Tax credit method (value-added tax)

The tax credit method refers to the manner by which the value-added tax of a taxpayer is computed. The input taxes shifted by the sellers to the buyer are credited against the buyer’s output taxes when he sells the taxable goods, properties or services. Under this method, the tax is computed by determining the difference between the output tax on his sales and the input tax on the purchases of goods, services, capital goods, supplies, and materials.

Most countries with a value-added tax employ the credit-invoice method. Under this method, businesses are taxed on their sales at each stage of production but obtain credits for the taxes they paid on inputs. (

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