The Mechanism of Financial Deduction of GCC VAT
The value-added tax is characterized as a consumption tax and not a production or commercial tax, that is, it is focused on the person who consumes the goods (the consumer).
Despite this, the stages of supply chain operations and the number of traders who trade the commodity before it reaches the consumer cannot be determined, which is reflected in the impossibility of determining the value that will be added to the price of the commodity before the end of the supply chain cycle, and before of the commodity or service reaches the consumer.
For example, when a manufacturer supplies the goods to a wholesaler, who then supplies them to a retailer, which eventually reach the consumer; In this case, the value-added tax is calculated at 5%.
It is not possible to know the final value of the tax until after the end of the supply chain processes and the commodity reaches the consumer.
This financial reality compels the tax administration to collect the amount of tax from each merchant who contributes in the supply chain cycle; so that the good or the service reaches the consumer and the final value of the tax can be identified.
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