The Minister of Finance and Economic Development (MOFED), Honourable Peggy Serame recently announced a decrease in the VAT rate from 14 percent to 12 percent with effect from the 1st of August 2022. The effective date has been confirmed however as 3 August 2022. Cooking oil and liquid petroleum gas will be charged VAT at 0 percent as from the above-mentioned date.
The decreased rate and zero-rating are proposed to run for 6-months up to 31 January 2023. In this regard, it is key to note that the said reduction comes with various technical transitional rules that should be carefully understood by suppliers of goods and services so as to avoid noncompliance penalties. Keep on reading and allow us to clarify the various transitional rules required in adopting the new VAT rate. In this article, words importing the masculine shall be deemed to include the feminine.
Firstly, it is imperative that we understand the fact that the 12 percent new rate does not directly translate to the immediate abandonment of the old rate i.e., 14 percent. The VAT Act generally provides transitional rules to facilitate adoption of the new rate which helps to deter and prevent fraudulent or fictitious transactions designed to take advantage of the lower rate. We will briefly explore various transitional rules prescribed by the VAT Act.
Supply of movable goods
The VAT laws provide that where movable goods are delivered by the supplier before the change in a VAT rate becomes effective, i.e., prior to 3 August 2022, the supplier is required to account for such sales using the 14 percent VAT rate. Technically, this applies to supply or delivery of movable goods where the payment or invoice is expected to be received or issued on or after 3 August 2022. It is key to note that the general rule of time of supply remains the earlier of issuance of an invoice or receipt of payment. However, for the purposes of determining the applicable VAT rate, the time of delivery takes precedence. For instance, if say ABC (Pty) Ltd delivered cooking oil and petroleum liquid gas on 30 July 2022 based on a quotation and anticipates issuing an invoice on 19 August 2022, VAT is still charged at 14 percent despite the change to 12 percent.
W movable goods or services such as equipment hire or monthly trainings are supplied progressively over a period which ends before 3 August 2022, the 14 percent VAT rate applies even if an invoice is issued after 3 August 2022. However, where the supply period spans or ends on or after the effective date, the applicable VAT rate must be fairly apportioned with movable goods or services are successively supplied over a period to 3 August 2022 chargeable at 14 percent, whereas those supplied on or after 3 August 2022 are subjected to 12 percent. The basis of apportionment may be hours, days, revenue etc. This applies to, among others, equipment hire or monthly trainings.
The move to reduce the VAT rate is meant to ensure that the public is relieved from the ever rising inflation, triggered by fuel increases and COVID-19 supplies disruptions. Businesses must not be tempted to make more profits from the said decreased VAT as some may increase their price such that the previous prices remain stagnant when 12 percent is applied on such goods or services. If this happens, then it defeats the whole essence of the mitigation efforts by the government.
Well folks, we hope that was insightful. As us the two Yours Truly say goodbye, remember to pay to Caesar what belongs to him. If you want to consult, join our free Tax WhatsApp group or to know about our 9 Tax e-books, send us a text on the cell number below. You can read more tax articles on our website, www.aupracontax.co.bw under the ‘Tax articles’ tab.