Claiming input tax on capital expenditure

Expenditure on acquiring capital assets is an integral part of business development. Depending on the nature of the businesses these investments can vary to large extents. With regards to such investments, MIRA through its business audits have found that some businesses have deducted the GST input claims for major capital expenses in the corresponding taxable period related to that transaction. 

As per section 46 of the GST Regulation input tax value on capital can be deducted in the corresponding period to the transaction only if the value of the capital expenditure related to that period is below MVR 500,000.

For capital expenses between MVR 500,000 to MVR 5,000,000, deductions are to be made over the consecutive 12 taxable periods. If the value of the capital expenditure is greater than MVR 5,000,000 then the deductions should be made over the next 36 taxable periods. But when making the deductions, the input on capital expenditure cannot exceed the output value of that taxable period. In such cases taxpayers are to carry forward the excess over to the next taxable period. In doing so taxpayers are allowed to surpass the aforementioned 12 and 36 taxable periods.

Taxpayers are sometimes unaware of these requirements and declare incorrect GST amount later to be realized in MIRA audits and ending up paying the undeclared GST amounts along with subsequent fines. MIRA urges taxpayers to be mindful of this to avoid such inconveniences.