CLASS ILLUSTRATION (All figures are VAT exclusive)

Deductible Input Tax (DIT)

Assume you have figures that are Vat exclusive from a supplier who is Partial exempt trader
(PET) for the month of December 2020 and find the DIT for the purpose of calculating VAT
payable or Refundable.

Supplies (Sales) made VAT exclusive

Item Exempt Taxable
Bottled water 700,000
sugar 540,000
Toilet soap 360,000
Laundry soap 640,000
Wheat flour 3,000,000
Transportation of Laptops 800,000
Green beans 3,400,000
Unprocessed meat 2,800,000
Total 9,200,000 3,040,000

Purchases made VAT exclusive

Items Exempt Taxable
Bottled water 1,700,000
Electricity bill 350,000
sugar 1,500,000
Telephone charges 500,000
Canned beef 400,000
Refrigerator 2,000,000.00
Wheat flour 9,000,000
Green beans 3,000,000
Processed meat 6,000,000
soda 3,500,000
Transportation of beans 700,000
Unprocessed meat 2,800,000
15,600,000 16,650,000
From the formula:

Deductible Input tax (DIT)

T
Then, testing for ratio { }
A

T
{ } = 3,040,000
A
(3,040,000+9,200,000)
= 3,040,000
12,240,000
T
{ } = 0.2483=0.25=25% (Please approximate in two decimal places)
A
Therefore since the answer is between 0.1 and 0.9 then we use the whole formula of DIT

T
DIT = X + I { }
A
T= Total Values of taxable supplies (hereby referred to values of sales VAT exclusive)
A= Total Values of all supplies (hereby referred to both Taxable and exempt sales VAT
exclusive…A=T+E)

X=?

i. The value of X (Input tax directly attributable to taxable supplies)

Items (Taxable Purchases made) Taxable
Bottled water 1,700,000
sugar 1,500,000
Canned beef 400,000
Processed meat 6,000,000
soda 3,500,000
Transportation of beans 700,000
13,800,000

X= Value of taxable purchases * 18%

=13,800,000 * 18%
= Tshs.2,484,000/=
I=?
ii. The value of I (Input tax directly attributable to both supplies)
Items Taxable
Electricity bill 350,000
Telephone charges 500,000
Refrigerator 2,000,000.00
2,850,000
I = Value of dual items purchased/incured * 18%
I = Tshs.2,850,000 * 18%
I = Tshs.513,000/=

T
DIT = X + I { }
A
= 2,484,000 + 513,000 (0.2483)
= 2,611,377.9
Hence, this is the value to be used in computing VAT payable or Refundable depending
on the nature of the question i.e

VAT payable = Output tax - DIT

VAT payable = Output tax - 2,611,377.9

Or
VAT payable = DIT - Output tax

VAT Refundable = 2,611,377.9 – Input tax

NOTE.

• This is how we compute the value of DIT when the figures are VAT exclusive

• Now, try to compute the same value of DIT when the figures are VAT inclusive so
that you can explore the differences.

• Try to re-do the computation by using your calculator because I was rushing to an
invigilation and probably I might be wrong somewhere especially in the totals or
summations of figures.

• If I will set VAT question in your exam that involves computation of DIT then use
the above steps and not otherwise.

• Again, this illustration should not be used as a confirmation that VAT is already
one among the questions in your exam, just read everything we discussed. All the
best.