Value Added Tax in a Project Finance model (Guide and Excel Template)
Originally published: 07/06/2021 07:21
Publication number: ELQ-42011-1
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Value Added Tax in a Project Finance model (Guide and Excel Template)

A guide and excel template explaining how to model Value Added Tax refund mechanism in a Project Finance Model.

One of the relatively complex subject in project finance modeling is the value added tax. The complexity comes from the VAT refund or reimbursement mechanism.

In this guide and the video, I explain in a step by step manner how you can model VAT in your project finance model. You can also download the Excel template extracted from a real project finance model with the calculation blocks discussed here.

the topics discussed are:

- What are the typical Inputs required to model the VAT refund mechanism?
- Input VAT receivable during construction, Input VAT received during construction and the ending balance of VAT at construction end.
- Input VAT receivable during operation
- Input VAT credit used
- Output VAT payable during operation
- The working capital impact of VAT

How to calculate different cash flow lines related to VAT are explained in a step by step manner. User can follow the 4 below steps and understand how to model VAT refund mechanism:

+ Step 1: Get the inputs
+ Step 2: Let’s start with the construction phase
+ Step 3: Input VAT receivable during operation
+ Step 4: Output VAT payable
+ Step 5: Capture the working capital impact of VAT

The Excel template and guide sheet can be used for educational purpose and users can also incorporate the template within their own models by making the links to the capex, Opex and revenues lines in their own project financial models.

The Excel template is not a complete financial model and is an extract containing the below sheets:

- "Inputs" sheet containing the inputs required to calculate the different cash inflows and outflows related to VAT
- "Time" Sheet: Containing flags and counters to create the model timeline
- "Tax" sheet: Containing calculation blocks required to calculate the VAT payable during construction and the working capital impact of VAT during operation.

The video takes you through the steps to include VAT refund mechanism in your own financial models.

This Best Practice includes
1 PDF Guide and 1 Excel template

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