VAT normally applies at every level of the supply chain. So if you are building cars and buy steel and aluminum, you are paying a VAT on that. Sales tax is normally end consumer. So while a manufacturer would pay sales tax on robots to build the cars, they wouldn’t pay sales tax on the steel or aluminum.
VAT is easier to track and harder to avoid. And crucially, you only pay it if there’s value added in the step. But ultimately, the total amount is only paid by the end consumer, so from the end consumer POV it is exactly the same as a plain sales tax.
a vat is a tax on the value added at each stage of a supply chain vs. the end consumer just paying the tax on the end value of it. Ultimately, it’s passed along to the consumer (usually) anyway.
I buy wood from you for $10. You apply the VAT of 10%, so I give you $11…you give the government $1. I make that into a cutting board selling for $50. My consumer pays $55. Since I added $40 in value to the wood, I have to pay the government $4 in tax, and I essentially reimburse myself for the $1 I paid you in tax.
To the end consumer, it’s no different than just a 10% sales tax. They paid $55, I made $40, you made $10.
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VAT normally applies at every level of the supply chain. So if you are building cars and buy steel and aluminum, you are paying a VAT on that. Sales tax is normally end consumer. So while a manufacturer would pay sales tax on robots to build the cars, they wouldn’t pay sales tax on the steel or aluminum.
https://www.reddit.com/r/askscience/comments/nx3f6r/how_does_a_vat_differ_from_a_sales_tax_why_is_it/
Some great info here.
Basically it’s just the timing of the tax. Sales tax is paid at the end of the supply chain. VAT is paid in portion at each step in the supply chain.
VAT is easier to track and harder to avoid. And crucially, you only pay it if there’s value added in the step. But ultimately, the total amount is only paid by the end consumer, so from the end consumer POV it is exactly the same as a plain sales tax.
a vat is a tax on the value added at each stage of a supply chain vs. the end consumer just paying the tax on the end value of it. Ultimately, it’s passed along to the consumer (usually) anyway.
I buy wood from you for $10. You apply the VAT of 10%, so I give you $11…you give the government $1. I make that into a cutting board selling for $50. My consumer pays $55. Since I added $40 in value to the wood, I have to pay the government $4 in tax, and I essentially reimburse myself for the $1 I paid you in tax.
To the end consumer, it’s no different than just a 10% sales tax. They paid $55, I made $40, you made $10.