Output VAT

Suppliers of goods and services must add VAT to their net prices. They must record output VAT for goods on the date that they issue invoices and for services on the date that they receive payment. The amount of VAT is determined by applying specific rates to the net selling prices of certain goods and services.

Output VAT is also called:

• AP VAT Receivable

• Recoverable VAT

• Collectable VAT

Input VAT

Input VAT is the VAT paid by the purchaser of goods and services.

If the purchaser is subject to output VAT, the purchaser can recover input VAT by offsetting it against output VAT. When input VAT exceeds output VAT, the purchaser can forward the VAT balance as a credit toward the tax authority for the next reporting period; or receive a cash refund, depending on the policies of the tax authority.

Input VAT is also called:

• AR VAT Payable

• Deductible VAT

Nonrecoverable Input VAT

Input VAT cannot be recovered for:

• Goods and services that are not necessary for running the business.

• Expenses that are related to business entertainment.

• Transport of persons.

• Oil-based fuels and lubricants that are transformed and then resold.

• Goods that are provided free of charge or at a substantially reduced price.

• Purchase of cars.

• Services related to goods that are normally excluded from the right of recovery.