Discuss these questions with a partner.

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Discuss these questions with a partner.

1. What type of tax on products and services is levied in your country?

2. What is the VAT (or its equivalent) rate in your country?

3. What products are exempted from VAT (or its equivalent) in your country?

4. Why might completing a VAT return be a complex and lengthy procedure?

5. How often must VAT-registered taxpayers file a VAT return?

6. How is VAT calculated?

7. What VAT documents must be kept for tax inspection?

8. What details must a VAT invoice include?


Value Added Tax is a form of indirect tax that is imposed on goods and services at different stages of production and distribution. It is collected in pieces along the process, all the way to the final sale, and for each step, producers and distributors have to pay a tax.

This is how it works in a production-distribution chain:

· A producer sells raw materials to a factory;

VAT implications: The producer adds the VAT (output VAT) to the net price of raw materials. As the producer does not make any purchases, he pays to tax authorities the total amount of the VAT charged.

· The factory uses raw materials to make chairs, which it sells to a retailer;

VAT implications: The factory charges the VAT on the net price of chairs. However, as it has made a purchase, the factory can reclaim the VAT charged by the producer (input VAT) to reduce the amount of VAT payable. The factory’s VAT payable is the output VAT minus the input VAT.

· The retailer sells the chairs to a final consumer;

VAT implications: The retailer adds the VAT to his retail price. Again, the retailer deducts the input VAT he paid to the factory and transfers the remainder to the tax authorities.

From the perspective of an ordinary buyer, VAT is a tax on a purchase price. However, VAT-registered buyers can deduct it from their own VAT liability. The amount of VAT is indicated on an invoice, which is used by a VAT-registered buyer to claim VAT deduction.

    Taxpayers must register for VAT if their annual turnoverexceeds a specific limit. Not all products are subject to the same VAT rate – reduced VAT rates are imposed on specific products, while certain products may be entirely exempt from VAT.

    The main benefit of VAT is that it increases generation of public revenue, as it reduces the possibility of tax evasion. However, the opponents argue that VAT makes taxation system more complicated, which increases administrative and accounting costs for businesses, the small and the medium in particular.

Sales Tax

Sales Taxis a type of tax imposed on a retail price of products and some services, charged as a percentage of a selling price. The main difference between VAT and Sales Tax is that Sales Tax is levied only on the end-user, while VAT is imposed on both the producer and consumer.


Exercise 1.

In the text, find the answers to the following questions.

1. Explain how VAT is charged.

2. Why does a VAT - registered buyer need an invoice?

3. Under what circumstances does a company have to register for VAT?

4. What is the difference between VAT and Sales Tax?


Exercise 2. Find a word in the text that matches each definition below. The words appear in order.

1. (two words) VAT charged on sales and services      ________________

2. A business that sells goods to consumers                              ________________

3. To claim back                                                               ________________

4. (two words) VAT reclaimed on purchases               ________________

5. (two words) The actual amount of VAT owed to tax authorities         ______

6. (two words) The price a retail business charges for a particular good or service                                                                          ________________

7. (three words) Registered as being liable to pay VAT ________________

8. (two words) VAT included in the purchase price of the seller that can be deducted from a buyer’s VAT liability                           ________________

9.  (two words) All income earned in a course of a year ________________

10. (two words) Use of illegal methods to avoid paying tax    ________________




Present Perfect Simple

Exercise 3. Your company is hiring a new junior tax adviser. You are in charge of interviewing applicants. Find out about their previous experience by asking questions as in the example below. Add some questions of your own.

Example: Have you ever worked as a tax adviser?


· analyse related party transactions

· advise on aspects of property transactions

· assist clients with tax return preparation

· ensure compliance with taxation authority requirements

· prepare tax due diligence reports


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