VAT is an indirect tax imposed on goods at each stage of their productions, from the raw material to the added product. VAT was first used by the country of France in the mid-1950s, according to Economy Watch. It soon became a major source of state income. VAT differs from sales tax, another common consumer tax, in that sales tax is paid as a percentage of the total value of goods and/or services, while VAT is paid at every exchange of a product to its next production stage. VAT is also added into the price of the good, and not added at the register.
VAT can raise the revenue of a country considerably. Additionally, the VAT tax system is much simpler to understand and legislate than a sales tax system. According to Economy Watch, there is a provision in most VAT statutes that provides for input tax credit. The VAT tax is levied on almost every good or service consumed within the European Union, according to the Taxation and Customs Union.
The minimum VAT rate for EU countries is 15 percent, but it can be reduced to as low as five percent, according to the Taxation and Customs Union. VAT is charged as a percentage of price, but is collected fractionally by way of partial payment by taxable businesses that deduct the VAT they have collected from the amount of tax they have paid to other taxable persons or businesses.
VAT can and will be refunded to non-European tourists, since VAT is applicable only to goods and services consumed within the European Union; many shopping areas popular with tourists have merchants that are party to the VAT refund scheme. To receive a refund, most businesses use a refund affiliate, such as Global Refund. The store will issue a refund check that a tourist can present to customs upon leaving the European Union for a refund.
VAT is charged on almost every good and service, including parking in many countries. In Belgium standard VAT is 21 percent, and reduced rate is six and one half. In Germand, VAT is 19 percent and reduced rate is seven. Reduced VAT is applied to foodstuffs, water, pharmaceutical items, medical equipment for the disabled, books, childrens' car seats, newspapers, books, magazines and agricultural products, to name a few.
