Sales tax creates more unnecessary pain than value added tax • Hacker News Board

Re: Sales tax creates more unnecessary pain than value added tax

#161

Post by gamblor956 » Sun, Dec 13, 2020, 9:44 PM UTC

stainforth wrote: post #117

gamblor956 wrote: post #92

Earlier quoted context omitted.

VAT is more complicated than sales tax. Far, far more complicated. (I deal with VAT, sales tax, GST, CST, HST, and other consumption taxes as part of job.) The simplest form of consumption tax is the (Australian) GST: a flat 10% on almost all goods and services.

Do Australians have strong dislike of their setup as well?

Yes, until they experience taxes anywhere else in the world.

Australia's tax system, at least for businesses, is probably the simplest and most efficient tax system in the world (at least for Australian businesses, it's a bit more of a hassle to get registered for the system for foreign companies).

It's a good model for what an ideal U.S. tax compliance system would look like, however, there are some aspects of it (like the BAS and GST netting) that would not scale in the U.S. due to the higher levels of tax fraud we have stateside.

Re: Sales tax creates more unnecessary pain than value added tax

#162

Post by rahimnathwani » Mon, Dec 14, 2020, 12:44 AM UTC

gamblor956 wrote: post #160

rahimnathwani wrote: post #105

Earlier quoted context omitted.

> VAT is more complicated than sales tax. I'm curious - do you think this extra complexity is necessary (e.g. extra rules to reduce unintended effects), or is it implementation-specific? > The simplest form of consumption tax is the > (Australian) GST: a flat 10% on almost > all goods and services. But isn't Australian GST just a specific example of a VAT system? The Australian government says[0]: "Generally, busines…

1) Yes, different industries have different transactional flows. Because VAT applies at every level, complexity is required to avoid unduly interfering with industries with multiple mid-levels. 2) To say GST is exactly like VAT is to say that an abacus is exactly like a supercomputer because they both calculate things. A GST is not a VAT. A GST is a goods and services tax, not a "value added tax." The GST only taxes…

"Thus, a VAT impairs the value proposition of utilizing middleman."

The UK has VAT. It does not impair the value proposition of utilizing middlemen. When a consumer buys something for £120, £20 of this is VAT, and will be remitted by the retailer to HMRC.

Now, relevant to your point is this: the retailer claims a credit for any VAT she paid when she bought the goods from a middleman. And that middleman will claim a credit for any VAT he paid when he bought from the other middleman. The VAT charged on each transaction in the chain is eventually claimed back. So whether is 1 middleman or 100, VAT does not cause any tax drag. In other words, the existence or number of middlemen in the chain does not change the total amount of VAT collected by HMRC on a consumer's purchase of £120 (£100+VAT).

My reading of the Australian GST is that the mechanics are similar to the above: i.e. GST is charged on all sales, but that GST-business can claim back any GST they paid on things they used in their business.

So this leaves me to wonder: what are the main differences between the operation of UK VAT (as described above) and Australian GST?

Re: Sales tax creates more unnecessary pain than value added tax

#163

Post by gamblor956 » Mon, Dec 14, 2020, 4:35 PM UTC

rahimnathwani wrote: post #162

gamblor956 wrote: post #160

Earlier quoted context omitted.

1) Yes, different industries have different transactional flows. Because VAT applies at every level, complexity is required to avoid unduly interfering with industries with multiple mid-levels. 2) To say GST is exactly like VAT is to say that an abacus is exactly like a supercomputer because they both calculate things. A GST is not a VAT. A GST is a goods and services tax, not a "value added tax." The GST only taxes…

"Thus, a VAT impairs the value proposition of utilizing middleman." The UK has VAT. It does not impair the value proposition of utilizing middlemen. When a consumer buys something for £120, £20 of this is VAT, and will be remitted by the retailer to HMRC. Now, relevant to your point is this: the retailer claims a credit for any VAT she paid when she bought the goods from a middleman. And that middleman will claim a c…

It does not impair the value proposition of utilizing middlemen

It absolutely does, and I say this as someone with experience dealing with all types of consumption taxes. VAT reduces the usage of middlemen in countries where VAT systems exist.

So whether is 1 middleman or 100, VAT does not cause any tax drag. In other words, the existence or number of middlemen in the chain does not change the total amount of VAT collected by HMRC on a consumer's purchase of £120 (£100+VAT).

VAT requires the middlemen to track and pay VAT at every level. While this is the same as sales tax and GST, compliance for sales tax and GST is far simpler than it is for VAT. (This is true even before you consider multijurisdictional tax issues for VAT and sales tax.) VAT compliance is more expensive, and this cost gets passed on to the customer.

what are the main differences between the operation of UK VAT (as described above) and Australian GST?

The main difference between GST and VAT is that a GST is charged at a flat rate regardless of the value added. A VAT is only charged on the value added at each step.

That is what makes the calculation more complex. Compare, for example, a product sold at $10 by a middleman under GST vs same product sold in VAT jurisdiction. In GST land, the tax is $1 whatever you paid for the input goods. Your GST payment to the government is based on total output GST charged less totoal input GST paid to suppliers of business expenses. Since the rate is flat, you essentially just take gross revenue less gross business expenses and you're done. In VAT land, the tax depends on the price paid for the goods/services that went into the product/service, so you have to know what prices you paid for those to calculate the taxable value delta. And when you reclaim VAT, different categories of VATable expenses have different rules for what can be reclaimed. So it's not a simple calculation; there's significantly more work involved.