Effects of Increase in VAT Rates in the UK - Dissertation Example

Download file to see previous pages According to Adam and Browne (2009), value-added tax (VAT) and income tax contribute more than two-thirds of total tax revenue in the United States, the UK, Canada, and other countries around the world. The value-added tax is a proportional tax paid in sales. It has been utilized as a mechanism for taxing goods and services consumed within a country’s economy. This is a consumption tax that is distinct from other consumption taxes which include sales and income taxes. VAT has become an important source of revenue in most countries. In the United Kingdom, the national government has been subjected to a great deal of pressure to increase its revenue to be used to facilitate the balancing of the budget.

In order to meet these demands, the state has resorted to VAT as the primary means of raising substantial revenues. Like in most countries around the world, the UK government collects VAT at every stage of the economic value addition process that is involved in the production of goods or services. In the recent past, the government has compelled all businesses to register for VAT in the event that their annual taxable supplies surpass the current registration limit of 79,000 euros. Even though VAT is paid by those individuals who possess or handle goods and services, its impacts are also felt by the end consumer. This is because of the fact most providers of goods and services tend to take into account the taxed amount when pricing their goods and services to be purchased by the final consumer.

The VAT system is an old concept in the UK and its implementation date the back to early 1970s. The system was introduced before signing up for the European Union. According to Garcia-Mila (1989), this system was introduced as an entry requirement to the EU. Like in the US, the UK government does not levy VAT on all goods and services within its economy (Crossley et al. 2012). The rates of VAT depending on the nature of goods and services. The majority of goods and services have been subjected to a flat rate scheme of VAT with its current rate standing at 20% Note mentioning, the flat tax rate applies to the majority of goods and services purchased within the UK economy. There are some certain goods and services that are zero-rated and these include a vast foodstuff such as baby car seats, advertising services for charities, and health services (Crossley et al. 2012).

There are various suggestions about the possible impact of the rise in VAT on the UK economy and other economies around the world. Investigators have discovered that small business people consider the current VAT rate to be too high and has negatively affected their business undertakings. The possible effect of the rise in VAT is an important issue since it has far-reaching effects on the success of the business and the UK economy as a whole. Adams and Wembley (2009) point out tax evasion as one of the possible impacts of the increase in the VAT rate. ...Download file to see next pages Read More