No, you can’t deduct VAT on entertainment expenses.
The general rule is, VAT registered businesses can offset the input tax on taxable supplies they buy. For types of VAT Supplies see https://georgekatakdev.wpengine.com/2019/04/08/value-added-tax-basics/
VAT on entertainment is an exception to the rule above – you cannot offset it against output taxes to work out the net VAT payable.
Why?
VAT on entertainment is not deductible because the tax law prohibits its deduction.
The VAT Regulations, 2016 (L.I. 2243) classifies the following as entertainment expenses:
- End of year parties and lunches for clients, business associates and staff.
- Hiring of venues for parties and lunches for clients, business associates and staff.
- Provision of free meals at workplace canteens;
- Tea, coffee and other beverages or snacks provided to staff;
- Entertainment of customers and clients including business lunches in restaurants, nightclubs, theaters or sporting events;
- Meals, beverages, entertainment shows and any other hospitality supplied to customers and clients during product launches and promotional events;
- Private plane, yachts and similar capital goods used for entertainment
What is entertainment?
The VAT Act defines public entertainment to include,
- Musical entertainment.
- Theatrical performance.
- Comedy show.
- Dance performance.
- Circus show.
- Shows connected to a festival.
- Any other similar public show.
Promoters of such businesses can deduct VAT on business entertainment expenses or inputs.
Restaurants and hotels are entertainment businesses. They can deduct VAT on their inputs, but not inputs used for their own entertainment.
Take-away
The VAT on entertainment, even if it’s for business growth, is not deductible.
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