The Value Added Tax (VAT) Law of 2022, which came into effect on January 1, 2023, has now become a familiar concept for entrepreneurs. However, as the Tax Administration begins its enforcement checks, it has become evident that certain aspects, particularly the deduction of input VAT, remain unclear. This article delves into the mechanics of input VAT deductions, exceptions, and why the 0% VAT rate, such as in supplies to contractors and subcontractors in the oil and gas sector, does not negate the right to deduct. Input VAT refers to the VAT paid by businesses on expenses like purchasing goods, hiring services, or office supplies. This VAT can be deducted from the tax on turnover, provided these expenses are used for taxable supplies. A fundamental principle of the VAT system is that the tax is ultimately borne by the end consumer, not the entrepreneur. Entrepreneurs act as intermediaries and can deduct the VAT paid on business expenses, provided there is a direct link to taxable supplies. Taxable supplies include goods or services subject to VAT rates like 10%, 5%, or 0%. Even supplies under the 0% rate are considered taxable, meaning input VAT on related costs remains deductible. For instance, supplies and services to contractors and subcontractors in the oil and gas sector, as per Annex 1 of the VAT Law, are subject to a 0% rate if they fall under the Petroleum Act 1990. This provision ensures that the right to deduct is preserved for suppliers or service providers. However, the 0% rate can lead to misunderstandings, with some assuming that no VAT charged means no right to deduct, which is incorrect. There are exceptions to input VAT deductions, such as expenses related to food, beverages, tobacco, gifts, staff benefits in kind, and personal cars (with some exceptions). These exclusions are legally mandated and apply to all VAT-registered businesses, including those subject to the 0% rate. In summary, input VAT is deductible if linked to taxable supplies, the 0% rate does not affect the right to deduct, and there are specific legal exceptions. Entrepreneurs must be prepared to substantiate how business expenses relate to taxable activities during Tax Administration checks.