In our daily life, whenever we buy goods or avail any kind of service, we end up paying Value Added Tax (VAT). Have you ever thought why do we need to pay an extra amount even after paying the mentioned amount for a product or a service? Why is this concept accepted internationally? Well, let’s have a look on what VAT, VAT accounting is all about and why is it essential.
Value Added Tax (VAT) is a consumption tax on the use of goods or services and is considered as an indirect tax to be paid by the ultimate customer. Now when it comes to the business front, there exists a receivable and payable VAT. The VAT collected through the sale of goods are to be paid to the government. On the other hand, the VAT paid while purchases are to be received from the government. Globally more than 150 countries have accepted the VAT concept
Any business needs to submit a set of documents in order to initiate the process of VAT Accounting. The set of essential documents includes:
- Record of all supplies and imports of goods
- Tax credit notes and alternative documents
- All tax invoices
- Reports of goods exported
- Taxable supplies received or made
- Due on tax supplies
- Recoverable tax supplies or imports
Apart from these, the Federal Tax Authority (FTA) can also ask for certain details like Annual Account details, General Ledgers, VAT Ledgers, Purchase daybooks, Invoices issues, Credit and Debit notes, etc.
You have got a clear idea of what VAT is all about and its types.Now the question arises that why is VAT accounting important? The answer is as below:
Easy Tax Returns
By performing VAT accounting, a company will be able to access all the necessary documents relating to tax filing at a single place which would greatly ease the process of filing the tax return of the company.
In case a company decides to expand it, vat accounting would provide the estimated total amount that has to be paid in the form of taxes. The management of the company can go through the VAT accounting report, and according to the framed budget, it can decide to expand the business.
Tracks of VAT records
VAT accounting allows the company and the concerned authorities to check whether all the tax-related documents are submitted or not. It serves as a checklist which consists of the names of the materials to be correctly filled and submitted.
Lowers the Risk of Tax Audit
By utilizing VAT accounting, the company will have the data relating to all the transactions conducted by the company. The chances of a tax audit being conducted by the concerned authorities will be drastically reduced.
Acts as an Evidence
In case the concerned authority decides to conduct a tax audit of your company, VAT accounting will help the management to provide all the accurate details of the transactions related to tax done by the company.
Reduces the Risk of Penalties
VAT accounting would see to it that the company is compliant to all the rules and regulations as set by the concerned authority which would reduce the risk of getting penalised by the government. It would also keep updating the VAT accounting procedures with time.
Creates Awareness for VAT Related Schemes
From time to time, the government keeps on bringing new schemes relating to Value Added Tax. VAT accounting would generate alertness among the companies about how the various companies can avail the benefits
Boosts National Revenue Growth
The VAT is a vital tool of revenue generation for a country’s economy. VAT accounting is a process which calculates and registers the total amount of Taxes to be paid by a company, and if not done correctly, there would be huge after effects on the overall economy of the country.
GSPU is a business consultancy firm that specializes in providing taxation and accounting services. When it comes to the VAT accounting front, we provide the following VAT compliance services:
- VAT Registration process
- Invoicing and VAT treatment
- Maintaining the book of records
- Looking into the matter of inspection of records