A value-added tax (VAT), known in some countries as a goods and services tax (GST), is a type of general consumption tax that is collected incrementally, based on the surplus value, added to the price on the work at each stage of production. Unlike sales taxes, which are added to the selling price at the point of sale, and are totally transparent to the customer, VATs are assessed and collected during the production (creation) process, and are already included in the posted retail price. While not a secret, the impact of the VAT is not immediately apparent at the point of sale.
VATs are very popular with politicians as they are semi-hidden, easy to collect and very inclusive. Even if you live under an overpass, you pay the VAT if you buy anything. As of 2014, VATs are employed by 160 of the world’s approximately 193 countries, including all members of the Organization of Economic Co-operation and Development (OECD), except the United States. The VAT, since it is a consumption tax, is very regressive, very effective, and at a typical 20% rate, raises a great deal of money.
It may be a coincidence, but investors may want to consider the implications inherent to the fact that the only OECD member that does not have a VAT, is also the only OECD member that does not have single-payer health care.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA®