Concept Definition
What is output tax in VAT accounting?
Output tax is the VAT that a VAT-registered business charges on its taxable supplies. It is the VAT on the seller's side of a transaction, charged to the buyer and owed to the tax authority. The output tax is reported on the VAT return and must be remitted to the tax authority. Output tax liability arises at the tax point of each supply.
How is output tax calculated?
Output tax is calculated by multiplying the taxable amount (exclusive of VAT) by the applicable VAT rate. For invoices that include VAT in the stated price (VAT-inclusive pricing), output tax is extracted by dividing the gross price by (1 + VAT rate) to get the net amount and multiplying by the rate. VAT returns aggregate output tax across all taxable supplies in the period.
Frequently Asked Questions
- When does output tax become due?
- Output tax becomes due at the tax point, which in most jurisdictions is the earlier of the invoice date and the receipt of payment. For continuous supplies (utilities, rental), the tax point may be the end of each billing period. Output tax must be declared in the VAT return for the period in which the tax point falls, regardless of when cash is collected.
- What is the difference between output tax and VAT collected?
- Output tax is the VAT amount owed to the tax authority based on taxable supplies made. VAT collected is the actual cash received from customers. These differ when customers pay late or in installments. Output tax is due regardless of collection; businesses must remit output tax to the tax authority even if the customer has not yet paid the invoice. Bad debt relief provisions allow businesses to recover output tax after extended non-payment.