Each producer in the chain takes credit for VAT paid, by subtracting it from VAT received, so that he remits only VAT on the value he added. So, I think the net result should be the same.

Welcome back to the discussions. What used to be the most informative and unbiased blog has been deadly quiet of late. I hope that changes.

As for the VAT issue, I’m no expert (or econo-geek) but I don’t think it matters if the producer is a large corporation that can produce the item in-house or a series of smaller businesses that each add a part of the final product. Here’s why.

If the government sets up a 10% VAT, for example, it doesn’t matter if there is one level of production or ten, the total tax collected is still 10% of the final cost. While the dollar value accumulates as a part moves up through the production cycle, the percentage tax does not. As the name indicates, only the value added is important. Many small companies producing a single component of the final item would not be at a disadvantage with one large corporation that produces the end item in-house.

I’m not certain which producer might have lower retail prices, but I sort of think many small producers, all having lower overhead costs, might win out? Just a thought