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Input VAT Recovery

Input tax is the tax paid by a person on purchases or inward supplies. This means that a person can reduce the value of input tax eligible for recovery from the tax payable and only pay the balance amount as tax.

A registered business can recover the VAT paid on purchase of goods and services used for business purposes subject to following conditions according to Article number 55 of Executive Regulations.
  1. The purchases should be used to make Taxable supplies of the business.
  2. Recipient receives and keeps the Tax Invoice - The recipient claiming input tax recovery on a supply should ensure that the Tax Invoice pertaining to the supply is received and kept in the records. The Tax Invoice should show the details of the supply related to the input tax recovery being claimed.
  3. Recipient pays or intend to pay the consideration for the supply - The recipient claiming input tax recovery should pay or intend to make the payment of consideration for the supply within 6 months after the agreed date of payment for the supply.
There are certain supplies on which input tax recovery is not allowed:
  1. Supplies used to make exempt supplies - Certain supplies are declared as exempt in the VAT Law, such as supply of local passenger transport, supply of bare land, etc. A registered business cannot recover tax paid on purchase of inputs used to make these exempt supplies.
  2. Entertainment services provided to non-employees - Registered businesses cannot claim input tax recovery on entertainment services provided to non-employees. These non-employees can include customers, potential customers, officials, shareholders, owners or investors.
  3. Motor vehicles used for personal use - If a registered business has purchased, rented or leased motor vehicles for use in the business but it was used for personal use by a person in the business, then the tax paid on purchase, rent or lease of the motor vehicle cannot be recovered.
  4. Goods or services purchased for use by employees - Registered businesses cannot claim input tax recovery paid on goods and services purchased for use by employees, for which no charge is paid by the employees and it is for their personal benefit.
Article 55 of the Executive Regulation provides a second opportunity to the taxable person to deduct the recoverable input tax in the immediate subsequent tax period if he missed out to claim the input tax in the first tax period in which the both conditions of claiming the Input VAT is satisfied. But if Input VAT was not recovered in the first two eligible tax periods, a taxable person may submit a voluntary disclosure to recover such Input VAT if required. And in such cases the provisions related to the Voluntary Disclosures like the time period within which the voluntary disclosures shall be submitted, penalty for submitting the Voluntary Disclosure are applicable.