Oliver Kazunga Senior Business Reporter
THE government has introduced a 15 percent Value Added Tax (VAT) on short term insurance with effect from September 1, 2015. According to a letter written to insurers by the Zimbabwe Revenue Authority (Zimra), short-term insurance is now subject to VAT. “Following the gazetting of the Finance Bill no.8 of 2015, please be advised that short-term insurance is now subject to VAT at the rate of 15 percent, with effect from September 1, 2015,” reads part of the letter dated November 17, 2015.
The tax collector referred to short term insurance as insurance other than life insurance, whether provided pursuant to any contract law, including any policy of insurance, an insurance cover, and a renewal of a contract of insurance, and includes reinsurance.
As a result of the VAT introduction on short-term insurance, Zimra said insurers were now required to maintain proper and sufficient records pertaining to these transactions for VAT purposes.
The revenue authority also said the insurers were required by law to limit input tax claims to taxable supplies only in cases where turnover for exempt supplies exceed 10 percent of the total turnover.
“Insurers who, on or after the first of September 2015, carried on any trade and aren’t registered, become liable to be registered in terms of Section 23 of the VAT Act where applicable. Every registered insurer shall, furnish the commissioner with a return in the prescribed form reflecting such information as may be required and calculate the amounts of such tax in accordance with Section 15 of the VAT Act and pay the tax payable to the consumer,” it said.
In this light Zimra added: “This letter serves as a notice to insurers who provide short-term insurance of the changes made to the VAT legislation that they must register for VAT purposes and the registered insurers submit the returns due and make the payments thereof from the prescribed date (September1, 2015).”
Presenting the 2016 national budget last week, Finance and Economic Development Minister Patrick Chinamasa said the insurance industry has witnessed a decline in the uptake of insurance products and a growth in premium debtors, which amounted to 49 percent of the gross written premium up to the third quarter of 2015.
“In view of the constrained capacity of the industry, as evidenced by failure by some players to settle obligations to policy holders, it’s necessary to review the scope of the tax,” he said.