IN 70: Supplies made for no consideration

This interpretation note (“IN”) clarifies the value-added tax (“VAT”) treatment of supplies of goods or services which are made by vendors for no consideration in certain circumstances and provides guidance on whether –

(i) input tax may be deducted in respect of any VAT incurred on goods or services acquired to make supplies for no consideration; and

(ii) output tax must be declared on any goods or services supplied for no consideration.

Examples of supplies made for no consideration include marketing activities such as distribution of product samples, sales promotions, giveaways etc. during which a vendor may make a supply of goods or services to its customers, employees or potential customers without charging consideration.

The general rule is that a supply made for no consideration by a vendor in the context of a wholly taxable activity or enterprise carried on, is generally regarded as a taxable supply made in the course or furtherance of the “enterprise” as defined in section 1(1).

The effect is that the VAT incurred on the marketing efforts, including certain promotional supplies made for no consideration, may be deducted as input tax if the expenses can be directly attributed to specific taxable supplies made for a consideration, or generally, for the purpose of promoting the vendor’s other taxable product offerings.

The view is also that a promotional supply made for no consideration such as a free sample or special offer giveaway which is intended to promote a vendor’s taxable product offerings is not regarded as a “donation” in the true sense of the word, as it is not purely gratuitous.

Find a copy of IN 70 (Issue 2) here.

19/11/2021