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Value-Added Tax (VAT)

What is a 'Value-Added Tax - VAT'

A value-added tax (VAT) is a type of consumption tax that is placed on a product whenever value is added at a stage of production and at final sale. VAT is most often used in the European Union. The amount of VAT that the user pays is the cost of the product, less any of the costs of materials used in the product that have already been taxed.

Explaining 'Value-Added Tax - VAT'

Value-added taxation is based on a taxpayer's consumption of goods rather than his income. More than 160 countries around the world use value-added taxation. In America, advocates claim that replacing the current income tax system with a federal VAT would increase government revenue, help fund essential social services and reduce the federal deficit. Critics disagree, arguing that a VAT places an increased economic burden on lower-income taxpayers.

Pros and Cons of Value-Added Taxation

On the plus side, a VAT would collect revenue on all goods sold in America, including online purchases. Despite efforts to close tax loopholes that allow Internet businesses to avoid charging taxes to customers in states where they do not have a brick-and-mortar business, unpaid taxes on online sales cost states billions in potential income that could fund schools, law enforcement and other services.


Further Reading


The value-added tax: key to deficit reduction?
ideas.repec.org [PDF]
… Cited by: Charles McLure, 2000. "Implementing Subnational Value Added Taxes on Internal Trade: The Compensating … "Electronic Commerce, State Sales Taxation, and Intergovernmental Fiscal Relations," National Tax Journal, National Tax Association, vol …

The collection efficiency of the Value Added Tax: Theory and international evidenceThe collection efficiency of the Value Added Tax: Theory and international evidence
www.tandfonline.com [PDF]
… Cited by: Charles McLure, 2000. "Implementing Subnational Value Added Taxes on Internal Trade: The Compensating … "Electronic Commerce, State Sales Taxation, and Intergovernmental Fiscal Relations," National Tax Journal, National Tax Association, vol …

The shifting role of value-added tax (VAT) as a media policy tool: A three-country comparison of political justificationsThe shifting role of value-added tax (VAT) as a media policy tool: A three-country comparison of political justifications
www.tandfonline.com [PDF]
… Cited by: Charles McLure, 2000. "Implementing Subnational Value Added Taxes on Internal Trade: The Compensating … "Electronic Commerce, State Sales Taxation, and Intergovernmental Fiscal Relations," National Tax Journal, National Tax Association, vol …

Can value-added tax incentives of new energy industry increase firm's profitability? Evidence from financial data of China's listed companiesCan value-added tax incentives of new energy industry increase firm's profitability? Evidence from financial data of China's listed companies
www.sciencedirect.com [PDF]
… Cited by: Charles McLure, 2000. "Implementing Subnational Value Added Taxes on Internal Trade: The Compensating … "Electronic Commerce, State Sales Taxation, and Intergovernmental Fiscal Relations," National Tax Journal, National Tax Association, vol …

The role of value added tax on economic growth of EthiopiaThe role of value added tax on economic growth of Ethiopia
www.ajol.info [PDF]
… Cited by: Charles McLure, 2000. "Implementing Subnational Value Added Taxes on Internal Trade: The Compensating … "Electronic Commerce, State Sales Taxation, and Intergovernmental Fiscal Relations," National Tax Journal, National Tax Association, vol …

Tax reforms in Nigeria: case for value added tax (VAT)Tax reforms in Nigeria: case for value added tax (VAT)
www.ajol.info [PDF]
… Cited by: Charles McLure, 2000. "Implementing Subnational Value Added Taxes on Internal Trade: The Compensating … "Electronic Commerce, State Sales Taxation, and Intergovernmental Fiscal Relations," National Tax Journal, National Tax Association, vol …

The roles of value added tax in the economic growth of NigeriaThe roles of value added tax in the economic growth of Nigeria
www.journaljemt.com [PDF]
… Cited by: Charles McLure, 2000. "Implementing Subnational Value Added Taxes on Internal Trade: The Compensating … "Electronic Commerce, State Sales Taxation, and Intergovernmental Fiscal Relations," National Tax Journal, National Tax Association, vol …

Taxation of financial services under a value-added tax: Applying the cash-flow approachTaxation of financial services under a value-added tax: Applying the cash-flow approach
www.jstor.org [PDF]
… Cited by: Charles McLure, 2000. "Implementing Subnational Value Added Taxes on Internal Trade: The Compensating … "Electronic Commerce, State Sales Taxation, and Intergovernmental Fiscal Relations," National Tax Journal, National Tax Association, vol …



Q&A About Value-Added Tax (VAT)


"What advantages does having one large national sales tax instead of multiple state sales taxes bring?

One large national sales tax brings simplicity as well as ease when it comes time to file your yearly return."

Who disagrees with this statement?

Critics disagree, arguing that a VAT places an increased economic burden on lower-income taxpayers.

Who would benefit from replacing income taxes with a federal VAT?

Advocates claim that replacing income taxes with a federal VAT would increase government revenue, help fund essential social services and reduce the federal deficit.

Where do most countries use VAT?

Most countries use VAT in Europe.

What would be collected under a federal VAT system?

All goods sold in America, including online purchases.

What is a value-added tax?

A value-added tax (VAT) is a type of consumption tax that is placed on a product whenever value is added at a stage of production and at final sale.

How does VAT work?

VAT works by charging the user the cost of the product, less any costs of materials used in the product that have already been taxed.