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Value added tax

Value added tax
Value added tax (VAT), or goods and services tax (GST) is a consumption tax levied on value added. In contrast to sales tax, VAT is neutral with respect to the number of passages that there are between the producer and the final consumer; where sales tax is levied on total value at each stage, the result is a cascade (downstream taxes levied on upstream taxes). A VAT is an indirect tax, in that the tax is collected from someone who does not bear the entire cost of the tax. Maurice Lauré, joint director of the French tax authority, the Direction générale des impôts, was first to introduce VAT on April 10, 1954. 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 52% of state revenues.[1] Personal end-consumers of products and services cannot recover VAT on purchases, but businesses are able to recover VAT on the materials and services that they buy to make further supplies or services directly or indirectly sold to end-users. 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 to its products, and most of the cost of collecting the tax is borne by business, rather than by the state. VAT was invented because very high sales taxes and tariffs encourage cheating and smuggling. It has been criticized on the grounds that (like other consumption taxes) it is a regressive tax. Under this concept the government is paid tax on the gross margin of each transaction. In many developing countries such as India, sales tax/VAT are a key revenue source 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 a loss of some autonomy. Sales taxes are normally only charged on final sales to consumers: because of reimbursement, VAT has the same overall economic effect on final prices. The main difference is the extra accounting required by those in the middle of the supply chain; this disadvantage of VAT is balanced by application of the same tax to each member of the production chain regardless of its position in it and the position of its customers, reducing the effort required to check and certify their status. 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 exceed 10%, 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.

Comparison with a sales tax
Value added taxation avoids the cascade effect of sales tax by only taxing the value added at each stage of production. Value added taxation has been gaining favor over traditional sales taxes worldwide. In principle, value added taxes apply to all commercial activities involving the production and distribution of goods and the provision of services. VAT is assessed and collected on the value added to goods in each business transaction.

Principle of VAT
The standard way to implement a VAT is to say a business owes some percentage on the price of the product minus all taxes previously paid on the good. If VAT rates were 10%, an orange juice maker would pay 10% of the $5 per gallon price ($0.50) minus taxes previously paid by the orange farmer (maybe $0.20). In this example, the orange juice maker would have a $0.30 tax liability. Each

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business has a strong incentive for its suppliers to pay their taxes, allowing VAT rates to be higher with less tax evasion than a retail sales tax. Behind this simple principle are the variations in its implementations, as discussed in the next section.

Value added tax
you to match revenues to the expenses incurred in earning them, giving you more meaningful financial reports.

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

Basis for VAT
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. The buyer, if he is subject to VAT on his own sales, uses these invoices to obtain a credit (reduction) towards his own VAT liability. The difference in tax shown on invoices passed and invoices received is then paid to the government (or a refund is claimed, in 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 invoice method, the only exception is Japan which uses 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 was made. Checks are written when funds are available to pay bills, and the expense is recorded as of the check date — regardless of when the expense was 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

Without any sales tax
• A widget manufacturer spends $1 on raw materials and uses them to make a widget. • The widget is sold wholesale to a widget retailer for $1.20, leaving a profit of $0.20. • The widget retailer then sells the widget to a widget consumer for $1.50, making a profit of $0.30.

With a North American (Canadian provincial and U.S. state) sales tax
With a 10% sales tax: • The manufacturer pays $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 profit of $0.20. • The retailer charges the consumer $1.65 ($1.50 + $1.50x10%) and pays the government $0.15, leaving the same profit 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 lost anything directly to the tax, and retailers have the extra paperwork to do so that they correctly pass on to the government the sales tax they collect. Suppliers and manufacturers have the administrative burden of supplying correct certifications, and checking that their customers (retailers) aren’t consumers.

With a value added tax
With a 10% VAT: • The manufacturer pays $1.10 ($1 + $1x10%) for the raw materials, and the seller of the raw materials pays the government $0.10. • The manufacturer charges the retailer $1.32 ($1.20 + $1.20x10%) and pays the government $0.02 ($0.12 minus $0.10), leaving the same profit of $0.20.

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• The retailer charges the consumer $1.65 ($1.50 + $1.50x10%) and pays the government $0.03 ($0.15 minus $0.12), leaving the profit of $0.30 (1.65-1.32-.03). 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 businesses have not lost anything directly to the tax. They do not need to request certifications from purchasers who are not end users, but they do have the extra accounting to do so that they correctly pass on to the government the difference between what they collect in VAT (output VAT, an 11th of their income) and what they spend in VAT (input VAT, an 11th of their expenditure). Note that in each case the VAT paid is equal to 10% of the profit, or ’value added’. The advantage of the VAT system over the sales tax system is that businesses cannot hide consumption (such as wasted materials) by certifying it is not a consumer.

Value added tax
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.

Limitations to example and VAT
In the above example, 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 fundamentals of supply and demand suggest 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. 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. The income lost by the economy is greater than the government’s income; the tax is inefficient. The entire amount of the government’s income (the tax revenue) may not be a deadweight drag,

A Supply-Demand Analysis of a Taxed Market In the above diagram, Deadweight loss: the area of the triangle formed by the tax income box, the original supply curve, and the demand curve Government’s tax income: the grey rectangle that says "tax" Total consumer surplus after the shift: the green area Total producer surplus after the shift: the yellow area

Criticisms
The "value added tax" has been criticized as the burden of it relies on personal end-consumers of products and is therefore a regressive tax (the poor pay more, in comparison, than the rich). However, this calculation is derived when the tax paid is divided not by the tax base (the amount spent) but by income, which is argued to create an arbitrary relationship. The tax rate itself is proportional with higher income people paying more tax but at the same rate as they consume more. If a value added tax is to be related to income, then the unspent income can be treated as deferred (spending savings at a later point in time), at which time it is taxed creating a proportional tax using an income base. Such taxes can have a progressive effect on the effective tax rate of consumption by using exemptions, rebates, or credits.

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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 carpenter 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 hence bear lower costs and the carpenter may be able to avoid other taxes (profit or payroll taxes). The government, however, may still receive VAT for various other inputs (lumber, paint, gasoline, tools, etc) sold to the carpenter, who would be unable to reclaim the VAT on these inputs. While the total tax receipts may be lower compared to full compliance, it may not be lower than under other feasible taxation systems. 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. Large quantities of valuable goods (often microchips or mobile phones) are transported from one member state to another. During these transactions, some companies owe VAT, others acquire a right to reclaim VAT. The first companies, called ’missing traders’ go bankrupt without paying. The second group of companies can ’pump’ money straight out of the national treasuries. This kind of fraud originated in the 1970s in the Benelux-countries. Today, the British treasury is a large victim.[4] There are also similar fraud possibilities inside a

Value added tax
country. To avoid this, in some countries like Sweden, the major owner of a limited company is personally responsible for taxes. This is circumvented by having an unemployed person without assets as the formal owner.

VAT systems
European Union
The European Union Value Added Tax ("EU VAT") is a value added tax encompassing member states in the European Union Value Added Tax 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 what VAT rate will be charged. Different rates of VAT apply in different EU member states. The minimum standard rate of VAT throughout the EU is 15%, although reduced rates of VAT, as low as 0%, are applied in various states on various sorts of supply (for example, newspapers and certain magazines in Belgium). The maximum rate in the EU is 25%. 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

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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). See also: Taxation in the United Kingdom#Value added tax

Value added tax
sales. He therefore may not deduct VAT included in the purchase prices of his inputs. In Iceland, VAT is split into two levels: 24.5% for most goods and services but 7% for certain goods and services. The 7% 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. In Norway, VAT is split into three levels: 25% is the general VAT, 14% (formerly 13%, up on January 1, 2007) for foods and restaurant take-out (food eaten in a restaurant has 25%), 8% for person transport, movie tickets, and hotel stays. Books and newspapers are free of VAT, while magazines and periodicals with a less than 80% subscription rate are taxed. Svalbard has no VAT because of a clause in the Svalbard Treaty. Cultural events are excluded from VAT. In Sweden, VAT is split into three levels: 25% for most goods and services including restaurants bills, 12% for foods (incl. bring home from restaurants) and hotel stays (but breakfast at 25%) 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. Year Tax level OMS/MOMS 1962 9% 1967 10% 1968 12.5% 1970 15% 1977 18% 1978 20.25% 1980 22% 1992 25% OMS MOMS MOMS MOMS MOMS MOMS MOMS MOMS

The Nordic countries
MOMS (Danish: merværdiafgift, formerly meromsætningsafgift), Norwegian: merverdiavgift (bokmål) or meirverdiavgift (nynorsk) (abbreviated MVA), Swedish: mervärdesskatt (earlier mervärdesomsättningsskatt), Icelandic: virðisaukaskattur (abbreviated VSK) or Finnish: arvonlisävero (abbreviated ALV) are the Nordic terms for VAT. Like other countries’ sales and VAT taxes, it is a regressive indirect tax. 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 e.g., 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 and Sweden. A number of services are not taxable, 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), travel agency operations. In Finland , the standard rate of VAT is 22%. In addition, two reduced rates are in use: 17%, which is applied on food and animal feed, and 8%, 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

India
In India, VAT replaced sales tax on 1 April 2005. Of the 28 Indian states, eight did not

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introduce VAT. Haryana had already adopted it on 1 April 2004. The "empowered committee" of the basic framework for uniform VAT laws in the states. Due to the federal nature of the Indian constitution, the states do have the power to set their own VAT rate. OECD (2008, 112-13) approvingly cites Chanchal Kumar Sharma (2005) to answer why it has proved so difficult to implement a federal VAT in India. The book says: "Although the implementation of broad-base federal VAT system has been considered as the most desirable consumption tax for India since the early 1990s, such a reform would involve serious problems for the finances of regional governments. In addition, implementing VAT in India in context of current economic reforms would have paradoxical dimensions for Indian federalism. On one hand economic reforms have led to decentralization of expenditure responsibilities, which in turn demands more decentralization of revenue raising power if fiscal accountability is to be maintained. On the other hand, implementing VAT (to make India a single integrated market) would lead to revenue losses for the States and reduce their autonomy indicating greater centralization" ( Sharma, 2005, as quoted in OECD, 2008, 112-13)[1] Chanchal Kumar Sharma (2005:929) asserts: " political compulsions have led the government to propose an imperfect model of VAT" ’Indian VAT system is imperfect’ to the extent it ’goes against the basic premise of VAT’. India seems to have an ’essenceless VAT’ because the very reasons for which VAT receives academic support have been disregarded by the VAT-Indian Style, namely: removal of the distortions in movement of goods across states;Uniformity in tax structure (Sharma, 2005: 929). Chanchal Kumar Sharma ( 2005:929) clearly states, " Local or state level taxes like octroi, entry tax, lease tax, workers contract tax, entertainment tax and luxury tax are not integrated into the new regime which goes against the basic premise of VAT which is to have uniformity in the tax structure. The fact that no tax credit will be allowed for inter-state trade seriously

Value added tax
undermines the basic benefit of enforcing a vat system, namely the removal of the distortions in movement of goods across the states". " Even the most essential prerequisite for success of VAT ie elimination of [Central sales tax (CST)] has been deferred. CST is levied on basis of origin and collected by the exporting state; the consumers of the importing state bear its incidence. CST creates tax barriers to integrate the Indian market and leads to cascading impact on cost of production. Further, the denial of input tax credit on inter-state sales and inter state transfers would affect free flow of goods." (Sharma,2005:922) The greatest challenge in India, asserts Sharma(2005) is to design a sales tax system that will provide autonomy to subnational levels to fix tax rate, without compromising efficiency or creating enforcement problems.

The Andhra Pradesh experience
In the Indian state of Andhra Pradesh, the Andhra Pradesh Value Added Tax Act, 2005 came into force on 1 April 2005 and contains six schedules. Schedule I contains goods generally exempted from tax. Schedule II deals with zero rated transactions like exports and Schedule III contains goods taxable at 1%, namely jewellery made from bullion and precious stones. Goods taxable at 4% are listed under Schedule IV. The majority of foodgrains and goods of national importance, like iron and steel, are listed under this head. Schedule V deals with Standard Rate Goods, taxable at 12.5%. All goods that are not listed elsewhere in the Act fall under this head. The VI Schedule contains goods taxed at special rates, such as some liquor and petroleum products. The Act prescribes threshold limits for VAT registration - dealers with a taxable turnover of over Rs.40.00 lacs, in a tax period of 12 months, are mandatorily registered as VAT dealers. Dealers with a taxable turnover, in a tax period of 12 months, between Rs.5.00 to 40.00 lacs are registered as Turnover Tax (TOT) dealers. While the former category of dealers are eligible for input tax credit, the latter category of dealers are not. A VAT dealer pays tax at the rate specifed in the Schedules. The sales of a TOT dealer are all taxable at 1%. A VAT dealer has to file a monthly return disclosing purchases and sales. A TOT dealer has to file a

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quarterly return disclosing only sale turnovers. While a VAT dealer can buy goods for business from anywhere in the country, a TOT dealer is barred from buying outside the State of A.P. The Act appears to be the most liberal VAT law in India. It has simplified the registration procedures and provides for across the board input tax credit (with a few exceptions) for business transactions. A unique feature of registration in Andhra Pradesh is the facility of voluntary VAT registration and input tax credit for start-ups. The Act also provides for transitional relief (TR) for goods on hand as of 1 April 2005. However, these goods ought to have been purchased from registered dealers between 1 April 2005 to 31 March 2006. This is a bold step compared to the 3 months TR provided by several developed countries. The Act not only provides for tax refunds for exporters (refund of tax paid on inputs used in the manufacture of goods exported), it also provides for refund of tax in cases where the inputs are taxed at 12.5% and outputs are taxed at 4%. The VAT Act in Andhra Pradesh is administered by the Commercial Taxes Department (department to collect VAT and other taxes) using a networked software package called VATIS. The personnel were trained prior to the Act coming into force. VATIS is used to process documents and forms received and to generate registration certificates and tax demand notices. VAT, to be successful, relies on voluntary tax compliance. Since VAT believes in self assessments, dealers are required to maintain proper records, issue tax invoices, file correct tax returns etc. The opposite seems to be happening in India. Businesses are still run on traditional lines. Cash transactions are order of the day. The unorganised sector dominates the market. The hope of higher tax compliance and lesser evasion is still a far cry in Andhra Pradesh. This is reflected in the high percentage of return defaulters (14%), credit returns (35%) and nil returns (20%). That is, roughly 70% of VAT dealers are presently not paying any tax. Filing of credit returns is rampant among FMCG, Consumer Durables, Drugs and Medicines and Fertilizers. The margins are low in this sector (ranging between 2 to 5%). The value addition is not enough to yield revenue as of now. Credits offered by manufacturers compounds

Value added tax
the problem. The question is, in a typical purchases and sales scenario, can there be more output tax than input tax? When purchases consistently exceed sales, can output tax exceed input tax? If a VAT dealer can balance his/her purchases and sales, can there be a net tax to the State? Is there a mathematical model or paradigm which can give value added tax and which can reduce the percentage of credit returns? There are no ready answers for these queries. The only remedy seems to be the restriction of input tax to the corresponding purchase value of goods put to sales. In fact a two tier system can be adopted to counter the credit returns - allow full input tax to manufacturers and restrict input tax to the purchase value of goods put to sale to traders. Restricting input tax to 4% in the case of inter state sales and in the case of products taxable at 12.5% seems to be another solution.

Mexico
Impuesto al Valor Agregado (IVA, "value-added tax" in Spanish) 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 similar tax called impuesto a las ventas ("sales tax") 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 the European countries this tax was applied or it was soon to be applied. In 1969, the first attempt to substitute the mercantile-revenue tax for the value-added tax took place. On December 29, 1978 the Federal government published the official application of the tax beginning on January 1, 1980 in the Official

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Journal of the Federation (Diario Oficial de la Federación).

Value added tax
advertised prices do not include the taxes; these will be added at the cash register before the customer pays. In many states, no sales tax is charged for services. This is a key difference between most sales taxes levied throughout the United States and the value added taxes in other countries. Ex-Presidential candidate Mike Huckabee has proposed a national sales tax at a rate of 30% (which would replace all federal income tax). This has generated considerable confusion as a 30% addition translates to 23% of the total purchasing price being paid as taxes.[7]. Huckabee’s FairTax proposal is pitched, in part, as a means of increasing the competitiveness of domestic goods against those of European producers whose VAT is refunded on exports.[8]

New Zealand
Goods and Services Tax (GST) is a Value Added Tax introduced in New Zealand in 1986, which is currently 12.5%. It is notable for exempting few items from the tax.

Australia
Goods and Services Tax (GST) is a Value Added Tax introduced in Australia in 2000, which is collected by the Federal Government but given to the State Governments. The Australian Constitution restricts the ability of individual States to collect excises or sales taxes. Whilst the rate is currently set at 10%, there are many domestically consumed items that are effectively zero-rated (GSTfree) such as fresh food, education, and health services, as well exemptions for Government charges and fees that are themselves in the nature of taxes.

Tax rates
EU countries Non-EU countries
Note 1: 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. Note 2: No real "reduced rate", but rebates generally available for new housing effectively reduce the tax to 4.5%. Note 3: These taxes do not apply in Hong Kong and Macau, which are financially independent as special administrative regions. Note 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. Note 5: VAT is not implemented in 2 of India’s 28 states. Note 6: Except Eilat, where VAT is not raised.[10] Note 7: The VAT in Israel is in the process of being gradually reduced. It was reduced from 18% to 17% on March 2004, to 16.5% on September 2005, and was set to its current rate on July 1, 2006. There are plans to further reduce it in the near future, but they depend on political changes in the Israeli parliament. Note 8: The introduction of a goods and sales tax of 3% will be introduced on the 6th

Canada
Goods and Service Tax (GST) is a Value Added Tax introduced in 1991 at a rate of 7%. The rate is currently 5% and is imposed in addition to provincial sales taxes, except in Alberta, where there is no provincial sales tax; and in New Brunswick, Newfoundland and Nova Scotia, where a Harmonized Sales Tax (5% GST + 8% PST = 13% HST) (combined GST and provincial sales tax) is collected.

United States
In the United States, 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 U.S. to have used a VAT. When it was adopted in 1975, it replaced seven business taxes, including a corporate income tax. On August 9, 2006, the Michigan Legislature approved voter-initiated legislation to repeal the Single Business Tax. The repeal became effective January 1, 2008.[5] Most states have a retail sales taxes charged to the end buyer only, sales to other businesses are untaxed unlike in the VAT. State sales taxes range from 0%-13% and municipalities often add an extra local sales tax.[6] In many stores, the price tags and/or

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Country Austria Belgium Standard rate 20% 21% Reduced rate 12% or 10% 12% or 6% Abbr. USt. BTW TVA MWSt

Value added tax
Name Umsatzsteuer Belasting over de toegevoegde waarde Taxe sur la Valeur Ajoutée Mehrwertsteuer Данък върху добавената стойност Φόρος Προστιθέμενης Αξίας Daň z přidané hodnoty Merværdiafgift käibemaks Arvonlisävero Mervärdesskatt Taxe sur la valeur ajoutée Mehrwertsteuer/ Umsatzsteuer Φόρος Προστιθέμενης Αξίας általános forgalmi adó Cáin Bhreisluacha (Irish) Value Added Tax (English) Imposta sul Valore Aggiunto Pievienotās vērtības nodoklis Pridėtinės vertės mokestis Taxe sur la Valeur Ajoutée Taxxa tal-Valur Miżjud Belasting toegevoegde waarde

Bulgaria Cyprus Czech Republic Denmark Estonia Finland France Germany Greece

20% 15% 19% 25% 18% 22% 19.6% 19% 19%

0% or 7% 5% 9% none 9% 17% or 8% 5.5% or 2.1% 7% 9% or 4.5% (reduced by 30% to 13%, 6% and 3% on islands) 5% 13.5%, 4.8% or 0%

ДДС ΦΠΑ DPH moms km ALV Moms TVA MwSt./ USt. ΦΠΑ

Hungary Ireland

20% 21.5%

ÁFA CBL VAT

Italy Latvia

20% 21%

10% or 4% 10% 9% or 5% 12%, 9%, 6%, or 3% 5% 6% or 0% 7%, 3% or 0%

IVA PVN PVM TVA VAT BTW

Lithuania 19% (as of January 1, 2009) 15% Luxembourg Malta Netherlands Poland Portugal 22% 18% 19%

PTU/VAT Podatek od towarów i usług IVA IVA Imposto sobre o Valor Acrescentado Imposto sobre o Valor Acrescentado

20% (as of July 1, 12% or 5% 2008) 8% or 4%

Madeira and 15% Azores

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Romania Slovakia Slovenia Spain Canary Islands Sweden United Kingdom 19% 19% 20% 16% 5% 25% 15% (temporary cut from 17.5%) 9% 10% 8.5% 7% or 4% 0% or 2% 12% or 6% 5% or 0% TVA DPH DDV IVA IGIC Moms VAT (Welsh: TAW)

Value added tax
Taxa pe valoarea adăugată Daň z pridanej hodnoty Davek na dodano vrednost Impuesto sobre el valor añadido Impuesto General Indirecto Canario Mervärdesskatt Value Added Tax (Welsh: Treth ar Werth)

May 2008 to plug a large budget deficit in the island’s government budget. Note 9: In the 2005 Budget, the government announced that GST would be introduced in January 2007. Many details have not yet been confirmed but it has been stated that essential goods and small businesses would be exempted or zero rated. Rates have not yet been established as of June 2007. Note 10: The President of the Philippines has the power to raise the tax to 12% after January 1, 2006. The tax was raised to 12% on February 1.

See also
• • • • • Regressive tax Progressive tax VAT Identification Number List of tax rates around the world Jaffa Cake – Its non-VAT status was challenged in a UK court case to determine whether Jaffa Cake was a cake or a biscuit. VAT 3 Value-Added-Tax-free imports from the Channel Islands – low value products can be imported into the EU from the Channel Islands without paying VAT Missing Trader Fraud (Carousel VAT Fraud) Flat tax Goods and Services Tax Income tax Land value tax Revenue On-Line Service Sales tax Turnover tax Single Tax

• •

VAT registered
VAT registered means registered for VAT purposes, i.e. entered into an official VAT payers register of a country. Both natural persons and legal entities can be VAT registered. Countries that use VAT have established different thresholds for remuneration derived by natural persons/legal entities during a calendar year (or a different period) by exceeding which the VAT registration is compulsory. Natural persons/legal entities that are VAT registered are obliged to calculate VAT on certain goods/services that they supply and pay VAT into particular state budget. VAT registered persons/entities are entitled to VAT deduction under legislatory regulations of particular country. The introduction of a VAT can reduce the cash economy because businesses that wish to buy and sell with other VAT registered businesses must themselves be VAT registered.

• • • • • • • • •

Notes
[1] "Les recettes fiscales" (in french). Le budget et les comptes de l’État. Minister of the Economy, Industry and Employment (France). 23 February 2009. http://www.performancepublique.gouv.fr/le-budget-et-lescomptes-de-letat/approfondir/lesrecettes/les-recettes-fiscales.html. "la TVA représente 130,2 milliards d’euros,

10

From Wikipedia, the free encyclopedia
Country Albania Standard Reduced Local name rate rate 20% 0% TVSH = Tatimi mbi Vleren e Shtuar 10.5% or IVA = Impuesto al Valor Agregado 0% 0% 0% AAH = Avelatsvats arjheki hark ??? = ????????? ?????? ???? GST = Goods and Services Tax

Value added tax

Argentina 21% Armenia 20%

Australia 10% Belarus Barbados 15% Bosnia 17% and Herzegovina Brazil 12% + 25% + 5%

ПДВ = Падатак на дададзеную вартасьць VAT = Value Added Tax none PDV = porez na dodanu vrijednost

0%

*IPI - 12% = Imposto sobre produtos industrializados (Tax over industrialized products) - Federal Tax ICMS - 25% = Imposto sobre circulacao e servicos (Tax over commercialization and services) - State Tax ISS - 5% = Imposto sobre servico de qualquer natureza (Tax over any service) - City tax *IPI for imported products is 60%

Canada

5%

4.5%2

GST = Goods and Services Tax, TPS = Taxe sur les produits et services; HST = Harmonized Sales Tax, TVH = Taxe de vente harmonisée IVA = Impuesto al Valor Agregado IVA = Impuesto sobre el Valor Agregado

Chile People’s Republic of China3 Croatia

19% 17% 6% or 3% 10% 12% or 0%

Colombia 15%

??? (pinyin:zēng zhí shuì)

22%

PDV = Porez na dodanu vrijednost ITBIS = Impuesto sobre Transferencia de Bienes Industrializados y Servicios IVA = Impuesto al Valor Agregado GST = Goods and Sales Tax (‫)ةفاضملا ةميقلا ىلع ةبيرضلا‬ IVA = Impuesto al Valor Agregado

Dominic- 16% an Republic Ecuador Egypt El Salvador Fiji Georgia 12% 10% 13% 12.5% 18% 12% Guatemala Guyana[9] 16% Iran Iceland India5 3% 24.5% 12.5%

0% 0%

VAT = Value Added Tax DGhG = Damatebuli Ghirebulebis gdasakhadi დღგ = დამატებული ღირებულების გადასახადი IVA = Impuesto al Valor Agregado

0% 7%4 4%, 1%, or 0%

VAT = Value Added Tax VAT = Value Added Tax (‫)هدوزفا شزرا رب تایلام‬ VSK = Virðisaukaskattur VAT = Valued Added Tax

11

From Wikipedia, the free encyclopedia
Indonesia 10% Israel6 Japan South Korea Jersey8 Jordan Kazakhstan Kosovo Lebanon Moldova Macedonia 10% Malaysia9 Mexico Montenegro New Zealand Norway Pakistan Panama 12.5% 25% 16% 5% 5% 14% or 8% 1% or 0% GST = Goods and Services Tax 15% 17% 0% IVA = Impuesto al Valor Agregado PDV = Porez na dodatu vrijednost 16% 10% 20% 18% 5% 5% TVSH = Tatimi mbi Vlerën e Shtuar TVA = Taxe sur la valeur ajoutée TVA = Taxa pe Valoarea Adăugată ДДВ = Данок на Додадена Вредност 15.5%7 5% 10% 3% 16% 13% 5% PPN = Pajak Pertambahan Nilai Ma’am = ‫ףסומ ךרע סמ‬ Consumption tax = ???

Value added tax

VAT = ???(???, Bugase) = ?????(?????, Bugagachise) GST = Goods and Sales Tax GST = Goods and Sales Tax Қосымша салық құны

GST = Goods and Services Tax (Government Tax)

MVA = Merverdiavgift (bokmål)or meirverdiavgift (nynorsk) (informally moms) GST = General Sales Tax ITBMS = Impuesto de Transferencia de Bienes Muebles y Servicios IVA= Impuesto al Valor Agregado IGV = Impuesto General a la Ventas RVAT = Reformed Value Added Tax, locally known as Karagdagang Buwis

Paraguay 10% Peru Philippines Russia Serbia 18% 18% 7% Singapore South Africa 14% 19% 12%10

10% or 0% 8% or 0%

НДС = Налог на добавленную стоимость, NDS = Nalog na dobavlennuyu stoimost PDV = Porez na dodatu vrednost GST = Goods and Services Tax

0%

BTW = Belasting op Toegevoegde Waarde, VAT = Valued Added Tax MWST = Mehrwertsteuer, TVA = Taxe sur la valeur ajoutée, IVA = Imposta sul valore aggiunto, TPV = Taglia sin la Plivalur VAT = Value Added Tax, ???????????????

Sri Lanka 12% 7.6% Switzerland Thailand 7% 3.6% or 2.4%

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From Wikipedia, the free encyclopedia
Trinidad and Tobago Turkey Ukraine Uruguay Vietnam 15% 18% 20% 22% 10% 12% Venezuela 8% or 1% 0% 10% 5% or 0% 11% KDV = Katma değer vergisi ПДВ = Податок на додану вартість IVA = Impuesto al Valor Agregado GTGT = Giá Trị Gia Tăng IVA = Impuesto al Valor Agregado

Value added tax

soit 52,0 % des recettes fiscales nettes • (1993) "The Brazilian Tax Assignment de l’État." Problem: Ends, Means, and Constraints," [2] http://books.google.com/ in A Reforma Fiscal no Brasil (São Paulo: books?id=qnI5E3m09d0C&pg=PA49&sig=9BhW7yeWHCwgn__6YQkjTx3mrk4 Fundaçäo Instituto de Pesquisas [3] http://office.microsoft.com/en-us/ Econômicas). products/HA101646121033.aspx • 2000. “Implementing Subnational VATs on [4] Carousel fraud ’has cost UK up to Internal Trade: The Compensating VAT £16bn’,The Independent, 26 July 2007 (CVAT),” International Tax and Public [5] Single Business Tax - Outline of the Finance, 7: 723-40. Michigan Tax System, Citizens Research • . 2007. Indisches Recht mit Schwerpunkt Council of Michigan, January 24, 2007 auf gewerblichem Rechtsschutz im [6] State Tax Rates, July 14, 2007 Rahmen eines Projektgeschäfts in Indien, [7] Huckabee Whips Up Debate with ’Fair IBL Review, VOL. 12, Institute of Tax’ Plan : NPR International Business and law, [8] Mike Huckabee for President - Issues Germany.[2] [9] Ram & McRae’s Investors Information • . 2007. Indian law with emphasis on Package commercial legal insurance within the [10] VAT in Eilat, ECCB scope of a project business in India. IBL Review, VOL. 12, Institute of International Business and law, Germany. • , Politikens Nudansk Leksikon 2002, ISBN • (Icelandic) "Lög nr. 50/1988 um 87-604-1578-9 virðisaukaskatt". 1988. http://www.rsk.is/ • Andhra Pradesh Value Added Tax Act, skattalagasafn/virdisaukaskattur/log/ 2005, Andhra Pradesh Gazette log_0501988.htm. Retrieved on Extraordinary, 25 March 2005, retrieved 2007-09-05. on 16 March 2007. • . 1991. The Theory and Practice of Tax • Consumption Tax Trends 2008: VAT/GST Reform in Developing Countries and Excise Rates, Trends and (Cambridge University Press). Administration Issues. Paris: OECD. • .1998. “Dual VATs and Cross-border • . 1999. “Fiscal Federalism Brazilian Style: Trade: Two Problems, One Solution?” Some Reflections,” Paper presented to International Tax and Public Finance, 5: Forum of Federations, Mont Tremblant, 429-42. Canada, October 1999. • .2000. “CVAT, VIVAT and Dual VAT; • 2005. Implementing VAT in India: Vertical ‘Sharing’ and Interstate Trade,” Implications for Federal Polity. Indian International Tax and Public Finance, 7: Journal of Political Science, LXVI (4): 753-61. 915-934. [ISSN: 00019-5510][3] • .2000. “Viva VIVAT!” International Tax • (1996) "Brazil: Fiscal Federalism and and Public Finance, 7: 741-51. Value Added Tax Reform," Working Paper • .1996. "The Future of Value-added Tax in No. 11, National Institute of Public the European Union," Economic Policy, Finance and Policy, New Delhi 23: 375-411.

References

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From Wikipedia, the free encyclopedia
• (1996) "Administrative Aspects of Brazil’s Consumption Tax Reform," International VAT Monitor, 7: 123-32. • (1988) Value Added Tax: International Practice and Problems (Washington: International Monetary Fund).

Value added tax
• VAT/GST sales tax rates around the world • Consolidated version of the Sixth VAT Directive (398k pdf) • HM Revenue & Customs • UK Consumer Protection Approval Order 2005 (Code of Practice for Traders on Price Indications) defines the rules for VAT marking in the UK. • UK VAT Threshold Rates • What is the Single Business Tax? (Michigan Department of Treasury) • A Guide to the latest VAT news in the UK by PricewaterhouseCoopers • Consumption Tax Act in JAPAN • VAT system in Romania • UK VAT Calculator Both current VAT rate and old VAT rate calculators

External links
• Understanding the China VAT Rebate • VAT Advisory Services • VAT Related Services at the Open Directory Project • VAT in INDIA • What is VAT?: General overview • An introduction to VAT • European VAT rates by service type • German VAT

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