Value Added Tax 👉 VAT

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VAT systems currently exist in multiple economies and are an important part of the revenue within the trading blocks for the political environment. It is one of the sources of capital for the fiscal budget and allocation of resources towards infrastructure, development, subsidies and other projects to enable economic growth and development.

VAT?

The value-added tax is a tax payable/cost of capital for each supply member. Let’s assume a manufacturer sells goods to the distributor at a VAT rate of 20%. This would increase the cost of goods and the distributor would have to pay an additional 20% on $1,000 for example. The price of purchased goods would be $1,200. The distributor adds the margin and other costs before forming the price for sale after which he adds the 20% VAT on $1,500. The new VAT rate charged to the retailer would be $1,800. In this example, the manufacturer has already paid $200 to the government, while the distributor has to pay the output-input tax rate. The distributor input rate has been $200 while the output is $300 therefore by selling the goods to the retailer the distributor acquires additional capital and pays the difference of $100 to the government. This process is ongoing until it reaches the end consumer that executes a final VAT payment by purchased goods and services and the cycle moves to its beginning point. The VAT system is developed to ensure that each supply chain member contributes to the economy by contributing to the government which has to have a fiduciary obligation to allocate the capital in a valuable manner.

VAT = Output Capital – Input Capital

Expressed in both % and monetary value.

In case a company has had higher input than output it is eligible for a Tax Credit later transferred on purchased goods reducing its tax payment obligation to the government.

This is an equal, allocating system to reduce the tax burden of each supply chain member to contribute to increased output, better market prices, and increased turnover from a better purchasing power of each member including the end consumer.

This being it mechanism contributes to more effective and efficient economic growth is than prior Independent Taxation Systems that existed in certain economies.

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#equal #allocation #government #economy

#us #eu #taxes #fiscalpolicy #fiscalbudget