What is a Turnover Tax?

A turnover tax is a tax applied to a product at a specific stage of production, rather than being charged at the point of sale, as with sales taxes. In some regions, this type of tax is interchangeable with a value added tax (VAT), while in others, the tax may be applied as a cascade tax. Around the world, tax systems are highly variable, but many have adopted some form of the turnover tax: Pakistan and the Canary Islands both impose a turnover tax on all produced goods as well as countries run by the South African government, while Germany applies the tax only to imported products. This type of tax is often perceived as more fair in some settings because it involves distributing the cost of taxation across the production process, rather than imposing it on the end consumer alone.

While the structure of a turnover tax can vary between countries, they are usually ad valorem taxes, meaning the rate is based on the value of the good in question, rather than being flat taxes. Most nations that use a turnover tax have parameters in place to determine when and how such taxes should be applied, and at what rate — in most cases, the turnover tax is set up as either a value added tax system or a cascade tax system. Under a VAT, a little bit more tax is paid each time a product is sold, and the revenue is added to previously collected tax, until the desired amount of revenue is collected for the government. Cascade taxes, on the other hand, do not account for taxes already paid, with a new tax being collected at each phase.

Some governments charge different amounts for different types of goods. This fluctuation in tax rate is usually intended to keep necessities affordable for everyone, while taxing luxuries. Turnover taxes can also be correctional in nature, designed to create a disincentive for buying particular products. For example, environmental regulations sometimes encourage this practice, taxing people more on purchases that are harmful to the environment.

The turnover tax is typically a form of indirect tax, collected by third parties rather than the government itself. Businesses must comply with the aspects of the tax code concerning indirect taxes, collecting taxes as directed, and logging transactions eligible for taxation. This information is submitted at the time that taxes are paid to demonstrate how much was collected on behalf of the government.

There may be cases where people are eligible for a refund of the turnover tax. It is usually necessary to show documentations of the reason for and amount of taxes paid before collecting repayment from the government. Refunds may be made available when goods are purchased for the purpose of running a business and in some other special situations. Tax attorneys and accountants are usually familiar with the situations when people can receive refunds and the necessary steps that need to be taken to qualify and file for returns of tax monies.