The FTA has recently published VAT Public Clarification P028 on eligibility of a business to recover input VAT on expenses such as Mobile Phones, Airtime, and Data Packages.

Issue

It is available to their employees to perform their roles outside office hours or at locations away from the office. This Public Clarification provides guidance on the application of the VAT legislation in respect of the recovery of input tax incurred on Phones, Airtime, and Packages acquired for business use.

Due to COVID-19, there has been an increase in work-from-home arrangements, resulting in some instances where employers pay for Phones, Airtime, and Packages’ expenses to allow employees to perform their roles remotely.

Due to the potential private use of Phones, Airtime, and Packages, there has been uncertainty as to whether a business is entitled to recover the related input tax and, if so, what the requirements are to be entitled to input tax recovery.

The business is registered for VAT and acquired Phones, Airtime, and Packages in its own name, e.g. the business’ details are reflected on the tax invoices and contract with the service provider.

To be eligible for input tax recovery, the business should have a contract with the Telecommunication service provider and should obtain tax invoices in its own name from the service provider. It is pertinent to note that reimbursement of the said expenses to employees who obtain the services directly from the service provider in their own name may be challenged by the FTA

The business has a documented policy in place which clearly states that the Phones, Airtime, and Packages may only be used for business purposes, and the consequences of any personal use

The business should have a documented policy detailing out instances where the employees are

Provided with Phones, Airtime, and Packages to be used exclusively for business purposes. The value of the Airtime and Packages should be determined based on actual historical business usage.

In addition to having a documented policy, the policy must be implemented at the time the Phones, Airtime, and Packages were made available to the employee.

The FTA has clearly stated that backdated policies will not be accepted. In addition to that, the employees must be made aware of the policy and of repercussions, if the policy is not abide.

The business regularly monitors the use of Airtime and Packages and retains justification for the variances.

The business is required to have strict and robust controls in place to demonstrate to FTA that the usage of employees is being monitored and to substantiate actual use.

As part of monitoring the acceptable use of Phones, Airtime, and Packages, the taxable person shall consider the variance between the actual usage and the average Airtime and Packages used for the specific role of the employee business purposes. The usage in excess of set limits shall be considered non-business use unless the additional Airtime and Packages is recharged to the employee with output tax, or if there is robust monitoring in place to substantiate the actual use.

The business takes action against employees using Phones, Airtime and Packages for personal use in accordance with the documented policy

The business is required to demonstrate that appropriate action is taken against employees’ use of Phones, Airtime, and Packages for personal use in accordance with the documented policy. The business must also retain proof of action taken against employees not complying with the documented policy.

Further, if the business recovers the amount from the employee through salary deduction or direct charge in respect of the personal use, the business should apply output tax on the recovery since it constitutes a taxable supply.

In this regard we wish to highlight that all businesses are required to issue a Tax Invoice for the same.

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