What is value added tax?

Value added tax (VAT) is a type of excise tax, which is collected from goods and services at each level of production. The way in value added taxes works is a bit complicated, but is designed to distribute the tax burden and can be used to generate high tax revenues without falling on one particular group of individuals more than others. In practice, nations with VAT tend to tax the poor more reasonably more than others, which was the subject of criticism of some of the organizations and individuals concerned.

The way in which value added tax works is that at every stage of the process from the construction of the item to the sale to the final consumer, the product is taxed and the outstanding tax equals the percentage value, minus tax paid by previous people in the chain. In a simple example, a clothing manufacturer could buy a cotton cloth for $ 100 (USD) and Bale, and pay 10% tax of $ 10 for each BALII. When the manufacturer sold colored cotton to a retailer for $ 130 per package, the tax liability would be $ 13, but since $ 10 has already been paid by the manufacturer, the retailer would pay $ 3 within the VAT system. The consumer, who bought a package of cotton for $ 200, would have a tax liability of $ 20, minus $ 13 in already paid taxes, which would work at $ 7 in tax maturity.

In the value of value added tax, each time the value is added to the product is taxed. Although the above example was listed in the United States, VAT is in fact much more common in the European Union (EU). It was first introduced in France in 1954 and later adopted by a number of other EU countries. Today, VAT represents a significant piece of tax revenue for many EU governments, and sometimes it is a dispute bone, because some people resist consumption because they may have a penalizing effect on some consumers.

Value added taxes may vary significantly, while some rates are Pfrom 10%while others are almost 30%. Visitors to nations with a value -added tax system can often receive a VAT compensation that pays for products that choose from the country, although it requires some paperwork and discussion with customs officials. Some companies are also entitled to VAT compensation, in systems that differ from the nation to the nation.

Using tax on goods and services (GST), because sometimes known value taxes are known, it is also designed to discourage illegal goods such as counterfeit and smuggled products. In regions where a high turnover tax is collected, there may be a market for illegal products that allow people to avoid paying tax tax, while VAT taxes tend to deter this behavior.