Although value added tax (VAT) is in principle a consumption tax, it has significant consequences for businesses and the attractiveness of the economy. Almost a third of its product remains, in fact, the responsibility of companies. As they are responsible for the correct collection and payment of taxes, this task not only entails considerable costs, but also involves financial risks for them.
A VAT weighs all the less on the competitiveness of companies as its rate is low in international comparison, its rules are simple and its risks reduced. The current VAT reform, driven mainly by the economy, is of great importance for Switzerland’s attractiveness. We therefore expect it to lead to rapid and significant changes. Using the business calculator is essential in this case.
- In theory, a simple and neutral tax
In its conception, VAT should be a tax on the consumption of goods and services, simple and neutral from the point of view of competition. It affects the company in the sense that at each stage of the development of a product or a service until its delivery to the final consumer, the tax is levied on the corresponding added value, the company being authorized to deduct the amount of VAT which it has itself had to pay (system known as “value added tax with deduction of input tax”).
In cross-border movements, competitive neutrality is ensured by the exemption of goods and services exported from Switzerland (genuine exemption or reimbursement of input tax to exporting companies) and by their liability, when imported, to VAT from country of destination. Applying to all stages of economic transformation, this is a very productive tax. In Switzerland, it brought in more than 18 billion francs to the state in 2005, covering more than a third of the 51 billion francs of expenditure of the Confederation. Its product has more than doubled since it was introduced in 1995.
- In practice, a complicated system
In reality, however, VAT is anything but straightforward, as self-taxed businesses find. This is primarily due to the fact that not all economic transactions are taxed in accordance with the basic mechanism. For political, but also cultural, social and other questions, VAT regimes frequently provide for pseudo-exemptions (or pseudo-franchises) for certain categories of goods and services. The corresponding transactions are therefore not subject to VAT and, in return, the company concerned is not entitled to deduct input tax.
- The right Solutions
Most states apply two VAT rates, Switzerland itself three, which can pose complex delimitation problems. Other elements contrary to the system, of an essentially administrative nature, are added to the question: for example the liability of companies to VAT beyond a certain level of turnover only, the “rate of net tax debt” applied to small companies, the heterogeneity decisive factors for the taxation of goods or different types of services (e.g. taxation to the beneficiary or to the provider of the service itself), the double allocation for taxable services and those excluded from the scope of tax and finally, the inclusion of “benefits” without any real counterparts (eg donations, subsidies, dividends).