What is VAT? This abbreviation can often be heard both from ordinary people and on TV. But not everyone knows what is meant by these three letters. In this article we will tell you what VAT means and what it can be.
What does VAT mean
VAT stands for value added tax. VAT is an indirect tax, a form of withdrawal to the country's treasury of a part of the value of a good, work or service. Thus, for the buyer, such a tax is a surcharge to the price of the goods, withdrawn from him by the state.
When buying any product, you can see the specific amount of VAT on the check. An interesting fact is that VAT is paid not for the final product, but for each entity that participated in its creation.
For example, to sell a table, you initially need to purchase boards, buy fasteners, varnish, deliver to the store, etc. As a result, value added tax is paid by each participant in the chain:
- The carpenter's shop after the sale of timber will transfer VAT to the treasury (interest on the difference in the price of logs and boards).
- Furniture factory - after the table is sold to the store (percentage from the difference in the price of boards and finished products).
- The logistics company will remit the VAT after recalculating the shipping charges, etc.
Each subsequent manufacturer reduces the amount of value added tax on their products by the amount of VAT paid by the previous entities. Thus, VAT is a tax transferred to the treasury at all stages of production as it is sold.
It is important to note that the amount of VAT depends on the importance of the product (each country decides for itself what the tax should be on one or another product). For example, on equipment or building materials, VAT can reach 20%, while the amount of the tax on essential products can be half as much.
However, there are many transactions that are not subject to VAT. And again, the leadership of each country decides for itself what to impose such a tax and what not.
As of today, VAT is in effect in about 140 countries (in Russia, VAT was introduced in 1992). An interesting fact is that the treasury of the Russian Federation receives more than a third of its income from the collection of VAT. And now, excluding oil and gas, the share of this tax in budget revenues is about 55%. That is more than half of all state revenues!
