The input VAT deduction mechanism allow businesses to recover the VAT paid on the purchases or expenses and set-off it against the VAT collected on the sales. So, at any given point of time, you will be required to pay the excess VAT (5% on the value addition) to the government.
Shine Enterprise is a trader of electric goods. The following are the purchase & sales recorded in the month of June
In the above example, the total VAT paid by shine enterprise on their purchase is 335 BHD which is known as Input VAT. The total VAT collected on sales 450 BHD is known as Output.
Shine Enterprise can claim Input VAT deduction of 335 BHD and can set-off against output VAT of 450 BHD. The final VAT payable by Shine Enterprise is 115 (450 BHD – 335 BHD)
Input VAT Deduction Eligibility
Bahrain VAT allows the registered businesses to claim input VAT deduction but you will not be allowed to claim on all purchases or expenses. The eligibility to claim input Vat deduction depends upon the nature of use.
Let’s understand eligibility for Input VAT Recovery.
To recover input VAT, the purchases or expenses should be used in making taxable supplies. It means that the purchase or expenses should be directly or indirectly used in supplying the goods or services which are taxable at 5% or zero rated.
In case, the purchase or expenses used in supplying goods or services which are exempted from VAT or used for the non-business purpose (personal purpose), you will not be allowed to recover the input Vat.
Let’s understand this with examples:
Example 1: Diamond Enterprises purchases 15 kg of iron rods for 1000 BHD and paid VAT 50 BHD. All 15 kg of iron rods are used to manufacture ladder, which is taxable. In this situation, Diamond Enterprises will be allowed to claim input VAT reduction of 50 BHD since it is used to make taxable supplies.
Example 2: Zen world, a retailer in Electric goods purchased 10 computers for 3000 BHD + VAT of 150 BHD. Out of these 10 computers, 9 were sold to customers by charging VAT at 5% and 1 was used for personal use. In this case, Zen world will be allowed to recover the input VAT of 135 BHD can be recovered because out of 10, only 9 computers were supplied as taxable and remaining 1 was used for non-business purpose.
You can take help of VAT consultancies like Chaturvedi Associates, who can help you well in all VAT related matters.