Value-added tax

Value-added tax (VAT), is a consumption tax levied on the sale of goods and services. The difference from conventional sales tax is that it is levied by every business as a fraction of the price of each sale, but are in turn reimbursed VAT on their purchases. End-consumers of products and services cannot recover VAT on purchases. In this way, the total tax levied is a fraction of the value added by a business to its products, and most of the cost of collecting the tax is borne by business, rather than by the state. VAT was invented because very high sales taxes and tariffs encourage cheating and smuggling. The VAT is common in countries of the European Union.

In some countries, including Singapore, Australia, New Zealand and Canada, this tax is known as "goods and services tax (GST)".

Table of contents

1 Example
2 VAT Rates
3 External link

Example

Without a VAT:

A widget manufacturer spends $1 on raw materials to make a widget.
The widget is sold wholesale to a widget retailer for $1.20.
The widget retailer then sells the widget to a widget consumer for $1.50.

Adding on a 10% VAT:

The manufacturer pays $1.10 for the raw materials.
The manufacturer charges the retailer $1.32 and pays the government $0.02, leaving the same profit of $0.20.
The retailer charges the consumer $1.65 and pays the government $0.03, leaving the same profit of $0.30

So the consumer has paid 10% extra. The businesses have not lost anything directly to the tax, but they do have the extra paperwork to do so that they correctly pass on to the government the difference between what they collect in VAT (an 11th of their income) and what they spend in VAT (an 11th of their expenditure).

VAT Rates

Country Rate

Standard Reduced
Singapore 4.0 %

Canada 7.0%

Switzerland 7.6 % 2.3 %

Australia 10.0 %

New Zealand 12.5 %

Luxembourg 15.0 % 3.0 %

Germany 16.0 % 7.0 %

Spain 16.0 % 7.0 %

Portugal 17.0 % 12.0 %

Greece 18.0 % 8.0 %

United Kingdom 17.5 % 5.0 %

Estonia 18.0 %

Netherlands 19.0 % 6.0 %

Romania 19.0 % 9.0 %

France 19.6 % 5.5 %

Italy 20.0 % 10.0 %

Austria 20.0 % 14.0 %

Ireland 21.0 % 12.5 %

Belgium 21.0 % 12.0 %

Czech Republic 22.0 % 5.0 %

Finland 22.0 % 17.0 %

Croatia 22.0 %

Norway 24.0 %

Hungary 25.0 % 12.0 %

Sweden 25.0 % 12.0 %

Denmark 25.0 %

External link

http://www.hotrec.org/areas/taxation/04.html - European VAT rates by service type.

Encyclopedia Home Page

Value-added tax

Example

VAT Rates

External link