Question

Explain neutrality of VAT!

Answer 1

VAT is the value added tax levied on most of the product at each stage of its production and distribution. The final recipient or the consumer is the only one that needs to be charged and the supplier of the goods or services are not charged. VAT is said to be 'neutral' in a business where they recover and reclaim any VAT they paid for the goods and services. This may be the supplier who if paid can file for the return .

The neutrality of VAT is there in the provisions to protect the legal solutions that clearly states and ensures legality in which the VAT paid by the taxpayers will not be the final cost to the taxpayer.The taxpayers must be able to recover input tax arising from it's taxed activities.Only the final consumer has to pay VAT and no intermediate suppliers.Therefore, the neutrality of VAT gives the taxpayer a chance to settle their tax disputes which is possible in a situation like if for any reason the goods were not used in the business cycle beyond the taxpayer or was sold even later and he was not the final consumer. Because we know, in VAT ,the final customer needs to be taxed.