Value-added tax

Without any tax

• A widget manufacturer, for example, spends $1.00 on raw materials and uses them to make a widget.
• The widget is sold wholesale to a widget retailer for $1.20, leaving a gross margin of $0.20.
• The widget retailer then sells the widget to a widget consumer for $1.50, leaving a gross margin of $0.30.

With a sales tax

With a 10% sales tax:

• The manufacturer spends $1.00 for the raw materials, certifying it is not a final consumer.
• The manufacturer charges the retailer $1.20, checking that the retailer is not a consumer, leaving the same gross margin of $0.20.
• The retailer charges the consumer ($1.50 x 1.10) = $1.65 and pays the government $0.15, leaving the gross margin of $0.30.

So the consumer has paid 10% ($0.15) extra, compared to the no taxation scheme, and the government has collected this amount in taxation. The retailers have not paid any tax directly (it is the consumer who has paid the tax), but the retailer has to do the paperwork in order to correctly pass on to the government the sales tax it has collected. Suppliers and manufacturers have the administrative burden of supplying correct state exemption certifications, and checking that their customers (retailers) are not consumers. The retailer must verify and maintain these exemption certificate. In addition, the retailer must keep track of what is taxable and what is not along with the various tax rates in each of the cities, counties and states for the 35,000 plus various taxing jurisdictions.

A large exception to this state of affairs is online sales. Typically if the online retail firm has no nexus (also known as substantial physical presence) in the state where the merchandise will be delivered, no obligation is imposed upon the retailer to collect sales taxes from "out-of-state" purchasers. Generally, state law requires that the purchaser report such purchases to the state taxing authority and pay the use tax, which compensates for the sales tax that is not paid by the retailer.

With a value-added tax

With a 10% VAT:

• The manufacturer spends ($1 x 1.10) = $1.10 for the raw materials, and the seller of the raw materials pays the government $0.10.
• The manufacturer charges the retailer ($1.20 x 1.10) = $1.32 and pays the government ($0.12 minus $0.10) = $0.02, leaving the same gross margin of ($1.32 – $1.10 – $0.02) = $0.20.
• The retailer charges the consumer ($1.50 x 1.10) = $1.65 and pays the government ($0.15 minus $0.12) = $0.03, leaving the same gross margin of ($1.65 – $1.32 – $0.03) = $0.30.
• The manufacturer and retailer realize less gross margin from a percentage perspective. If the cost of raw material production were shown, this would also be true of the raw material supplier's gross margin on a percentage basis.
• Note that the taxes paid by both the manufacturer and the retailer to the government are 10% of the values added by their respective business practices (e.g. the value added by the manufacturer is $1.20 minus $1.00, thus the tax payable by the manufacturer is ($1.20 – $1.00) × 10% = $0.02).

In the VAT example above, the consumer has paid, and the government received, the same dollar amount as with a sales tax. At each stage of the production, the seller collects a tax on behalf of the government and the buyer pays for the tax by paying a higher price. The buyer can then be reimbursed for paying the tax, but only by successfully selling the value-added product to the buyer or consumer in the next stage. In the previously shown examples, if the retailer fails to sell some of its inventory, then it suffers a greater financial loss in the VAT scheme in comparison to the sales tax regulatory system by having paid a higher price on the product it wants to sell. Each business is responsible for handling the necessary paperwork in order to pass on to the government the VAT it collected on its gross margin. The businesses are freed from any obligation to request certifications from purchasers who are not end users, and of providing such certifications to their suppliers, but they incur increased accounting costs for collecting the tax, which are not reimbursed by the taxing authority. For example, wholesale companies now have to hire staff and accountants to handle the VAT paperwork, which would not be required if they were collecting sales tax instead.

Limitations to the examples

In the above examples, we assumed that the same number of widgets were made and sold both before and after the introduction of the tax. This is not true in real life.

The supply and demand economic model suggests that any tax raises the cost of transaction for someone, whether it is the seller or purchaser. In raising the cost, either the demand curve shifts leftward, or the supply curve shifts upward. The two are functionally equivalent. Consequently, the quantity of a good purchased decreases, and/or the price for which it is sold increases.

This shift in supply and demand is not incorporated into the above example, for simplicity and because these effects are different for every type of good. The above example assumes the tax is non-distortionary.

Limitations of VAT

A Supply-Demand Analysis of a Taxed Market

A VAT, like most taxes, distorts what would have happened without it. Because the price for someone rises, the quantity of goods traded decreases. Correspondingly, some people are worse off by more than the government is made better off by tax income. That is, more is lost due to supply and demand shifts than is gained in tax. This is known as a deadweight loss. If the income lost by the economy is greater than the government's income; the tax is inefficient. It must be noted that a VAT and a Non-VAT have the same implications on the microeconomic model.

The entire amount of the government's income (the tax revenue) may not be a deadweight drag, if the tax revenue is used for productive spending or has positive externalities – in other words, governments may do more than simply consume the tax income. While distortions occur, consumption taxes like VAT are often considered superior because they distort incentives to invest, save and work less than most other types of taxation – in other words, a VAT discourages consumption rather than production.

In the diagram on the right:

• Deadweight loss: the area of the triangle formed by the tax income box, the original supply curve, and the demand curve
• Governments tax income: the grey rectangle that says "tax revenue"
• Total consumer surplus after the shift: the green area
• Total producer surplus after the shift: the yellow area

Example

Consider a Ford car that cost $25,000 to produce in the USA (that does not have a VAT, but does have 10% Sales Tax) and an Opel car that costs $25,000 to produce in Germany (that does have 20% VAT). Both prices are shown with all taxes imposed on manufacturers of these cars, including social taxes, income taxes, etc., but without taxes imposed on consumers – that is, sales tax in USA and VAT in Germany.

Without a special modification related to Export / Import, customer prices will be

Note that Opel prices appear to be inherently higher than Ford ones. A common mistake in a lot of examples trying to prove that VAT rebates form as a trade barrier is, to set retail prices equal for both Ford and Opel. This way, prices are initially equal, but become different after all the additional VAT taxes and rebates described below. Such an approach does not take into account the simple fact that Opel prices in the table above always include VAT while Ford prices never include it. That's exactly why additional adjustments are made in VAT taxation.

One may try to object that this simply means that Germany has generally higher taxes but, in fact, this is not the case for consumer taxes. Consider a hypothetical situation where consumer tax remains exactly the same in Germany as in the example above, but now it is collected as 20% Sales Tax:

Now lets use the same assumption that the end price to the consumer remains $25,000 and there are no taxes. All goods would be sold for $25,000 and no manufacturer has an advantage:

Indeed, the end price to the consumer is $25,000 in all instances.

Once again, assuming that the end price to the consumer is $25,000, consider a hypothetical situation where consumer tax remains 10% in the United States, Germany imposes a 20% VAT on imported US goods, rebates its 20% VAT on goods exported to the US, and the US charges a 10% sales tax on both goods:

Even in the case in which a country with a VAT remits exports, price distortions do not occur. A U.S. producer exporting a car to Germany will not be charged the U.S. sales tax, but will be charged the VAT. Since a German domestic producer will also be charged a VAT, both companies are on equal footing in Germany. Similarly, a U.S. company selling a car domestically will be charged a sales tax as will the German manufacturer attempting to sell in the U.S. However, if Germany did not remit the VAT on export, the German producer would be charged both the sales tax and the VAT tax, thus facing a price distortion. The usage of VAT remittance on exports helps ensure that export price distortion does not occur.^[12]

Australia

The goods and services tax (GST) is a value-added tax introduced in Australia in 2000, which is collected by the Australian Tax Office. The revenue is then redistributed to the states and territories via the Commonwealth Grants Commission process. In essence, this is Australia's program of horizontal fiscal equalisation. Whilst the rate is currently set at 10%, there are many domestically consumed items that are effectively zero-rated (GST-free) such as fresh food, education, and health services, certain medical products, as well as exemptions for Government charges and fees that are themselves in the nature of taxes.

Bangladesh

Value-added tax in Bangladesh was introduced in 1991 replacing Sales Tax and most of Excise Duties. The Value Added Tax Act, 1991 was enacted that year and VAT started its passage from 10 July 1991. The 10 July is observed as National VAT Day in Bangladesh.

Within the passage of 25 years, VAT has become the largest source of Government Revenue. About 56% of total tax revenue is VAT revenue in Bangladesh.

Standard VAT rate is 15%. Export is Zero rated. Besides these rates, there are several reduced rates locally called Truncated Rate for service sectors that are available. Different rates for different services are applied. Truncated Rates are 1.5%, 2.25%, 2.5%, 3%, 4%, 4.5%, 5%, 5.5%, 6%, 7.5%, 9% and 10%.

Bangladesh VAT is characterized by many distortions, i.e., value declaration for products and services, branch registrations, tariff values, truncated rates, many restrictions on credit system, lump-sum VAT (package VAT) advance payment of VAT, excessive exemptions etc. For many distortions, VAT-GDP ratio is about 4% here. To increase the productivity of VAT, Government enacted the Value Added Tax and Supplementary Duty Act of 2012. This law was initially scheduled to operate with an automated administration from 1 July 2017, however the project has now been extended for another two years.^[13]

National Board of Revenue 1 is the apex organization administering the Value Added Tax.

Canada

Goods and Services Tax (GST) is a value-added tax introduced by the Federal Government in 1991 at a rate of 7%, later reduced to the current rate of 5%. A Harmonized Sales Tax (HST; combined GST and provincial sales tax) is collected in New Brunswick (15%), Newfoundland (15%), Nova Scotia (15%), Ontario (13%), Prince Edward Island (15%), and, for a short time until 2013, British Columbia (12%). (Quebec has a de facto 14.975% HST: its provincial sales tax follows the same rules as the GST, and both are collected together by Revenu Québec.) Advertised and posted prices generally exclude taxes, which are calculated at time of payment; common exceptions are motor fuels, the posted prices for which include sales and excise taxes, and items in vending machines as well as alcohol in monopoly stores. Basic groceries, prescription drugs, inward/outbound transportation and medical devices are exempt.

China

VAT was implemented in China in 1984 and is administered by the State Administration of Taxation. In 2007, the revenue from VAT was 15.47 billion yuan ($2.2 billion) which made up 33.9 percent of China's total tax revenue for the year. The standard rate of VAT in China is 16%. There is a reduced rate of 13% that applies to products such as books and types of oils.^[14]

European Union

The European Union value added tax (EU VAT) covers consumption of goods and services and is mandatory for member states of the European Union. The EU VAT's key issue asks where the supply and consumption occurs thereby determining which member state will collect the VAT and which VAT rate will be charged.

Each member state's national VAT legislation must comply with the provisions of EU VAT law, ^[15] which requires a minimum standard rate of 15% and one or two reduced rates not to be below 5%. Some EU members have a 0% VAT rate on certain supplies; these states would have agreed this as part of their EU Accession Treaty (for example, newspapers and certain magazines in Belgium). Certain goods and services must be exempt from VAT (for example, postal services, medical care, lending, insurance, betting), and certain other goods and services to be exempt from VAT but subject to the ability of an EU member state to opt to charge VAT on those supplies (such as land and certain financial services). The highest rate currently in operation in the EU is 27% (Hungary), though member states are free to set higher rates. There is, in fact only one EU country (Denmark) that does not have a reduced rate of VAT.^[16]

There are some areas of member states (both overseas and on the European continent) which are outside the EU VAT area, and some non-EU states that are inside the EU VAT area. External areas may have no VAT or may have a rate lower than 15%. Goods and services supplied from external areas to internal areas are considered imported. (See EU VAT area § EU VAT area for a full listing.)

VAT that is charged by a business and paid by its customers is known as "output VAT" (that is, VAT on its output supplies). VAT that is paid by a business to other businesses on the supplies that it receives is known as "input VAT" (that is, VAT on its input supplies). A business is generally able to recover input VAT to the extent that the input VAT is attributable to (that is, used to make) its taxable outputs. Input VAT is recovered by setting it against the output VAT for which the business is required to account to the government, or, if there is an excess, by claiming a repayment from the government. Private people are generally allowed to buy goods in any member country and bring it home and pay only the VAT to the seller. Input VAT that is attributable to VAT-exempt supplies is not recoverable, although a business can increase its prices so the customer effectively bears the cost of the "sticking" VAT (the effective rate will be lower than the headline rate and depend on the balance between previously taxed input and labour at the exempt stage).

Gulf Cooperation Council

Increased growth and pressure on the GCC's governments to provide infrastructure to support growing urban centers, the Member States of the Gulf Co-operation Council (GCC), which together make up the Gulf Co-operation Council (GCC), have felt the need to introduce a tax system in the region.

In particular, the United Arab Emirates (UAE) on 1 January 2018 implemented VAT. For companies whose annual revenues exceed $102,000 (Dhs 375,000), registration is mandatory. Oman’s Minister of Financial Affairs indicated that GCC countries have agreed the introductory rate of VAT is 5%.^[17][18][19] The Kingdom of Saudi Arabia VAT system was implemented in 01 January 2018 at 5% rate.

India

VAT was introduced into the Indian taxation system from 1 April 2005. Of the then 28 Indian states, eight did not introduce VAT at first instance. There is uniform VAT rate of 5% and 14.5% all over India. The government of Tamil Nadu introduced an act by the name Tamil Nadu Value Added Tax Act 2006 which came into effect from the 1 January 2007. It was also known as the TN-VAT. Under the BJP government, a new national Goods and Services Tax was introduced under the One Hundred and First Amendment of the Constitution of India.

Indonesia

Value Added Tax (VAT) was introduced into the Indonesian taxation system from 1 April 1985. General VAT rate is ten percent. Using indirect subtraction method with invoice to calculate value added tax payable. VAT was Collected by the Directorate General of Taxation, Ministry of Finance. Some goods and services are exempt from VAT like basic commodities vital to the general public, medical or health services, religion services, educational services and Services provided by the government in respect of carrying out general governmental administration.

Japan

In Japan There is a fixed sales tax ("sales tax"), literally translated from Japanese as a "consumption tax". In the country since the spring of 2014 it is 8% and is already included in the price of the goods.

Malaysia

The goods and services tax (GST) is a value-added tax introduced in Malaysia in 2015, which is collected by the Royal Malaysian Customs Department. The standard rate is currently set at 6%. Many domestically consumed items such as fresh foods, water, electricity and land public transportation are zero-rated, while some supplies such as education and health services are GST exempted. After being revised by the newly elected government after the General Election 14, GST will be removed across Malaysia from 1 June 2018 onwards.

As of 8 August 2018, the goods and services tax (GST) has been abolished and replaced by sales and services tax (SST) under the new government which promised to do so in their manifesto.^[20][21] The new SST or SST 2.0, is on track to be rolled out on the 1st of September 2018. Finance Minister Lim Guan Eng said that failure to do so would result in an operating deficit of RM4 billion (approximately 969 million in USD) for the Malaysian government. ^[22] Under the new tax system, selected items will be subjected to a 5% or 10% tax while services will be subjected to a 6% tax.

Mexico

Value-added tax (Spanish: Impuesto al Valor Agregado, IVA) is a tax applied in Mexico and other countries of Latin America. In Chile, it is also called Impuesto al Valor Agregado and, in Peru, it is called Impuesto General a las Ventas or IGV.

Prior to the IVA, a sales tax (Spanish: impuesto a las ventas) had been applied in Mexico. In September 1966, the first attempt to apply the IVA took place when revenue experts declared that the IVA should be a modern equivalent of the sales tax as it occurred in France. At the convention of the Inter-American Center of Revenue Administrators in April and May 1967, the Mexican representation declared that the application of a value-added tax would not be possible in Mexico at the time. In November 1967, other experts declared that although this is one of the most equitable indirect taxes, its application in Mexico could not take place.

In response to these statements, direct sampling of members in the private sector took place as well as field trips to European countries where this tax was applied or soon to be applied. In 1969, the first attempt to substitute the mercantile-revenue tax for the value-added tax took place. On 29 December 1978 the Federal government published the official application of the tax beginning on 1 January 1980 in the Official Journal of the Federation.

As of 2010, the general VAT rate was 16%. This rate was applied all over Mexico except for bordering regions (i.e. the United States border, or Belize and Guatemala), where the rate was 11%. The main exemptions are for books, food, and medicines on a 0% basis. Also some services are exempt like a doctor's medical attention. In 2014 Mexico Tax Reforms eliminated the favorable tax rate for border regions and increased the VAT to 16% across the country.

Nepal

VAT was implemented in 1998 and is the major source of government revenue. It is administered by Inland Revenue Department of Nepal. Nepal has been levying two rates of VAT: Normal 13% and zero rate. In addition, some goods and services are exempt from VAT.

New Zealand

The goods and services tax (GST) is a value-added tax that was introduced in New Zealand in 1986, currently levied at 15%. It is notable for exempting few items from the tax. From July 1989 to September 2010, GST was levied at 12.5%, and prior to that at 10%.

The Nordic countries

MOMS (Danish: merværdiafgift, formerly meromsætningsafgift), Norwegian: merverdiavgift (bokmål) or meirverdiavgift (nynorsk) (abbreviated MVA), Swedish: Mervärdes och OMSättningsskatt (until the early 1970s labeled as OMS OMSättningsskatt only), Icelandic: virðisaukaskattur (abbreviated VSK), Faroese: meirvirðisgjald (abbreviated MVG) or Finnish: arvonlisävero (abbreviated ALV) are the Nordic terms for VAT. Like other countries' sales and VAT taxes, it is an indirect tax.

In Denmark, VAT is generally applied at one rate, and with few exceptions is not split into two or more rates as in other countries (e.g. Germany), where reduced rates apply to essential goods such as foodstuffs. The current standard rate of VAT in Denmark is 25%. That makes Denmark one of the countries with the highest value-added tax, alongside Norway, Sweden and Croatia. A number of services have reduced VAT, for instance public transportation of private persons, health care services, publishing newspapers, rent of premises (the lessor can, though, voluntarily register as VAT payer, except for residential premises), and travel agency operations.

In Finland, the standard rate of VAT is 24% as of 1 January 2013 (raised from previous 23%), along with all other VAT rates, excluding the zero rate.^[23] In addition, two reduced rates are in use: 14% (up from previous 13% starting 1 January 2013), which is applied on food and animal feed, and 10%, (increased from 9% 1 January 2013) which is applied on passenger transportation services, cinema performances, physical exercise services, books, pharmaceuticals, entrance fees to commercial cultural and entertainment events and facilities. Supplies of some goods and services are exempt under the conditions defined in the Finnish VAT Act: hospital and medical care; social welfare services; educational, financial and insurance services; lotteries and money games; transactions concerning bank notes and coins used as legal tender; real property including building land; certain transactions carried out by blind persons and interpretation services for deaf persons. The seller of these tax-exempt services or goods is not subject to VAT and does not pay tax on sales. Such sellers therefore may not deduct VAT included in the purchase prices of his inputs. Åland, an autonomous area, is considered to be outside the EU VAT area, even if its VAT rate is the same as for Finland. Goods brought from Åland to Finland or other EU countries is considered to be export/import. This enables tax free sales onboard passenger ships.

In Iceland, VAT is split into two levels: 24% for most goods and services but 11% for certain goods and services. The 11% level is applied for hotel and guesthouse stays, licence fees for radio stations (namely RÚV), newspapers and magazines, books; hot water, electricity and oil for heating houses, food for human consumption (but not alcoholic beverages), access to toll roads and music.^[24]

In Norway, VAT is split into three levels: 25% general rate, 15% on foodstuffs and 10% on the supply of passenger transport services and the procurement of such services, on the letting of hotel rooms and holiday homes, and on transport services regarding the ferrying of vehicles as part of the domestic road network. The same rate applies to cinema tickets and to the television licence.^[25] Financial services, health services, social services and educational services are all outside the scope of the VAT Act.^[26] Newspapers, books and periodicals are zero-rated.^[27] Svalbard has no VAT because of a clause in the Svalbard Treaty.

In Sweden, VAT is split into three levels: 25% for most goods and services, 12% for foods including restaurants bills and hotel stays and 6% for printed matter, cultural services, and transport of private persons. Some services are not taxable for example education of children and adults if public utility, and health and dental care, but education is taxable at 25% in case of courses for adults at a private school. Dance events (for the guests) have 25%, concerts and stage shows have 6%, and some types of cultural events have 0%.

MOMS replaced OMS (Danish "omsætningsafgift", Swedish "omsättningsskatt") in 1967, which was a tax applied exclusively for retailers.

Philippines

The current VAT rate in the Philippines stands at 12%. Like in most other countries, the amount of taxes is included in the final sales price.

Senior citizens are however exempted from paying VAT for most goods and some services that are for their personal consumption. They will need to show a government-issued ID card that establishes their age at the till to avail of the exemption.

Russia

According to the Russian Tax code the value-added-tax is levied at the rate of 18% for all goods with several exemptions for several types of products and services (like medicare etc.). Taxpayers of value added tax are recognized: Organizations (industrial and financial, state and municipal enterprises, institutions, business partnerships, insurance companies and banks), enterprises with foreign investments, individual entrepreneurs, international associations and foreign legal entities that carry out entrepreneurial activities in the territory of the Russian Federation, non-commercial organizations in the event of their commercial activities, persons recognized as taxpayers of value added tax in connection with the movement of goods across the customs border of the Customs Union. ^[28][29][30]

South Africa

Value-added tax (VAT) in South Africa was set at a rate of 14% and remained unchanged since 1993. Finance Minister Malusi Gigaba announced on 21 February 2018 that the VAT rate will be increased by one percentage point to 15%. Some basic food stuffs, as well as paraffin, will remain zero rated. The new rate is to be effective from the 1st of April 2018.^[31]

Switzerland and Liechtenstein

Further information: Taxation in Switzerland § Value added tax

Switzerland has a customs union with Liechtenstein that also includes the German exclave of Büsingen am Hochrhein and (de facto) the Italian exclave of Campione d'Italia. The Switzerland–Liechtenstein VAT area has a general rate of 7.7% and a reduced rate of 2.5%.

Trinidad and Tobago

Value-added tax (VAT) in T&T is currently 12.5% as of February 1, 2016. Before that date VAT used to be at 15%.

Ukraine

In Ukraine, the revenue to state budget from VAT is the most significant. By Ukraine tax code, there are 3 VAT tax rates in Ukraine^[32]: 20% (general tax rate; applied to most goods and services), 7% (special tax rate; applied mostly to medicines and medical products import and trade operations) and 0% (special tax rate; applied mostly to export of goods and services, international transport of passengers, baggage and cargo).

United States

In the United States, currently, there is no federal value-added tax (VAT) on goods or services. Instead, a sales and use tax is used in most US states. VATs have been the subject of much scholarship in the US and are one of the most contentious tax policy topics.^[33][34]

In 2015, Puerto Rico passed legislation to replace its 6% sales and use tax with a 10.5% VAT beginning 1 April 2016, although the 1% municipal sales and use tax will remain and, notably, materials imported for manufacturing will be exempted.^[35][36] In doing so, Puerto Rico will become the first US jurisdiction to adopt a value-added tax.^[36][37] However, two states have previously enacted a form of VAT as a form of business tax in lieu of a business income tax, rather than a replacement for a sales and use tax.

The state of Michigan used a form of VAT known as the "Single Business Tax" (SBT) as its form of general business taxation. It is the only state in the United States to have used a VAT. When it was adopted in 1975, it replaced seven business taxes, including a corporate income tax. On 9 August 2006, the Michigan Legislature approved voter-initiated legislation to repeal the Single Business Tax, which was replaced by the Michigan Business Tax on 1 January 2008.^[38]

The state of Hawaii has a 4% General Excise Tax (GET) that is charged on the gross income of any business entity generating income within the State of Hawaii. The State allows businesses to optionally pass on their tax burden by charging their customers a quasi sales tax rate of 4.166%.^[39] The total tax burden on each item sold is more than the 4.166% charged at the register since GET was charged earlier up the sales chain (such as manufacturers and wholesalers), making the GET less transparent than a retail sales tax.

Vietnam

Value-added tax (VAT) in Vietnam is a broadly based consumption tax assessed on the value added to goods and services arising through the process of production, circulation, and consumption. It's an indirect tax in Vietnam on domestic consumption applied nationwide rather than at different levels such as state, provincial or local taxes. It is a multi-stage tax which is collected at every stage of the production and distribution chain and passed on to the final customer. It is applicable to the majority of goods and services bought and sold for use in the country. Goods that are sold for export and services that are sold to customers abroad are normally not subject to VAT.

All organizations and individuals producing and trading VAT taxable goods and services in Vietnam have to pay VAT, regardless of whether they have Vietnam-based resident establishments or not.

Vietnam has three VAT rates: 0 percent, 5 percent and 10 percent. 10 percent is the standard rate applied to most goods and services unless otherwise stipulated.

A variety of goods and service transactions may qualify for VAT exemption.

European Union countries

Country	Standard rate (current)	Reduced rate (current)	Abbreviation	Local name
Austria	7001200000000000000♠20%[43]	7001100000000000000♠10% for rental for the purpose of habitation, food, garbage collection, most transportation, etc. 13% for plants, live animals and animal food, art, wine (if bought directly from the winemaker), etc.[44]	MwSt./USt.	Mehrwertsteuer/Umsatzsteuer
Belgium	7001210000000000000♠21%[45]	7001120000000000000♠12% or 6% (for food or live necessary consumables) or 0% in some cases	BTW TVA MWSt	Belasting over de toegevoegde waarde Taxe sur la Valeur Ajoutée Mehrwertsteuer
Bulgaria	7001200000000000000♠20%[43]	7000900000000000000♠9% (hotels) or 0%	ДДС	Данък добавена стойност
Croatia	7001250000000000000♠25%[43]	7001130000000000000♠13% (since 1 January 2014) or 5% (since 1 January 2013)	PDV	Porez na dodanu vrijednost
Cyprus	7001190000000000000♠19%[46]	7000500000000000000♠5% (8% for taxi and bus transportation)	ΦΠΑ	Φόρος Προστιθέμενης Αξίας
Czech Republic	7001210000000000000♠21%[43][47]	7001150000000000000♠15% (food, public transport) or 7001100000000000000♠10% (medicines, pharmaceuticals, books and baby foodstuffs)	DPH	Daň z přidané hodnoty
Denmark	7001250000000000000♠25%[43][48]	0%	moms	Meromsætningsafgift
Estonia	7001200000000000000♠20%[43]	7000900000000000000♠9%	km	käibemaks
Finland	7001240000000000000♠24%[43]	7001140000000000000♠14% (foodstuffs, restaurants) or 10% (medicines, cultural services and events, passenger transport, hotels, books and magazines)	ALV Moms	Arvonlisävero (Finnish) Mervärdesskatt (Swedish)
France	7001200000000000000♠20%[43]	7001100000000000000♠10% or 5.5% or 2.1%	TVA	Taxe sur la valeur ajoutée
Germany	7001190000000000000♠19% (Heligoland 0%)[43]	7000700000000000000♠7% for foodstuffs (except luxury-), books, flowers etc., 0% for postage stamps. (Heligoland always 0%)	MwSt./USt.	Mehrwertsteuer/Umsatzsteuer
Greece	7001240000000000000♠24%[43][49] (16% on Aegean islands)	7001130000000000000♠13% (6.5% for hotels, books and pharmaceutical products) (8% and 4% on Aegean islands)	ΦΠΑ	Φόρος Προστιθέμενης Αξίας
Hungary	7001270000000000000♠27%[50]	7001180000000000000♠18% (milk and dairy products, cereal products, hotels, tickets to outdoor music events) or 5% (pharmaceutical products, medical equipment, books and periodicals, some meat products, district heating, heating based on renewable sources, live music performance under certain circumstances) or 0% (postal services, medical services, mother's milk, etc.)[51]	ÁFA	Általános forgalmi adó
Ireland	7001230000000000000♠23%[43][52]	7001135000000000000♠13.5% or 9.0% or 4.8% or 0%	CBL VAT	Cáin Bhreisluacha (Irish) Value Added Tax (English)
Italy	7001220000000000000♠22%[43] (Livigno 0%)[43]	7001100000000000000♠10% (hotels, bars, restaurants and other tourism products, certain foodstuffs, plant protection products and special works of building restoration, home-use utilities: electricity, gas used for cooking and water or 4% (e.g. grocery staples, daily or periodical press and books, works for the elimination of architectural barriers, some kinds of seeds, fertilizers)	IVA	Imposta sul Valore Aggiunto
Latvia	7001210000000000000♠21%[43]	7001120000000000000♠12% or 0%	PVN	Pievienotās vērtības nodoklis
Lithuania	7001210000000000000♠21%[43]	7000900000000000000♠9% or 5%	PVM	Pridėtinės vertės mokestis
Luxembourg	7001170000000000000♠17%[53]	7001140000000000000♠14% on certain wines, 8% on public utilities, or 3% on books and press, food (including restaurant meals), children's clothing, hotel stays, and public transit[53]	TVA	Taxe sur la Valeur Ajoutée
Malta	7001180000000000000♠18%[43]	7000700000000000000♠7% or 5% or 0%	VAT	Taxxa tal-Valur Miżjud
Netherlands	7001210000000000000♠21%[43]	7000600000000000000♠6% for special categories of products and services like food, medicine and art. 0% for products and services that are already taxed in other countries or systems, for excise goods, and for fish.	BTW	Belasting over de toegevoegde waarde/Omzetbelasting
Poland	7001230000000000000♠23%[54][46]	7000800000000000000♠8% or 5% or 0%	PTU/VAT	Podatek od towarów i usług
Portugal	7001230000000000000♠23%[55] 22% in Madeira and 18% in Azores (Minimum 70% of mainland rate)[56]	7001130000000000000♠13% or 6% 12% or 5% in Madeira and 9% or 4% in Azores (Minimum 70% of mainland rate)[56]	IVA	Imposto sobre o Valor Acrescentado
Romania	7001190000000000000♠19%[57]	7000900000000000000♠9% (food and non-alcoholic drinks) or 5% (buyers of new homes under special conditions)	TVA	Taxa pe valoarea adăugată
Slovakia	7001200000000000000♠20%[43]	7001100000000000000♠10%	DPH	Daň z pridanej hodnoty
Slovenia	7001220000000000000♠22%[58]	7000950000000000000♠9.5%	DDV	Davek na dodano vrednost
Spain	7001210000000000000♠21%[43] 7% in Canary Islands (not part of EU VAT area)	7001100000000000000♠10% (10% from 1 September 2012[59]) or 4%[60][61] 3% or 0% in Canary Islands	IVA IGIC	Impuesto sobre el Valor Añadido Impuesto General Indirecto Canario
Sweden	7001250000000000000♠25%[43]	7001120000000000000♠12% (e.g. food, hotels and restaurants), 6% (e.g. books, passenger transport, cultural events and activities), 0% (e.g. insurance, financial services, health care, dental care, prescription drugs, education, immovable property)[62][63]	MOMS	Mervärdesskatt
United Kingdom	7001200000000000000♠20%[64] 0% in Guernsey and Gibraltar (not part of EU VAT area)	7000500000000000000♠5% residential energy/insulation/renovations, feminine hygiene products, child safety seats and mobility aids and 0% for life necessities – basic food, water, prescription medications, medical equipment and medical supply, public transport, children's clothing, books and periodicals. Also 0% for new building construction (but standard rate for building demolition, modifications, renovation etc.)[65]	VAT TAW	Value Added Tax Treth Ar Werth (Welsh)

Non-European Union countries

Country	Standard rate (current)	Reduced rate (current)	Local name
Albania	20%	20% (pharmacies and medical services, books, newspapers)	TVSH = Tatimi mbi Vlerën e Shtuar
Algeria	19%
Andorra[66]	4.5%	1%	IGI = Impost General Indirecte
Antigua and Barbuda	15%
Argentina	21%	10.5% or 0%	IVA = Impuesto al Valor Agregado
Armenia	20%	0%	AAH = Avelacvats Arzheqi Hark ԱԱՀ = Ավելացված արժեքի հարկ
Australia	10%	5000000000000000000♠0% fresh food, medical services, medicines and medical devices, education services, childcare, water and sewerage, government taxes & permits and many government charges, precious metals, second-hand goods and many other types of goods. Rebates for exported goods and GST taxed business inputs are also available	GST = Goods and Services Tax
Azerbaijan	18%	10.5% or 0%	ƏDV = Əlavə dəyər vergisi
Bahamas[67][68]	7.5%	7.5% or 0% (including but not limited to exports of goods or services, services to a foreign going vessel providing international commercial services, consumable goods for commercially scheduled foreign going vessels/aircraft, copyright, etc.)	VAT = Value Added Tax
Bangladesh	15%	4% for Supplier, 4.5% for ITES, 5% for electricity, 5.5% for construction firm, etc.	Musok = Mullo songzojon kor মূসক = "মূল্য সংযোজন কর"
Barbados	17.5%		VAT = Value Added Tax
Belarus	20%	10% or 0.5%	ПДВ = Падатак на дададзеную вартасьць
Belize	12.5%
Benin	18%
Bolivia	13%		IVA = Impuesto al Valor Agregado
Bosnia and Herzegovina	17%		PDV = Porez na dodanu vrijednost
Botswana	12%
Brazil	20% (IPI) + 19% (ICMS) average + 3% (ISS) average	0%	*IPI – 20% = Imposto sobre produtos industrializados (Tax over industrialized products) – Federal Tax ICMS – 17 to 25% = Imposto sobre circulação e serviços (tax over commercialization and services) – State Tax ISS – 2 to 5% = Imposto sobre serviço de qualquer natureza (tax over any service) – City tax
Burkina Faso	18%
Burundi	18%
Cambodia	10%
Cameroon	19.25%
Canada	5% + 0–10% HST (GST + PVAT)	5%/0%[lower-alpha 1]	GST = Goods and Services Tax, TPS = Taxe sur les produits et services; HST[lower-alpha 2] = Harmonized Sales Tax, TVH = Taxe de vente harmonisée
Cape Verde	15%
Central African Republic	19%
Chad	18%
Chile	19%		IVA = Impuesto al Valor Agregado
China[lower-alpha 3]	16%	10% for foods, printed matter, and households fuels; 6% for service; or 3% for non-VAT tax	增值税 (zēng zhí shuì)
Colombia	19%		IVA = Impuesto al Valor Agregado
Costa Rica	13%
Democratic Republic of the Congo	16%
Dominica	15%
Dominican Republic	18%	12% or 0%	ITBIS = Impuesto sobre Transferencia de Bienes Industrializados y Servicios
Ecuador	12%		IVA = Impuesto al Valor Agregado
Egypt	14% (15% on Communication Services)		VAT = Value Added Tax (الضريبة على القيمة المضافة)
El Salvador	13%		IVA = Impuesto al Valor Agregado o "Impuesto a la Transferencia de Bienes Muebles y a la Prestación de Servicios"
Equatorial Guinea	15%
Ethiopia	15%		VAT = Value Added Tax
Faroe Islands	25%		MVG = Meirvirðisgjald
Fiji	15%	0%	VAT = Value Added Tax
Gabon	18%
Gambia[69]	15%		VAT = Value Added Tax
Georgia	18%	0%	DGhG = Damatebuli Ghirebulebis gadasakhadi დღგ = დამატებული ღირებულების გადასახადი
Ghana	15%		VAT = Value Added Tax plus National Health Insurance Levy (NHIL; 2.5%)
Grenada	15%
Guatemala	12%		IVA = Impuesto al Valor Agregado
Guinea	18%
Guinea-Bissau	15%
Guyana[70]	16%	0%	VAT = Value Added Tax
Haiti	10%
Honduras	12%
Iceland	24%	11%[lower-alpha 4]	VSK, VASK = Virðisaukaskattur
India[lower-alpha 5]	5.5%	5.5%	VAT = Value Added Tax
Indonesia	10%	10%, 0% for primary groceries, medical services, financial services, education and also insurance	PPN = Pajak Pertambahan Nilai
Iran	9%		VAT = Value Added Tax (مالیات بر ارزش افزوده)
Isle of Man	20%
Israel[lower-alpha 6]	17%[lower-alpha 7] (0% in Eilat)	0% (fruits and vegetables, tourism services for foreign citizens, intellectual property, diamonds, flights and apartments renting)	Ma'am = מס ערך מוסף, מע"מ
Ivory Coast	18%
Jamaica	12.5%
Japan	8%		shōhizei (消費税) ("consumption tax")
Jersey[lower-alpha 8]	5%	0%	GST = Goods and Services Tax
Jordan	16%		GST = Goods and Sales Tax
Kazakhstan	12%		ҚCҚ = Қосылған құнға салынатын салық (Kazakh) VAT = Value Added Tax
Kenya	16%
Kosovo	18%	8% on water supply, electricity supply, grains, milk, books etc.[72]	TVSH = Tatimi mbi Vlerën e Shtuar
Kyrgyzstan	20%
Laos	10%
Lebanon	11%		TVA = Taxe sur la valeur ajoutée
Lesotho	14%
Liechtenstein[73]	7.7%	3.8% (lodging services) or 2.5%	MWST = Mehrwertsteuer
Macedonia	18%	5% or 0%	ДДВ = Данок на додадена вредност, DDV = Danok na dodadena vrednost
Madagascar	20%
Malawi	16.5%
Malaysia[lower-alpha 9]	6%	0% for fresh foods, education, healthcare, land public transportation and medicines	GST = Goods and Services Tax CBP = Cukai Barang dan Perkhidmatan
Maldives	6%	0%	GST = Goods and Services Tax (Government Tax)
Mali	18%
Mauritania	14%
Mauritius	15%		VAT = Value Added Tax
Mexico	16%	0% on books, food and medicines.	IVA = Impuesto al Valor Agregado
Moldova	20%	8%, 5% or 0%	TVA = Taxa pe Valoarea Adăugată
Monaco[75]	19.6%	5.6%	TVA = Taxe sur la valeur ajoutée
Mongolia	10%	0%	VAT = Нэмэгдсэн өртгийн албан татвар
Montenegro	21%		PDV = Porez na dodatu vrijednost
Morocco	20%		GST = Goods and Sales Tax (الضريبة على القيمة المضافة)
Mozambique	17%
Namibia	15%	0%	VAT = Value Added Tax
Nepal	13%	0%	VAT = Value Added Taxes
New Zealand	15%	0% (donated goods and services sold by non-profits, financial services, rental payments for residential properties, supply of fine metals, and penalty interest).[76]	GST = Goods and Services Tax
Nicaragua	15%
Niger	19%
Nigeria	5%
Niue	5%
Norway	25%	15% (food), 8% (public transport, hotel, cinema) and 0% for electric cars (until 2018)[77]	MVA = Merverdiavgift (bokmål) or meirverdiavgift (nynorsk) (informally moms)
Pakistan	17%	1% or 0%	GST = General Sales Tax
Palestine	16%		VAT = Value Added Tax
Panama	7%	0%	ITBMS = Impuesto de Transferencia de Bienes Muebles y Servicios
Papua New Guinea	10%
Paraguay	10%	5%	IVA= Impuesto al Valor Agregado
Peru	18%		IGV – 16% = Impuesto General a la Ventas IPM – 2% Impuesto de Promocion Municipal
Philippines	12%[lower-alpha 10]	6% on petroleum products, and electricity and water services 0% for senior citizens (all who are aged 60 and above) on medicines, professional fees for physicians, medical and dental services, transportation fares, admission fees charged by theaters and amusement centers, and funeral and burial services after the death of the senior citizen	RVAT = Reformed Value Added Tax, locally known as Karagdagang Buwis / Dungag nga Buhis
Republic of Congo	16%
Russia	18%	10% or 0%	НДС = Налог на добавленную стоимость, NDS = Nalog na dobavlennuyu stoimost’
Rwanda	18%	0%	VAT = Value Added Tax
Saint Kitts and Nevis	17%		VAT = Value Added Tax
Saint Vincent and the Grenadines	15%
Samoa	15%
Saudi Arabia	5%		ضريبة القيمة المضافة
Senegal	18%
Serbia	20%[79]	10%[80] or 0%	ПДВ = Порез на додату вредност, PDV = Porez na dodatu vrednost
Seychelles	15%
Sierra Leone	15%
Singapore	7%	Raised from 5% to 7% in 2007. To be raised from 7% to 9% in 2019.	GST = Goods and Services Tax
South Africa	15%	0% on basic foodstuffs such as bread, additionally on goods donated not for gain; goods or services used for educational purposes, such as school computers; membership contributions to an employee organization (such as labour union dues); and rent paid on a house by a renter to a landlord.[81]	VAT = Valued Added Tax; BTW = Belasting op toegevoegde waarde
South Korea	10%		VAT = bugase (Hangul: 부가세)
Sri Lanka	12%	0%	VAT = Valued Added Tax has been in effect in Sri Lanka since 2001. On the 2001 budget, the rates have been revised to 12% and 0% from the previous 20%, 12% and 0%
Sudan	17%
Switzerland	7.7%[82]	3.7% (hotel sector) and 2.5% (essential foodstuff, books, newspapers, medical supplies)[82]	MWST = Mehrwertsteuer, TVA = Taxe sur la valeur ajoutée, IVA = Imposta sul valore aggiunto, TPV = Taglia sin la Plivalur
Taiwan	5%		增值稅 (pinyin:zēng zhí shuì)
Tajikistan	20%
Tanzania	18%
Thailand	10%	7%	VAT = Value Added Tax, ภาษีมูลค่าเพิ่ม
Togo	18%
Tonga	15%
Trinidad and Tobago	12.5%	0%
Tunisia	18%		TVA = Taxe sur la Valeur Ajoutée آداء على القيمة المضافة
Turkey	18%	8% or 1%	KDV = Katma değer vergisi
Turkmenistan	15%
Uganda	18%
Ukraine	20%	7% or 0%	ПДВ = Податок на додану вартість, PDV = Podatok na dodanu vartist’.
United Arab Emirates	5%		ضريبة القيمة المضافة
Uruguay	18%	11% or 0%	IVA = Impuesto al Valor Agregado
Uzbekistan	20%		НДС = Налог на добавленную стоимость
Vanuatu	13%
Vietnam	10%	5% or 0%	GTGT = Giá Trị Gia Tăng
Venezuela	12%	11%	IVA = Impuesto al Valor Agregado
Zambia	16%
Zimbabwe	15%

VAT free countries and territories

As of March 2016, the countries and territories listed remained VAT free.

Country[83]	Notes
Akrotiri and Dhekelia	British Overseas Territory
Angola	N/A
Anguilla	British Overseas Territory
Bermuda	British Overseas Territory
Bhutan	N/A
British Antarctic Territory	British Overseas Territory
British Indian Ocean Territory	British Overseas Territory
British Virgin Islands	British Overseas Territory
Brunei	N/A
Cayman Islands	British Overseas Territory
Comoros	N/A
Cuba	N/A
Djibouti	N/A
Eritrea	N/A
Falkland Islands	British Overseas Territory
Gibraltar	British Overseas Territory
Guernsey	British Crown Dependency
Hong Kong	Special administrative region of China
Iraq	N/A
Kiribati	N/A
Kuwait	Gulf Co-operation Council (5% VAT planned 2021[84])
Liberia	N/A
Libya	N/A
Macau	Special administrative region of China
Maldives	N/A
Marshall Islands	N/A
Micronesia	N/A
Montserrat	British Overseas Territory
Myanmar	N/A
Nauru	N/A
North Korea	N/A
Oman	Gulf Co-operation Council (5% VAT planned 2019[85])
Palau	N/A
Pitcairn Islands	British Overseas Territory
Qatar	Gulf Co-operation Council
Saint Helena, Ascension and Tristan da Cunha	British Overseas Territory
San Marino	N/A
Sao Tome and Principe	N/A
Solomon Islands	N/A
Somalia	N/A
South Georgia and the South Sandwich Islands	British Overseas Territory
South Sudan	N/A
Suriname	N/A
Swaziland	N/A
Syria	Just recent tax of 14,85% (hotels) and 10% (restaurants)
Timor Leste	N/A
Turks and Caicos Islands	British Overseas Territory
Tuvalu	N/A
United States	Sales taxes are collected by most states and some cities, counties, and Native American reservations. The federal government collects excise tax on some goods, but does not collect a nationwide sales tax.
Vatican City	N/A
Yemen	N/A

Trade criticism

National VAT taxes act as a tariff on imports and their exports are exempt from VAT (zero-rated).^[88]

Because exports are generally zero-rated (and VAT refunded or offset against other taxes), this is often where VAT fraud occurs. In Europe, the main source of problems is called carousel fraud. This kind of fraud originated in the 1970s in the Benelux countries. Today, VAT fraud is a major problem in the UK.^[89] There are also similar fraud possibilities inside a country. To avoid this, in some countries like Sweden, the major owner of a limited company is personally responsible for taxes.^[88]

Under a sales tax system, only businesses selling to the end-user are required to collect tax and bear the accounting cost of collecting the tax. Under VAT, manufacturers and wholesale companies also incur accounting expenses to handle the additional paperwork required for collecting VAT, increasing overhead costs and prices.

Many politicians and economists in the United States consider VAT taxation on US goods and VAT rebates for goods from other countries to be unfair practice. For example, the American Manufacturing Trade Action Coalition claims that any rebates or special taxes on imported goods should not be allowed by the rules of the World Trade Organisation. AMTAC claims that so-called "border tax disadvantage" is the greatest contributing factor to the $5.8 trillion US current account deficit for the decade of the 2000s, and estimated this disadvantage to US producers and service providers to be $518 billion in 2008 alone. Some US politicians, such as congressman Bill Pascrell, are advocating either changing WTO rules relating to VAT or rebating VAT charged on US exporters by passing the Border Tax Equity Act.^[90] A business tax rebate for exports is also proposed in the 2016 GOP policy paper for tax reform.^[91][92] The assertion that this "border adjustment" would be compatible with the rules of the WTO is controversial; it was alleged that the proposed tax would favour domestically produced goods as they would be taxed less than imports, to a degree varying across sectors. For example, the wage component of the cost of domestically produced goods would not be taxed.^[93]

Citations

Sources