The Benefits and drawbacks of Value Added Tax

 A VAT tax, or Value Added Tax, is a type of tax that has been in use around the world since the 1950s. The VAT tax works on the principle of imposing a tax on the buyer all the way up the supply chain of a product, from the initial purchase of raw materials to the retail consumer of the product. It also applies to service sales.

According to the Wall Street Journal, the VAT tax is "baked into the retail price."

VAT or GST is used in all countries, as well as many other countries around the world. A VAT is defined as follows:

Accountants in Islamabad

  • A general tax that, in theory, applies to all commercial activities involving the production, distribution, and provision of goods and services.
  • Because it is ultimately borne by the final consumer, it is referred to as a consumption tax. It is not a tax imposed on businesses.

Out-of-Country Tourists and the VAT Tax

The only exception to consumers paying VAT tax is that if they are not residents of the country, they can apply for a refund of the VAT tax they paid. Of course, many tourists fail to claim this refund, resulting in the money going to the country's revenue department.

Here's an example of how a VAT tax works for visitors from other countries: In Ireland, the VAT tax rate is 23%. 

Sales Tax vs. VAT Tax

Only the consumer at the end of the line is subject to a sales tax. The consumer is not eligible for a refund. VAT and sales tax are similar in that businesses can obtain a sales tax exemption from paying sales tax on products they eventually sell to a consumer.

The Advantages of a VAT

  • A VAT would, according to supporters, eliminate the convoluted income tax system because it is more efficient and generates more revenue.
  • A VAT would also solve the problem of lost online sales taxes because imposing a VAT would imply that all sales, including online sales, would be taxed.
  • A VAT would generate additional revenue to help reduce the deficit and fund critical programmes such as health care for all Americans.

VAT Disadvantages/Problems

  • VATs are extremely regressive, with the burden falling primarily on the poor.
  • The elimination of the IRS and the income tax system will be difficult, if not impossible, so the VAT will be just another tax imposed on the American people.
  • The states will be outraged if the VAT replaces state sales taxes. The state sales tax system is extremely complicated, with some states not charging state sales tax and others taxing at various rates, including local option taxes levied by cities and counties. It could take years to clean up this mess.
  • VAT calculations would be prohibitively expensive for businesses, which would be required to calculate VAT on every product, at every stage of the process. These costs, along with the VAT rates, would, of course, be passed on to consumers.

If you are an individual or a business in Pakistan that generates money, you are required to pay income tax as well as other direct taxes. To do so, you must first register as a taxpayer and obtain a National Tax Identification Number (NATN) (NTN).


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