AT – Nov 2024 – L3 – Q4a – Value Added Tax Deductibility

Determine the deductible input VAT for a VAT-registered company operating multiple business divisions under different VAT treatments.

Question

The two scenarios below relate to ClearTel LTD, a VAT-registered company in Ghana. Each scenario is an independent scenario and should be considered separately.

Scenario 1

ClearTel LTD operates three divisions (XYZ). Division X deals in the sale of computers and mobile phones. Division Y deals in the sale of locally-manufactured sanitary towels. Division Z is into the supply of fertilizers to farmers in Ghana.

Revenue from each division for 2024 is shown below:

Division	Description	Revenue (GH¢)
X	Computers and mobile phones	1,005,700
Y	Sale of locally-manufactured sanitary towels	2,500,000
Z	Supply of fertilizers to farmers	78,800,000

ClearTel LTD has incurred total input VAT of GH¢50,500,000, and the Finance Manager of the company is unable to determine specifically which division of the business this input VAT amount relates to.

Required:

Determine the amount of input VAT ClearTel LTD can deduct, in line with the provisions of the Value Added Tax Act, 2013 (Act 870 as amended). Justify your answer

Answer

Determination of Deductible Input VAT

Scenario 1 relates to Section 49 of the Value Added Tax Act, 2013 (Act 870), which governs deductible input tax for mixed taxable and exempt supplies.

Division X deals in taxable supplies (standard-rated).
Division Y deals in taxable supplies (zero-rated).
Division Z deals in exempt supplies.

To determine the deductible input VAT, we use the formula:

$\times \left( \frac{B}{C} \right)$

Where:

A = Non-attributable input tax = GH¢50,500,000
B = Total taxable supplies = GH¢1,005,700 + GH¢2,500,000 = GH¢3,505,700
C = Total supplies (both taxable and exempt) = GH¢1,005,700 + GH¢2,500,000 + GH¢78,800,000 = GH¢82,305,700

Step 1: Calculate Deductible Input VAT Ratio

$BC=3,505,70082,305,700=4.26%\frac{B}{C} = \frac{3,505,700}{82,305,700} = 4.26\%$

Step 2: Determine Eligibility for Deduction

According to Section 49(3) of the VAT Act, if the ratio of taxable supplies to total supplies is less than 5%, the taxable person is not entitled to deduct any input tax for the tax period.

Conclusion:

Since 4.26% < 5%, ClearTel LTD is not eligible for any input VAT deduction in this case.

Tags: Deductibility, Exempt supplies, Input Tax, Mixed Taxation, VAT, Zero-rated supplies
Level: Level 3

Topic: Tax administration in Ghana, Value-Added Tax (VAT)
Series: Nov 2024

Uploader: Salamat Hamid