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VAT also encourages the formation of conglomerates since you'll need to pay VAT to source some component of your product, but not if you make it in-house. This
by avar 9y ago
VAT also encourages the formation of conglomerates since you'll need to pay VAT to source some component of your product, but not if you make it in-house.
This is mitigated in some cases by lower VAT rates for businesses or recouping schemes, but how much of a difference that makes depends on the jurisdiction
- kgwgk 9y agoSay a company sells a product to a end customer for 100+VAT. A) the company builds the product from scratch => the whole VAT amount collected is transferred to the state B) the company buys components from a provider for 50+VAT => half of the VAT collected is given to the provider, the other half to the state How are A) and B) different for the company as far as the VAT is concerned?
- avar 9y agoThey're not as far as the amount paid, but VAT introduces taxation overhead to supply chains. Let's say company A makes a pencil in-house, and company B sources all the materials from 100 subcontractors. Company B will inevitably incur more overhead because it and its suppliers need to deal with the accounting of 100 taxable events, company A only needs to deal with one. Thus those 100 companies forming B will inevitably merge into one to compete with A and fire their state-imposed army of accountants.