Value Added Tax Act differs widely as far as statutory specifications go, from one area to another. However, despite the difference in specificities, the spirit of the Act remains essentially the same all over the world. VAT is fundamentally a goods and service tax, which is indirect in nature, as it is paid by a party who does not bear the entire cost of the tax.
Irrespective of its position application, VAT Acts cover the following key areas:
Imposition and rate of VAT
This is the single most important section in any VAT related Act. The goods that come within the purview of the VAT and those that fall outside it have been restated by the Sixth VAT Directive. This schedules states the applicability of the tax on the supply and exchange of goods, as well as the rates of exchange.
VAT rates also vary widely across the EU VAT area. While there are parts of Europe where 25% VAT is applied to goods, there are also areas where as low as 0% VAT is levied on certain commodities in some countries. However, irrespective of these extremities, the general VAT rate remains at around 15%.
Taxable Persons and Registration
This schedule defines the persons to be taxed. Being an indirect tax, it is important for the law to ascertain the payee on whom the tax is levied. It includes persons as well as business organizations.
Scope of VAT on Taxable Supplies
Supply is generally defined by the Treasury order of the respective country. Associated schedules also go on to ascertain and fix the Time and Place of supply. Reverse charge on supplies received from abroad, depending on the place and time of the supplier and/ or the recipient of the service.
Scope of VAT on acquisitions of belongings of other member states
This schedule is particularly applicable to the member countries of the EU. The formation of a common currency has drastically refashioned the taxation system in the whole of Europe. All member countries of the Euro are bound to be a part of the EU VAT area. The levying authority and the collecting authority as well as the rates of taxation are determined by the Euro Council.
In most EU states, and particularly the UK, this clause also includes the acquisition from member states. The meaning of acquisition is defined by an additional schedule of the VAT Act. The Time and Place of acquisition is also covered and defined by the Act.
Acquisitions from persons belonging to another member state, is another schedule which is also particularly applicable to EU. However, it can be well applied to other economic blocs as well, like the Nordic countries and Latin America, of course with specific modifications.
Input Tax and Output Tax
Two kinds of VAT are levied in Europe. First, there is the output tax, which is paid by the customer on the exchange directly. Then, there is the 'input tax', paid by one business to another for supplies. The Sixth VAT Act of the EU Council states that the Input VAT cannot be recovered if it is attributed to exempt supplies.
Payment by reference to accounting periods and credit for input tax against output tax.
The input tax of the business houses is calculated to be recovered by the output tax. The government pays off the excess if it fails to be recovered, of course with clear accordance to the statutes and the clauses lay down by the VAT Act of that particular country.
Payments on account of VAT
The customer, moreover, can avail a discount in tax on the basis of previously taxed input and labor at the exempt stage, resulting in a lowered effective rate than the headline rate.
VAT Acts also cover the following key areas:
- General provisions relating to imported goods
- Application of customs enactments
- Free Zone Regulations
- Place and Time of acquisition and Supply
- Value of supply of goods or services
- Value of imported goods
- Goods imported for private purposes
- Invoices provided by recipients of goods or services