What is VAT ?
Value Added Tax (or VAT) is an indirect tax. Occasionally you might also see it referred to as a type of general consumption tax. In a country which has a VAT, it is imposed on most supplies of goods and services that are bought and sold.
VAT is one of the most common types of consumption tax found around the world. Over 150 countries have implemented VAT (or its equivalent, Goods and Services Tax), including all 29 European Union (EU) members, Canada, New Zealand, Australia, Singapore and Malaysia.
VAT is charged at each step of the ‘supply chain’. Ultimate consumers generally bear the VAT cost while Businesses collect and account for the tax, in a way acting as a tax collector on behalf of the government.
A business pays the government the tax that it collects from the customers while it may also receive a refund from the government on tax that it has paid to its suppliers. The net result is that tax receipts to government reflect the ‘value add’ throughout the supply chain.
What is tax?
Tax is the means by which governments raise revenue to pay for public services. Government revenues from taxation are generally used to pay for things such public hospitals, schools and universities, defence and other important aspects of daily life.
There are many different types of taxes:
- A direct tax is collected by government from the person on whom it is imposed (e.g., income tax, corporate tax).
- An indirect tax is collected for government by an intermediary (e.g. a retail store) from the person that ultimately pays the tax (e.g., VAT, Sales Tax).
What is the difference between VAT and Sales Tax?
A sales tax is also a consumption tax, just like VAT. For the general public there may be no observable difference between how the two types of taxes work, but there are some key differences. In many countries, sales taxes are only imposed on transactions involving goods. In addition, sales tax is only imposed on the final sale to the consumer. This contrasts with VAT which is imposed on goods and services and is charged throughout the supply chain, including on the final sale. VAT is also imposed on imports of goods and services so as to ensure that a level playing field is maintained for domestic providers of those same goods and services.
Many countries prefer a VAT over sales taxes for a range of reasons. Importantly, VAT is considered a more sophisticated approach to taxation as it makes businesses serve as tax collectors on behalf of the government and cuts down on misreporting and tax evasion.
How VAT works we have provided a simple?
(illustrative example below (based on a VAT rate of 5
1. Date of implementation: January 1, 2018
2 VAT rate: 5%
3 What are exempted: 100 types of staple food, and other essential service sectors such as healthcare and education
4 What are not: Electronics, smart phones, cars, jewellery and watches, eating out and entertainments
5 Inflation fears: It will have minimal impact on residents with less appetite for luxury goods, services and lifestyles. It will not stoke inflation for the common man as vital household expenditure items are exempted from its ambit
6 Common man: While the impact of tax on property transactions will be limited to the wealthy or those above upper middle income group, a likely hike in the cost of financial services will hit the common man. VAT will also have an effect on the buying power of tourists as they will have to pay duty tax again on certain goods in their country of origin
7 Dh12 billion is the estimated revenue to be generated by the UAE through VAT in the first year
8 Tax returns, data, information, records and documents must be submitted to the authority in Arabic. The FTA may, however, accept documents in any other language, as long as the person provides a translated copy in Arabic at their expense and responsibility, if so requested.
9 Registrants must include their Tax Registration Number (TRN), in all correspondence and transactions with the authority or with others. They must also inform the authority by filling the form of any circumstance that might require the amendment of information related to their tax record within 20 working days of the occurrence of said circumstance.
10 Each taxable person must also prepare tax returns for each tax period and for each tax while being registered. They must then submit the tax returns to the authority and pay any payable tax as specified in the tax return or any tax assessment within the time limit. The authority reserves the right to turn down any incomplete return.
VAT in Odoo
Examples of VAT with purchase and sales of particular product.
when purchase product with vat from vendor .
When sell the same product to customer.