It seems strange to me that sales tax contributes to tax evasion, as one of the major advantages of a sales tax is that it is almost impossible to evade? This fact is in fact mentioned in the game’s description of the tax, as well, which makes this stranger still. Does this need adjustment, or is there a justification for this I’ve missed?
The VAT fraud is fairly common, especially on the part of the liberal professions.
Yes indeed, it’s a huge big deal in the UK, and I’d imagine easily skipped in other countries too, by smaller businesses especially. In the UK, only businesses above a certain size have to charge sales tax, so a lot of them do deals to be paid ‘in cash’ specifically to avoid the tax…
Fair enough, that makes sense as an explanation and I stand corrected. One small suggestion, however: perhaps change the description of the tax to reflect this? Currently it reads: “Supporters of sales tax would argue that by its very nature sales tax is almost impossible to evade, which is fairer to everyone.”
Indeed, good point
If the sales tax is too high then, combined with other high taxes, it’ll also cause a black market to form. If governments can only tax at the right levels, people would have no incentive to evade taxes in the first place.
Just to let everyone know a VAT tax is not the same as a sales tax they are actually two different kinds of taxes.
Briefly here is the difference a VAT tax(value added tax) is a tax were each time value is added to an item/product a tax is applied to the value added. So in each step of the process (every-time) an item is improved(it’s value increased) a tax is charged to whoever added value to that item. So if you had a metal bar worth 5$ and then painted the metal and sold it to another company for 7$ you would be charged a tax on the 2$ of value you added to the product. No tax is charged to the buyer but to the company adding value.(Of course this cost is passed to the people buying the product anyway indirectly)
Sales tax: A sales tax is applied to the product at the time of sale and is based on how much you sell the product for if you sell it for 5$ it would be applied to the 5$ making how much the customer pays a higher amount.
It is possible to have a sales tax stacked on top of a VAT tax.
In summary a VAT tax is a producer tax(businesses pay) while a sales tax is a consumer tax(final customers pay).
Imagine a situation in the United States if the Federal Government started a VAT and the States continued running their sales taxes. Do you think that would cause there to be a good deal of tax evasion in America? I suppose it would depend on whether an individual State is running a sales tax or not and the rate of the Federal VAT and the State sales tax for those States that choose to continue with a sales tax.
It might be a good idea to rename the sales tax a VAT tax. In the US which does not have a VAT tax, sales tax is government on the state(province) and local level. A sales tax is on consumption and easy to avoid, “pay cash and we won’t charge sales tax”, a VAT on the other hand is levied at the source and almost impossible to avoid.
Well as I understand it (and Positech Games is VAT registered), VAT is only ever paid by the end consumer. All the business’s (assuming they are also all VAT registered) just pass the tax up the chain and claim it back.
So if I buy a PC, I pay the VAT, then claim the VAT from the government, so the VAT rate is irrelevant to me. But if I sell a laptop to a consumer, they definitely get hit with VAT as a very real cost to them.
All EU countries, and nearly all high-income countries, have VAT. The United States are an exception.
You could have a new policy, called “Service Tax Relief”, lowering taxes in labour-intensive businesses such as housekeeping and home repairs, to avoid the black market.
How to evade sales tax:
Buy everything expensive from foreign countries. If there is a tariff, buy it there and bring it back.
Better yet, pay someone else to buy things in foreign countries for you and give them to you or to buy things in your name if the other way isn’t legal.
I saw there are different levels of VAT for different goods and services on the uk.gov website. I was thinking, if the presence of a sales tax like VAT causes people to adopt digital currencies, can Positech benefit from that if you accepted something like bitcoin as payment for your products? I don’t know anything about digital currencies other than they’re not regulated by any central authority. I don’t what that has to do with sales tax though. I mean, I’m just going on what I saw in the latest dlc clones and drones. I haven’t had much time to do any real research yet. Don’t worry. I’ll get into the books and articles.