What are the Disadvantages and Advantages of the Value Added Tax (VAT)

The value added tax (VAT) It has been around in society long before you might think. It began to be used in the Egyptian and Athenian civilizations and after the Second World War VAT was already present in many countries.

The VAT has proven to be an excellent way by which the State maintains its coffers and pays it back through public policies to the population. Whether you plan to develop commercially or if you already have your own company, it is a tax that you cannot lose sight of.

What is the value added tax (VAT) and why is it so important?

When talking about VAT, it refers to a tax that serves the state to obtain economic resources. These are destined for reinvestment in the country and the maintenance of its normal functions. This implies that from the improvement of public services to the salary of civil servants.

It is precisely for this reason, together with its state nature, that it is regulated by law 37/1992 and this is what determines its operation.

Similarly, although the taxpayer is merchants and professionals, who apply an increase in goods and services, it is the entire population who pays. This is the additional percentage that must appear on every invoice.

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It is essential to bear in mind that such people only “collect”, and that all that money must be consigned as tax every 3 months. This constant flow of money that allows the exchange of goods and services is precisely thanks to the work of the State and this is its way of continuing to do so.

How many types of VAT are there?

exist three types of value added tax (VAT) of which depends the percentage that is applied to the sale price. The general one, which applies to the vast majority of goods and services, being 21%.

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On the other hand, the reduced and the super-reduced privilege certain areas with 10% and 4% respectively. The first refers to sales of agricultural products and transportation, while the second refers mainly to medical supplies.

What are the advantages of the value added tax (VAT)?

The benefits have proven to be very broad and profitable, both for the State and for the users themselves. Among the most noteworthy, the great collection capacity that it promotes stands out in the first place.

Likewise, by its own operation, supposes a detailed knowledge of the activities carried out. Likewise, it allows some flexibility with which to tax and deduct certain items to encourage development in specific and general areas.

Given that it is an indirect collection mechanism, does not imply an excessive bureaucratic paperwork as opposed to the high level of collection. Likewise, it involves the entire population in financial and tax policies.

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It allows the incorporation of advanced electronic elements, designed for better management of resources and greater ease of use. For the entrepreneur in particular, it can favor certain legal deductions according to the type of taxation of a specific item.

What are the disadvantages of the value added tax (VAT)?

Of course, not everything is rosy and the VAT implies certain aspects that can generate some inconveniences that at the moment do not exceed the magnitude of its benefits.

The main disadvantage is in the Difficulty defining this tax in a neutral way. In this way, on many occasions the incidence of the tax ends up being higher in low-income sectors.

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Likewise, the collection of the tax tends to get very complicated with retailers. This is due both to direct evasion and to the alleged complexity of keeping adequate accounting records.

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