Value Added Tax (VAT) is a tax on value added to goods and services. It is applied on each stage of production and distribution.
The final consumer is responsible for the total of VAT paid. In most cases, VAT is deducted from wages, savings and pensions. However, some countries have different rules for taxing cross-border transactions.
VAT is a tax on the sale of goods and services. This is similar to the sales tax, which is also a tax on the sale of goods.
The VAT system is a self-reporting mechanism that helps to increase compliance. This is also helpful because it makes it easier for companies to keep track of their transactions.
Businesses that account for VAT generally qualify for input VAT credits. These are generally dependent on timely VAT invoices and proper formal requirements.
There are many benefits to the value-added tax system. One of them is that it raises significant revenue. As a result, the government can borrow more money to reduce taxes elsewhere.
Aside from its benefits, the VAT system is relatively simple to maintain. Each party in the chain of supply, including the final consumer, collects and reports VAT.
Value-added tax is in place in more than 160 countries. Although there are some minor drawbacks, it seems to work well.
Some opponents to the value-added tax system argue that it imposes a heavier burden on lower-income citizens. Opponents also claim that the transparency of the VAT system is lacking. They fear the government could overstep its bounds.