Trade

Are value-added taxes a barrier to trade?

  • 19 February 2025

Understanding the differences between value-added taxes (VAT) and tariffs is crucial for informed international trade policy decisions. Providing insight into VAT and its role in global trade, this ICC policy brief clarifies the differences between VAT and import tariffs, illustrating how VAT operates as a consumption tax designed to be neutral and non-discriminatory towards foreign businesses.

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The paper sets out:

  • The multi-stage payment mechanism of VAT, where businesses collect and pay VAT throughout the supply chain, ultimately passing the tax burden to the final consumer
  • How VAT ensures a level playing field for both domestic and foreign businesses by treating all businesses equally, regardless of their location or origin.
  • The principle of VAT neutrality, which stipulates that goods are taxed in the country where they are consumed, not where they are produced
  • Why VAT is not the same as a trade tariff: VAT does not create barriers to international trade and ensures that all products competing in the same market face identical tax treatment.

The paper will be of interest to policymakers, businesses or anyone curious about tax systems.

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