Input tax deduction ‘forms the core aspect of VAT’

The concept of input VAT deduction is the core aspect of VAT in Bahrain, an expert has said. Input VAT deduction is a mechanism by which a VAT registered person can deduct input tax from the output tax for a period and only remit the balance tax payable to the Government, said Tejas Goenka, Executive Director of Tally Solutions.

“While Bahrain VAT law allows the registered businesses to claim input VAT deduction, businesses will not be allowed to claim all purchases or expenses. “The eligibility to claim input VAT deduction depends upon the nature of use. As such, if a company purchases certain items, of which few are sold to a customer, while the remaining are kept for personal use, the company can recover input VAT only on items that are sold to customers and not the non-business use items.

“For businesses to recover input VAT, the purchases or expenses should be used in making taxable supplies. As such, the purchase or expenses should be directly or indirectly used in supplying the goods or services which are taxable at 5 per cent 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), will not be allowed to recover the input VAT.”