Question

In respect of VAT, what is the paradox of exemption?

Answer 1

In respect of value added tax, there is a paradox of an exemption, because the value added tax is always focused at taxation on the amount of value added by the next party and only the difference would be taxable in the hands of the value-adding party but this is a a tax on tax system, as all those persons who have been taxed earlier will also be provided with numerous amount of tax, as the same goods will be passed onto another consumers.

The paradox of exemption in respect of value added tax can be attributed to the cascading effect and these cascading effect will lead to tax on tax, so there would be self-contradictory regime in respect of value added tax, because the motive of introduction of this tax is taxation on the the overall value which have been added, but since those goods are passed on to the next layer of suppliers, the previous layers of suppliers are also liable for the value addition by the next layer of suppliers, so it can be said there is a paradox of an exemption.