No. VAT is collected at multiple stages of production and distribution. Each business in the supply chain pays VAT on their purchases (input tax) and charges VAT on their sales (output tax), but they can reclaim the input tax they’ve paid.
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A pays the tax - A reclaims the tax
B pays the tax - B reclaims the tax
C pays the tax - C reclaims the tax
D (end consumer) pays the tax - NO RECLAIM
After all the extra bureaucracy the end consumer is the only one paying the tax. Everyone else just has more useless paperwork. How is that better than a sales tax?
The Captain
Again - each of A, B, and C
- can only reclaim the portion of the tax they paid, not the surplus
- hence end up paying value-added tax on the value they added, as the name implies
Wiki:
As of June 2023, 175 of the 193 countries with UN membership employ a VAT, including all OECD members except the United States.
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Sales tax vs. VAT overview
Sales tax is collected by the retailer when the final sale in the supply chain is reached. In other words, end consumers pay sales tax when they purchase goods or services. When buying supplies or materials that will be resold, businesses can issue resale certificates to sellers and are not liable for sales tax. Until the sale is made to the final consumer, sales tax is not collected, and tax jurisdictions do not receive tax revenue.
VAT (value-added tax), on the other hand, is collected by all sellers in each stage of the supply chain. Suppliers, manufacturers, distributors, and retailers all collect VAT on taxable sales. Similarly, suppliers, manufacturers, distributors, retailers, and end consumers all pay VAT on their purchases. Businesses must track and document the VAT they pay on purchases to receive a credit for the VAT paid on their tax return. Under a VAT regime, tax jurisdictions receive tax revenue throughout the entire supply chain, not just at the point of sale to the final consumer.
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A -10 +10 = 0
B -20 +20 = 0
C -30 +30 = 0
D -40 +0 =40
No?
The Captain
No! The amounts for A, B, C don’t (usually) net out.
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The primary advantage of a VAT tax is that you don’t entirely avoid it by skipping the final transaction: someone sells something under the table and doesn’t collect the tax. With a VAT a portion of the “value added” is collected at each step along the chain, meaning that it’s almost impossible to lose the entire value of the sales tax.
But you pay for that with a substantial increase in paperwork, because you’re in effect getting a piece of sales tax each time something is processed. So the steel maker adds a little to the value of the rod he sells to the screw maker, who adds a little to the value he sells to the hardware store, who adds a little to the final sale.
That’s a simplified example, obviously, think of the hundreds of components that go into a cell phone or a TV set, the shipping that goes back and forth across the ocean, the patents that control the various components, the software that is written and you have a maze (I would say blizzard) of paperwork involved.
I don’t know what percents of sales tax is thought to be avoided, but this seems like bloodletting to cure the patient. But maybe there are other advantages that I don’t understand?
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I looked up how VAT is accounted for
Value Added Tax is a tax added to most services and products by VAT registered businesses. It is also referred to as a ‘consumption tax’ because it is borne by the end consumer. Limited companies, partnerships and sole traders can register for VAT.
It is also referred to as a ‘consumption tax’ because it is borne by the end consumer.
It is also referred to as a ‘consumption tax’ because it is borne by the end consumer.
VAT can be reclaimed on goods and services that are used exclusively in your business - for example office equipment, laptops, as well as third party costs like accountants. However, VAT cannot be claimed on items personally used or on entertainment costs.
VAT paid to HMRC is usually the difference between any input VAT you have paid to other businesses (for instance paying for expenses that have VAT), and the output VAT you have charged your customers at the relevant rate. If you have charged more VAT than you have paid on expenditure, you must pay the difference to HMRC. However, if you have paid more VAT than you have charged, HMRC will repay the difference. This is calculated in the VAT return by taking into account:
VAT Accounting Goods
What is VAT and How to Report It in Company Accounts.
The above only talks about invoicing. What about labour? You don’t get invoices for labour. But the invoices you get do include the labour that went into the stuff you bought. I look up the VAT as applied to Tradesmen
VAT Accounting Labour
There are a few things that business cannot deduct and pass on to customers such as entertainment but almost all costs and expenses are born by the end user. Read the linked articles, specially
It is also referred to as a ‘consumption tax’ because it is borne by the end consumer.
It is also referred to as a ‘consumption tax’ because it is borne by the end consumer.
Lots of complicated accounting and bureaucracy for what is just a sales tax. Bureaucrats must LOVE IT!
The Captain
It’s buried in the sales price at all those levels. When in Europe, or any other place with a VAT, if the price listed on an item says “100”, you will pay exactly “100”. When in the USA, or a place with sales tax, then if the price says “100”, you will pay $108.25 (in NYC), or $107 (in Palm Beach County, FL), or $106.50 (in Broward County, FL), or $108.75 (in parts of CA), etc.
Now it is true that some shops and businesses in Europe and places with a VAT, sometimes choose to print the VAT amount on the receipt. For businesses, it’s necessary so they can claim their VAT refund when reconciling their taxes, but for individuals it is just for show (“hey, the government is taking this much out of this purchase of yours”). Well, mostly just for show, because some countries offer VAT tax refunds to tourists on certain high ticket items like jewelry. So for a “100” purchase, the receipt might show something like this -
Item 83.33
VAT 16.67
TOTAL 100.00
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Also, portions of the total tax are attributed to jurisdictions in line with the value created in those jurisdictions, while a sales tax presumably flows to the jurisdiction where the “final” sale takes place. More accounting indeed, but an overwhelming number of countries prefers this system.
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175 of the 193 countries with UN membership disagree but of course you are entitled to your own view.
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Usually the itemized prices include the tax as well, hence
Item 100.00
TOTAL 100.00
Includes 8.1% VAT 7.49
(above being the rather benign Swiss rate, EU countries often have tax rates around 20%, money I can reclaim if I buy goods there and take them back to Switzerland)
LOVE BUREAUCRACY that produces nothing of value.
Thank you very much. My view is that I don’t like waste. There seems to be a growing movement against government wasting taxpayer money. How much could be saved by firing the VAT bureaucracy?
The Captain
Both the VAT and a traditional sales tax raises the price of goods. If the consumer does not buy the good, the government would still get tax revenue from the VAT but would get nothing in a sales tax system.
In short, with a VAT the consumer bears the full economic cost (the increase in price), but the tax revenue from that price increase comes from the producers.
With a sales tax, the consumer bears the full economic cost (the increase in price) and provides most of the tax revenue.
As far as I can see, the VAT accounting consists of recording the cost of production materials and the price of the product sold. Seems like numbers the company should be monitoring anyway.
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What about the government VAT apparatus? That’s not free!
The Captain
I didn’t say it was better. I said it wasn’t the same. VAT and sales taxes are structurally different. It is incorrect to assume they are the same.
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The crux of why nations picked VAT over sales tax was and is to make under the table cheating much more difficult, and that type of cheating was deeply entrenched in most of the world. VAT broke it by forcing more visibility (new forms of cheating have arisen but are much more difficult and expensive to pull off, and so are rarer).
The paperwork when I first went to Europe in 1971 was problematic, but that has almost vanished as the world has gone electronic.
d fb
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I grant that the structures are different, VAT being much more bureaucratic than sales tax, but the purpose is the same, to extract money from people to run the government.
The Captain
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That is one valid argument. It so happens that people hate paying taxes.
The Captain
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Dang! Going vegan I see.
Cheers
Qazulight
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I can’t disagree more. Over the last 100 years the UK has been on a meteoric rise. The UK used to be one of the absolute worst countries in the world, where a tiny number of powerful wealthy people exploited millions who lived in abject poverty.
We’ve all heard of the Irish Potato Famine. But that wasn’t the only famine caused by the British. In India, British policies caused famines that perhaps killed 100 million people. As in Ireland, administrators happily exported food while people starved in the streets.
We’re taught in school about the British East India Company which imported spices and tea. Which it did. It was also one of the largest standing armies on the planet, which it used to massacre civilians who didn’t want their tea or opium stolen from them. Harsh taxes were imposed such that people lived in de facto slavery. Order was maintained by mass public executions and torture. All this to support the lifestyle of the Royal Family, who as a group, are among the most vile, horrible people who have ever lived.
Today, the UK has its problems like all places, but the average British citizen, err excuse me subject, the British are subjects, not citizens, is immensely better off than at any time in the past. Today, subjects have access to health care, education, worker protections, and so on. A near complete turn around from the corrupt horrors of the British Empire.
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