Taxation of End Consumption: Effect on Country Economies and its Characteristics

Abstract

International experience of the largest countries' economies of the last decade demonstrates that the use of Value Added Tax (VAT) in taxation of consumption is used more actively and is gradually squeezing out the sales tax. In most countries of the world VAT ensures between 12 and 30% of stable budget revenues. Taking statistical data selected with the help of the Ordinary Least Squares method as a basis, changes in the ratio of VAT received by the budget to GDP in the economies of different states for the 1995 – 2015 period were studied. The best ratio of the economic data was revealed in the Czech Republic and Mexico, where sustainable growth of the ratio amounted to 0.0008 – 0.0009 respectively. A significantly lower correlation of the data was noticed in Austria and France, the correlation is conspicuous for its negative value of the regression coefficient. The research we have undertaken in relation with several states has shown the following consistent pattern: an average value of the share of VAT is less (by 10%) dependent on the development and state of the economy of the countries we have compared than (over 60%) on the taxation rules established by laws on each state (the use of tax incentives, lower tax rates, etc.). Our research of VAT effect on the economies of countries has revealed a number of specific problems, which weaken the mechanism of collection and payment of the tax. Consequently, to solve the macroeconomic problems of VAT, additional measures aimed at organizations' revenue growth should be undertaken. Another area should be the improvement of the tax incentive and exemption system as well as the removal of existing possibilities of tax evasion. These measures will allow the government to adjust the basic rate downwards in the middle term.