VAT Guide to Value Added Tax - sri lanka inland revenue ...

Eg. If A is an ice-cream vendor who buys ice-cream in ‘Cans’, put them in ‘Cones’ and
sells them to final consumers; He buys the ice-cream in containers (cans) from X and
‘cones’ from Y. Assume all are Registered Persons, and VAT on all gods and services is
20%.
X sells Cans at 100/- and charges VAT at – 20%
Y sells Cones at 1/- per Cone and charges VAT at 20%
Then A spends as follows Value of VAT Total
supply
X sells a Can of ice cream to A 100 20 120
Y sells 10 Cones to A 10 2 12
110 22 132
Thus A pays 110/- on goods and 20/- as VAT to X and 2/- as VAT to Y. If he sells cones
at 12/- each then
A sells 10 cones @ 12/- per cone 120 24 144
10 2 12
A’s out put tax = 24
A’s input tax = 20 + 2 = 22
∴ Tax payable by A = 24 – 22
= 2
* Thus A’s Customers pay 24/- as VAT to ‘A’ but ‘A’ pays only 2/- to the
government. But the other 22/- has already been received by the government,
20/- through X and 2/- through Y.
• We can look back further in this chain of production and distribution with the
following details. If X is a manufacturer of ice cream who buys raw materials
from P and Containers from Q then he should pay VAT on his raw materials and
on the purchase of Containers as follows.
Value of VAT Total
Supply
X buys raw material to make ice-cream, from P 75 15 90
X buys containers form Q 10 2 12
85 17 102
X sells ice-cream with container to A 100 20 120
Then X’s output tax is 20 but input tax is 17 15 3 12
∴ X pays to the department only (20-17) = 3
The balance 17/- is coming form P (15/-) and Q (2/-)
* The value addition by A = 120-110 = 10
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