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The difference between a VAT and sales tax is easy to understand in simplest terms: Sales tax is a percentage of the final sale price of a good or service. VA

by zanny 9y ago

The difference between a VAT and sales tax is easy to understand in simplest terms: Sales tax is a percentage of the final sale price of a good or service. VAT tax is a fraction of the profits / revenue of every business involved in the production of a good or service. VAT is only complicated for businesses that sell things, but it also is not because the business basically writes off their purchases when they then sell them again to an end consumer. Between their purchase and sale they added value, and that difference is the tax passed on to the final consumer. All the government cares about is strict bookkeeping on how much stuff a company pays for and how much it makes from selling that stuff again in order to check that the VAT is accurate, and those figures are already required in most economies due to corporate taxes and / or payroll taxes.

kgwgk 9y ago
> VAT is only complicated for businesses that sell things, As oppossed to businesses with no revenue?
avar 9y ago
VAT also encourages the formation of conglomerates since you'll need to pay VAT to source some component of your product, but not if you make it in-house. This is mitigated in some cases by lower VAT rates for businesses or recouping schemes, but how much of a difference that makes depends on the jurisdiction
- kgwgk 9y ago
  Say a company sells a product to a end customer for 100+VAT. A) the company builds the product from scratch => the whole VAT amount collected is transferred to the state B) the company buys components from a provider for 50+VAT => half of the VAT collected is given to the provider, the other half to the state How are A) and B) different for the company as far as the VAT is concerned?
  - avar 9y ago
    They're not as far as the amount paid, but VAT introduces taxation overhead to supply chains. Let's say company A makes a pencil in-house, and company B sources all the materials from 100 subcontractors. Company B will inevitably incur more overhead because it and its suppliers need to deal with the accounting of 100 taxable events, company A only needs to deal with one. Thus those 100 companies forming B will inevitably merge into one to compete with A and fire their state-imposed army of accountants.

by zanny 9y ago

kgwgk 9y ago

> VAT is only complicated for businesses that sell things, As oppossed to businesses with no revenue?

avar 9y ago

VAT also encourages the formation of conglomerates since you'll need to pay VAT to source some component of your product, but not if you make it in-house. This is mitigated in some cases by lower VAT rates for businesses or recouping schemes, but how much of a difference that makes depends on the jurisdiction

kgwgk 9y ago
Say a company sells a product to a end customer for 100+VAT. A) the company builds the product from scratch => the whole VAT amount collected is transferred to the state B) the company buys components from a provider for 50+VAT => half of the VAT collected is given to the provider, the other half to the state How are A) and B) different for the company as far as the VAT is concerned?
- avar 9y ago
  They're not as far as the amount paid, but VAT introduces taxation overhead to supply chains. Let's say company A makes a pencil in-house, and company B sources all the materials from 100 subcontractors. Company B will inevitably incur more overhead because it and its suppliers need to deal with the accounting of 100 taxable events, company A only needs to deal with one. Thus those 100 companies forming B will inevitably merge into one to compete with A and fire their state-imposed army of accountants.