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Value-Added Taxes: Lessons Learned from Other Countries on Compliance Risks, Administrative Costs, Compliance Burden, and Transition

GAO-08-566 Published: Apr 04, 2008. Publicly Released: May 05, 2008.
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Dissatisfaction with the federal tax system has led to a debate about U.S. tax reform, including proposals for a national consumption tax. One type of proposed consumption tax is a value-added tax (VAT), widely used around the world. A VAT is levied on the difference between a business's sales and its purchases of goods and services. Typically, a business calculates the tax due on its sales, subtracts a credit for taxes paid on its purchases, and remits the difference to the government. While the economic and distributional effects of a U.S. VAT type tax have been studied, GAO was asked to identify the lessons learned from other countries' experiences in administering a VAT. This report describes (1) how VAT design choices, such as exemptions and enforcement mechanisms, have affected compliance, administrative costs, and compliance burden; (2) how countries with federal systems administer a VAT; and (3) how countries that recently transitioned to a VAT implemented the new tax. GAO selected five countries to study--Australia, Canada, France, New Zealand, and the United Kingdom--that provided a range of VAT designs from relatively simple to more complex with multiple exemptions and tax rates. The study countries also included some with federal systems and some that recently implemented a VAT. GAO does not make any recommendations in this report.

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Consumption taxesPolicy evaluationProgram evaluationProgram managementRecords managementReporting requirementsRisk assessmentSales taxesStandardsStrategic planningTax administrationTax administration systemsTax lawTax refundsTax violationsValue-added taxesVoluntary complianceProgram goals or objectivesProgram implementation