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The tax is paid at each stage of production, but a credit is received for tax paid on inputs. For example, assuming a VAT rate of 10%, if a company sold its product for $100.00 and the cost of inputs to make that product were $80.00, they would have to pay $10.00 less an input credit of $8.00 to account for the VAT paid by their suppliers.
The tax is paid at each stage of production, but a credit is received for tax paid on inputs. For example, assuming a VAT rate of 10%, if a company sold its product for $100.00 and the cost of inputs to make that product were $80.00, they would have to pay $10.00 less an input credit of $8.00 to account for the VAT paid by their suppliers.
While some conservatives may mistakenly assume that the VAT tax is "more optimal" because it is a regressive tax, in reality, the VAT tax is similar to a corporate net income tax, except broader in the sense that certain items like labor, rent, and capital, for which a VAT tax has not previously been paid on, are not deductible.<ref>[http://www.taxpolicycenter.org/taxtopics/encyclopedia/VAT.cfm Tax Policy Center - VAT]</ref> [[FairTax]], which supports a national sales tax, is opposed to a national VAT tax.<ref>[http://www.fairtax.org/site/PageServer FairTax]</ref>