1. A furniture manufacturer sells $500,000 worth of tables, chairs, and other items in a given year. The manufacturer earns a profit of $100,000 that year. His purchase invoices indicate that he bought $200,000 worth of lumber, varnish, nails, and other materials during the year. His labor costs were $150,000, and he purchased $50,000 of new equipment that year. Calculate his tax liability under a 15% consumption type VAT. Give examples of different types of alternative VATs, and explain their use.
2. What is a VAT? Give an example of VAT in other nations.
3. What is the difference between centralized and decentralized government? What are the advantages of a federal system of government?
Please find the tutorial below.
The computation of the net tax liability as regards consumption type value added tax (VAT) is straightforward. One needs only to net the input and output VAT
Tax liability = Output Vat - INPUT vat = $75,000-$37,500=$37,500
Output VAT = Sales x VAT rate = $500,000 x 15% = $75,000
Input VAT = (Purchase invoices + Equipment purchase) x VAT rate = ($200,000+$50,000) x 15% = $37,500
Alternatives to VAT include
1. RST or retail sales tax which acts like VAT but takes into account whether the buyer is a registered business and if it is, then the tax is ...
The solution discusses the value of added taxes