Am I right in thinking that the answer to a VAT, were we, improbably, to enact one, would be

[patrice]

to buy locally? Isn't VAT incurred every time Goods change hands? What happens with Services?

I understand the regressive nature of VAT, but isn't the answer to engage in LOCAL production and trade and, thus, avoid or reduce VAT?

[wuushew]

1. Isn't another problem with VAT is that it encourages large inefficient companies?

via comprehensive vertical integration as to avoid taxes during the transfer of intermediate products?

I want to hear the Canadian view.

[grantcart]

3. VAT encourages export

VAT tax is based on the final sales price, rather than adding on at each stage, so that theoretically it actually would encourage smaller companies that were more efficient in distributing product because they wouldn't get a 'tax on a tax'.


The product is taxed everytime it is sold but if you resell it you get credit for the tax you paid when you bought it.


For example if you bought a 'widget' for $ 1.00 and sold it for $ 2.00 you would charge your customer 10 cents (based on 5% VAT) but you would get a credit of 5 cents on the tax of the product that you paid when you purchased it, you are only paying tax on the ADDED VALUE (hence the name). If your customer resells the same product for $ 4.00 then they would pay 20 cent tax but get a credit on the 10 cents that was included on the purchase price you paid.

If you purchase a product and then exported it the government would (or could) refund the tax as a way of assisting export sales.

[grantcart]

2. under VAT taxes would remain constant regardless of where they were produced.

If a product is exported then the tax is refunded.

VAT does keep the percent of taxation constant, based on the final retail price, so that the total tax is the same no matter how many hands it went through.

For example if the VAT was 5% then each time the product is sold up the chain of distribution it is assessed 5%, but if it is resold then the tax that was included in the purchase is refunded so that the tax is not compounded but reamins a constant based on final purchase price. For that reason if you buy directly from a producer or if you bought from a chain that included 5 distributors, the tax would be exactly the same.

(VAT was introduced in Thailand when I was there and is very helpful to exporters.)

[On the Road]

4. I Think the Way the European VAT is Structured

is that whether an item is produced by one company or a succession of ten companies, each completing one stage of the manufacturing process, the tax is the same, since the cumulative value added is the same.

But I would defer to any European posters here.