Value Added Tax or VAT as it is popularly called is an indirect tax that is levied on business transactions. VAT is applicable on all business deals that include the transfer of services and goods. VAT is imposed on the additional value resulting out of such a business transaction. It is also known as Goods and Services Tax or GST. VAT is paid by the final consumer. Goods that are exported are usually exempted from VAT in order to avert double taxation. Even if VAT is charged it is subject to refund.
Value Added Tax was introduced by Maurice Laure, a well known French economist,in 1954. At that point of time it was known as taxe sur la valeur ajoutee. He was also one of the Directors of the French tax authority. Initially VAT was meant for big businesses but gradually it was applied to every sphere of business. The European Union Value Added Tax or EU VAT is applicable for all the countries that are part of the European Union.
The VAT rates differ in each of the member countries of the European Union. It is fixed at a minimum standard rate of 15%. In some countries, however, the VAT rates are as low as 5% and levied on specific commodities like power and domestic fuel. The maximum VAT imposed in any of the European Union countries is 25%.
In Italy, the Value Added Tax imposed on various business transactions and purchases is 20%. Value added tax charged on basic products is levied at a reduced rates of 4% and 10%. Even services, imports and assets come under the domain of value added tax in Italy. VAT returns are submitted on a monthly basis. They can also be made once in every quarter. At the end of the financial year, an annual VAT return is to submitted on the 15th of March.
Since VAT is also applied to one's assets, the tax rates are fixed in between 4%-8% of the total asset value. Apart from the VAT, the Inheritance tax is also in place in Italy after its re introduction in 2007.
The Value Added Tax system in Italy is in line with the European Union Value Added Tax rules and regulations. According to it, the VAT is paid by the final consumer only. At the production and distribution level, the suppliers of various services and goods deduct the input VAT. The tax is levied on any and every service or article that forms a part of a business transaction in Italy.
In 2009, US trucking company YRC Worldwide faced ruin as it struggled to restructure its debt. With tens of thousands of jobs at stake, the Teamsters union, led by James Hoffa, accused some YRC bondholders of sabotaging restructuring negotiations by purchasing credit default swaps (CDS) on their debt.
Mario I. Blejer is a former governor of the Central Bank of Argentina and former Director of the Center for Central Banking Studies at the Bank of England. Eduardo Levy Yeyati is Professor of Economics at Universidad Torcuato Di Tella and Senior Fellow at The Brookings Institution.
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