VAT

VAT stands for Value Added Tax.
==Background ==
* VAT at Wikipedia
==Compare and contrast a VAT and a Sales Tax==
A retail sales tax collects at the point of final sale. A VAT collects the
"value added" at each transaction along the way. Basically, under a
VAT system, each enterprise in the production process pays a sales
tax on its wholesale purchases and then collects a larger sales tax on
its sales. It deducts what it had already paid from what it collects and
sends the balance to the government. The tax rate would be the same
in either case, because the full value of the product is taxed in either
case. Thus the merchant could list the price as $1.00 plus 30¢ VAT,
the same as if it were $1.00 plus 30¢ sales tax.
The reason other countries find VAT more workable is that cheating it
is harder. Under VAT, if a retailer "loses" merchandise by selling it
under the table, he only evades sales tax on the markup he would have
charged. Under a retail sales tax, he evades sales tax on the entire
product. Thus the black-market incentives are much stronger with a
retail sales tax than with a VAT. Businesses hate the endless reporting
that accompanies VAT, as well as the fact that they must pay the tax
before they sell the product, but there is no other way to protect a
double-digit sales tax from triggering a black market.
Canada is struggling with a sales tax that averages around 15%, and it
is terribly unpopular there. The lowest rates are in western provinces
that share a dry border with the United States, i.e., where smuggling is
easiest. The highest rate is on Prince Edward Island, where all imports
must cross water. Even that rate is only around 18%, barely more than
half the rate that the AFT cheerleaders claim will be revenue-neutral.
category: finance