Introduction The idea of Value added taxation (hereinafter referred to as “VAT”) traces back to the writing of Von Siemens a German businessman in the 1920s. However, not until 1948, the first value added tax was applied in France. At the beginning, France applied the GNP based VAT2 covering up to the manufacturing level and subsequently replaced with a consumption VAT3 in 1954.
VAT proves to be an efficient tool for revenue collection; its performance, therefore, has direct impact on fiscal mobilization, macroeconomic stability, and development.
As illustrated in the article, compared with alternatives in indirect taxation, the VAT has revenue potential: it is generally more broad-based and entails a trail of invoices that helps improve tax compliance and enforcement.
In view of its numerous benefits, the VAT has become the sales tax of choice in OECD countries4. A similar trend is emerging in developing countries, which typically rely more on sales tax than OECD countries.
