Main Methods Of Calculating Vat

1986 WordsApr 3, 20178 Pages
A value-added tax (VAT), known as a goods and services tax , is a type of general consumption tax that is collected incrementally, based on the surplus value, added to the price on the work at each stage of production, which is usually implemented as a destination-based tax, where the tax rate is based on the location of the customer. It raise about a fifth of total tax revenues both worldwide and among the members of the Organisation for Economic Co-operation and Development (OECD). METHODS OF CALCULATION There are two main methods of calculating VAT: the credit-invoice or invoice-based method and the subtraction or accounts-based method. Using the credit-invoice method, sales transactions are taxed, with the customer…show more content…
The government only receives the difference; in other words, it is paid tax on the gross margin of each transaction, by each participant in the sales chain. In many developing countries such as India, sales tax or VAT are key revenue sources as high unemployment and low per capita income are other income sources inadequate. However, there is strong opposition to this by many sub-national governments as it leads to an overall reduction in the revenue they collect . Sales tax is normally charged on end users (consumers). The VAT mechanism means that the end-user tax is the same as it would let to a sales tax. The main disadvantage of VAT is the extra accounting required by those in the middle of the supply chain; this is balanced by the simplicity of not requiring a set of rules to determine who is and is not considered an end user. When the VAT system 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 are high enough, 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

More about Main Methods Of Calculating Vat

Open Document