Input tax deduction allows businesses to avoid double taxation by offsetting taxes paid on purchases against taxes collected on sales.
Criteria for Input Tax Deductions
To legally deduct input tax, a business must satisfy strict administrative conditions:
  • The purchase must be directly linked to making taxable (standard-rated or zero-rated) supplies.
  • The business must hold a valid, original tax invoice containing the supplier’s PIN, serial number, and electronic verification codes.
  • The claim must be made within the statutory time limit—usually 6 months from the date the invoice was issued.

Non-Deductible Input Tax (Blocked Credits)
The law explicitly bans input tax deductions on specific goods because they carry a high risk of personal or entertainment use. These blocked items include:
  • Passenger motor vehicles and look-alike station wagons (unless the business is a car rental or dealership).
  • Entertainment expenses, restaurant meals, and member club fees.
  • Staff accommodation, safari trips, and personal consumer items.

Input Tax Apportionment (Partial Exemption)
When a business makes a mix of both taxable and exempt supplies, it cannot claim 100% of its input tax on shared overheads (like office rent or electricity). It must use an apportionment formula:
\(\text{Apportionment\ Fraction}=\frac{\text{Value\ of\ Taxable\ Supplies\ (Standard\ +\ Zero-Rated)}}{\text{Total\ Value\ of\ All\ Supplies\ (Taxable\ +\ Exempt)}}\)
  • If the fraction is greater than 90%, the business can deduct 100% of the input tax.
  • If the fraction is less than 10%, the business cannot deduct any input tax on shared overheads.
  • For balances between 10% and 90%, the exact calculated percentage is applied to the shared input tax to determine the allowable deduction.

 
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