What is a VAT?
The VAT is known as the value-added tax. It is a consumption tax imposed on products at each level of the supply chain, from the manufacturing level to the point of sale. This additional tax is a way that government can raise revenue based on sales and production of goods and services. It is not charged by the central government, it is charged by the state government. This tax is charged as a percentage of the value added at every level of production of products. The main objective of the VAT is to avoid tax on the tax that means double taxation from the manufacturing to consumption. It is easier and more standardized than the traditional sales tax and has fewer compliance issues.
Advantage and disadvantages of VAT:
- The VAT is a consumption tax the revenue generated will be constant.
- VAT is easy to manage when compared to other indirect tax.
- The VAT minimizes avoidance due to the catch-up effect.
- From the VAT a huge amount of revenue is generated on a low tax rate.
- The VAT is collected in small installments so the consumers will have the minimum burden.
- It can be imposed on all types of business, as it is a neutral tax.
- VAT implementation is expensive because the VAT is based on the full billing system.
- The VAT is difficult to understand. It is not easy to calculate value added at every level from production to sales.
- VAT is regressive in nature. People spend more proportion of their income on VAT and it will affect the poor people more than the rich.
- The maintenance cost high because all purchase and sales should be records and maintained.
- The consumers need to be aware of the implementation of VAT otherwise tax negligence will be considered through fake invoices.
The component included in the sales calculator:
- Net before VAT price: The price of the product before the VAT is applied.
- VAT rate: The VAT rate imposed on the product.
- Final VAT inclusive price: The price of the product after VAT is included.
The value-added tax calculator is used for estimate the price before the VAT is included, a VAT rate or the final price inclusive of VAT. Anyone of the values can be calculated by knowing the other two input values.