1- What is VAT?
VAT or Value added tax is one of indirect tax, which is applied to consumer spending. VAT is collected by registered VAT vendors on their supplies of goods and services. Registered vendor perform the role of tax collector on behalf of a government, so eventually VAT cost is bear by the end consumer.
Vendor/Business not only pays the VAT to the government but also can recover the VAT which the vendor/business paid on their purchases. This small illustration will help you how it works.
Product Sales 5% VAT
Product A 100 5
Product B 500 25
Product C 400 20
Total VAT Received on Sales 50
Supplier Purchases
Material A 60 3
Material B 20 1
Material C 20 1
Total VAT Paid on Purchases -5
Net Vat Payable 45
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