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"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 con

"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.

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.