VAT for entities in exploration activities
In our previous articles, we briefly highlighted the requirements for compulsory value-added tax (VAT) registration which include carrying on a “taxable activity” and for the past/foreseeable 12 months, such person makes/anticipates making sales of goods/services of N$500 000.
We further highlighted that a person may register voluntarily, provided they carry on a “taxable activity” and their sales of goods/services is likely to exceed N$200 000 for the past/ foreseeable 12 months.
Where an entity is engaged in exploration activities, taxable supplies are likely to only be made after a certain period has lapsed; if the said activities have yielded the desired results to commence commercial production. This notwithstanding, may result in entities engaged in these activities not meeting the requirement of carrying on a “taxable activity” in relation to the sales aspect in the foreseeable 12 months, which consequently may impact their ability to register for VAT.
In the absence of specific VAT legislation dealing with exploration activities, entities may approach Inland Revenue, who may apply their discretion on a case by case basis in considering whether or not to register an entity engaged in these activities.
‘Welcomed relief’
With this in mind, we highlighted that once an entity is registered, it may claim input VAT incurred on expenses for use in their taxable activity, provided these do not relate to denied inputs. This would be a welcomed relief for entities engaged in exploration activities as it is more likely than not that they will incur VAT expenses in the pursuit of their objectives.
Entities engaged in exploration activities should be mindful of the fact that a discretionary registration may be revisited by Inland Revenue.
This in turn, may have an impact on the input VAT that the entity was allowed to claim, in addition to future VAT expenses that the entity may incur which may be denied as an input VAT claim, resulting in added costs to the cost of exploration.
Entities in the exploration space are encouraged to regularly consult Inland Revenue to avoid any future surprises in relation to the VAT expenses they incur in the pursuit of their objectives.
• Memory Mbai is the senior manager in VAT at PwC Namibia. This series on tax is published bi-monthly on a Monday in Market Watch.
We further highlighted that a person may register voluntarily, provided they carry on a “taxable activity” and their sales of goods/services is likely to exceed N$200 000 for the past/ foreseeable 12 months.
Where an entity is engaged in exploration activities, taxable supplies are likely to only be made after a certain period has lapsed; if the said activities have yielded the desired results to commence commercial production. This notwithstanding, may result in entities engaged in these activities not meeting the requirement of carrying on a “taxable activity” in relation to the sales aspect in the foreseeable 12 months, which consequently may impact their ability to register for VAT.
In the absence of specific VAT legislation dealing with exploration activities, entities may approach Inland Revenue, who may apply their discretion on a case by case basis in considering whether or not to register an entity engaged in these activities.
‘Welcomed relief’
With this in mind, we highlighted that once an entity is registered, it may claim input VAT incurred on expenses for use in their taxable activity, provided these do not relate to denied inputs. This would be a welcomed relief for entities engaged in exploration activities as it is more likely than not that they will incur VAT expenses in the pursuit of their objectives.
Entities engaged in exploration activities should be mindful of the fact that a discretionary registration may be revisited by Inland Revenue.
This in turn, may have an impact on the input VAT that the entity was allowed to claim, in addition to future VAT expenses that the entity may incur which may be denied as an input VAT claim, resulting in added costs to the cost of exploration.
Entities in the exploration space are encouraged to regularly consult Inland Revenue to avoid any future surprises in relation to the VAT expenses they incur in the pursuit of their objectives.
• Memory Mbai is the senior manager in VAT at PwC Namibia. This series on tax is published bi-monthly on a Monday in Market Watch.
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