There are all kinds of taxes for all kinds of products and services. The individual tax rates differ, too. Ian McMaster presents an overview.

Taxes on goods and services go back at least 4,000 years to the taxes on specific commodities, such as cooking oil in Egypt. Today, these taxes take many forms. Customs duties, or tariffs, are taxes on the import (or export) of products. Excise duties, on the other hand, are typically fixed amounts that are leviedon the production or distribution of certain goods. Typical excise duties are those on tobacco and alcohol (" sin taxes "). but they have also been levied, for example, on salt and even windows.

In addition to specific taxes, there are also general taxes on products. The most common one is value added tax (VAT), used in almost every developed country except the US. In some countries, such as Canada and Australia, it is known as Goods and Services Tax (GST).

VAT is levied as a percentage rate. Most countries have a standard rate and a lower rate for certain products, such as specific foods or drinks, books or certain products relating to children. Many eurozone countries, including Italy, Greece and Ireland, have increased their standard rates of VAT to reduce their budget deficits.

VAT is levied at each stage of the production process, including the sale to the final consumer. Each firm has to remit to the government the VAT that it charges on its products, minus the VAT it has paid on its business purchases. The net amount of VAT remitted therefore represents a tax on the value that the firm has added.

Imagine, for example, that the standard rate of VAT is 20 per cent. If a car manufacturer buys components that have a net price of £5,000, it will have to pay £1,000 in VAT on top, making a gross price of £6,000. If these components are used to build a car that has a net price of £20,000, the manufacturer will add VAT of 20 per cent (£4,000), making a final selling price of £24,000.

The car manufacturer doesn't, however, have to remit to the government the full £4,000 that it receives in VAT: it deducts the £1.000 of VAT that it paid on the components.The firm therefore remits £3,000 in VAT, which is 20 per cent of the value added (£15,000) by the manufacturer (the difference between the £20,000 net price of the car and the £5,000 net price of the components).

In the US, there is a different type of tax on goods and services, called a sales tax. This is not a federal tax but is levied separately by most of the 50 states, as well as by certain counties and cities. The main difference between this sales tax and VAT is that the sales taxes are levied only on the sale to the final consumer (or business), not at each stage of the production process. But firms can apply for exemptions if they are reselling the products they purchase.

Taxes on products make them more expensive, which typically leads to a decrease in the amount bought. Indeed, the idea behind specific product taxes is often not just to raise money but also to change consumers' behaviour — for example, to discourage them from smoking and drinking.

commodity	a product or raw material that can be bought and sold
component	one of several parts needed to make sth
county	an area within a state that has its own government to deal with local matters
customs duty	a tax that must be paid to the government bringing goods into a country
deduct (a sum of money)	to take away an amount from a total
distribution	the activity of making products available to customers
excise duty	a tax on certain goods produced or sold within a country
exemption	permission not to pay something that you would normally have to pay
gross	before any taxes or costs are taken away
levy a tax on sth	to officially collect a tax on something
net	remaining after any taxes or costs have been taken away
remit (a sum of money)	to send a payment
sales tax	a tax that you have to pay in addition to the cost of something you buy
sin tax	a tax on goods considered bad or harmful
tariff	a tax that must be paid on goods coming into or going out of a country
value added tax (VAT)	a general tax on goods and services

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