Input tax: the do�s, don�t�s and requirements
Correspondent | Friday August 1, 2014 14:53
Input tax is VAT that is charged to, and can be claimed by a registered person when he/she acquires goods and/or services for the advancement of his/her taxable activity. Consequently, persons who are not registered for VAT bear the VAT as a cost, except in special instances such as where goods are exported from Botswana by non-resident persons, including tourists. Such persons can later claim VAT refunds, which technically does not qualify as input tax. Input tax only relates to VAT charged to VAT registrants.
Section 23 as read with the Fourth Schedule prescribes the features that a ‘tax invoice’ should bear. A valid tax invoice should contain the following particulars:
The words ‘Tax Invoice’ in a prominent place. This means that documents such as ‘Invoices,’ ‘Proforma Invoices’ and ‘Receipts’ cannot be used to claim input tax;
The name, address and VAT registration number of the supplier;
In instances where a supply is made to a registered recipient, the name, address and VAT registration number of the recipient;
The tax invoice number;
The full description of the goods/services being supplied;
The quantity and volume of the goods/services supplied;
The date of issuance of the tax invoice;
The value of the supply (amount before VAT), the VAT and the VAT-inclusive amount. Other tax jurisdictions accept tax invoices which simply state the VAT inclusive amount (consideration), as long as there is a statement on the tax invoice that VAT was charged at the applicable rate. It is also important to note that it is only mandatory for a supplier to issue a tax invoice if the supply exceeds P20. In other words, registered persons are not compelled to issue tax invoices if the consideration is P20 or less. Based on our observation, many registered persons do not ensure that all tax invoices they receive are valid. BURS is empowered to disallow all input tax that is claimed using invalid tax invoices.
This will result in the registered person having to pay the disallowed tax plus additional monthly compound interest of 1,5%, which can become very costly.
It is also important to note that tax invoices can only be used to claim input tax within 4 months from the date of issue. This means that if a VAT registrant who files monthly returns is preparing a VAT return for the July 2014 tax period, he/she can only claim input tax on tax invoices issued from April 1, 2014 to July 31, 2014. This is one of the main areas that BURS focuses on in VAT audits or VAT refund verification procedures and it is very important that registered persons ensure that input tax is claimed before the tax invoices are time-barred.
Registered persons can also, in certain circumstances, claim notional (in other words, derived) input tax in instances where they acquire goods from non-registered persons. As a non-VAT registered supplier is unable to issue tax invoices, this is one of the special instances where input tax can be claimed without a valid tax invoice.
A common example of this is a motor dealership purchasing a second hand vehicle from an non-registered individual in part-exchange for a new vehicle. BURS has prescribed that the registered person should maintain sufficient documentation to support the notional input tax, including a full description of the goods, value charged and the omang number or other identity number of the supplier.
Further, such goods must be obtained from a Botswana resident and the VAT claimed cannot exceed the amount derived by applying the tax fraction (12%/112%) on the lesser of the market value or the amount paid to the supplier.
Input tax can also be claimed on imports, but on the strength of a bill of entry import (SAD 500) form or proof of payment of the import VAT, instead of the normal tax invoices. It is critical to note that import VAT can be claimed only after the import VAT has been physically paid to BURS. BURS charges a processing fee for bills of entries and this usually appears on the Asycuda statements of registered persons who have a VAT deferral account.
Whilst the processing fees are a cost to the registered persons, they do not constitute input tax as defined and cannot not be claimed as input tax.
Registered persons should therefore implement controls to ensure that input tax is only claimed using either valid tax invoices or other acceptable documentation.
One of such controls is to ensure that thorough checks are done on receipt of tax invoices or other documentation pertaining to a supply, with instant feedback being provided to issuers of invalid tax invoices. This will minimize the registered person’s tax exposures.
Comments on this article can be forwarded to taxservices@kpmg.bw Disclaimer: The information contained in this article is of a general nature and is not meant to address particular circumstances of any person. KPMG does not accept legal liability for any loss occasioned through the reliance of information contained in this article.