Many entities can collect ad valorem taxes from the property owners; for example, a city and a county.
Ad valorem property taxes are usually the main source of income for state and municipal governments.
In 1879, Henry George published Progress and Poverty, by which he advocated a flat tax on lands based on the original unimproved value of the latters in their natural state, the "land value tax".
For this reason, a VAT is neutral with respect to the number of passages that there are between the producer and the final consumer.
It is variously ascribed to either German businessman Wilhelm von Siemens in 1918, or American economist Thomas S. Adams in his works between the years 1910-1921.
Major influences in the spread of VAT outside of the EU are generally attributed to the IMF and the World Bank.
Ironically the United States, who to this day do not have the VAT, promoted the tax largely in their post WWII occupation of Japan as well as in their advisory activities to developing economies.
Usually, ad valorem taxes are calculated as a percentage of the estimated value of the considered property.
[6] Property taxes have existed since the first ancient civilizations such as Mesopotamia, Babylon, Persia and China.
[7] One of the earliest well documented ad valorem taxes known in Europe is the Danegeld – a land-tax first imposed in 1012 in Britain to pay off Viking raiders.
The amount of tax collected was based on the value of the taxpayer's property – usually measured by a local unit to determine the size of the land.
[8][9] Since the Danegeld became in time too complicated to collect, it was later replaced by Carucage, also a tax based on the size of land owned by the taxpayer.
Ad valorem is used most frequently to refer to the value placed on property by the county tax assessors.
The net assessment is determined after subtracting any exemptions to which the property owner is entitled (e.g. homestead exemptions), and a tax or millage rate is applied to this net assessment to determine the ad valorem tax due from the property owner.
The third largest source of government revenues is value-added tax (VAT), charged at the standard rate of 20% on supplies of goods and services.
The HST came into effect in five of the ten Canadian provinces: British Columbia, Ontario, New Brunswick, Newfoundland and Labrador, and Nova Scotia.
Prince Edward Island later entered into a similar agreement to harmonize and implement an HST in that province, while effective April 1, 2013, the Government of British Columbia eliminated the HST and reinstated PST and GST on taxable services provided in British Columbia.
While this was the stated intent at the time, the States still charge duty on a various transactions, including but not limited to vehicle transfers and land transfers, insurance contracts and agreements for the sale of land.
Nevertheless, some member states have negotiated variable rates (Madeira in Portugal) or VAT exemption for regions or territories.
The minimum standard rate of VAT throughout the EU is 15%, although reduced rates of VAT, as low as 5%, are applied in various states on various sorts of supply (for example, domestic fuel and power in the UK).
Input VAT that is attributable to exempt supplies is not recoverable, although a business can increase its prices so the customer effectively bears the cost of the 'sticking' VAT (the effective rate will be lower than the headline rate and depend on the balance between previously taxed input and labour at the exempt stage).
The zero-rate is not featured in the EU Sixth Directive as it was intended that the minimum VAT rate throughout Europe would be 5%.
However, zero-rating remains in some Member States, most notably the UK, as a legacy of pre-EU legislation.
These Member States have been granted a derogation to continue existing zero-rating but cannot add new goods or services.
When goods are imported into the EU from other states, VAT is generally charged at the border, at the same time as customs duty.
Following changes introduced on July 1, 2003, (under Directive 2002/38/EC), non-EU businesses providing digital electronic commerce and entertainment products and services to EU countries are also required to register with the tax authorities in the relevant EU member state, and to collect VAT on their sales at the appropriate rate, according to the location of the purchaser.
Alternatively, under a special scheme, non-EU businesses may register and account for VAT on only one EU member state.
This produces distortions as the rate of VAT is that of the member state of registration, not where the customer is located, and an alternative approach is therefore under negotiation, whereby VAT is charged at the rate of the member state where the purchaser is located.
Rothbard (2004) believes that a "neutral tax" is the best thing to make the market free and without problems.
For example, a sales tax – unlike a VAT – would realign the incentives of a steel mill in favor of operating its own coal mine, as opposed to simply buying coal in a transaction subject to taxation; the theory of the firm's model suggests that this would be less economically efficient as it results in a decline in specialization.