Quote:
Originally Posted by IslandRadio
This is definitely a deviation from the main thread, but it is nevertheless interesting.
How does it work if a business buys parts to build a product, then that product is sold to another business which then incorporates several products to produce one end product that is ultimately sold to the customer.
Would the tax be collected at any of the intermediate steps? I'm assuming yes - else it would not be called "value added"... This seems to be a bad idea as compared to a national sales tax, where the product or service is only taxed once - at the end user level.
It strikes me that a VAT could drastically increase the cost of some items - particularly those where there are sub-assemblies purchased from different vendors to create an end user product. It also appears to favor larger manufacturers who produce everything as opposed to integrators.
Or do I have the VAT idea all wrong (which is quite possible!).
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Yes, under the VAT system part of the tax is paid along each step. However companies also receive credits and only the end user ultimately pays the tax. The big difference from a sales tax is that at each step it is in the seller's best interest to confirm if their customer is really the end user. Therefore cheating is greatly reduced.
Many countries use the VAT system but in the USA, with each state having different sales tax laws and percentages, it would be a nightmare to administer.