What Triggers ZIMRA VAT Audits in Zimbabwe?

What Triggers ZIMRA VAT Audits in Zimbabwe?

The Zimbabwe Revenue Authority (ZIMRA) conducts Value Added Tax (VAT) audits on companies for various reasons, usually on non-compliance. ZIMRA can perform random audits, most are triggered by "red flags" identified through Fiscalisation Data Management System (FDMS) and the Tax and Revenue Management System (TaRMS).

Claiming Input Tax

Section 15 of the VAT Act governs what can be claimed as input tax. Companies that fail to follow these regulations are at high risk of being audited. Below are the key violations that trigger an audit:

• Invalid Invoices: Claiming input tax on invoices that do not meet Section 20 requirements, which include missing the supplier's full address, Taxpayer Identification Number (TIN), VAT number, is a major red flag. This signals a lack of due diligence and can lead ZIMRA to question the validity of all your claims.
• Non-business Expenses: Claiming input tax on personal or non-business-related expenses. ZIMRA's systems are increasingly capable of identifying these discrepancies.
• Issuing of Credit and Debit Notes: Frequent or huge credit and debit notes can trigger audits. ZIMRA may want to verify the legitimacy of these adjustments, as they can be used to tamper with output tax figures.
• Fiscalisation Issues: The integration of FDMS with TaRMS has given ZIMRA real-time visibility into business transactions. Any failure to comply with fiscalisation requirements is a direct trigger for an audit.
• Data Mismatches: Differences between the sales value from fiscal devices (captured by FDMS) and the sales values declared in VAT Returns. The integrated system allows ZIMRA to easily identify these variances, which are a primary target for audits.
• Tampering with Devices: ZIMRA can detect if a fiscal device has been tampered with or is not transmitting data correctly, leading to immediate investigation.
• VAT Refunds: Although taxpayers are entitled to a VAT refund, repeatedly or excessively claiming them often leads to an audit. ZIMRA will scrutinize these claims to ensure they are valid and not a means of tax evasion. This is particularly true for businesses in the mining and export sectors, which are frequent claimants. The authority prioritizes clearing the backlog of legitimate refunds but also uses this as an opportunity to review the claimant's records.
• Information from suppliers and customers: The FDMS/TaRMS integration, ZIMRA can reference your declared sales with the input tax claims of your customers. For example, if your customer claims a large amount of VAT input from you, but your declared output tax does not match, it creates a major inconsistency.

How to stay compliant and avoid audits

The keyways to navigate ZIMRA audits are not to "outsmart" them, but rather to be exactly compliant.

• Maintain Accurate Records: Keep all invoices, credit notes, and debit notes for a minimum of six years in a readily available file and ensure they contain all the required information as per the VAT Act.
• Fiscalisation Compliance: Frequently check that your fiscal devices are functioning correctly and conveying data to the FDMS. Reconcile your daily sales reports with the data reflected on the FDMS portal.
• Reconcile Data: Frequently reconcile your sales figures across all platforms of your accounting system, FDMS reports, and your VAT Returns.
• File and Remit on time: Always submit your VAT Returns and pay the tax due by the deadline. This shows ZIMRA that you are a responsible taxpayer.
• Seek Professional Advice: Consult with Baker Tilly to ensure you're up to date on all regulations and your systems are compliant.

How Baker Tilly can assist on ZIMRA VAT Audits

Baker Tilly will:

• recompute all your VAT Schedules for the Audited periods to verify the accuracy of assessments raised.
• representation throughout the engagement process with ZIMRA

Before a ZIMRA VAT Audit Baker Tilly can provide the following to minimise exposure in the event of a ZIMRA Audit:

• check the validity of all your fiscal tax invoices, credit notes and debit notes being claimed by a taxpayer.
• verify and highlight the mistakes made in preparing VAT Returns before a ZIMRA Audit.
• check if all benefits that are supposed to be included in the VAT Returns are included.
• do reconciliation between VAT Return sales and Z reports (FDMS) sales.

• Check if returns were submitted on time.

   

References

1. Value Added Tax Act [ Chapter 23:12]
2. SI 104 of 2010 - Value Added Tax (Fiscalised Recording of Taxable Transactions) Regulations, 2010
3. SI 153 OF 2016 - Value Added Tax (Fiscalised Recording of Taxable Transactions) (Amendments) Regulations, 2016(No.8)
4. Public Notice 92 of 2023 - Compliance with Fiscalisation Data Management System [FDMS]
5. Public Notice 10 of 2024 - Fiscal tax invoice, vat numbers and vat registration threshold
6. Public Notice 80 of 2024 - Fiscal tax invoice and compliance with fiscalisation data management system (fdms)
7. Public Notice 30 of 2025 - Upgrade of Fiscal Device to transmit Buyer details to the Fiscalisation Data Management System (FDMS)
8. https://www.zimra.co.zw/revenue-assurance-and-special-project/investigation-process

By Dephen Chakandinakira 

Tax Consultant at Baker Tilly.