Important Changes to Input Tax Deduction Rules Relating to Capital Expenditure

The Maldives Inland Revenue Authority has published a Tax Ruling (Number TR-2017/G45) which amends Section 46 of the Goods and Services Tax Regulation. The Ruling introduces some important changes on rules for deducting input tax relating to capital expenditure and an additional administrative requirement that supplements the new rules.

The Ruling now requires that input tax relating to capital expenditure be deducted only by the taxable activity that the expenditure relates to. Prior to the Ruling, input tax deduction was not tied to individual taxable activities so long as it was incurred by the taxpayer.

Other amendments brought via the Ruling include requiring taxpayers to claim input tax on capital expenditure in full within 12 months, if the gross amount of the expenditure is equal to or less than MVR 500,000. If the gross expenditure is more than that, input tax has to be apportioned equally and claimed over 36 months. In both cases input tax claimable in relation to capital expenditure should not exceed output tax during any period.

However, where the capital expenditure is more than MVR 500,000, the Ruling allows the 36 month period to be counted from when the taxable activity starts generating output tax.

Prior to this amendment, input tax on capital expenditure exceeding MVR 5,000,000 was required to be claimed within 36 months, but for some business ventures, such as tourists resorts under construction, claimability was limited as the Regulation disallows claiming input tax on capital expenditure if there is no output tax – and for such ventures, output may be generated only when the business has commenced (i.e. in the case of resorts, when the resorts comes into operation).

As per the Ruling, details of capital expenditure must be submitted to the MIRA with the taxpayer’s tax return in the period in which the expenditure incurred, and non-submission of these details will disallow such input tax to be claimed in any taxable period.

The Ruling takes effect from 1 January 2018. However, taxpayers that began to claim input tax in relation to capital expenditure up to and on 31 December 2017 can make input tax deductions according to the old rules, or they may choose to adopt the new rules from 21 December 2017 onwards.