What does input VAT refer to?

What does input VAT refer to?

• A. VAT charged on sales
• B. VAT paid on purchases
• C. VAT applicable to exports
• D. VAT exempt from recovery

Answer: (B)

Input VAT refers to the value-added tax that businesses pay on their purchases of goods and services. This tax can be reclaimed or offset against the output VAT that the business collects from its sales, allowing businesses to avoid being taxed on both the sale and the purchase of the same good or service. Therefore, when a company buys supplies or services that are subject to VAT, the tax amount paid on these purchases is known as input VAT. In contrast, VAT charged on sales pertains to output VAT, which is the tax collected from customers when a business sells goods or services. VAT applicable to exports typically means that certain exported goods may be zero-rated for VAT, allowing businesses to avoid VAT on international sales. VAT exempt from recovery refers to specific scenarios in which certain VAT amounts cannot be reclaimed, which does not relate to the general concept of input VAT. Hence, the definition and application of input VAT are captured accurately by the reference to VAT paid on purchases.

Input VAT refers to the value-added tax that businesses pay on their purchases of goods and services. This tax can be reclaimed or offset against the output VAT that the business collects from its sales, allowing businesses to avoid being taxed on both the sale and the purchase of the same good or service. Therefore, when a company buys supplies or services that are subject to VAT, the tax amount paid on these purchases is known as input VAT.

In contrast, VAT charged on sales pertains to output VAT, which is the tax collected from customers when a business sells goods or services. VAT applicable to exports typically means that certain exported goods may be zero-rated for VAT, allowing businesses to avoid VAT on international sales. VAT exempt from recovery refers to specific scenarios in which certain VAT amounts cannot be reclaimed, which does not relate to the general concept of input VAT. Hence, the definition and application of input VAT are captured accurately by the reference to VAT paid on purchases.