Indirect Taxes (GST/VAT and Transaction Taxes)
Core framework
GST/VAT is a multi-stage tax on consumption. Businesses charge output tax on taxable supplies, recover input tax on purchases, and remit the difference. Candidates must understand registration thresholds, taxable versus exempt versus zero-rated supplies, place-of-supply rules, invoicing, returns and reverse charge.
Concepts to master
- Taxable persons, registration and deregistration thresholds.
- Output tax, input tax and the net tax payable calculation.
- Exempt, zero-rated and out-of-scope supplies.
- Place of supply for goods and services, including cross-border services.
- Reverse-charge and non-resident supplier rules.
- Blocked or apportioned input tax and partial exemption.
- Record-keeping, tax invoices and filing deadlines.
Common traps
Zero-rated is not exempt: zero-rated supplies allow input-tax recovery, exempt supplies generally do not. Input tax may be blocked for entertainment, cars or private use. A composite supply is taxed by its dominant character. The registration threshold tests turnover, not profit. Do not claim input tax without a valid tax invoice where one is required.
Worked example
Output tax is 45,000. Input tax is 18,000, of which 3,000 relates to blocked entertainment. Recoverable input tax is 15,000. Net VAT payable = 45,000 − 15,000 = 30,000. The trap is recovering all 18,000 or netting the blocked amount against output tax.
Rule of thumb
Classify every supply first as taxable, zero-rated, exempt or outside scope; only then compute output tax and recoverable input tax.