Value added tax

A tax on the amount by which the value of an article has been increased at each stage of its production or distribution.

Advantages of Value Added Tax:

  1. Be based on consumption, and thus provide a stable revenue base;
  2. Be “neutral,” since it would be imposed on all types of businesses;
  3. Provide stronger incentives for businesses to control costs;
  4. Encourage, or at least not discourage, savings;
  5. Have the potential for raising large amounts of revenue at a low tax rate;
  6. Be simple to administer;
  7. Reduce obstacles to exports, under certain conditions;
  8. Help bring about a better balanced tax system.

Below are the importances of VAT:


• VAT completely avoids tax cascading as only charges tax on the Value Added.
• For the Government, VAT is a veritable source of revenue, its broad base can generate more revenue for the government; and secondly, its ease of collection (little or no cost) makes it more economical.
• VAT serves as a fiscal policy instrument available to the government and can increase or reduce VAT rate to redistribute income and check the consumption of harmful commodities such as cigarettes and alcohol.
• VAT does not discourage production, or work since it is not a tax on income or profit, taxes on profits might actually discourage investments..
• VAT helps developing economies to be fully integrated in the international economy.


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