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What is value-added tax?
A value-added tax (VAT), known in some countries as a goods and services tax (GST), is a type of charge assessed incrementally. Much like an income tax, VAT is based on the increase in the value of a product or service at each stage of production or distribution. However, VAT collected by the end retailer and is usually a flat tax and is therefore frequently compared to a sales tax.
Why is a VAT calculator useful?
A VAT calculator is useful if you itemize your deductions and claim overpaid taxes on your tax returns. The only thing to remember about claiming VAT and tax forms is to save every receipt for every purchase you intend to claim.
How is VAT calculated?
There are two main methods of calculating VAT: the credit-invoice or invoice-based method, and the subtraction or accounts-based method. In the credit-invoice process, sales transactions are taxed, with the customer informed of the VAT on the purchase, and businesses may receive a credit for VAT paid on input materials and services. The credit-invoice method is the most widely employed method, used by all national VATs except for Japan. In the subtraction method, at the end of a reporting period, a business calculates the value of all taxable sales, then subtracts the sum of all taxable purchases, and the VAT rate is applied to the difference.