Issue Brief for Congress: A Value-Added Tax Contrasted With a National Sales Tax (Updated March 19, 2003)

James M. Bickley,

Government and Finance Division

자료: A Value-Added Tax Contrasted With a National Sales Tax

메모: 

A VAT on a product would be levied at all stages of production of that product. A firm’s net VAT liability is usually calculated by using the credit method. According to this method, a firm determines its gross tax liability by multiplying its sales by the VAT rate. Then the firm computes its net VAT liability by subtracting VAT paid on purchases from other firms from the firm’s gross VAT liability.

The three types of VAT differ in their tax treatment of purchases of capital (plant and equipment). 

• A consumption VAT(consumption-type VAT) treats capital purchases the same way as the purchase of any other input, i.e., it is equivalent to expensing. All developed nations with VAT have the consumption type. 
• The other two types of VATs are the income VAT and the gross product VAT. Under the income VAT, the VAT paid on the purchases of capital inputs is amortized (credited against the firm’s VAT liability)over the expected lives of the capital inputs. 
• Under the gross product VAT, no deduction for the VAT on purchases of capital inputs is allowed against the firm’s VAT liability. 

A NST would be a federal consumption tax collected only at the retail level by vendors. Both a VAT and a NST are assumed to be ultimately paid by consumers. For FY2000, a broad-based VAT or NST would have raised net revenue of approximately $37.8 billion for each 1% levied.

• An opportunity exists for a NST to be collected jointly with state sales taxes, 
• but a federal VAT offers no readily available joint collection possibilities.
  

A consumption VAT with the credit method{전단계 세액공제식} more easily excludes inputs from double taxation than does a NST. 

• A consumption VAT would be easier to enforce than a NST. It is in the self-interest of a firm to have accurate purchase invoices so that it can obtain full credit for prior VAT paid. 
• Tax authorities can double check the accuracy of the VAT remitted by any firm because data are collected from producers at all levels of production. 
• A VAT could have a broader tax base than a NST because a VAT is easier to enforce. 

The credit method is usually used to collect the VAT. Under the credit method: 

• a firm would calculate the VAT on its sales. 
• Next, a firm would compute its VAT liability by subtracting the VAT paid on its inputs from the VAT on its sales, 
• and would then remit the difference to the federal government to cover its tax liability.
  

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The retail price of a good or service equals the sum of value added at all stages of production. Consequently, a value-added tax and a national sales tax with the same tax rate and tax base would yield the same amount of revenue. The operating assumption of policymakers and economists is that both taxes are fully shifted forward onto consumers; that is, the price to the consumer increases by the (full) amount of the tax.