71 years of VAT: What it means for today’s global tax landscape

This April, something rather important celebrates a big milestone. That’s right, Value Added Tax (VAT), has just turned 71 years old this month!

On 10^th April 1954, France became the first country to implement VAT, setting in motion what would become one of the most widely adopted tax systems in the world.

A little history

France, under the guidance of economist Maurice Lauré, was the first country to implement VAT. The idea? Instead of taxing goods and services multiple times through various production stages (which led to inefficiencies and inflated prices), tax only the “value added” at each step.

Lauré introduced VAT in France initially for large businesses. Over the years, it became so effective and scalable that the rest of Europe started taking notes. Eventually, it spread to over 170 countries.

Global adoption

The idea quickly gained traction. By the 1960s, the European Economic Community (EEC), the forerunner to the European Union, began exploring a unified VAT system to harmonise tax structures across member states and reduce trade barriers.

The United Kingdom, for instance, introduced VAT on April 1, 1973, replacing its Purchase Tax. The initial VAT system in the UK had a three-tier rate structure: 10%, 15%, and 25%. Over time, that evolved into a more streamlined setup.

Fast forward to today, and over 170 countries have adopted VAT in one form or another.

Who’s yet to adopt VAT?

Despite its global popularity, there are still some countries that haven’t implemented VAT but that’s changing quickly.

• Qatar has been preparing to roll out VAT as part of the Gulf Cooperation Council’s (GCC) VAT framework, which the UAE and Saudi Arabia already implemented. After pandemic delays, Qatar is now inching closer to making VAT a reality.
• Liberia is actively working toward implementing VAT. The goal is to modernise its tax structure and replace its Goods and Services Tax (GSTGoods and Services Tax), aligning more closely with regional and international norms.
• Aruba had planned to implement a 12.5% VAT in 2023 but delayed the rollout.
• Kuwait is also on the VAT watchlist. Like Qatar, it’s part of the GCC and has made progress toward implementation, though a final date has yet to be confirmed.

What’s next for VAT?

As digital services boom and economies become more global, VAT is facing new challenges like how to tax cross-border e-commerce and digital subscriptions. But it’s also getting smarter, with countries introducing real-time reporting, e-invoicingElectronic invoicing - widely referred to as e-invoicing - is the exchange of a digital document between a supplier and a buyer. E-invoices are issued, transmitted and received in a structured data format that enabled automatic and electronic processing. They contain data in a machine-readable format so that an AP system can read an invoice without manual data entry, leading to faster and more efficient invoicing., and AI-powered audits.

The EU, for instance, is rolling out VAT in the Digital Age (ViDAViDA or 'VAT in the Digital Age', is an EU initiative proposed by the European Commission that seeks to modernise and harmonise VAT processes for member states, by embracing new technologies. It is aimed at updating processes for the management of VAT, and reduce the VAT gap and fraud. The proposal also aims to address challenges in the area of VAT raised by the development of the platform economy.) reforms, aimed at modernising how VAT works across borders. It’s clear that VAT isn’t going anywhere – if anything, it’s evolving faster than ever.