Overview of VAT

Value-added tax (VAT) is a state tax that is charged on the value added to goods or items at different stages of production and distribution. Value added is the difference between the sale price and the purchase price. The state assigns each item a particular VAT percentage. Some items are exempted from VAT.

You can offset the VAT that you pay by the VAT that you collect. For example, the tax paid by the VAT registered dealers for purchases can be offset by the tax collected by them for sales. The process of offsetting the tax varies for different types of transactions. For example, the process of offsetting VAT is different for the purchase of capital goods, treatment of opening stock, and for purchases from unregistered dealers.

Each VAT registered dealer has a unique tax identification number (TIN) that must appear on the tax invoice. The VAT registered dealer is required to issue the tax invoice to the purchaser with the details required by the government.

The other statutory VAT documents are purchase register, sales register, VAT registration certificate, and proof of tax payment.