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> Note that, while a VAT is imposed at every stage of the process, the net effect is to apply the rate one time to the final sales price. The tax is collected i
by cjs_ac 2y ago
> Note that, while a VAT is imposed at every stage of the process, the net effect is to apply the rate one time to the final sales price. The tax is collected in increments (on the “value added” at each stage), but unlike with a pyramiding sales tax, it does not double tax inputs. The VAT and ideal sales tax share an identical tax base and, if imposed at the same rates, yield identical collections.
The VAT is important in Europe, because if a product is manufactured in many countries, each of those countries gets a share of the tax revenue.
- tobias3 2y agoB2B sales between European countries don't have a VAT.
- deleted 2y ago[deleted]
- procaryote 2y agoVAT on b2b sales even within an European country are usually not that important. You add VAT to things you sell (e.g. car repair services), you pay VAT on things you buy (e.g. car parts). If you collected more VAT on sales than you paid on purchases, you owe that to the tax department. It's a bit of book-keeping but doesn't affect your profits directly.
- luckylion 2y agoThey do, it's just that many choose the reverse charge mechanism, so the recipient of the services or goods is responsible for paying the VAT to his tax authority. It makes things easier, it doesn't remove VAT.
- beejiu 2y agoFor almost all B2B cross-border transactions between two VAT registered entities, the reverse charge is mandatory, not something that you can choose to opt in to.
- orwin 2y agoAre you sure? If a software company pay it's contributor dinners in Bruxelles/Milan/Lisbon, is the reverse charge mandatory too? Because it seemed like business as usual each time I went on business trip.
- tobias3 2y agoYou can see that it is already too complicated for the Americans as is. Please don't confuse them with accounting fictions.
- alexanderchr 2y agoIn practice, when you buy something with VAT reverse charged, you normally declare the VAT to be paid and immediately claim it back on the same declaration. So in the net you pay nothing, but the VAT is of course still there.
- deleted 2y ago[deleted]
- beejiu 2y agoNo, only the end consumer pays VAT in the country of consumption. Everything else nets out, because as a supplier you either you claim back the amount of VAT you've been charged from your local tax authority or you are subject to a "reverse charge" where the cross-border supplies are effectively treated as domestic for tax purposes.
- mrbabbage 2y agothis is correct. the main advantage of a VAT is incentive alignment. every intermediary producer must collect and remit VAT if they want to claim their VAT refunds for inputs. i.e., a seller of a good in Europe must collect VAT if they want to claim a VAT refund on whatever they paid for the good. compare to American sales taxes, where sellers have no economic incentive to collect sales taxes beyond the probability of being caught and fined.
- luckylion 2y agoPrimarily though, they must collect VAT because it's the law. In Germany, you can get an exception if you're tiny and have very low revenue. If it was optional if you didn't want to claim expended VAT, quite a few companies would happily choose that, because you don't pay VAT on labor and that's the biggest cost in many industries. If you're primarily b2c, you could effectively lower your prices by a good chunk or get a healthy chunk of extra profit. But you can't, because there's no choice, it's just the law.
- JetSetIlly 2y agoHow does Germany define low revenue for VAT purposes? In the UK, the threshold for compulsory VAT registration is currently £90,000 annual revenue, which I would say is quite large.
- jimnotgym 2y agoIn what way is that large? A small plumbing firm with two staff will be over that.
- jakewins 2y agoI’ve heard it’s also liked among economists because it’s like.. “sound”, somehow, or “efficient” as far as taxes go? Like a lot of special taxes, tariffs, deductions have super complex side effects, kickbacks, unexpected payees and loopholes.. but as I understand VAT is relatively “sane” on paper? But also there was something about taxing consumption that was bad somehow.. is it regressive? I don’t remember. Feels “flat”, but maybe not?
- Epa095 2y agoNeutral is the word. It means that the tax does not change what's the rational actions vs if the tax was not there. And yes, it's regressive relative to income. Poor people spend all their money on essentials, paying the vat on all their income. Rich people can save most of their money (e.g in stocks), and end up paying a much smaller percentage of their income in VAT.
- noirscape 2y agoIt should also be added that in most EU countries, essentials like food have a lower VAT rate than luxury goods, specifically as an attempt to address this.
- amarcheschi 2y agoDepending on the country, personal care products as well (...) basically, essentials are taxed at varying lower rates in respect to the normal rate
- nemomarx 2y agofairly normal for consumption taxes, right? us sales tax has similar carve outs for food and personal care and meds etc
- plantain 2y agoIs this really true? I observe much more DIY in countries with high VAT's, because your own labor does not have VAT. If I work on my car, and you work on your house, we are both financially ahead than if you had worked on my car, and I had worked on your house.