What are Tax Accounting and Types of Value Added Tax?
Tax accounting has been a familiar term in the world of
business. While it may sound complicated to those who are not economics or
accounting savvy, its meaning is very simple. Tax accounting simply stands for
a system of accounting methods that are focused on taxes and not the public
financial statements. It is governed by the Internal Revenue Code that
determines a set of guidelines and rules that companies should follow while
finalizing the tax returns. With increasing complexities in the tax
departments, there has been a rise in Tax consulting firms in India
and Tax Accounting Services in Singapore.
International tax advisory firm is responsible for the task of giving
advice related to taxation that benefits the company or smoothens the process
of filing and managing taxes. A good tax consultancy firm or a good tax
accountant can derive lots of profit for an individual or a company by
effectively dealing with taxes. Today there are many value-added taxes in the
market that make it even more important to hire tax consulting firms and tax
accountants.
The value-added tax, or VAT as its popularly called, can be
explained as a charge or a fee that is levied against businesses at different
steps of distribution and production processes. It is mostly levied when the
product is resold or has additional values attached at it. The VAT is put on
the difference between purchasing cost and the selling cost. The cost of
value-added tax is applied to the final product by the majority of producers
and distributors.
An example of VAT is that, say a pen costs INR 10 and then there
is a 2 percent VAT on it, so the purchaser has to give INR 12 for it to the
seller. Now the seller keeps the original price of INR 10 and gives INR 2 to
the government. One should be careful and not get confused between
value-added tax and the sales tax. While the sales tax is only collected one
time, the value-added tax is collected at many points across the production of
an item.
There are many arguments in favor and against the system of
value-added taxes. The main point in favor of VAT is that since it is collected
at different junctions, it becomes harder for people to escape taxation and
they are forced to pay it. Besides, since the tax is collected at different
junctions so the burden of taxation is eased. The argument against value-added
tax says that it makes the tax collection process complicated and unfairly
burdens those people who are at a lower ring of production.
The value-added tax is the main source from which tax revenue is
derived in several European countries. Members of the Organization for Economic
Cooperation and Development, except the United States of America, make use of
value-added tax.
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