How France’s new tax followed a product through production
Before value-added tax, a tax on sales at multiple stages could be charged on top of earlier taxes. That made the tax accumulate as goods moved from one business to another, obscuring how much tax was embedded in the final price.
French tax official Maurice Lauré proposed a different design. France introduced value-added tax in 1954, initially applying it to large businesses. Instead of taxing a product’s full price anew at every handoff, the system taxed the increase in value created at each stage.
The invoice does the accounting
A business charges VAT when it sells a product or service, then subtracts the VAT it already paid on eligible business purchases. It sends the difference to the tax authority. A manufacturer, for instance, can claim credit for tax paid on materials and remit tax on the value added by turning them into a finished good.
That credit mechanism is the key: each business accounts for its own contribution rather than paying tax on earlier tax. Invoices record both the tax charged and the credit claimed, leaving a trail that can be checked across transactions.
A chain of businesses, one final burden
The tax is collected in pieces along the supply chain, but its intended burden falls on the final consumer, who generally cannot claim a business credit. The system thus separates where the tax is collected from who ultimately pays it.
France’s approach became a model for many other countries. Its lasting design insight was practical as much as fiscal: by making each business report the tax on its own sales and purchases, the supply chain itself helps document the tax due.
