Vatadjustments

This lesson examines the adjustment machinery of Zimbabwe's Value Added Tax system — the rules that correct an input-tax deduction (or impose an output charge) when the use to which goods or services are put changes after they were acquired. The governing provision is Section 17 of the Value Added Tax Act [Chapter 23:12] ("the VAT Act"), titled simply "Adjustments", read with the deemed-supply-on-cessation rule in Section 7(2), the going-concern adjustment in Section 18, the credit and debit note rules in Section 21, the input-tax engine in Sections 15 and 16, and the valuation rules in Section 9. Together these provisions ensure that VAT is ultimately borne in proportion to a thing's actual use in making taxable supplies, not merely its intended use at the moment of purchase.

The core idea is symmetry. When a registered operator buys goods or services to make taxable supplies, it claims an input-tax deduction under Section 15(3). If the operator later diverts those goods to a non-taxable use (private consumption, exempt supplies, or a purpose for which input tax is denied under Section 16(2)), it has enjoyed a deduction it should not keep. Section 17 claws that back by deeming a taxable supply to have been made — an output adjustment that reverses the earlier credit. Conversely, where goods originally acquired for a non-taxable purpose are later applied to taxable supplies, the operator was denied a deduction it should now receive; Section 17(4) and 17(5) allow a deduction adjustment in its favour, computed by a statutory formula A × B × C. The provision thus runs in both directions — clawback when taxable use falls, credit when taxable use rises.

The lesson distinguishes the full-change adjustments from the partial-change (apportionment) adjustments. Under Section 17(1), where goods or services acquired for taxable use are wholly applied to a non-taxable purpose, a full deemed taxable supply arises. Under Section 17(2) (clawback) and 17(5) (credit), where capital goods or services experience a change in the extent (the percentage) of their taxable use, a proportionate adjustment is made — but only for capital items above a de minimis cost threshold and measured over a 12-month period. Section 17(3) separately deems the grant of an employee fringe benefit consisting of goods or services to be a taxable supply, integrating VAT with the Thirteenth Schedule fringe-benefit rules of the Income Tax Act. Section 17(8) corrects second-hand-goods input claims when the underlying sale is cancelled, varied, reduced, or the goods returned.

Two timing rules are decisive. By Section 17(6), a reduction or increase in the extent of use is deemed to occur on the last day of the operator's year of assessment (or, for a non-income-tax payer, the last day of December, or its financial-year-end). By Section 17(7), the extent of taxable use is measured over the 12-month period ending on that day. The value on which a clawback is charged, and the base of a credit, is the lesser of cost (including tax) or open-market value of the goods (the "B" in the formula), and where the goods were acquired below market between connected persons, "B" is increased to the open-market value under Section 9(4) (the rule developed in the Anti-Avoidance lesson).

The single most consequential adjustment in practice is the deregistration exit charge in Section 7(2): when a person ceases to be a registered operator, every asset of the trade on which input tax was (or could have been) claimed is deemed to be supplied immediately before cessation, producing a final output-tax liability on the business's remaining stock and assets — unless a Section 55 successor (a deceased/insolvent estate continuing the trade) carries it on. Section 18 handles the mirror situation on acquisition: where a going concern was bought zero-rated under Section 10(1)(e) but is then used partly for non-taxable purposes, a proportionate output adjustment recoups the VAT that zero-rating deferred.

The rate to apply to every adjustment computed for a 2026 period is the standard rate of 15.5%, increased from 15% with effect from 1 January 2026 by the Finance Act, 2025 (Act No. 7 of 2025); the VAT fraction for extracting tax from an inclusive value is 15.5/115.5, and the tax fraction "A" in the Section 17 formulae is the same 15.5/115.5 for current periods. The de minimis cost thresholds in Section 17 have been repeatedly amended and are not cleanly stated in the consolidated source, so this lesson states the principle and flags the figures for verification rather than risk an outdated number. The lesson walks Section 17 subsection by subsection, works full computations of both clawback and credit at 15.5%, integrates the going-concern and cessation rules, and connects to Input Tax Deductions, Value of Supply, VAT Foundations, VAT Registration, and VAT Anti-Avoidance.

The deduction of input tax is the mechanism that makes VAT a tax on consumption rather than a tax on business. As established in the lesson on Input Tax Deductions, a registered operator recovers the VAT on its purchases to the extent those purchases are used to make taxable supplies. That phrase — "to the extent" — is the seed of this entire lesson, because the extent of taxable use is not fixed at the moment of purchase. A delivery van bought for a taxable courier business might later be diverted to the owner's exempt residential-letting venture; a building bought to make exempt supplies might later be converted into taxable commercial premises. If the law allowed the original deduction to stand unchanged regardless of later use, VAT would either over-relieve business (a credit kept for goods that ended up in private or exempt use) or over-tax it (a deduction permanently denied for goods that ended up in taxable use).

The adjustment rules in Section 17 are the system's way of keeping the deduction honest over time. They are, in effect, a true-up: at defined moments, the law re-examines how the goods or services were actually used and corrects the earlier deduction up or down. This is why the provision is titled simply "Adjustments" and why it operates in both directions. It is the VAT analogue of the income-tax concept of recoupment — a claw-back of a benefit previously allowed when the facts that justified it change — but it also has a taxpayer-favourable limb absent from a pure recoupment, allowing a fresh deduction when taxable use increases.

Three life-events drive adjustments and frame the whole topic. The first is a change in the purpose of holding goods already on hand — the classic "change in use", governed by Section 17(1), (2), (4), (5). The second is leaving the VAT system — deregistration, where Section 7(2) imposes an exit charge on the assets the departing operator carries out of the net. The third is entering or acquiring a business — the going-concern acquisition, where Section 18 corrects a zero-rated purchase that turns out to be partly for non-taxable use. Around these sit the smaller corrective rules: fringe-benefit supplies (Section 17(3)), second-hand-goods reversals (Section 17(8)), and credit/debit notes (Section 21) that adjust the tax on a supply when its price or nature later changes.

This is a technically demanding and heavily examined topic, and a prime ZIMRA audit target, precisely because it is where taxpayers most often fail to act. A deduction claimed years ago is easy to forget; a diversion of an asset to private or exempt use rarely prompts the operator to volunteer an output adjustment; and a deregistering business almost never expects a final VAT charge on its remaining stock and plant. ZIMRA auditors, by contrast, look directly for these unmade adjustments, and the Fiscalisation Data Management System (FDMS) makes the original input claim and the asset register easy to reconcile. Mastering Section 17 is therefore both an exam necessity and a real protection against assessment.

B.1 The deemed-supply gateway — Sections 7(2) and 17

Adjustments work by deeming a supply. A "deemed supply" is a transaction that VAT treats as if it were an ordinary supply even though no sale to a third party has occurred — the operator is treated as having supplied the goods to itself (on a clawback) or as having received a supply (on a credit). Section 7 is the general deeming provision ("Certain supplies… deemed to be made or not made"), and Section 17 contains the specific change-in-use deemings. The value of these deemed supplies is fixed by Section 9 (principally the lesser of cost or open-market value), and the time of the deemed supply is fixed by Section 17(6).

B.2 Full diversion to a non-taxable purpose — Section 17(1)

Section 17(1) is the full clawback. Where goods or services were "supplied to or imported by", "manufactured… by", or "deemed… to have been supplied to" a registered operator, and were "acquired… wholly or partly for the purpose of consumption, use or supply in the course of making taxable supplies", and are subsequently applied — - (i) "wholly for a purpose other than the said purpose" (i.e. wholly to a non-taxable use); or - (ii) "wholly for a purpose in respect of which… a deduction of input tax would be denied in terms of Section 16(2)" (e.g. entertainment, passenger motor vehicles);

— the goods or services are "deemed to have been supplied by him by way of a taxable supply… in the course of his trade". Goods on which input tax was denied under Section 16(2) are excluded from the outset (you cannot claw back a deduction that was never available). A proviso disapplies the subsection where taxable supplies become exempt by virtue of an amendment of the Act — a policy change should not trigger a taxpayer clawback.

B.3 Partial reduction in taxable use of capital items — Section 17(2)

Section 17(2) is the proportionate clawback for capital goods or services. Where capital goods/services acquired wholly or partly for taxable use have the extent of their taxable application subsequently reduced relative to total use, they are "deemed to have been supplied… by way of a taxable supply" at the time the reduction is deemed (under Section 17(6)) to take place. The provisos exclude low-cost capital items (below a prescribed de minimis), items whose original "B" value fell below a threshold, and amendment-driven exemptions.

B.4 Fringe benefits as deemed supplies — Section 17(3)

Section 17(3) deems the grant of an employee benefit or advantage consisting of a supply of goods or services — a benefit taxed as part of "gross income" under paragraph (f) of Section 8(1) of the Income Tax Act, read with the Thirteenth Schedule — to be "a supply of goods or services made by the registered operator in the course of a trade". A proviso excludes benefits arising from exempt supplies (Section 11), zero-rated supplies (Section 10), supplies of entertainment, and benefits granted in the course of making exempt supplies. This is the bridge between the PAYE/fringe-benefit rules and VAT: a taxable benefit in kind generally carries an output-VAT consequence for the employer.

B.5 Conversion to taxable use — Sections 17(4) and 17(5) (the deduction limbs)

Section 17(4) is the taxpayer-favourable mirror of 17(1). Where goods or services were originally acquired for a non-taxable purpose (or before the fixed date, or as second-hand goods bought otherwise than under a taxable supply) and no input deduction was made, and they are subsequently applied wholly or partly to taxable supplies, they are "deemed to be supplied in that tax period to that person", and the Commissioner "shall allow" a deduction under Section 15(3) computed by the formula:

Deduction = A × B × C

where "A" is the tax fraction (15.5/115.5 for current periods); "B" is the lesser of (a) the cost to the operator (including any tax in that cost — increased to the open-market value where the goods were acquired below market between connected persons under Section 9(4)), or (b) the open-market value at the time of the deemed supply; and "C" is the percentage of intended taxable use immediately after the deemed supply (with a 90%-rounds-to-100% rule). A "D" factor adjusts for part-paid second-hand goods, and provisos cap the deduction at the stamp duty payable where the second-hand goods are fixed property.

Section 17(5) is the capital-goods increase limb: where the extent of taxable use of capital goods/services increases relative to total use, the operator may deduct A × B × C, with "C" measured over the 12-month period in which the increase occurs and "D" representing the prior-period percentage (with a 10%-band smoothing proviso). The same de minimis and amendment provisos apply.

B.6 Timing and measurement — Sections 17(6) and 17(7)

Section 17(6) fixes when a reduction or increase is deemed to occur: the last day of the registered operator's year of assessment (as defined in the Income Tax Act); for a non-income-tax payer, the last day of December; or, where the operator draws annual financial statements to a different date, that date. Section 17(7) fixes the measurement window: the extent of taxable use is determined over the 12-month period ending on that day (pro-rated where the goods were acquired part-way through the period, and treating a short post-fixed-date period as a full 12 months). Together these mean capital-use adjustments are an annual true-up, not a transaction-by-transaction exercise.

B.7 Second-hand goods reversals — Section 17(8)

Section 17(8) corrects a notional input previously deducted on second-hand goods (the "second-hand goods" input under paragraph (b) of the "input tax" definition in Section 2) where the sale is subsequently cancelled, fundamentally varied, the consideration reduced, or the goods returned. The excess of input actually deducted over input properly deductible is "deemed to be tax charged in relation to a taxable supply" in the period of the event (an output adjustment), or the period's input deduction is reduced by that excess.

B.8 The deregistration exit charge — Section 7(2)

Section 7(2) is the exit charge. When a person "ceases to be a registered operator", any goods or assignable rights then forming part of the assets of the trade are "deemed to be supplied by him in the course of his trade immediately before he ceased to be a registered operator", unless the trade is continued by a Section 55 successor (a deceased's executor or insolvent's trustee deemed a registered operator). Goods on which input tax was denied under Section 16(2) are excluded; a deemed-supplied right is treated as a supply of a service (proviso (a)); and the charge does not apply to goods for which no deduction was allowed where registration arose from a bona fide error (proviso (b)). The exit charge is valued under Section 9 (lesser of cost or open-market value) and prevents a business from walking assets out of the VAT net untaxed after having recovered the input tax on them.

B.9 Going-concern acquisition adjustment — Section 18

Section 18 addresses the acquirer's side. The sale of a going concern between registered operators is zero-rated under Section 10(1)(e) (so the buyer pays no VAT and claims no input). But if the buyer then uses the business "wholly or partly for a purpose other than… making taxable supplies", the un-taxed value must be recouped: Section 18(1) deems a taxable supply by the buyer, valued under Section 18(2) at the full cost of acquisition reduced in the ratio of intended taxable use to total use (a 90%-rounds-to-wholly-taxable proviso applies), deemed to be made in the tax period of the going-concern supply (Section 18(3)). Where the going concern was itself acquired below market between connected persons, its cost is deemed to be the open-market value (Section 18(2) proviso (b), echoing Section 9(4)).

B.10 Credit and debit notes — Section 21

Section 21 ("Credit and debit notes") is the transaction-level adjustment rule (distinct from the use-level adjustments of Section 17). Where, after a tax invoice has issued, the supply is cancelled, its nature fundamentally varied, the consideration altered, or the goods returned, and the tax shown is now wrong, the supplier issues a credit note (tax over-charged) or debit note (tax under-charged), and both supplier and recipient adjust their output/input tax in the period of the note. This is the everyday mechanism for price reductions, returns, and corrections, and it interlocks with the Section 17(8) second-hand reversal.

B.11 Old law versus current law

The adjustment regime has been amended frequently, chiefly to update the de minimis thresholds (Finance Acts 1/2018, 7/2021, 8/2022, 13/2023) and to insert the proviso protecting taxpayers where taxable supplies become exempt by amendment (Finance Act 1/2018, backdated to 1 January 2017). The structural rules — the deeming, the A × B × C formula, the annual timing, the cessation and going-concern charges — are long-standing and stable. The figure that changed most recently and matters to every computation is the rate: 15.5% from 1 January 2026 (Finance Act, 2025), so the tax fraction "A" is 15.5/115.5 for current-period adjustments and 15/115 for periods up to 31 December 2025.

C.1 The symmetry principle

Start from the deduction itself. Under Section 15(3), input tax is deductible to the extent goods/services are used for taxable supplies. Three states are possible at acquisition: wholly taxable (full deduction), wholly non-taxable (no deduction), or mixed (apportioned deduction under Section 16(1)). The adjustment rules exist because the state can change. If the state moves towards non-taxable use, the earlier deduction was too generous → clawback (output adjustment, Sections 17(1)/(2), 7(2), 18). If it moves towards taxable use, the earlier position was too stingy → credit (deduction adjustment, Sections 17(4)/(5)). The system is symmetrical because consumption tax should fall on consumption, no more and no less.

C.2 Full change versus partial change

The Act treats a wholly changed use differently from a partially changed one. A full switch to non-taxable use (Section 17(1)) triggers a single, complete deemed supply of the whole item — you reverse the entire deduction at once. A partial change in the percentage of taxable use — possible only meaningfully for capital items used continuously over time — triggers a proportionate adjustment (Sections 17(2) clawback, 17(5) credit), measured annually over a 12-month window. The reason capital items get the proportional, annual treatment is that their use is enduring and divisible: a building or vehicle is used across many periods in shifting proportions, so a one-off full clawback would be too blunt; consumables, by contrast, are used up and so fit the full-change model.

C.3 Reading the A × B × C formula

The deduction formulae in Section 17(4) and (5) reward a move into taxable use. Decoded: - "A" (tax fraction) converts a VAT-inclusive value into the tax embedded in it: 15.5/115.5 for 2026. It answers "how much VAT is inside this value?" - "B" (the base) is the lesser of cost or open-market value — the law will not let an operator claim a credit on an inflated figure, so it takes the lower of what was paid and what the thing is worth (subject to the connected-persons open-market-value uplift, so a below-market related-party purchase cannot suppress the base). - "C" (the taxable-use percentage) scales the credit to the extent of taxable use, with the 90% → 100% rounding rule so that near-total taxable use is treated as total.

The product A × B × C is therefore "the VAT inside the lower of cost/value, scaled by the taxable-use percentage" — exactly the deduction the operator should have had if the taxable use had existed from the start.

C.4 Worked logic of a clawback (Section 17(1))

Reverse the same logic for a clawback. An operator deducted input tax on goods bought wholly for taxable use, then diverts them wholly to exempt use. Section 17(1) deems a taxable supply; its value (Section 9) is the lesser of cost or open-market value; output tax = value (tax-exclusive) × 15.5%, or value (inclusive) × 15.5/115.5. That output charge cancels the benefit of the earlier input deduction, restoring neutrality. The operator does not literally repay the old credit; it accounts for a fresh output liability of equal economic effect.

C.5 The deregistration exit charge as a "deemed sale of everything"

Section 7(2) is best understood as a deemed sale of the whole trading stock and asset base at the instant before deregistration. The policy is plain: while registered, the operator recovered input tax on its stock, plant, fittings, and vehicles; if it could then deregister and keep or privately use those assets without any output charge, it would have consumed them VAT-free. The exit charge taxes the assets on hand at their lesser of cost or open-market value, ensuring the VAT recovered on inputs is matched by VAT on the assets leaving the net — unless a Section 55 successor steps into the trade, in which case the assets stay inside the system and no exit charge arises.

D.1 Individuals and sole traders — the diverted asset and the deregistration trap

Consider Rumbi, a sole trader registered for VAT running a taxable printing business. She bought a delivery vehicle (a non-passenger panel van, so not denied under Section 16(2)) for USD 23,100 (VAT-inclusive) and deducted the input tax. Two years later she stops the printing trade and deregisters, keeping the van for private use.

Section 7(2) deems a supply of the van immediately before cessation. Its value (Section 9) is the lesser of cost or open-market value; suppose the open-market value at cessation is USD 12,000 (inclusive), below cost. Output tax on the exit charge:

Step	Calculation	Result (USD)
Deemed value (lesser of cost/OMV, VAT-incl.)	Section 9	12,000.00
Output tax on cessation	12,000 × 15.5/115.5	1,610.39

Rumbi must account for USD 1,610.39 output tax on her final return. Had she transferred the trade to a successor continuing it, Section 7(2)'s exclusion (via Section 55) would apply and no exit charge would arise. The lesson for individuals: deregistration is not free — the assets you keep are taxed on the way out.

D.2 SMEs — partial change in use of a building (Section 17(2) clawback and Section 17(5) credit)

Consider Gwanzura Properties (Pvt) Ltd, which bought a commercial building (capital goods above the de minimis) for USD 231,000 (VAT-inclusive), intending 100% taxable commercial letting, and deducted the full input tax. In a later year it converts 40% of the floor area to exempt residential letting, so taxable use falls to 60%.

Section 17(2) deems a proportionate taxable supply (clawback) of the reduction. Conceptually the clawback recovers the input attributable to the 40% now used for exempt supplies:

Step	Calculation	Result (USD)
Cost / OMV base ("B", VAT-incl.)	lesser of cost/OMV	231,000.00
Reduction in taxable-use percentage	100% − 60%	40%
Value of deemed supply (clawback)	231,000 × 40%	92,400.00
Output adjustment (clawback)	92,400 × 15.5/115.5	12,400.00

If, in a still later year, taxable use rises from 60% back to 85%, Section 17(5) allows a credit adjustment for the 25% increase (subject to the 12-month measurement and 10%-band proviso):

Step	Calculation	Result (USD)
Increase in taxable-use percentage ("C" − "D")	85% − 60%	25%
Base ("B", lesser of cost/OMV)		231,000.00
Value of deemed input supply	231,000 × 25%	57,750.00
Deduction adjustment (A × B × C)	57,750 × 15.5/115.5	7,750.00

By Section 17(6) each adjustment is deemed to occur on the last day of the company's year of assessment, measured over the 12-month window (Section 17(7)). The SME lesson: capital-use changes are an annual true-up running both ways, and the de minimis screen means small items are ignored.

D.3 Large corporates — going-concern acquisitions and fringe benefits

Consider Hwange Industrial Holdings, which acquires a manufacturing division as a going concern, zero-rated under Section 10(1)(e), for a cost of USD 4,000,000, intending to use it 70% for taxable manufacturing and 30% for an exempt financial-services arm.

Section 18 deems a taxable supply of the non-taxable portion. Under Section 18(2) the value is the full cost reduced in the ratio of intended taxable use — i.e. the 30% non-taxable share is charged:

Step	Calculation	Result (USD)
Full cost of going concern	acquisition	4,000,000.00
Non-taxable proportion	100% − 70%	30%
Value of deemed supply (Section 18(2))	4,000,000 × 30%	1,200,000.00
Output adjustment	1,200,000 × 15.5%	186,000.00

(The 90% proviso would have deemed the acquisition wholly taxable had intended taxable use been ≥ 90%.) Separately, when Hwange grants employees taxable benefits in kind (e.g. company-provided goods), Section 17(3) deems an output supply on those benefits, integrating with the Thirteenth Schedule fringe-benefit rules — a compliance item large employers must build into payroll-VAT reconciliation. For multinationals the additional dimensions are documentation of intended-use percentages (which ZIMRA will test under Sections 59–61) and connected-persons valuation (Section 9(4)/Section 18(2) proviso) on intra-group going-concern transfers.

The change-in-use and adjustment provisions are largely statute-governed, and the consolidated VAT Act annotates relatively few decisions directly on Section 17. The cases below, embedded in the Act, bear on the valuation and timing mechanics the adjustments depend upon. (Where no Zimbabwean decision squarely interprets a subsection, the rule is applied here from its statutory text; no case is invented.)

Jinda. B & M v Viewbit Investments (Pvt) Ltd & Registrar of Deeds 17-HH-014. Annotated to Section 18(4) (and to the connected-persons time-of-supply rule in Section 8(2)(a)), this decision bears on the cost and timing of a going-concern acquisition and the fixing of the time of supply for related-party transactions — the foundation on which the Section 18 going-concern adjustment is computed.

R (Pvt) Ltd v ZIMRA 19-HH-792. Annotated to Section 9(4), this case applies the connected-persons open-market-value substitution that feeds the "B" base in the Section 17 formulae and the Section 18 cost rule: a below-market related-party acquisition cannot suppress the adjustment base, which is lifted to open-market value.

Triangle Ltd & Hippo Valley Estates v ZIMRA & 10 Ors 20-HMA-028 (on appeal 21-SC-082). Annotated to Section 9, the decision addresses the method of computing the value of a deemed supply and the tax fraction, confirming that the tax is extracted from the value (not added to it) — directly relevant to every adjustment value computed under Section 17.

The collective principle is that adjustments stand or fall on correct valuation and timing: the courts enforce the open-market-value safeguard for connected parties and the rule that the tax fraction extracts the VAT embedded in the adjustment value. A taxpayer's protection is to document intended-use percentages, costs, and open-market values contemporaneously, because the adjustment computation is only as defensible as those figures.

Forgetting to make the clawback at all. The most common and most expensive error: an asset is quietly diverted to private or exempt use and no output adjustment is volunteered. ZIMRA finds these by reconciling the original input claim to the asset's later use. The correct approach is a standing review of asset use at each year-end (the Section 17(6) date).

Overlooking the deregistration exit charge. Businesses deregister expecting a clean exit and are surprised by a Section 7(2) output charge on stock, plant, vehicles, and fittings on hand. Plan for it: value the assets at the lesser of cost or open-market value and account for the output tax on the final return — or transfer the trade to a Section 55 successor where genuine.

Applying the wrong value base. The adjustment value is the lesser of cost (incl. tax) or open-market value — not always cost, and not always market. Using cost when market value is lower (or vice versa) misstates the adjustment. And for connected-persons acquisitions, remember the base is lifted to open-market value (Section 9(4)).

Ignoring the de minimis and the 12-month window for capital items. Section 17(2)/(5) adjustments apply only to capital items above the prescribed cost threshold, and are measured over the 12-month period to the Section 17(6) date — not transaction by transaction. Attempting a mid-year, item-by-item capital adjustment, or adjusting a sub-threshold item, both misapply the section.

Confusing Section 17 (use-level) with Section 21 (transaction-level). A price reduction or return on a specific supply is a credit/debit note matter under Section 21; a change in how goods are used is a Section 17 adjustment. They are different mechanisms with different triggers; conflating them produces double-counting or omission.

Missing the fringe-benefit output charge. Employers routinely account for the PAYE/Thirteenth-Schedule side of a benefit in kind but forget the Section 17(3) output-VAT consequence where the benefit is a supply of goods or services. Build the VAT leg into the fringe-benefit calculation.

Mishandling going-concern acquisitions. A buyer who acquires a zero-rated going concern but uses it partly for exempt supplies must make the Section 18 output adjustment; treating the whole acquisition as input-free and adjustment-free understates VAT. Check the 90% proviso before deciding the acquisition is wholly taxable.

Using the wrong rate/fraction across the rate change. Adjustments for periods up to 31 December 2025 use 15% (fraction 15/115); from 1 January 2026 use 15.5% (fraction 15.5/115.5). Because adjustments are often deemed at a year-end straddling the change, confirm which rate applies to the deemed-supply date.

Work through the questions one at a time. Choose an answer and it is graded immediately, with an explanation and the provision it comes from. Your progress is saved, so you can stop and resume.

• Section 17 keeps the input-tax deduction honest over time, running in both directions: a clawback (deemed output supply) when taxable use falls, and a deduction (A × B × C) when taxable use rises.
• Full change to non-taxable use → Section 17(1) full clawback; partial change in the percentage taxable use of capital items → Section 17(2) clawback / Section 17(5) credit, measured annually over 12 months (Sections 17(6)–(7)) and only above a de minimis.
• The adjustment value/base is the lesser of cost (incl. tax) or open-market value ("B"), lifted to open-market value for connected-persons acquisitions (Section 9(4)); the tax fraction "A" is 15.5/115.5 for current periods.
• Section 17(3) deems employee fringe benefits consisting of goods/services to be output supplies (Thirteenth-Schedule link), excluding exempt/zero-rated/entertainment benefits.
• Section 7(2) imposes a deregistration exit charge — a deemed supply of all trade assets on hand at the lesser of cost or open-market value — unless a Section 55 successor continues the trade.
• Section 18 corrects a zero-rated going-concern acquisition used partly for non-taxable purposes via a proportionate output adjustment (90%-taxable-use proviso treats it as wholly taxable).
• Section 17(8) and Section 21 handle transaction-level corrections (second-hand reversals; credit/debit notes for cancellations, price changes, returns) — distinct from the use-level adjustments of Section 17.
• Use the right rate across the rate change: 15% (fraction 15/115) up to 31 December 2025; 15.5% (fraction 15.5/115.5) from 1 January 2026 (Finance Act, 2025).
• The practitioner's discipline: review asset use at each year-end, document intended-use percentages, costs, and open-market values, and never forget the deregistration and fringe-benefit charges — the adjustments ZIMRA most often finds unmade.

Table 1 — The adjustment provisions at a glance

Provision	Trigger	Direction	Value / base	Timing
Section 17(1)	Goods (taxable use) wholly applied to non-taxable use	Clawback (output)	Lesser of cost / OMV	When applied
Section 17(2)	Capital item — taxable-use % reduced	Clawback (output)	Lesser of cost / OMV × reduction	Year-end (Section 17(6)), 12-mth (Section 17(7))
Section 17(3)	Employee fringe benefit = supply of goods/services	Output	Per Section 9	When granted
Section 17(4)	Goods (non-taxable) applied to taxable use	Deduction (input)	A × B × C; "C" = taxable-use %	Period of application
Section 17(5)	Capital item — taxable-use % increased	Deduction (input)	A × B × C	Year-end (Section 17(6)), 12-mth (Section 17(7))
Section 17(8)	Second-hand input — sale cancelled/varied/reduced/returned	Output (reversal)	Excess input	Period of event
Section 7(2)	Ceasing to be a registered operator	Output (exit charge)	Lesser of cost / OMV	Immediately before cessation
Section 18	Going concern (zero-rated) used partly non-taxable	Output	Cost × non-taxable ratio	Period of going-concern supply
Section 21	Supply cancelled / price changed / goods returned	Credit or debit note	Tax difference	Period of note

Table 2 — Clawback versus credit (the symmetry)

Feature	Clawback (taxable use ↓)	Credit (taxable use ↑)
Sections	17(1), 17(2), 7(2), 18	17(4), 17(5)
Effect	Deemed output supply	Deemed input deduction
Who benefits	ZIMRA (recovers over-claimed input)	Taxpayer (recovers denied input)
Formula / value	Lesser of cost / OMV (× reduction)	A × B × C
Rounding rule	—	Taxable use ≥ 90% → 100%

Diagram 1 — Determining the change-in-use adjustment

flowchart TD
 A[Goods or services on hand] --> B{Has the use changed?}
 B -->|No| Z[No adjustment]
 B -->|Yes| C{Direction of change?}
 C -->|Towards non-taxable use| D{Wholly or partial?}
 D -->|Wholly| E[Section 17 1 full clawback - output]
 D -->|Partial - capital item| F[Section 17 2 proportionate clawback]
 C -->|Towards taxable use| G{Wholly or partial?}
 G -->|From non-taxable use| H[Section 17 4 deduction A x B x C]
 G -->|Partial - capital item| I[Section 17 5 proportionate deduction]
 E --> J[Value = lesser of cost or OMV]
 F --> J
 H --> K[Base B = lesser of cost or OMV]
 I --> K

Diagram 2 — Cessation and going-concern adjustments

flowchart TD
 A[Event affecting the whole trade] --> B{Which event?}
 B -->|Ceasing to be registered| C{Trade continued by Section 55 successor?}
 C -->|Yes| D[No exit charge - stays in net]
 C -->|No| E[Section 7 2 deemed supply of all assets]
 E --> F[Value = lesser of cost or OMV at 15.5 fraction]
 B -->|Acquiring a zero-rated going concern| G{Intended taxable use >= 90%?}
 G -->|Yes| H[Treated as wholly taxable - no Section 18 charge]
 G -->|No| I[Section 18 output adjustment on non-taxable share]
 I --> J[Value = cost x non-taxable ratio x 15.5%]

Statutes & sections — VAT Act [Chapter 23:12]

• Section 2 — definitions of "input tax" (incl. second-hand-goods notional input), "trade", "registered operator", "year of assessment".
• Section 7(1)–(2) — deemed supplies; deregistration exit charge (Section 7(2)); exclusions (Section 16(2) denied goods; Section 55 successor; bona fide-error registration).
• Section 9 — value of supply; lesser of cost / open-market value for deemed supplies; Section 9(4) connected-persons open-market-value substitution feeding the adjustment base.
• Section 10(1)(e) — zero-rating of the supply of a going concern (the precondition for Section 18).
• Section 15(3) — input-tax deduction (the credit that adjustments correct).
• Section 16(1)–(2) — apportionment of input tax; denials (entertainment, passenger vehicles, etc.) that exclude goods from adjustment.
• Section 17 — Adjustments: 17(1) full clawback; 17(2) capital-goods reduction clawback; 17(3) fringe-benefit deemed supply; 17(4) conversion-to-taxable deduction (A × B × C); 17(5) capital-goods increase deduction; 17(6) timing (year-end / 31 Dec); 17(7) 12-month measurement; 17(8) second-hand-goods reversal.
• Section 18 — going-concern adjustment: deemed supply where a zero-rated going concern is used partly for non-taxable purposes; value = cost × non-taxable ratio; 90% proviso; connected-persons cost = open-market value.
• Section 21 — credit and debit notes (transaction-level adjustments for cancellations, price changes, returns).
• Section 55 — successor (executor/trustee) deemed a registered operator, disapplying the Section 7(2) exit charge.

Statutes & sections — other

• Finance Act, 2025 (Act No. 7 of 2025) — standard rate 15.5% from 1 January 2026; tax fraction 15.5/115.5.
• Finance Acts 1/2018, 7/2021, 8/2022, 13/2023 — successive amendments to the Section 17 de minimis thresholds and the amendment-to-exempt proviso.
• Income Tax Act [Chapter 23:06] — Section 8(1)(f) and the Thirteenth Schedule (fringe benefits) linked by Section 17(3); "year of assessment" referenced by Section 17(6).

Case law (as annotated in the VAT Act)

• Jinda. B & M v Viewbit Investments (Pvt) Ltd & Registrar of Deeds 17-HH-014 — Section 18(4) going-concern cost/timing; connected-persons time of supply (Section 8(2)(a)).
• R (Pvt) Ltd v ZIMRA 19-HH-792 — Section 9(4) connected-persons open-market-value substitution (the adjustment base).
• Triangle Ltd & Hippo Valley Estates v ZIMRA & 10 Ors 20-HMA-028 (on appeal 21-SC-082) — Section 9 method of valuing a deemed supply; tax fraction extracts VAT from the value.
• Change-in-use under Section 17 is largely statute-governed; no Zimbabwean decision squarely interpreting each subsection is annotated in the source Act, and none is invented here.

ZIMRA guidance

• Comprehensive Guide to the VAT 7 — ZIMRA External Guide — return on which output adjustments and deduction adjustments are accounted.
• ZIMRA Public Notice on the VAT rate change (2026) and Public Notices 07 & 11 of 2026 — 15.5% rate, fraction, and FDMS input-tax matching relevant to verifying adjustment figures.

Continuity: builds on Input Tax Deductions (Sections 15–16), Value of Supply (Section 9), VAT Foundations (deemed supplies; output/input tax), VAT Registration (Section 23; deregistration), and VAT Anti-Avoidance (Section 9(4) connected-persons valuation); connects forward to VAT Objections and Appeals and the VAT Exam & Practitioner Toolkit.