What’s a Value Added Tax?

Unlike the conventional sales tax, a Value Added Tax or VAT is able to tax items only once as they move through the economy from raw materials to finished goods. All advanced industrial nations except the U.S. have a VAT or a near equivalent.

• For the final consumer, any kind of VAT is simple. It works just like an ordinary sales tax. If the VAT rate is 18%, you pay an 18% sales tax on the total price of any good or service you buy. But unlike a conventional sales tax, where all tax revenue is simply sent to the government, behind the scenes a VAT does something clever and the VAT avoids double taxation
• The clever way the VAT does this is called the “credit for invoices” or “credit invoice system.” Producers or service providers get credit for VAT taxes paid on their invoiced purchases. This makes it easy for the E-VAT to charge different rates.
• The E-VAT is a special kind of VAT. The E-VAT will make what’s sustainable cheaper and what’s unsustainable more expensive by varying the tax rate. The more polluting, depleting, and ecological damaging a good or service, the higher the tax rate. This allows us to appropriately influence all economic activity.