Staff Writer 
Simbarashe Hamudi
THE acquisition of second-hand goods occupies a distinctive and important position in Zimbabwe’s Value Added Tax (VAT) framework. The VAT Act provides a mechanism through which registered operators may claim what is termed “notional input tax” when acquiring second-hand goods from non-registered persons. This provision ensures that VAT does not become an unintended cost to businesses operating within the taxable supply chain. At the same time, it establishes strict requirements to prevent abuse and protect the integrity of the revenue system.
Second-hand goods are defined as goods that were previously owned and used, excluding animals, and including gold coins issued by the Reserve Bank of Zimbabwe that are in circulation. The essential feature of second-hand goods is prior use. The goods must have been used before being sold or disposed of. Importantly, it is not necessary that the seller personally used the goods. As noted by tax scholar De Koker, it is sufficient that the goods were previously used by someone. This interpretation recognises commercial realities, such as situations where traders acquire used goods for resale without having used them personally.
Under normal VAT principles, input tax may be claimed only where VAT has been charged by a registered operator and supported by a valid tax invoice. However, in the case of second-hand goods purchased from a non-registered person, no VAT is charged and no tax invoice can be issued. Without a special provision, the purchasing registered operator would be unable to claim input tax, effectively bearing an embedded VAT cost when the goods are later used to produce taxable supplies.
A registered operator is entitled to claim notional input tax where second-hand goods are acquired from a non-registered person and are intended for use, consumption, or supply in the course of making taxable supplies. The deduction is allowed despite the absence of VAT on the invoice. However, this entitlement is limited strictly to taxable activities. If the goods are acquired for the purpose of making exempt supplies, the notional input tax claim is not permitted. For example, where second-hand property is acquired for use in providing residential accommodation, which constitutes an exempt supply, no deduction may be claimed.
In cases where the goods are used partly for taxable supplies and partly for exempt supplies, the notional input tax must be apportioned. The operator may claim the deduction only to the extent that the goods are applied in the production of taxable supplies. This ensures adherence to the fundamental VAT principle that input tax deductions are linked to taxable outputs.
The calculation of notional input tax is based on the tax fraction, currently expressed as 15.5/115.5. This fraction is applied to the lesser of the consideration paid in money or the open market value of the property. The use of the lesser amount prevents inflated claims where property may be transferred at undervalue or overvalue. Additionally, the notional input tax claim must not exceed the stamp duty payable or paid. This cap reinforces the principle that the deduction should reflect a realistic tax element within the transaction.
A significant feature of notional input tax on second-hand goods is that it operates on a payment basis rather than an invoice basis. Where the purchase price has not been paid in full, the operator may claim notional input tax only in proportion to the amount actually paid. The concept of payment refers strictly to actual monetary settlement. It does not include the mere creation of a credit entry, loan account, or other accounting arrangement. This position was confirmed in ITC 1768 (1995) 66 SATC 151 (EC), where the court emphasised that genuine payment is required before a deduction can be claimed. The payment-based system ensures that deductions are aligned with actual economic outflows.
Because the supplier is not registered for VAT and cannot issue a tax invoice, the Act imposes strict documentation requirements on the purchasing operator. These requirements are designed to counter potential abuse and ensure that notional input tax claims are properly substantiated. Where the supplier is a natural person, the operator must record the supplier’s name, address, and identity number. The operator must verify these details using the national identity card or a duplicate identity document.
In cases where the supplier is not a natural person, such as a company or trust, the operator must record the name and address of the supplier, the identity number of the natural person representing the supplier, and any legally allocated registration number of the supplier. These details must be verified through documents such as business letterheads, certificates of incorporation, or similar official records. Photocopies of such documentation must be retained as part of the operator’s records.
Additional information that must be recorded includes the date on which the goods were acquired or repossessed, a description of the goods, the quantity or volume of the goods, and the consideration paid for the supply. These records must be kept for a minimum period of six years. Failure to maintain adequate documentation may result in the disallowance of the notional input tax claim. However, the Commissioner has discretion to accept alternative documentation that does not strictly comply with all formal requirements, provided sufficient evidence exists to substantiate the claim.
The VAT Act also addresses situations where circumstances change after notional input tax has been claimed. Section 17(8) provides for the reversal of notional input tax through an output tax adjustment. Such an adjustment is required where, after claiming notional input tax, the sale is cancelled, fundamentally varied, or altered, the agreed consideration is reduced, or the goods or part of them are returned to the supplier. In these situations, the input tax previously deducted may exceed the amount properly deductible.
The operator must make the necessary adjustment in the tax period during which the relevant event occurs.
The adjustment is calculated at the rate applicable at the time the notional input tax was originally claimed. This ensures that the VAT system reflects the true economic substance of the transaction and maintains symmetry between deductions and outputs.
In conclusion, the provision protects registered operators from bearing hidden VAT costs while maintaining strict safeguards against abuse. Through the concept of notional input tax, payment-based claims, detailed record-keeping requirements, and mandatory adjustments under VAT Act, the law achieves a balance between fairness and accountability.
l Hamudi is tax partner at Baker Tilly Central Africa, based in Harare, Zimbabwe. He can be contacted at +263 775 399 536 or simbarashe.hamudi@bakertilly.co.zw
