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What are the merits and demerits of value added tax(VAT)? |
What are the merits and demerits of value added tax(VAT)? CURRENT DEBATES ON THE VALUE ADDED TAX The merits and demerits of the VAT are widely debated. Four arguments have been put forward in favour of the tax: - Revenue Potential; - Neutrality in Implementation - Efficiency; - Simplification of the Tax System. Revenue Potential... The VAT is appropriately described as a broad based tax. In its pure form, the tax is implemented with few zero-rated items and exemptions, which ensure that the tax base is comprehensive. Because the tax is levied on a buoyant base, it creates a valuable source of revenue, particularly for countries with a limited income tax base and countries that encounter problems with the implementation of the property tax. Neutrality in Implementation... A single rate value added tax with few exemptions and zero rated goods is considered non-distortionary or neutral with respect to economic behaviour. Consumers are not encouraged to change their pattern of consumption as the tax is applied on a comprehensive base. Additionally, if VAT on capital goods is fully credited, firms are not encouraged to change their method of production. Efficiency... The tax is economically efficient as it is levied on the value added and avoids the cascading effects of some indirect taxes. It replaces numerous inefficient, distortionary and badly administered taxes. The introduction of an entirely new tax system creates the opportunity to revamp the administrative mechanism for the existing tax system. Simplification of the Tax System... The VAT replaces complicated systems of indirect taxes levied at various rates and administered by various institutions. In addition, the VAT helps with the reduction in tax evasion because the invoice system is used as a control mechanism through the audit trail it creates. The disadvantages of the VAT are generally related to the difficulties of administering the tax and the distributional effects of the tax. In relation to the macroeconomic variables, VAT has a favourable impact on export earnings, but contributes to higher prices during the period of implementation. VAT and Macroeconomic Variables Inflation... Countries have experienced higher rates of inflation with the introduction of VAT, generally associated with the higher dependence on indirect taxes and the process of shifting the burden of indirect taxes to the consumers. Ignoring variations in price and demand elasticities, it is generally argued that price rises by the net effect of the VAT. This rarely occurs in practice. The impact on price is further complicated as businesses may take the opportunity to increase prices for reasons not associated with the VAT. Exports... Exports are zero-rated in the VAT systems, which means that they are completely free from taxes. It is Eastern Caribbean Central Bank therefore argued that the VAT has a favourable impact on exports and could improve the country鈥檚 balance of payments. Some CARICOM countries have experimented with the implementation of VAT with varying degrees of success. Source(s): http://www.eccb-centralbank.org/pdf/arti... you could also see these... http://en.wikipedia.org/wiki/value_added... http://en.wikipedia.org/wiki/value_added... Earlier regimes of Sales tax, there were chances of only a particular person in a the chain have to pay taxes (and of course ultimately all of them are passed on to the consumer) however in VAT regime., all persons involved in the chain, have to pay tax., VAT essentially works out to tax on gross profit hence there is equity and one more advantage is that VAT regime is that, when a buyer takes a Bill for goods he purchases, he has an advantage of setting off the taxes he paid against his liability, earlier regime this benefit was not there., and who ever takes a bill are put to loss by charging them more money and people were discouraged from taking bills and which resulted in a lot of OFF market transactions (popularly know and Number 2 transaction)., recent observations in Delhi and other north Indian states that V A tax collections are increasing is only on account of that (earlier No. 2 transactions are becoming No.1) hence taxes are collected. How ever there are some minor Hitches like turnover tax and CST which should be rolled back completely to get the full benefit of the VAT regime All it rolls down to the point that, State Govt. collect taxes on Gross profit and Central govt. collects taxes on Net profits. God bless Governments and its citizens NO MERITS! The Alaska state constitution claims common heritage rights of ownership of oil and other minerals for the people of the state as a whole. Citizen dividend checks are distributed every year in Alaska out of the interest payments to an oil royalties deposit account called the Alaska Permanent Fund (APF) created in 1976 after oil was discovered on the North Slope. The APF is a public trust fund - a diversified stock, bond and real estate portfolio - into which are deposited the oil royalties received from the corporations which extract the oil from the lands of Alaska. The first citizen dividend check from the interest of the APF was issued in 1982 and was for $1000 per every person for everyone in Alaska who had resided in the state for at least one year. Annual citizen dividends have been issued every year since then, for a total of more than $23,000 per person. In 2003, each of the nearly 600,000 Alaska US citizens (residents of Alaska for at least one year) received a check for $1,107 from the APF. The total amount dispersed was $663.2 million. The $25 billion investment fund's core experienced stock market losses which led to the dividend's decline this past year compared to the several previous years. The amount was $433 less, a 28 percent drop from the 2002 pay out of $1,540, and a 44 percent decrease from the all-time high of $1,964 in year 2000. The amount changes based on a five-year average of APF investment income derived from the bonds, stock dividends, real estate and other investments. Alaska relies on oil for about 80 percent of its revenue and has no sales or income tax. Alaska state government is mandated to invest 25% of its oil revenue into the APF while the other 75% of oil royalty revenue is dispersed to other government funds to finance education, infrastructure and social services. If 100% of Alaska's oil royalties had been deposited into the APF, it is conceivable that the CD this year could have been about $4,400 or $17,600 for a family of four. But then there would have been no funds for roads, education and other public services and no funds available to run the state legislature - a libertarian dream fulfillment or a social and economic disaster, which one we will never know. If state services were to have been maintained while 100% of oil royalties were deposited in the APF, there would of course have been the need for income, sales and other taxes on wages and production. Source(s): Hoover Institution Kuwait: Democracy, Kuwait Style Peter Berkowitz It鈥檚 not that the woman question was the only issue faced by voters. From the owner and editor in chief of Kuwait鈥檚 largest newspaper, to the chief executive officer of Kuwait Petroleum Company, to the former Kuwaiti ambassador to the United States, our interlocutors argued that the Kuwaiti economy is stagnating and that the remedy is privatization. This is a difficult proposition, however, in a country where 90 to 95 percent of the labor force is employed by the government, which generally pays more than the private sector. And designing institutions to create the right incentives will be difficult in a country whose oil wealth supports a massive welfare state with no taxes that generously funds its citizens鈥?health, education, and housing needs. If Alaska pays Kuwait pays even it鈥檚 indirectly after the gulf war losses Dubai pays I鈥檝e read Norway does something like this I鈥檝e read Nigeria is working on a fund to pay the people also Oil is just 1 of thousands of commodities. With all the commodities in your state. Why can鈥檛 your state pay you? With the resources the feds can鈥檛 they pay 50 times what Alaska pays? The dems and reps have all the power and all the control. Shouldn鈥檛 they bear all the responsibility for their mismanagement? It is time to take America back for the people. VOTE! Vote for anyone as long as they鈥檙e not a democrat or republican! If our founding father were alive today. They would lay siege to DC tar and feather ALL the officials. Then hang them on the steps for all to see the consequences of screwing Americans!! If we continue to ask for truth, then refuse to listen. Mankind will forever, be doomed to destruction. There must be security for all, or none are secure! This requires losing no freedoms, only to act responsibly! www.permanentenergy.com www.earthrights.net/docs/oilre... that鈥檚 oil rent www.pfd.state.ak.us www.rense.com general13 www.milnet.com Kuwait |
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