We’re not the only country with VAT issues. As China releases the latest version of its pilot VAT scheme, there are rumblings of discontent in Israel where the VAT rate has just been increased one percent to 18%. The idea is to help closing the country’s nasty budget deficit by raising four and a half billion New Shekels (NIS) in extra revenue.

Israel’s 37 year relationship with VAT

VAT was first introduced in Israel during 1976, when it was calculated at a mere 8%.  And this is the third time since then that the rate has reached 18%, each time due to an economic crisis. Some economists disagree with the government’s predictions, saying the revenue collected will be much lower because the economy might slow as a result, and because of the government spending cuts and tax increases currently being proposed. And we already know how a VAT increase can knock consumer spending power – we’ve seen it happen here.

There’s been a flurry of reactions including increases in the cost of price-controlled dairy products and eggs, and the price of petrol also went up at midnight in response. There are plenty of protests going on because VAT is seen as having a bigger impact on poorer people than the relatively unscathed wealthy. It’s a familiar story.

VAT’s long history – almost 100 years old

It looks like VAT is as unpopular over there as it is over here. So when did VAT first hit the world’s financial scene? Maurice Lauré, a Director of the France Tax Authority, first introduced VAT in April 1954, inspired by the German industrialist Dr. Wilhelm von Siemens who created the concept in 1918. It’s still the most important source of state finance in France, accounting for nearly 50% of state revenues.

VAT around the world

You’ll find VAT in all sorts of countries from the Nordic nations to Bangladesh, India, the Gulf nations, Mexico, New Zealand, Canada and the US. And it remains one of the most complex, misunderstood and disliked taxes on the planet. Luckily there are a few oddballs like me who actually enjoy fighting their way through the VAT jungle on behalf of business owners!