Purchases/Expenses Eligible for Input VAT Deduction

Yarab A | Updated on: July 12, 2022

• Taxable goods brought and sold
• Goods/services used in the manufacturing of finished goods
• Business expenses
• Capital assets
• How VAT software can help in input VAT deduction?

The crux of the VAT system in Oman is the concept of input VAT deduction. Because of this concept, businesses can recover the VAT paid on the purchases/expenses and set off against the total VAT payable. The key condition is that these purchases or expenses should be directly or indirectly used for making taxable supplies.

Registered under VAT in Oman? Take a look at the type of purchases or expenses on which you can claim input VAT deduction.

Taxable goods brought and sold

If you are a trader who is into buying and selling taxable goods, you will be fully eligible to claim input on those purchases. For example, Crystal Enterprises LLP is a trader in electronic goods. They brought 50 televisions worth 20,000 OMR and paid a VAT of 1000. They will be eligible to claim input VAT deduction of 1000 OMR since all these televisions will be sold to customers with 5% VAT. If these are used for personal consumption, the input VAT deduction will be denied to the extent of personal usage.

Goods/services used in the manufacturing of finished goods

You will be eligible to claim input deduction on purchase of all the raw materials or services used in manufacturing finished goods. Here, the only condition is that the finished good should be a taxable product. In other words, the finished good should not be a product that is notified as exempt.

Farhan Enterprises purchase 20 KG of Aluminium roads for 1,000 OMR and paid VAT 50. The entire 20 KG of aluminium roads are used to manufacture aluminium ladders which are taxable. In this case, Farhan Enterprises will be allowed to claim input VAT deduction of 50 OMR since it is used to make taxable supplies.

Business expenses

To run a business, several expenses are incurred. Businesses are allowed to claim input tax on the expenses that are related to conducting the business activity or making taxable supplies. Let’s say, if you are receiving a repair and maintenance service to keep the machines running, you are eligible to claim input tax deduction.

Similarly, all such business expenses are fully eligible for input VAT deduction. However, there are certain expenses such as entertainment services, personal motor vehicles, food and beverages, etc. are blocked for input tax deduction.

Capital assets

Capital assets are the business assets that are designated for long-term use. These are not intended for sale in the regular course of the business's operation, but are used or consumed in the business. You will be eligible to claim VAT paid on such capital assets as an input tax deduction. The law allows for an input tax deduction in the initial year of capital asset purchase. This is again based on the intended usage in a specified period, which is 5 or 10 years, depending upon the nature of the asset. If there is a change in usage purpose (exempt or persona usage), you are required to make a suitable adjustment.

How VAT software can help in input VAT deduction?

While there are several purchases and expenses on which the input VAT deduction can be claimed, the responsibility to claim is with the businesses. This is possible only when you keep a track of taxable purchases or expenses paid by you. Else, you may miss making a full claim of eligible input VAT which results in a loss. Here is why VAT software will be helpful to the business.

TallyPrime, a business management software comes with a complete VAT solution for Oman. It helps you manage compliance right from issuing tax invoices to generating accurate VAT returns. The best part is that the powerful VAT return summary provides you with complete details of input VAT deduction so that you don’t miss making a claim. 

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