Tax Credit – Concept and accessories

We explain what the tax credit is, what its main objectives are and the accessories that this type of balance has.

Fiscal credit
The tax credit can be used as an inexpensive tool to generate more capital.

What is the tax credit?

It is known as a tax credit balance that a natural or legal person has in their favor when declaring their taxes, and that generally represents a deductible amount from your final payment, due to certain conditions of your economy. In other words, it is a positive balance in favor of the taxpayer, which must be deducted when paying taxes.

In this sense, the tax credit is contrary to the tax debit, which represents the debt of the person with the State, and the regulations that define or calculate each of these amounts will always be included in the legal and legal framework by which each country chooses to be guided (ie: the laws).

The tax credit has, in principle, the objective of prevent appraised business transactions from leading a person to pay taxes twice, that is, to pay double tax. For example, if a merchandise reseller pays taxes at the time of purchase, that amount paid should be deducted from the tax that he must pay when he sells the same merchandise, since he has already paid the treasury for it.

On the other hand, the tax credit can be used by the State to offer services to citizens instead of reimbursing the excess money, thus returning it in the form of prepaid services.

Or you can use that credit as a financial tool for different economic purposes, thus generating more capital. Either way, the management of the tax credit is part of the fiscal strategies of a given nation, and that will be set by the ministry of finance or the agency in charge of it.

Tax Credit Accessories

The tax credit always includes the so-called “accessories”, which are nothing more than items or concepts that allow determining the figure in favor of the taxpayer. Examples of this are:

  • Surcharges. Interest generated by debts to the physical, calculated based on variable rates, according to the fiscal regulations of the country. Extensions are often granted for cancellation, and in that case they are not taken into account.
  • Fines Infractions due to the evasion of tax laws or other conditions that increase the amount to be paid, or that in some cases, if paid on time, are deducted from the total amount of the tax (as a form of incentive). All, again, in accordance with the tax legislation of the country.
  • Execution expenses. Considered as administrative expenses, they originate when the debts with the State are not settled in the time established in advance, according to a variable formula of interest or surcharges, which are finally added to the tax payment of the person.
  • Updates. Due to economic changes, inflation or certain political and economic conditions, the amounts may require updates in the form of extra fees or additional figures.
  • Deductibles. On the contrary, these factors are taken into account when calculating the tax payment, to subtract some percentage from the total amount based on the person’s living conditions or economic activity. This is to guarantee that those who have the most pay more and those who have the least pay less, but always respecting a series of fiscal and proportionality rules.