Input tax definition

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What is an Input Tax?

An input tax is a levy paid by a business on acquired goods and services. When a business then taxes its customers, this is considered an output tax. The business pays the federal revenue authority the difference between the output tax and input tax if the amount is positive, or it can apply for a tax refund if the amount is negative. The business cannot apply for a refund of input tax if the purchase does not have a business purpose.

Examples of Input Taxes

Several examples of input taxes are noted below:

  • Value-added tax (VAT). A tax paid on purchases of goods and services, which businesses can often reclaim.

  • Goods and services tax (GST). Similar to VAT, applied to business purchases in countries like Canada, Australia, and India.

  • Sales tax. A consumption tax paid when businesses purchase taxable goods and services.

  • Excise tax. A tax on specific goods like fuel, alcohol, and tobacco that businesses may pay when acquiring these items.

  • Import duty. Taxes paid on imported goods used for business purposes.

  • Environmental tax. Levies on goods that have environmental impacts, such as carbon taxes or plastic packaging taxes.