Value added tax (VAT), or goods and services tax (GST), is a consumption tax levied on value added. In contrast to sales tax, VAT is neutral with respect to the number of passages that there are between the producer and the final consumer; where sales tax is levied on total value at each stage, the result is a cascade (downstream taxes levied on upstream taxes). It is an indirect tax, in that the tax is collected from someone who does not bear the entire cost of the tax.

VAT was invented by a French economist in 1954. Maurice Lauré, joint director of the French tax authority, was first to introduce VAT with effect from 10 April 1954 for large businesses, and it was extended over time to all business sectors. In France, it is the most important source of state finance, accounting for approximately 45% of state revenues.
Once the turnover of a business reaches a certain threshold level, that business has to register for VAT. In essence, this means that whenever this business buys or sells anything or trades in the course of daily business, it has to pay VAT to HM Revenue & Customs (HMRC).
Unfortunately, the legal provisions pertaining to VAT refunds tend to be highly complicated and vary largely from country to country. Without extensive knowledge of each foreign country's legislation and the necessary practical experience, companies find it almost impossible to obtain refunds.
In Denmark, VAT is only applied at one level, and is not split into two levels as in other countries (e.g. Germany), where VAT is split into VAT for foodstuffs and VAT for nonfood. The current percentage in Denmark is 25%. That makes Denmark one of the countries with the highest value added tax, alongside Norway and Sweden.
A number of services are not taxable, for instance public transportation of private persons, health care services, publishing newspapers, rent of premises (the lessor can, though, voluntarily register as VAT payer, except for residential premises), and travel agency operations.
In Finland, the standard rate of VAT is 22%. In addition, two reduced rates are in use: 17%, which is applied on food and animal feed, and 8%, which is applied on passenger transportation services, cinema performances, physical exercise services, books, pharmaceuticals, and entrance fees to commercial cultural and entertainment events and facilities.
Supplies of some goods and services are exempt under the conditions defined in the Finnish VAT Act: hospital and medical care; social welfare services; educational, financial and insurance services; transactions concerning bank notes and coins used as legal tender; real property including building land; certain transactions carried out by blind persons and interpretation services for deaf persons. The seller of these tax-exempt services or goods is not subject to VAT and does not pay tax on sales. He therefore may not deduct VAT included in the purchase prices of his inputs.
In Norway, VAT is split into three levels: 25% is the general VAT, 14% for foods and restaurant take-out, 8% for person transport, movie tickets, and hotel stays. Books and newspapers are free of VAT, while magazines and periodicals with a less than 80% subscription rate are taxed. Cultural events are excluded from VAT.
In Sweden, VAT is split into three levels: 25% for most goods and services including restaurants bills, 12% for foods and hotel stays and 6% for printed matter, cultural services, and transport of private persons. Some services are not taxable for example education of children and adults if public utility, and health and dental care, but education is taxable at 25% in case of courses for adults at a private school, concerts and stage shows have 6%, and some types of cultural events have 0%.
Of course, the VAT act bears some advantages as well as disadvantages. The advantages are: 1. The ability to reclaim some of your input tax. 2. Increased credibility for your business - some businesses prefer dealing with suppliers with a VAT number. 3. If your supplies are to other VAT-registered businesses then they can reclaim the VAT charged. And the disadvantages are 1. You will also need to start keeping VAT records, which will mean a lot more paperwork and fill in a regular VAT return with details of your sales and purchases. 2. If your supplies are to the public or non-VAT registered businesses then they can not reclaim the VAT charged. 3. Starting from your date of VAT registration you will need to issue VAT invoices. 4. You will need to keep a record of the amount of VAT you charge in your records. This is your output tax. 5. Changes to Sales & Purchases for VAT Registered Businesses. 6. If you register for VAT, there are some changes you will need to make in the day-to-day running of your business.
VAT in Iran, pros and cons
Labor and tax laws in Iran govern the employment and fiscal contributions of people working and living in Iran. Roughly one-fourth of Iran’s labor force is engaged in manufacturing and construction. Another one-fifth is engaged in agriculture, and the remainder is divided almost evenly between occupations in services, transportation and communication, and finance.
According to Iran Daily newspaper, economists believe the implementation of the value-added tax bill could be one of the most effective ways of ending the Iranian economy’s dependency on oil revenues.
The government considers tax collection as an important source of revenue and a tool for implementing economic policies and boosting development. Moreover, policymakers amend tax laws for meeting the exigencies of time and reforming the economy. The VAT bill, which is destined to complete the cycle of direct taxation, is one of the most important bills introduced in recent years.
The VAT act in Iran has been circulated on June 8, 2008 that made the media, press, and economic experts to scrutinize the issue and its effects on the country’s economy, as the Iranian Iscanews News Agency said that the implementation of the VAT act in an inappropriate time in Iran will intensify the 25-percent inflation in the country.
(To be contd.