6 ms·

VAT is literally tax on revenue and it works fine. You tax the added value, so each company pays tax only on (sell_price - purchase_price).

by tpxl 6y ago

dmurray 6y ago
That's literally tax on profit.
- marcosdumay 6y ago
  Hum... I suggest you take a look on how taxes on profit work. That's literally a tax on value added.
  - srtjstjsj 6y ago
    The definition of "value added" is price minus costs, aka profit. https://www.investopedia.com/terms/v/valueadded.asp https://www.investopedia.com/terms/v/valueadded.asp
    - marcosdumay 6y ago
      "Purchase price" is not the same thing as costs and "revenue price - purchase price" is completely different from profits. With a broad enough definition and inclusion of other, unrelated prices at that negative part, one can claim that in a time-frame of several years, both average to nearly the same. But that doesn't make them equal, and if you go read those tax-codes, you will discover the ones being discussed add to very different figures even on the long term. I'll just add here another encouragement to go out and get an understanding of tax codes. Odds are they will be relevant for everybody that frequents here at some point on their lives, and odds are that if you don't know them, you'll only discover their relevance after the fact, when they have already caused you some problem.
    - dmurray 6y ago
      Yeah. To be pedantic maybe we should say "a tax on gross profit". Regardless, it's closer to taxing profit than what most people mean when they propose a revenue tax.
- jlokier 6y ago
  There are multiple definitions of profit. For example, if you sell something before you have paid for it (this is very common), and then put the money from selling into a bank where it earns interest, and then withdraw that money and pay for the thing you sold: You will have made sale_price - purchase_price + interest. In a VAT system, you will pay VAT on sale_price - purchase_price (or your customer will, depending on how you sell things), but not on the extra interest you earned. So that's already a loophole. You can game the tax system by selling things before you buy them and earning interest. If you're smart enough, you might even sell things for exactly the same as you pay for them, and still make a profit due to the interest while you hold the money. You could get even smarter, and hold that money on behalf of your upstream supplier to withdraw when they need to spend it. Before you know it, you're paying zero VAT, and all your profit looks like interest. But you have to pay an accountant to make sense of all these for you. The cost of the accountant isn't a direct cost of making the thing you're selling. So that gives you the difference between gross profit (sales price minus costs associated with the thing you're selling) and net profit (what you have after paying for everything needed to run the business).
robertlagrant 6y ago
VAT is not tax on revenue. Only the end customer pays VAT.
- jlokier 6y ago
  Although true, that seems moot because all tax on business (whether VAT or not) is, one way or another, passed along to the end customer (or not passed on according to business pricing decisions). No matter which company in the supply chain pays it! With VAT, it's raised prices and shown on the receipt. With other business taxes, it's raised prices and not shown on the receipt. Customer pays either way. Of course, competition and other factors also govern prices. It's not a given that changing business taxes always causes a business to change its prices by a related amount. But that is the same for VAT and other business taxes too.
  - robertlagrant 6y ago
    There's no receipt if it's a bank, for example.
jlokier 6y ago
Yes, VAT is tax on revenue of the entire supply chain as a whole (not individual companies), so long as it is within a group of countries using VAT. But it didn't look to me like that's what the GP comment meant. I assumed they meant tax on revenue taken by each company. No need to account for expenses... I'd hoped that would be obvious from my comment, but if not I hope I've clarified that now. ps. It looks like other commenters here are confused about this language, and arguing over the semantics of what "tax on revenue" means. VAT doesn't solve all tax fairness problems unfortunately, which is a shame because it's a fairly well administered system, and good at catching fraud. There are good reasons why VAT is not the only tax on businesses. One of those reasons is that immediate revenue and expenses are a poor model of many business accounts. Accountants use more sophisticated models (there are professional standards they have to adhere to), and despite their quirks and loopholes, these are generally better, fairer, more representative models of the state and value of a business and the money flowing through it, and as a result, for most "ordinary" businesses (i.e. not international corps gaming the system heavily), that ends up making taxation fairer. Someone mentioned using a higher rate for higher revenue. That suggests an example where the better models which incorporate time and stored value results in fairer, more appropriate taxation. If you have a higher sustained revenue, year on year, it makes sense to use the higher rate if that's the policy. But if you make zero in year $X and twice your normal in year $X+1, then back to normal in years $X+2..., all just because you had a big customer pay late for the first year, fairness says you ought to end up paying the appropriate tax rate for your steady normal in the long run, not twice as much tax thanks to your late-paying customer! The accountants' model handles that just fine, as it says you earned the money fair and square in year $X even though you didn't get paid that year. And that's generally better for limiting tax avoidance too, because it reduces the ways in which co-operating companies can game the system by timing their payments to each other to cheat. (VAT doesn't show this problem because it's a fixed percentage, but it occurs with progressive taxes, meaning variable percentage.)
- tpxl 6y ago
  My comment actually wasn't in relation to the GP comment, I meant that revenue taxing in the form of VAT works fine for certain situations. My current biggest gripe with taxation is that it's mostly paid in the countries where the corporation lives, not where the revenue is made. Facebook sells 10 mil worth of ads in France? Facebook should pay (some) taxes for the 10 mil in France.
sokoloff 6y ago
VAT is a tax on revenue from the last purchaser, but not on revenue for each company.

VAT is literally tax on revenue and it works fine. You tax the added value, so each company pays tax only on (sell_price - purchase_price).

by tpxl 6y ago

VAT is literally tax on revenue and it works fine. You tax the added value, so each company pays tax only on (sell_price - purchase_price).

dmurray 6y ago

That's literally tax on profit.

marcosdumay 6y ago
Hum... I suggest you take a look on how taxes on profit work. That's literally a tax on value added.
- srtjstjsj 6y ago
  The definition of "value added" is price minus costs, aka profit. https://www.investopedia.com/terms/v/valueadded.asp https://www.investopedia.com/terms/v/valueadded.asp
  - marcosdumay 6y ago
    "Purchase price" is not the same thing as costs and "revenue price - purchase price" is completely different from profits. With a broad enough definition and inclusion of other, unrelated prices at that negative part, one can claim that in a time-frame of several years, both average to nearly the same. But that doesn't make them equal, and if you go read those tax-codes, you will discover the ones being discussed add to very different figures even on the long term. I'll just add here another encouragement to go out and get an understanding of tax codes. Odds are they will be relevant for everybody that frequents here at some point on their lives, and odds are that if you don't know them, you'll only discover their relevance after the fact, when they have already caused you some problem.
  - dmurray 6y ago
    Yeah. To be pedantic maybe we should say "a tax on gross profit". Regardless, it's closer to taxing profit than what most people mean when they propose a revenue tax.
jlokier 6y ago
There are multiple definitions of profit. For example, if you sell something before you have paid for it (this is very common), and then put the money from selling into a bank where it earns interest, and then withdraw that money and pay for the thing you sold: You will have made sale_price - purchase_price + interest. In a VAT system, you will pay VAT on sale_price - purchase_price (or your customer will, depending on how you sell things), but not on the extra interest you earned. So that's already a loophole. You can game the tax system by selling things before you buy them and earning interest. If you're smart enough, you might even sell things for exactly the same as you pay for them, and still make a profit due to the interest while you hold the money. You could get even smarter, and hold that money on behalf of your upstream supplier to withdraw when they need to spend it. Before you know it, you're paying zero VAT, and all your profit looks like interest. But you have to pay an accountant to make sense of all these for you. The cost of the accountant isn't a direct cost of making the thing you're selling. So that gives you the difference between gross profit (sales price minus costs associated with the thing you're selling) and net profit (what you have after paying for everything needed to run the business).

robertlagrant 6y ago

VAT is not tax on revenue. Only the end customer pays VAT.

jlokier 6y ago
Although true, that seems moot because all tax on business (whether VAT or not) is, one way or another, passed along to the end customer (or not passed on according to business pricing decisions). No matter which company in the supply chain pays it! With VAT, it's raised prices and shown on the receipt. With other business taxes, it's raised prices and not shown on the receipt. Customer pays either way. Of course, competition and other factors also govern prices. It's not a given that changing business taxes always causes a business to change its prices by a related amount. But that is the same for VAT and other business taxes too.
- robertlagrant 6y ago
  There's no receipt if it's a bank, for example.

jlokier 6y ago

Yes, VAT is tax on revenue of the entire supply chain as a whole (not individual companies), so long as it is within a group of countries using VAT. But it didn't look to me like that's what the GP comment meant. I assumed they meant tax on revenue taken by each company. No need to account for expenses... I'd hoped that would be obvious from my comment, but if not I hope I've clarified that now. ps. It looks like other commenters here are confused about this language, and arguing over the semantics of what "tax on revenue" means. VAT doesn't solve all tax fairness problems unfortunately, which is a shame because it's a fairly well administered system, and good at catching fraud. There are good reasons why VAT is not the only tax on businesses. One of those reasons is that immediate revenue and expenses are a poor model of many business accounts. Accountants use more sophisticated models (there are professional standards they have to adhere to), and despite their quirks and loopholes, these are generally better, fairer, more representative models of the state and value of a business and the money flowing through it, and as a result, for most "ordinary" businesses (i.e. not international corps gaming the system heavily), that ends up making taxation fairer. Someone mentioned using a higher rate for higher revenue. That suggests an example where the better models which incorporate time and stored value results in fairer, more appropriate taxation. If you have a higher sustained revenue, year on year, it makes sense to use the higher rate if that's the policy. But if you make zero in year $X and twice your normal in year $X+1, then back to normal in years $X+2..., all just because you had a big customer pay late for the first year, fairness says you ought to end up paying the appropriate tax rate for your steady normal in the long run, not twice as much tax thanks to your late-paying customer! The accountants' model handles that just fine, as it says you earned the money fair and square in year $X even though you didn't get paid that year. And that's generally better for limiting tax avoidance too, because it reduces the ways in which co-operating companies can game the system by timing their payments to each other to cheat. (VAT doesn't show this problem because it's a fixed percentage, but it occurs with progressive taxes, meaning variable percentage.)

tpxl 6y ago
My comment actually wasn't in relation to the GP comment, I meant that revenue taxing in the form of VAT works fine for certain situations. My current biggest gripe with taxation is that it's mostly paid in the countries where the corporation lives, not where the revenue is made. Facebook sells 10 mil worth of ads in France? Facebook should pay (some) taxes for the 10 mil in France.

sokoloff 6y ago

VAT is a tax on revenue from the last purchaser, but not on revenue for each company.