Input VAT - claimable or not?

In principle, input value-added tax (VAT) may only be claimed on supplies made to a registered person provided that the input VAT was incurred on expenses for use in the registered person's taxable activity.

This means that a person must be a VAT registered person and the expense incurred or asset acquired must be for use by the taxpayer in his/her business.

Input VAT is claimed when the registered person calculates his VAT obligation to Inland Revenue. A registered person has a period of 3 years from the date the expense was incurred to claim the input VAT he paid, provided this was not previously claimed.

It is important to note that certain restrictions exist on claiming input VAT and we briefly outline these below.

Expenses incurred prior to registration

Input VAT paid on operating expenses incurred prior to being VAT registered is not claimable. Input VAT incurred on the acquisition of goods, excluding fixed assets, (for e.g. inventory/stock) may be claimed but only where the purchase transaction was incurred 4 months prior to VAT registration date and given this stock is still on hand at the date of VAT registration.



Denied inputs

No input VAT deduction is allowed in respect of passenger vehicles unless the registered person is in the business of dealing in or hiring of passenger vehicles or is a tour operator.

In addition, no deduction of input VAT is allowed if incurred on entertainment related expenses unless the registered person is a tour operator or in the business of providing entertainment. The definitions of passenger vehicle and entertainment expenses as per the VAT Act is key in this regard.



Mixed supplies

Where the registered person makes taxable and exempt supplies, input VAT incurred on expenses should be apportioned as a deduction is only allowed for the portion that is related to the taxable supplies by the registered person.

Where the apportionment ratio results in 90% or more having been used in the making of taxable supplies, the entire claim is allowed.



Documentation

Taxpayers should ensure that any input VAT claims are supported by the necessary documentation.

The main document required by Inland Revenue is a valid tax invoice which must contain the following; the words “tax invoice” prominently displayed, the name, address and VAT registration number of the registered person making the supply, the name and address of the recipient of the supply, the individualised serial number and the date on which the tax invoice was issued, a description of the goods or services supplies, the quantity or volume of the goods or services supplied and the total amount of the tax charged, the consideration of the supply, and the consideration including tax.

Input VAT deductions are an important consideration for any business and where the above mentioned considerations are not adhered to, the taxpayer may be at a disadvantage which bears greater cost implications.

By being compliant to the VAT Act, submitting claims on time and having all documentation safeguarded and readily available, claimable input VAT should not be a cost to your business.



• Memory Mbai is the senior manager in VAT at PwC Namibia. This series on tax is published bi-monthly on a Monday in Market Watch.