Recoverable VAT: how it compares to part-recoverable and non-recoverable Value Added Tax

By: Boris_Dzhingarov

Taxes are an integral part of the governments where we reside. They are compulsory contributions under certain conditions and classifications such as income, consumption or sales, among others. There are many tax laws that are unique only to certain countries, while there are also some countries with similar tax structures.

Buying things at the grocery store or ordering in a restaurant, would most likely familiarize a consumer with the abbreviation VAT. Customers often unknowingly pay VAT, without knowing what it is and what its significance is. The VAT or value-added tax is a consumption tax paid by citizens upon retail purchase.

Value Added Tax and Why It’s Important to the Government

A lot of countries worldwide, especially those in the European continent, have adopted the value-added tax as opposed to the traditional sales tax. Both VAT and sales tax are consumption taxes that are paid by consumers through the sellers and businesses (since items bought are already tax-inclusive). The sales tax, preferred by most places in the United States of America, only requires the end user of the product to pay the tax; whereas VAT requires payment for every purchase, regardless of use, and the tax value is added on top of the selling price (hence the term value-added).

In contrast to the well-known income tax, the VAT is reliable as government revenue in a sense that purchases, whether food or otherwise, are being made daily. Because VAT is automatically-charged to any purchase, there is non-recoverable, part-recoverable and recoverable VAT to make up for context of the product's use.

Recoverable VAT and Its Significance to Businesses

The recoverable VAT was designed to help businesses and other industries get a refund for the multiple times that they are taxed. For example, the business is a coffee shop which buys products from suppliers at prices that already contains VAT. Since the product bought from the supplier (for example, coffee beans) are being used for commercial purposes (to be made into coffee and sold to the cafe patrons), it is subject to reclaim. Aside from use, value-added taxes are also recoverable depending on other external conditions unique to the country you are from and the countries you are transacting in.

Employee business travels are subject to recoverable VAT depending on the product or item that was purchased, the country of the company, the country the purchase took place and other considerations. There is a documentation process required for business to reclaim VAT on business trips, and it differs from industry to industry.

When Value-Added Tax is Part-Recoverable or Non-Recoverable

In order to justify recoverable VAT, you have to document its commercial use. Using the same thought process, it would be easy to understand that where commercial use is not justified or documented, it will fall under non-commercial use. Since non-commercial products or services are only taxed once, there is no reclaim applicable.

The part-recoverable VAT applies when a certain product, often equipment, can be used both commercially and non-commercially. A partial reclaim is given to the claimant depending on the documentation being presented; and these reimbursements are often as an internal agreement between several concerned parties.

H2: Information is Key to Understanding Taxation and How It Works

In the modern age, plenty of online resources can give you relevant materials on non-recoverable, part-recoverable or recoverable VAT. Most country's tax laws are possibly published online, easily accessible to the public for awareness of rights and responsibilities towards our respective governments. If something is unclear, one can always ask a lawyer or someone who is capable of understanding his country's systems and rules.

Paying tax is inescapable as long as you are residing in a country with a functioning government that progressively builds infrastructures and development programs. Because of that, it's essential to equip yourself with the necessary information to make learned decisions and smart choices on how to deal with your money. Although the use of loopholes and other exploits in faulty systems may be possible, it's important to know that the government's money is given by the people for the benefit of the city, state or country.

By Boris Dzhingarov

© 2017 Copyright Boris Dzhingarov - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.