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VAT Note

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gelilalemlemadem043640
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4 views

VAT Note

Uploaded by

gelilalemlemadem043640
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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For example:

If the price of a pair of shoes is stated as 1000 Birr without the VAT
included in it and the tax rate is 15 %, then the amount of VAT tax will
be 1000 x 15/100= 150 Birr. On the other hand, if the price of the same
pair shoes is 1000 birr with the VAT included, then we need to extract
the VAT amount from the 1000 VAT inclusive price with a different
formula. In such a case the formula used is by multiplying the VAT
inclusive price by 15/100+15. Hence, the VAT amount in the above case
will be calculated as 1000x 15/15+100= 130.43 Birr.
Note
 It must be understood that the VAT which is collected using the
VAT inclusive method is equal to the VAT collected using the
exclusive method.
The following transactions are some of the examples that use the VAT
inclusive method in practice in the Ethiopian VAT system.
1. Post- Facto Transactions-where a person engages in transactions
without registering for the VAT despite being obliged by the law
to be registered and collect VAT for the government.
 Any person whose annual turnover exceeds one million birr and
who is engaged in taxable activity for consideration is obliged to
register.
 If he continues supplying goods or services without fulfilling such
obligation and the tax authority later discovers this fact, the
supplier will be obliged to pay VAT on all the earlier transactions.
 This is because it is assumed that all his prior sales contain the
VAT amount that could have been withheld and paid to the
government.
 Nevertheless, VAT exclusive method is not possible since the
businessman has been selling without issuing invoices and the
VAT amount is assumed to be the part of the sales price.
 The VAT inclusive method will be suited to extract his VAT
liability from his total untaxed previous sales.
2. Used-Car Dealing: This is the other transaction which is not
accessible to the exclusive VAT method. When used car dealers
buy cars from owners, they are not able to obtain invoice since the
owners of the car are not registered for the VAT and are not
entitled to an issue invoice.
 Nevertheless, the used car dealer, just like any VAT
registered businessman, has the right to get credit for the
input VAT he has paid. Therefore, the input VAT is extracted
from his purchase price using the VAT inclusive method.
 Once the input VAT is extracted using the VAT inclusive
method then the net VAT will be obtained by deducting input
VAT from output VAT.

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