Value Added Tax (VAT) for Mixed supply of Taxable and Non-Taxable Supplies
When company is making Mixed supply of Taxable and Non-Taxable Supplies and there is no separate records to trace the input VAT of Taxable and Non-Taxable Supplies, so company can claim VAT input using formula A x B/C.
Formula: A x B /C
The calculation of input tax credit, where only part of the taxable person ’s supplies for a tax period are taxable supplies, the amount of credit allowable is calculated by formula: A x B /C.
– A is the total amount of input tax for the period ;
– B is the total value of taxable supplies excluding VAT made by the taxable person during the period; and
– C is the total value of taxable and non-taxable supplies excluding VAT made by the taxable person during the period
How to claim VAT input/credit allowable :
- If the fraction B/C is from 0.05 to 0.95 ( 5% to 95%), the taxable person is allowed to claim input VAT based on the
formula A x B/C above. - If the fraction B/C is more than 0.95 ( 95%), all input VAT are allowed as credit.
- If the B/C is less than 0.05 ( 5%), no input VAT is allowed as credit .
Example
For August 2018, ABC company sold a villa to Mr.A.The selling price of villa is $200,000 included any taxes ,but breakdown of selling price as follows.
- Land price of $123,000
- Building of $77,000
During August, VAT input from purchase is $5,000.
Required:
Calculate VAT payable
Solution:
Calculate VAT payable
Because ABC company is Mixed supply of Taxable ( ie. Building) and Non-Taxable ( i.e Land) Supplies, so we will use formula A x B/C for VAT input allowed as credit.
– A is the total amount of input tax for the period, so A = $5,000
– B is the total value of taxable supplies excluding VAT made by the taxable person during the period, so B = $77,000/1.1=$70,000
– C is the total value of taxable and non-taxable supplies excluding VAT made by the taxable person during the period, so C = 70,000+123,000=$193,000
Faction B/C=70,00/193,000=0.36 ( 36%) that is between 5% and 95%, so VAT input allowed as credit using formula A x B/C.
VAT input allowed as credit = $5,000 x 0.36=$1,800
VAT Payable = VAT output – VAT input allowed as credit = 77,000/1.1 x 10% – 1,800=$7,000-$1,800=$5,200
So VAT Payable = $5,200