Quote:
Originally Posted by Anak
This is the difference between a sales tax and value added tax. VAT is always included into the sales price and not added afterwards (sales tax).
I always get the "full" discount, here 50%. I live in Europe.
Assumption: VAT: 5%
$ 10 * (100/105) * 50% * (105/100) = $ 5
$ 9.52 (w/o VAT) * 50% discount = $ 4.76 * 1.05 (add VAT) = $ 5
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You're drawing an inaccurate and non-existant distinction. VATs are sales taxes and, in fact, the Canadian GST/HST you're comparing against *is* a VAT sales tax.
Whether a sales tax is a VAT or not is how it's treated down the supply chain (before it gets to the consumer), not whether it's included in the price or not. VAT in Europe, Australia, and most of the world where they have a VAT, is generally included in the asking price. Canada's simply unusual in that when they implemented a VAT (the federal GST/HST) they chose to stay with the North American standard practice of adding tax on to the price when the customer pays (though there are exceptions, such as when buying gas for an automobile, where taxes are generally included in the price).
A non-VAT sales tax is added on and paid by everyone all the way up the line, no matter how many intermediaries there are. If a company buys something they pay tax, then they collect tax for the government when they sell something. Provincial Sales Taxes generally still work this way in Canada, as do sales taxes in most (all?) American jurisdictions with a sales tax.
In a VAT sales tax model, if a supplier buys something (or constituents parts that they make something from) they still pay sales tax on what they buy, and still collect sales tax on what they sell, but they now get to credit the tax they pay versus the tax they collect. They only have to remit to the government the difference between these two numbers; if they pay more tax than they collect (such as if they're bulking up on inventory during a slow sales period), the government will actually pay the company a tax rebate for that period! This way, in the VAT model, only the end user pays any sales tax at all. In the American model (and in the case of the Canadian PST still), everyone up the line pays sales tax with no rebates.
Whether taxes are included in the price, or added on to the price, is a matter of some interest to me. Every economist I've ever heard or read on the subject believes it's better to have taxes added on at the last minute when you purchase something (as done in North America) because it keeps consumers aware of how much tax they're really paying. Economists generally appreciate transparency, I suppose. Some consumers seem to really resent having tax added at the till, though I'm not sure why. I'd rather 5-13% be added at the till, than 15-25% included in the price, any day!
I note that sales taxes tend to be substantially lower in jurisdictions where they are added on than where they're included in the price, a fact that surprises me not at all.
And most (all?) European jurisdictions tax food in grocery stores. Seriously, Europe? (Groceries, along with several other things deemed essentials in life, are exempt from sales taxes in Canada.)