A 10% VAT is a 10% tax at every step of development A 10% sales tax is 10% ONCE.
E.G a product with 5 steps of development at 10% => ~50% tax
wrong. A VAT only taxes the value added at each stage. It does not tax the total value of the product.
http://en.wikipedia.org/wiki/Value_added_tax
here is how it works:
Without any tax
A widget manufacturer spends $1.00 on raw materials and uses them to make a widget.
The widget is sold wholesale to a widget retailer for $1.20, making a gross margin of $0.20.
The widget retailer then sells the widget to a widget consumer for $1.50, making a gross margin of $0.30.
With a 10% sales tax:-
The manufacturer pays $1.00 for the raw materials, certifying it is not a final consumer.
The manufacturer charges the retailer $1.20, checking that the retailer is not a consumer, leaving the same gross margin of $0.20.
The retailer charges the consumer $1.65 ($1.50 + ($1.50 x 10%)) and pays the government $0.15, leaving the gross margin of $0.30.
With a 10% VAT:
The manufacturer pays $1.10 ($1 + ($1 x 10%)) for the raw materials, and the seller of the raw materials pays the government $0.10.
The manufacturer charges the retailer $1.32 ($1.20 + ($1.20 x 10%)) and pays the government $0.02 ($0.12 minus $0.10), leaving the same gross margin of $0.20. ($1.32 - $0.02 - $1.10 = $0.20)
The retailer charges the consumer $1.65 ($1.50 + ($1.50 x 10%)) and pays the government $0.03 ($0.15 minus $0.12), leaving the same gross margin of $0.30 ($1.65 - $0.03 - $1.32 = $0.30).
wrong. A VAT only taxes the value added at each stage. It does not tax the total value of the product.
http://en.wikipedia.org/wiki/Value_added_tax
here is how it works:
Without any tax
A widget manufacturer spends $1.00 on raw materials and uses them to make a widget.
The widget is sold wholesale to a widget retailer for $1.20, making a gross margin of $0.20.
The widget retailer then sells the widget to a widget consumer for $1.50, making a gross margin of $0.30.
With a 10% sales tax:-
The manufacturer pays $1.00 for the raw materials, certifying it is not a final consumer.
The manufacturer charges the retailer $1.20, checking that the retailer is not a consumer, leaving the same gross margin of $0.20.
The retailer charges the consumer $1.65 ($1.50 + ($1.50 x 10%)) and pays the government $0.15, leaving the gross margin of $0.30.
With a 10% VAT:
The manufacturer pays $1.10 ($1 + ($1 x 10%)) for the raw materials, and the seller of the raw materials pays the government $0.10.
The manufacturer charges the retailer $1.32 ($1.20 + ($1.20 x 10%)) and pays the government $0.02 ($0.12 minus $0.10), leaving the same gross margin of $0.20. ($1.32 - $0.02 - $1.10 = $0.20)
The retailer charges the consumer $1.65 ($1.50 + ($1.50 x 10%)) and pays the government $0.03 ($0.15 minus $0.12), leaving the same gross margin of $0.30 ($1.65 - $0.03 - $1.32 = $0.30).
I think what you are talking about is a cascading tax system, which what the VAT was designed to avoid-—where the full sales tax cost is passed on and on and on, getting larger.