Zimbabwe: VAT on Goods, Services Meant for Entertainment

This week we focus on the implications of Value Added Tax (VAT) on goods or services acquired for the purposes of entertainment.

In terms of Section 2 of the VAT Act [Chapter 23:12], entertainment means the provision of any food, beverages, accommodation, amusement, recreation or hospitality of any kind by a VAT registered operator whether directly or indirectly to anyone in connection with a trade carried on by him [the registered operator].

Where a registered operator incurs VAT on entertainment, the operator shall not be entitled to claim input tax relating to such goods or services that have been acquired for the purposes of entertainment. This prohibition is in terms of Section 16(2)(a) of the Value Added Tax Act.

Generally, registered operators provide food or canteen services and/or refreshments to their employees as a way of thanking them for executing their duties well. Kindly note that a registered operator is prohibited from claiming input tax on this type of expenditure

However, there are certain instances where the registered operator can be allowed to claim VAT input tax on expenditure incurred on entertainment. These are as follows:

• Where the registered operator acquires goods or services in the course of making taxable supplies of entertainment in the ordinary course of trade. This covers registered operators whose nature of trade is entertainment, for instance hotels, food outlets, lodges, among others.

• Promotional activities: For the promotion to be bona fide or genuine, the entertainment supplied to recipients should be similar to the entertainment usually supplied by that registered operator in the ordinary course of trade. For example, if one usually supplies food to his clients, the promotion made should be in respect of supplies of food. This therefore means that where a registered operator who usually supplies food in the course of his trade supplies, say music or accommodation, then no input tax shall be allowable as a claim as this is different from what they usually supply to their clients for a consideration.

•  Left-over food subsequently donated to any employee of the registered operator or to a private voluntary organisation.

• Supplies of entertainment to any employee or office-holder or any person by the registered operator made for a charge that covers all the direct costs of such entertainment. In certain instances registered operators supply canteen facilities. If the food is supplied at a subsidised cost, then no input tax deduction is allowable. However, if the employees or any person so supplied pays a fee that meets the costs of that meal, then input tax deduction shall be allowable.

• Travel and subsistence to an employee, or office-holder or member of a partnership of the registered operator, spent for the purpose of the registered operator's trade. This deduction shall, however, not extend to expenditure incurred for purposes of amusement or recreation.

• Goods or services acquired by a local authority for purposes of providing sporting or recreational facilities or public amenities.

• Goods or services acquired by a private voluntary organisation for the purposes of making supplies in the furtherance of its aims.

•  Meals or refreshments supplied by the registered operator during a journey if such meal or refreshment is supplied as part of or in conjunction with the transport service supplied by the registered operator and such supply is a taxable supply. An example would be meals supplied by an airline during conveyance of passengers. Such supply of meals is ordinarily a taxable supply. If such supply of a meal or refreshment is supplied by a bus operator within Zimbabwe that is for the conveyance of fare paying passengers, no input tax deduction can be made because the latter is not a taxable supply.

• Meal or refreshment supplied by an organiser of a seminar if the participants pay a fee before or after the seminar that covers the cost of such meal.