Tax Credit Example

The fiscal credit It is an operation that is carried out to deduct the payment of taxes due to some type of transaction, that is, it is an amount in favor of the taxpayer.

Governments implement different regulations in their tax codes that allow taxpayers to make use of a fiscal credit at the time of filing your tax returns.

In general the fiscal credit It occurs because the taxpayer has already made a tax payment to another person or country for a transaction, thus avoiding a double tax payment.

Tax Credit Example:

One of the clearest examples of the concept of fiscal credit It is the Value Added Tax or VAT.

The company Pantallas Planas S.A. de C.V. is dedicated to the manufacture of television screens with LED technology. To do its job, it requires the purchase of a series of circuits and raw materials. In the operation for the month of January, it made purchases of circuits and materials for the assembly of televisions for a total of $ 50,000.00 paying its suppliers a Value Added Tax with a rate of 16%, for an amount of $8,000.00.

During that month, sales to the public were for a total of $ 150,000.00, charging for those sales $ 24,000.00 for value added tax. During that month the company must pay the physical an amount of $ 24,000.00 for the VAT collected, but it has a tax credit for $ 8,000.00 corresponding to the tax you paid when acquiring your raw material, so you deduct it and actually pay the amount of $16,000.00.

Another example of a tax credit is when an importing company makes a tax payment to another country for the purchase of certain items, the Most countries allow that tax to become a tax credit at the time of filing and deduct the payment of taxes to others countries.