Advantages and disadvantages of value added tax (VAT)

Advantages (Merits) of VAT

1. It is difficult to evade and avoid by the tax payer.
2. It increases government revenue. This is because it has a wider coverage.
3. It reduces corruption since payment is through the bank.
4. It is economical in terms of administration and collection
5. It promotes efficiency in business management .This is because it encourages proper book keeping
6. It helps to distribute the tax burden since it is paid at different stages during the production process.
7. It helps to avoid double taxation since the taxed commodities have VAT receipts at each stage.
8. It minimizes discrimination in taxation basing on income levels of the tax payers.
9. It increases employment opportunities since business units employ accountants for book keeping while the URA (Uganda Revenue authority) employs personnel in tax administration.

 Disadvantages (Demerits) of VAT

1. It is difficult to assess because most traders do not keep proper
2. It violates the principle of This is because it is the poor and the rich are subjected to the same tax.
3. It discourages This is because it increases the costs of production.
4. It leads to inflation. This because producers increase prices in response to A.T.
5. High rates of VAT may cause unemployment as it discourages production and
6. It is costly in terms of administration and tax education in form of administration and tax education in form of seminars, Radio programs
7. High rate of VAT scares away investors and this leads to capital out
8. It reduces the economic welfare of people as it reduces their real income in terms of the number of commodities purchased
9. A.T has loop holes   during tax administration.  Tax   payers   try   to   under   value   their  commodities as a way of paying less tax.
10. It is used by political opportunists to sabotage the This leads to political unrest and instabilities.