History of the Value Added Tax VAT in Europe

History of Accounting > Tax History > History of the VAT Tax in Europe

The Value Added Tax (VAT) is a tax on goods and services, which is
used in many countries of the world, instead of a sales tax. In the UK,
the present VAT rate is 20%, which might seem a little high, until you
compare it to some of the other countries in Europe. In Sweden, Hungary,
and Denmark the rate presently stands at 25%, while Iceland tops out the
continent at 25.5%.

The VAT is not considered a direct tax, but an indirect tax, since it is
collected by the seller of a product or service, and later repatriated to
the government. All the nations that are in Europe are legally required to
collect VAT taxes. Currently, the lowest the rate can be is 15%, and if a
government wants to reduce the rate below that amount, it must get the
approval of the European Council.

The French tax authorities first introduced the VAT tax in 1954, when
Maurice Lauré was running the agency. Roughly one hundred years
earlier, the German government had a very similar type of tax that hit every
phase of the production process. Prior to the VAT tax, the UK government
imposed a consumption tax on its citizens at a standard rate of 10%. But,
a higher rate was charged on items deemed to be either luxury goods or
gasoline, and that rate stood at 12.5% for quite some time.

Unfortunately for the citizens of Europe, the VAT tax rate only seems to
move in one direction, which is up. In France, the rate when it was first
introduced was 13.6%, and it now stands at 19.6%. In Germany, the rate
is now at 19%, which came about because of a slow and gradual increase
from its initial rate, of 10%.

As with most types of taxes, and the VAT tax is no exception, there
are people and institutions that think it is a good concept, and others
that believe it should be abolished all together. The tax lobbyists that
disapprove of the VAT tax believe it is a form of double taxation, because
the people pay the tax out of their income, which they have already been
taxed on.

The organizations that support the tax, state that it is a very fair way to
tax the citizens of a country, because the wealthiest citizens of a country
contribute significantly more to a governments treasury, than the poor
do. The reason that the rich contribute more tax revenue than the less
fortunate amount us is relatively simple, since they make more, they spend
more, and thusly, they are taxed more.

Thankfully, there are certain essential items that are exempt from paying
the VAT tax and these include most kinds of food (with the exception of
snacks), books, drugs and medications, and certain types of transportation.
Since the manufactures of these items are able to recoup back the
VAT they paid on raw materials and labor to produce their products, the
government is basically subsidizing these items for the general public.

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