Introduction - Terminology: 'Consumption Tax', 'Indirect Tax', 'Turnover Tax' and 'VAT
3 important questions on Introduction - Terminology: 'Consumption Tax', 'Indirect Tax', 'Turnover Tax' and 'VAT
What caused the cascading effect in the turnover tax systems of the founding Member States?
- Taxable persons couldn't recover VAT on their purchases
- Turnover tax became a cost component of prices
- Turnover tax was chargeable on the cost including turnover tax, causing a 'cascade'
How is the tax payable under a non-cascading subtractive VAT calculated?
- Additive method: tax rate applied to aggregate value of economic factors
- Subtractive method: tax rate applied to the difference between sales and purchases
- Can be done through either accounts-based or invoice-based methods
What do non-cascading turnover tax systems, such as VAT or GST, aim to achieve?
- Ensuring that taxable persons are not burdened with tax from previous legs of the supply chain
- Preventing the cascading effect seen in traditional turnover tax systems
- Facilitating a more efficient taxation process by allowing tax recovery
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