VAT Abella

1.

It is the most dreaded kind of tax. It is not a new type of tax.

Consumers do not like the concept of VAT because of the wrong impression that that the imposition of VAT makes the price of
goods and services inflationary

2.

Should VAT be abolished?

If not the value added tax, then what type of tax would be imposed?

3.

Value added tax is a form of sales tax

4.

Is the sales tax superior to the value added tax?

 5.

Business men do not like VAT

This is because the value added tax poses all those who are engaged in business to be honest

Under the VAT, one cannot cheat on his taxes, because there is an auditing that is established through the introduction of the credit
invoice method value added tax

Businessmen will be forced to pay what is legally due to the government, not only in terms of VAT but also in terms of income tax

Their declaration in their income tax return should be the same as that declared in their VAT return, except for sellers of services

6.

For income tax purposes, sellers of services normally follow the accrual method

So even those income or revenues not collected will form part of the gross income for tax purposes

But for value added tax, it is gross receipts all the time. It is akin to the cash basis of recognizing revenues

So services already rendered where the compensation has not yet been collected will not be subject to VAT as yet

7.

What is the global trend about the VAT?

 It is very popular insofar as advanced economies are concerned

It is a global phenomenon

We are one in Asia that introduced VAT

8.

CANADA calls it goods and services tax

9.

It is the best invention made by man

10.

Advantage of Value Added Tax

There is difficulty of administering tax if there are many tax rates

But it is now replaced by one type of business tax, the value added tax

It is basically a business tax which is levied on the sale of certain goods, properties and services

Under the law, VAT is a multi layered sales tax imposed in all stages of distribution, starting from the point of production and
culminates at the point of consumption

11.
 Sales tax vs Value Added Tax

Unlike the sales tax, where the selling price of the commodity and the selling price of the service are subjected to tax in every stage
of distribution, the value added tax simply limits the imposition of the tax on the value added to the cost

Any value that is previously taxed will not be subjected to tax in the succeeding stages, and so on and so forth

It does not matter that the commodity changes hands 100 times

Only the value that is added to the cost will be subject to tax

That means that there is an even distribution of the tax burden among the different players in the distribution chain

In sales tax, if the product is produced at 100 pesos, and for example there is a 10% tax, what will be remitted to the government is
the 10% of the 100

So the sales tax passed on by the seller will form part of the tax base

That is a tax upon a tax

That is one of the evils that was avoided because of the introduction of the value added tax

12.

Advantages of the Value added tax

1. It eliminates tax cascades

Tax cascade simply means tax upon a tax

 If one sells a product for 100, and passed on a tax of 12%, when he remits the tax, he has to base it on the 100, not on the 112

So here, there is no tax upon tax situation

Even the tax base under Section 108, for sellers of services, gross received is defined to be amount actually or constructively
received net of the value added tax

So if there is contract which requires one to collect 1M pesos and he passed on 12% VAT from a customer, when he remits the
tax, his tax will not be based on the amount that he received (1.2M), but only on the 1M pesos

So the tax that he passed on will not be subject to another tax. There will be no tax cascade

That is why this kind of tax becomes superior against all kind of indirect tax or sales taxes for that matter

2. It is a very equitable tax system

This is because there is an even distribution of tax burden among the different players in the distribution chain

From the point of production, wholesaling, retailing, another retailing, up to such point that it reaches the purchaser, there is an
equal distribution of tax burden at 12%. That is the value that is added at every stage

The seller of goods will not add anything to his cost. Meaning, if he sells it at retail at 100 what he purchased at 100, then
pays nothing. There was nothing added to his cost

In other words, if the product was purchased at 100, and sold at 100, when he remits the tax, the output tax in the 100 is 12
minus the input tax (which is the tax passed on by the producer of the goods) of 12, so there is 0 value added tax
 It is very equitable

3. It is does not extort the economic decisions of businessmen and consumers on what commodity to consume

This is because of the even distribution of the tax burden

One cannot consume bottled water over beer; or beer over bottled water, because all of these products are subject to
the same taxes anyway

That means that the economic decision on what commodity to consume is never influenced by tax considerations

Even businessmens decision on what activity to pursue is never influenced by taxes. One may think of car repair shop,
and that is subject to 12% VAT, a barber shop is subject to 12%, and insurance company is subject to 12%.

Unlike the old sales tax, if one sells essential commodity in the past, then he pays 3% tax. If one is dealing with non-
essential commodity, then there is 30% tax. If one deals with a commodity not enumerated either as essential or non-essential,
then he pays 20% tax. So, businessmen who are tax conscious will think of putting up business subject to the lowest tax rates.
And that deters progress

Nobody manufactures aircon before because it is a non-essential commodity. It triggers monopoly, and we know the ill
effects of monopoly. The businessmen can dictate their prices, and we cannot do anthing

So VAT encourages competition in the open market. Totally, the taxes to be considered is not a factor in deciding what
business activity to pursue or what commodity to consume
 4. It results in simplified tax administration

There is difficulty in administering a tax system which requires imposition of more than 60 rates of taxes

Especially those businesses who are engaged on mixed transactions

They will pursue selling commodities falling on the lowest tax rates

They will also succumb to the touch me if you can attitude

But under the tax system that we have, there is a unitary rate, and that is the regular rate of 12%

13.

VAT does not have inflationary effect on the prices of goods and services
 It is the cascading effect of tax that makes the prices of goods and services inflationary

But for as long tax is no imposed on the tax itself, then a sales tax like a value added tax, will never pose the inflationary
consumption cost of goods in the open market

14.

The imposition of VAT will not push up the prices of the goods in the open market

15.

Can VAT be an add on tax all the time?

No.

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