Value Added Tax

The US and UK 2015 Value Added Tax
There are various stages involved in the production procedure. At each stage in the production procedure, the value of products increases. This increased value is referred to as “value added”.
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A tax applied to the increased value added to a product at each stage of the production procedure is called the Value Added Tax (VAT). Most analysts conclude that the value added tax is basically a sales tax that is collected a little bit at a time in the various production stages rather than only as a lump sum at the end of the final retail sale.value added tax VAT

The final retail cost to consumers greatly exceeds the entire cost of the materials used to make the product, and the value added tax at each stage of the product’s production are far less than the total sales tax consumers must pay for the final retail price of the product. The following is an illustration of how a VAT would work in producing and selling a wooden table.

First, a raw material (in this instance, wood) is sold by a supplier to a manufacturer to produce the table. If the supplier sells the raw material to the manufacturer for $40, the value added to the material is the entire $40. At a tax rate of 5 percent, the $40 value added tax is $2.

Second, after building the table, the manufacturer sells the table for $140 to a wholesaler. The manufacturer added a value of $100 to the table made from the material costing $40. The manufacturer is only required to pay a VAT on the value added to the table. At a tax rate of 5 percent, the $100 value added tax is $5.
Third, the table is sold by the wholesaler for $200 to a retailer. The $140 table sold for $200 has a value added increase of $60. The value added tax of 5 percent is $3.
• Finally, the retailer sells the table to a consumer for $300. Because the retailer paid $200 for the table and sold it for $300, the retailer is required to pay tax on the $100 value added to the table. At the rate of 5 percent, the retailer’s VAT is $3.

The sales tax for the $300 table is $15. From the consumer’s point of view, the VAT production process results in a forced, retail sales tax to the consumer in the table’s final retail sale price of $300.

• The standard UK VAT rate for most goods and services is 20%.
• Child car seats, domestic energy, and mobility aids installed in the homes of seniors over 60 years are charged a reduced rate of 5 %.
• Items such as books, newspapers, children’s clothing and shoes, and motorcycle helmets are rated 0 percent (0%).

In the US, Michigan was the only state that had a type of VAT that was appealed in 2006. Currently, the US does not have a VAT, instead, most US states have a sales tax.