WHAT CAN I CREDIT AS INPUT TAX?

5.01 WHAT IS INPUT TAX?

Input tax is the tax you are charged by your supplier on your business purchases and expenses both in Uganda and imported. It includes not only the VAT on your raw materials or on goods you buy for re-sale but also the VAT charged on your overheads, like:-

• office equipment.
• electricity.
• telephone charges for business use.
• commercial vehicles (but not passenger cars on which VAT cannot be reclaimed).
• charges for services to do with your business (such as accountants or solicitors fees).

It does not include VAT paid on goods and services for someone else’s business nor VAT paid on private purchases, such as furniture or goods for your home. VAT charged in these circumstances is not your input tax.

5.02 CAN I ALWAYS GET BACK MY INPUT TAX?

When you spend money and have to pay VAT ask yourself: “Is this expense wholly for my taxable business activities?” If it is and it is NOT listed below you will be able to claim a credit for the VAT you have paid which is your INPUT TAX. YOU MUST POSSESS AN ORIGINAL TAX INVOICE OR CUSTOMS IMPORT ENTRY TO CLAIM A CREDIT FOR INPUT TAX.

The purchases on which you CANNOT claim a credit for your input tax are:

• passenger automobiles
• the repair and maintenance of passenger automobiles
• Entertainment

passenger automobiles’ are defined as road vehicles designed solely for the transport of sitting persons. ‘Entertainment’ is defined as the provision of food, beverages, tobacco, accommodation, amusement, recreation, or hospitality of any kind. The tax you are charged on these purchases CANNOT be reclaimed and is NOT your INPUT TAX, unless you are in the business of dealing in or hiring passenger automobiles or providing entertainment.

5.03 WHAT IF I MAKE BOTH TAXABLE AND EXEMPT SUPPLIES?

If, as well as making taxable supplies, you make exempt supplies, which are described in the LEAFLET - EXEMPT GOODS AND SERVICES you may not be able to claim a credit for all your Input tax. Where the total value of your taxable supplies exclusive of the VAT exceeds 95% of the value of all your supplies, in any tax period you can continue to claim a credit of all your input tax.

If the value of your exempt supplies exceeds 5% of your total supplies, refer to the next question.

5.04 HOW DO I CALCULATE THE AMOUNT OF INPUT TAX WHICH I CAN CLAIM AS A CREDIT IF I MAKE BOTH TAXABLE AND EXEMPT SUPPLIES?

Firstly, if the value of your exempt sales exceeds 95% of your total sales exclusive of VAT in any tax period, you CANNOT claim a credit for any INPUT TAX.

If this is not the case you must calculate the amount of input tax you can claim using the following formula:-

A X B = C

where A is the total amount of input tax for the period.

B is the total value of taxable supplies for the period, (including ZERO RATE supplies) but excluding any VAT.

C is the total value of all supplies made during a period including all exempt supplies, (except any exempt supplies resulting from the transfer of a taxable business) but excluding any VAT.

The result of this calculation is the amount of input tax you can claim in BOXES 6 & 8 of your VAT RETURN. NOTE IF YOU IMPORT GOODS YOU MUST APPLY THE ABOVE CALCULATION SEPARATELY TO THE VAT YOU HAVE PAID ON BOTH LOCAL PURCHASES AND IMPORTS

This is the normal method for calculation of creditable input tax if you make both taxable and EXEMPT supplies.

There is an alternative method which you must make through a written application to the Commissioner-General. With this method you have to keep 3 separate purchase records:

a) One record is of purchases of taxable goods and services which are for taxable sales.
b) One record is of purchases of taxable goods and services which are for exempt sales.
c) One record is for purchases of taxable goods and services where the purchases cannot be
related to either taxable or exempt sales as in the case of overheads, general business
expenses, etc.

With this method:-

• ALL the tax you have been charged at record (a) can be claimed as creditable input tax.
  
• NONE of the tax you have been charged at record (b) can be claimed as creditable input tax.
  
• the calculation described in the normal method above must be applied to tax you have been charged at record (c).

5.05 THE ABOVE METHOD IS KNOWN AS THE STANDARD ALTERNATIVE METHOD OF CALCULATING CREDITABLE INPUT TAX, AND SHOULD BE CONSIDERED CAREFULLY WHETHER IT WILL BE TO YOUR BENEFIT.

Finally with both methods you are required at the end of the calendar year to perform the same calculation based on your -

• TOTAL VALUE OF INPUT TAX FOR THE YEAR
  
• TOTAL VALUE OF TAXABLE SUPPLIES FOR THE YEAR [EXCLUDING VAT]
  
• TOTAL VALUE OF SUPPLIES INCLUDING EXEMPT SUPPLIES FOR THE YEAR [EXCLUDING VAT]

The result of this calculation is the total INPUT TAX credit which you are entitled to for the year.

You need to total the monthly INPUT credits you have claimed in each tax period in the year. If you have claimed a credit for a sum larger than the annual figure calculated, the excess amount has to be paid to the Uganda Revenue Authority by adding this sum to the
amount due in BOX 13 of your January VAT Return. If on the other hand you have claimed a credit for a sum less than the annual calculation, you are entitled to claim a credit for the balance under-claimed in BOX 6 of your January VAT Return.

This calculation is known as your annual adjustment and must be carried out by any registered person who makes an entry in BOX 10 of the VAT Return in any tax period during the year.

5.06 WHAT PROOF DO I NEED TO CLAIM A CREDIT FOR INPUT TAX?

You must have an original Tax Invoice, including a simplified tax invoice, or a Certified Customs of Entry to substantiate a claim for input tax credit.

Without these documents you will be unable to claim a credit.

5.07 HOW DO I CLAIM MY INPUT TAX CREDIT ?

When you complete your VAT return each month the amounts you enter in BOX 6 or BOX 8 is your claim for credit.

If the total in BOX 9 exceeds the amount in BOX 13 of the return the Uganda Revenue Authority will refund the balance to you.

5.08 CAN I USE ANY OTHER METHOD FOR CALCULATING CREDITABLE INPUT TAX?

Yes. You may also propose an alternative method of calculation of creditable input tax, but this must be approved by the Commissioner-General. Any method proposed must be submitted in writing and must give a fair apportionment of input tax between taxable and exempt supplies.