ACCA Advanced Taxation (ATX) Practice Exam

What aspect does the remaining adjustment percentage relate to for exempt supplies in the CGS?

1. It is set to 25% taxable use

2. 0% taxable use

3. 50% taxable use

4. 100% taxable use

The correct answer is: 0% taxable use

The remaining adjustment percentage for exempt supplies in the Capital Goods Scheme (CGS) is indeed tied to the concept of 0% taxable use. This reflects situations where certain supplies do not qualify for input tax recovery because they are exempt from VAT. As a result, the taxpayer will not have any input tax to recover for those exempt supplies, leading to a 0% taxable use adjustment in the CGS. In the context of the CGS, businesses must consider their overall use of capital goods for both taxable and exempt supplies. When the use is entirely for exempt supplies, then the adjustment percentage aligns with that lack of taxable use. Therefore, when dealing with exempt supplies in relation to the CGS, it is accurate to state that the remaining adjustment percentage reflects 0% taxable use, as no input tax can be reclaimed.