Essential Advice for Value Added Tax: Get It Right


Thousands of businesses rely on selling goods and services. In doing so, you must meet the requirements of the tax regimes regarding such commercial sales. Particularly, you must pay attention to value-added tax (VAT). This is a consumption tax charged on a product as its value increases through different stages. For example, an item leaving the manufacturer's hands moves to a wholesaler, a retailer and the customer as the final destination. All these stages raise the value of the product as the parties involved add a mark-up so that they can make a profit. The following information centres on the value-added tax to help you gain the insight you need for your business:

The Concept of Value Addition

The tax authorities collect value-added tax at every point of the production process. Every time someone makes a sale, the value of the goods increases giving VAT its name. The objective of increasing value progressively is to ensure that the customer bears the final burden of paying the tax. Your role as the seller is to make sure that the selling price of the good or service caters for the VAT payable to the tax authorities.

VAT Inclusive versus VAT Exclusive

A price inclusive of value-added tax refers to the original cost of the products or service multiplied by the pre-determined rate of VAT. Take a case where the existing rate of value-added tax is ten percent. If the ideal price of your commodity is one hundred dollars, the selling price inclusive of VAT is one hundred multiplied by ten percent. The items should retail at one hundred and ten dollars for you to make your profit and meet the VAT obligation. A rate exclusive of VAT doesn't include the mandatory ten percent tax, meaning that your business will have to bear that tax obligation.

VAT Refunds

There are instances where you might incur VAT obligations erroneously. You can also surpass the minimum expenditure limit in a tax-free retail store, a scenario that makes you qualify for a VAT refund. If so, fill a VAT tax refund form and share your identification documents with the tax authorities. You will also share the relevant VAT invoices for a thorough assessment by the authorities, with an accompanying description of the tax-free items. The tax department will approve your application and issue a document that allows you to receive the VAT refund. These tax refunds relieve you of some of the costs incurred for your business purchases. They also encourage compliance to VAT regulations among taxpayers.

Talk to a taxation consultant to make sure your business is handling taxes correctly.


19 November 2020

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