What is value-added tax, and who is liable to pay it?

Value-added tax is a tax imposed on the value added, that is, the profit, that arises in the course of transactions in goods or the provision of services.

The value-added tax that a business operator pays is calculated by deducting the input tax from the output tax, and the formula is as follows.

Value-added tax = output tax - input tax

Value-added tax is generally included in the price of goods, so the actual burden falls on the final consumer, and the business operator reports and pays to the tax office the tax borne by the consumer.

Therefore, every business operator that sells goods or provides services must include value-added tax in the transaction amount, collect it, and pay it to the tax office.

Those liable to pay value-added tax include all business operators that sell goods or provide services in the course of business, regardless of whether they have a profit-making purpose.

However, where a business operates only value-added-tax-exempt businesses prescribed by statute, such as the sale of unprocessed foodstuffs and the provision of medical and educational services, the obligation to report and pay does not apply.

Ultimately, value-added tax is structured so that the business operator does not bear the tax directly but collects and pays it on behalf of the final consumer, and a business operator must always confirm whether they have an obligation to report and pay value-added tax according to their type of business.