Value-added tax

A value-added tax (VAT) or goods and services tax (GST) is a popular way of implementing a consumption tax in Europe, Japan, and many other countries. All OECD countries except United States have a value-added tax. It differs from the sales tax in that taxes are applied to the difference between the seller-purchased price and the resale price. This is accomplished by taking full tax on all sales, but refunding the tax difference to the sellers.

The VAT is an alternative to a sales tax and is meant to deal with a specific problem. While with a sales tax, a business selling goods is responsible for making a subjective decision about the intent of a buyer, the business may not be fully competent to make the decision.

If buyers intend to consume the goods themselves, then the seller must collect a tax on the purchase price. If instead buyers intend the goods as capital goods, to be resold at a profit after adding value to them, then the seller must not collect the tax. Additionally, sellers have an incentive to claim that a sale is non-taxable in order to please customers; this slight conflict of interest could, and probably would, result in an under-collection of taxes.

The refund portion of a VAT removes that incentive, and incentivizes accurate collection. If the buyer is a businessperson, then the VAT is a temporary payment to the state, based on the purchase price, eventually to be reimbursed by the state for the initial payment when the goods are resold, usually after adding value to them. Hence collecting the tax is a way to get money back. Consumers, with no possible refund, have no reason to inaccurately report their intended use.

The term "value added" refers to the sale price a business charges the customer for a product, minus the cost of materials and other taxable inputs.

A VAT is like a sales tax in that ultimately only the end consumer is taxed. It differs from the sales tax in that with the sales tax, the tax is collected and remitted to the government only once, at the point of purchase by the end consumer. With the VAT, on the other hand, collections, remittances to the government, and credits for taxes that are already paid occur each time a business in the supply chain purchases products.

Overview

A Belgian VAT receipt.

Maurice Lauré, Joint Director of the France Tax Authority, the Direction Générale des Impôts, was first to introduce VAT on 10 April 1954, although German industrialist Dr. Wilhelm von Siemens proposed the concept in 1918. Initially directed at large businesses, it was extended over time to include all business sectors. In France, it is the most important source of state finance, accounting for nearly 50% of state revenues.[1]

Personal end-consumers of products and services cannot recover VAT on purchases, but businesses are able to recover VAT (input tax) on the products and services that they buy in order to produce further goods or services that will be sold to yet another business in the supply chain or directly to a final consumer. In this way, the total tax levied at each stage in the economic chain of supply is a constant fraction of the value added by a business.

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 purchaser is not an end user, but the goods or services purchased are costs to its business, the tax it has paid for such purchases can be deducted from the tax it charges to its customers. The government only receives the difference; in other words, it is paid tax on the gross margin of each transaction, by each participant in the sales chain.

In many developing countries such as India, sales tax/VAT are key revenue sources as high unemployment and low per capita income render other income sources inadequate. However, there is strong opposition to this by many sub-national governments as it leads to an overall reduction in the revenue they collect as well as of some autonomy.

In theory, sales tax is normally charged on end users (consumers). The VAT mechanism means that the end-user tax is the same as it would be with a sales tax. The main disadvantage of VAT is the extra accounting required by those in the middle of the supply chain; this is balanced by the simplicity of not requiring a set of rules to determine who is and is not considered an end user. When the VAT system has few, if any, exemptions such as with GST in New Zealand, payment of VAT is even simpler.

A general economic idea is that if sales taxes are high enough, people start engaging in widespread tax evading activity (like buying over the Internet, pretending to be a business, buying at wholesale, buying products through an employer etc.). On the other hand, total VAT rates can rise above 10% without widespread evasion because of the novel collection mechanism. However, because of its particular mechanism of collection, VAT becomes quite easily the target of specific frauds like carousel fraud, which can be very expensive in terms of loss of tax incomes for states.

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.[2] 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,[3] 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.

Registration

In general, countries that have a VAT system require businesses to be registered for VAT purposes. VAT registered businesses can be natural persons or legal entities, but countries have different thresholds or regulations specifying at which turnover levels registration becomes compulsory. Businesses that are VAT registered are obliged to include 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. VAT-registered businesses are entitled to a VAT deduction for the VAT they pay on the goods and services they acquire from other VAT-registered businesses.

It has been argued that the introduction of a VAT reduces the cash economy because businesses that wish to buy and sell with other VAT-registered businesses must themselves be VAT-registered.

Examples

Consider the manufacture and sale of any item, which in this case we will call 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

With a sales tax

With a 10% sales tax:

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 only have the administrative burden of supplying correct certifications, and checking that their customers (retailers) are not consumers.

A large exception to this state of affairs is online sales. Typically if the online retail firm has no nexus (also known as substantial physical presence) in the state where the merchandise will be delivered, no obligation is imposed upon the retailer to collect sales taxes from "out-of-state" purchasers. Generally, state law requires that the purchaser report such purchases to the state taxing authority and pay the use tax, which compensates for the sales tax that is not paid by the retailer. It is fair to say that many citizens are unaware of this obligation and that states make little effort to raise that awareness or provide a reasonably easy way of complying with the obligation.

With a value-added tax

With a 10% VAT:

With VAT, the consumer has paid, and the government received, the same dollar amount as with a sales tax. The businesses have not incurred any tax themselves. Their obligation is limited to assuming the necessary paperwork in order to pass on to the government the difference between what they collect in VAT (output tax, an 11th of their sales) and what they spend in VAT (input VAT, an 11th of their expenditure on goods and services subject to VAT). However they are freed from any obligation to request certifications from purchasers who are not end users, and of providing such certifications to their suppliers.

On the other hand, 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. If you calculate the added overhead required to collect VAT, businesses collecting VAT have less profits overall than businesses collecting sales tax.

The advantage of the VAT system over the sales tax system is that under sales tax, the seller has no incentive to disbelieve a purchaser who says it is not a final user. That is to say the payer of the tax has no incentive to collect the tax. Under VAT, all sellers collect tax and pay it to the government. A purchaser has an incentive to deduct input VAT, but must prove it has the right to do so, which is usually achieved by holding an invoice quoting the VAT paid on the purchase, and indicating the VAT registration number of the supplier.

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.

The supply and demand economic model suggests that any tax raises the cost of transaction for someone, whether it is the seller or purchaser. In raising the cost, either the demand curve shifts leftward, or the supply curve shifts upward. The two are functionally equivalent. Consequently, the quantity of a good purchased decreases, and/or the price for which it is sold increases.

This shift in supply and demand is not incorporated into the above example, for simplicity and because these effects are different for every type of good. The above example assumes the tax is non-distortionary.

Limitations of VAT

A Supply-Demand Analysis of a Taxed Market

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. It must be noted that a 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 externalities – in 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 taxation – in other words, a VAT discourages consumption rather than production.

In the diagram on the right:

Imports 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 and Sales Tax for goods that are imported and exported:

  1. VAT is charged for a commodity that is exported while sales tax is not
  2. Sales Tax is paid for the full price of the imported commodity, while VAT is expected to be charged only for value added to this commodity by the importer and the reseller

This means that, without special measures, goods will be taxed twice if they are exported from one country that does have VAT to another country that has sales tax instead. Conversely, goods that are imported from a VAT-free country into another country with VAT will result in no sales tax and only a fraction of the usual VAT. There are also significant differences in taxation for goods that are being imported / exported between countries with different systems or rates of VAT. Sales tax does not have those problems – it is charged in the same way for both imported and domestic goods, and it is never charged twice.

To fix this problem, nearly all countries that use VAT use special rules for imported and exported goods:

  1. All imported goods are charged VAT tax for their full price when they are sold for the first time
  2. All exported goods are exempted from any VAT payments

For these reasons VAT on imports and VAT rebates on exports form a common practice approved by the World Trade Organization.

Example

Consider a Ford car that cost $25,000 to produce in the USA (that does not have a VAT, but does have 10% Sales Tax) and an Opel car that costs $25,000 to produce in Germany (that does have 20% VAT). Both prices are shown with all taxes imposed on manufacturers of these cars, including social taxes, income taxes, etc., but without taxes imposed on consumers – that is, Sales Tax in USA and VAT in Germany.

Without a special modification related to Export / Import, customer prices will be

Price paid for Ford
by consumer		 Price paid for Opel
by consumer		 Taxes paid for Ford
by consumer		 Taxes paid for Opel
by consumer
In the USA $27,500 $33,000 $2,500 (Sales Tax only) $8,000 (Sales tax and VAT)
In Germany $25,000 $30,000 $0 (none) $5,000 (VAT)

Note that Opel prices appear to be inherently higher than Ford ones. A common mistake in a lot of examples trying to prove that VAT rebates form as a trade barrier is, to set retail prices equal for both Ford and Opel. This way, prices are initially equal, but become different after all the additional VAT taxes and rebates described below. Such an approach does not take into account the simple fact that Opel prices in the table above always include VAT while Ford prices never include it. That's exactly why additional adjustments are made in VAT taxation.

One may try to object that this simply means that Germany has generally higher taxes but, in fact, this is not the case for consumer taxes. Consider a hypothetical situation where consumer tax remains exactly the same in Germany as in the example above, but now it is collected as 20% Sales Tax:

Price paid for Ford
by consumer		 Price paid for Opel
by consumer		 Taxes paid for Ford
by consumer		 Taxes paid for Opel
by consumer
In the USA $27,500 $27,500 $2,500 (Sales Tax only) $2,500 (Sales Tax only)
In Germany $30,000 $30,000 $5,000 (Sales Tax only) $5,000 (Sales Tax only)

Now lets use the same assumption that the end price to the consumer remains $25,000 and there are no taxes. All goods would be sold for $25,000 and no manufacturer has an advantage:

Price paid for Ford
by consumer		 Price paid for Opel
by consumer		 Taxes paid for Ford
by consumer		 Taxes paid for Opel
by consumer
In the USA $25,000 $25,000 $0 (No tax) $0 (No tax)
In Germany $25,000 $25,000 $0 (No Tax) $0 (No Tax)

Indeed, the end price to the consumer is $25,000 in all instances.

Once again, assuming that the end price to the consumer is $25,000, consider a hypothetical situation where consumer tax remains 10% in the United States, Germany imposes a 20% VAT on imported US goods, rebates its 20% VAT on goods exported to the US, and the US charges a 10% sales tax on both goods:

Price paid for Ford
by consumer		 Price paid for Opel
by consumer		 Taxes paid for Ford
by consumer		 Taxes paid for Opel
by consumer
In the USA $27,500 $27,500 $2,500 (Sales Tax only) $2,500 (Sales Tax only)
In Germany $30,000 $25,000 $5,000 (VAT Tax only) $0 (End price to consumer)

Excluding VAT on exports enables Germany to distort prices in its favor in its Domestic market, while goods in the foreign market are taxed such that final consumer prices remain constant on a relative basis. Germany's VAT of $5,000 is removed on its exports and both goods priced at $25,000 are taxed at 10% in the US, resulting in an after-tax end price to the consumer of $27,500. However, in Germany the imported good are taxed a VAT of 20% resulting in an end price to the consumer of $30,000 whereas the end price to the consumer remains $25,000 on the German manufactured good.

Different systems

Australia

The goods and services tax (GST) is a value-added tax introduced in Australia in 2000, which is collected by the Australian Tax Office. The revenue is then redistributed to the states and territories via the Commonwealth Grants Commission process. In essence, this is Australia's program of horizontal fiscal equalisation. Whilst the rate is currently set at 10%, there are many domestically consumed items that are effectively zero-rated (GST-free) such as fresh food, education, and health services, as well as exemptions for Government charges and fees that are themselves in the nature of taxes.

Bangladesh

Value-added tax in Bangladesh was introduced in 1991 replacing Sales Tax and most of Excise Duties. The Value Added Tax Act, 1991 was enacted that year and VAT started its passage from 10 July 1991. The 10 July is observed as National VAT Day in Bangladesh.

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 Rate for service sectors that are available. Different rates for different services are applied. Truncated Rates are 1.5%, 2.25%, 2.5%, 3%, 4%, 4.5%, 5%, 5.5%, 6%, 7.5%, 9% and 10%.

Bangladesh VAT is characterized by many distortions, i.e., value declaration for product and service, branch registration, tariff value, truncated rates, many restriction on credit system, advance payment of VAT, excessive exemption etc. For many distortion, VAT-GDP ratio is about 4% here. To increase productivity of VAT, Government has enacted the Value Added Tax and Supplementary Duty Act of 2012. This law will be in operation from 1 July 2016 with an automated administration.

National Board of Revenue 1 is the apex organization administering the Value Added Tax.

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; combined GST and provincial sales tax) is collected in New Brunswick (13%), Newfoundland (13%), Nova Scotia (15%), Ontario (13%), Prince Edward Island (14%), and, for a short time until 2013, British Columbia (12%). (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 time of payment; 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 17%. There is a reduced rate of 13% that applies to products such as books and types of oils.[4]

European Union

The European Union value added tax (EU VAT) is a value-added tax encompassing member states in the European Union VAT area. Joining in this is compulsory for member states of the European Union. As a consumption tax, the EU VAT taxes the consumption of goods and services in the EU VAT area. 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 as set out in Directive 2006/112/EC. This Directive sets out the basic framework for EU VAT, but does allow Member States some degree of flexibility in implementation of VAT legislation. For example, different rates of VAT are allowed in different EU member states. However Directive 2006/112 requires Member States to have a minimum standard rate of VAT of 15% and one or two reduced rates not to be below 5%. Some Member States have a 0% VAT rate on certain supplies; these Member States would have agreed this as part of their EU Accession Treaty (for example, newspapers and certain magazines in Belgium). 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 Member State (Denmark) that does not have a reduced rate of VAT.[5]

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.

The VAT Directive (prior to 1 January 2007 referred to as the Sixth VAT Directive) requires certain goods and services to 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). Input VAT that is attributable to 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 Co-operation Council

Increased growth and pressure on the GCC's governments to provide infrastructure to support growing urban centers, the Member States of the Arabic Gulf Co-operation Treaty, which together make up the Gulf Co-operation Council (GCC), have felt the need to introduce a tax system in the region.

In particular, the United Arab Emirates (UAE) has clarified that government officials are studying the situation and considering implementation of a value-added tax. [6]

India

Further information: Value added taxation in India

VAT was introduced into the Indian taxation system from 1 April 2005. Of the 29 Indian states, eight did not introduce VAT at first instance including five states ruled by BJP. There is uniform VAT rate of 5% and 12.5% 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 the 1 January 2007. It was also known as the TN-VAT.

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. Whilst the rate is currently set at 6%, there are many domestically consumed items that are effectively zero-rated (GST-free) such as fresh foods, education, health services and medicines.

Mexico

Value-added tax (Spanish: Impuesto al Valor Agregado, IVA) is a tax applied in Mexico and other countries of Latin America. In Chile, it is also called Impuesto al Valor Agregado and, in Peru, it is called Impuesto General a las Ventas or IGV.

Prior to the IVA, a sales tax (Spanish: 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

Further information: Value added tax (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 (Danish: merværdiafgift, formerly meromsætningsafgift), Norwegian: merverdiavgift (bokmål) or meirverdiavgift (nynorsk) (abbreviated MVA), Swedish: Mervärdes och OMSättningsskatt (until the early 1970s labeled as OMS OMSättningsskatt only), Icelandic: virðisaukaskattur (abbreviated VSK), Faroese: meirvirðisgjald (abbreviated MVG) or Finnish: arvonlisävero (abbreviated ALV) are the Nordic terms for VAT. Like other countries' sales and VAT taxes, it is an indirect tax.

Year Tax level (Denmark) Name
19629%OMS
196710%MOMS
196812.5658
197015%MOMS
197718%MOMS
197820.25%MOMS
198022%MOMS
199225%MOMS

In Denmark, VAT is generally applied at one rate, and with few exceptions is not split into two or more rates as in other countries (e.g. Germany), where reduced rates apply to essential goods such as foodstuffs. The current standard rate of VAT in Denmark is 25%. That makes Denmark one of the countries with the highest value-added tax, alongside Norway, Sweden and Croatia. A number of services have reduced VAT, for instance public transportation of private persons, health care services, publishing newspapers, rent of premises (the lessor can, though, voluntarily register as VAT payer, except for residential premises), and travel agency operations.

In Finland, the standard rate of VAT is 24% as of 1 January 2013 (raised from previous 23%), along with all other VAT rates, excluding the zero rate.[7] In addition, two reduced rates are in use: 14% (up from previous 13% starting 1 January 2013), which is applied on food and animal feed, and 10%, (increased from 9% 1 January 2013) which is applied on passenger transportation services, cinema performances, physical exercise services, books, pharmaceuticals, entrance fees to commercial cultural and entertainment events and facilities. Supplies of some goods and services are exempt under the conditions defined in the Finnish VAT Act: hospital and medical care; social welfare services; educational, financial and insurance services; lotteries and money games; transactions concerning bank notes and coins used as legal tender; real property including building land; certain transactions carried out by blind persons and interpretation services for deaf persons. The seller of these tax-exempt services or goods is not subject to VAT and does not pay tax on sales. Such sellers therefore may not deduct VAT included in the purchase prices of his inputs.

In Iceland, VAT is split into two levels: 24% for most goods and services but 11% for certain goods and services. The 11% level is applied for hotel and guesthouse stays, licence fees for radio stations (namely RÚV), newspapers and magazines, books; hot water, electricity and oil for heating houses, food for human consumption (but not alcoholic beverages), access to toll roads and music.[8]

In Norway, VAT is split into three levels: 25% general rate, 15% on foodstuffs and 8% on the supply of passenger transport services and the procurement of such services, on the letting of hotel rooms and holiday homes, and on transport services regarding the ferrying of vehicles as part of the domestic road network. The same rate applies to cinema tickets and to the television licence.[9] Financial services, health services, social services and educational services are all outside the scope of the VAT Act.[10] Newspapers, books and periodicals are zero-rated.[11] Svalbard has no VAT because of a clause in the Svalbard Treaty.

In Sweden, VAT is split into three levels: 25% for most goods and services, 12% for foods including restaurants bills and hotel stays and 6% for printed matter, cultural services, and transport of private persons. Some services are not taxable for example education of children and adults if public utility, and health and dental care, but education is taxable at 25% in case of courses for adults at a private school. Dance events (for the guests) have 25%, concerts and stage shows have 6%, and some types of cultural events have 0%.

MOMS replaced OMS (Danish "omsætningsafgift", Swedish "omsättningsskatt") in 1967, which was a tax applied exclusively for retailers.

Vietnam

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's 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.

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 common in most US states. VATs have been the subject of much scholarship in the US and is one of the most contentious tax policy topics.[12][13]

In 2015, Puerto Rico passed legislation to replace its 6% sales and use tax with a 10.5% VAT beginning 1 April 2016, although the 1% municipal sales and use tax will remain and, notably, materials imported for manufacturing will be exempted.[14][15] In doing so, Puerto Rico will become the first US jurisdiction to adopt a value-added tax.[15][16] However, two states have previously enacted a form of VAT as a form of business tax in lieu of a business income tax, rather than a replacement for a sales and use tax.

The state of Michigan used a form of VAT known as the "Single Business Tax" (SBT) as its form of general business taxation. It is the only state in the United States to have used a VAT. When it was adopted in 1975, it replaced seven business taxes, including a corporate income tax. On 9 August 2006, the Michigan Legislature approved voter-initiated legislation to repeal the Single Business Tax, which was replaced by the Michigan Business Tax on 1 January 2008.[17]

The state of Hawaii has a 4% General Excise Tax (GET) that is charged on the gross income of any business entity generating income within the State of Hawaii. The State allows businesses to optionally pass on their tax burden by charging their customers a quasi sales tax rate of 4.166%.[18] The total tax burden on each item sold is more than the 4.166% charged at the register since GET was charged earlier up the sales chain (such as manufacturers and wholesalers), making the GET less transparent than a retail sales tax.

Discussions about a national US VAT

Soon after President Richard Nixon took office in 1969, it was widely reported that his administration was considering a federal VAT with the revenue to be shared with state and local governments to reduce their reliance on property taxes and to fund education spending.

Tax rates

Standard VAT or Sales Tax rate

European Union countries

Country Standard rate (current) Reduced rate (current) Abbreviation Local name
 Austria 20%[19] 10% for rental for the purpose of habitation, transportation of passengers, garbage collection, books and periodicals, food, revenues from artistic works. MwSt./USt. Mehrwertsteuer/Umsatzsteuer
 Belgium 21%[19] 12% or 6% (for food or live necessary consumables) or 0% in some cases BTW
TVA
MWSt		 Belasting over de toegevoegde waarde
Taxe sur la Valeur Ajoutée
Mehrwertsteuer
 Bulgaria 20%[19] 9% (hotels) or 0% ДДС Данък добавена стойност
 Croatia 25%[19] 13% (since 1 January 2014) or 5% (since 1 January 2013) PDV Porez na dodanu vrijednost
 Cyprus 19%[19] 5% (8% for taxi and bus transportation) ΦΠΑ Φόρος Προστιθέμενης Αξίας
 Czech Republic 21%[19][20] 15% (food, public transport) or 10% (medicines, pharmaceuticals, books and baby foodstuffs) DPH Daň z přidané hodnoty
 Denmark 25%[19][21] 0% moms Meromsætningsafgift
 Estonia 20%[19] 9% km käibemaks
 Finland 24% [19] 14% (foodstuffs, restaurants) or 10% (medicines, cultural services and events, passenger transport, hotels, books and magazines) ALV
Moms		 Arvonlisävero (Finnish)
Mervärdesskatt (Swedish)
 France 20%[19] 10% or 5.5% or 2.1% TVA Taxe sur la valeur ajoutée
 Germany 19% (Heligoland 0%)[19] 7% for foodstuffs (except luxury-), books, flowers etc., 0% for postage stamps. (Heligoland always 0%) MwSt./USt. Mehrwertsteuer/Umsatzsteuer
 Greece 23%[19][22]
(16% on Aegean islands)		 13% (6.5% for hotels, books and pharmaceutical products)
(8% and 4% on Aegean islands)		 ΦΠΑ Φόρος Προστιθέμενης Αξίας
 Hungary 27%[23] 18% (milk and dairy products, cereal products, hotels, tickets to outdoor music events) or 5% (pharmaceutical products, medical equipment, books and periodicals, some meat products, district heating, heating based on renewable sources, live music performance under certain circumstances) or 0% (postal services, medical services, mother's milk, etc.)[24] ÁFA Általános forgalmi adó
 Ireland 23%[19][25] 13.5% or 9.0% or 4.8% or 0% CBL
VAT		 Cáin Bhreisluacha (Irish)
Value Added Tax (English)
 Italy 22%[19] (Livigno 0%)[19] 10% (hotels, bars, restaurants and other tourism products, certain foodstuffs, plant protection products and special works of building restoration) or 4% (e.g. grocery staples, daily or periodical press and books, works for the elimination of architectural barriers, some kinds of seeds, fertilizers) IVA Imposta sul Valore Aggiunto
 Latvia 21%[19] 12% or 0% PVN Pievienotās vērtības nodoklis
 Lithuania 21%[19] 9% or 5% PVM Pridėtinės vertės mokestis
 Luxembourg 17%[26] 14%, 8%, or 3% [26] TVA Taxe sur la Valeur Ajoutée
 Malta 18%[19] 7% or 5% or 0% VAT Taxxa tal-Valur Miżjud
 Netherlands 21%[19] 6% for special categories of products and services like food, medicine and art.

0% for products and services that are already taxed in other countries or systems, for excise goods, and for fish.

 BTW Belasting over de toegevoegde waarde/Omzetbelasting
 Poland 23%[27] 8% or 5% or 0% PTU/VAT Podatek od towarów i usług
 Portugal 23%[28]
22% in Madeira and 18% in Azores (Minimum 70% of mainland rate)[29]		 13% or 6%
12% or 5% in Madeira and 9% or 4% in Azores (Minimum 70% of mainland rate)[29]		 IVA Imposto sobre o Valor Acrescentado
 Romania 20%[30] 9% (food and non alcoholic drinks) or 5% (buyers of new homes under special conditions) TVA Taxa pe valoarea adăugată
 Slovakia 20%[19] 10% DPH Daň z pridanej hodnoty
 Slovenia 22%[31] 9.5% DDV Davek na dodano vrednost
 Spain 21%[19]
7% in Canary Islands (not part of EU VAT area)		 10% (10% from 1 September 2012[32]) or 4%[33][34]
3% or 0% in Canary Islands		 IVA
IGIC		 Impuesto sobre el Valor Añadido
Impuesto General Indirecto Canario
 Sweden 25%[19] 12% (e.g. food, hotels and restaurants), 6% (e.g. books, passenger transport, cultural events and activities), 0% (e.g. insurance, financial services, health care, dental care, prescription drugs, education, immovable property)[35][36] Moms Mervärdesskatt
 United Kingdom 20%[37]
0% on Channel Islands and Gibraltar (not part of EU VAT area)		 5% residential energy/insulation/renovations, feminine hygiene products, child safety seats and mobility aids and 0% for life necessities – basic food, water, prescription medications, medical equipment and medical supply, public transport, children's clothing, books and periodicals. Also 0% for new building construction (but standard rate for building demolition, modifications, renovation etc.) VAT Value Added Tax

Non-European Union countries

Country Standard rate (current) Reduced rate (current) Local name
 Albania 20% 10% (pharmacies and medical services) TVSH = Tatimi mbi Vlerën e Shtuar
 Algeria 17%
 Andorra[38] 4.5% 1% IGI = Impost General Indirecte
 Antigua and Barbuda 15%
 Argentina 21% 10.5% or 0% IVA = Impuesto al Valor Agregado
 Armenia 20% 0% AAH = Avelacvats Arzheqi Hark
ԱԱՀ = Ավելացված արժեքի հարկ
 Australia 10% 0% fresh food, medical services, medicines and medical devices, education services, childcare, water and sewerage, government taxes & permits and many government charges, precious metals, second-hand goods and many other types of goods. Rebates for exported goods and GST taxed business inputs are also available GST = Goods and Services Tax
 Azerbaijan 18% 10.5% or 0% ƏDV = Əlavə dəyər vergisi
 Bahamas[39][40] 7.5% 7.5% VAT = Value Added Tax
 Bangladesh 15% 4% for Supplier, 4.5% for ITES, 5% for electricity, 5.5% for construction firm, etc. Musok = Mullo songzojon kor
মূসক = "মূল্য সংযোজন কর"
 Barbados 17.5% VAT = Value Added Tax
 Belarus 20% 10% or 0.5% ПДВ = Падатак на дададзеную вартасьць
 Belize 12.5%
 Benin 18%
 Bolivia 13% IVA = Impuesto al Valor Agregado
 Bosnia and Herzegovina 17% PDV = Porez na dodanu vrijednost
 Botswana 12%
 Brazil 42% 0% *IPI – 12% = Imposto sobre produtos industrializados (Tax over industrialized products) – Federal Tax
ICMS – 25% = Imposto sobre circulação e serviços (Tax over commercialization and services) – State Tax
ISS – 5% = Imposto sobre serviço de qualquer natureza (Tax over any service) – City tax

*IPI = Imposto sobre produtos industrializados (Tax over industrialized products) can reach 60% over imported products.
 Burkina Faso 18%
 Burundi 18%
 Cambodia 10%
 Cameroon 19.25%
 Canada 5% + 0–10% HST (GST + PVAT) 5%/0%[lower-alpha 1] GST = Goods and Services Tax, TPS = Taxe sur les produits et services; HST[lower-alpha 2] = Harmonized Sales Tax, TVH = Taxe de vente harmonisée
 Cape Verde 15%
 Central African Republic 19%
 Chad 18%
 Chile 19% IVA = Impuesto al Valor Agregado
 China[lower-alpha 3] 17% 13% for foods, printed matter, and households fuels; 6% or 3% 增值税 (pinyin:zēng zhí shuì)
 Colombia 16% IVA = Impuesto al Valor Agregado
 Costa Rica 13%
 Democratic Republic of the Congo 16%
 Dominica 15%
 Dominican Republic 18% 12% or 0% ITBIS = Impuesto sobre Transferencia de Bienes Industrializados y Servicios
 Ecuador 12% IVA = Impuesto al Valor Agregado
 Egypt 10% (15% on Communication Services) VAT = Value Added Tax (الضريبة على القيمة المضافة)
 El Salvador 13% IVA = Impuesto al Valor Agregado o "Impuesto a la Transferencia de Bienes Muebles y a la Prestación de Servicios"
 Equatorial Guinea 15%
 Ethiopia 15% VAT = Value Added Tax
 Faroe Islands 25% MVG = Meirvirðisgjald
 Fiji 15% 0% VAT = Value Added Tax
 Gabon 18%
 Gambia[41] 15% VAT = Value Added Tax
 Georgia 18% 0% DGhG = Damatebuli Ghirebulebis gadasakhadi დღგ = დამატებული ღირებულების გადასახადი
 Ghana 15% VAT = Value Added Tax plus National Health Insurance Levy (NHIL; 2.5%)
 Grenada 15%
 Guatemala 12% IVA = Impuesto al Valor Agregado
 Guinea 18%
 Guinea-Bissau 15%
 Guyana[42] 16% 0% VAT = Value Added Tax
 Haiti 10%
 Honduras 12%
 Iceland 24% 7%[lower-alpha 4] VSK, VASK = Virðisaukaskattur
 India[lower-alpha 5] 5.5% 5.5% VAT = Valued Added Tax
 Indonesia 10% 10%, 0% for primary groceries, medical services, financial services, education and also insurance PPN = Pajak Pertambahan Nilai
 Iran 9% VAT = Value Added Tax (مالیات بر ارزش افزوده)
 Isle of Man 20%
 Israel[lower-alpha 6] 17%[lower-alpha 7] (0% in Eilat) 0% (fruits and vegetables, tourism services for foreign citizens, intellectual property, diamonds, flights and apartments renting) Ma'am = מס ערך מוסף, מע"מ
 Ivory Coast 18%
 Jamaica 12.5%
 Japan 8% shōhizei (消費税) ("consumption tax")
 Jersey[lower-alpha 8] 5% 0% GST = Goods and Services Tax
 Jordan 16% GST = Goods and Sales Tax
 Kazakhstan 12% ҚCҚ = Қосымша салық құны (Kazakh)
НДС = Налог на добавленную стоимость (Russian)
VAT = Value Added Tax
 Kenya 16%
 Kosovo 18% 8% on water supply, electricity supply, grains, milk, books etc. [44] TVSH = Tatimi mbi Vlerën e Shtuar
 Kyrgyzstan 20%
 Laos 10%
 Lebanon 10% TVA = Taxe sur la valeur ajoutée
 Lesotho 14%
 Liechtenstein[45] 8.0% 3.8% (lodging services) or 2.5% MWST = Mehrwertsteuer
 Macedonia 18% 5% or 0% ДДВ = Данок на додадена вредност, DDV = Danok na dodadena vrednost
 Madagascar 20%
 Malawi 16.5%
 Malaysia[lower-alpha 9] 6% 0% for fresh foods, education, healthcare and medicines GST = Goods and Services Tax
 Maldives 6% 0% GST = Goods and Services Tax (Government Tax)
 Mali 18%
 Mauritania 14%
 Mauritius 15% VAT = Value Added Tax
 Mexico 16% 0% on books, food and medicines. IVA = Impuesto al Valor Agregado
 Moldova 20% 8%, 5% or 0% TVA = Taxa pe Valoarea Adăugată
 Monaco[47] 19.6% 5.6% TVA = Taxe sur la valeur ajoutée
 Mongolia 10% 0% VAT = Нэмэгдсэн өртгийн албан татвар
 Montenegro 19% PDV = Porez na dodatu vrijednost
 Morocco 20% GST = Goods and Sales Tax (الضريبة على القيمة المضافة)
 Mozambique 17%
 Namibia 15% 0% VAT = Value Added Tax
   Nepal 13% 0% VAT = Value Added Taxes
 New Zealand 15% GST = Goods and Services Tax
 Nicaragua 15%
 Niger 19%
 Nigeria 5%
 Niue 5%
 Norway 25% 15% (food), 8% (public transport, hotel, cinema) and 0% for electric cars (until 2018) [48] MVA = Merverdiavgift (bokmål) or meirverdiavgift (nynorsk) (informally moms)
 Pakistan 17% 1% or 0% GST = General Sales Tax
 Palestine 16% VAT = Value Added Tax
 Panama 7% 0% ITBMS = Impuesto de Transferencia de Bienes Muebles y Servicios
 Papua New Guinea 10%
 Paraguay 10% 5% IVA= Impuesto al Valor Agregado
 Peru 18% IGV – 16% = Impuesto General a la Ventas IPM – 2% Impuesto de Promocion Municipal
 Philippines 12%[lower-alpha 10] 6% on petroleum products, and electricity and water services
0% for senior citizens (all who are aged 60 and above) on medicines, professional fees for physicians, medical and dental services, transportation fares, admission fees charged by theaters and amusement centers, and funeral and burial services after the death of the senior citizen		 RVAT = Reformed Value Added Tax, locally known as Karagdagang Buwis / Dungag nga Buhis
 Republic of Congo 16%
 Russia 18% 10% or 0% НДС = Налог на добавленную стоимость, NDS = Nalog na dobavlennuyu stoimost’
 Rwanda 18% 0% VAT = Value Added Tax
 Saint Kitts and Nevis 17% VAT = Value Added Tax
 Saint Vincent and the Grenadines 15%
 Samoa 15%
 Senegal 18%
 Serbia 20%[50] 10%[51] or 0% ПДВ = Порез на додату вредност, PDV = Porez na dodatu vrednost
 Seychelles 15%
 Sierra Leone 15%
 Singapore 7% GST = Goods and Services Tax
 South Africa 14% 0% VAT = Valued Added Tax; BTW = Belasting op toegevoegde waarde
 South Korea 10% VAT = bugase (Hangul: 부가세)
 Sri Lanka 12% 0% VAT = Valued Added Tax has been in effect in Sri Lanka since 2001. On the 2001 budget, the rates have been revised to 12% and 0% from the previous 20%, 12% and 0%
 Sudan 17%
  Switzerland 8%[33] 3.8% (hotel sector) and 2.5% (essential foodstuff, books, newspapers, medical supplies)[33] MWST = Mehrwertsteuer, TVA = Taxe sur la valeur ajoutée, IVA = Imposta sul valore aggiunto, TPV = Taglia sin la Plivalur
 Taiwan 5% 增值稅 (pinyin:zēng zhí shuì)
 Tajikistan 20%
 Tanzania 18%
 Thailand 10% 7% VAT = Value Added Tax, ภาษีมูลค่าเพิ่ม
 Togo 18%
 Tonga 15%
 Trinidad and Tobago 12.5% 0%
 Tunisia 18% TVA = Taxe sur la Valeur Ajoutée آداء على القيمة المضافة
 Turkey 18% 8% or 1% KDV = Katma değer vergisi
 Turkmenistan 15%
 Uganda 18%
 Ukraine 20% 7% or 0% ПДВ = Податок на додану вартість, PDV = Podatok na dodanu vartist’.
 Uruguay 22% 11% or 0% IVA = Impuesto al Valor Agregado
 Uzbekistan 20% НДС = Налог на добавленную стоимость
 Vanuatu 13%
 Vietnam 10% 5% or 0% GTGT = Giá Trị Gia Tăng
 Venezuela 12% 11% IVA = Impuesto al Valor Agregado
 Zambia 16%
 Zimbabwe 15%
  1. ↑ No real "reduced rate", but rebates generally available for new housing effectively reduce the tax to 4.5%.
  2. ↑ HST is a combined federal/provincial VAT collected in some provinces. In the rest of Canada, the GST is a 5% federal VAT and if there is a Provincial Sales Tax (PST) it is a separate non-VAT tax.
  3. ↑ These taxes do not apply in Hong Kong and Macau, which are financially independent as special administrative regions.
  4. ↑ The reduced rate was 14% until 1 March 2007, when it was lowered to 7%. The reduced rate applies to heating costs, printed matter, restaurant bills, hotel stays, and most food.
  5. ↑ VAT is not implemented in 2 of India's 28 states.
  6. ↑ Except Eilat, where VAT is not raised.[43]
  7. ↑ The VAT in Israel is in a state of flux. It was reduced from 18% to 17% in March 2004, to 16.5% in September 2005, then to 15.5% in July 2006. It was then raised back to 16.5% in July 2009, and lowered to the rate of 16% in January 2010. It was then raised again to 17% on 1 September 2012, and once again on 2 June 2013, to 18%. It was reduced from 18% to 17% in October 2015.
  8. ↑ The introduction of a goods and sales tax of 3% on 6 May 2008 was to replace revenue from Company Income Tax following a reduction in rates.
  9. ↑ In the 2014 Budget, the government announced that GST would be introduced in April 2015. Piped water, power supply (the first 200 units per month for domestic consumers), transportation services, education, and health services are tax-exempt. However, many details have not yet been confirmed.[46]
  10. ↑ The President of the Philippines has the power to raise the tax to 12% after 1 January 2006. The tax was raised to 12% on 1 February.[49]

VAT free countries and territories

As of March 2016, the countries and territories under remained VAT free.

Country[52] Notes
 Akrotiri and Dhekelia British Overseas Territory
 Angola N/A
 Anguilla British Overseas Territory
 Bahrain Gulf Co-operation Council
 Bermuda British Overseas Territory
 Bhutan N/A
 British Antarctic Territory British Overseas Territory
 British Indian Ocean Territory British Overseas Territory
 British Virgin Islands British Overseas Territory
 Brunei N/A
 Cayman Islands British Overseas Territory
 Comoros N/A
 Cuba N/A
 Djibouti N/A
 Eritrea N/A
 Falkland Islands British Overseas Territory
 Gibraltar British Overseas Territory
 Guernsey British Crown Dependency
 Hong Kong Special administrative region of China
 Iraq N/A
 Kiribati N/A
 Kuwait Gulf Co-operation Council
 Liberia N/A
 Libya N/A
 Macau Special administrative region of China
 Maldives N/A
 Marshall Islands N/A
 Micronesia N/A
 Montserrat British Overseas Territory
 Myanmar N/A
 Nauru N/A
 North Korea N/A
 Oman Gulf Co-operation Council
 Palau N/A
 Pitcairn Islands British Overseas Territory
 Qatar Gulf Co-operation Council
 Saint Helena, Ascension and Tristan da Cunha British Overseas Territory
 San Marino N/A
 Sao Tome and Principe N/A
 Saudi Arabia Gulf Co-operation Council
 Solomon Islands N/A
 Somalia N/A
 South Georgia and the South Sandwich Islands British Overseas Territory
 South Sudan N/A
 Suriname N/A
 Swaziland N/A
 Syria N/A
 Timor Leste N/A
 Turks and Caicos Islands British Overseas Territory
 Tuvalu N/A
 United Arab Emirates Gulf Co-operation Council
 United States Most states charge a sales tax on products. The US federal government does not. There are a few states, such as Alaska, Montana, Oregon, New Hampshire, and Delaware that do not charge.
  Vatican City N/A
 Yemen N/A

Criticisms

4 May 2010 "Campaña no más IVA" in Spain

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 in that people with higher income pay more in that they consume more. The effective progressiveness or regressiveness of a VAT system can also be affected when different classes of goods are taxed at different rates. To maintain the progressive nature of total taxes on individuals, countries implementing VAT have reduced income tax on lower income-earners as well as instituted direct transfer payments to lower-income groups, resulting in lower tax burdens on the poor.[53]

Revenues from a value-added tax are frequently lower than expected because they are difficult and costly to administer and collect. In many countries, however, where collection of personal income taxes and corporate profit taxes has been historically weak, VAT collection has been more successful than other types of taxes. VAT has become more important in many jurisdictions as tariff levels have fallen worldwide due to trade liberalization, as VAT has essentially replaced lost tariff revenues. Whether the costs and distortions of value-added taxes are lower than the economic inefficiencies and enforcement issues (e.g. smuggling) from high import tariffs is debated, but theory suggests value-added taxes are far more efficient.

Certain industries (small-scale services, for example) tend to have more VAT avoidance, particularly where cash transactions predominate, and VAT may be criticized for encouraging this. From the perspective of government, however, VAT may be preferable because it captures at least some of the value added. For example, a building contractor may offer to provide services for cash (i.e. without a receipt, and without VAT) to a homeowner, who usually cannot claim input VAT back. The homeowner will thus bear lower costs and the building contractor may be able to avoid other taxes (profit or payroll taxes).

Another avenue of criticism of implementing a VAT is that the increased tax passed to the consumer will increase the ultimate price paid by the consumer. However, a study in Canada reveals that in fact when replacing a traditional sales tax with a VAT consumer prices actually fell.[54]

Trade criticism

National VAT taxes act as a tariff on imports and their exports are exempt from the VAT (Zero-rated).[55]

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 called carousel fraud. This kind of fraud originated in the 1970s in the Benelux countries. Today, VAT fraud is a major problem in the UK.[56] There are also similar fraud possibilities inside a country. To avoid this, in some countries like Sweden, the major owner of a limited company is personally responsible for taxes.[55]

Under a sales tax system, only businesses selling to the end-user are required to collect tax and bear the accounting cost of collecting the tax. Under VAT, however, manufacturers and wholesale companies also have to hire accountants and incur accounting expenses to handle the additional paperwork required for collecting VAT, increasing overhead costs that in turn get incorporated into the cost of the item, possibly creating a cascading effect of higher prices throughout the chain of production. Manufacturers and wholesalers have a choice of retaining less profits overall, or passing on the additional cost to their customers in the form of increased prices.

Many politicians and economists in the United States consider VAT taxation on US goods and VAT rebates for goods from other countries to be unfair practice. E.g. the American Manufacturing Trade Action Coalition claims that any rebates or special taxes on imported goods should not be allowed by the rules of the World Trade Organisation. AMTAC claims that so-called "border tax disadvantage" is the greatest contributing factor to the $5.8 trillion US current account deficit for the decade of the 2000s, and estimated this disadvantage to US producers and service providers to be $518 billion in 2008 alone. Some US politicians, such as congressman Bill Pascrell, are advocating either changing WTO rules relating to VAT or rebating VAT charged on US exporters by passing the Border Tax Equity Act.[57]

See also

General:

Notes

  1. ↑ "Les recettes fiscales". Le budget et les comptes de l’État (in French). Minister of the Economy, Industry and Employment (France). 30 October 2009. la TVA représente 125,4 milliards d’euros, soit 49,7 % des recettes fiscales nettes de l’État.
  2. ↑ Bodin, Jean-Paul; Ebril, Liam P.; Keen, Michael; Summers, Victoria P. (5 November 2001). The Modern VAT. International Monetary Fund. ISBN 9781589060265. Retrieved 30 April 2012.
  3. ↑ Understanding cash and accrual basis accounting – Products – Office.com. Office.microsoft.com. Retrieved on 14 June 2013.
  4. ↑ China's VAT System – Beijing Review. Bjreview.com.cn (3 August 2009). Retrieved on 14 June 2013.
  5. ↑ http://ec.europa.eu/taxation_customs/resources/documents/taxation/vat/how_vat_works/rates/vat_rates_en.pdf
  6. ↑ Thacker, Sunil (2008–2009). "Taxation in the Gulf: Introduction of a Value Added Tax". Michigan State Journal of International Law 17 (3): 721.
  7. ↑ Vuoristo, Pekka. "Hallitus sopuun ruan veroalesta", Helsingin Sanomat, 2005-08-266. Retrieved on 26 August 2009.
  8. ↑ "The Value Added Tax Act with subsequent amendments" (PDF). Ministry of Finance and Economic Affairs. 9 October 2014.
  9. ↑ "Main features of the Government’s tax programme for 2011". Ministry of Finance. 5 October 2010.
  10. ↑ "Merverdiavgiftsloven §§ 6–21 to 6–33" (in Norwegian). www.lovdata.no. Retrieved 28 November 2010.
  11. ↑ "Merverdiavgiftsloven §§ 6-1 to 6–20" (in Norwegian). www.lovdata.no. Retrieved 28 November 2010.
  12. ↑ Trinova Corp. v. Michigan Dept. of Treasury, 498 U.S. 358, 362 (United States Supreme Court 1991) (“Although in Europe and Latin America VAT's are common,...in the United States they are much studied but little used.”).
  13. ↑ Gulino, Denny (18 September 2015). "Puerto Rico May Finally Get Attention of Republican Lawmakers". MNI. Retrieved 9 February 2016. The concept of a value added tax in any form as part of the U.S. tax regime has consistently raised the hackles of Republican policy makers and even some Democrats because of fears it could add to the tax burden rather than just redistribute it to consumption from earnings. For decades one of the most hotly debated tax policy topics, a VAT imposes a sales tax at every stage where value is added.
  14. ↑ "Puerto Rico adopts VAT tax system and broadens sales and use tax" (PDF). PricewaterhouseCooper. 26 June 2015. Retrieved 9 February 2016.
  15. 1 2 Harpaz, Joe (17 September 2015). "Puerto Rico Brings First-Ever Value-Added Tax To The U.S.". Forbes. Retrieved 9 February 2016.
  16. ↑ "Examining Puerto Rico Tax Regime Changes: Addition of Value Added Tax and Amendments to Sales and Use, Income Taxes". Bloomberg BNA. 11 January 2016. Retrieved 9 February 2016. Puerto Rico's adoption of a VAT represents a major shift in tax policy and renders the Commonwealth as the first U.S. jurisdiction to adopt this tax regime.
  17. ↑ Outline of the Michigan Tax System, Citizens Research Council of Michigan, January 2011 Archived 5 December 2014 at the Wayback Machine.
  18. ↑ Lingle, Linda and Kawafuchi, Kurt (June 2002). AN INTRODUCTION TO THE GENERAL EXCISE TAX. STATE OF HAWAII, DEPARTMENT OF TAXATION
  19. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 "2014 EU VAT rates". VAT Live. Retrieved 13 November 2010.
  20. ↑ Companies welcome VAT resolved. Prague Monitor (27 December 2012). Retrieved on 14 June 2013.
  21. ↑ Tax in Denmark: An introduction – for new citizens. SKAT.dk (November 2005)
  22. ↑ Οι νέοι συντελεστές ΦΠΑ από 1 Ιουλίου. Madata.GR (9 October 2008). Retrieved on 14 June 2013.
  23. ↑ Index – Gazdaság – Uniós csúcsra emeljük az áfát. Index.hu (16 September 2011). Retrieved on 14 June 2013.
  24. ↑ Áfa kulcsok és a tevékenység közérdekű vagy egyéb sajátos jellegére tekintettel adómentes tevékenységek köre 2015. január 1-jétől (PDF; in Hungarian)
  25. ↑ VAT Rates. Revenue.ie. Retrieved on 14 June 2013.
  26. 1 2 http://www.aed.public.lu/tva/loi/Loi-TVA-2015.pdf
  27. ↑ Prezydent podpisał ustawę okołobudżetową – VAT wzrośnie do 23 proc. Wyborcza.biz (14 December 2010). Retrieved on 14 June 2013.
  28. ↑ Taxas de portagens aumentam 2,2 por cento em 2011 – PÚBLICO. Economia.publico.pt (31 December 2010). Retrieved on 14 June 2013.
  29. 1 2 "Madeira – VAT rate hike". Tmf-vat.com. 1 April 2012. Retrieved 30 April 2012.
  30. ↑ Andra, Timu (3 September 2015). "Romania Passes Scaled-Down Tax Cuts After Warnings Over Budget". Bloomberg. Retrieved 4 January 2016.
  31. ↑ "Pravilnik o spremembah in dopolnitvah Pravilnika o izvajanju Zakona o davku na dodano vrednost". Ministry of Finance. 24 June 2013. Retrieved 1 July 2013.
  32. ↑ "Spain raises VAT from 18% to 21% 1 September 2012". VAT Live. 13 July 2012. Retrieved 8 August 2012.
  33. 1 2 3 "VAT Live". VAT Live. Retrieved 30 April 2012.
  34. ↑ LondonStockExschange.com
  35. ↑ "Swedish VAT compliance and rates". VAT Live. Retrieved 2014-01-25.
  36. ↑ "Momsen - hur fungerar den? | Skatteverket". Skatteverket.se. 2014-01-01. Retrieved 2014-01-25.
  37. ↑ "Budget: How the rise in VAT will work". BBC News. BBC. 23 June 2010. Retrieved 2 November 2010.
  38. ↑ "Andorra crea un IVA con un tipo general del 4,5% y uno reducido del 1%". La Vanguardia. 4 July 2010. Retrieved 13 October 2010.
  39. ↑ "The Government of The Bahamas - VAT Bahamas". VAT Bahamas. 5 June 2015. Retrieved 5 June 2015.
  40. ↑ "Bahamas Planning to Introduce 7.5 Percent Value Added Tax in 2015". Caribbean Journal. Retrieved 2015-12-27.
  41. ↑ "Gambia Revenue Authority - VAT". Gambia Revenue Authority. 19 December 2014. Retrieved 6 June 2015.
  42. ↑ "Ram & McRae's Investors Information Package". Ramandmcrae.com. Retrieved 30 April 2012.
  43. ↑ VAT in Eilat, ECCB
  44. ↑ "PËR TATIMIN MBI VLERËN E SHTuAR" (PDF).
  45. ↑ "Value added tax". Portal of the Principality of Liechtenstein. Government Spokesperson's Office. Archived from the original on 2005-04-18. Retrieved 13 October 2010.
  46. ↑ , International Business Times
  47. ↑ "Monaco capital gains tax rates, and property income tax". Globalpropertyguide.com. Retrieved 30 April 2012.
  48. ↑ "Norway confirms electric car incentives until 2018". Thegreencarwebsite.co.uk. Retrieved 2014-01-25.
  49. ↑ Bureau of Internal Revenue Website. Bir.gov.ph. Retrieved on 14 June 2013.
  50. ↑ Blic Online | Opšta stopa PDV od 1. oktobra biće 20 odsto. Blic.rs. Retrieved on 14 June 2013.
  51. ↑ http://www.b92.net/biz/vesti/srbija.php?yyyy=2014&mm=01&dd=01&nav_id=795544
  52. ↑ "TAX RATES". taxrates web site. Retrieved 3 November 2011.
  53. ↑ Chia-Tern Huey Min (October 2004) GST in Singapore: Policy Rationale, Implementation Strategy & Technical Design, Singapore Ministry of Finance.
  54. ↑ Smart, Michael and Bird, Richard M. (2009). "The Economic Incidence of Replacing a Retail Sales Tax with a Value-Added Tax: Evidence from Canadian Experience" (PDF). Canadian Public Policy / Analyse de Politiques 35 (1): 85–97. doi:10.1353/cpp.0.0007.
  55. 1 2 http://economyincrisis.org/content/now-is-the-time-to-reform-the-income-tax-with-a-vat
  56. ↑ O'Grady, Sean (26 July 2007) Carousel fraud 'has cost UK up to £16bn', The Independent.
  57. ↑ "Border Adjusted Taxation / Value Added Tax (VAT)". Amtacdc.org. Retrieved 30 April 2012.

References

External links

Look up value added tax in Wiktionary, the free dictionary.
This article is issued from Wikipedia - version of the Thursday, May 05, 2016. The text is available under the Creative Commons Attribution/Share Alike but additional terms may apply for the media files.