Advantages & Disadvantages of VAT

By Own Business Management
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July 1, 2017
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Advantages & Disadvantages of VAT

advantages and disadvantages of VAT

VAT in UAE: VAT is tolerated by final consumers, so it is a consumption tax. Companies do not take the burden of VAT. Through a system of deductions it is claimed fractionally, where taxable persons can abstract the VAT liability amount which they paid to other taxable persons on business activities purchase.

 

Advantages of VAT

  • As VAT is a consumption tax the revenue generated will be constant.
  • Compared to other indirect tax VAT is easy to manage.
  • Due to catch-up effect of VAT, it minimizes avoidance.
  • Huge amount of revenue is generated on a low tax rate through VAT.
  • As the VAT is collected in small installments so the consumers has minimum burden.
  • VAT is a neutral tax so it can be imposed on all types of business.

Disadvantages of VAT

      • As the VAT is based on full billing system, VAT implementation is expensive.
      • It is not a simple task to calculate value added in every stage is not an easy task. Thus VAT is difficult to understand.
      • VAT is regressive in nature. Thus it will affect the poor people more than the rich because they spend more proportion of their income.
      • All purchase and sales records should be maintained which will cause increased in compliance cost.
      • The consumers need to be cognizant for successful implementation of VAT otherwise tax negligence will be extensive through fake invoices.

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