Figure Nº 2
Supply Price with VAT Supply Price without VAT
As figure shows, introducing VAT appears a price-gap between the price paid by purchasers (P1) and the price received by vendors (P2). The tax burden supported by consumers is indicated by trapezoid P1BAP0, and trapezoid P0ACP2 corresponds to vendors. Both trapezoids represent the tax revenue obtained by the government. Figure also shows the excess burden of the tax (the upper triangle affecting purchasers and the bottom one affecting vendors). However, according with the methodology used for the measurement of sector tax burden, total rectangle P1BCP2 should be assigned to legal taxpayers; that is, to vendors.
Table of Case 4 illustrates a numerical example that assumes a partial forward tax burden transfer of 50%. Starting from data contained in Table of Case 3 - where the complete forward tax burden shifting results in a final price of 260 - assuming a partial forward shifting of 50% the final price with VAT included results 230 [=(60/2)+200]. That implies a value added reduction in all the production chain of 11,5% [= 1 – (230/260)].
TB is similar to the one of Case 3, but the absorption of it is now partially supported by the Agricultural Sector whose value added is reduced 11,5%; as an obvious consequence, this implies a reduction in factors of production prices employed in the Agricultural Sector.