 Hello and welcome to the session. This is Professor Farhad. In this session, we would look at the value added tax or VAT. This topic is covered in international accounting as well as international taxation, CPA and ACCA exam. As always, please connect with me on LinkedIn if you haven't done so. YouTube is where you would need to subscribe. I have 1500 plus accounting, auditing, finance and tax lectures. Please like my lectures, click on the like button, share them, put them in the playlist, let the world know about them. If you're benefiting from my YouTube, if you're watching me, it means other people might benefit as well, so share the wealth. Also, I do have a website on my website. You'll have access to additional resources such as PowerPoint, slides, notes, quizzes and 2000 plus CPA questions. I have all sorts of material covered. Please check it out. Studypal.co is an artificial intelligence driven study body platform that matches you with another CPA or CFA candidate. They're located in 85 countries and 2500 cities if you're looking for a study body. Value added tax. What is the value added tax? Basically, it's another form of tax for the government to generate money. So many countries generate a significant amount of revenue through this national value added tax. The standard VAT rate in the European Union ranges from 17 to 27, which is that's a lot in addition to the regular income tax. Value added tax are used instead of sales tax and are generally incorporated into the price of a product or the service. So if you are a U.S. listener, we have what's called sales tax. Basically, if you buy something for $100, you pay well depending on, you know, for example, I live in Pennsylvania, $100, I'll pay an additional 6%. Now, if you're in New York, it's more in other places at slower. So I'll pay $106 for that item rather than $100. So simply put, the state government collected additional 6%. And in the U.S., it's not federal, it's a state. The state collect the sales tax. But in most other countries, this is a national value added tax. This type of tax is levied on the value added at each state in the production or distribution of a product or service. And the best way to illustrate this is to look at an example. Let's assume a Swedish forest product company sells lumber that it has harvested to a Swedish wholesaler, IKEA, at a price of 100,000 euros. It will pay a VIT to the Swedish government of 25,000. So simply put, simply put, when they sold it for 100,000, they have to pay 25% to the Swedish government. Now, this is the value added. Now, this 25,000 is factored under the price. Notice what it says. Notice what it says. The price, the value added tax is incorporated, generally is incorporated under the price or the service of the product. Now, they sold it so the retailer, we have to retail, sold it to the wholesaler. Now, we have to keep in mind that the wholesaler is going to sell it to another business, to another customer. So they sold it for 100,000. Now the wholesaler, they're going to repackage it, to remanufacture it, do something with it, and they're going to sell it for 160,000 euros to the customer. Now, the wholesaler will have to pay 25%, but they don't have to pay 25% on the full amount. They'll have to pay 25% only on the 60,000. So they're going to take the 60,000 times 25%, just get the calculator. So 60,000 times 0.25, they'll pay 15,000. So they will pay 15,000 in value added tax on that sale. Now, this customer has it or this business has it at 160. Let's assume this individual sell it for 200,000. Now again, they sold it for 200,000. The value added is 40,000. They'll have to pay 15% on the 40,000. So simply put, you only pay taxes on that additional value added. So it's started at 100,000. The harvester paid 25%. The wholesaler added 60,000. They'll pay 25% to the customer, so on, and so forth. So this is how it all works. Now, the VAT concept is commonly used in countries other than the EU, including Australia, Canada, China, Mexico, Nigeria, Turkey, and South Africa. Very common, very common in other countries. More about the VAT, the value added taxes as well as other indirect taxes such as sales payroll need to be considered before figuring out the total rate in any particular country because all these taxes add up. So the initial tax rate, that's not what you should look at. You should look at additional taxes such as VAT. The study conducted by the World Bank and PricewaterhouseCoopers in 2018 determined that the total tax paid on businesses in 190 countries. The study was based on a simulated case study company in its second year of operation with 60 employees and sales equal to 1,050 times per capita incomes. Basically, they say, you know, what if this individual get that much? This is what they spend the money, so on and so forth. And the total taxes included federal and local VAT and other form of sales tax, workers' compensation, social security, and other mandatory contribution on behalf of the employees. So all in all, let's take a look at the rate and see where the US stands. Now, the US stands at 43%, which is remember when you looked at the income initially, the US was very high. Look at Brazil. Brazil stands at 68.4 when you include all the taxes. China, 67, which is what we looked at their tax rate. Initially, it was in the 20s. Germany, half 48. India, 55. Hong Kong, again, Hong Kong, because it's a tax haven. You are starting with the low tax rate. So this just gives you an idea. Mexico, 52%, including all the taxes, everything. Again, this is simulated. This is based on if the individual get paid that much. They'll pay this much in payroll. They will spend this much money on food, this much money on clothing, this much money on gasoline, this much money on other items that then they will assume the VAT. And this is how they did this study. So it's interesting to see that you have to look at the whole picture altogether, not just one tax rate. And the next session, we would look at the tax jurisdiction. If you happen to visit my website, which I strongly suggest you do so because you will find additional resources such as PowerPoint slides, notes, questions, practice, CPA questions, I strongly suggest you subscribe. Good luck and study hard.