Value-Added Taxes Bring a More Efficient Tax System to Europe (Great Events from History II: Business and Commerce Series)
Article abstract: The introduction of value-added taxes in Europe installed a more efficient tax on economic activity and facilitated the development of the European Economic Community.
Summary of Event
The value-added tax, which taxes the value added in each stage of the production and distribution process, was first put into practice on a national scale when France adopted the Tax sur la valuer adjoutee on April 10, 1954. The French tax, though it is considered a relatively unsophisticated version of the value-added tax, was the first true test of a taxation theory that eventually was embraced throughout Europe and in many other countries.
The merits and faults of a value-added tax, or VAT, were first considered in 1918 when German industrialist Carl Friedrich von Siemens spoke in the Reichstag on behalf of the theory that businesses should be taxed only for their contribution to the value of a product. At the time, Germany and several other European nations had “turnover” taxes in place that simply taxed a percentage of all business turnover, or sales. Siemens asserted that such a tax is inefficient and burdensome to business since a “cascade” effect can occur when a product is taxed repeatedly as it passes from manufacturer to wholesaler to retailer. Moreover, Siemens believed that the turnover taxes put disproportionate burdens on different commodities and promoted the vertical...
(The entire section is 2299 words.)
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