1 - SURVEY OF TAXES ON CONSUMPTION AND INCOME, AND INTRODUCTION TO VALUE ADDED TAX

Summary

INTRODUCTION

The VAT has spread around the world more quickly than any other new tax in modern history. According to Alan Tait, the value added tax “may be thought of as the Mata Hari of the tax world – many are tempted, many succumb, some tremble on the brink, while others leave only to return, eventually the attraction appears irresistible.” The extreme of a country that left, only to return, is Japan. It enacted a VAT in 1950, delayed its effective date for several years, repealed it in 1954, and then enacted a different version of VAT in 1988.

This book covers value added tax and, in some parts, other consumption taxes in use or proposed in developing and developed countries. A valuable resource in electronic form that assists in locating tax legislation around the world is http://www.itdweb.com, developed jointly by the International Monetary Fund, the Organization for Economic Co-operation and Development, and the World Bank.

Tax on consumption generally refers to a tax on goods and services that are acquired by individuals for their personal use or satisfaction. It generally does not include goods and services that are physically used or incorporated by business in the production or distribution of goods or in the rendition of services (business inputs).

It is difficult for a business to operate internationally without considering the implications of sales tax or value added tax on international trade, whether or not the company's country of residence has a broad-based tax on consumption.