What does the term 'output VAT' refer to?

The term 'output VAT' refers to the value-added tax that a business collects from its customers on the sale of goods or services it provides. When a business sells products or services, it charges VAT on the invoiced amount, which is then collected from the buyer. This collected VAT is essentially the output tax for that business, as it reflects the tax that is outputted in the course of sales transactions.

Output VAT is crucial for a business as it represents liability to the tax authority, which must be paid to the government after accounting for any input VAT (the VAT the business has paid on its purchases). This understanding of output VAT is fundamental for businesses as they manage their VAT obligations effectively.

The other options presented do not correctly define output VAT. Input VAT refers to the VAT that a business pays on its purchases, which is significantly different from output VAT. The VAT rate applied to exempt goods would not involve output VAT as exempt goods do not have VAT charged on them. Lastly, the concept of VAT that is never charged does not apply to output VAT, as this term inherently involves tax that has been collected during sales.