At its inception VAT was intended to replace all other taxes on turnover. One objection to crude turnover taxes is that their burden is felt more heavily by businesses with a costs structure which involves high costs and low margins.
As its name suggests VAT is not in principle vulnerable to this objection: deduction of input tax should ensure that tax is levied on the value added at each stage of the production or distribution chain.
Similar problems may arise however where two factors are present: first that certain input costs do not bear VAT and second that those input costs are in effect ones which are simply passed on to the...
