What is a harmonized turnover tax?

harmonized turnover tax is a tax on which tax paid at each level of the production and supply chain takes into account the turnover tax paid in the previous stages. This only results in taxation of additional value created by each process level. A harmonized turnover tax is now the most popular form of turnover tax around the world. It is also a specific name used for the system in Canada. This means that turnover tax is not paid only when selling the finished product to the end consumer. Instead, the tax is paid at each stage of the production process. For example, the timber company pays tax on income from the sale of wood to the furniture company. The furniture company pays tax on income from the sale of the resulting chair to a retailer with furniture for a wholesale price. The retailer pays tax on income from the sale of a chair to the consumer at a retail price.

There are two main Types of turnover taxes. The simplest is a cascade tax in which each seller simply pays DAň based on the value of each sales. This tax payment does not take into account the price that the seller paid for the goods or how much tax was paid in the earlier stages of the process.

There are two main arguments against this type of tax. One of them is that it is unfair, because it means that the government will take more tax with multiple transactions, although the total profit of all given sellers remains the same. Another is that such a tax artificially disrupts the market by attracting vertical integration. Here, participants take over each other at different stages of the production process, for example, a furniture manufacturer buying a wooden company.

The alternative is a harmonized turnover tax, sometimes known as value added tax. The principle is that every company in the production and Supply Chain pays tax only on the basis of the value that contributes to the process - in other words, its profit. This is usually achieved by maintaining every companyThe number of turnover taxes that pay suppliers and then deduct them from turnover taxes that are increasing from the sale of customers. The company then pays only the remaining turnover tax.

The term harmonized turnover tax is also the specific name of the turnover tax system in five out of 10 Canadian provinces. In this situation, the name is usable in two ways. As well as coverage of the way in which the tax works, it also refers to the fact that it combines both national and provincial taxes into one collection.