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1) Yes, different industries have different transactional flows. Because VAT applies at every level, complexity is required to avoid unduly interfering with ind

1) Yes, different industries have different transactional flows. Because VAT applies at every level, complexity is required to avoid unduly interfering with industries with multiple mid-levels. 2) To say GST is exactly like VAT is to say that an abacus is exactly like a supercomputer because they both calculate things. A GST is not a VAT. A GST is a goods and services tax, not a "value added tax." The GST only taxes the final value of the product or service sold, similar to a sales tax, not the value added at every step. This is important, because it means that a GST does not try to capture the value delta provided by middlemen, while a VAT does and is deliberately designed to do so. Thus, a VAT impairs the value proposition of utilizing middleman. This makes a GST (or sales tax) significantly more efficient from the perspective of taxpayers, though from a governmental revenue perspective, this also means that GST raises less revenue than a VAT would. A big issue with sales tax is that reseller exemptions only apply to products acquired with the intent to resell, which means the supplier has to know (or be told) if the products acquired in a transaction will be resold, and this creates complexity for every transaction. So instead, the simple way to do it is that every transaction is subject to GST. To get legitimate resellers and middlemen back to the economic position of not paying GST, they get to offset the GST paid for goods or services acquired to produce their own products or services against the GST they collect for their goods or services. This is superficially similar to the VAT, except that with GST you're done (yes, it's really that simple), whereas with VAT you've still got way more work to do. (Note that I have spent the last several years handling both GST and VAT compliance. You will not convince me or any other tax professional that a GST is anything like a VAT except in the most superficial ways.)

rahimnathwani 6y ago
"Thus, a VAT impairs the value proposition of utilizing middleman." The UK has VAT. It does not impair the value proposition of utilizing middlemen. When a consumer buys something for £120, £20 of this is VAT, and will be remitted by the retailer to HMRC. Now, relevant to your point is this: the retailer claims a credit for any VAT she paid when she bought the goods from a middleman. And that middleman will claim a credit for any VAT he paid when he bought from the other middleman. The VAT charged on each transaction in the chain is eventually claimed back. So whether is 1 middleman or 100, VAT does not cause any tax drag. In other words, the existence or number of middlemen in the chain does not change the total amount of VAT collected by HMRC on a consumer's purchase of £120 (£100+VAT). My reading of the Australian GST is that the mechanics are similar to the above: i.e. GST is charged on all sales, but that GST-business can claim back any GST they paid on things they used in their business. So this leaves me to wonder: what are the main differences between the operation of UK VAT (as described above) and Australian GST?
- gamblor956 6y ago
  It does not impair the value proposition of utilizing middlemen It absolutely does, and I say this as someone with experience dealing with all types of consumption taxes. VAT reduces the usage of middlemen in countries where VAT systems exist. So whether is 1 middleman or 100, VAT does not cause any tax drag. In other words, the existence or number of middlemen in the chain does not change the total amount of VAT collected by HMRC on a consumer's purchase of £120 (£100+VAT). VAT requires the middlemen to track and pay VAT at every level. While this is the same as sales tax and GST, compliance for sales tax and GST is far simpler than it is for VAT. (This is true even before you consider multijurisdictional tax issues for VAT and sales tax.) VAT compliance is more expensive, and this cost gets passed on to the customer. what are the main differences between the operation of UK VAT (as described above) and Australian GST? The main difference between GST and VAT is that a GST is charged at a flat rate regardless of the value added. A VAT is only charged on the value added at each step. That is what makes the calculation more complex. Compare, for example, a product sold at $10 by a middleman under GST vs same product sold in VAT jurisdiction. In GST land, the tax is $1 whatever you paid for the input goods. Your GST payment to the government is based on total output GST charged less totoal input GST paid to suppliers of business expenses. Since the rate is flat, you essentially just take gross revenue less gross business expenses and you're done. In VAT land, the tax depends on the price paid for the goods/services that went into the product/service, so you have to know what prices you paid for those to calculate the taxable value delta. And when you reclaim VAT, different categories of VATable expenses have different rules for what can be reclaimed. So it's not a simple calculation; there's significantly more work involved.

rahimnathwani 6y ago

"Thus, a VAT impairs the value proposition of utilizing middleman." The UK has VAT. It does not impair the value proposition of utilizing middlemen. When a consumer buys something for £120, £20 of this is VAT, and will be remitted by the retailer to HMRC. Now, relevant to your point is this: the retailer claims a credit for any VAT she paid when she bought the goods from a middleman. And that middleman will claim a credit for any VAT he paid when he bought from the other middleman. The VAT charged on each transaction in the chain is eventually claimed back. So whether is 1 middleman or 100, VAT does not cause any tax drag. In other words, the existence or number of middlemen in the chain does not change the total amount of VAT collected by HMRC on a consumer's purchase of £120 (£100+VAT). My reading of the Australian GST is that the mechanics are similar to the above: i.e. GST is charged on all sales, but that GST-business can claim back any GST they paid on things they used in their business. So this leaves me to wonder: what are the main differences between the operation of UK VAT (as described above) and Australian GST?

gamblor956 6y ago
It does not impair the value proposition of utilizing middlemen It absolutely does, and I say this as someone with experience dealing with all types of consumption taxes. VAT reduces the usage of middlemen in countries where VAT systems exist. So whether is 1 middleman or 100, VAT does not cause any tax drag. In other words, the existence or number of middlemen in the chain does not change the total amount of VAT collected by HMRC on a consumer's purchase of £120 (£100+VAT). VAT requires the middlemen to track and pay VAT at every level. While this is the same as sales tax and GST, compliance for sales tax and GST is far simpler than it is for VAT. (This is true even before you consider multijurisdictional tax issues for VAT and sales tax.) VAT compliance is more expensive, and this cost gets passed on to the customer. what are the main differences between the operation of UK VAT (as described above) and Australian GST? The main difference between GST and VAT is that a GST is charged at a flat rate regardless of the value added. A VAT is only charged on the value added at each step. That is what makes the calculation more complex. Compare, for example, a product sold at $10 by a middleman under GST vs same product sold in VAT jurisdiction. In GST land, the tax is $1 whatever you paid for the input goods. Your GST payment to the government is based on total output GST charged less totoal input GST paid to suppliers of business expenses. Since the rate is flat, you essentially just take gross revenue less gross business expenses and you're done. In VAT land, the tax depends on the price paid for the goods/services that went into the product/service, so you have to know what prices you paid for those to calculate the taxable value delta. And when you reclaim VAT, different categories of VATable expenses have different rules for what can be reclaimed. So it's not a simple calculation; there's significantly more work involved.