Understanding the VAT System

Different countries have a different system of classifying and imposing taxes on goods

A VAT is normally levied on the sale difference between what a seller charged his buyer and the actual market price of the product. VAT is normally called the goods and services tax. The kinds of VAT are mainly based on the classification of products. Input tax required for certain capital items is either allowed or wholly or not is the basic question in the analysis of different forms of VAT.

This system of classifying the taxes on consumption has changed several times over the years, but the basic classification is still quite applicable. Goods which are consumed, and those which aren’t, are classified as ready to use consumer goods, non-ready to use consumer goods and other similar classes. The rates of duty and taxes are usually derived from the following stages of production. These are: final consumer goods processing stage, consumption tax stage, retail sale stage and finally transitional stage. The rates of duty and taxes are then charged on the following products: sale of final consumer goods, consumption tax, personal property tax and central board tax.

The theory behind VAT

There are many instances where goods are consumed after they have been bought and the payment for these goods is made only after the complete sale. The theory behind VAT is to ensure that the revenue earned by the state is equal to the revenue required to pay indirect tax on the goods. This is done by ensuring that each and every sale are treated like a taxable one and that the amount of indirect tax paid on a particular item of good is equal to the amount of direct taxation needed to cover the costs of production. While each type of indirect tax varies from one country to another, there are major similarities in most countries.

In the United Kingdom, goods are classified as either general circulation goods or consumption items. General circulation goods are goods that are purchased directly and are used by the public. Consumption items are items used internally by the individuals and are therefore not purchased by the general public and are only eligible for general tax.


Generally speaking, the rates of taxation are normally derived on an annual basis and are equal to half of the average wage or half of the average profit of the business. The rate of duty applicable to each category of good is then worked out using the following table:

Many retailers, both online and offline, take advantage of sales tax loopholes that allow them to offer very low prices to customers. For instance, many retailers in the UK can offer heavy discounts when buying large numbers of identical goods. However, in such cases it is necessary for retailers to realize that the customer does not always make a large purchase, as the discounted price will only attract buyers who are in need of large purchases. Hence, it is important for such businesses to understand the local governments rules and regulation relating to VAT. It is important for retailers to be aware of any special offers or deals offered by local governments to encourage more purchases.

Leave a Comment

Your email address will not be published. Required fields are marked *