What is meant by Value Added Tax VAT? | How to Calculate VAT

A Value Added Tax ( VAT ), known as Goods and Services Tax (GST) in some countries, is a type of tax that is estimated at rates, which are based on each stage of production. Increases or distributes the value of a product or service. VAT essentially pays for combined services and infrastructure that is funded by a state in a particular region. It is provided and funded by the taxpayers used in the broadening of this product or service. Not all areas need to charge VAT and goods and services are not exempt from export (duty-free). 

VAT is generally levied as a destination tax, where the tax rate is based on the location of the customer and the cost of the sale. Confusingly, the terms VAT, GST, consumption tax and sales tax sometimes change interchangeably. VAT accounts for a fifth of total tax revenue worldwide and among members of the Organization for Economic Co-operation and Development (OECD). As of 2018, VAT is charged in 166 of the 193 countries of the world, including all members of the OECD except the United States, who use the sales tax system instead.

There are two main ways to calculate VAT: a credit invoice or invoice based method, and a deduction or account-based method. Using the credit invoice method, sales transactions are taxed when the customer is notified of VAT on the transaction, and businesses can receive credit for VAT paid on input materials and services. The most used method of credit invoicing is Japan Uses all national VAT except At the end of the reporting period, using a deduction method, a business calculates the cost of all taxable sales and after then subtracts the amount of all taxable tax purchases and applies the VAT rate to the difference. Is. Only Japan currently uses the VAT deduction method, though abolitionist VAT, often referred to as "flat tax", has been part of US politicians' recent tax reform proposals. With both methods, there is an exception to the calculation method for certain goods and transactions, which is created either for practical reasons or to combat tax fraud and theft.

This kind of indirect tax is, the added value tax, respectively, manufacturing, wholesale cell is paid, retail and every transaction stage. In Japan, it was implemented as a pre-tax tax in 1950 through the recommendation of the shop but accepted theoretically good points, there are significant fluctuations in the tax burden of traditional small companies. And relatively disadvantage for mid-sized businesses, is harmful. In 1954 finish was postponed reasons. In European Union countries, comprehensive VAT, including all goods and services, has been introduced. This is Japanese Consumers are forced to make a valid declaration based on the invoice that is different from the tax.