What is input tax and output tax?

Input tax is the value-added tax (VAT) that a business pays on its purchases of goods and services.

Output tax is the value-added tax (VAT) that a business charges on its sales of goods and services to customers.

Businesses can claim input tax by deducting it from their output tax liability on their VAT return, effectively reducing the amount of VAT they pay to the tax authorities.

Not all input tax can be claimed. Generally, input tax can only be claimed on purchases related to taxable supplies, not on exempt or non-business activities.

Output tax affects businesses by increasing the price of goods and services they sell, as they must charge VAT to their customers.

The purpose of input and output tax is to implement a value-added tax system, where tax is collected at each stage of the supply chain, reducing the cascading effect of taxes.

Input tax and output tax rates are generally the same, based on the applicable VAT rate in the jurisdiction, but there can be exemptions or reduced rates for certain goods and services.

If input tax exceeds output tax in a VAT period, a business may receive a VAT refund from the tax authorities.

Businesses record input and output tax in their accounting systems, tracking VAT charged on sales and VAT paid on purchases to accurately file their VAT returns.

A business must charge output tax if it is registered for VAT and selling taxable goods or services, unless the goods or services are exempt or zero-rated.

To claim input tax, businesses need proper tax invoices or receipts showing the VAT paid on their purchases.

Input tax deductibility varies by country and is governed by national VAT laws and regulations.

A VAT return is a document a business submits to the tax authority showing the amount of VAT charged on sales and paid on purchases, resulting in either a payment to or a refund from the authority.

Yes, businesses can claim input tax on imported goods, provided they have paid VAT at importation and have the necessary documentation.

Net VAT is the difference between output tax and input tax, representing the actual VAT payable to the tax authorities. Gross VAT is the total VAT that has been collected or incurred.

Generally, only businesses registered for VAT can claim input tax as it relates to their business activities.

An exempt supply is a sale of goods or services that is not subject to VAT, meaning businesses cannot charge output tax or claim input tax on expenses related to it.

If a business buys from a non-registered supplier, no VAT is charged, and hence, no input tax can be claimed on that transaction.

Businesses that make both taxable and exempt supplies may be partially exempt, meaning they can only claim input tax on expenses related to taxable supplies, often requiring apportionment.

A zero-rated supply is a taxable supply that is subject to VAT at 0%, allowing businesses to claim input tax on related expenses while not charging VAT on sales.