Value-added Tax (VAT)
Value-added Tax (VAT) is a form of consumption tax paid by consumers when they purchase goods and services, as opposed to income tax. VAT is charged at each point of the supply chain where some value is added to the original product or material.
VAT policies vary among countries, ranging from as low as 1 percent to as high as 27 percent. The applicable VAT rate is determined by the location and the nature of the product being sold.
Governments use VAT as an economic tool. By adjusting VAT, they can influence the consumption pattern and shape the economic landscape. A high VAT rate discourages consumers from buying certain goods, and vice versa. Governments also utilize VAT to generate funding to finance public services and infrastructure.
At every stage of the supply chain, manufacturers and suppliers contribute value to the product or material. Consequently, the government levies VAT on these businesses. In response, they modify their product prices to incorporate the relevant tax rate, thus passing on the VAT to the end consumer.
VAT plays a critical role in cross-border trade. Companies engaging in international logistics must adhere to the VAT regulations specific to each country. A good understanding of the complexities of VAT in global logistics is important, as failure to comply can result in financial penalties.
English