VAT destroys small business confidence
Talián ’23 [Csaba Talián, Tax Technology Manager at Fonoa, J.D. from Pázmány Péter Katolikus Egyetem, 4-4-2023, "The American Exception: Why the US Has No VAT System?," Fonoa, https://www.fonoa.com/blog/the-american-exception-why-the-us-has-no-vat-system, St. Mark's School of Texas, Ashrit Manduva '24]
Another challenge would be the impact on businesses. While the VAT system is designed to be neutral to businesses, transitioning to a new tax system would bring some challenges. Since VAT is applied at every stage of the supply chain, VAT would place a more significant burden on some businesses than sales tax, as it requires them to collect and remit VAT correctly, keep detailed records, and comply with all the potential VAT obligations (VAT registrations, VAT reporting, new types of tax returns, etc.). Small businesses, in particular, may need help to adjust to the new system, which could lead to increased administrative costs and reduced profitability.
Introducing VAT would likely mean higher tax rates for the final consumers than the current sales tax system, as VAT is generally applied at a higher rate than sales tax. Furthermore, VAT is levied at each production stage, which may increase costs for businesses and, in turn, lead to higher consumer prices.