VAT Definition - What it is, Meaning and Concept

The acronym VAT refers to a tax or tax that consumers must pay to the State for the use of a certain service or the acquisition of a good.

The breakdown of this acronym is Value Added Tax (in most countries of Latin America ) or Value Added Tax (in Spain ).And this is a rate that is calculated on the consumption of products , services , transactions trade and imports.

VAT is an indirect tax ; It is called that because, unlike direct taxes, it does not directly affect income, on the contrary, it falls on the costs of production and sale of companies and accrues from the prices that consumers pay for such products.This means that It is applied to consumption and is financed by the final consumer.It is said that it is an indirect tax that the treasury does not receive directly from the tax.

The VAT charge is specified when a company sells a product or service and issues the corresponding invoice.Companies generally have the right to receive a VAT refund that they have paid to other companies in exchange for invoices, which is known as tax credit , subtracting it from the amount of VAT charged to its customers (the tax debit ).The difference between tax credit and tax debit must be delivered to the treasury.

Who pays VAT and how is it declared?

The VAT is calculated as follows.An entrepreneur sells or offers a service and bills the cost of the same, accruing the tax passed (which must be calculated taking into account the current legislation where is specified as appropriate the same based on the type of product or service offered).

Every two or three months, as stipulated by the law for the item in which it is registered, the employer must file the tax return, where the fees corresponding to the VAT for that period will be added.the calculation of the amount paid and received in reference to this tax and the balance is established.If this is negative (when the VAT quotas supported have been higher than those charged) the employer may compensate future balances or request the refund of said fees.If it is positive, you should pay them.

It is important to mention that there is a special regime for retail merchants that they can avail themselves.The same determines that if they do not intervene in the production process of the products they sell and if 80% of their sales are to the final consumer, the merchant will not have to pay the VAT.This is because the merchant will have paid for the purchase of the product, the corresponding VAT The same entity, so it would have correctly complied with the provisions of the current tax regime .

It should be mentioned that final consumers, on the other hand, pay VAT without receiving any type of refund .The only form of VAT control is the delivery of invoice or other proof of sale to the consumer, while the store keeps a copy.

The VAT rate varies according to the country . Ghana (3%), Iran (3%), Canada (5%), Panama (5%) and Japan (5%) are some of the nations with very low rates. Finland (22%), Iceland (24.5%), Denmark (25%), Hungary (25%), Norway (25%) and Sweden (25%), on the other hand, have the most expensive VAT in the world.The rate, however, usually varies over time depending on the economic needs of each country.