One of the dirty secrets that big business and government leaders hide when praising so-called international free trade and globalization, is that it only applies to the stupid American taxpayer.
The reason is simple – the Value Added Tax (VAT), which is used in Europe, China, etc. to promote exports and restrict imports, so that jobs and manufacturing stay in their countries.
Take this example. An American company sets up a factory in China. It builds a bicycle and ships it to the U.S. There is a VAT of 17%, but because it is an export, the money is refunded, so there is no tax. It arrives in America, and since we lowered tariffs, it gets here tax free.
Now, in the opposite case. We build here, tax profits, and when it arrives in China, their government gets a 17% VAT, plus tariffs.
That’s why our jobs are going overseas to factories in foreign countries, where our products are always hit with VAT and nothing is collected here for their products coming into the country.
Big business opposes the VAT for America. It would force them to use much more American labor and manufacturing resources.
Big retailers would have to pay more for imports because of the VAT, and they would then have to decide between buying imported or local products.
And in China they don’t need a million nickel and dime taxes because of the VAT, which supplies about half of all the money to run the national and local governments.
China started to implement VAT in 1984 on 24 specified taxable items.
In December 1993, the State Council of China created “The Provisional Regulation of the People’s Republic of China on Value Added Tax”，which was put into effect on January 1, 1994.
The official China ministry description of the VAT outlines the revenue sharing:
“VAT is administered by the State Administration of Taxation (the import VAT is collected by the customs on behalf), and the revenue from it is shared between the central government (75%) and local governments (25%). VAT is the major source of fiscal revenue for the Government of China, particularly the central government. In 2002, the revenue from VAT is 814.1 billion yuan, accounting for 47.61% of the state total tax revenue of the year, which is the first biggest tax in China.”
The Provisional Regulation of P.R.C on VAT, requires the tax should be paid by enterprises or individuals who sell merchandise, provide processing, repairing, or assembling service, or import goods within the territory of the People’s Republic of China on the added value derived from their production, selling merchandise, providing industrial repairing or assembling service. Exports receive rebates, because most other countries apply their VAT on imports (except the U.S.)
The VAT is very similar in Europe, India, Mexico, Canada and in almost every other country in the world