Tax Policy:

Value-Added Tax: Administrative Costs Vary With Complexity and Number of Businesses

GGD-93-78: Published: May 3, 1993. Publicly Released: May 3, 1993.

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GAO provided information on the cost of administering value-added taxes (VAT), focusing on: (1) the processes and structure for administering VAT; (2) costs of administering basic VAT in the United States; (3) how alternative designs affect administrative costs; and (4) the necessary transition to implement VAT.

GAO found that: (1) single-rate, broad-based VAT would promote economic neutrality among goods and services, minimize compliance burdens for the taxpayer, and minimize administrative costs; (2) multiple tax rates and product exemptions would increase administrative costs; (3) more complicated VAT increase the opportunity for taxpayer errors and evasion and the difficulty of auditing administration; (4) according to a 1984 report, the Internal Revenue Service (IRS) would need 18 months to prepare for VAT; (5) IRS would need time to assess staffing requirements, hire new staff, and train staff on the new tax; (6) successful institution of VAT would require careful planning and an intensive educational campaign; and (7) educating the U.S. public on VAT would require tax administrators to educate the public, businesses, and tax preparers.

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