In the last few decades, there has been a repeated increase in VAT by 1%. Only the reduced tax rate has been 7% since 1983. In 1968 were the standard rate of 10% and the reduced VAT of 5%. Calls for reforms are loud at regular intervals. While some are fighting to eradicate the aforementioned contradictions, politicians want to raise VAT. At the same time, the politicians in Brussels are announcing an adjustment of the VAT system in Europe.
The Primary Focus
The focus is on efforts to curb VAT fraud, because the state loses several billion euros every year. The fraudsters take advantage of the fact that deliveries of goods across EU internal borders are exempt from sales tax. The sales tax calculator is essential in this case.
Dealers import goods from abroad free of VAT and then sell them on with VAT. The tax would have to be paid instead the supposed customers go into hiding. If many intermediaries are used, the value added tax rises accordingly.
The value added tax according to today’s understanding was introduced around 1916 during the First World War. In order to cope with the high financial requirements, the state introduced a so-called stamp tax, which was levied on deliveries of goods.
- Two years later, an all-phase gross tax replaced the stamp tax. The former was used in the Federal Republic until the end of 1967 and in the GDR until 1970. The tax rate was originally 0.5% and has been raised again and again in the following decades.
- In 1968 within the European Community a unification of VAT taxation. In future, VAT with input tax deduction was levied. The state no longer taxed the gross amount, but rather the net income.
- As the history shows, the sales tax was subject to many reforms and adjustments. Originally the all-phase gross sales tax was used. In this case, the assessment basis was the gross sales of each stage in the value chain.
The definition of sales tax has changed over the years
Accordingly, the amount of the tax burden resulted from the number of levels (so-called accumulation / cascade effect). The end user suffered more.
Another disadvantage was that there was a distortion of competition and there was little transparency.
To eliminate these disadvantages, all-phase net sales tax with input tax deduction is used today. The basis of assessment is therefore not the gross amount, but the net amount.
By deduction, the product remains in the value chain sales tax. But who pays the sales tax then? Ultimately, in this case too, the consumer has to pay the net amount plus sales tax.
An example should explain the principle of sales tax:
Let’s start by looking at the entrepreneurs:
An entrepreneur sells wood for furniture to a supplier for 50 euros. The supplier pays the invoice including sales tax of 19%. The amount is therefore 59.90 euros. The supplier sells the wood to a carpenter for 70 euros. The carpenter pays the supplier 83.30 euros. The carpenter builds a table out of the wood and sells it to a customer for 150 euros. The customer then owes the carpenter 178.50 euros.