VAT

Posted Oct 1, 2008 9:35 UTC (Wed) by simonckenyon (guest, #41836)
In reply to: leaving the question: by djao
Parent article: Zen and the Art of the Six-Figure Linux Job (IT Management)

"including the dreadful VAT which is a totally foreign concept to Americans"

you call it "sales tax"

VAT vs. sales tax

Posted Oct 1, 2008 9:50 UTC (Wed) by djao (guest, #4263) [Link] (1 responses)

There is a significant practical difference between VAT and sales tax. The VAT system provides an economic incentive for businesses to collect the tax. For this reason, the tax rates for VAT can be well higher than anything that the public would tolerate in a sales tax. No country in the world has a sales tax higher than 10% -- it is unenforceable and leads to widespread tax evasion. But many countries do have VAT rates higher than 10%, including some countries like Canada which have a combined VAT (GST) and sales tax (PST).

My point was that taxes in Norway are high. In making this point, the distinction between VAT and sales tax is very important, because sales taxes simply cannot get as high as a VAT.

VAT vs. sales tax

Posted Oct 3, 2008 21:33 UTC (Fri) by Wol (subscriber, #4433) [Link]

I don't know that "VAT provides an economic incentive for businesses to collect the tax". I think it's just that it makes evasion far harder.

In the UK, sales tax was collected at the point of retail sale. Business-to-business transactions were "exempt". So if, as a consumer, you could pretend to be a business, you could dodge the tax. Now that VAT is accounted for at EVERY STAGE of the transaction, you can only dodge it through fraud.

Either you're not registered for VAT and you pay it to your suppliers (and you are making so little it's not worth the effort of Customs & Excise to try and collect it off you), or you're registered and have to track it both in and out.

The only way transactions are exempt are either (a) the customer is outside the EU, or (b) the customer is abroad and you have their VAT number so you know they're accounting to their equivalent of Customs & Excise.

Cheers,
Wol