When someone refers to VAT, they mean “value added tax”; that’s where the acronym comes from and it is the most common way of referring to this type of tax that is widely used in the monetary system. We generally find it when a person makes a consumption of a good or service, applying that VAT to the cost.
This VAT will be assigned as long as the good or service that is acquired has been the subject of a production and/or distribution process, as the case may be. This is added to the cost of production along with a margin that requires earning, ending in a sale price to the consumer. That tax is charged separately from income tax.
It is the tax resulting from the collection made by a natural or legal person for the provision of a service or the sale of a good. Depending on the type that is acquired, and as stipulated by the tax law of each country, it is possible that after the immediately preceding fiscal year, it will be possible to deduct these taxes for the consumer himself.
This VAT consists of the application of a certain percentage related to the initial amount to assign it and ends in a sale price with respect to the goods or services that are commercialized in the market. The sectors to which this type of VAT is applied are footwear, plumbing, household appliances and electrical appliances.
The percentage that will be assigned in relation to the cost is stipulated by the tax authorities. The range of the same oscillates between 16 to 21 percent. This will depend on both the monetary policies and the behavior of the market in each country. Under these criteria is that the tax authorities before the start of the new fiscal period must be announced in the official gazette.
It is the tax that is assigned to processed products for consumption in restaurants or similar services, as well as for the cost of services of transportation systems in all means; it is also assigned to the prices of plants and other items. Generally, an average of 10 percent of the initial cost is assigned, in order to encourage these industries.