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Perhaps you're more familiar with VAT than me, my impression is it would still subsidize large businesses but for their ability to integrate vertically instead

• marcosdumay 10y ago
  In theory, VATs are taxes over added value. That means it just doesn't matter in how many unities you break the production, turning the same insumes into the same products creates the same taxes. On practice, of course, things aren't this clear cut. Every place I've looked at (not many) refuses to simply deduct the already payed VAT from companies debits, and instead use some complex rules to determine what is "added value" that often enough subsidize large business on the expense of small ones.
• notauser 10y ago
  VAT "Value Added Tax" is designed to avoid exactly that issue. Imagine a product which requires two processes, A and B. Raw materials cost 1 After process A is done, the value of the intermediate output is now 11 After process B is done, the value of the finished product is now 21 If you are vertically integrated: you do A and B, so you collect VAT on (sale price less cost of inputs) = 21 - 1 = 20 Whereas if non-integrated firm One does process A A will collect VAT on (sale price less cost of cost of inputs) = 11 - 1 = 10 And non-integrated firm Two does process B B will collect VAT on (sale price less cost of inputs) = 21 - 11 = 10 So the VAT is calculated on 20 "value added" in both cases meaning that vertical integration gains you nothing at all. Big companies can and do manipulate transfer pricing to minimize VAT payments but this is "playing with taxes" rather than a problem with the concept of VAT.