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The Value Added Tax

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Introduction
The Value Added Tax(VAT) is a kind of consumption tax which mainly imposed on the value added to a product, material or service. The first country to have a value added tax is France in 1954. Since then, over 170 countries adopted the VAT as an important part of their government revenue system. VAT is almost imposed on the valued added of both the business activities and different business stages. That is, VAT links the whole business together, anyone in the business activities cannot avoid paying a VAT. Therefore, VAT cannot affect people's consumption behaviors and prevent the economy from distorting by the taxation. Meanwhile, such properties make VAT become a large tax source to sustain the government revenue and the linkage between different business activities simplifies governments' tax inspect, that is why over half of countries in the world adopt a VAT tax.
Dongwon Lee, Dongil Kim, and Thomas E. Borcherding(2013) pointed out that countries from the Organization for Economic Co-operation and Development (OECD) collect about 32 percent of their total revenue from VATs and 27 percent from personal income. According to the Figure 1, most of OECD countries relied a lot on the VAT, the VAT proportion of total tax revenue varies from 10% to 38%. Therefore, for a lot OECD countries, the VAT is really important.

The United Kingdom introduced its value added tax in April, 1973, with a rate of 10% and the VAT averagely provided the UK government about 14%-16% of its total government revenue. Canada introduced its Goods and Services Tax (basically the same as the VAT) in January,1991 at the rate of 7%, but now it is 5%. Annually, GST contributes over 10% of tax revenue. In nowadays America, there is no VAT, but it w...

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