History
Germany and France were the first countries to implement VAT, doing so in the form of a general consumption tax during World War I. The modern variation of VAT was first implemented by France in 1954 inOverview
The amount of VAT is decided by the state as a percentage of the price of the goods or services provided. As its name suggests, value-added tax is designed to tax only the value added by a business on top of the services and goods it can purchase from the market. To understand what this means, consider a production process (e.g., take-away coffee starting from coffee beans) where products get successively more valuable at each stage of the process. Each VAT-registered company in the chain will charge VAT as a percentage of the selling price, and will reclaim the VAT paid to purchase relevant products and services; the effect is that net VAT is paid on the value added. When an end-consumer makes a purchase subject to VAT—which is not in this case refundable—they are paying VAT for the entire production process (e.g., the purchase of the coffee beans, their transportation, processing, cultivation, etc.), since VAT is always included in the prices. The VAT collected by the state from each company is the difference between the VAT on sales and the VAT on purchase of goods and services upon which the product depends, i.e., the net value added by the company.Implementation
The standard way to implement a value-added tax involves assuming a business owes some fraction on the price of the product minus all taxes previously paid on the good. By the method of collection, VAT can be ''accounts-based'' or ''invoice-based''. Under the ''invoice method'' of collection, each seller charges VAT rate on his output and passes the buyer a special invoice that indicates the amount of tax charged. Buyers who are subject to VAT on their own sales (output tax) consider the tax on the purchase invoices as input tax and can deduct the sum from their own VAT liability. The difference between output tax and input tax is paid to the government (or a refund is claimed, in the case of negative liability). Under the ''accounts based method'', no such specific invoices are used. Instead, the tax is calculated on the value added, measured as a difference between revenues and allowable purchases. Most countries today use the invoice method, the only exception being Japan, which uses the accounts method. By the timing of collection, VAT (as well as accounting in general) can be either ''accrual'' or ''cash based''. ''Cash basis'' accounting is a very simple form of accounting. When a payment is received for the sale of goods or services, a deposit is made, and the revenue is recorded as of the date of the receipt of funds—no matter when the sale had been made. Cheques are written when funds are available to pay bills, and the expense is recorded as of the cheque date—regardless of when the expense had been incurred. The primary focus is on the amount of cash in the bank, and the secondary focus is on making sure all bills are paid. Little effort is made to match revenues to the time period in which they are earned, or to match expenses to the time period in which they are incurred. ''Accrual basis accounting'' matches revenues to the time period in which they are earned and matches expenses to the time period in which they are incurred. While it is more complex than cash basis accounting, it provides much more information about your business. The accrual basis allows you to track receivables (amounts due from customers on credit sales) and payables (amounts due to vendors on credit purchases). The accrual basis allows you to match revenues to the expenses incurred in earning them, giving you more meaningful financial reports.Incentives
The main reason that VAT has been successfully adopted in 116 countries as of 2020 is because it provides an incentive for businesses to both register and keep invoices, and it does this in the form of zero rated goods and VAT exemption on goods not resold. A business essentially through registration, is waived VAT on goods purchased for its own use.Registration
In general, countries that have a VAT system require most businesses to be registered for VAT purposes. VAT-registered businesses can be natural persons or legal entities, but countries may have different thresholds or regulations specifying at which turnover levels registration becomes compulsory. VAT-registered businesses are required to add VAT on goods and services that they supply to others (with some exceptions, which vary by country) and account for the VAT to the taxing authority, after deducting the VAT that they paid on the goods and services they acquired from other VAT-registered businesses.Comparison with income tax
Like an income tax, VAT is based on the increase in value of a product or service at each stage of production or distribution. However, there are some important differences: * A VAT is usually collected by the end retailer. Therefore, even though VAT is actually incurred by all stages of production and distribution, it is frequently compared to a sales tax. * A VAT is usually a flat tax. * For VAT purposes, an importer is assumed to have contributed 100% of the value of a product imported from outside of the VAT zone. The importer incurs VAT on the entire value of the product, and this cannot be refunded, even if the foreign manufacturer paid other forms of income tax. This is in contrast to the US income tax system, which allows businesses to expense costs paid to foreign manufacturers. For this reason, VAT is often considered by US manufacturers to be a trade barrier, as further discussed below.Comparison with sales tax
Value-added tax avoids the cascade effect of sales tax by taxing only the value added at each stage of production. For this reason, throughout the world, VAT has been gaining favor over traditional sales taxes. In principle, VAT applies to all provisions of goods and services. VAT is assessed and collected on the value of goods or services that have been provided every time there is a transaction (sale/purchase). The seller charges VAT to the buyer, and the seller pays this VAT to the government. If, however, the purchasers are not the end users, but the goods or services purchased are costs to their business, the tax they have paid for such purchases can be deducted from the tax they charge to their customers. The government receives only the difference; in other words, it is paid tax on the gross margin of each transaction, by each participant in the sales chain. A sales tax incentivizesExamples
Consider the manufacture and sale of any item, which in this case is a widget. In what follows, the term "gross margin" is used rather than "profit". Profit is the remainder of what is left after paying other costs, such as rent and personnel costs.Without any tax
* A widget manufacturer, for example, spends $1.00 onWith a sales tax
With a 10% sales tax: * The manufacturer spends $1.00 for the raw materials, certifying it is not a final consumer. * The manufacturer charges the retailer $1.20, checking that the retailer is not a consumer, leaving the same gross margin of $0.20. * The retailer charges the consumer ($1.50 × 1.10) = $1.65 and pays the government $0.15, leaving the gross margin of $0.30. So the consumer has paid 10% ($0.15) extra, compared to the no taxation scheme, and the government has collected this amount in taxation. The retailers have not paid any tax directly (it is the consumer who has paid the tax), but the retailer has to do the paperwork in order to correctly pass on to the government the sales tax it has collected. Suppliers and manufacturers have the administrative burden of supplying correct state exemption certifications, and checking that their customers (retailers) are not consumers. The retailer must verify and maintain these exemption certificates. In addition, the retailer must keep track of what is taxable and what is not along with the various tax rates in each of the cities, counties and states for the 35,000+ global taxing jurisdictions. A large exception to this state of affairs is online sales. Typically if the online retail firm has noWith a value-added tax
With a 10% VAT: * The manufacturer spends ($1 × 1.10) = $1.10 for the raw materials, and the seller of the raw materials pays the government $0.10. * The manufacturer charges the retailer ($1.20 × 1.10) = $1.32 and pays the government ($0.12 ''minus'' $0.10) = $0.02, leaving the same gross margin of ($1.32 – $1.10 – $0.02) = $0.20. * The retailer charges the consumer ($1.50 × 1.10) = $1.65 and pays the government ($0.15 ''minus'' $0.12) = $0.03, leaving the same gross margin of ($1.65 – $1.32 – $0.03) = $0.30. * The manufacturer and retailer realize less gross margin from a percentage perspective. If the cost of raw material production were shown, this would also be true of the raw material supplier's gross margin on a percentage basis. * Note that the taxes paid by both the manufacturer and the retailer to the government are 10% of the ''values added'' by their respective business practices (e.g. the ''value added'' by the manufacturer is $1.20 minus $1.00, thus the tax payable by the manufacturer is ($1.20 – $1.00) × 10% = $0.02). In the VAT example above, the consumer has paid, and the government received, the same dollar amount as with a sales tax. At each stage of the production, the seller collects a tax on behalf of the government and the buyer pays for the tax by paying a higher price. The buyer can then be reimbursed for paying the tax, but only by successfully selling the value-added product to the buyer or consumer in the next stage. In the previously shown examples, if the retailer fails to sell some of its inventory, then it suffers a greater financial loss in the VAT scheme in comparison to the sales tax regulatory system by having paid a higher price on the product it wants to sell. Each business is responsible for handling the necessary paperwork in order to pass on to the government the VAT it collected on its gross margin. The businesses are freed from any obligation to request certifications from purchasers who are not end users, and of providing such certifications to their suppliers, but they incur increased accounting costs for collecting the tax, which are not reimbursed by the taxing authority. For example, wholesale companies now have to hire staff and accountants to handle the VAT paperwork, which would not be required if they were collecting sales tax instead.Limitations to the examples
In the above examples, we assumed that the same number of widgets were made and sold both before and after the introduction of the tax. This is not true in real life. TheLimitations of VAT
A VAT, like most taxes, distorts what would have happened without it. Because the price for ''someone'' rises, the quantity of goods traded decreases. Correspondingly, some people are ''worse'' off by ''more'' than the government is made ''better'' off by tax income. That is, more is lost due to supply and demand shifts than is gained in tax. This is known as a deadweight loss. If the income lost by the economy is greater than the government's income, the tax is inefficient. VAT and a non-VAT have the same implications on the microeconomic model. The entire amount of the government's income (the tax revenue) may not be a deadweight drag, if the tax revenue is used for productive spending or has positive externalitiesin other words, governments may do more than simply ''consume'' the tax income. While distortions occur, consumption taxes like VAT are often considered superior because they distort incentives to invest, save and work ''less'' than most other types of taxationin other words, a VAT discourages consumption rather than production. In the diagram on the right: * Deadweight loss: the area of the triangle formed by the tax income box, the original supply curve, and the demand curve * Governments tax income: the grey rectangle that says "tax revenue" * TotalImports and exports
Being a consumption tax, VAT is usually used as a replacement for sales tax. Ultimately, it taxes the same people and businesses the same amounts of money, despite its internal mechanism being different. There is a significant difference between VAT andExample
→ In Germany a product is sold to a German reseller for $2500+VAT ($3000). The German reseller will claim the VAT back from the state (the refund time change in base of local laws and states) and will then charge the VAT to the customer. → In the USA a product is sold to another US reseller for $2500 (without the sales tax) with a certificate of exemption. The US reseller will charge the sales tax to the customer. Note: The VAT system adopted in Europe affects company cashflow due to compliance costs and fraud risk for governments due to overclaimed taxes. It's different for B2B sales between countries, where will be applied the reverse charge (no VAT charged) or sales tax exemption, in case of B2C sales the seller should pay the VAT or sales tax to the consumer state (creating a controversial situation by asking to a foreign company to pay taxes of their taxable residents/citizens without jurisdiction on seller).Around the world
Armenia
In Armenia, the value added tax (VAT) is 20%. However, the expanded application is zero VAT for many operations and transactions in Armenia. That zero VAT is the source of controversies between the trade partners and Armenia, mainly between Russia, which is against the zero VAT and promotes wider use of tax credits. VAT is replaced with fixed payments, which are utilized for many taxpayers, operations, and transactions. The present VAT legislation in Armenia is based largely on the EU VAT Directive's principles. The VAT system in Armenia is input-output based. Companies who have registered for VAT are allowed to subtract the VAT on their inputs from the VAT they charged on their sales and report the difference to the tax authorities. VAT is purchased quarterly. However, it is an exception when taxpayers state monthly payments. VAT is disbursed to the state's budget until the 20th day of the month after the tax period. It came into effect on January 1, 2022. The draft law on the VAT plans were passed on November 11, 2021, and the plans were accepted on November 17.Australia
The goods and services tax (GST) is a value-added tax introduced in Australia in 2000, which is collected by theBangladesh
Value-added tax (VAT) in Bangladesh was introduced in 1991, replacing sales tax and most excise duties. The Value Added Tax Act, 1991 was enacted that year and VAT started its passage from 10 July 1991. In Bangladesh, 10 July is observed as National VAT Day. Within the passage of 25 years, VAT has become the largest source of Government Revenue. About 56% of total tax revenue is VAT revenue in Bangladesh. Standard VAT rate is 15%. Export is zero rated. Besides these rates there are several reduced rates, locally called Truncated Rates, for service sectors ranging from 1.5% to 10%. To increase the productivity of VAT, the Government enacted the Value Added Tax and Supplementary Duty Act of 2012. This law was initially scheduled to operate online with an automated administration from 1 July 2017, however this pilot project was extended for another two years. The National Board of Revenue (NBR) of the Ministry of Finance of the Government of Bangladesh is the apex organization administering the value-added tax. Relevant rules and acts include: Value Added Tax Act, 1991; Value Added Tax and Supplementary Duty Act, 2012; Development Surcharge and Levy (Imposition and Collection) Act, 2015; and Value Added Tax and Supplementary Duty Rules, 2016. Anyone who is selling a product and collects VAT from buyers becomes a VAT Trustee if they: register their business and collect a Business Identification Number (BIN) from the NBR; submit VAT returns on time; offer VAT receipts to consumers; store all cash-memos; and use the VAT rebate system responsibly. Anyone who works in the VAT or Customs department in the NBR and deals with VAT trustees is a VAT Mentor. The flat rate of VAT is 15%.Barbados
VAT in Barbados was introduced on 1 January 1997 and replaced 11 other different taxes. It was originally introduced at a rate of 15% but was later increased to a rate of 17.5% on most goods and services in 2011. VAT on restaurant and hotel accommodations between 10% and 15% while no tax is levied on certain foods and goods listed by the government. The revenue is collected by the Barbados Revenue Authority.Canada
Goods and Services Tax (GST) is a value-added tax introduced by the Federal Government in 1991 at a rate of 7%, later reduced to the current rate of 5%. A Harmonized Sales Tax (HST) that combines the GST and provincial sales tax together, is collected in New Brunswick (15%), Newfoundland (15%), Nova Scotia (15%), Ontario (13%) and Prince Edward Island (15%), while British Columbia had a 12% HST from 2010 until 2013. Quebec has a de facto 14.975% HST: its provincial sales tax follows the same rules as the GST, and both are collected together by Revenu Québec. Advertised and posted prices generally exclude taxes, which are calculated at the time of payment; common exceptions are motor fuels, the posted prices for which include sales and excise taxes, and items in vending machines as well as alcohol in monopoly stores. Basic groceries, prescription drugs, inward/outbound transportation and medical devices are exempt.China
VAT was implemented in China in 1984 and is administered by the State Administration of Taxation. In 2007, the revenue from VAT was 15.47 billion yuan ($2.2 billion) which made up 33.9 percent of China's total tax revenue for the year. The standard rate of VAT in China is 13%. There is a reduced rate of 9% that applies to products such as books and types of oils, and 6% for services except for PPE lease.European Union
The European Union value-added tax (EU VAT) covers consumption of goods and services and is mandatory for member states of the European Union. The EU VAT's key issue asks where the supply and consumption occurs thereby determining which member state will collect the VAT and which VAT rate will be charged. Each member state's national VAT legislation must comply with the provisions of EU VAT law, which requires a minimum standard rate of 15% and one or two reduced rates not to be below 5%. Some EU members have a 0% VAT rate on certain supplies; these states would have agreed this as part of their EU Accession Treaty (for example, newspapers and certain magazines in Belgium). Certain goods and services must be exempt from VAT (for example, postal services, medical care, lending, insurance, betting), and certain other goods and services to be exempt from VAT but subject to the ability of an EU member state to opt to charge VAT on those supplies (such as land and certain financial services). The highest rate currently in operation in the EU is 27% (Hungary), though member states are free to set higher rates. There is, in fact, only one EU country (Denmark) that does not have a reduced rate of VAT. There are some areas of member states (both overseas and on the European continent) which are outside the EU VAT area, and some non-EU states that are inside the EU VAT area. External areas may have no VAT or may have a rate lower than 15%. Goods and services supplied from external areas to internal areas are considered imported. (See for a full listing.) VAT that is charged by a business and paid by its customers is known as "output VAT" (that is, VAT on its output supplies). VAT that is paid by a business to other businesses on the supplies that it receives is known as "input VAT" (that is, VAT on its input supplies). A business is generally able to recover input VAT to the extent that the input VAT is attributable to (that is, used to make) its taxable outputs. Input VAT is recovered by setting it against the output VAT for which the business is required to account to the government, or, if there is an excess, by claiming a repayment from the government. Private people are generally allowed to buy goods in any member country and bring it home and pay only the VAT to the seller. Input VAT that is attributable to VAT-exempt supplies is not recoverable, although a business can increase its prices so the customer effectively bears the cost of the "sticking" VAT (the effective rate will be lower than the headline rate and depend on the balance between previously taxed input and labour at the exempt stage).Gulf Cooperation Council
Increased growth and pressure on the GCC's governments to provide infrastructure to support growing urban centers, the Member States of the Gulf Co-operation Council (GCC), which together make up the Gulf Co-operation Council (GCC), have felt the need to introduce a tax system in the region. In particular, theIndia
VAT was introduced into the Indian taxation system from 1 April 2005. Of the then 28 Indian states, eight did not introduce VAT at first instance. There is uniform VAT rate of 5% and 14.5% all over India. The government of Tamil Nadu introduced an act by the name Tamil Nadu Value Added Tax Act 2006 which came into effect from 1 January 2007. It was also known as the TN-VAT. Under the BJP government, a new national Goods and Services Tax was introduced under the One Hundred and First Amendment of the Constitution of India.Indonesia
Value-added tax (VAT) was introduced into the Indonesian taxation system from 1 April 1985. General VAT rate is ten percent. There are currently plans to raise the standard VAT rate to 12%. Using indirect subtraction method with invoice to calculate value-added tax payable. VAT was Collected by the Directorate General of Taxation, Ministry of Finance. Some goods and services are exempt from VAT like basic commodities vital to the general public, medical or health services, religion services, educational services and Services provided by the government in respect of carrying out general governmental administration. Italy The Italian Government used to apply a full value multi-phase tax on sales (IGE), but it switched to the more efficient IVA, an indirect multi-phase tax on the Added Value. It uses a system of compensation (Debit-Credit Tax) and companies pay the tax on the good and services they buy. However, they can deduct it, bringing it to compensation with the taxes they collect form their client. In the end the system allows to apply a final taxation to the consumer of a fixed amount, regardless of the taxation applied during the production process. The percentages are: 4% for essential goods and services, 10% for medicines and drugs, 22% for ordinary goods and services.Israel
Value-added tax (VAT) was first imposed in Israel on 1 July 1976, by virtue of the Value Added Tax Law, following the recommendations of the Asher Committee, which dealt with this matter during the first Rabin government. The initial rate of VAT was 8%. From June 2013 to September 2015, the VAT rate was 18 percent. Since then, the VAT rate in Israel has been 17%.Japan
in Japan is 8%, which consists of a national tax rate of 6.3% and a local tax of 1.7%. It is usually (but not always) included in posted prices. From 1 October 2019, the tax rate is proposed to increase to 10% for most goods, while groceries and other basic necessities will remain at 8%.Malaysia
The goods and services tax (GST) is a value-added tax introduced in Malaysia in 2015, which is collected by the Royal Malaysian Customs Department. The standard rate is currently set at 6%. Many domestically consumed items such as fresh foods, water, electricity and land public transportation are zero-rated, while some supplies such as education and health services are GST exempted. After being revised by the newly elected government after the General Election 14, GST will be removed across Malaysia from 1 June 2018 onwards. As of 8 August 2018, the goods and services tax (GST) has been abolished and replaced by sales and services tax (SST) under the new government which promised to do so in their manifesto. The new SST or SST 2.0, is on track to be rolled out on 1 September 2018. Former Finance Minister Lim Guan Eng said that failure to do so would result in an operating deficit of RM4 billion (approximately 969 million in USD) for the Malaysian government. Under the new tax system, selected items will be subjected to a 5% or 10% tax while services will be subjected to a 6% tax.Mexico
Value-added tax ( es, link=no, Impuesto al Valor Agregado, IVA) is a tax applied in Mexico and other countries of Latin America. In Chile, it is also called and, in Peru, it is called or ''IGV''. Prior to the IVA, a sales tax ( es, link=no, impuesto a las ventas) had been applied in Mexico. In September 1966, the first attempt to apply the IVA took place when revenue experts declared that the IVA should be a modern equivalent of the sales tax as it occurred in France. At the convention of the Inter-American Center of Revenue Administrators in April and May 1967, the Mexican representation declared that the application of a value-added tax would not be possible in Mexico at the time. In November 1967, other experts declared that although this is one of the most equitable indirect taxes, its application in Mexico could not take place. In response to these statements, direct sampling of members in the private sector took place as well as field trips to European countries where this tax was applied or soon to be applied. In 1969, the first attempt to substitute the mercantile-revenue tax for the value-added tax took place. On 29 December 1978 the Federal government published the official application of the tax beginning on 1 January 1980 in the Official Journal of the Federation. As of 2010, the general VAT rate was 16%. This rate was applied all over Mexico except for bordering regions (i.e. the United States border, or Belize and Guatemala), where the rate was 11%. The main exemptions are for books, food, and medicines on a 0% basis. Also some services are exempt like a doctor's medical attention. In 2014 Mexico Tax Reforms eliminated the favorable tax rate for border regions and increased the VAT to 16% across the country.Nepal
VAT was implemented in 1998 and is the major source of government revenue. It is administered by Inland Revenue Department of Nepal. Nepal has been levying two rates of VAT: Normal 13% and zero rate. In addition, some goods and services are exempt from VAT.New Zealand
The goods and services tax (GST) is a value-added tax that was introduced in New Zealand in 1986, currently levied at 15%. It is notable for exempting few items from the tax. From July 1989 to September 2010, GST was levied at 12.5%, and prior to that at 10%.The Nordic countries
MOMS ( da, merværdiafgift, formerly ), no, merverdiavgift (Philippines
The current VAT rate in the Philippines stands at 12%. Like in most other countries, the amount of tax is included in the final sales price. Senior citizens are however exempted from paying VAT for most goods and some services that are for their personal consumption. They will need to show a government-issued ID card that establishes their age at the till to avail of the exemption.Russia
According to the Russian tax code the value-added tax is levied at the rate of 20% for all goods with several exemptions for several types of products and services (like medicare etc.). Taxpayers of value-added tax are recognized: Organizations (industrial and financial, state and municipal enterprises, institutions, business partnerships, insurance companies and banks), enterprises with foreign investments, individual entrepreneurs, international associations and foreign legal entities that carry out entrepreneurial activities in the territory of the Russian Federation, non-commercial organizations in the event of their commercial activities, and persons recognized as taxpayers of value-added tax in connection with the movement of goods across the customs border of the Customs Union.Spain
In Spain, the VAT law has categorized goods and services into three types based on function, with according tax percentages. These three types of VAT are general VAT, reduced VAT and super-reduced VAT. However, there are some goods to which this tax is not applied.General VAT
This VAT is 21%. This tax is the most common in the country because it is applied to any good or service made or performed in Spain. This percentage is from September 2018. Before that, the percentage was 18% and two years before that it was 16%. , no change to the general VAT is being studied by the government. Therefore, it would be 21%.Reduced VAT
This VAT is 10% and applies to foods, except staple foods. It is also applied to hostelry services, passenger transport and real estate sales. Specifically, this tax applies to: # Food products for human or animal consumption (except alcoholic beverages, to which general VAT is applied). # Goods or services related to forestry, livestock or agricultural activities (fertilizers, seeds, herbicides). # Water (both drinking and irrigation) # Devices intended to replace physical deficiencies (glasses, contact lenses, prostheses) # Products, equipment, instruments and sanitary materials intended for the treatment, prevention or diagnosis of diseases (including medicines for use in animals and pharmaceutical products for direct use without medical prescription). # Sale and reforms or repairs of real estate (homes, garages, annexes). # Leases with option to purchase real estate. # Transportation of passengers and their luggage (by land, sea or air). # Hotel and restaurant activities, and all food and drink supplies. # Health and dental care activities.Super-reduced VAT
In this group is essential goods. For that reason, this VAT is 4%. The different goods to which this percentage is applied are: # Basic food products: bread, flour, milk, eggs, cheese, fruits, vegetables, cereals, tubers and legumes. # Medications intended for human use, as well as medicinal substances and all the intermediate products used to obtain them. # Press and books with content that is not exclusively promotional or advertising. # Motor vehicles intended for the use of people with reduced mobility. # Prosthetics and internal implants for people with some degree of disability. # Official protection housing delivered by the property developer. # Rental operations with purchase option on the Official protection housing. # Home help services, resistance, residential care and day centers. Nevertheless, there are some products that VAT is not assessed on. These goods and services are: # Insurance, reinsurance and capitalization operations. # Mediation services for natural persons. # Financial products (but not financial advisory services). # Post stamps. # Leasing operations of Official protection housing destined to be habitual residence (as opposed to renting by companies). # Professional medical and health care. # Approved teaching given in official centers (public or private), as well as private training on approved subjects.South Africa
Value-added tax (VAT) in South Africa was set at a rate of 14% and remained unchanged since 1993. Finance Minister Malusi Gigaba announced on 21 February 2018 that the VAT rate will be increased by one percentage point to 15%. Some basic food stuffs, as well as paraffin, will remain zero-rated. The new rate is to be effective from 1 April 2018.Switzerland and Liechtenstein
Switzerland has aTrinidad and Tobago
Value-added tax (VAT) in T&T is currently 12.5% as of 1 February 2016. Before that date VAT used to be at 15%.Ukraine
InUnited Kingdom
The default VAT rate is the standard rate, 20% since 4 January 2011. Some goods and services are subject to VAT at a reduced rate of 5% or 0%. Others are exempt from VAT or outside the system altogether. Due to COVID-19, the United Kingdom temporarily reduced the VAT on tourism and hospitality. These sectors had a reduced 5% VAT rate until 30 September 2021. Between 1 October 2021 and 31 March 2022 the VAT rate then raised to 12.5%. From 1 April 2022, the VAT rate returned to the standard 20%.United States
In the United States, currently, there is no federal value-added tax (VAT) on goods or services. Instead, a sales and use tax is used in most US states. VATs have been the subject of much scholarship in the US and are one of the most contentious tax policy topics. In 2015,Discussions about a federal VAT
Soon after PresidentVietnam
Value-added tax (VAT) in Vietnam is a broadly based consumption tax assessed on the value added to goods and services arising through the process of production, circulation, and consumption. It is an indirect tax in Vietnam on domestic consumption applied nationwide rather than at different levels such as state, provincial or local taxes. It is a multi-stage tax which is collected at every stage of the production and distribution chain and passed on to the final customer. It is applicable to the majority of goods and services bought and sold for use in the country. Goods that are sold for export and services that are sold to customers abroad are normally not subject to VAT. All organizations and individuals producing and trading VAT taxable goods and services in Vietnam have to pay VAT, regardless of whether they have Vietnam-based resident establishments or not. Vietnam has three VAT rates: 0 percent, 5 percent and 10 percent. 10 percent is the standard rate applied to most goods and services unless otherwise stipulated. A variety of goods and service transactions may qualify for VAT exemption.Tax rates
European Union countries
Non-European Union countries
VAT-free countries and territories
As of January 2022, the countries and territories listed remained VAT-free.Criticisms
The "value-added tax" has been criticized as the burden of it falls on personal end-consumers of products. Some critics consider it to be a regressive tax, meaning that the poor pay more, as a percentage of their income, than the rich. Defenders argue that relating taxation levels to income is an arbitrary standard, and that the value-added tax is in fact a proportional tax; anDeadweight loss
The incidence of VAT may not fall entirely on consumers as traders tend to absorb VAT so as to maintain volumes of sales. Conversely, not all cuts in VAT are passed on in lower prices. VAT consequently leads to a deadweight loss if cutting prices pushes a business below the margin of profitability. The effect can be seen when VAT is cut or abolished. When VAT on restaurant meals in Sweden was reduced from 25% to 12.5%, 11,000 additional jobs were created.Risk of fraud criticism
VAT offers distinctive opportunities for evasion and fraud, especially through abuse of the credit and refund mechanism. VAT overclaim is a risk for the state due to fraudulent claims for input repayment by registered traders andChurning
Because VAT is included in the price index to which state benefits such as pensions and welfare payments are linked, as well as public sector pay, some of the apparent revenue is churned i.e. taxpayers have to be given the money to pay the tax with, resulting in zero net revenue.Cashflow impacts
Multiple VAT charges over the supply chain give rise to cashflow problems due to refund delays from the tax administration.Compliance costs
Compliance costs for VAT are a heavy burden on business. In the UK, compliance costs for VAT have been estimated by Professor Cedric Sandford to be about 4% of the yield, though the figure is higher for smaller business. In many European jurisdictions the customer, seller and also the marketplace (as EU Directive) are responsible for the VAT number verification of the parties involved inside the transactions. In case of failure: the B2B national customer should pay back the VAT refund, in case of seller should pay a penalty and pay the VAT to the correct tax authority and request a refund to the wrong one and identify the correct rate for every EU state (OSS VAT from 2021), the marketplace is liable for every seller on the platform for unpaid VAT and must pay it to every EU state from 2021.Trade criticism
Because exports are generally zero-rated (and VAT refunded or offset against other taxes), this is often where VAT fraud occurs. In Europe, the main source of problems is calledSee also
* Excise * Flat tax * Georgism * Gross receipts tax *References
Scholarly sources
* * Ahmed, Ehtisham and Nicholas Stern. 1991. The Theory and Practice of Tax Reform in Developing Countries (Cambridge University Press). * Bird, Richard M. and P.-P. Gendron .1998. "Dual VATs and Cross-border Trade: Two Problems, One Solution?" International Tax and Public Finance, 5: 429–42. * Bird, Richard M. and P.-P. Gendron .2000. "CVAT, VIVAT and Dual VAT; Vertical 'Sharing' and Interstate Trade," International Tax and Public Finance, 7: 753–61. * Keen, Michael and S. Smith .2000. "Viva VIVAT!" International Tax and Public Finance, 7: 741–51. * Keen, Michael and S. Smith .1996. "The Future of Value-added Tax in the European Union," Economic Policy, 23: 375–411. * McLure, Charles E. (1993) "The Brazilian Tax Assignment Problem: Ends, Means, and Constraints," in A Reforma Fiscal no Brasil (São Paulo: Fundaçäo Instituto de Pesquisas Econômicas). * McLure, Charles E. 2000. "Implementing Subnational VATs on Internal Trade: The Compensating VAT (CVAT)," International Tax and Public Finance, 7: 723–40. * Muller, Nichole. 2007. Indisches Recht mit Schwerpunkt auf gewerblichem Rechtsschutz im Rahmen eines Projektgeschäfts in Indien, ''IBL Review'', VOL. 12, Institute of International Business and law, GermanyExternal links
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