Tax accounting as a tool for value added tax calculation

Table of contents: The Kazakh-American Free University Academic Journal №8 - 2016

Author: Trofimova Yuliya, Kazakh American Free University, Kazakhstan

The concept of "Tax Accounting" was included into the legislation and practical management after the introduction of the Law "On taxes and other obligatory payments" in 1995 and received a broad interpretation. V. K. Rodostovtsev defined tax accounting as follows: it is an operational accounting, required to be kept by the taxpayers during the tax year to account for income and deductions, while the majority of deductions and a number of items of income are not registered in the accounting records. According paragraph 1 of Article 56 of the Tax Code of the Republic of Kazakhstan, tax accounting is a process of keeping tax records per formed by a tax taxpayer (a tax agent) in accordance with the requirements of this Code, in order to generalize and systematize information about the objects of taxation and (or) objects related to taxation, as well as about calculation of taxes and other obligatory payments to the budget and tax reporting.

The main goal of tax accounting is accurate calculation of tax liability, therefore it should be considered in a close connection with the process of calculation of tax payable to the budget. The main content of the tax accounting is based on bookkeeping, standards of which are determined by the legislation of the Republic of Kazakhstan in the field of accounting and financial reporting.

The taxpayer independently or through an authorized person organizes tax accounting and determines the forms of generalization and systematization for tax purposes in the form of tax registers. The taxpayer also develops and approves tax accounting policy. In order to determine the objects of taxation or objects related to taxation, to calculate tax liability enterprises need to keep records that include accounting records, primary accounting documents, tax forms, and tax accounting policy.

In order to ensure transparency of operations related to the taxpayer's activities and their financial situation the Tax Code contains the following rules:

- tax accounting is carried out in tenge on an accrual basis.

- according to paragraph 2 of Article 57 of the Tax Code, the accrual method of accounting is a method by which the results of operations are recognized on the fact of their commission and not the date of receipt or payment of cash or cash equivalents;

- objects of taxation or objects related to taxation, as well as the calculation of taxes and other obligatory payments to the budget are determined on the basis of the tax accounting for the tax period;

- consideration of exchange rate differences for tax purposes is carried out using the market rate of exchange;

- accounting of inventory for tax purposes is done in accordance with IFRS and legal requirements of the Republic of Kazakhstan;

- operations based on a barter agreement, transfer of the collateral to the pledge if the debtor fails to perform secured obligation are treated for tax purposes as a sale of goods, rendering of services, performance of work.

For organizations that have taken the decision to maintain separate tax records, Article 58 of the Tax Code provides different conditions of taxation for calculating tax liabilities. In the conduct of separate tax accounting the taxpayer allocates the total cost of the specific weight of incomes derived from activities over which the reduction in the corporate income tax, and other activities, in the total amount of income received during the reporting tax period.

Separate tax accounting is required for the following categories of taxpayers:

- subsoil users: on contract activity separately from the non-contractual activities;

- parties to the agreement on joint activities: joint activities separately from other activities;

- trustees: on the activities of asset management separately from other activities;

- a legal person, using a special tax regime for small businesses, in the event of income subject to taxation in the general procedure separately from the tax obligations of the special tax regime;

- organizations that organize conduct specialized international exhibitions in the Republic of Kazakhstan on the activities corresponding to paragraph 1 of Art. 135 of the Tax Code and other activities.

The taxpayer independently determines the procedure for keeping separate tax accounting, describing the basic provisions in the tax accounting policy, so that according their records it was possible to accurately determine the taxable base for the calculation of liabilities. Also, the taxpayer develops structure and forms of analytical tax registers, ways of their formation, order of storage of primary documentation and tax statements.

Organizations engaged in activities, should present all their business transactions as primary supporting documents, which are the basis for accounting and tax accounting. Requirements record preparation and storage are provided in Article 59 of the Tax Code.

The taxpayer keeps all the accounting records in Kazakh and (or) Russian languages, both on paper and (or) electronic carriers and presents them to the tax authorities during the tax inspection. In accordance with Article 46 of the Tax Code, the term of limitation for tax liability and asset records is five years. Keeping records in case of reorganization of the legal entity is assigned to the successor.

Adopted by the organization tax accounting policy, which establishes the procedure of tax accounting in compliance with the requirements of the Tax Code provides all stakeholders with a complete, accurate and understandable information, which the taxpayer uses for the calculation of tax liabilities and other obligatory payments to the budget.

According to Article 60 of the Tax Code, tax accounting policy shall contain the following:

- self-developed forms and procedures of tax registers;

- activities carried out according to the general classifier;

- officials responsible for complying with the tax accounting policy;

- in case the taxpayer is engaged in subsoil development - the order of separate tax accounting;

- allocation methods for the purpose of calculating corporate income tax;

- method of attribution of value added tax to the offset provided for by the Tax Code;

- in the case of the hedge the process of determination of risks hedge tools and assessment methods;

- in the case of transactions with Islamic values - revenue accounting policy;

- depreciation rates for each subgroup or group of fixed assets, taking into account paragraph 2 of Article 120 of the Tax Code;

- in the case of invoicing, the maximum number of digits used in the numbering, and, in the context of structural units, the code of each of these units;

Change in and (or) addition to the tax policy is carried out by the taxpayer using one of the ways specified in paragraph 5 of Article 60 of the Tax Code.

Individual entrepreneurs that don’t perform accounting and financial reporting, make entries in the tax register on the basis of primary documents, forms and requirements of which are approved by a competent authority.

Individual entrepreneurs keep tax registration according to paragraph 3 of Article 60 of the Tax Code.

The value of the tax account is large enough, because the type of taxation prevailing in the country reflects the level of economic and political maturity of the society. Taxes are the active tool of state regulation. Setting taxes, the government, tries to decide upon the best way to collect all the necessary resources from businesses and households, and thus joins the collective consumption and investment.

But, despite the fact that the state takes over the regulating and accumulating functions, the tax system itself operates on a micro level, i.e. basic tax functions are carried out at the level of individual taxpayers - both corporate and individual.

Government, replenishing the state treasury funds through the collection of taxes, reserves the right to introduce new taxes, reducing or increasing them in order to be able to promote or hinder certain types and forms of economic activity in production, sale, consumption of certain goods.

Failure to comply with the tax laws, improper record keeping, inappropriate determination of the tax base, and as a consequence, the tax obligation entails administrative penalties in the form of forced collection of tax arrears, penalties and fines.

Therefore, tax records is improved over the years and, with the increase in complexity of business processes, its impact on the economic life gradually becomes more diverse.

Under the principles of tax accounting we should understand the basic terms and ideas that are so necessary for the development of the tax system of a particular state. The basic principles of taxation in the Republic of Kazakhstan, reflected in Article 4 of the Tax Code, are presented in Figure 1.

Tax accounting rules, accounting documentation in a combination with the fundamental principles of taxation is a powerful lever to influence the formation of an efficient and fair tax system of any law-governed state.

In the early 1990 's, all spheres of economic life in Kazakhstan underwent certain reforms. This uncertain and unstable time witnessed the focus on fiscal relations, tax accounting, previously unknown in our country. Value added tax was one of the first compulsory payments imposed in the practice of taxation of the Republic of Kazakhstan. This tax not only firmly established in the tax system of our country since its inception, but also became one of the most important state taxes. Value added tax is a universal indirect tax. The basis of its collection is added value created at all stages of production and circulation of commodities. But the main burden of taxation is transferred to the final consumers of products, works and services.

Figure 1. Taxation principles in the Republic of Kazakhstan

Value added tax, being the most significant indirect tax, performs two complementary functions: a regulatory and fiscal (Figure 2).

Figure 2. VAT functions

Fiscal, economic and psychological benefits of value added tax gave it the opportunity of wide application and dissemination. The benefits of this tax is its high yield. Value added tax has a fairly extensive tax base that is why almost every person shall pay the tax regardless of the size of the income. This tax covers a wider range of goods and services than other indirect taxes. Thus, simply by raising the tax rate the state can quickly respond to the need for additional income. Value-added tax was introduced into the tax system of the Republic of Kazakhstan in December 1991. At that point, the tax has been successfully used in 43 countries. Its use has become a prerequisite for the state to join the European Economic Community. A key element in improving the tax system of the Republic of Kazakhstan was the introduction of value added tax instead of the sales tax. A world experience of the tax system design has become a powerful argument in favor of this tax. In Kazakhstan, the rate of the value added tax starting from July 2001 has gradually decreased from 20% to a current rate of 12%. In different countries, there are different approaches to determining VAT rates. The specific values of interest rates in certain developed countries are shown in Figure 3.

Figure 3. VAT rates abroad

The European Union has adopted the basic rate limit - it must be at least 15%. Preferential goods have a reduced rate of value added tax, it should be at least 5% in total [2].

Ireland has seen the most frequent changes in the VAT value. Relatively frequently, VAT has been changed in Italy and France. Counties with stable VAT are Malta and Poland. Over the last 20 years VAT rates haven’t been changed in Austria, Sweden and Denmark.

The most convenient and simple scheme of calculating value added tax in the European Union, is in Germany. Introduced in 1973, VAT has become the second largest source of revenue after income tax.

Collection of VAT is designed in such a way that the final consumer of goods and services gets them saddled with taxes of identical value. In Germany, there is a practice of pre-tax deduction. This gives the entrepreneur the right to reduce the value added tax by the amount of tax, imposed on him by other entrepreneurs for their taxable turnover.

The rate of value added tax in Germany tends to grow. Thus, previously it was 14%, then 15%, 16%, and at the moment it is 19%, with a reduced rate of 7%.

A reduced rate applies to:

- food (except alcohol and turnovers of cafes, hotels and restaurants;

- mass media;

- urban and suburban public transport;

- health, charity, and church organizations;

- works of art;

- dentist’s services;

- animal breeding and crop raising.

Enterprises of Agriculture and Forestry, as well as export are exempt from VAT.

The peculiarity of the German law on value added tax is in the fact that there is a special article describing imposition of tax on entrepreneur’s withdrawing from the circulation of goods and services for personal use without payment. The right of set-off is given only to an entrepreneur, whose total amount of exemptions is established by financial bodies. This takes into account the presence of dependent children. Also, the use of private branded vehicles is a subject of financial control, which must be necessarily reflected in the annual declaration for the value-added tax.

In Sweden, there are two principles of determining value added tax on export – the destination principle and the principle of origin. Since January 1, 1995, this country have seen significant changes in the tax system that affect the objects taxable with value added tax.

The level of taxation in Sweden compared with other EU countries, the highest. Thus, VAT for the basic goods and services is 25%, including bottled water, alcoholic beverages, tobacco. Also, there is a rate of 12% and 6%. Social sector services, insurance and banking services, acts of purchase and sale of real estate, rental of residential and office space, etc. are not tax deductible [2].

In the United States and Japan, there were intense debates around the issue of the introduction of value added tax. In the USA, the opponents of VAT won the victory. They believed that this would entail outpacing the rise in prices and, consequently, the reduction in effective demand on the part of the general population, and then a drop in the rate of economic growth.

In Japan, the introduction of value added tax also did not receive support in 1950. However, in December 1988, as a part of ongoing reforms VAT was, after all, introduced. The attitude of consumers to the new tax was controversial and the tax turned out to be profitable to more affluent classes of the Japanese society. The reform has not been worked out thoroughly enough: in invoices the amount of value-added tax has not been indicated in a separate line, as it is the case, for example, in the European Union, Russia, the Republic of Kazakhstan [2].

The rate of value added tax in Japan is 5%, consequently, there is no reimbursement of the tax; the accrual is done using the balance method. Value-added tax in Japan is completely credited to the state budget.

Thus, in the USA and Japan direct taxes play the leading role in the taxation system, which is explained by peculiarities of historical development and mentality of the population. Indirect taxes are represented by excise and customs duties.

Among the advantages of value added tax in foreign countries there is its neutrality with respect to the system of production and distribution of goods and services existing in the country. Value added tax in the countries of the European Union plays an important role and contributes to the free movement of goods, services, people and capital within the borders of the union. Within the European Union VAT tax is considered to be the most promising.

As can be seen from the written above, there are significant differences [2] in the taxation system of value added tax in the Republic of Kazakhstan and foreign countries.


1. The Code of the Republic of Kazakhstan "On taxes and other obligatory payments to the budget" (Tax code) (with alterations and amendments as of 09.04.2016)

2. Rubanov A. Foreign experience of indirect taxation. Retrieved from http: // www.

Table of contents: The Kazakh-American Free University Academic Journal №8 - 2016

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