Input Tax Deduction on Goods Lost, Damaged, or Theft

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Yarab A | Updated on: December 13, 2021

Goods lost, damaged or stolen is a common scenario that businesses come across. No matter how robust is your goods handling process or security systems in place, situations of damage or theft keeps occurring. It’s no brainer that it results in a direct loss to the business. With VAT in Oman, will these situations make the loss even bigger?

Let’s find out

Before we jump into the treatment of input VAT deduction on goods lost, damaged or theft, let’s look at conditions for claiming input vat deduction.

The Oman VAT allows input VAT deduction if the purchases or expenses are used to make taxable supplies or conduct business activities. In other words, the purchase or expenses should be directly or indirectly used in supplying the goods or services that are taxable or zero-rated.

Now, when you apply the above condition to the situation of goods lost, damaged or stolen, it’s clear that neither these goods are supplied nor consumed for making supplies. While this looks evident that Input VAT deduction should not be disallowed, Oman VAT law and regulation have a special provision, discussed in the next section.

Input tax deduction on goods lost, damaged, or theft

As per Oman VAT law and regulation, the taxable person is not required to adjust the input tax in case of proven loss, damage or theft of Goods. In simple words, even if the goods are lost, damaged or stolen, you will still be eligible to claim input VAT deduction on such purchases.

How to Treat Discounts on Supplies in Oman VAT? Expenses on which Input VAT Deduction is Blocked

 Let’s understand with an example

Ali Enterprises is a trader in mobile phones. The following are the purchase made in July.

 

Purchase

Goods

Taxable Value

VAT 5%

Mobile Charger

800

40

Headphones

1000

50

Mobile Cases

1500

75

 

Total Input VAT

165

In July, Ali Enterprises claims input VAT deduction of 165, believing all these purchases will be supplied to end consumers. Later in August, Ali Enterprises found that 2 chargers were missing, and the mobile case was damaged. Considering the situation, should Ali Enterprises adjust the input VAT in August?

The answer is ‘No’. Ali Enterprises is not required to adjust the input vat on lost or damaged goods, even though it doesn’t meet the conditions of making taxable supply or consumed for business activities.

Conditions and process for claiming input deduction on goods lost, damaged or theft

The following are the conditions and processes that businesses should follow:

  • Businesses should notify the Authority of goods lost, damaged or theft within a period not exceeding (30) thirty days from the date of their knowledge

  • Duly fill in the form prepared for this purpose, attaching the reports and documents specified by the Authority

  • Submit the documents evidencing the loss, damage or theft and reasons. Also the report of the resulting damages

  • The Authority may inspect the workplace to establish the occurrence of loss, expiry or theft within thirty (30) days from the date of receiving the notification mentioned above

  • The loss, damage or theft shall be documented in the inspection report

  • Suppose the Authority does not inspect the taxable person’s workplace within the stipulated period; he is not required to adjust the input tax for the lost, damaged or stolen goods

If the Taxable Person fails to notify the Authority within the stipulated period, or the Authority proves that the reports and documents submitted by him are not correct. In that case, he becomes required to adjust the Input Tax on the lost, damaged or stolen goods.

How VAT software helps you?

Making full use of input VAT deductions is essential for businesses. The reason is that any wrong deduction will lead to underpayment or overpayment of tax. Underpayment will attract a penalty, and overpayment will impact your cash outflow. Here is why VAT software helps you automate reporting of VAT liability and determine the accurate net VAT payment.

How to determine VAT payment in Oman using TallyPrime

VAT Return report in TallyPrime

TallyPrime, a business management software, comes with complete support for VAT in Oman. It helps you generate accurate tax invoices, automate tax reporting, and file VAT returns. Why wait? Book a free demo and give it a try.

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