2.8.1. Consumption VAT In this type of VAT, the firm is allowed to deduct from the gross value of its product not only the non-capital input purchased from other firms but also the capital equipment purchased. Thus, in consumption type VAT, tax base is the difference between gross value and total value of inputs purchased (capital and non-capital). 2.8.2. Production VAT In the production type VAT, the value of the inputs purchased by the firm from other firms is not deducted in full. Only the value of non-capital purchase is deducted. Furthermore, no depreciation is permitted on the purchase of capital goods even in subsequent years. Thus, the tax base in production type VAT is equal to gross value less value of non-capital goods purchased. 2.8.3. Income VAT
According to income type VAT, the firm is allowed to deduct the depreciation on the capital goods (during the year) apart from the full value of its non-capital purchases. Here, firms cannot deduct the entire value of the capital goods purchased during the year but they can deduct the respective amount of depreciation attributable to that year. 2.8.4. Wage VAT In wage type VAT, the firm is able to deduct the net earnings from its capital in order to arrive at the tax base. It is unlikely to be used for taxation by any government. 2.9.Principal Components of VAT There are two principal components of VAT. These are Input VAT and Output VAT. 2.9.1. Input VAT Input VAT is the VAT payable by a taxable person on goods and services supplied to him and on goods which he imports for the purposes of a business carried on by him and for which registered for VAT. Viewing the concept from the other angle, it is the VAT payable on purchase of taxable supply including capital goods and operating and administrative expenditures. For a VAT registered person (taxable person) input VAT is not a component of the cost of purchase/import rather the registered person is entitled to take input VAT deduction against the VAT charge on sales or is recoverable from the Tax Authority. Hence, input VAT is a receivable for a registered person. 2.9.2. Output VAT Output VAT is the VAT collectible by a taxable person at the time of sale of taxable goods and services (supply). It is the VAT chargeable on sales of taxable goods and services whenever a taxable person supplies taxable goods or services to other person. VAT must be included in the price charged for those taxable goods or services. This is the output VAT for the supplier. Output VAT is not a component of the sales price rather it is a liability to the taxable person which is collected on behalf of the Tax Authority. The logic of VAT is that during a VAT accounting period, a VAT registered person pays VAT on its purchases, which is called input VAT; and the person charges VAT on its sales, which is called output VAT. At the end of the VAT accounting period, the difference between the amount of output tax and input tax represents either VAT payable to the Tax Authority or VAT Refundable from the Tax Authority. If the output VAT
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- Spring '19