Quote:
Originally Posted by JSWolf
VAT is the same thing as sales tax. The only difference is that VAT is the same for the entire UK unlike the US where sales tax can be different for different states.
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That is totally incorrect. As has been pointed out VAT (called GST in some countries) is a consumption tax.
As has been explained each of the sellers involved in the production of the good or service through the supply chain to final seller each pay VAT to this effect - their total inputs on which VAT applies are deducted from their total sales on which VAT applies. It is possible, and often happens, that for a business in the supply chain the total VAT on the inputs is higher than the total VAT on their outputs which although they "charged" VAT on each of their sales means that they actually get a VAT refund from the country's tax department.
Where people who do not understand the workings go wrong is that they assume that the VAT charged on items sold all goes to the tax department. It does not, only the difference between the total VAT paid to the business's suppliers and the VAT calculated on total VAT non-exempt sales goes to the Revenue. When one buys an item with 15% VAT applicable to it, that 15% does not get channeled to the Revenue. If, for example, a supplier sold only one taxable item a year then just because he sells that with 15% VAT "associated" with the selling price he does not return that 15% to the Revenue. If the 15% VAT he has paid on all his inputs from his suppliers is greater than the 15% "associated" with his selling price then he would (for example if there was a loss on the sale), in fact, get a VAT refund from the Revenue.
It is quite a hard concept for some people to get their heads around but it works very well and tax fraud is reduced in most cases, businesses like it as it is very easy to implement, and as sales prices in most (all???) VAT/GST countries have to be advertised as the total cost to the customer it is essentially of no complication to them, in that price is the cost of materials, labour and taxes.
In NZ GST is applied to essentially every common good and service except financial transactions (so one does not pay GST on purchases of company shares, for example); nor on second hand goods in order to avoid multiple taxing of the same good through its useful life (so a house buyer pays GST on a house just built, but not on second hand houses). GST fraud in NZ is very low and there is little chance of evasion by wrongly categorizing goods; and there is a very high level of acceptance here that this is the way it should be. Australia exempts some goods, mainly basic foods (there may be others, but foods serves this example) which muddies the waters as it can be unclear or contorted to be unclear as to what category the good is in.
The EU is a whole different ball game as, for example, the countries in it have very loose trading borders but the countries have differing VAT rates. So, as has been pointed out, there is a hothouse for fraudulent VAT transactions.