VAT(Value Added Tax)-its advantages and disadvantages?

The advantagea and disadvantages of VAT?
In: Business.Tax Asked by: ayesha_thaseen May 26, 2008 - 97 Months Ago.  Viewed 21139 times



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VAT is a governmental tax charged on purchases. A broad based consumption tax implies tax on services, not just products. When asked about advantages and disadvantages, the question implies comparison to alternatives.

If VAT is not charged, then income taxes are necessarily higher, unless the government has some other alternative to raise funds. There's the option to cut services of course.

In economic terms, when comparing VAT advantages to income taxes, VAT results in more savings and less consumption, because consumption costs more.

Because VAT is charged based on purchases, it's not possible to tailor the tax based on income, other than adding taxes to luxury items. Income taxes can be specifically scaled progressively so that higher income earners pay higher tax rates.
Answered by: shshao - 77 Months Ago.
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