Value Added Tax (VAT) is by nature one of the most dicey taxes that requires special attention.
We are sure some of you will agree with us that in some instances, venturing in some transactions feels like entering into an unfamiliar territory. More often than not, most companies enter into various transactions that seem VAT stress-free only to realise later that such a transaction was shrouded in VAT mysteries. Well, today we want to analyse one of the most common mistakes done by some VAT registered taxpayers when it comes to VAT claims on telephone expenses. This mistake usually emanates in businesses which provide employees with airtime or pay for the employees’ telephone bills. In this article, words importing the masculine shall be deemed to include the feminine.
The input tax
Before we get into the intriguing details of our discussion, allow us to lay down a few basic VAT principles. Generally, any person registered for VAT is allowed to claim VAT suffered on acquisition of goods or services used in their business. This is quite a fundamental concept of claiming of VAT on purchases i.e., input tax. However, not all VAT bearing purchases are eligible for an input tax claim. There are actually strings attached to this concept.
Fundamentally, it is imperative that we understand that VAT cannot be claimed on any expenditure which isn’t used to generate Vatable income. To be explicit, this is actually a requirement of the law. In other words, the VAT Act requires that there be a direct nexus between any expense and the generation of business income which is then subjected to VAT. For example, a tax firm like us can incur VAT on the hire of a hall which we use to conduct tax training where we charge VAT on the attendees. The VAT on the hall is therefore linked to the training fees which we levy VAT on.
Enter private calls
Most businesses have telecommunications policies which stipulate the acceptable business cost which employees can incur on calls and any excess is then deducted from the employees concerned. For instance, if the policy spells out that 80 percent of airtime for marketing personnel is deemed to be for business use, inversely, this implies that 20 percent of the VAT on such airtime is not claimable.
The excess of the business cap is principally regarded as private and not related to the business. But it is not every business which then seeks to extend that analogy to the VAT claims. The ideal treatment of the VAT on the private calls is that it isn’t claimable and that is the crux of this matter; that VAT is private and has no link with the business of the concerned employer. So, to put things into perspective, let us say that a company’s Mascom VAT bill is P 30 000 and only 80 percent of that is business. This simply means that the business mustn’t claim the P30 000 VAT in full but only 80 percent, which is P24 000. If the P 30 000 is claimed in full, then that company would have simply overstated its VAT claims.
We are out
Well folks, we hope that was insightful. As us the two Yours Truly say goodbye, remember to pay to Caesar what belongs to him. If you want to consult, join our free Tax WhatsApp group or to know about our 9 Tax e-books, send us a text on the cell number below. You can read more tax articles on our website, www.aupracontax.co.bw under the ‘Tax articles’ tab.
