Types Of Taxes

You must know what taxes are in order to comprehend how they work.

There are several reasons why taxes are required, but the most important is that they help the government raise money and help boost economic growth. Tax payments ensure that everyone around the country have access to basic amenities and services. To collect taxes on behalf of the people, the government is mandated under the constitution to do so. The three-tiered tax structure in India includes the national government, state governments, and local municipalities.

There are a plethora of different taxes and fees.

Both a direct tax and an indirect tax exist in most nations.

A direct tax is one that is levied on a single individual and then remitted to the government agency that levied it. This tax is administered by the Central Board of Direct Taxes (CBDT).

Important Direct Taxes are as follows:

• Taxes are an unavoidable burden that must be endured.
• Rich people’s income tax
• Gifts are subject to a gift tax.
• Tax on estates and gifts
• Sales of securities generate income.
• Inheritance and profit-sharing taxes

Income tax is the most common type of taxes on individuals. An individual’s yearly income is subject to this tax. Depending on where the taxpayer lives, the tax rate is calculated. Corporate entities such as partnerships, co-ops, and trusts are all included in this category, as is the Hindu Unified Family (HUF).

Indirect taxes are levied on the general population in this manner. It’s common practise to charge for most of these in the form of products or services. As a result, these taxes are included in the selling price and are then collected by the respective government agencies.

The following are examples of indirect taxes worth mentioning:

• Goods and services tax
• It’s referred to as Value Added Tax (VAT)
• Imports are taxed.
• Toll charges
• Octroy’s duty
• Tax collection is the responsibility of whom?
• The Ministry of Finance is one of three statutory bodies tasked with tax collection.
• Different taxes, such as federal income taxes, customs fees, and excise tax are collected by the central government.
• Agriculture, professional tax, excise duty, value-added tax, etc. are all taxes that are collected by the federal government.
• In addition to water and property taxes, local governments collect taxes.
• Federal government, on the other hand, instituted the Good and Services Tax (GST) in 2017 to unify a variety of taxes into a single one. Among the taxes that the GST would replace are the following:
• Products and services are taxed.
• Octroi
• Tax imposed by the United States government.
• The entertainment usage tax
• Purchase-related taxes

GST is a location-based tax at every stage of the supply chain (from raw material procurement to finished product sale to the end consumer). GST is often levied if there is a transfer of ownership or a change in the value of the supply.

GST must be collected from consumers at their final resting place, which is controlled by their country’s government (GST). GST is made up of the following three parts:

The CGST is a federal tax on goods and services delivered within a single state that is collected by the federal government.

State Goods and Services Taxes are levied by the state government or Union Territory on goods and services delivered inside the state (SGST).

For example, in Igst, where the central authority collects taxes on goods and services sold outside of the state.

Who stands to benefit from taxes?

Even though many people despise paying taxes, it is necessary for them to do so. Taxes are collected to aid in the development of the country and to provide its people with resources. There are a number of fundamental deductions, exemptions, and deductions for tax-saving investments offered by the government to assist lessen the burden of taxes.

An ITR may help you get a loan, improve your credit rating, and speed up the visa application process. In order to claim a tax refund, ITR papers may be used as proof of self-employment income.

Understanding taxes requires a basic understanding of what they are.

In addition to helping the government generate funds and spurring economic progress, taxes are necessary for a variety of other reasons as well. As a result of taxation, Americans are able to take use of many essential services. Constitutional provisions require the Indian government to collect taxes on behalf of its citizens. There are three levels of taxation: The federal government, the states, and the municipalities.

Most countries levy both a direct and an indirect tax on its citizens.

When a tax is imposed on a person, it is paid to the government agency that levied it by a single payment. Administration of this tax is handled by the Board of Direct Taxes of the Central Government (CBDT).

As a quick reminder, here are a few key Direct Taxes:

• You can’t escape taxes; they’re a necessary evil that must be faced.
• Taxing the wealth of the wealthy
• A gift tax is levied on all gifts.
• Inheritance and gift tax
• Income is generated through the sale of securities.
• Inheritance and profit-sharing tax

Individuals are subject to the most frequent kind of taxation, the income tax. This tax is levied on an individual’s annual income. In order to determine the tax rate, a person’s location is taken into consideration. As well as the Hindu Unified Family (HUF), corporate institutions including partnerships, co-ops, and trusts fall under this umbrella (HUF).

People are taxed indirectly using this method. These are often charged for by way of items or services. Therefore, these taxes are included in the purchase price and are subsequently collected by the relevant government organisations.

Taxes such as these are instances of indirect taxes that deserve mention:

• Revenue from the sale of goods and services
• The VAT stands for Value Added Tax (VAT)
• Taxes are levied on imports.
• Toll booth fees
• Octroy has a responsibility.

Whose job is it to collect taxes from the public?

Tax collection is the responsibility of three statutory entities in India, one of which being the Ministry of Finance.

People in this country pay federal income tax, as well as customs duties as well as excise taxes.

The federal government collects taxes on a wide range of activities, including agriculture, professional services, excise duty, and value-added tax.

Taxes are also collected by municipal governments in addition to water and property charges.

In contrast, the federal government of India implemented the Goods and Services Tax (GST) in 2017 in order to consolidate many levies into a single entity. Following are some of the taxes that would be eliminated by implementing the GST:

• You have to pay taxes on everything.
• Octroi
• The government of the United States levies this tax.
• The tax on entertainment consumption
• Taxes imposed on the purchase of goods

At every step of the supply chain, GST is a location-based tax. (from raw material procurement to finished product sale to the end consumer). When there is a transfer of ownership or a change in the value of the supply, GST is often applied.

People’s last resting place is governed by their country’s government, hence the government must collect GST from them (GST). GSTR includes the following components:

On products and services supplied inside one state, the federal government collects a CGST.

State and Union Territory governments levy taxes on products and services provided inside their borders (SGST).

An example of this is in Igst, where the central authority collects taxes on products and services sold outside of the state.

Taxes are a boon to whom?

Despite the fact that many individuals detest paying taxes, they must do so. Taxes are levied to benefit the country’s progress and the welfare of its citizens. For the purpose of easing the financial strain of paying taxes, the government offers a variety of tax-saving investments and deductions.

If you have an ITR, you may be able to secure a loan, raise your credit score, and expedite your visa application. As an evidence of self-employment income, ITR documents may be used to apply for a tax refund.

What is the meaning of the sales tax?

Sales Tax is the name given to the tax levied on the sale and purchase of commodities inside the country of India. In addition to the purchase price of the item, this is an extra charge. By charging a fee on the buyer, the seller is able to deduct that fee from their final bill. A percentage of the product’s worth is charged to the customer at the time of purchase or exchange for particular commodities.

Both the federal and state governments charge a sales tax. On the basis of its tax policies, the Central Government makes the final decision. Depending on where you live, you may be subject to different state sales taxes.

There are several kinds of sales taxes.

Despite the fact that nations all over the world have their own distinct approaches to sales taxes, there are a few sorts of taxes that are common to almost all of them. They are as follows:

Wholesale Sales Tax is the name given to the tax placed on those involved in the wholesale distribution of commodities.

Some specified items are subject to Manufacturers’ Sales Tax, which is a tax levied by the manufacturer.

‘Retail Sales Tax’ refers to the tax applied on the retail sale of products and paid for directly by the ultimate customer.

Consumers who purchase items without paying sales taxes are subject to a use tax. In most cases, this is the case when things are purchased from sellers that aren’t subject to your state’s taxation laws.

In certain countries, the Value Added Tax (VAT) is an extra tax imposed on all purchases.

There is a VAT (Value Added Tax)

The Central Sales Tax Act, 1956, is the law that governs Indian policy on sales tax. Tax regulations that are binding on the sale and purchase of products, as well as central government sales taxes, are laid forth in this document. The state in which a product is bought is where the Central Sales Tax is paid.

The central sales tax

The Central Sales Tax Act includes the aspects listed below.

Rules for the selling and purchase of products are laid down.

Items that are particularly significant in international trade are included.

Specifies rules for tax collection, collecting, and distribution resulting from interstate commerce.

Resolves all problems arising from interstate commerce.

Taxes levied by the state government

States in India have the authority to set their own sales tax laws, based on their own financial needs. This helps to understand why state sales taxes differ. Manufacturers, dealers, and sellers are the three broad categories into which states group firms that engage in the selling of products. To be able to function lawfully, each of them need a certificate.

Exemptions from the sales tax

There are a number of items that are excluded from the state sales tax for a number of reasons, including avoiding double taxation and humanitarian concerns.

The list of things that have been exempted by the state government includes particular items.

Licensed resale items purchased from authorised dealers.

Products intended for charitable organisations or educational institutions, such as colleges and universities, are

Calculation of Sales Tax

A simple formula may be used to determine the relevant sales tax rate for a certain item:

Cost of the item x Sales tax rate = Total Sales Tax.

While the procedure is straightforward, the following factors must be taken into account when computing sales tax on products sold or manufactured:

Consider the state and city in where the manufacturer or seller is located, since the sales tax rate might vary from state to state.

Violations of the sales tax

Some of the most prevalent breaches should be known by manufacturers and merchants in order to avoid committing them. These include:

The CST form is incomplete or inaccurate due to incorrect information being entered.

Failure to meet the requirements of the CST Act.

Not adhering to the CST Act’s security requirements

Products purchased at a bargain may be stolen.

Making a bogus identity known throughout the registration process

Trying to collect sales tax without being properly registered

presenting erroneous or fraudulent information about the products you have bought

Committees that Make Up The CBDT

It is the responsibility of the Central Board of Direct Taxes (CBDT) to collect and impose the sales tax in India. As a component of the Department of Revenue, it operates as required by the Central Board of Revenue Act, 1963, which is a part of the Ministry of Finance.

Members of the Central Board of Direct Taxes are assigned tasks in many areas, including Income Tax, Revenue, Investigations, Legislation and Computerization, Personnel and Vigilance, and Audit. The Chairman of the governing body is in charge of the organisation.

The following are the responsibilities of the Central Board of Direct Taxes:

Create tax rules that affect the collection of direct taxes.

In conjunction with the Income Tax Department, supervise the administration of direct tax legislation.

Tax evasion complaints and disputes are investigated by this department.

What is the service tax?

Tax on services?

The Central Government of India imposed a levy on service providers in the form of service tax. Under the Finance Act of 1994, this tax was enacted. For transactions that took place on or after June 1, 2016, the fee was reduced to 15%. As a condition of receiving certain services from service providers, taxpayers were required to pay a tax to the government. Service providers paid the tax, but it was recouped on those who bought or received the taxable services.

Section 65 of the Finance Act, 1994, was used to implement the service tax. Services subject to the service tax began to rise gradually in 1994 with the introduction of the budget for that year, which took effect on July 1 of that year. As a result, air-conditioned restaurants, hotels (both long and short term), and other guest homes were added to the list of available services. In addition, the service tax was levied on both businesses and individuals, according to the rules. Individuals had to pay tax in cash, while corporations may use accrual accounting to do so. Only if the value of services given surpassed INR 10 lakh rupees in a single financial year did the tax have to be paid. Jammu and Kashmir was exempt from the new service tax regulations.

Exemptions from Service Tax

The service tax was formerly levied on all services, barring those on the “negative list,” as defined by the prior legislation. All service providers, including those in the public and commercial sectors, were required to pay service tax. However, the following were exempt:

If his taxable service revenue for the financial year does not exceed INR 10 lakhs, a small-scale service provider might claim an exemption.

As long as the receiver provides confirmation that no credit duty has been paid on the items or materials in question, as well as written documentation proving their worth, the recipient will not be liable for paying service tax on such goods and services. This is in accordance with the CENVAT Credit guidelines.

In addition, the service tax does not apply to services provided to diplomatic missions or to officers serving on such missions or to the families of such officers.

Port services, containerized transport services, and goods transport services that exporters get or employ for exporting products are all examples of non-taxable services. The service tax paid by an exporter on these services is reimbursed to the exporter in this case.

International organisations, including the United Nations, are exempt from paying taxes on any services delivered to them.

Taxes are not imposed on services given to SEZ developers or SEZ units.

Billing for service taxes

A service tax assessee must issue an invoice or bill in accordance with STR, 1994 Rule 4A. If a service is completed or a payment is received, this invoice must be provided within 14 days of that event. The invoice should include the following:

The serial number.

The service recipient’s name and address are required.

The service provider’s name, address, and registration number

The service’s categorization, description, and taxable service value

The invoice must include the amount of service tax due.

Payment of Service Taxes

G.A.R.7 or the old TR6 Challan are two options for paying service tax. Service tax may be paid at branches of specified banks. Even the national excise office may furnish a list of recognised banks and their branches where taxes can be paid. You may also use the e-payment tool to pay your service tax.

Service Charges in the Modern Era

Finance Act, 1994 specified that the tax was in existence. In July 2017, the Goods and Services Tax or GST was implemented, and the tax was eliminated. Because to GST’s adoption, numerous other indirect taxes were phased out.

The tax paid by corporations

GmbHs, cooperatives, foundations, etc. are subject to income tax.

Domestic legal entities like as companies, cooperatives, and organisations are subject to the corporate income tax (KSt). It is analogous to the corporate and other companies’ income tax.

As a tax law business, we provide comprehensive legal and tax advice to companies around the country. Our attorneys and tax experts have extensive expertise in this area.

Please use the form at the bottom of this page to make a non-binding question to one of our contact individuals.

Background information on corporate taxation

Regulations for assessing profit, tax assessment, and tax payment are all included in the Income Tax Act (EStG), which applies in principle to corporate tax. As an extra precautionary measure, the Corporation Tax Act Special Regulations (KStG) must be followed.

According to the assessment basis, the corporation’s tax rate is always 15 percent. As a result, firms are almost always required to pay trade taxes. For corporations, there is no way to deduct trade taxes from corporation taxes. Generally speaking, corporations have a tax burden of roughly 30%.

For which types of businesses is there a corporate tax?

The affiliations of people relevant to corporate income tax are listed in paragraph 1 of the KStG. These include:

GmbH and AG Cooperatives, as well as European Cooperatives mutual insurance and pension funds, are corporations

Under private law, other legal bodies

Associations, foundations, and other non-profit organisations governed by private law.

Commercial enterprises managed by legal entities in accordance with public law.

There are two types of obligation for corporate income tax: one that covers all of the company’s global earnings, and one that only applies to a certain amount of revenue.

If a company’s management or registered office is in Germany, it is liable to limitless tax responsibility on all of its revenue, regardless of where it is earned (so-called world income principle). The entire management of a firm is centred on the management of the company’s employees. When a company is formed, the location of its headquarters is defined by legislation, the Memorandum of Association, the Articles of Incorporation, or something similar.

If a foreign company has neither its management nor its registered office in Germany, it is only liable to a limited German corporation tax on its domestic revenue.

To qualify for the corporation tax exemption, a company must meet certain requirements.

When does a corporation’s tax obligation begin and end?

As soon as notary certification of the articles of organisation and beginning of economic activity have been completed, a business is subject to corporate income tax.

Liquidation is generally the last step in a corporation’s tax obligations. If a company relocates its management or its registered office to another country, it is no longer subject to infinite tax obligation. Hidden reserves are normally exposed and claimed as part of an exit tax in this situation.

Calculation of the export/import tax

Taxes are based on the amount of money a business makes in a given year. Calendar year and fiscal year are often used interchangeably. Profit is calculated in accordance with the EStG and the KStG’s additional provisions.

A corporation’s taxable profit is always established by comparing its assets to its liabilities, as mandated by the German Commercial Code and the Tax Code ( 238ff HGB). A balance sheet and a profit and loss account are used to accomplish this. This method of calculating profit is also significant for calculating trade taxes.

Assessing harms

It’s the loss allowance that’s different from income tax that makes a big impact. In contrast to natural beings, a corporation’s whole revenue is classified as commercial. If the company loses money, it can’t utilise gains from other sources to make up for it.

Gambling, alcohol, and air travel are all charged in this image.

Taxes / Excise Tax / What is excise tax?

Excise tax is a levy on goods and services.

Gambling, alcohol, and air travel are all subject to taxation.

Taxes / Excise Tax / What is excise tax?

Excise tax: what is it and how does it work?

A primary goal of excise taxes is to raise the price of a certain item in order to discourage consumers from purchasing it.

Swedish ingenuity has spawned the following excise taxes:

VAT on alcoholic beverages

money that might have been used

VAT on trash incineration

the tax on insecticides

including a charge for energy. Taxes on carbon dioxide and sulfuric acid emissions. Other names for this levy include the “gasoline tax,” “diesel tax,” and “electricity tax.”

VAT on flights

the tax on group life insurance policies

Toxicology tax

duty-free natural stone sand and gravel

Tax on nicotine

excise tax on plastic carrying bags. It is often referred to as the “plastic bag tax.”

tax on advertising

There is a tax levied on gambling winning

Tax on tobacco products

automobile third-party liability insurance premiums are subject to a special levy.

Taxing a region to pay for the negative externalities of the industry, such as environmental difficulties, is a Pigouvian tax in certain situations. In this category include taxes on waste incineration, taxes on pesticides and taxes on the use of energy as well as taxes on aircraft, chemicals, and natural gravel. According to economic theory, the tax should be so high that it raises the cost of the activity to the level of the cost to society. It’s not only about making up for the harm that energy use does; it’s also about bringing in money for the government. If the main goal of taxation were to offset the negative externalities, then many major energy-intensive sectors like steel mills and computer data centres would be exempt from paying their fair share.

Excessive use of alcohol, nicotine, gambling, and cigarettes are all targets for excise taxes imposed by the government in an effort to curb the problem. If you want to prevent widespread smuggling and ensure that just a few law-abiding persons pay the tax, you must base your appropriate tax rate on the cost of the commodity in other nations.

There are excise taxes in which the state wishes to transfer the tax burden for different reasons, such as the tax on group life insurance, because of tax technicalities.

In order to compensate for the danger of harm, we impose an excise tax on vehicle insurance premiums. Consider if it’s appropriate to charge a person for a location where there’s a higher danger of damage, particularly if the cost varies between urban and rural areas.

To placate the EU, therefore, an excise charge on plastic carrying bags may be included.

A tax that you don’t comprehend as an advertisement tax. It also seemed to miss the Riksdag’s call for abolition, made public in 2002, which the government has just now responded to in 2021 with actual legislation.

Can’t we talk about excise taxes more?

Gambling, alcohol, and air travel are all subject to taxation.

Is the incline where it should be? They’re effective, right? Is it possible that excise charges be detrimental in certain cases? Streamlining the tax code could be possible.

The fee on plastic bags is a charge that should be debated again. Why did we need to decrease the usage of plastic bags in Sweden since they are excellent garbage bags and do not wind up in nature or the sea? Why did we not do more to resist the EU?

The so-called “energy tax” is a hot topic among politicians, especially in light of recent price spikes associated with days when it is chilly and windless yet we have deactivated half of the world’s nuclear reactors. Ordinary users will pay 35.6 öre per kWh in power taxes in 2021, which will rise to 44.5 öre per kWh with VAT. Excise duty is taxed, hence VAT is added to it. It will rise to 45 öre per kWh with VAT next year, which is a little increase from this year. The power network business now collects the tax. Additionally, you are charged a 25 percent VAT fee by the power trading firm.

Tax Perquisites: What Are They?

Perquisites or fringe benefits are tied to every income earner in the same way that income tax is to every firm and income earner. The supply of official cars, housing allowances, and medical facilities are just a few examples of the many perks and perquisites that firms provide their workers. Let’s take a closer look at the requirements for filing income tax returns:

What Does “Perquisites” Mean in Tax Law?

Privileged earnings or profits derived from a regular pay are referred to as perquisites. Exemption and taxation of perquisites are both possible. Fuel reimbursement, company vehicle, etc., may be straightforward, but they may also include employer-sponsored housing, interest-free loans, credit cards, and other forms of financial assistance.

The perquisites are classified as follows:

Perks that are only deductible by employees

There are a number of perquisites that fall under this category: domestic helper, child education facility, employee usage of company-owned automobile

Perquisites that are taxed:

Perquisites like gym memberships, gifts over Rs. 5,000, clubs, the salary of a servant the employee employs, reimbursement of medical expenses, professional tax refunds, free electricity, water, and gas, free housing, and free meals are all examples of perquisites that employees receive on top of their basic compensation.

Non-Exempted Perks

Non-taxable fringe benefits include free medical and recreational facilities, employer contributions to the provident fund, interest-free salary loans, phone lines, sports club, health club, provision of medical aid, refreshment offered 

Please let me know if you have any more questions about the definition of perquisites in the income tax system.

Perks granted under the Internal Revenue Code

When a company gives an employee a non-monetary perk, it’s called a perquisite. Income tax law defines a perquisite as a benefit an employee receives or is entitled to because of their position in the workplace. The employee’s tax situation might be significantly impacted by receiving perquisites. For example, a perquisite that an employee receives from his or her employer is taxed as part of the employee’s assessment. Perks obtained by employees are included against their yearly wage. The basic exemption limit may be exceeded because of the employee’s perquisites. It becomes necessary to deduct tax at source (TDS) when taxable income exceeds the basic exemption threshold. The TDS on the employee’s wage is a cash withholding, while perquisites are a non-monetary consideration. When a taxpayer’s income exceeds the basic exemption threshold and TDS withholding is required, he or she must submit an income tax return. Perquisites, on the other hand, give tax advantages to the taxpayer, but they also have tax consequences. As a result, the taxpayer must weigh the tax consequences of different perquisites before making a final decision.

List of Perquisite Classifications

In terms of taxation, the following are considered Perquisites:

Only if the employee falls into a certain category are these benefits taxed.

Perks that are taxed in the hands of workers of all classifications.

Transferred or assigned to the assessee by the employer are specified security or sweat equity shares

Contribution by the employer to the authorised pension fund, up to a maximum of Rs.1,50,000.

Perquisites that are not subject to tax

All Employees Are Taxed on Perquisites

Regardless of the employee’s classification, the following benefits are subject to taxation:

The assessee’s employer furnished him with housing at no cost to him.

Value of any rent discount offered by the assessee’s employer in relation to any accommodation.

Concessional rates, freebies, and other perks that are offered to the general public

From a firm to a director-employee

By a corporation to a worker is a person with a significant financial stake in the business.

Amount paid by any employer, including a corporation, to any employee who earns more than 50,000 rupees in’salaries,’ excluding any non-monetary incentives or amenities.

As a benefit or amenity, the use of a vehicle for the assessee’s travel from his home to his workplace or other place of employment and return will not be treated as a free or discounted service.

Employer’s share of any obligation that would have been due to the assessee but for the payment made by the employer.

Payment made to a designated or authorised fund to ensure the life of the assessee or to contract for an annuity in any other way.

Sweat equity shares or employee stock options that are given to or transferred to employees for free or at a reduced rate.

Contribution to the pension fund by the employer, not to exceed Rs. 1,50,000.

Fringe Benefits that are subject to tax

Fringe benefits are perquisites for which the taxpayer is required to pay tax separately, up-front. The Act covers the following extraneous benefits:

The value of the employee’s accommodations.

Cost-benefit analysis of giving employees free use of an automobile.

The value of the services provided by a janitor, watchman, gardener, and personal aide. ‘

For the employee’s residential usage of gas, electricity, and/or water, the cost

The value of educational resources offered to the employee’s family for free or at a reduced cost.

Expenses incurred by an employer in the transportation of products or passengers for the benefit of an employee’s family members.

Defintion of value-added tax

GST (Products and Services Tax) is an excise tax levied on the majority of goods and services provided in the United Kingdom. Other names for VAT or taxes on goods and services, such as the Japanese Consumption Tax (JCT) in Japan or Quebec Sales Tax (QST) in Quebec, Canada, may be used in other countries.

Certain costs made to hosts and guests for services may be subject to VAT. Fees may be liable to VAT as Electronically Supplied Services in certain countries, such as Australia, Norway, Switzerland, Iceland, and the European Union (EU) (ESS). A wide range of countries are likely to adopt VAT regulations in the ESS in the near future.

You may have to charge VAT for the services you give to your visitors depending on the jurisdiction of your house or the location of your lodging. It is possible that visitors in other countries may be required to pay VAT on the services you supply. The amount of VAT you owe to visitors, based on your tax status, may be sent to you or we may pay the entire amount of VAT straight to the local tax authorities, depending on your tax situation.

Contact a tax expert to find out how much VAT you owe. Submission of a VAT tax registration number below the billing address is required if your establishment has previously registered and is charging visitors for the services you give them.

In order to determine relevant VAT for visitors, the whole service fee must be taken into account. In accordance with the price information supplied to us, VAT is applied at the time of booking if applicable. VAT is adjusted to reflect any change in the service fee in the event of a booking modification.

Subscription fees or booking fees are used to calculate relevant VAT for hosts. When making a payment, VAT will be added if applicable, based on the billing address you provided. Please double-check your billing address, as we may not be able to make any changes or reissues. Payment processing expenses may be excluded from VAT in certain countries. Payment processing costs are not subject to VAT in this situation.

Among the first EU taxes to be uniformly applied throughout the bloc was the VAT. The EU’s own budget resource based on VAT was introduced in 1970 as an additional income source to customs charges on imports and agriculture levies.

In order to compute each country’s proportionate contribution to the EU budget, each Member State utilised a uniform VAT basis to apply the rate of payment. The Member State divided the total net VAT income it received in a given year by the VAT rate it applied in that year in order to compute the VAT base for that year. The harmonised VAT base was computed by dividing the total net VAT income received by the country’s weighted average VAT rate where more than one VAT rate was imposed by a Member State. In Council Regulation 1553/89 on the unified final process for the collection of own resources resulting from VAT, this approach for determining the harmonised VAT base is specified.

Numerous adjustments and hedges have to be made to the VAT base in order to get it in line with the rest of the world.

Today’s VAT-based resource is the same one that was used in the past.

The same VAT-based resource has been simplified under the long-term budget 2021-2027 in order to lessen the administrative burden of the EU and the Member States.

The following is a breakdown of the simplification:

For the full period 2021-27, the weighted average VAT rate for the year 2016 in each Member State will be applied, as provided for in the Treaty and for any violations of the EU VAT Directive.

As a last step, each country’s VAT base is limited to 50 percent of its GNI base, in order to prevent reverse progressive taxation within the VAT-based resource. Finally, during the period 2021-2027, the VAT base of each Member State is subject to a single payment rate of 0.3 percent.