VAT vs. sales tax

Posted Oct 3, 2008 21:33 UTC (Fri) by Wol (subscriber, #4433)
In reply to: VAT vs. sales tax by djao
Parent article: Zen and the Art of the Six-Figure Linux Job (IT Management)

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