If you travel to Europe you are going to have to deal with the VAT anytime that you make a purchase. Most people are not entirely clear on what this is,even most of the people who live in Europe. There is a tendency to treat it like a sales tax but in reality there are some important differences between a sales tax and the VAT.
The VAT is the value added tax in Europe, a lot of people assume that this is simply a sales tax and from the perspective of the consumer it is. However the tax is only applied on the value added at each stage of production which greatly simplifies things when it comes to determining who has to pay tax and who doesn’t. This approach also ensures that an item is only taxed once which may not be the case with a straight sales tax.
With a sales tax there is generally no tax collected until the final sale to the consumer, this is not the case with the VAT. In the case of a value added tax if a company is producing a product they will pay the tax on the materials they need to produce the product. The item would then be sold to the retailer who would pay tax but only on the amount of value that was actually added by the manufacturer. The retailer would then sell the product to the consumer and collect taxes based on the value added by the retailer.
Although things seem more complicated with a value added tax when compared to a sales tax there are actually several advantages to this system. The biggest is that it removes the issue of who has to pay the tax. With a sales tax as long as you can convince the seller of a product that you are not the end user but intend to sell the product to somebody else you are not required to pay tax, this obviously leaves a lot of room for cheating. With the VAT the seller collects the tax regardless of what the buyer intends to do with the product.
The VAT in Europe is collected in all countries in the EU, it is a requirement that countries that join the EU also join the tax regime. The amount collected does however vary from one country to another. In general there is a rule that all countries must charge a minimum VAT of fifteen percent, countries are free however to charge higher amounts if they choose. Currently the highest rate is twenty seven percent in Hungary. In Holland they are at 19%, in Belgium it’s mostly 21% for consumer goods. There are some items that have a lower rate charged mainly because it was considered necessary to protect certain industries in certain countries. This is becoming less and less common however and most items are now required to be taxed at a minimum of fifteen percent.
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