In: Economics
“In 2020 Saudi Arabia - the standard rate of VAT increased from 5% to 15%. Discuss the welfare effects of the VAT reform and its implications for business and taxpayers”.
Value-added tax (VAT) is the additional charges other than the
normal selling price taken by the government from the consumer of
the product, and these revenue earned by the government is used for
the development of the country.
Tax reforms are often done by the government in which the rates of
taxes are determined. Under tax reforms, sometimes the rate of VAT
increases, which has some effects on the economy. Increasing rates
of VAT always have a positive impact on the economy in the long
run. Consumers often oppose the decision of the government of
increasing the rates of tax as they have to pay higher prices for
goods and services, but increasing rates of taxes will help the
government to earn more revenue, and in the long run, the
government can use this revenue for the development of the
country.
Increasing rates of VAT affect the revenue of the businesses,
whether big or small firms, as the price of their products
increases, that is why firms want the rates of the tax to be less.
Increasing tax rates also affect the taxpayers as they have to give
more part of their income to the government.