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Characteristics Of Value Added Tax (VAT)

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The main characteristics of value added tax (VAT) are stated as follows:

1. VAT is a form of indirect taxation.

2. VAT is a broad-based tax as it covers the value added to each commodity by a firm during all stages of production and distribution.

3. VAT is based on value added principle. Value added can be obtained either by adding payments to factors of production (i.e. , wages+rent+interest+profit) or deducting cost of inputs from sales revenue.

4. VAT is a substitute for sales tax, hotel tax. contract tax and entertainment tax.

5. VAT is based on self-assessment system and provides the facility of tax credit and tax refund,

6. VAT avoids cascading effect existed in sales tax and contains catch-up effect.

In a nutshell, VAT is an indirect tax that is imposed on different goods and services on the basis of value added amount in different stages of production and distribution. It is not a genuinely new form of taxation but merely a sales tax administered in different form. Although it is borne by the final consumer, VAT is collected at each stage of production and distribution chain.

Related Topics
Concept And Meaning Of Vat And Its Assumptions
Advantages And Disadvantages Of VAT
Types Of Value Added Tax (VAT)
Principles Governing VAT

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