As I said, both Sales Taxes and VAT have their drawbacks.
If you want to make a pro-VAT argument, the logic is this.
With a sales tax you get a cascade.
Company buys Cotton to make shirts, pays 100$, and 10% sales tax. Company manufactures shirts, sells to retailer, charges 10% sales tax. Retailer sells on shop floor, charges 10% sales tax. Assuming manufacturer and retailer make 10$, you get
Cotton seller charges 100$ (10$ tax)
Manufacturer 120$ (12$ Tax)
Retailer 142$ ($14.20 Tax)
Customers in this situation are actually paying $36 for what would normally be a $120 worth of shirts, meaning a real tax rate of over 25%.
If you have VAT because each person in the chain can reclaim their VAT the same shirts costs the end buyer $120 plus $12 tax. This means however long the supply chain the tax rate remains the same.
Now for a sales tax you can make a rule that only consumers pay the tax and companies don't. This does eliminate the cascade effect but creates its own headaches as it means each supplier has to determine the nature of the purchaser. Are you buying that laptop because you need a laptop for your office or your home? Are you buying fuel because you are a travelling salesman or going on holiday? Do you need shirts for your company uniform or to look sharp on your holiday?
Now either you are open to fraud (people pretending to be businesses) or you allow businesses to reclaim their sales tax....oh wait isn't that a VAT? Or you accept the cascade, which would unfairly favour importers over domestic producers because it shortens the taxable supply chain if you import.
To be clear, I am not saying that any form of taxation is better than any other. Every form of taxation has benefits, every form has disbenefits. However what I am going to say very clearly is that if anyone ever says that this form is categorically better than that form, or that one version has no drawbacks, that person is a either a liar, or has listened to slogans without actually looking into the deeper consequences.
Icewolf has been baptized in fire and blood and has emerged as IRON-Bay102174 14th March 2013