DISCUSS THE MERITS AND DEMERITS OF VAT?

  Merits of VAT 

     i.            Encourage exportation as exports are zero rate

   ii.            Has wide coverage-charge on goods and services 

    iii.            Has no cascading effect (i.e. Not charged on another Tax) 

    iv.            Improves efficiency; since charged on value added.  Hence a person will all the time try to reduce their costs 

     v.            It is convenient since paid only when a person has to buy goods or service 

    vi.            It is economical for the Government to operate it 

  vii.            Gives exemption to small traders 

viii.            Not charged on essential goods

Demerits of VAT 

  i.            The administration of VAT is complicated since it requires proper records and financial structures to be maintained 

      ii.            It is easy to avoid 

    iii.            It does not discriminate the poor 

   iv.            Not all traders of similar goods are covered by it, hence creating marketing imperfection 

     v.            It feeds inflation 

  vi.            Lack of civic consciousness, since in most cases a person is not aware he is paying tax