Service tax is another example of value added tax. It is a consumption tax levied on the services on provides to another. In several countries these tax are known as services tax or goods or service tax or GST. Value added tax is actually an indirect tax, in that the tax is paid by another person to the person who is bearing the cost of the tax. For example if a person is a taxi driver and he is providing people the conveyance. Now if the government levies tax on him for driving or else; what they do is they add these tax in fare and charge the customer this added value.
In this way, he recovers his tax. Another great advantage of this tax is that the burden is reduced. For example if he has to pay $100 per month of tax, if one person pays it so it will be a burden for him but if nearly 100 people will pay the cost will reduce to $1 per person. This service tax differs from place to place and country to country. But the best are considered to be of Canada and Australia.
Canada
In Canada the service and sales of goods tax are multi-level sales tax which was introduced in 1991 to great controversy. In some respect it works as a value added likewise in Britain. When this was introduced it replaced the manufacturers' tax which was applied to the manufacturing of goods on wholesale purposes.
This tax is a 7% tax on every good and service except the essential ones such as food, residential rent and medical services. Exports were also exempted. Low income individuals also receive a GST rebate in conjunction with their income tax.
Australia
The goods and services tax in Australia is also a value added that was introduced by Howard government, and went into effect in July 1 2000 replacing the old sales tax system. All sales and services except those are essentials are taxed at the rate 10%.
Sometimes people think that how come these service taxes can be levied on every individual according to their income when it is something to be obtained from any one who is availing the services. The point is that these taxes are levied on the person who is giving the service and according to his income. Now normally always the service provider is poorer than the service obtainer. For instance the service provider of and hotel is obviously poorer than the obtainer. The second thing is that when these taxes are obtained from different individuals than there amount is also decreased.
This is the reason that service taxes are also known as indirect taxes. Many people find indirect taxes easier to handle than direct taxes. The reason of this is that in an indirect tax the burden is not on one person but on those who avail the facility but in a direct tax the burden of the payment of tax is on the person on which it is levied.
