To comprehend any taxation system, it’s essential to become familiar with the tax jargon that surrounds it. The terminology used in taxation often encapsulates specific concepts or legal definitions, and grasping these terms can significantly aid businesses in swift comprehension of tax laws and seamless compliance.
This article delves into the key terms frequently encountered within the realm of indirect taxation.
Term Explanations
1. Taxable Person: A taxable person is an entity, be it a business, sole proprietor, professional, or any other individual engaged in a particular economic activity. They are either registered by law or mandated to register under the law, and only they have the authority to collect and remit taxes to the government.
2. Tax Registration Number: The tax registration number is a unique identification code issued by the government to taxable entities. This number must be referenced during tax payments and all other communications with the government.
3. Output Tax: Output tax pertains to the tax levied on the sale of goods or services. For example, if “A-One Traders” sells goods worth 1,00,000 with a 5% tax, the 5,000 collected by “A-One Traders” represents the output tax. This amount, after adjusting for input tax credits, must be remitted to the government.
4. Input Tax: Input tax refers to the tax paid during the purchase of goods or services. In the case of “A-One Traders,” when they buy goods worth 50,000 with a 5% tax from “Jumbo Distributors,” the 2,500 paid by “A-One Traders” constitutes input tax.
5. Input Tax Credit: Commonly known as ITC, Input Tax Credit is a beneficial provision that allows the taxable person to deduct the tax amount paid during purchases from the output tax they owe.
6. Input Tax Credit Adjustment: This process involves reconciling input tax with output tax. Using the earlier example, “A-One Traders” had an output tax of 5,000 and an input tax of 2,500. They adjusted their input VAT Registration of 2,500 against the output tax of 5,000 and paid the remaining 2,500 to the government.
7. Tax Period: The tax period denotes the timeframe within which the payable tax must be computed, and a statement containing pertinent details must be prepared and submitted to the government. Typically, the tax period occurs on a monthly, quarterly, or annual basis.
8. Tax Return: A tax return is a statement that a taxable person must create and submit for a specific tax period. This statement typically includes information about sales, purchases, input tax, output tax, and the total tax liability.
You can also register VAT Registration in our website:
https://www.vat-registration-uae.com/