VAT Rule 18 Analysis : The Amber Rose and Wiz Khalifa Example by Kampamba Shula

VAT Rule 18: Background and Current Affairs
Valued Added Tax Rule No. 18 has been in existence since 1997 with the intention of making Zambian exports competitive through VAT refunds on exports.
Under Rule 18, the requirement to obtain information from importers outside Zambia’s jurisdiction has proved impractical and results in delayed processing of VAT refunds.
According to a letter by Minister of Finance Alexander Chikwanda to President Michael Sata, seeking his guidance on VAT tax administrative Rule 18, he stated that the uncleared backlog with the mines was in excess of $600 million (K3.6 billion).
Against this backdrop, the Zambia Revenue Authority (ZRA) has amended Rule 18 of the Value Added Tax (VAT) General Rules of 1997 to safeguard Government revenue with effect from September 8, 2014.
ZRA commissioner general Berlin Msiska says Rule 18 affects exporters and the mining sector.
In 2013, the Zambia Revenue Authority (ZRA) amended the rule by way of Gazette Notice No. 26 of 2013 which adjusted all VAT returns to standard rate export sales until proof of compliance to the rule has been made in order for exporters to claim VAT refunds.
According to a letter written by ZACCI president Geofrey Sakulanda to Minister of Finance Alexander Chikwanda, ZACCI highlighted some of the challenges of VAT rule 18 for the minister’s possible consideration.
Mr Sakulanda outlined that prior to the 2013 amendment act, compliance to this rule had been by way of providing to the Zambia Revenue Authority ( ZRA), the documentation of invoices issued by the exporting company, duly completed export documents (Form CE20), release orders by ZRA confirming exit at the border and proof of payment into the company’s bank account.
However, Mr Sakulanda noted that the amended VAT rule 18, in part, particularly Rule 18 (1) (b), requires that in addition to the requirements above, an exporting company must also provide copies of import documents for the goods bearing a certificate of importation into the country of destination provided by the customs authority of that country as proof of export.
He argues that the amended VAT rule No. 18, has its own challenges.
Among such challenges is the requirement to produce copies of import documents for the goods, bearing a certificate of importation into the country of destination provided by the customs of that country as proof of export.
Mr Sakulanda stated that exports made to clients in the export markets on such terms that once a consignment is handed over to the client’s agents, the responsibility of the exporter is terminated and the exporter has absolutely no control over the consignment from that point and export invoices are based on the terms of sale.
“It is challenging to obtain information documents to prove importation in most of the export markets for Zambian products. This situation is even worse in one of Zambia’s key export destinations, namely Democratic Republic of Congo (DRC).
“Exporters are not in any way averse to complying with the law but need special consideration to find practical solutions to dealing with this challenge. This situation is detrimental, as it erodes competitiveness especially that our competitors in the regional markets do not require that similar documents to be produced,” Mr Sakulanda said.
VAT Rule 18: The Amber Rose and Wiz Khalifa Example (Ficticious)

(All Characters Ficticious)
A recently divorced couple by the name of “Wiz Khalifa” and “Amber Rose” have son called “Sebastian”.According to the prenupt they signed before marriage, in the case of divorce Wiz Khalifa is required to pay alimony and Child support (depending on custody court case) to Amber Rose per month. For the sake of this example, let’s put Alimony and Child support in one category and call it “VAT”.
Now according to the prenuptial, Whenever Amber rose buys stuff for their son Sebastian she is allowed to claim to be refunded (payed back) from VAT. One of the conditions in VAT is that Amber rose is supposed to provide receipts of every transaction which she buys stuff for Sebastian. This condition is sensible in theory but is a bit difficult to apply in practice. Amber rose can give her friend to take Sebastian to a movie when she is busy and her friend may lose the receipt on the way back. This makes it difficult for Amber to produce a receipt. This condition is difficult to apply so sometimes she usually doesn’t produce a receipt but still gets refunded VAT.
Sometime later, one of Wiz Khalifa’s friends tells him that he has been seeing Amber going to get a lot of expensive manicures, shopping etc. and suspects that the money is from VAT which is supposedly for Sebastian. What makes it worse is that Wiz Khalifa hears that Amber Rose has been seen chilling with a guy called Nick canon and spending money on him.This makes him angry. So this is what Wiz Khalifa decides to do, he enforces the rule that Amber has to provide receipts for every transaction on which she spends money on Sebastian. Similar to before, Amber is unable to provide receipts for some payments for Sebastian which she does through her friend. Wiz decides to hold any refunds until Amber can provide receipts of payments some of which she pays through other people who are not so mindful of the receipts. Therein lies the stale mate.
Now is Amber Rose legally entitled to refunds from VAT, yes. Is Wiz Khalifa legally allowed to withhold VAT until Amber provides receipts, yes. Now Wiz Khalifa legally has to pay Amber Rose the VAT refunds but he has a legitimate reason to ensure that Amber Rose actually spends the money on his son Sebastian.
There are two options
1. Wiz Khalifa can wait till the court case in which Amber Rose will invariably win that he has to pay her the Refunds
2. Wiz Khalifa will need to be level headed. He will legally request (subpoena) a trail of money payments from Amber Rose. This trail will detail for example which friends (yeah they get subpoenaed too) take Sebastian for a movie and where they put their receipts. Wiz Khalifa can then by form of subpoena find out exactly how much money is given to the friend for the movie and whether it corresponds to the amount Amber Rose Claims on VAT. This method is obviously harder because Amber Rose’s friend is not bound by the same legality.But unfortunately is the only logical course of action. In the long run Wiz Khalifa will have to give room for Amber Rose to find a way to comply her friends to product receipts.
Now in this story, Wiz Khalifa is the Zambian Government and Amber Rose is the Mining consortium. VAT refunds refer to the Value added tax refunds that the Zambian Government through ZRA is legally obliged to pay the Mines for exported goods. Now the condition that Amber Rose had to comply with to provide receipts for payments made for Sebastian is the condition that Mining companies must comply with by providing import certificates from the country to which they export.
The problem is that mining companies for example that sell copper to China would use a middle man in London. This middle man may use a future (financial agreement) to broker the deal. He doesn’t provide mining companies with import certificates which the buying party in China is supposed to provide.
There is a solution to this problem, Solution 2. The Zambian Government must legally request (Subpoena) all the Mining companies to disclose all the middle men they sell too. These middle men will then ALSO have to be subpoenaed to provide their end sources. The importing buyers will disclose which country they operate in and a memorandum of understanding will have to be signed with the customs authority in that country.In the long run mining companies will need to be given time and support so the can ensure that their middle men get copies of import certificates from the destination countries. It’s either this or VAT Rule 18 gets amended, Again.
As it stands now in a stalemate, the Government can either pay the Mines back the Vat Refunds or it can modify VAT rule 18 so that exports are Zero rated in the first place.But Zero rating is not really an option on the table so the Government will have to be smarter about the transparency.
That transparency is open to interpretation.