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Probably because we don't really ever hear it explained
I consider myself pretty well read and I think I know what it means, but I'm making some assumptions. Could you explain it, and why it's a good solution here?
Google is your friend 🙄
https://en.m.wikipedia.org/wiki/Value-added_tax
Simply speaking it is the tax which cost of, could be claimed back on a every stage of the process, so only the difference between the purchasing/manufacturing price and selling price really attracts the tax.
If you buy something for a tenner and £2 vat (total £12) and sell for £15 and £3 vat (total £18) you are only liable for £1 tax, being the difference between the vat you charged and the vat you paid.
Man Google is nobody's friend
Okay, but like... What does that mean? What are the implications? I feel like I have to be missing something
Like, we do something similar with write-offs - that $12 you spent to buy the thing is subtracted from your tax burden
And the way we do taxes sucks. It's terrible and VAT sounds cleaner... But I don't see where that has any implications for international trade
Because there aren't any, it is only the perception.
If the final amount of vat is £20 for something which costs £100, for goods manufactured in the UK, these £20 have been collected "on the way" with the final retailer taking £20 from the end seller but paying let's say £15 to the wholesaler so only paying the taxman £5 (and wholesaler another £5 and manufacturer another £10 etc).
If however something has been imported by the retailer and the final vat is £20, the retailer will pay the entire £20 to the taxman. It is still the same £20 and makes no difference at all. But perception of Trump's halfwits may be different.
Wait... What? You say it has no implications for international trade, but you just said things produced in-country are taxed less...
It's doesn't sound like it's just perception, it's incentivizing production within the country. You're taxing imports fully, but making sure to tax the value added in county only once, which is huge
I'm not opposed to such a thing, I'm all about producing as locally as possible, but that seems like it's in the same ballpark as a tarrif. Am I missing something?
No, things produced in-country are taxed bit by bit along the production and transport chain, each time someone takes the thing and "adds value" to it. It's a value-added tax. Imported things are taxed all at once when imported. In the end it's the same amount of tax.
You could say imports are subject to a sales tax exactly equal to the value-added tax on domestic products. Sort of.
But like... Don't you think the home country(ies) taxed the production themselves at every stage themselves? And now it's coming into your country, and it's all taxed again. If it was made in your country, it would have been theoretically taxed at the final value once
So the lower value the import coming into the country, the lower the taxes on it. It's essentially a tax break for manufacturing in the country, no?
Honestly, I don't quite remember the details of what happens when you export an item. There won't be a sale to collect VAT on, but you'll have paid prices including VAT to your suppliers and there is something about tax credits. But at the end of the day it's a conceptually more complex sales tax but when you're working with it it's simple enough.
Read again 🤦
Ok I did... Someone else told me
I feel like I'm taking crazy pills, I'm not even opposed to the idea of a VAT or a country incentivizing local production, but I feel like I'm being led in circles trying to understand what it actually is
I can definitely see the issues sane, adult and usually well educated EU officials encountered when they were trying to explain VAT to a bunch of cretins Trump employed.
I said no such thing
That's because there aren't any.
You sell something for 20€, you put on VAT to that and that's the total price paid by the buyer.