The value-added tax is a phenomenal invention thanks to its mainstay: neutrality. The VAT should be qualified as a consumption tax, which we seek to tax the consumer of goods and services. To achieve this, the structure of the tax is mounted on the pillar of neutrality. The OECD itself states:
“The basic principles underpinning neutrality are set out in Chapter 1. In domestic trade, tax neutrality is achieved in principle through the multi-stage payment system: each business pays VAT to its suppliers on its inputs and receives VAT from its customers on its outputs. To ensure that the “correct” amount of tax is remitted to the tax authorities, each company’s input VAT is offset against its output VAT, which creates an obligation to pay the net amount or balance of these two. This means that VAT normally flows through the business to tax the final consumers. It is therefore important that the supplier is fully entitled to deduct the input tax at each stage so that the tax burden ultimately falls on the final consumer and not on the intermediaries in the supply chain. This principle is set out in Guideline 2.1″ (OECD Neutrality).
From the above quote, the result of neutrality should be the following: “… that at each stage the supplier is fully entitled to deduct the input tax so that the tax burden finally falls on the final consumer…” Therefore, the rules, procedures, and controls must guarantee this principle.
The principle of neutrality derives directly from the contributive capacity. It is part of the constitutional principle as such. It is a tax that should be levied on the final consumer of goods and services, and not on the economic agent that participates in the value chain.
We will embark on an analysis of the regulations in force that may violate the neutrality principle in the coming weeks.