> Harold Hallikainen wrote:
>
>> Does VAT stand for Value Added Tax?
>
> Yes.
>
>> How does this work with a chain of suppliers, each adding some value?
>
> Extremely simple. If you sell something (professionally, doesn't matter
> whether product or service, and doesn't matter whether to businesses or
> final consumers), you need to collect VAT on top of that. This VAT has to
> be spelled out in the invoice. The VAT that you have to pay to the
> government is the balance of collected (through sales) and paid (through
> purchases) VAT.
>
> The advantage is that there's no tax exemption and the associated
> bureaucratic overhead (but creating the same effect, and better), and
> there's no difference between buying something for resale and buying
> something for use (in business). For both you pay VAT, and for both you
> discount that paid VAT against the VAT you collect when you sell.
>
> In the end, who pays it all is the final consumer (like with all taxes,
> more or less covert); that is in this case the last in the chain who can
> not deduct the paid VAT from collected VAT. And what this last one pays
> gets passed on to the government by everybody who added to the final sales
> value of the product or service, in the proportion they contributed to it.
>
> There are of course the exceptions to the rule... for example, basic items
> like food are exempt, and books only pay half the rate (in Germany at
> least; I suspect it's similar but different in the details in other
> countries).
>
>
> IMO this system makes more sense than the sales tax system, as it is
> simpler and more logical and involves less administrative overhead.
>
> Gerhard
>


I assume a reseller deducts only the VAT paid on items he/she actually
resells. Do inventory control systems maintain a separate field for the
VAT portion of the cost of goods sold? Seems like there'd be a danger of
someone deducting "paid VAT" on stuff that was used instead of resold
(there's a similar problem with sales tax in buying stuff for resale, then
using it instead).

As another poster pointed out, this DOES get interesting with interstate
commerce since each state is responsible for sales tax. In addition, a
portion of the sales tax goes to the local governments who set the rate of
their "add on" to the basic state tax. How does this work in VAT
countries? Is VAT a national instead of state/local tax? How does it apply
on international sales?

Harold


Harold

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