Value added tax

oad · Member

Value added tax

lundbaek · Profuse Pontificator

I may be missing something, but it seems to me that to the end purchaser a VAT is a federal sales tax.

Roper · Senior Bucketkeeper

VAT is an incremental tax that is added to goods at each stage of development--at each transaction. A book for example: Tax gets charged at the mill for turning wood pulp into paper, at the press for applying ink, at the warehouse for storing and distributing, and at the bookstore.

If sales tax exceeds about ten percent, people start getting upset and start finding ways to avoid paying the tax--buying over the internet, for example. VAT is a way to hide tax. You can levy fifteen to twenty percent on the same goods, but spread it out so that others share the tax burden. However, tax cost is just passed on to the end consumer in the form of higher prices.

It's the same underlying reasoning for automatic payroll withholding of taxes--if you don't see it, then you don't mind paying it. (If everyone had to write out a hefty check to the gubment every quarter, like small businesses do, we would all be screaming for tax reform.) VAT will allow the government to tax goods at a much higher rate without public outrage.