What Is Vat With Example.The Value Added Tax , also called VAT (abbreviation) has been in effect since January 1, 1986. VAT is an indirect tax that falls on the expense, that is, by those who consume it.
Some of the characteristics of the Value Added Tax are: it is an ordinary tax, it is multi-phase (VAT payment phases) and of a community matrix.With the introduction of the Value Added Tax, the transaction tax was lifted and the Rail and Tourism taxes were abolished.
What Is Vat With Example.
VAT stands for Value Added Tax, which is a type of consumption tax that is added to the price of goods and services at each stage of production or distribution.
Here’s an example to help illustrate how VAT works:
Let’s say that a company produces and sells a product for $100. The government imposes a 10% VAT on this product.
The company will first pay $10 in VAT to their suppliers for any raw materials or services they purchased to produce the product.
When the company sells the product for $100, they will charge their customers a total price of $110 ($100 for the product and $10 for the VAT).
The company will then need to pay the $10 collected VAT to the government.The government collects VAT at each stage of production or distribution, but only on the value added at that stage. In this example, the company added $100 of value by producing the product, and paid $10 in VAT to their suppliers, resulting in a total value of $110.
Overall, VAT is a way for the government to collect taxes on the consumption of goods and services, while also allowing businesses to claim back any VAT they have paid on their purchases as input tax credits.
