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Chapter 7
1.2 Sales tax
In many countries certain business entities are required to charge a sales tax. Sales
taxes are sometimes referred to as 'indirect taxes' as they are not deducted directly
from income. Usually, this requires a business entity to register with the relevant tax
authority if it meets certain criteria and then to administer and account for the sales
tax based upon the legal requirements.
In the UK this is value added tax (VAT), in France ‘TVA’, and 'GST' (goods and
services tax) in New Zealand and other countries.
In this publication we will consistently use the generic reference ‘sales tax’.
1.3 Non-registered entities
Some entities may not be required to register to account for sales tax. Such entities
are referred to as ‘non-registered’ for sales tax purposes. In this case, they are not
allowed to add sales tax to their sales, nor can they reclaim the sales tax on their
purchase. Thus, where input tax is paid it is included with the cost of the item in the
ledger accounts.
Always read questions carefully to identify whether an entity is, or
is not, required to account for sales tax to ensure that you
correctly answer the question.
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