I was thinking about VAT. I realized, I don’t really understand it at all. My electric bill came in (don’t get me started on how much that’s went up) and I started wondering why electricity gets VAT?
I googled the definition… Value-added tax (VAT) is a [consumption tax](https://www.investopedia.com/terms/c/consumption-tax.asp) on goods and services that is levied at each stage of the [supply chain](https://www.investopedia.com/terms/s/supplychain.asp) where value is added, from initial production to the point of sale. The amount of VAT the user pays is based on the cost of the product minus any costs of materials in the product that have already been taxed at a previous stage. ( [Value-Added Tax (VAT) Definition (investopedia.com)](https://www.investopedia.com/terms/v/valueaddedtax.asp) )
I am struggling to understand what value was added once the electricity was created which is now being taxed? I’ve also wondered the same thing about petrol and home heating oil.
I flared this as me moaning, but I am honestly hoping someone might be able to explain it to me.
2 comments
The electricity didn’t spring into existence from nothing. If the source was fossil fuels (which most of it still is), it had to be dug out of the ground, shipped, refined, shipped again, and then burned as fuel in generators to turn into electricity which is transmitted to end users.
That’s the case with every good or service. Even if there was only one step, somebody picking an apple from a tree and selling it – that’s still value-added, and you still pay the VAT.
Delivery of the electricity to your housewould be my guess