Global Trends in VAT/GST and Direct Taxes

S. 139I. Introduction

For businesses, one of the important aspects of the neutrality of the VAT system is that the VAT itself must not constitute a burden on them. Any amount of VAT that ends up as an expense in a business’s financial report infringes the neutrality of the tax. Also from the point of view of direct taxes tax neutrality is one of the aims of a good tax system.

Neutrality generally means that taxes should not have distortive effects on the economy. In order for a tax to be fully neutral, it should neither influence business decisions nor should it affect consumer decisions.

However, on the other hand, from a government perspective the main purpose of a tax system is to raise revenue. Due to the existence of these two opposites, i.e. on the one hand completing of the neutral tax, which does not affect the decisions of the taxpayer and on the other hand the government’s effort to increase the tax revenue, the question arose whether it is difficult to achieve neutrality in both taxes eventually what the principle of neutrality violates.

The central topic of this paper is, therefore, the introduction of one of the main principles of indirect taxes and direct taxes, i.e. the princi...