A VAT is similar to a sales tax, except that it is paid at all
levels of production, on only the value added at each level, to
prevent pyramiding and eliminating the need to separate business
inputs from retail sales. For example, take a wooden table sold
at retail and a 10 percent VAT rate. The lumber company sells
the wood to the furniture maker for $50, paying $5 (10% of $50)
to the government. The furniture maker sells the table to the
retailer for $120, sending $7 ($120 - $50 = $70 X 10% = $7) to
the government. The retailer sells the finished table to a
customer for $150, sending $3 to the government ($150 - $120 =
$30 X 10% = $3). The total tax paid is $15, or 10% of the final
retail price. Advocates of VATs say this structure reduces
evasion because it's harder for three entities to avoid paying a
$15 tax than it is for one. This in turn allows VAT rates to be
much higher than ordinary sales taxes (which suffer evasion as
they move into double digits), and they can generate huge sums
of money. Additio