Value-Added Tax (VAT) is an indirect tax which is imposed on the value added to goods. It is generally between 7 and 20 percent of the merchandise’s cost. The VAT is applied on manufacturing, distribution, and retail.
There are some disadvantages of VAT. These include a higher administrative cost and increased expenses for the business owner. Despite this, VAT provides a strong incentive to earn more money.
Because of the way VAT is implemented, it is much easier to track than traditional income taxes. In addition, a number of loopholes are avoided.
A business that produces only tax-exempt products may be exempt from the requirement to collect VAT on its sales. Businesses that manufacture items for export are also eligible for VAT credit.
Businesses that are required to register for VAT may incur significant fines and fees if they fail to file a VAT return. However, the system is self-policing to some extent.
Depending on the country and the laws of the state, there are various rates of VAT. For example, the standard rate in the UK is 20%. While a reduced rate is 5%.
While the logistics of the VAT system may attract some opposition from the business community, it is much more straightforward to administer than traditional taxation systems. If you are a small business owner or a professional working with a wide range of customers, you may want to consider applying for VAT.
To be registered for VAT, a business needs to have a Business Identification Number, or BIN. This 9-digit number helps identify the taxpayer and determine its state of affairs.