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Did you know that Value Added Tax (VAT) is calculated on the value of supply? This occurs in circumstances when a sale which is made in good faith does not materialise, or when its conditions change.

For VAT purposes such a sale should be cancelled or altered through a credit note or debit note.

The law sets out the conditions when a credit note or debit note may be issued and when tax arising from the reversed or altered sale is claimed.

When is a credit note and a debit note issued?

A credit note or a debit note is issued by a registered operator when:

A supply has been cancelled for instance, when the conditions of contract have been violated,

There are changes to the nature of a supply resulting in some alterations in the supply contract,

Discounts or other concessions offered result in alteration of the previously agreed consideration for that supply by agreement with the recipient

The goods or services or part of the goods or services supplied have been returned to the supplier, including the return to a registered operator of a returnable container, the registered operator in such case being deemed for the purposes of the VAT Act to have made the supply of the container in respect of which the deposit was charged.

Conditions

There are two conditions which must be fulfilled for a credit note or debit note to be issued and accepted for VAT purposes. The supplier should have;

Provided a tax invoice in relation to that supply and the amount shown therein as tax charged has become incorrect due to the occurrence of any of the above;

Furnished a return in relation to the tax period in respect of which output tax on that supply is attributable, where such output tax becomes incorrect due to the occurrence of any reason for which a credit or debit note is issued as described earlier.

Adjustment required

Where a supply takes place in one period and the alteration or cancellation of that supply takes place in another period, the supplier shall make an adjustment in calculating the tax payable in the return for the tax period during which the credit note or debit note is issued.

Features of a “credit note” or “debit note”

A credit note or debit note is issued when tax charged is higher than the proper tax which should have been charged. This document should show the following:

The words “credit note” or “debit note” in a prominent place,

The name, address and registration number of the registered operator,

The name and address of the recipient, except where the credit note/debit relates to a supply in respect of which a tax invoice was issued,

The date on which the credit note/debit note was issued

The amount by which the value of the said supply shown on the tax invoice has been reduced (in the case of a credit note) or increased (in the case of a debit note) and the amount of the excess tax (in the case of a credit note) or additional tax (in the case of a debit note) , or where the tax charged in respect of the supply is calculated by applying the tax fraction to the consideration, the amount by which the consideration has been reduced or increased and either the amount of the excess tax or additional tax or a statement that the reduction/increase includes an amount of tax and the rate of the tax included,

A brief explanation of the circumstances giving rise to the issuing of the credit note or debit note

Information sufficient to identify the transaction to which the credit note or debit note refers.

Controls

Not more than one credit note or debit note shall be issued for the same transaction.

In the event that there is need to replace a credit note or debit note, the copy must clearly be inscribed ‘‘copy’’.

A credit note should not be issued where a recipient takes a discount which is specifically stated in the sale contract.

It should be noted that in terms of the VAT Act, a credit note reduces tax payable by way of claiming tax thereon as input tax while a debit note increases the tax payable.

Disclaimer

This article was compiled by the Zimbabwe Revenue Authority for information purposes only.

ZIMRA shall not accept responsibility for loss or damage arising from use of material in this article and no liability will attach to the Zimbabwe Revenue Authority.

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