[can.politics] VAT

robinson@ubc-cs.CDN (Jim Robinson) (11/14/84)

*
That the Federal Government intends to study the possibility of implementing
a Value Added Tax ( VAT ) has got me to wondering just what a VAT is ?
Specifically:
     i) Is it possible to know how much tax you are paying on a good ?
        Under the present system an item that costs $1.10 includes 10 cents
        of federal sales tax, however, since a VAT accrues at each stage of 
        production, and since I don't think it is possible to know how
        many stages of production there are in your average good, then 
        how can you begin to estimate the total amount of tax you are 
        paying.
    ii) Is the tax rate at each stage of production the same ?
   iii) Won't a VAT involve a lot more paper work than the present
        system, the cost of which will ultimately be passed on to the
        consumer ?
    iv) Last, but not least, what deficiences exist in a federal sales
        tax that would be remedied by a VAT ?        

                                              J.B. Robinson

atbowler@watmath.UUCP (Alan T. Bowler [SDG]) (11/16/84)

Normally what is called a value added tax (VAT) is fixed at
all stages in production.  Hence the percentage of the final
price is the same no matter how many stages there are.  The
difference is that the tax has been collected in several stages. In your
example, an item which uses $.50 of raw materials, and which a manufacturer
wants to sell to $.50 above that to cover manufactuing costs and profit
still sells for $1.10, but the tax was collected as 5 cents and 5 cents.
The manufacturer paid $.55 for his raw materials, he charges his customers
$1.10.  He remits to the goverment 10% of his sales (10 cents) less
10% of his taxable raw materials (5 cents).  This makes the system
moderately self policing, since your net sales are easy to find
the way to minimize the amount of money your company remits to the
goverment is to report accurately the amount you paid your suppliers,
hence the government has an independant check of what the supplier
sold (i.e. it knows what his net sales were).  The system is designed
to really make honesty the best (or at least an very good) policy.
   Wheither this is more or less paperwork than the present system
is not clear.  True, more the tax is collected in more stages,
but at present there is paperwork submitted at each of these stages
to show that the recipient is not the real end user, and so tax
is not due there is no ongoing monetary incentive (other than the
threat of legal action and fines) to make sure that this paperwork
is accurately reported.
   This is or course how a VAT is supposed to work.  That is, a simplified
sales tax system with no complex exception list.  What relation this
has to what the politicians implement call a VAT is not clear.
Simple no exception rules are not a politician's bread and butter.