What are the Limitations of VAT?

VAT is the tax charged on goods and services that are sold in stores. There is a different type of Vat depending on the legislation that has been set by the regulatory and tax collecting agencies. The Vat is mostly charged on the good that we buy on supermarkets and other major stores. It is meant to be a source of revenue for the government to perform its functions. It is mostly charged at the point of sale and directly remitted to the tax-collecting agency. However, although it is a major source of funds for the government. It has its own limitations. Here are some of the Limitations of VAT.

VAT leads to increased compliance costs in terms of placing records and updating all the records regarding all the purchases and sales that have been made. These records require a certain amount of cost to be incurred for them to be updated. This is in terms of personnel and technology used in maintaining such records. This makes it an expensive affair for stores that have to remit the Vat as required by the law. Click here to know more about the consumption tax.

VAT is regressive in nature since a flat rate or fee is charged on all goods and services that are produced or imported from outside the country. It’s not like the income tax where the taxation increases as the income of an individual Inc which means more money for the government. The process of remitting income tax is also easier compared to vat.

The implementation of VAT is costly since it requires that a follow up is made to ensure that the individuals who are responsible for paying the vat remit to the relevant authorities in time. There are various ways in which individuals use to evade this tax which means it’s not the best taxation method. The costs incurred are more than other forms of taxation. The process is also tedious which means the even greater cost is incurred in ensuring that all the vat charged.

Finally, VAT comes with a few challenges that make it not the only method in getting the revenue for the government. It is essential that the government combines the vat with other forms of taxation to ensure that revenue is collected and remitted in time for the government to perform its functions. It is essential that you still consider the advantages of the vat despite the various limitations it contains. Click here to get information about VAT: https://en.wikipedia.org/wiki/Value-added_tax.

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