Explain any FOUR effects of Value Added Tax on business

  • VAT increases prices of goods or services hence may reduce sales and profitability
  • VAT calls upon a registered person (trader) to maintain expensive elaborate records in addition to penalties, where VAT is not paid on time or a return has not been submitted, etc.
  • In the case of credit sales the trader will be required to finance VAT whether customers have paid or not and in the case of capital assets input tax is not recoverable but is capitalized.
  •  VAT may create market imperfections because not all traders dealing in same supplies are required
    to charge VAT.
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