Why churches need to think about VAT

Where a church or place of religious worship is regarded as an “association not for gain”, the cash payments received from members as pledges, tithes and donations is generally not regarded as “consideration” for value-added tax purposes and the requirements for a taxable activity that trigger a VAT registration would not be met.Notwithstanding the above, where a church earns income that is not related to pledges, tithes and donations, but involves the sale of goods or services for a price (i.e. as is the case with fundraising activities where revenue is generated from bookstores, coffee shops, property rentals, bake sales, gala dinners and concerts), exposure is created in terms of carrying on a taxable activity based on the open interpretation of the definition.This means, any activities - irrespective of the fact that these activities may not be carried on continuously throughout the 12-month period - which involve the sale of goods/services for a price, irrespective of whether a profit is made by the church, would fall within the ambit of a taxable activity and may trigger a VAT registration requirement should the revenue in any 12-month period exceed N$500 000.On the basis that not all the income earned by a church would have attracted VAT such as pledges, tithes and donations which are not considered as “consideration”, the expenses incurred by the church in earning the other types of income as discussed above, would need to be apportioned to only claim the portion relating to the other income that attracted VAT. This method is defined as the apportionment ratio which is subject to approval by Inland Revenue that a church would need to comply with.Lesson for churchesIt is important to monitor all other income earned from activities including the ones listed above to ensure compliance with the VAT rules. The administrative cost of VAT includes the prices of goods being more expensive with 15%, the cost of maintaining a VAT system as invoices would need to be issued for sales transactions, as well as the cost of filing VAT returns. Also bearing in mind the apportionment ratio highlighted above, not all input tax on expenses may be claimed.The greatest risk of non-compliance would be where a church is found to have a VAT registration requirement and did not adhere to this. Inland Revenue will deem income earned to be inclusive of VAT in addition to massive penalties and interest being levied on the church for non-compliance in relation to registration.Memory Mbai is the senior manager in VAT at PwC Namibia. This series on tax is published bi-monthly on a Monday in Market Watch.

Why churches need to think about VAT

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Republikein 2025-09-18

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Why churches need to think about VAT

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Republikein 2025-09-18

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