Value-added tax

Value added tax (VAT), or goods and services tax (GST), is tax on exchanges. It is levied on the added value that results from each exchange. It differs from a sales tax because a sales tax is levied on the total value of the exchange. For this reason, a VAT is neutral with respect to the number of passages that there are between the producer and the final consumer. A VAT is an indirect tax, in that the tax is collected from someone other than the person who actually bears the cost of the tax (namely the seller rather than the consumer). To avoid double taxation on final consumption, exports (which by definition, are consumed abroad) are usually not subject to VAT and VAT charged under such circumstances is usually refundable.

The VAT was invented by a French economist in 1954. Maurice Lauré, joint director of the French tax authority, the Direction générale des impôts, as taxe sur la valeur ajoutée (TVA in French) was first to introduce VAT with effect from 10 April 1954 for large businesses, and extended over time to all business sectors. In France, it is the most important source of state finance, accounting for approximately 45% of state revenues.

Personal end-consumers of products, consumers and services cannot recover VAT on purchases, but businesses are able to recover VAT on the materials and services that they buy to make further supplies or services directly or indirectly sold to end-users. In this way, the total tax levied at each stage in the economic chain of supply is a constant fraction of the value added by a business to its products, and most of the cost of collecting the tax is borne by business, rather than by the state. VAT was invented because very high sales taxes and tariffs encourage cheating and smuggling. It has been criticized on the grounds that it is a regressive tax.

Comparison with a sales tax

VAT differs from a conventional sales tax in that VAT is levied on every business as a fraction of the price of each taxable sale they make, but they are in turn reimbursed VAT on their purchases, so the VAT is applied to the value added to the goods at each stage of production (Sharma, 2005: 916 quoted in Muller, 2007:64).

Sales taxes are normally only charged on final sales to consumers: because of reimbursement, VAT has the same overall economic effect on final prices. The main difference is the extra accounting required by those in the middle of the supply chain; this disadvantage of VAT is balanced by application of the same tax to each member of the production chain regardless of its position in it and the position of its customers, reducing the effort required to check and certify their status. When the VAT has few, if any exemptions such as with GST in New Zealand, payment of VAT is even simpler.

A general economic idea is that if sales taxes exceed 10%, people start engaging in widespread tax evading activity (like buying over the Internet, pretending to be a business, buying at wholesale, buying products through an employer etc.) On the other hand, total VAT rates can rise above 10% without widespread evasion because of the novel collection mechanism. However because of its particular mechanism of collection, VAT becomes quite easily the target of specific frauds like carousel fraud which can be very expensive in terms of loss of tax incomes for states.

Collection Mechanism

The standard way to implement a VAT is to say a business owes some percentage on the price of the product minus all taxes previously paid on the good. If VAT rates were 10%, an orange juice maker would pay 10% of the $5 per gallon price ($0.50) minus taxes previously paid by the orange farmer (maybe $0.20). In this example, the orange juice maker would have a $0.30 tax liability. Each business has a strong incentive for its suppliers to pay their taxes, allowing VAT rates to be higher with less tax evasion than a retail sales tax.

Example

Consider the manufacture and sale of any item, which in this case we will call a widget.

Without any sales tax

• A widget manufacturer spends $1 on raw materials and uses them to make a widget.
• The widget is sold wholesale to a widget retailer for $1.20, making a profit of $0.20.
• The widget retailer then sells the widget to a widget consumer for $1.50, making a profit of $0.30

With a North American (Canadian Provincial and U.S. State) sales tax

With a 10% sales tax:

• The manufacturer pays $1.00 for the raw materials, certifying it is not a final consumer.
• The manufacturer charges the retailer $1.20, checking that the retailer is not a consumer, leaving the same profit of $0.20.
• The retailer charges the consumer $1.65 ($1.50 + 10%) and pays the government $0.15, leaving the same profit of $0.30.

So the consumer has paid 10% ($0.15) extra, compared to the no taxation scheme, and the government has collected this amount in taxation. The retailers have not lost anything directly to the tax, but they do have the extra paperwork to do so that they correctly pass on to the government the sales tax they collect. Suppliers and manufacturers have the administrative burden of supplying correct certifications, and checking that their customers (retailers) aren't consumers.

With a value added tax

With a 10% VAT:

• The manufacturer pays $1.10 ($1 + 10%) for the raw materials, and the seller of the raw materials pays the government $0.10.
• The manufacturer charges the retailer $1.32 ($1.20 + $1.20x10%) and pays the government $0.02 ($0.12 minus $0.10), leaving the same profit of $0.20.
• The retailer charges the consumer $1.65 ($1.50 + $1.50x10%) and pays the government $0.03 ($0.15 minus $0.12), leaving the same profit of $0.30.

So the consumer has paid 10% ($0.15) extra, compared to the no taxation scheme, and the government has collected this amount in taxation. The businesses have not lost anything directly to the tax, but they do have the extra paperwork to do so that they correctly pass on to the government the difference between what they collect in VAT (output VAT, an 11th of their income) and what they spend in VAT (input VAT, an 11th of their expenditure).

Note that in each case the VAT paid is equal to 10% of the profit, or 'value added'.

The advantage of the VAT system over the sales tax system is that businesses cannot hide consumption (such as wasted materials) by certifying it is not a consumer.

Limitations to example and VAT

In the above example, we assumed that the same number of widgets were made and sold both before and after the introduction of the tax. This is not true in real life.

The fundamentals of supply and demand suggest that any tax raises the cost of transaction for someone, whether it is the seller or purchaser. In raising the cost, either the demand curve shifts leftward, or the supply curve shifts upward. The two are functionally equivalent. Consequently, the quantity of a good purchased, and/or the price for which it is sold, decrease.

This shift in supply and demand is not incorporated into the above example, for simplicity and because these effects are different for every type of good. The above example assumes the tax is non-distortionary.

A VAT, like most taxes, distorts what would have happened without it. Because the price for someone rises, the quantity of goods traded decreases. Correspondingly, some people are worse off by more than the government is made better off by tax income . That is, more is lost due to supply and demand shifts than is gained in tax. This is known as a deadweight loss. The income lost by the economy is greater than the government's income; the tax is inefficient. The entire amount of the government's income (the tax revenue) may not be a deadweight drag, if the tax revenue is used for productive spending or has positive externalities - in other words, governments may do more than simply consume the tax income. While distortions occur, consumption taxes like VAT are often considered superior because they distort incentives to invest, save and work less than most other types of taxation - in other words, a VAT discourages consumption rather than production. However they are still considered inferior to taxes like land value tax which neither cause deadweight losses nor distort incentives.

A Supply-Demand Analysis of a Taxed Market

In the above diagram,

Deadweight loss: the area of the triangle formed by the tax income box, the original supply curve, and the demand curve

Government's tax income: the grey area

Total consumer surplus after the shift: the green area

Total producer surplus after the shift: the yellow area

Criticisms

The "value added tax" has been criticized as the burden of it relies on personal end-consumers of products and is therefore a regressive tax (the poor pay more, in comparison, than the rich). However, this calculation is derived when the tax paid is divided not by the tax base (the amount spent) but by income, which is argued to create an arbitrary relationship. The tax rate itself is proportional with higher income people paying more tax but at the same rate as they consume more. If a value added tax is to be related to income, then the unspent income can be treated as deferred (spending savings at a later point in time), at which time it is taxed creating a proportional tax using an income base. Such taxes can have a progressive effect on the effective tax rate of consumption by using exemptions, rebates, or credits.

Revenues from a value added tax are frequently lower than expected because they are difficult and costly to administer and collect. In many countries, however, where collection of personal income taxes and corporate profit taxes has been historically weak, VAT collection has been more successful than other types of taxes. VAT has become more important in many jurisdictions as tariff levels have fallen worldwide due to trade liberalisation, as VAT has essentially replaced lost tariff revenues. Whether the costs and distortions of value added taxes are lower than the economic inefficiencies and enforcement issues (e.g. smuggling) from high import tariffs is debated, but theory suggests value added taxes are far more efficient.

Due to the fact that exports are generally zero-rated (and VAT refunded or offset against other taxes), this is often where VAT fraud occurs. In sectors or countries where VAT fraud is prevalent, attempts by authorities to control fraud may have unintended consequences, and raise costs for honest companies. This problem is also true of other types of taxation, however.

Certain industries (small-scale services, for example) tend to have more VAT avoidance, particularly where cash transactions predominate, and VAT may be criticized for encouraging this. From the perspective of government, however, VAT may be preferable because it captures at least some of the value-added. For example, a carpenter may offer to provide services for cash (i.e. without a receipt, and without VAT) to a homeowner, who usually cannot claim input VAT back. The homeowner will hence bear lower costs and the carpenter may be able to avoid other taxes (profit or payroll taxes). The government, however, may still receive VAT for various other inputs (lumber, paint, gasoline, tools, etc) sold to the carpenter, who would be unable to reclaim the VAT on these inputs. While the total tax receipts may be lower compared to full compliance, it may not be lower than under other feasible taxation systems.

In Europe, the main source of problems is called 'carousel' fraud. Large quantities of valuable goods (often microchips or mobile phones) are transported from one member state to the other. During these transactions, some companies owe VAT, other acquire a right to reclaim VAT. The first companies, called 'missing traders' go bankrupt without paying. The second group of companies can 'pump' money straight out of the national treasuries.

This kind of fraud originated in the 1970s in the Benelux-countries. Today, the British treasury is the main victim. The British judicial system is considered by such criminals as the weakest in the EU. Collaboration with other member states is poor, and the trial-by-jury system makes convictions difficult.

VAT systems

European Union

A common VAT system is compulsory for member states of the European Union. The EU VAT system is imposed by a series of European Union directives, the most important of which is the Sixth VAT Directive (Directive 77/388/EC). Nevertheless, some member states have negotiated variable rates (Madeira in Portugal) or VAT exemption for regions or territories. The regions below fall out of the scope of EU VAT:

• Åland Islands (Finland)
• Heligoland island, Büsingen territory (Germany)
• Guadeloupe, Martinique, French Guiana, Réunion (France)
• Mount Athos (Greece)
• Ceuta, Melilla, The Canary Islands (Spain)
• Livigno, Campione d'Italia, Lake Lugano (Italy)
• Gibraltar, The Channel Islands (United Kingdom)

Under the EU system of VAT, where a person carrying on an economic activity supplies goods and services to another person, and the value of the supplies passes financial limits, the supplier is required to register with the local taxation authorities and charge its customers, and account to the local taxation authority for VAT (although the price may be inclusive of VAT, so VAT is included as part of the agreed price, or exclusive of VAT, so VAT is payable in addition to the agreed price).

VAT that is charged by a business and paid by its customers is known as output VAT (that is, VAT on its output supplies). VAT that is paid by a business to other businesses on the supplies that it receives is known as input VAT (that is, VAT on its input supplies). A business is generally able to recover input VAT to the extent that the input VAT is attributable to (that is, used to make) its taxable outputs. Input VAT is recovered by setting it against the output VAT for which the business is required to account to the government, or, if there is an excess, by claiming a repayment from the government.

Different rates of VAT apply in different EU member states. The minimum standard rate of VAT throughout the EU is 15%, although reduced rates of VAT, as low as 5%, are applied in various states on various sorts of supply (for example, domestic fuel and power in the UK). The maximum rate in the EU is 25%.

The Sixth VAT Directive requires certain goods and services to be exempt from VAT (for example, postal services, medical care, lending, insurance, betting), and certain other goods and services to be exempt from VAT but subject to the ability of an EU member state to opt to charge VAT on those supplies (such as land and certain financial services). Input VAT that is attributable to exempt supplies is not recoverable, although a business can increase its prices so the customer effectively bears the cost of the 'sticking' VAT (the effective rate will be lower than the headline rate and depend on the balance between previously taxed input and labour at the exempt stage).

Finally, some goods and services are "zero-rated". The zero-rate is a positive rate of tax calculated at 0%. Supplies subject to the zero-rate are still "taxable supplies", i.e. they have VAT charged on them. In the UK, examples include most food, books, drugs, and certain kinds of transport. The zero-rate is not featured in the EU Sixth Directive as it was intended that the minimum VAT rate throughout Europe would be 5%. However, zero-rating remains in some Member States, most notably the UK, as a legacy of pre-EU legislation. These Member States have been granted a derogation to continue existing zero-rating but cannot add new goods or services. The UK also exempts or lowers the rate on some products depending on situation; for example milk products are exempt from VAT, but if you go into a restaurant and drink a milk drink it is VAT-able. Some products such as feminine hygiene products and baby products (nappies etc) are charged at 5% VAT along with domestic fuel.

When goods are imported into the EU from other states, VAT is generally charged at the border, at the same time as customs duty. "Acquisition" VAT is payable when goods are acquired in one EU member state from another EU member state (this is done not at the border but through an accounting mechanism). EU businesses are often required to charge themselves VAT under the reverse charge mechanism where services are received from another member state or from outside of the EU.

Businesses can be required to register for VAT in EU member states, other than the one in which they are based, if they supply goods via mail order to those states, over a certain threshold. Businesses that are established in one member state but which receive supplies in another member state may be able to reclaim VAT charged in the second state under the provisions of the Eighth VAT Directive (Directive 79/1072/EC). To do so, businesses have a value added tax identification number. A similar directive, the Thirteenth VAT Directive (Directive 86/560/EC), also allows businesses established outside the EU to recover VAT in certain circumstances.

Following changes introduced on July 1, 2003, (under Directive 2002/38/EC), non-EU businesses providing digital electronic commerce and entertainment products and services to EU countries are also required to register with the tax authorities in the relevant EU member state, and to collect VAT on their sales at the appropriate rate, according to the location of the purchaser. Alternatively, under a special scheme, non-EU businesses may register and account for VAT on only one EU member state. This produces distortions as the rate of VAT is that of the member state of registration, not where the customer is located, and an alternative approach is therefore under negotiation, whereby VAT is charged at the rate of the member state where the purchaser is located.

The differences between different rates of VAT was often originally justified by certain products being "luxuries" and thus bearing high rates of VAT, whereas other items were deemed to be "essentials" and thus bearing lower rates of VAT. However, often high rates persisted long after the argument was no longer valid. For instance, France taxed cars as a luxury product (33%) up into the 1980s, when most of the French households owned one or more cars. Similarly, in the UK, clothing for children is "zero rated" whereas clothing for adults is subject to VAT at the standard rate of 17.5%.

Rules on pricing within the EU

• Where most of the trade is business-to-consumer, displayed prices must include VAT and VAT must be charged.
• Where most of the trade is business-to-business, displayed prices do not have to include VAT. For business transactions the following rules apply:
  • VAT must be charged if the buyer is in the same country as the seller. The buyer may be able to reclaim the VAT from the tax authorities.
  • VAT does not need to be charged if the buyer is in a different country. The seller must record the VAT number of the buyer.
  • Certain EU companies are VAT exempt, these companies must not be charged VAT, regardless of whether they are in the same or different country to the seller.

The Nordic countries

MOMS (Danish: Meromsætningsafgift, Norwegian: merverdiavgift (abbreviated MVA), Swedish: mervärdesskatt, earlier mervärdesomsättningsskatt) or VSK (virðisaukaskattur) in Icelandic is the Nordic term for VAT. Like other countries' sales and VAT taxes, it is a regressive indirect tax.

In Denmark, VAT is only applied at one level, and is not split into two levels as in other countries (e.g. Germany), where VAT is split into VAT for foodstuffs and VAT for nonfood. The current percentage in Denmark is 25%. That makes Denmark one of the countries with the highest value added tax, alongside Norway and Sweden.

In Iceland, VAT is split into two levels: 24,5% for most goods and services but 7% for certain goods and services. The 7% level is applied for hotel and guesthouse stays, licence fees for radio stations (namely RÚV), newspapers and magazines, books; hot water, electricity and oil for heatng houses, food for human consuption (but not alcoholic beverages), access to toll roads and music.

In Norway, VAT is split into three levels: 25% is the general VAT, 14% (formerly 13%, up on January 1, 2007) for foods and restaurant take-out (food eaten in a restaurant has 25%), 8% for person transport, movie tickets, and hotel stays. Most printed matters are still free of VAT.

In Sweden, VAT is split into three levels: 25% for most goods and services including restaurants bills, 12% for foods and hotel stays (but breakfast at 25%) and 6% for printed matter, cultural services, and transport of private persons. Some services are not taxable for example education of children and adults if public utility, but education is taxable at 25% in case of courses for adults at a private school.

MOMS replaced OMS (Danish "Omsætningsafgift", Swedish "omsättningsskatt") in 1967, which was a tax applied exclusively for retailers.

Year	Tax level	OMS/MOMS
1962	9%	OMS
1967	10%	MOMS
1968	12,5%	MOMS
1970	15%	MOMS
1977	18%	MOMS
1978	20.25%	MOMS
1980	22%	MOMS
1992	25%	MOMS

India

In India, VAT replaced sales tax on 1 April 2005. Of the 21 Indian states, eight did not introduce VAT. Haryana had already adopted it on 1 April 2004. The "empowered committee" of the basic framework for uniform VAT laws in the states. Due to the federal nature of the Indian constitution, the states do have the power to set their own VAT rate. Chancal Kumar Sharma (2005:929) asserts that the VAT system in India clearly projects the Political compulsions of the government. 'Indian VAT system is imperfect' to the extent it 'goes against the basic premise of VAT'. India seems to have an 'essenceless VAT' because the very benefits for which VAT receives academic support have been disregarded by the VAT-Indian Style, namely: removal of the distortions in movement of goods across states (b)Uniformity in tax structure (Sharma, 2005: 929. The greatest challenge in India, asserts Sharma(2005) is to design a sales tax system that will provide autonomy to subnational levels to fix tax rate, without compromising efficiency or creating efficiency problems.

Am 1.4.2005 wurde in Indien die sog. sales tax durch die value added tax (VAT) (Mehrwertsteuer) ersetzt. Sie ist inzwischen in fast allen Bundesstaaten254 anwendbar.Die sales tax wird nur beim Hersteller oder Importeur von Waren erhoben. Sie entsteht an keinen weiteren Vertriebswegen und ist in den Bundesstaaten, die noch die sales tax anwenden, unterschiedlich hoch. Die VAT dagegen wird bei bei allen geschaftlichen Transaktionen erhoben, die innerhalb eines Bundesstaates von Personen oder Unternehmen durchgefuhrt werden. Dabei wird die Vorsteuer von der Steuerlast jedes Glieds der Lieferkette abgezogen . Die Differenz daraus ist die Besteuerung des Mehrwerts in dieser Instanz und muss vom Steuerpflichtigen abgefuhrt werden (Sharma, 2005 as quoted by Muller, 2007)

The Andhra Pradesh experience

In the Indian state of Andhra Pradesh, the Andhra Pradesh Value Added Tax Act, 2005 came into force on 1 April 2005 and contains six schedules. Schedule I contains goods generally exempted from tax. Schedule II deals with zero rated transactions like exports and Schedule III contains goods taxable at 1%, namely jewellery made from bullion and precious stones. Goods taxable at 4% are listed under Schedule IV. The majority of foodgrains and goods of national importance, like iron and steel, are listed under this head. Schedule V deals with Standard Rate Goods, taxable at 12.5%. All goods that are not listed elsewhere in the Act fall under this head. The VI Schedule contains goods taxed at special rates, such as some liquor and petroleum products.

The Act prescribes threshold limits for VAT registration - dealers with a taxable turnover of over Rs.40.00 lacs, in a tax period of 12 months, are mandatorily registered as VAT dealers. Dealers with a taxable turnover, in a tax period of 12 months, between Rs.5.00 to 40.00 lacs are registered as Turnover Tax (TOT) dealers. While the former category of dealers are eligible for input tax credit, the latter category of dealers are not. A VAT dealer pays tax at the rate specifed in the Schedules. The sales of a TOT dealer are all taxable at 1%. A VAT dealer has to file a monthly return disclosing purchases and sales. A TOT dealer has to file a quarterly return disclosing only sale turnovers. While a VAT dealer can buy goods for business from anywhere in the country, a TOT dealer is barred from buying outside the State of A.P.

The Act appears to be the most liberal VAT law in India. It has simplified the registration procedures and provides for across the board input tax credit (with a few exceptions) for business transactions. A unique feature of registration in Andhra Pradesh is the facility of voluntary VAT registration and input tax credit for start-ups.

The Act also provides for transitional relief (TR) for goods on hand as of 1 April 2005. However, these goods ought to have been purchased from registered dealers between 1 April 2005 to 31 March 2006. This is a bold step compared to the 3 months TR provided by several developed countries.

The Act not only provides for tax refunds for exporters (refund of tax paid on inputs used in the manufacture of goods exported), it also provides for refund of tax in cases where the inputs are taxed at 12.5% and outputs are taxed at 4%.

The VAT Act in Andhra Pradesh is administered by the Commercial Taxes Department (department to collect VAT and other taxes) using a networked software package called VATIS. The personnel were trained prior to the Act coming into force. VATIS is used to process documents and forms received and to generate registration certificates and tax demand notices.

VAT, to be successful, relies on voluntary tax compliance. Since VAT believes in self assessments, dealers are required to maintain proper records, issue tax invoices, file correct tax returns etc. The opposite seems to be happening in India. Businesses are still run on traditional lines. Cash transactions are order of the day. The unorganised sector dominates the market. The hope of higher tax compliance and lesser evasion is still a far cry in Andhra Pradesh. This is reflected in the high percentage of return defaulters (14%), credit returns (35%) and nil returns (20%). That is, roughly 70% of VAT dealers are presently not paying any tax. Filing of credit returns is rampant among FMCG, Consumer Durables, Drugs and Medicines and Fertilizers. The margins are low in this sector (ranging between 2 to 5%). The value addition is not enough to yield revenue as of now. Credits offered by manufacturers compounds the problem. The question is, in a typical purchases and sales scenario, can there be more output tax than input tax? When purchases consistently exceed sales, can output tax exceed input tax? If a VAT dealer can balance his/her purchases and sales, can there be a net tax to the State? Is there a mathematical model or paradigm which can give value added tax and which can reduce the percentage of credit returns? There are no ready answers for these queries. The only remedy seems to be the restriction of input tax to the corresponding purchase value of goods put to sales. In fact a two tier system can be adopted to counter the credit returns - allow full input tax to manufacturers and restrict input tax to the purchase value of goods put to sale to traders. Restricting input tax to 4% in the case of inter state sales and in the case of products taxable at 12.5% seems to be another solution.

Mexico

Impuesto al Valor Agregado (IVA, "value-added tax" in Spanish) is a tax applied in Mexico and other countries of Latin America and Spain. In Chile it is called Impuesto a las Ventas y Servicios, in Spain Impuesto sobre el Valor Añadido and in Peru it is called Impuesto General a las Ventas or IGV.

Prior to the IVA, a similar tax called impuesto a las ventas ("sales tax") had been applied in Mexico. In September, 1966, the first attempt to apply the IVA took place when revenue experts declared that the IVA should be a modern equivalent of the sales tax as it occurred in France. At the convention of the Inter-American Center of Revenue Administrators in April and May, 1967, the Mexican representation declared that the application of a value-added tax would not be possible in Mexico at the time. In November, 1967, other experts declared that although this is one of the most equitable indirect taxes, its application in Mexico could not take place.

In response to these statements, direct sampling of members in the private sector took place as well as field trips to the European countries this tax was applied or it was soon to be applied. In 1969, the first attempt to substitute the mercantile-revenue tax for the value-added tax took place. On December 29, 1978 the Federal government published the official application of the tax beginning on January 1, 1980 in the Official Journal of the Federation (Diario Oficial de la Federación).

New Zealand

Goods and Services Tax (GST) is a Value Added Tax introduced in New Zealand in 1986, which is currently 12.5%. It is notable for exempting few items from the tax...

Australia

Goods and Services Tax (GST) is a Value Added Tax introduced in Australia in 2000 which is collected by the Federal government but given to state governments. The rate is currently 10%

United States

In the United States, the state of Michigan uses a form of VAT known as the "Single Business Tax" (SBT) as its form of general business taxation. It is the only state in the U.S. to use a VAT. When it was adopted in 1975, it replaced seven business taxes, including a corporate income tax. On August 9, 2006, the Michigan legislature approved voter-initiated legislation to repeal the Single Business Tax. The repeal will be effective after December 31, 2007.

Most states have sales taxes charged to the end buyer only. State sales taxes range from 0%-13% and municipalities often add an extra local sales tax . In many stores, the price tags and/or advertised prices do not include the taxes, these will be added at the cash register before the customer pays. In many states, no sales tax is charged for services. This is a key difference between most sales taxes levied throughout the United States and the value added taxes in other countries.

Tax Rates

EU countries

Country	Rate		Abbr.	Name
	Standard	Reduced
Austria	20%	12% or 10%	USt.	Umsatzsteuer
Belgium	21%	12% or 6%	BTW TVA MWSt	Belasting over de toegevoegde waarde Taxe sur la Valeur Ajoutée Mehrwertsteuer
Bulgaria	20%	7%	ДДС	Данък Добавена Стойност
Cyprus	15%	5%	ΦΠΑ	Φόρος Προστιθεμένης Αξίας
Czech Republic	19%	5%	DPH	Daň z přidané hodnoty
Denmark	25%		moms	Merværdiomsætningsafgift
Estonia	18%	5%	km	käibemaks
Finland	22%	17% or 8%	ALV Moms	Arvonlisävero Mervärdesskatt
France	19.6%	5.5% or 2.1%	TVA	Taxe sur la Valeur Ajoutée
Germany	19%	7%	MwSt./USt.	Mehrwertsteuer/Umsatzsteuer
Greece	19%	9% or 4.5% (reduced by 30% to 13%, 6% and 3% on islands)	ΦΠΑ	Φόρος Προστιθέμενης Αξίας
Hungary	20%	5%	ÁFA	általános forgalmi adó
Ireland	21%	13.5%, 4.8% or 0%	CBL VAT	Cáin Bhreisluacha Value Added Tax
Italy	20%	10%, 6%, or 4%	IVA	Imposta sul Valore Aggiunto
Latvia	18%	5%	PVN	Pievienotās vērtības nodoklis
Lithuania	18%	9% or 5%	PVM	Pridėtinės vertės mokestis
Luxembourg	15%	12%, 9%, 6%, or 3%	TVA	Taxe sur la Valeur Ajoutée
Malta	18%	5%	TVM	Taxxa tal-Valur Miżjud
Netherlands	19%	6%	BTW	Belasting toegevoegde waarde
Poland	22%	7%, 3% or 0%	PTU/VAT	Podatek od towarów i usług
Portugal	21%	12% or 5%	IVA	Imposto sobre o Valor Acrescentado
Romania	19%	9%	TVA	Taxa pe valoarea adăugată
Slovakia	19%	10%	DPH	Daň z pridanej hodnoty
Slovenia	20%	8.5%	DDV	Davek na dodano vrednost
Spain	16%	7% or 4%	IVA	Impuesto sobre el valor añadido
Sweden	25%	12% or 6%	Moms	Mervärdesskatt
United Kingdom	17.5%	5% or 0%	VAT	Value Added Tax

Non-EU countries

Country	Rate		Local name
	Standard	Reduced
Argentina	21%	10.5% or 0%	IVA = Impuesto al Valor Agregado
Australia	10%	0%	GST = Goods and Services Tax
Bosnia and Herzegovina	17%		PDV = porez na dodatu vrijednost
Canada	6% GST or 14% HST1	4.5%2	GST = Goods and Services Tax, TPS = Taxe sur les produits et services; HST = Harmonized Sales Tax, TVH = Taxe de vente harmonisée
Chile	19%		IVA = Impuesto al Valor Agregado
Colombia	16%		IVA = Impuesto sobre el Valor Agregado
People's Republic of China3	17%	6% or 3%	[增值税] Error: {{Lang}}: unrecognized language tag: zh-s (help) (pinyin:zēng zhí shuì)
Croatia	22%	0%	PDV = Porez na dodanu vrijednost
Dominican Republic	16%	12% or 0%	ITBIS = Impuesto sobre Transferencia de Bienes Industrializados y Servicios
Ecuador	12%		IVA = Impuesto al Valor Agregado
Egypt	10%		GST = Goods and Sales Tax
El Salvador	13%		IVA = Impuesto al Valor Agregado
Georgia	18%	0%	DGhG = Damatebuli Ghirebulebis gdasakhadi დღგ = დამატებული ღირებულების გადასახადი
Guyana	16%	14%
Iceland	24.5%	7%4	VSK = Virðisaukaskattur
India5	12.5%	4%, 1%, or 0%	VAT = Valued Added Tax
Indonesia	10%	5%	PPN = Pajak Pertambahan Nilai
Israel6	15.5%7		Ma'am = מס ערך מוסף
Japan	5%		Consumption tax = 消費税
South Korea	10%		VAT = 부가세(附加稅, Bugase) = 부가가치세(附加價値稅, Bugagachise)
Jersey8	3%	0%	GST = Goods and Sales Tax
Jordan	16%		GST = Goods and Sales Tax
Kazakhstan	14%
Template:KSV	15%	0%
Lebanon	10%		TVA = Taxe sur la valeur ajoutée
Moldova	20%	5%	TVA = Taxa pe Valoarea Adăugată
North Macedonia	18%	5%	ДДВ = Данок на Додадена Вредност
Malaysia9	5%
Mexico	15%	0%	IVA = Impuesto al Valor Agregado
Montenegro	17%		PDV = Porez na dodatu vrijednost
New Zealand	12.5%		GST = Goods and Services Tax
Norway	25%	14% or 8%	MVA = Merverdiavgift (informally moms)
Nepal	13%		VAT = Value Added Tax
Pakistan	7.5%	1% or 0%
Panama	5%		ITBMS = Impuesto de Transferencia de Bienes Muebles y Servicios
Paraguay	10%	5%	GST= Impuesto al Valor Agregado
Peru	19%		IGV = Impuesto General a la Ventas
Philippines	12%10		RVAT = RVAT or Reformed Value Added Tax, locally known as Karagdagang Buwis
Russia	18%	10% or 0%	НДС NDS = Налог на добавленную стоимость Nalog na dobavlennuyu stoimost
Serbia	18%	8% or 0%	PDV = Porez na dodatu vrednost
Singapore	7%		GST = Goods and Services Tax
South Africa	14%	0%	BTW = Belasting op Toegevoegde Waarde, VAT = Valued Added Tax
Sri Lanka	15%
Switzerland	7.6%	3.6% or 2.4%	MWST = Mehrwertsteuer, TVA = Taxe sur la valeur ajoutée, IVA = Imposta sul valore aggiunto, TPV = Taglia sin la Plivalur
Thailand	7%
Trinidad and Tobago	15%
Turkey	18%	8% or 1%	KDV= Katma değer vergisi
Ukraine	20%	0%	ПДВ= Податок на додану вартість
Uruguay	22%	10%	IVA = Impuesto al Valor Agregado
Vietnam	10%	5% or 0%	GTGT = Gia Tri Gia Tang
Venezuela	9%	8%	IVA = Impuesto al Valor Agregado

Note 1: HST is a combined federal/provincial VAT collected in some provinces. In the rest of Canada, the GST is a 6% federal VAT and if there is a Provincial Sales Tax (PST) it is a separate non-VAT tax.

Note 2: No real "reduced rate", but rebates generally available for new housing effectively reduce the tax to 4.5%.

Note 3: These taxes do not apply in Hong Kong and Macau, which are financially independent as special administrative regions.

Note 4: The reduced rate was 14% until 1 March 2007, when it was lowered to 7%. The reduced rate applies to heating costs, printed matter, restaurant bills, hotel stays, and most food.

Note 5: VAT is not implemented in 2 of India's 28 states.

Note 6: Except Eilat, where VAT is not raised.

Note 7: The VAT in Israel is in the process of being gradually reduced. It was reduced from 18% to 17% on March 2004, to 16.5% on September 2005, and was set to its current rate on July 1, 2006. There are plans to further reduce it in the near future, but they depend on political changes in the Israeli parliament.

Note 8: The States of Jersey has for the few years, preparing for the introduction of a goods and sales tax to plug a large budget deficit in the island's government budget. It will be held at a flat rate of 3%, with possible exceptions to local food (food not subject to an “island tax” of 5%) and children's clothing.

Note 9: In the 2005 Budget, the government announced that GST would be introduced in January 2007. Many details have not yet been confirmed but it has been stated that essential goods and small businesses would be exempted or zero rated. Rates have not yet been established as of June 2007.

Note 10: The President of the Philippines has the power to raise the tax to 12% after January 1, 2006. The tax was raised to 12% on February 1.

VAT registered

VAT registered means registered for VAT purposes, i.e. entered into an official VAT payers register of a country. Both natural persons and legal entities can be VAT registered. Countries that use VAT have established different thresholds for remuneration derived by natural persons/legal entities during a calendar year (or a different period) by exceeding which the VAT registration is compulsory. Natural persons/legal entities that are VAT registered are obliged to calculate VAT on certain goods/services that they supply and pay VAT into particular state budget. VAT registered persons/entities are entitled to VAT deduction under legislatory regulations of particular country. The introduction of a VAT can reduce the cash economy because businesses that wish to buy and sell with other VAT registered businesses must themselves be VAT registered.

See also

• VAT Identification Number
• List of tax rates around the world
• Jaffa Cake – Its non-VAT status was challenged in a UK court case to determine whether Jaffa Cake was a cake or a biscuit.
• Revenue On-Line Service
• VAT 3
• Pretax
• Value Added Tax-free Exports from the Channel Islands – companies based in the Channel Islands can export low value products without charging for VAT.
• Carousel VAT Fraud (Missing Trader Fraud)
• Progressive tax
• Regressive tax
• Income tax
• Flat tax
• Sales tax
• Land value tax
• Turnover tax

References

• "Lög nr. 50/1988 um virðisaukaskatt". 1988. Retrieved 2007-09-05. {{cite web}}: Check date values in: |date= (help)
• Sharma, Chanchal kumar 2005. Implementing VAT in India: Implications for Federal Polity. Indian Journal of Political Science, LXVI (4): 915-934. [ISSN: 00019-5510][2]
• Muller, Nichole. 2007. Indisches Recht mit Schwerpunkt auf gewerblichem Rechtsschutz im Rahmen eines Projektgeschäfts in Indien, IBL Review, VOL. 12, Institute of International Business and law, Germany.[3]
• MOMS, Politikens Nudansk Leksikon 2002, ISBN 87-604-1578-9
• Andhra Pradesh Value Added Tax Act, 2005, Andhra Pradesh Gazette Extraordinary, 25 March 2005, retrieved on 16 March 2007.

External links

• VAT Related Services at the Open Directory Project
• VAT in INDIA
• What is VAT?: General overview
• An introduction to VAT
• European VAT rates by service type
• German VAT
• VAT/GST sales tax rates around the world
• Consolidated version of the Sixth VAT Directive (398k pdf)
• HM Revenue & Customs
• UK Consumer Protection Approval Order 2005 (Code of Practice for Traders on Price Indications) defines the rules for VAT marking in the UK.
• UK VAT Threshold Rates
• What is the Single Business Tax? (Michigan Department of Treasury)
• A Guide to the latest VAT news in the UK by PricewaterhouseCoopers
• Consumption Tax Act in JPAPAN