Justice, Equality and Tax Law

S. 5241. Introduction: VAT/GST in the Modern Tax System

1.1. Recent Developments of VAT/GST

In the new global economy, an increasing number of countries are using the value added tax (VAT) or goods and services tax (GST) as a broad-based consumption tax. For that reason, the VAT and GST contribute to the growth of revenues from countries that adopted them into their tax system. In the OECD countries, the VAT remains the largest source of income from consumption tax. Twenty five of the 36 OECD countries are adopting the VAT, and they had a significant increase in their income from the VAT with the percentage of GDP going up from around 6,7% to 6,8% from 2015 to 2018. The rapid growth of revenue derived from the VAT is from the development of digital products and technologies worldwide. Tax on digital products, online sales, and many digital services may be generated from the VAT as a consumption tax. Therefore, nowadays, the VAT can grow in line with the globalized digital economy.

Compared to the retail sales tax (RST) that taxes only on the final sale or only a single stage consumption tax, the VAT is collected under a staged collection process from production until the end consumer by eit...