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Marginal VAT (Value Added Tax) refers to the tax applied only to the value added at each stage of production or distribution, rather than the total value of the goods or services being sold. In simpler terms, it focuses on taxing the “marginal” increase in value that a business adds to a product, as it moves through the supply chain, from raw materials to the final consumer. Here’s how it works: 1. Supplier Level: Each business in the supply chain only pays VAT on the difference between the price at which they buy goods or services and the price at which they sell them. This is known as the “value added.” 2. Input vs Output Tax: Businesses can typically reclaim the VAT they have paid on their own inputs (purchases), which means they only effectively pay VAT on the value they have added to the product. This prevents tax cascading (tax on tax) as goods move through the chain. For example, if a manufacturer buys raw materials worth £100 and adds value by turning them into a product worth £200, they would only pay VAT on the £100 of value added (£200 - £100). If the final customer buys the product for £200, the VAT would be calculated on that amount, but the manufacturer would have already offset the tax paid on the raw materials. This system helps avoid tax pyramiding, where taxes compound at every stage of the supply chain, and ensures that VAT is only levied on the value added by each party in the chain.

Federal Tax Authority (FTA) assigns a unique Tax Registration Number (TRN) to each entity registered for tax purposes. The last digit of the TRN indicates the type of tax for which the entity is registered. Here’s a breakdown of what each last digit signifies: a) Value Added Tax (VAT): Last Digit = 3 VAT is a consumption tax levied on the value added to goods and services at each stage of the supply chain. Businesses that meet the mandatory registration threshold or choose to register voluntarily are issued a TRN for VAT purposes with the last digit as 3. b) Corporate Tax (CT): Last Digit = 1 Corporate Tax is a form of direct tax levied on the net income or profit of corporations and other businesses. When businesses register for Corporate Tax, their TRN ends with the digit 1. c) Excise Tax: Last Digit = 7 Excise Tax is a type of indirect tax levied on specific goods that are typically harmful to human health or the environment. These goods include tobacco products, energy drinks, and carbonated drinks. Entities dealing with excise goods receive a TRN that ends with the digit 7. Examples For XXX Ltd VAT TRN: 100521463800003 Corporate Tax TRN: 100521463800001 Excise Tax TRN: 100521463800007 These TRNs are used for tax-related transactions, filings, and compliance requirements specific to each type of tax. This system helps the FTA manage and track tax registrations efficiently across different types of taxes.

Understanding Value Added Tax: Comprehensive Guide for Businesses and Consumers Value Added Tax (VAT) is a widely implemented consumption tax that applies to goods and services at each stage of production or distribution. It is a critical aspect of the tax system in many countries, impacting both businesses and consumers. Understanding Value Added Tax is essential for compliance and effective financial planning. What is Value Added Tax? Value Added Tax, commonly referred to as VAT, is a tax levied on the value added to goods and services at each stage of production or distribution. Unlike a sales tax, which is only applied at the point of sale to the end consumer, VAT is collected incrementally at each stage of production and distribution. Each business in the supply chain charges VAT on its sales and can reclaim VAT on its purchases, ensuring that the tax is ultimately paid by the end consumer. For businesses, VAT compliance involves registering for VAT, charging the correct amount of VAT on sales, maintaining accurate records, and submitting regular VAT returns to the tax authorities. Failure to comply with VAT regulations can result in significant penalties and damage to a business's reputation. Ho... #businesses #consumers #pricing #profitability #taximplications

Difference between sales tax and VAT Both sales tax and VAT are types of indirect tax – a tax collected by the seller who charges the buyer at the time of purchase and then pays or remits the tax to the government on behalf of the buyer. Sales tax and VAT are a common cause of confusion within the corporate tax community. To explain further, let’s outline the similarities and differences between these two types of indirect tax. Know More: https://lnkd.in/gHXiYibz #CharteredSkills #OnlineLearning #ElearningPlatform #DigitalEducation #SkillDevelopment #VirtualLearning #OnlineCourses #ProfessionalDevelopment #LifelongLearning #KnowledgeSharing #EducationalTechnology #RemoteLearning #Upskilling #DistanceLearning #FutureOfWork #ContinuingEducation #ElearningCommunity #DigitalSkills #OnlineTraining #CareerAdvancement

Principle of approbation and reprobation in indirect taxes: The principle of approbation and reprobation says that a party cannot retain the benefit of a transaction and simultaneously challenge the validity of the transaction. This principle is applied in indirect taxes by courts. For example - where output excise duty is paid by a manufacturer even though it was not payable, cenvat credit cannot be denied to the buyer on the ground that it is not a duty of excise, but an amount wrongly paid. In GST this principle will be useful in cases like where ITC is denied where GST is wrongly paid by the supplier on exempted goods. Or in case where the Dept. takes a stand that there is issue of invoice without actual supply. (Eg circular trading). In such a case, although GST is paid, ITC is denied on the ground that this is not GST, but an amount wrongly paid as there is no supply. In this situation, the Department cannot both retain the GST paid by the supplier and yet say that there is no supply i. e. challenge the validity of the transaction. Can the Department say that they will disallow the ITC and since the GST is wrongly paid, let the supplier claim refund? Because, often the time limits of the refund are expired. Of course, there are several case laws which hold that time limit for refund does not apply to amount wrongly paid as tax. But that apart, the Department cannot take such a stand because the principle of approbation and reprobation is a principle of estoppel. Since the Department on its own has not given refund to the supplier and is retaining the benefit i. e. GST, it is estopped from saying that ITC is not admissible as there is no supply. The same principle will apply to penalty u/s 122 (1) (ii) in this case. Views welcome. : Adv. Kuldeep Kulkarni

GST TDS ON SALE OF METAL SCRAP W.E.F 10.10.2024 Key Insights on GST TDS Provisions for Metal Scrap (Notification No. 25/2024-CT) The Central Board of Indirect Taxes and Customs (CBIC) announced a pivotal update to GST regulations on October 9, 2024, with Notification No. 25/2024-CT. The notification introduces a Tax Deduction at Source (TDS) mechanism for metal scrap transactions under the GST framework, effective from October 10, 2024. Overview of the TDS Mechanism 1. Applicability and Scope: *Rate of TDS: A TDS rate of 2% is mandated (split as CGST 1% and SGST 1%, or IGST 2% for inter-state transactions). *Transaction Value Threshold: TDS applies only to transactions exceeding a taxable value of ₹2.5 lakhs. *Eligible Transactions: Applicable exclusively to B2B purchases of metal scrap from registered suppliers. 2. Basis for TDS Calculation: *TDS is calculated on the value of supply, excluding taxes such as CGST, SGST, IGST, UTGST, and TCS under Income Tax. *The deducted TDS amount will automatically reflect in the supplier’s GSTR-2A, enhancing transparency. Compliance Requirements 3. Filing Obligations for Deductors: *Return Filing: Buyers responsible for deducting TDS must file Form GSTR-7 by the 10th of the following month. *TDS Certificate: Deductors must provide suppliers with a TDS certificate in Form GSTR-7A, akin to Form 16A in Income Tax. 4. Supplier Benefits: *TDS Credit Utilization: Suppliers can claim the credited TDS reflected in their electronic cash ledger. This credit can either offset tax liabilities or be claimed as a refund. 5. Registration Requirements: *Buyers required to deduct TDS must register separately under GST via Form REG-07. *Documentation includes the DDO/Tax Deductor’s PAN, Aadhaar, and proof of business premises. *As per the October 22, 2024 advisory, taxpayers should select “Others” under the “Constitution of Business” category and specify “Metal Scrap Dealers.” For more details or clarification, please message or comment..

If you are claiming input VAT in your VAT return to the FTA, make sure the VAT you have been charged is valid. Here's how to check the TRN for your suppliers https://lnkd.in/etqZ3FkZ

Submitted on Sun, 01/26/2025 - 13:14 Submitted by: Anonymous Submitted values are: Category Others Subject The sellers collect GST from the seller but due to their failure to file returns the buyer is unable to avail the benefit of the input Issue Suggestion on buyer's problems in GST--------Respected, in GST putting the entire responsibility of mismatch in buying and selling on buyer is a practical option because seller files the return late, seller files the return late Whether the buyer does not pay the tax or the seller does not deposit the tax is not in the hands of the buyer. Apart from this, the buyer does not have the right to make the seller do so. To avoid losses of lakhs of rupees every year, some companies have started paying taxes. In the terms and conditions of the purchase order, the GST amount will be paid after one month on confirmation of filing of GST return by the seller. But this is not a permanent solution. This also causes loss to the good buyer. GST is VAT And GST was introduced to solve the problems of Central Excise but the problem of input credit not only exists but has become more serious. Let us see what is the problem of mismatch of input credit of GST. A dealer buys goods from his vendor and in this he pays GST along with the goods and out of the GST collected on his sales, he passes this GST on to his vendor, which is called ITC or input credit. Thus, he pays additional tax on his margin and this is the basic principle of GST. Now suppose that the input credit of a dealer is restricted because his dealer has to pay tax on his margin. ¤ �If the buyer has not filed the return on time or has not paid the tax or has made some other mistake, then a big problem arises for the buyer. The buyer has no control over whether his seller will pay the tax on time or not. But pay the tax and file the return on time. Saying that the credit for the delayed return will be available next time is not a solution to this problem. GST is a value addition tax and a dealer has to pay tax only on his value addition but sometimes if he has to pay tax on the entire sale in a month then it may take months to recover it. Understanding the problem of burden of working capital The government should identify the sellers for not filing returns and make them pay the tax and should compel them to file returns and tax and there is no justification in giving the penalty to the buyers by stopping the input credit because the buyers have no responsibility on this. There is no control while the government has the authority. The government should make strict laws to recover the GST from those vendors who do not pay it in the bill.

Take a look at Kintsugi’s newest guide to "What is the Difference Between Sales Tax and VAT: What Sets Them Apart?" Read more here: https://lnkd.in/edRNZzty 1️⃣ Definition: Sales tax and VAT are both consumption taxes, but they apply differently. Sales tax is added at the point of sale, while VAT is applied at each stage of production. 🛒 2️⃣ Calculation: Sales tax is a percentage of the final sale price. VAT is calculated at each production stage based on value addition. 📊 3️⃣ Impact on Businesses: Sales tax is straightforward but requires careful tracking. VAT involves more documentation but allows for tax credits. 🧾 4️⃣ Global Perspective: Sales tax is common in the US, while VAT is prevalent in Europe and other parts of the world. 🌍 5️⃣ Compliance: Businesses must understand local tax laws to ensure compliance and avoid penalties. Regular updates and accurate record-keeping are crucial. 📚 6️⃣ Customer Experience: The way taxes are applied can affect pricing and customer perception. Clear communication helps in managing customer expectations. 💬 💬 Join the Kintsugi's Discussion: How is your business navigating these challenges? Follow Kintsugi for more sales tax tips every week and to share your strategies and insights on Sales Tax and VAT! #Ecommerce #SalesTax #VAT #BusinessInsights #TaxCompliance #Kintsugi #BusinessOperations #SmallBusinessTips #FinanceManagement #BusinessStrategy