Value Added Tax (VAT)

Examples of Value Added Tax (VAIT): Value Added Tax, sometimes also called "GST", is a tax charged on the sale, purchase, production, consumption, importation, exportation, repossession or lease of tangible personal property. It applies to many businesses, both small and large, including manufacturers, brokers, retailers, suppliers, wholesalers and exporters. It is levied in different rates depending on the price level of the product or service being taxed. It is a regressive tax that increases over time. It has been designed to encourage companies and individuals to keep inventories and supplies available and flowing at low prices. It is based on supply and demand theory.

It is important for manufacturers to understand the difference between their standard sales tax and the Value Added Tax. The standard sales tax is based on a "head-shot" calculation of taxable costs that include sales tax and other relevant charges, while the value added tax assesses the change in price as a percent of the wholesale or retail price. While manufacturers are eligible for a refund, this is subject to an audit by the state tax authority and may be denied if there are substantial errors in its computation. The state tax authorities usually adopt a policy of allowing manufacturers to claim a reasonable allowance for the additional cost of goods sold that are not directly related to special trade discounts and programs.

Manufacturers are required to keep adequate records of sales and purchases of goods sold, so that accounts can be traced for taxable purchases and taxable costs. These records must be maintained for two years or more. These records enable the state auditing agencies to make an accurate determination of the value added tax and to minimize refund claims. When manufacturer's inventory is verified, the state auditing agency can provide a determination of the amount of Allowable Tax.

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