tax withold and a reference to the payment. Nothing here covers what the payment is actually for. If banks are suposed to withold tax for digital goods and services and a payment includes both, how should it be reconcilled?
  3. How to dispute a misclassification? Doesn’t say.

I appreciate ZIMRA publishing the notice, but the core implementation still has issues. These may require legislative changes since ZIMRA can only collect what has been mandated by law.