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Home » Types of Sales Tax » VAT

Value Added Taxes (VAT)

Value added tax (VAT) which is otherwise known as the goods and services tax (GST), is a which is a tax on exchanges. This amount of tax is levied on the added value which results from each exchange that the customers make on their each purchase. Value Added Taxes (VAT) differs to a huge extent from the sales tax because the sales tax is basically levied on the total value of the exchange. For this reason, a VAT or Value Added Taxes is impersonal with respect to the number of passages which basically exist between the producer of those goods and and the final consumer of those products.

Like all the other direct taxes in the market, the VAT is quite different. This is actually an indirect tax because in this sort of tax it is collected from someone other than the individual who actually bears the cost of the tax who is known as the seller rather than the consumer. The implementors of this tax also have taken certain initiatives which help them in avoiding double taxation on final consumption. For instance the exports which by definition, are consumed abroad are VAT is not usually applied on them and if under certain specific circumstances the VAT is charged over those exported products, then such amount is definitely going to be refunded after a certain period of time, except in certain exceptional circumstances.

The very system of Value Added Taxes or VAT was introduced for the first time in the market by the modern French economist in 1954. Maurice Lauré who was the joint director of the French tax authority and the director general of the department of import, was the first person to introduce VAT or the value Added Tax with effect from 10 the of April in he year 1954 in the cases of large businesses, and which are extended over time to all business sectors. In France, VAT became so important that it has became one of the most important sources of the state finance and it is accounting for almost 45% of state revenues.

There are certain limitations on the imposition of VAT too. For instance, all the personal end-consumers of products and the other service sectors related to it are not eligible for the purpose of recovering VAT on those kind of purchases. But when it comes to the businesses and marketing products then the people who are concerned to this department are able to recover VAT on the materials and services. This factor has to be kept mind that people related to this sector are ready to buy and make further supplies or services directly or indirectly sold to end-users. By following this way of proceeding, the total tax which is levied at each stage in the economic chain of supply. This is actually a constant fraction of the value which is added up by a business or producer of the goods to its products. In this way the maximum amount of the cost which helps in collecting the tax is carried on by business or the producer of the goods rather than by the state itself. The main reason which worked behind the invention of VAT was that it has the capability of collecting very high amount of sales taxes and tariffs and it also prevents the cheating and smuggling. The system of VAT has also been criticized on the grounds that it is a regressive tax.