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Another stupid question- can someone explain VAT to me?

Another stupid question- can someone explain VAT to me?

Old Aug 11th, 2005, 10:59 PM
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Another stupid question- can someone explain VAT to me?

I understand it's like 17.5% or something like that. I understand it's something that can be refunded to you if you fill out specific forms.

What I don't understand is how it works for people who actually live in these countries. Do they pay 17.5% tax on everything they buy and never get any of it back? Or do they not have to pay VAT? If that's the case, how would the storeowner know the difference, esp. if one is paying in cash? Does getting the VAT back work if you pay in cash, or only if you use a card, traveler's cheque, etc?

I am young and uninformed.
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Old Aug 11th, 2005, 11:05 PM
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If you want an accurate answer then go here:

http://europa.eu.int/comm/taxation_c...s/index_en.htm

If you want a lot of possible conjecture and hearsay, hang around here
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Old Aug 11th, 2005, 11:07 PM
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And the short answer is that everyone pays the VAT no matter where they are from; you, as a non-EU resident, may be entitled to a partial refund once you leave the EU, subject to certain conditions and depending on how much money you spent and on what.
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Old Aug 11th, 2005, 11:30 PM
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ColeraineCutie

If you're talking about the UK then VAT is paid every time you buy something in the UK that is taxable.

Not like here in MA where items are priced and sometimes state tax is added and sometime it isn't - it depends on what you buy but sometimes the price is higher than the 'ticketed' price.

In the UK the price on the item is the price you pay - tax is already added! If you're a visitor to the UK then you can get a refund on the taxes you've paid, after all you're not a UK taxpayer.


In the US if you buy a CD using the internet (I'm assuming you're in the US) then unless you're a resident of the state you are buying from then you don't pay state tax.

It's kind of the same thing, without the hassle of the refund form

Where are you going?

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Old Aug 11th, 2005, 11:37 PM
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Businesses which are registered for VAT (and you must be registered if you trade over £53k per annum) you can claim it back.
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Old Aug 12th, 2005, 04:06 AM
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This may be more than you wanted or needed to know, but: VAT is paid on every sale of product. The farmer charges VAT on his wheat when he sells it to the miller (as an offset, he claims VAT he has paid on seed, fertilizer, etc). The miller grinds the wheat into flour, sells it to the baker, charges VAT, claiming as an offset the VAT paid to the farmer and the grindstone sharpener (miller's VAT is more than the farmer's because he has added a markup). The baker buys the flour, sells it to the consumer, charges VAT, claiming as an offset the VAT he paid for wheat, yeast, etc. (again, more than he claimed from the miller's VAT, due to markup). The consumer cannot claim a refund of the baker's VAT because he has consumed the food.
For any given country, I believe the VAT rate is one consistent percentage.
The system would permit, however, different percentages on raspberry jam than on strawberry jelly. Can you imagine the lobbying that interest groups would do to get a lower % rate for their product?
Most countries with a value added tax also have an income tax.
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Old Aug 12th, 2005, 04:39 AM
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<Can you imagine the lobbying that interest groups would do to get a lower % rate for their product>

And they do, they do. The theology of the argument over whether a jaffa cake is a cake or a biscuit has become notorious. Not to mention the precise boundary between children's and adult clothes.
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Old Aug 12th, 2005, 05:09 AM
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VAT is a consumption tax. It is paid when an article is passed from one hand to another's. This tax, then, is paid to the government at each stage of commerce.

The proposals for a "single tax" in America are very similar. VAT is highly regressive; that is, it falls heavily on those who must purchase items in order to live, and this means it falls most heavily on the middle-income wage earners and the poor. And don't let anyone kid you that this "simplification" doesn't favor the rich because it surely does. They can afford to hire all kinds of legal help to avoid paying their fair share of a VAT. For example: a bag of groceries costs a middle-income person a percentage of his/her income while the high-income person pays a much lower percentage of his/her income.

VAT generates enormous revenues. It is very difficult to trace. Very hard to identify how much the final price is represented by taxes because all sorts of taxes have been paid by producers at each stage of production.

VAT becomes a huge political football among lawmakers. It encourages so-called "black economies" where much business is done off the books or underground.

In a nation like America, where consumerism reigns, a VAT would be an enormous windfall for the government and a heavy burden on the man on the street. VAT would dampen sales because of the increased taxation.

Bad as our system now seems, a VAT would be much worse.
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Old Aug 12th, 2005, 05:41 AM
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Question for PatrickLondon: Can you give us an example of different rates (e.g., cake vs biscuit)? And who sets them--Parliament or the treasury department?

Questions for USNR: Re the rich hiring legal help to avoid paying VAT...how (exactly) would a lawyer reduce or eliminate the VAT on the goods a rich man bought? Why could a VAT not be lower or even zero on basic foods (but not on foie gras), and similar necessities? Why could not the "standard deduction" on the income tax be equal to the VAT that low income people would pay on the necessities of life? Why is VAT hard to trace or impossible to identify how much of a price is VAT, when if everyone in the chain charges 17.5% and gets a VAT credit of 17.5% of their purchases, the ultimate VAT is 17.5%? Why would it dampen sales if the total taxation were the same?
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Old Aug 12th, 2005, 05:57 AM
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here's another recent thread on this subject

http://www.fodors.com/forums/threads...2&tid=34658548


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Old Aug 12th, 2005, 06:01 AM
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Some things are exempt from VAT - unprepapred food for instance. Others a rated at zero (small but important difference here - the rate could be changed without recourse to parliament) these include books newspapers and childrens clothes.

Then there are various rates. Domestic fuels I believe attract a rate of 4% and most things attract a rate of 17.5%, as well as any other duties they may attract (for instance a packet of 20 fags (stop sniggering) retail at around $9 (ie £5) almost all of which is tax of one kind or another, and a bottle of Spirits is around $17, again almost all tax.

Because taxes are relatively high here, especially on beer and fags, there is a thriving smuggling operation bringing them into the country from France and Belgium.

No trip to a London pub is complete without someone in a shell-suit trying to sell you smuggled tobacco (and chinese people trying to flog you iffy DVDs).
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Old Aug 12th, 2005, 06:02 AM
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Just to clarify a couple of things mentioned above. You in fact don't pay VAT at every stage of the process; well, you do, but if you are a VAT registered company you can reclaim any VAT you've paid out.

For example, I'm a clothes manufacturer. I buy the raw materials to make the clothes, and pay VAT on that to my supplier. They pay that VAT to the governmen, and I then reclaim.

I then sell them to the shop, and charge VAT, which I pass on to the government. The shop then reclaims the VAT they've paid me. The shop sells the clothes to the consumer, and passes on the VAT from that final sale.

So, the net tax paid to the govenment is actually the same as with a sales tax, except with more paperwork. It does seem like a zero-sum-gain arrangement, and a bit pointless, except you can get cashflow benefits of collecting VAT before you pass it on.

Also, the grocery analogy is a bit of a misleading one, since in fact most food (except alcohol and food eaten in a restaurant) is VAT exempt, with some exemptions (hence the great Jaffa Cake debate). So, in that example, you could argue in fact that the US sales tax is more regressive, since you have a choice about whether to eat out, but you have to buy groceries.

http://www.resultsforbusiness.co.uk/tax/vat.shtml

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Old Aug 12th, 2005, 06:19 AM
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And addressing the most important bit of the arguement: They're cakes.

They are made primarily of sponge. They have a sort of jam on them. they go hard, not soggy if you leave them out and you can eat them until you burst.

These are all symptoms of cakeness. Just because you find them in the biscuit aisle doesn't mean anything. After all you if can find Budweiser in the beer section.....
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Old Aug 12th, 2005, 07:14 AM
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The Great Jaffa Cake argument is a bit like the Schleswig Holstein issue (was it Bismarck who said only three people understood all the issues, Palmerston - who was dead, a particular professor of law - who had gone mad, and himself - who had forgotten it all). Except I was never that interested, though I think it was resolved in the courts.

Formally speaking, Parliament will have approved the rules somewhere along the line, but the general principles will have been agreed at European level and the precise application in detail may well be done by secondary legislative procedures that aren't given much debate. In the UK, if the government has a majority, business like that gets through without much amendment.
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Old Aug 12th, 2005, 10:23 PM
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Thank you! I get it now. Sort of. Comparing it to MA helped a lot- thank you Alya. And to answer your question, Coleraine, Northern Ireland.

Clarification question: When I look at the prices for say a sweater, the tax will already be included? Same for when I'm buying groceries? Thanks.
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Old Aug 12th, 2005, 10:37 PM
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ALL prices displayed to consumers in the EU must (and do) include tax.

Because some countries outside the EU, less tolerant of merchant duplicity than us, do not have this practice, some European businesses advertising on the Web to non-Europeans sometimes exclude VAT: most typically hotel prices. But it's illegal for these businesses to quote prices without VAT actually within Europe.

Incidentally in the UK, smaller sizes of sweaters are VAT-free (the only prtactical way of managing the "children's clthes are VAT-free" principle is to set a size threshold), and most uncooked food (ie virtually everything in a grocery store apart from booze, fags and confectionery) is VAT-free.
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Old Aug 13th, 2005, 12:08 AM
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It is usually true that the advertised price does include VAT, however, some products like computers and related accessories are routinely advertised exluding VAT. I think the excuse is that they are mainly sold to businesses (even though from the ads, it is clear they are aimed at the home market).
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Old Aug 13th, 2005, 05:15 AM
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I sit here, shaking my head and holding back the laughter. Some people actually LIKE to be deceived.

By including the tax in the quoted price, the buyer has no idea HOW MUCH tax is being paid. When ignorance is bliss, 'tis folly to be wise. This surely is the road to serfdom.
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Old Aug 13th, 2005, 06:29 AM
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It has been said already, that every citizen inside EU will pay sales tax with every prize paid for goods or services bought.

When people from outside the EU export things, they have bought inside the EU, they export these things, and exported goods are extemt from VAT
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Old Aug 13th, 2005, 01:38 PM
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It's not actually difficult to know how much tax you are paying at the point of purchase. It's quite a useful exercise in mental arithmetic.
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