"Well, yes I do actually, or I wouldn't have bothered doing the post."

Roger Thornhill left a comment on my post VAT: Barrier To Entry:

Mark, Do you honestly think this example builds a case against VAT? (1) I mean, it is so narrow, so skewed.(2) No exports.(3) No major costs liable for VAT (4) and a client base that cannot claim back VAT either (5). Talk about cherry picking (6).

1) Well, yes I do actually, or I wouldn't have bothered doing the post.

2) There is an infinite range of types of economic activity. I was using a fairly middle of the road example to illustrate a general point that VAT can, and does, act as a barrier to entry; more specifically that it is far more damaging than corporation tax.

3 a) I was using the example of free newspapers in London. While they do not export their physical product, it is quite likely that some of their advertising sales will be 'exports', i.e. where somebody from abroad pays for advertising (and which would be zero-rated for VAT purposes, in which case the rate would have to be hiked slightly from 15% to say 17.5%). In any event, I am railing against taxes on turnover or gross profits generally - there is no natural reason why exports are zero-rated - that is merely a feature that was bolted on to the EU version of turnover tax (aka VAT).

3 b) I accept that one of the reasons the EU (or whatever its predecessor was called at the time) decided to impose VAT was because German mercantilists liked it* - VAT acts as a subsidy for exporters and an import duty. I am a free trader and don't believe in subsidies and import duties. Countries don't trade with countries - people trade with people. Opinions may differ on this, but if you are determined to impose duties on imports and use them to subsidise exporters, then at least be open and honest about it and don't impose a tax that hobbles the domestic economy (which is around four-fifths of our economy).

4) Taking the economy as a whole, the largest single item of expenditure is wages, which are not liable to VAT. I could have made the example more complicated by assuming that some of the input costs would be liable to VAT in Country B, but what's the point? The newspapers in Country B are VAT-able businesses so for them it would be cash neutral and so the issue does not arise.

5) Of course, a lot of the advertisers in Country B will themselves be VAT-able businesses; but sooner or later, that VAT has to be paid out of money received from end-users (private individuals or exempt businesses). So a VAT hike generally will hit the income of VAT-able advertisers and so they in turn will have less money to spend on advertising.

6) I invite people to do their own examples suggesting that corporation tax is worse for businesses than VAT. Please remember that businesses cannot merrily 'pass on' VAT because end-users only have a limited amount of money to spend. In practice, VAT is borne by the productive sector, in exactly the same way as corporation tax.

* Forming an Unholy Alliance with French farmers (food is usually VAT-zero rated, exempt or taxed at lower rates) and UK Home-Owner-Ists (new housing is VAT zero-rated; sales and rents are VAT exempt; banking is VAT-exempt). The fact that VAT is, in relative terms, good for those other friends of the EU (Corporatists and incumbents) is icing on the cake.