An input tax is a value added tax (VAT) paid by a business for materials, goods and services required in order to manufacture or provide its own goods and services.
In Switzerland, as in many countries, input tax is passed on to end consumers of goods and services. Companies can deduct input tax from VAT owed for the sale of goods and services.
A furniture manufacturer purchases 10,000 Swiss francs worth of materials from suppliers and pays 7.7% VAT (770 Swiss francs) on that purchase. The materials supplier passes on the 770 francs of VAT to the tax office.
The manufacturer then uses the materials to build designer furniture which it sells to a customer for 20,000 Swiss francs plus 7.7% VAT (1540 francs). Because the manufacturer already paid 770 francs as VAT for the materials required to create the furniture, that portion of the VAT paid by the customer would qualify as input tax.
The manufacturer can deduct the 770 francs of input tax from the VAT owed to the tax office for the end sale of the furniture. So the manufacturer only passes on 770 francs of the 1540 francs of VAT paid by the customer to the tax office.