Section 74 (1) of VAT Act, Cap 148 (R.E 2023) fall within the scope of partial exemption when the taxpayer has supplies of both a taxable and exempt. Output VAT cannot be charged on exempt supply and input VAT incurred directly in making the exempt supply cannot be recovered.
Registered VAT taxpayer with both taxable and exempt supplies, the amount of input VAT claimable as input tax is restricted to extend of value of the taxable supplies. The taxpayers are expected to use the partial exemption formula when determining the deductible input VAT for each period.
Input VAT shall be allowed within six months after the end of the tax period in which the supply or importation occurred. The general rule is:
Section 74 (2) of VAT Act, Cap 148 (R.E 2023) has provided specific formula for the VAT register to apportion claimable input VAT. The formula below is applicable for VAT claimable where you have both standard and exempt supplies.
Note that where the value of taxable supplies is more than 90% of the total supplies, all the deductible input tax is claimable. The converse applies with relation to exempt supplies whereby in the event that taxable supplies is less than 10% of the total supplies, no input VAT is claimable under the apportionment formula.
Section 74 (3) states that, “The amount of the input tax credit allowed under this section shall be provisional, and an annual adjustment of the input tax credit shall be calculated at the end of each accounting year”.
Conclusion.
The VAT registered has to work out the portion of the common VAT input that is attributable to vatable sales. Failure to do this may lead to incorrect input VAT claim and hence paying less VAT in total. This subjects one to tax liabilities of the principal, penalties and interest.
HALA Consultants
Certified Public Accountants
info@halaconsultants.co.tz
0752187434
Registered VAT taxpayer with both taxable and exempt supplies, the amount of input VAT claimable as input tax is restricted to extend of value of the taxable supplies. The taxpayers are expected to use the partial exemption formula when determining the deductible input VAT for each period.
Input VAT shall be allowed within six months after the end of the tax period in which the supply or importation occurred. The general rule is:
- Full deduction of all the input VAT attributable to taxable goods (standard rated and zero-rated)
- No deduction of any input VAT which is directly attributed to exempt supplies; and
- Deduction of input VAT to the taxable supplies and exempt supplies, calculated using an apportionment formula.
Section 74 (2) of VAT Act, Cap 148 (R.E 2023) has provided specific formula for the VAT register to apportion claimable input VAT. The formula below is applicable for VAT claimable where you have both standard and exempt supplies.
| Claimable input VAT | = | Total input VAT | X | Taxable supplies |
| Total supplies |
Note that where the value of taxable supplies is more than 90% of the total supplies, all the deductible input tax is claimable. The converse applies with relation to exempt supplies whereby in the event that taxable supplies is less than 10% of the total supplies, no input VAT is claimable under the apportionment formula.
Section 74 (3) states that, “The amount of the input tax credit allowed under this section shall be provisional, and an annual adjustment of the input tax credit shall be calculated at the end of each accounting year”.
Conclusion.
The VAT registered has to work out the portion of the common VAT input that is attributable to vatable sales. Failure to do this may lead to incorrect input VAT claim and hence paying less VAT in total. This subjects one to tax liabilities of the principal, penalties and interest.
HALA Consultants
Certified Public Accountants
info@halaconsultants.co.tz
0752187434