Increment in Value Added Tax: Who Would Bear the Burden?

Marcus Blanford

Increment in Value Added Tax: Who Would Bear the Burden?

Value-added tax (VAT) is understood as the consumption tax on a product. Everyproduct attracts value which is added from the production process till it reaches the consumer. This means that each supply chain has a tax levied on the cost. While tax is a means of revenue for a country, some people’s opinions on express annoyance at the burden it heaps on people.

The VAT amount for a consumer is based on the cost of the product. There are over 160 countries of the world using this method of taxation to generate income. While many think that VAT has allowed fewer compliance problems in collecting tax, customers’ opinions show otherwise. Many people, including critics, believe that VAT is a regressive tax form. They believe that it increases the economic strain lower-income taxpayers have. This doesn’t only make it hard to survive, it adds to the bureaucratic burdens for small and big businesses.

Poor homes spend most of their income on means of consumption. Their lifetime income is spent on both food and tax. Thus, with any currency adjustment, a tax increase can be further regressive. VAT applies to services and goods at each stage of production and sale. Consumers and sellers are wedged by the price paid for a product or service as well as the price materials for those products are produced. However, tax sometimes can increase the total price paid for a product or service. At some other time, it can reduce the revenue of the business on the product.

Consumers are most times recipients of higher taxes. This is because the products and services in want are eagerly consumed by them. Therefore, there is a decline in the savings of a poor household due to the cost of taxes.

The following are the features of tax in many households:


This occurs as a result of the expenses on consumption from lower-income households in comparison to higher-income households. The burden of VAT can be measured through the share of current income. In many lower-income households, tax is high. It also sharply declines when there is an increase in the income of the household. However, for higher-income households, VAT is somewhat affordable and doesn’t pose a risk to their finances.

The Average Tax Burden:

 Through the strategy of Eric Toder, Jim Nunns, and Joseph Rosenberg (2012), there is an estimate that a 5% regression would occur at the bottom of the distribution of income. the regression would be quite proportional in the middle, but it would be generally regressive at the top. This implies that there is an average 3.9% burden on tax in lower-income households.

However, exempting features like medicine, foodstuffs, healthcare, and other essentially consumed products, the regressivity of VAT can be reduced. However, it can be difficult to offer preferential treatment to some of these essential products. So far many higher-income households consume these products more than lower-income households.

Offering a limited cash payment means could be effective in embracing refundable tax. This implies that everyone receives the benefit of tax which ultimately reflects in economic and social changes.

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