Implications of VAT

Implications of VAT

Let’s learn more about the Implications of VAT. A value-added tax (VAT) is a consumption tax placed on a product whenever a value is added at each stage of the supply chain, from production to the point of sale. The amount of VAT that the user pays is on the cost of the product, less any of the costs of materials used in the product that has already been taxed. Value-added taxation is based on taxpayers’ consumption rather than their income. In contrast to a progressive income tax, which levies greater taxes on higher-level earners, VAT applies equally to every purchase.

VAT has earned a negative connotation in some parts of the world where it has been introduced, even hurting its proponents politically. In the Philippines, for example, Senator Ralph Recto, the chief proponent of VAT in the early 2000s,³ was voted out of office by the electorate when he ran for re-election. However, in the years that followed its implementation, the population eventually accepted the tax. Recto ended up finding his way back to the Senate, where he became the proponent of an expanded VAT.  a VAT offers advantages over a national sales tax. It is much easier to track. The exact tax levied at each step of production is known. With a sales tax, the entire amount is rendered after the sale, making it difficult to allocate to specific production stages

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