Generally, any tax is related to selling price of product or value of services. In modern production technology, raw material passes through various stages and processes till it reaches the ultimate stage. Output of the first manufacturer becomes input for second manufacturer, who carries out further processing and supply it to third manufacturer.
Recognizing the experiment as successful, the French introduced it in Wilhelm von Siemens proposed the concept in Initially directed at large businesses, it was extended over time to include all business sectors.
As its name suggests, value-added tax is designed to tax only the value added by a business on top of the services and goods it can purchase from the market. To understand what this means, consider a production process e.
When an end-consumer makes a purchase, they are not only paying for the VAT for the product at hand e. The value-added effect is achieved by prohibiting end-consumers from recovering VAT on purchases, but permitting businesses to do so.
The difference is the tax due to the value added by the business. In this way, the total tax levied at each stage in the economic chain of supply is a constant fraction.
Comparison of cash method and accrual method of accounting The standard way to implement a value-added tax involves assuming a business owes some fraction on the price of the product minus all taxes previously paid on the good.
By the method of collection, VAT can be accounts-based or invoice-based. Buyers who are subject to VAT on their own sales output tax consider the tax on the purchase invoices as input tax and can deduct the sum from their own VAT liability.
The difference between output tax and input tax is paid to the government or a refund is claimed, in the case of negative liability. Under the accounts based method, no such specific invoices are used.
Instead, the tax is calculated on the value added, measured as a difference between revenues and allowable purchases. Most countries today use the invoice method, the only exception being Japan, which uses the accounts method.
By the timing of collection,  VAT as well as accounting in general can be either accrual or cash based. Cash basis accounting is a very simple form of accounting.
When a payment is received for the sale of goods or services, a deposit is made, and the revenue is recorded as of the date of the receipt of funds—no matter when the sale had been made. Cheques are written when funds are available to pay bills, and the expense is recorded as of the cheque date—regardless of when the expense had been incurred.
The primary focus is on the amount of cash in the bank, and the secondary focus is on making sure all bills are paid. Little effort is made to match revenues to the time period in which they are earned, or to match expenses to the time period in which they are incurred.
Accrual basis accounting matches revenues to the time period in which they are earned and matches expenses to the time period in which they are incurred. While it is more complex than cash basis accounting, it provides much more information about your business.
The accrual basis allows you to track receivables amounts due from customers on credit sales and payables amounts due to vendors on credit purchases. The accrual basis allows you to match revenues to the expenses incurred in earning them, giving you more meaningful financial reports.5 VAT – Concepts and General Principles Learning objectives After reading this chapter you will be able to understand: ♦ the basic concepts of VAT in relation to .
BASIC CONCEPTS OF VAT •Advantages of VAT: –Broad coverage – •Tax is carried on upto the retail level i.e., the payment of tax is spread out over various stages / wholesalers, retailers etc. VAT - Taxation and Customs Union. National information. The application of VAT is decided by national tax authorities but there are some standard EU rules, explained on this site..
Check basic VAT rules in each EU country. Tax information Communication database.
Feb 10, · I am trying to simplify the concept of all indirect taxes like VAT, Service Tax, Excise, Custome Duty and also new concept GST through this Channel. 5 VAT – Concepts and General Principles Learning objectives After reading this chapter you will be able to understand: ♦ the basic concepts of VAT in relation to . 5 VAT – Concepts and General Principles Learning objectives After reading this chapter you will be able to understand: ♦ the basic concepts of VAT in relation to manufacture of and trading in goods and services.
Introduction, Basic Principles & Scope Of VAT Introduction: · Value added tax is a form of indirect taxation levied throughout the European Union.
· It was introduced in the UK in the early s when it replaced another indirect tax, ‘purchase tax’.
Aug 09, · Excise Basic Concept lecture. In this series you will learn Complete excise duty concept with calculations and return filing. Also learn excise duty in tally erp 9 in hindi. Introduction Value Added Tax (VAT) has been introduced on all India basis from Now it is more than 5 years since introduction of VAT.
The experience so far cannot be sufficient to draw any conclusion.