What is the primary function of VAT for registered companies?

The primary function of VAT (Value Added Tax) for registered companies revolves around the mechanism that allows businesses to reclaim tax paid on business purchases. Registered companies collect VAT on their sales (output tax) and also incur VAT on their purchases (input tax). The tax system is designed so that businesses can deduct the VAT they have paid on their inputs from the VAT they collect on their sales.

Thus, if a company has paid more VAT on its purchases than it has collected on its sales, it can receive a refund or carry forward the excess input tax to future periods. This mechanism ensures that the tax burden is ultimately borne by the end consumer, and businesses are not disadvantaged by VAT when making purchases necessary for their operations.

This feature is essential as it promotes fair competition by allowing companies to operate without suffering from a tax disadvantage on their inputs. The other options, while beneficial in certain contexts, do not encapsulate the main function of VAT regarding how it operates for registered businesses. For example, increasing overall sales may be a result of effective business strategies, but it's not a direct function of VAT. Simplifying tax filing is also a benefit, but not the primary role of VAT. Similarly, promoting exports through zero-rating is a particular application rather than