Is the VAT a force behind corporatism?
A friend asks on Facebook:
Question for econo-geeks. Is the VAT (value added tax) a force behind corporatism?
Here’s the argument.
I assume the VAT is not collected at each stage of value added within a firm, but only when a firm transfers a good (with its value added) to another firm in the production process. Like a sales tax but between businesses.
Therefore the VAT works to the advantage of large multinationals who do a lot of processing internally, and to the disadvantage of decentralized industries where many separate, specialized firms play a part in ‘adding value’ each step of the way.
This also leads to economies of scale (?) in internalizing steps in the production process (making firms larger) because one can charge a lower price on the final product by not having to mark-up each step of the way to pay for the VAT. Presumably a firm that could do the whole process in-house would only pay one VAT mark-up at the end.
Or does it not matter, since the value added by the firm will be factored into the percentage of the tax regardless of how many times it is applied in a process?
Anyone have insights?