What is the definition of input tax in relation to VAT?

Input tax refers specifically to the VAT that a business pays on its purchases of goods and services. This tax can be reclaimed by the business when filing its VAT return, provided that the purchases are eligible for VAT recovery. Input tax is an essential component of the VAT system, as it allows businesses to avoid being taxed on the same value multiple times along the supply chain.

The other choices relate to different aspects of VAT. Tax charged on sales refers to output tax, which is the VAT a business adds to the selling price of its goods and services. Tax exempt items refer to goods and services that do not incur VAT at all. Lastly, VAT collected from customers describes the output tax collected by a business but does not capture the idea of input tax specifically tied to the purchases made by the business.