Is VAT the new overdraft in these recessionary times?



Is VAT the new overdraft in these recessionary times?

Introduction

Economists consider VAT to be a general consumption tax, which has an impact on the economy of countries. The rate of VAT varies from country to country, depending on the other official taxes and its rates. The developing countries impose Value Added Tax to improve their economic conditions, as their economy requires such type of hidden taxes. There are many questions that arise when studying about the VAT. These questions include, do all the VAT's follow the same pattern? Is VAT the new overdraft in these recessionary times? Is it good in terms of equity and administrative terms?

Several countries are facing recession these days, and as a result the economy is suffering to a great extent. The government of the countries are looking for ways to overcome the situation of recession.

What is VAT?

VAT is an abbreviation for Value added tax which is a kind of tax charged on the consumer spending. The Value added tax is remunerated by the final or end consumer of any good or services. It is not a direct tax which is usually deducted from a person's salary or income. It is an indirect tax, which is paid when a person spends money while purchasing any good or service. The Value Added Tax covers up several goods and services in its net, so it is also considered as Broad based tax (Schneider, 2011).Like other taxes, VAT does not depend on whether a person is an employee or not, everyone has to pay this tax if purchasing anything (Schneider, 2011). The value and importance of VAT is increasing day by day, and now more than 136 countries have adopted it. Value Added Tax is considered to be a multipoint sales tax which is also aiming to create uniformity in the structure of tax throughout the state. In the future it is predicted that all the countries including developing countries will start imposing Value added taxes on their products and services.

VAT is considered to be a broad based tax which covers up several different expenditures under its roof. This type of tax also exempts some items like products related to basic needs, insurance, welfare services and education services. All these are free of Value Added Tax and do not have any impact on the nature of VAT. The imposition of the Value Added Taxes is generally on imports of goods as well as services and on the supply of goods and services. Almost all the financial services are exempt from value added taxes which shows that the financial organizations and systems do not charge taxes. But this does not mean that they don't pay taxes, they do pay taxes on their own purchases (Schneider, 2011).

The largest source of revenue for the government of UK is taxation, including both corporate as well as personal. This includes all the direct and indirect taxes of the state which people are paying directly and ...