Quote Originally Posted by Vladimir
I believe that "sales tax" of 20% mentioned earlier was referring to a Value Added Tax (at least in the UK). That's where something is taxed at EVERY level of development. From oil pumped out of the ground, to molded plastic, to finished item. It's not 20% sales tax, it's 20% + 20% +20%...
What's taxed at each stage is the value added by that company, so it's not quite the same as a cumuluative n% + n% +n%. In a simplified example, assume a company buys in £100 net of raw materials & energy and these are all liable for VAT at 17.5%, and it uses them (plus the cost of its employees) to produce goods it can sell at £200 + 17.5% VAT. The company takes £235, spends £117.50 and owes the government the VAT on its sales less the VAT on its purchases so £35 - 17.5 = £17.50 in tax. The government gets £17.50 from the company and a further £17.50 from its suppliers. If it were to raise the same amount in a retail sales tax, it would still be £35 on the net £200 sales, so the consumer wouldn't see a difference.

If I remember my old economics lessons right, the extent to which VAT is a tax on companies or consumers depends on the nature of the market for the particular product. The higher the level of competition the harder it is for the comany to pass the increased price on to the consumer.

Of course there is the separate question of how the relative complexities of VAT and sales tax influence company costs and therefore prices.