When shopping at a store, have you ever asked for a tax invoice only to have the owner open a Word document and start typing without including the necessary information? This type of invoice may not be legally recognized by the Zambia Revenue Authority (ZRA), which sets the format and features for tax invoices. To ensure that you can claim your input tax, it’s important to understand what constitutes a legally recognized tax invoice.
What is a tax invoice?
A tax invoice is necessary for Value-Added Tax (VAT) because it is invoice-driven. This means that any registered VAT supplier must issue a tax invoice for their sales. Even businesses on the cash basis of accounting are required to issue a tax invoice. It is typically issued at the point of the transaction and must be clear if it’s a copy or duplicate.
ZRA has introduced electronic devices that can print pre-numbered or substantially numbered tax invoices, but manual books or pre-approved accounting systems can also be used. The accounting software or system used must be approved by ZRA for issuing tax invoices.
Features of a tax invoice
There are several features that a tax invoice must have to be legally recognized by ZRA. These include:
- The words “tax invoice” must be prominent
- Name, address, and taxpayer identification number of the supplier must be clearly stated
- In business-to-business or business-to-government transactions, the TPIN of the customer must be clearly indicated
- The serial number and date of issue must be included
- The quantity or volume of goods and services supplied, as well as their description, must be included
- Selling price, excluding VAT, and any discounts offered should be shown
- The total amount of VAT charged must be indicated
- The selling price that includes VAT should be shown
- Any supplies that are zero-rated or exempt must be shown
- If the invoice is in a foreign currency, the exchange rate must be indicated
When creating an invoice, it is important to ensure that all necessary information is included. The selling price, without VAT and any discounts offered, must be clearly shown. This is known as the tax exclusive amount. The total VAT charged must also be indicated, followed by the selling price that includes VAT, which is referred to as VAT inclusive. Additionally, any supplies that are zero-rated or exempt must also be clearly outlined on the tax invoice.
If the invoice is in a foreign currency, it is important to indicate the exchange rate being used for that transaction. Businesses often forget to include this information, but it is crucial for accurate record keeping.
If the invoice is generated from an electronic device, such as a point of sale system, it is important to ensure that additional features such as: the serial physical tax invoice number, physical invoice called terminal ID, date, and time of printout are included. These features help to keep accurate records and ensure that invoices are accounted for correctly.
Invoices must also be serially numbered, with a clear sequence in place. This means that if you start at invoice number one, the sequence should flow naturally to invoice number two, and so on. It is important to ensure that both manually and computer-generated invoices are serially numbered.
The date on the invoice is crucial as it determines in which period an invoice must be accounted for. VAT should be treated on an invoice basis, meaning that the period in which the invoice is issued is the period in which VAT must be accounted for.
It is possible to apply for a cash basis of accounting through the Commissioner General, but only for certain businesses, such as businesses that are members of the Association of Building and Civil Engineering Contractors (ABCEC) and intending traders in exploration, electricity generation, and farming.
Can You Issue A Tax Invoice If Your Business Is Not Registered For VAT?
No, you cannot issue a tax invoice if your business is not registered for VAT. Furthermore, you cannot charge VAT on your sales if your business is not VAT registered. However, all businesses are allowed to issue invoices. An invoice is a document that you send to your customers demanding or requesting payment for the sales you have made.
In most cases, an invoice is issued for credit sales. That is why accountants refer to an invoice as a demand for payment. You issue an invoice requesting payment, which is not to be confused with a receipt that indicates payment has been received. An invoice is issued, regardless of whether or not payment has been received.
As a business person or someone who has been following the Ndalama Insights Business Program, you know that issuing invoices is part of good financial management. However, if you are not registered for VAT, either voluntarily or as a requirement because you have exceeded the minimum turnover threshold of ZMW800,000 required for VAT registration, you should not issue a tax invoice. Your invoice should not contain the words “tax invoice,” and you should not charge VAT.
If you charged a customer VAT but you’re not a registered supplier, what should you do?
You need to issue a credit note and refund the amount for the VAT to your customer. Report yourself to ZRA immediately, confess your mistake, and seek forgiveness to receive a reduced penalty. This is especially important now during the tax amnesty period, where you have the opportunity to come clean about any tax mistakes you may have made, including charging VAT when you shouldn’t have. Don’t risk being penalized for it. Act now and make it right.
What is a credit note, and how should it look like?
A credit note is issued in cases where a customer returns goods or refuses services and cannot pay for a product or service for a specific reason. This may be due to supplying the wrong item or the color not being as expected. The credit note should display the refunded amount, the reason for the refund, the customer’s name, and the date.
Features of a Credit Note
- Credit note must prominently display the term “credit note”
- Registered supplier’s name and address must be clearly shown
- Taxpayer identification number must be included
- Date of issue of the credit note must be stated
- Credit note serial number must be provided
- Customer’s name and address should be included
- Description of goods or services supplied must be specified
- The number of the invoice being adjusted must be referenced by including the invoice number on the credit note.
A statement explaining the reason for the credit and the credit amount should also be included. For instance, in the given example, the reason could be an incorrect VAT charge leading to the issuance of a credit note.
The next time you walk into a shop, ensure that the tax invoice has all these features. If you are registered for VAT, you may not be able to claim that VAT if you don’t get a legally recognized tax invoice.
