Advantages and Limitations of VAT

Advantages of Value Added Tax (VAT)

1. As compared to other taxes, there is a less chance of tax evasion. VAT minimizes tax evasion due to its catch-up effect.
2. VAT is simple to administer as compared to other indirect tax.
3. VAT is transparent and has minimum burden to consumers as it is collected in small fragments at various stages of production and distribution.
4. VAT is based on value added not on total price. So, price does not increases as a result of VAT.
5. There is mass participation of taxpayers.

Limitations Of Value Added Tax (VAT)

1. VAT is costly to implement as it is based on full billing system.
2. VAT is relatively complex to understand. The calculation of value added in every stage is not an easy task.
3. To implement the VAT successfully, customers, need to be conscious, otherwise tax evasion will be widespread.