We must also see what happens if the VAT rates are different between those applicable to goods acquired (supplies) as well as to goods resold.

That a company produces first-rate goods with a VAT rate of 5.5%, but for this it uses goods subject to the standard rate of 19.6%. It will pay its supplier the amount due of VAT at 19.6% which will appear on the invoice, but it will deduct (or be reimbursed) this amount from the VAT which it will itself have to pay for its own sales, so that in the end the reduced rate will apply to the total price of the manufactured goods sold and not to the only value added by the manufacturer of these primary goods.

  • Conversely, whether a manufacturer of luxury goods or everyday goods subject to normal VAT uses primary goods subject to the reduced rate, the fact that he pays normal VAT at 19.6% on the total final price, in a way wipes out the advantage of the reduced rate applicable to first-rate goods to raise the total to the normal rate of 19.6%; and the final product will bear well in all the normal rate of 19, 6%, and not in part a reduced rate and partly a full rate. In the same way that the goods of first obligation do not bear in part a VAT at 19.6% and for another the reduced VAT of 5, 5%.


Compared to the old taxes, this device has advantages in terms of equity and simplicity, while ensuring the State of a good return. At the time of filing business taxes these processes work perfect.


Whatever the complexity of the production and sales systems, no intermediary bears the VAT, which is only paid by the final consumer. VAT is neutral with regard to production methods (subcontracting or not; import of components or not). Each product is taxed in the same way whether it is imported or produced in the State concerned. On the other hand, the tax administration has reliable information on all sales, at all levels of the economic chain, each company declares not only its sales, but also its purchases, which are sales of its suppliers, which limits the risk of fraud.

The simplicity is twofold:

For businesses, the registration of VAT collected on sales is as simple as that on purchases. They do this work diligently to benefit from the reimbursement of the VAT they have paid to their suppliers.

  • For the State, it is possible to adjust the tax pressure with a few parameters (tax rate, deductible base, etc.), or to influence consumption by changing the tax category of a group of products, subject to respect the international agreements that it has been able to sign. In the European Union, states have only a limited freedom in matters of VAT, including in matters of territoriality, base and even rate.

For public finances, VAT is very efficient for a particularly low collection cost. VAT is the main source of revenue for public finances. VAT revenues are strongly correlated with economic activity.