VALUE ADDED TAX: A DIRECT CAUSE OF EUROPEAN UNEMPLOYMENT

PROOF - see illustrating  diagrams

Let the term “Consumer” denote a purchaser who is not VAT registered.

---------------- “Supplier”  ----------- buyer or seller who is ---------------

P is the price paid by the consumer and P = S + T (Fig. 1)

where S is the net selling price of the product or service

and T = the Value Added Tax

But  (Fig. 2) the net selling price of the product or service  S = A + B

and  VAT       T = C + D

where  A & B are respectively the Supplier’s Added & Bought-in costs

and  C & D are respectively the VAT Cost and Difference.

THIS ANALYSIS IS IN FULL ACCORDANCE WITH THE VAT RULES

i.e.  C = the VAT remitted by the supplier with Input purchases B

and  D = -------------------------------- to H.M. Customs & Excise †

i.e.  D = total output VAT T less input VAT C

and, because   C is the tax on purchases B

  D must be a tax on A    I

However. there is a supply “chain”

so this division of costs is repeated in every link (Fig. 1 over), i.e.:

This Supplier’s cost      B  =  previous supplier’s price S1

where          S1  =  ---------------------------------- A1 + B1

----------------- input tax C  =  ----------------------- output tax T1

where          T1  = ---------------------------------- C1 + D1

and          D1  =  VAT remitted to H.M. Customs & Excise

 

Similarly, for each preceding stage in the production chain so that:

Final price          S  =  A + B where B = A1 + B1

therefore          S  =  A + (A1 + B1) where B1 = A2 + B2

therefore          S  =  A + A1 + (A2 + B2) where B2 = A3 + B3

therefore          S  =  A+ A1 + A2 + (A3 + B3) ...

   ... and so on to the origin of the chain

 

Fig. 1

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