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Destination principle of taxation

A regime of international taxation according to which consumption taxes are levied where products are consumed. The rates of VAT and excise applied are those of the country of final consumption, and the entire revenue accrues to that country’s budget. This system ensures production neutrality, since indirect taxes do not discriminate between foreign and domestic producers, and exports are exempt from domestic taxation. The disadvantage is the need for monitoring of cross-border trade flows. See also origin principle of taxation.

Reference: Oxford Press Dictonary of Economics, 5th edt.