Meaning
Deduction of tax paid on business purchases from the tax liability on sales prevents the double taxation of goods and services. A vat input credit is claimed by presenting a valid special tax invoice received from a supplier. The system allows businesses to only pay tax on the value they have added to the product.
It stops applying when the purchased items are used for personal consumption or for activities that are exempt from the tax.
Deduction Eligibility
Only entities registered as general taxpayers can claim these credits. Small-scale taxpayers pay a lower flat rate but lose the right to deduct the tax paid on their own purchases. This distinction is necessary for managing the different tax burdens across different company sizes.
Verification Cycle
Invoices must be uploaded and verified through the national tax platform within a specific period to be eligible for the credit. The system checks that the supplier has already reported the corresponding output tax. If the invoice is not verified, the vat input credit cannot be used.
Tax Liability
Net tax payable is calculated by subtracting the total vat input credit from the total output tax collected during the month. If the credits exceed the output tax, the balance can often be carried forward to the next period. This mechanism supports the cash flow of businesses during periods of heavy investment in raw materials and machinery.
