Input tax definition

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.

An example of an input tax is the value added tax.