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VAT/Sales Tax


Also known as GST.

VAT stands for value added tax, the idea is every step of production applies a tax to the consumer of their goods. If the consumer sells the goods on, they add on tax of the full amount to the end consumer, and claim back the VAT they paid when they bought the good.

Generally the public don't on-sell goods, so they are not set up to claim vat back. So the end cost falls on consumers not businesses.

One question this author cannot answer is given the following scenario, why is VAT levied at the rate it is.
A car is bought for 40,000 by a member of the public from a dealer. 8,000 VAT is levied.
The car is sold back to the dealer 2 years later for 20,000, the consumer got no vat back
The dealer goes on and sells the car again for 25,000 but charges 5,000 VAT

  • But wait a minute, how does that make sense. The car was originally sold for 40,000, so how is selling it at a lower price value added?
  • VAT has already been charged on the car, so why is it being charged again?
  • Why is VAT being charged on the full 25,000, and not just the 5,000 value add that the dealership added?

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