Value

J.B. Maverichồng is a novelist, scriptwriter, and published author with 17+ years of experience in the financial industry.

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Lea D Uradu, JD is an American Entrepreneur và Tax Law Professional who has occupied both the tax law analyst & tax law adviser role.

A value-added tax (VAT) is a consumption tax that is levied on a product repeatedly at every point of sale at which value has been added. That is, the tax is added when a raw materials producer sells a hàng hóa to a factory, when the factory sells the finished product to lớn a wholesaler, when the wholesaler sells it on khổng lồ a retailer, &, finally, when the retailer sells it to lớn the consumer who will use it.


Ultimately, the retail consumer pays the VAT. The buyer in each earlier stage of the product"s production is reimbursed for the VAT by the subsequent buyer in the chain. VAT is commonly used in European countries. The U.S. does not utilize a VAT system.


VAT is commonly expressed as a percentage of the total cost. For example, if a sản phẩm costs $100 & there is a 15% VAT, the consumer pays $115 khổng lồ the merchant. The merchant keeps $100 và remits $15 to the government.


A value-added tax (VAT) is paid at every stage of a product"s production from the sale of the raw materials lớn its final purchase by a consumer.Each assessment is used lớn reimburse the previous buyer in the chain. So, the tax is ultimately paid by the consumer.Opponents say it is unfair lớn lower-income consumers, who must spover a higher proportion of their income in VAT than wealthier consumers.Proponents say it discourages tax avoidance by providing a paper or electronic trail of taxes for every sản phẩm.

VAT vs. Sales Tax

A VAT system is often confused with a national sales tax. But a sales tax is only collected once—at the final point of purchase by a consumer. So, only the retail customer ever pays it.


The VAT system is invoice-based & is collected at multiple points during the production of a finished product. Each time value is added, a sale is made and a tax is collected và remitted to the government.


Example of VAT

An example of a 10% VAT in sequence through a chain of production might occur as follows:


A manufacturer of electronic components purchases raw materials made out of various metals from a dealer. The metals dealer is the seller at this point in the production chain. The dealer charges the manufacturer $1 plus a 10-cent VAT, và then sends the 10% VAT khổng lồ the government.


The manufacturer uses the raw materials khổng lồ create electronic components, which it then sells lớn a cell phone manufacturing company for $2 plus a 20-cent VAT. The manufacturer sends 10 cents of the VAT it collected to lớn the government and keeps the other 10 cents, which reimburses it for the VAT it previously paid to lớn the metals dealer.


The cell phone manufacturer adds value by making its mobile phones, which it then sells to a cell phone retailer for $3 plus a 30-cent VAT. It pays 10 cents of the VAT khổng lồ the government. The other 20 cents reimburse the cell phone manufacturer for the VAT it has paid khổng lồ the electronic components manufacturer.

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Finally, the retailer sells a phone lớn a consumer for $5 plus a 50-cent VAT, 20 cents of which is paid to the government, và the rest it keeps as reimbursement for the VAT it paid previously.


The rate is reduced to 5% on certain purchases such as children"s car seats và trang chủ energy. There is no VAT on some items such as food and children"s clothing. Financial and property transactions also are exempt.


Arguments in Favor of VAT

Those who favor value-added taxation argue that a VAT system discourages attempts to lớn avoid taxes. The fact that VAT is charged (& recorded) at each stage of production rewards tax compliance & acts as a disincentive lớn operating in the black market.


For manufacturers and suppliers to lớn be credited for paying VAT on their inputs, they are responsible for collecting VAT on their outgo: thegoods they create or sell.


Retail businesses have sầu an incentive to collect the tax from their customers since that is the only way for them lớn obtain credit for the VAT they had khổng lồ pay in buying their goods wholesale.


Better Than a Hidden Tax

A VAT is also arguably better than so-called hidden taxes. These are the taxes that consumers pay without entirely being aware of them, such as taxes on gasoline and alcohol. In the U.S., these are surcharges on top of sales taxes but are not itemized.


Because they are levied at the same percentage on many or most products & services, a VAT is seen as having less of an impact on individual economic decisions than an income tax.


Still, it can register on a country"s economy. A VAT is considered an effective way khổng lồ improve sầu the growth of a nation"s gross domestic sản phẩm (GDP), raise tax revenues,và eliminate government budget deficits.


Unlượt thích a progressive income tax such as the U.S. system in which higher-income individuals pay a higher percentage in taxes, a VAT is a flat tax: All consumers regardless of income pay the same percentage.


Obviously, the 20% VAT in the U.K., for example, cuts deeper inkhổng lồ the budget of the person who makes less money.


To relieve this income inequality, most countries that have sầu VAT, including Canadomain authority và the U.K., offer exemptions or discounts on necessities such as children’s clothing & groceries. 


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