Question

Explain neutrality of VAT.

Answer 1

VAT is value added tax, charged on goods and services traded for use or consumption in the EU.

It is levied on the "value added" to the product at each stage of production and distribution.

The value added means the difference between the cost of inputs into the product/ services and the price at which it is sold to the customer.

VAT is intended to be " neutral" in that businesses, are able to reclaim any VAT that they pay on goods and services. Ultimately that is the Customer who actually taxed.

This means that the supplier of goods / services does not charge VAT, but the recipent is responsible for paying it .

The Principle of Neutrality is one of the fundamentals characteristic of this tax.It is implemented through reduction of VAT output by the amount of VAT input. The right of deduction constitutes an integral part of the VAT mechanism and is intended to free the entrepreneur entirely from the burden of VAT paid for the goods and services purchased within

the framework of business activity