When a VAT registered person prepares a VAT return, he mainly computes net VAT liability by considering 4 components in VAT return. They are as follows:

• Output VAT
• Input VAT
• Increasing Adjustments
• Decreasing Adjustments

The ultimate impact of output VAT and increasing adjustment is the same, that means to pay VAT to the Government. On the other hand, Input VAT and decreasing adjustment means taking back from the government.

What items can decrease our VAT liability, or we can claim back from the government? These has been described in Section 2, Subsection 103, “Decreasing Adjustment,” in “Value Added Tax and Supplementary Duty 2012.”

I am discussing here about Advance Tax (AT) – one of the most important factors in decreasing adjustment that many export-oriented companies (VAT on export is Zero) and exempted companies (Sales and exempted from VAT) are ignoring.

As export VAT is zero and sales are exempted, many persons are not maintaining proper books of accounts as per VAT law. Only because of that, they are not getting VAT rebate as well as refund from the government.

As per section 2(8) & 31(2), on 3% or 5% Advance Tax (AT) is imposed at import stage. This is like a security deposit, that is refundable after maintaining some post import obligations.

This Advance tax is to be shown in return as decreasing adjustment within four tax period as per rule 19(10) & (2). Every person can apply for refund if it is seen that after six months, the total negative balance exceeds 50,000/-. And it is also said in Section 69 that the refund is to be given within three months.

Therefore, to get AT and Input VAT refund from government every person must maintain necessary VAT books and records.