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> The huge downside is that VAT is taking money from businesses Businesses don't pay VAT (yes they pay it, but its deducted so they get the money back. The onl

> The huge downside is that VAT is taking money from businesses Businesses don't pay VAT (yes they pay it, but its deducted so they get the money back. The only thing VAT can be accused of regarding businesses is that it's essentially a free loan to the govt)

carlosjobim 3y ago
That is a huge misunderstanding, and even business owners get fooled by that idea. It's one of the most pervasive myths in economics by now. If you have a business that has more money coming in from sales than your expenses, then you are paying more (usually much more) in VAT than you are getting back. If you are getting back the same as you pay in VAT, that means you are breaking even on the business side and should start worrying about bankruptcy.
- akvadrako 3y ago
  No, the VAT is based on the client, it's not a business expense. In my case the clients are US based, so I don't charge them VAT. I get VAT refunds on my expenses because I pay more than I take in. If they were local clients they would also get the VAT they pay through me refunded, so it doesn't cost them anything.
  - scotty79 3y ago
    What you are describing is not the core of VAT. It's auxilary scheme for supporting export. And it's a hole in VAT which enables various fraud. Without that loophole you should rais the prices for your foreign customers by x% but that could make you globally uncompetitive, hence the loophole. VAT is not a tax on customer, it's a tax on added value that every (profiting) company along the production chain creates. Ultimately customer pays it, because the customer pays for everything, both value added and all the costs from previous steps. But it doesn't mean it's a tax on consumer. Because in absence of it companies could just keep their prices as high as they are (because why lower them if the customer already pays them) while keeping all that money.
  - carlosjobim 3y ago
    > If they were local clients they would also get the VAT they pay through me refunded, so it doesn't cost them anything. If they have more sales than expenses, they will still be net payers of VAT. They can't get more refunds than they paid in VAT. > I get VAT refunds on my expenses because I pay more than I take in. Unless you're selling airplanes or battleships, that is probably not allowed in the tax code.
    - akvadrako 3y ago
      Of course it's legal; I've been doing it a decade with a professional accountant and nobody has before suggested it wasn't allowed.
  - lmm 3y ago
    > I get VAT refunds on my expenses because I pay more than I take in. That's an exception rather than the rule. Most businesses have higher income than expenses, otherwise they go out of business pretty quickly. > If they were local clients they would also get the VAT they pay through me refunded, so it doesn't cost them anything. Those clients too would generally have higher sales than expenses and so be paying more than they get refunded.

carlosjobim 3y ago

That is a huge misunderstanding, and even business owners get fooled by that idea. It's one of the most pervasive myths in economics by now. If you have a business that has more money coming in from sales than your expenses, then you are paying more (usually much more) in VAT than you are getting back. If you are getting back the same as you pay in VAT, that means you are breaking even on the business side and should start worrying about bankruptcy.

akvadrako 3y ago
No, the VAT is based on the client, it's not a business expense. In my case the clients are US based, so I don't charge them VAT. I get VAT refunds on my expenses because I pay more than I take in. If they were local clients they would also get the VAT they pay through me refunded, so it doesn't cost them anything.
- scotty79 3y ago
  What you are describing is not the core of VAT. It's auxilary scheme for supporting export. And it's a hole in VAT which enables various fraud. Without that loophole you should rais the prices for your foreign customers by x% but that could make you globally uncompetitive, hence the loophole. VAT is not a tax on customer, it's a tax on added value that every (profiting) company along the production chain creates. Ultimately customer pays it, because the customer pays for everything, both value added and all the costs from previous steps. But it doesn't mean it's a tax on consumer. Because in absence of it companies could just keep their prices as high as they are (because why lower them if the customer already pays them) while keeping all that money.
- carlosjobim 3y ago
  > If they were local clients they would also get the VAT they pay through me refunded, so it doesn't cost them anything. If they have more sales than expenses, they will still be net payers of VAT. They can't get more refunds than they paid in VAT. > I get VAT refunds on my expenses because I pay more than I take in. Unless you're selling airplanes or battleships, that is probably not allowed in the tax code.
  - akvadrako 3y ago
    Of course it's legal; I've been doing it a decade with a professional accountant and nobody has before suggested it wasn't allowed.
- lmm 3y ago
  > I get VAT refunds on my expenses because I pay more than I take in. That's an exception rather than the rule. Most businesses have higher income than expenses, otherwise they go out of business pretty quickly. > If they were local clients they would also get the VAT they pay through me refunded, so it doesn't cost them anything. Those clients too would generally have higher sales than expenses and so be paying more than they get refunded.