CAT / FIA FFA Syllabus D. Recording Transactions And Events - General principles of a sales tax - Notes ^{2 / 3}

Sales tax is an indirect tax on the supply of goods and services which is eventually borne by the final customer.

Input and Output Tax

1. Output tax

   Sales tax charged on goods and services sold by a business is referred to as output tax.  

   e.g. I sell a computer to you and you will pay me a price + output tax (VAT)

2. Input tax

   Sales tax paid on goods and services ‘bought in’ by a business is referred to as input tax.

   e.g. If I buy a computer,  I have to pay a price + input tax (VAT)

If output sales tax exceeds input sales tax, the business pays the difference in tax to the authorities.

If output sales tax is less than input sales tax in a period, the tax authorities will refund the difference to the business.