Value Added Tax
Value added tax is an indirect tax imposed on the difference between the sale price of a product or service and its purchase price, that is, only on the "value added" at each stage of the production or distribution chain, from buying the raw materials, through manufacturing and distribution, to the final sale to the consumer.
It is a multi-stage tax: businesses collect it on behalf of the state, while the final consumer bears its cost.
Some companies apply the VAT system to sales and purchase invoices. This tax is a specific percentage of the invoice value that is added to the invoice value.
This type of tax is usually applied in European countries. It is added to the value of the material across the various stages of its production, from the raw materials to the final form of the product.
Its benefit (for the state, of course) is that it increases revenues "invisibly", that is, without the details of the tax value appearing in the invoice paid by the customer.
Example:
- Before value added tax is imposed:
The manufacturer spends 10 SYP to buy the raw materials needed to make the product, and sells the product to a seller for 120 SYP, that is, with a profit of 20 SYP. The seller then sells the product to the consumer for 150 SYP, that is, with a profit of 30 SYP.
- After applying a value added tax of 10%:
The manufacturer spends 110 SYP to buy the raw materials needed to make the product, so the raw materials seller will pay the government 10 SYP. The product is sold to a seller for 132 SYP, and the manufacturer will pay the government 2 SYP (12 SYP minus 10 SYP) and keep the same profit of 20 SYP.
The seller then sells the product to the consumer for 165 SYP, so they will pay the government 3 SYP (15 SYP minus 12 SYP) and keep the same profit of 30 SYP. So the customer has paid 10% (15 SYP) more.
That is, the business owners (the manufacturer and the seller) have not directly lost the tax value, but they will have to do more detailed paperwork to transfer to the government the difference between the VAT they collected (the value added tax imposed on sales, 11 of their income) and what they spent on the tax (the value added tax imposed on purchases, 11 of their expenses).
If you work with the VAT system, you must set the rate applied to the sale of the material in the "Value Added Tax" field on the Prices tab of the material card.
Make sure the "Use VAT System" option is enabled on the Properties tab of the invoice form.
Note that this rate is applied differently if you use the TTC tax system: this type of tax is calculated from the total value of the product in the invoice (that is, the tax value is added to the total value of the invoice, and is not included as it is with VAT).
When you use the TTC system, enable the "Use TTC System" option on the Properties tab of the invoice form.