KPMG Compiled VAT Articles, Tax Notes, 10/19/09 – 04/25/11

“The integration of the global economy is also encouraging the spread of VAT. For example, a VAT is being used in some instances to replace revenue lost as a result of tariff cuts required under World Trade Organization agreements. Also, when reviewing funding applications from developing countries, the International Monetary Fund often requires the existence of a VAT.”

“Fiscal stability and growth. Many commentators have observed that a VAT is capable of raising significant amounts of revenue relatively easily.  This is due in part to the broad base on which a VAT is generally imposed.  Unlike typical retail sales taxes, a VAT usually applies to an expansive base of goods and services. Further, a VAT is viewed as a more stable source of revenue than an income tax. Although income — particularly corporate income — may vary greatly from year to year, causing a drastic variation in income taxes collected and reducing the accuracy of revenue forecasts, a VAT is imposed on consumption, a more stable base.  And because a VAT is imposed on household consumption rather than on savings, investments, or business inputs, it may have less influence on capital formation, investment, and job creation than income-based taxes, thus encouraging fiscal growth.”