Definition and scope of value added tax economics essay

This study used consumption cost, Gross Domestic Product, Household cost and international trade values collected from the Central Bank of Nigeria Statistical Bulletin from The results revealed that while consumption tax is a significant determinant of VAT revenue, GDP, Household cost and international trade are not significant determinants of VAT revenue.

Definition and scope of value added tax economics essay

But it is not without controversy. Advocates say it raises government revenues without punishing success or wealth, as income taxes do; it is also simpler and more standardized than a traditional sales tax, and there are fewer compliance issues.

Critics charge that a VAT is essentially a regressive tax that places an increased economic strain on lower-income taxpayers, and also adds bureaucratic burdens for businesses. Value-added taxation is based on a taxpayer 's consumption rather than his income. In contrast to a progressive income tax, which levies greater taxes on higher-level earners, VAT applies equally to every purchase.

The tax is assessed and collected at each stage, in contrast to sales tax that is only assessed and paid by the consumer at the very end of the supply chain. Say, for example, Dulce is an expensive candy manufactured and sold in the country of Alexia.

However, the manufacturer renders only 30 cents to Alexia, which is the total VAT at this point, minus the prior VAT charged by the raw material supplier.

Definition and scope of value added tax economics essay

Sales Tax VATs and sales taxes can raise the same amount of revenue; the difference lies in at what point the money is paid — and by whom.

Again, assume a VAT of 10 percent. A farmer sells wheat to a baker for 30 cents. The baker pays 33 cents; the extra 3 cents represents the VAT, which the farmer sends to the government.

The baker uses the wheat to make bread and sells a loaf to a local supermarket for 70 cents. The supermarket pays 77 cents, including a 7 cent VAT. The baker sends 4 cents to the government; the other 3 cents were paid by the farmer.

The VAT differs in that it is paid at different stops along the supply chain; the farmer pays 3 cents, the baker 4 cents and the supermarket 3 cents. However, a VAT offers advantages over a national sales tax. It is much easier to track. The exact tax levied at each step of production is known; with a sales tax, the entire amount is rendered after the sale, making it difficult to allocate to specific production stages.

Additionally, because the VAT only taxes each value addition and not the sale of a product itself, assurance is provided that the same product is not double-taxed. The United States remains the only notable exception.

What is the scope of the value-added tax

Most industrial countries with a VAT adopted their systems in the s. Results have been mixed, but there is certainly no tendency among VAT countries to have small budget deficits or low government debt. According to one International Monetary Fund study, any state that switches to VAT initially feels the negative impact of reduced tax revenues despite its greater revenue potential down the road.

VAT has earned a negative connotation in some parts of the world where it has been introduced, even hurting its proponents politically. In the Philippines, for example, Senator Rafael Recto, the chief proponent of VAT in the s, was voted out of office by the electorate when he ran for re-election.

But in the years that followed its implementation, the population eventually accepted the tax. Recto ended up finding his way back to the Senate, where he became the proponent an expanded VAT. VAT in the U.

Sample Essay on Value-added Tax (VAT)

There's been much debate in the U.A value-added tax is a consumption tax placed on a product whenever value is added at each stage of the supply chain, from production to the point of sale.

Public finance is the study of the role of the government in the economy. It is the branch of economics which assesses the government revenue and government expenditure of the public authorities and the adjustment of one or the other to achieve desirable effects and avoid undesirable ones.

Definition “Value Added Tax is a tax on the value added at each stage of production and distribution process and can be aptly defined as one of the forms of consumption taxation since the value added by a firm Understanding Economic Value Added Essay - Understanding Economic Value Added 1.

Tax Policy for Developing Countries Why do we have taxes? The simple answer is that, until someone comes up with a better idea, taxation is the only practical means of raising the revenue to finance government spending on the goods and services that most of us demand. Value-added taxes around the world commonly exempt or tax at a reduced rate food and other necessities.

3 The same practice is observed for the sales taxes imposed by . led the economic means and the po - litical means of attaining wealth, that is, between “work and robbery.” “The state,” he concluded, “is an or-ganization of the political means.” The economic means must pre-cede the political means.

However, not all kinds of work produce sur-pluses sufficient for sustaining a state.