The management of value added tax (VAT) is an integral part of budgetary and financial management. In terms of resource optimization, the possibility of recovering part of the VAT by tax means that communities and establishments, having regard to their sectors of activity, can diversify their products.
- Hence the importance of knowing and mastering the mechanisms for calculating the coefficient of deduction of VAT.
It is necessary to recall certain fundamentals relating to the application of VAT, then to highlight the methods of calculating the coefficient of deduction of VAT, relative to mixed activities.
Table of Contents
This sheet specifies the following elements:
- the object and objectives of the right to deduct VAT
- the methods of calculating and determining the coefficient of deduction of VAT
VAT is designed to affect only the final consumer (and not each company as an intermediate consumer). A French invention, it was then adopted in many countries, especially within the European Union. VAT is revenue from the general state budget.
VAT applies to economic activities for consideration and carried out independently.
In the countries of the European Union, the rate of this tax is set by the State. The amount of tax is proportional to the sales price excluding tax. There may be different VAT rates in each country. At the time of filing business taxes, this is a must.
Operation
Principle
The central principle of VAT is to avoid the so-called “cascading” cumulative taxes which lead to the inclusion in the tax base at each stage of the marketing of a good or service of the value of the cumulative taxes harvested at the previous stage. The base is always value added and does not contain any share of sales tax, unlike the majority of turnover tax systems.
The natural or legal person subject to VAT (referred to here as a taxpayer) increases his sales price excluding tax by the amount of value-added tax. Taxpayers pay the State only the difference between the VAT they collect on their sales and that which they themselves have paid on their purchases. Thus, only “value-added” is taxed (defined as the difference between the product of sales and the cost of intermediate consumption invoiced). Taxable persons record their price after-tax, which means that they actually play the role of tax collector on behalf of the State with their clients without this burden affecting them personally. This mechanism is described as the “economic neutrality” of VAT.
Example
A store in France buys a pen for € 1.00 excluding VAT from its supplier, it is billed € 1.196 including VAT, including € 0.196 VAT for a VAT at 19.60%. The same-store resells the pen for € 1.50 excl. he applies the VAT on the final price is 1.50 € x (1 + 0, 196) = 1, 794 €. But at the time of the payment, he declares the totality of the collected VAT is 0, 294 € of where he subtracts the VAT paid to his supplier, i.e. € 0.196 including VAT.
Conclusion
So the store only pays only 0, 098 €, in other words, the difference between the VAT due because of the resale of the pen and that paid during the purchase from the supplier. This is the reason why we can see professionals who buy common products in mass-market stores insist on having an invoice clearly showing VAT to be able to deduct it from their future payments.