9.2. Concept of VAT
The essence of VAT is in providing set-off for input tax and this is applied through the concept of input credit/rebate. This input credit in relation to any period means setting off the amount of input tax by a registered dealer against the amount of his output tax. Value Added Tax (VAT) is based on the value addition to the goods, and the related VAT liability of the dealer is calculated by deducting the input credit from the tax collected on sales during the payment period.
VAT works in two different ways:
You can receive refunds for Input Credit on exports within a period of three months.
- If VAT-registered business receives more output tax than the taxes paid as input, they will need to pay the difference to the Commissioner of Taxes (State)
- If the input tax paid is more than the output tax collected,
- You can carry forward the Input credit and adjust it against the output tax in the subsequent months.
- You can have the Input Credit refunded to you by the Government at the end of the current or following year.