U.S Not Embracing GST: The real reason the American Dream is fading?

GST is a common transaction type of tax revenue collection globally. It has been shown to be a simple, efficient and successful form of indirect taxation.  It’s paid indirectly by the final consumer of goods and services while paying for purchase of goods or services. Commonly it is used to generate tax revenue and broadly based which is applied to everyone whether rich or poor.

However, it’s interesting to note that U.S, the most economically advanced democracy, is the only major economy that doesn’t implementing GST; it’s a rose among thorns. Instead, U.S holds on steadfastly on its sales Tax regime, which states enjoy high autonomy in taxation.  

It’s reported that although Canadian Province, British Colombia has implemented GST, but 2 years later reverted to the previous old system, i.e. Provincial Sale Tax or PST, due to the broad challenges to implementation.   

On the other hand, the European Union, which is the original place for  implementing Value Added Tax (VAT), has felt the need to commence a thorough review of the VAT system that is currently prevalent in its member countries.

Ironically, in term of collecting tax revenue, VAT is an effective tool. It has become a major source of revenue in these years. By 2008, VAT hit the highest record by collecting 21.4% of the national tax revenues of EU member states.

Historically, VAT was first introduced in Europe by France in 1954, thereafter adopted and implemented by the member States of the European Economic Committee in 1967 due to its practicality and efficiency.

Undeniably, although the operational costs to taxpayers and tax administration were reduced by the simpler VAT system, but unfortunately, due to the complexity in the VAT rules in the member States, the EU has become a less attractive place investment.

In the U.S, the levy of Sales Tax is largely on retail sales or on supplies to the ultimate consumer and all intermediaries is generally exempted. In addition, States in the U.S also have the power to levy and collection on many specified services. Inter-state supplies of goods and services are not liable to sales tax in the U.S., unless the supplier of goods or services has a presence in the selling state.

Goods or services that may be exempt from Sales Tax in the U.S are often liable to a use Tax levied in the State where these goods are used or consumed. Local Municipal Corporations in each State in the U.S also impose sales taxes on goods and services, thereby making the sales tax regime further complex.

The levies of Sales Tax in the U.S are largely on retail sales or on supplies to the ultimate consumer and all intermediaries are generally exempted. States in the U.S also have the power to levy and collect on many specified services.

In the U.S, intermediate supplies are not taxed, and the Inter-state supplies of goods and services are not liable to sales tax, unless the supplier of goods or services has a presence in the selling state. Goods or services that may be exempt from Sales Tax in the U.S are often liable to a Use Tax levied in the State where these goods are used or consumed.

Local Municipal Corporation in each State in the U.S also empowered to levy substantial taxes on sale and use of goods and services, thereby curbing the tendency of States to impose sales tax at a high rate besides making the sales tax regime further complex.

In order to increase the efficiency of the tax revenue collecting system, Sales Tax compliance by businesses is generally done with the help of software packages marketed by many large software companies.

Specifically, due to the inherently complex nature of implementation, economic researcher have found corruption at lower levels arising from multiplicity of compliance and inconsistent interpretation of provisions by Tax Authorities is not common.

In the U.S, automated software packages and the State support does alleviate the compliance burden on businesses. Due to the Constitution impediments are absent in the Sales Tax regime of the US, hence, it is unlikely that the US will consider introducing a unified GST across the nation in the near future. 

The question remains: Is it not embracing GST is the real reason the American Dream is fading?