That's not what VAT is. At least not in countries that I'm aware of. Here VAT is a flat percentage of the sales value, and from the result you get to subtract VAT that has been withheld by your suppliers, which means that in effect, it's just a tax on what consumers pay. It makes everything in that market more expensive by a certain percentage but otherwise has no impact on the company. It's a tax effectively paid by the consumer.

If you subtract all costs within that market, including labour, it suddenly becomes more attractive to hire labour in the same market where you're selling. Companies based in tax havens do not get to subtract their costs in the tax haven, which effectively means they have to pay tax on their profit in the market where they're selling rather than the country they move their profits to.

But you do have a good point that it's not really progressive in any way. It just serves our sense of justice to have companies pay their taxes in the same market they're profiting from. I guess the most elegant way to get progressive taxation, like someone else here pointed out, is UBI.

> Here VAT is a flat percentage of the sales value, and from the result you get to subtract VAT that has been withheld by your suppliers, which means that in effect, it's just a tax on what consumers pay. It makes everything in that market more expensive by a certain percentage but otherwise has no impact on the company. It's a tax effectively paid by the consumer.

Income tax is really the same thing. A retailer sells a widget for $100 which it bought for $90, so it pays tax on the $10 in profit. The wholesaler bought the widget for $80 and sold it for $90, so it pays tax on another $10. If you go all the way back to the mine that produced the raw materials that were manufactured into the goods, the entire $100 is profit to somebody. It's the same as VAT. Calling it "profit" rather than "value added" is a distinction without a difference.

An exception as you point out is the treatment for domestic labor, but even that's just an accounting anomaly rather than a real exception -- the worker doesn't collect VAT on their "profits" (wages) but then, no deposit no return, the employer can't deduct them. The real scam is when wages aren't deductible from VAT and yet are still subject to personal income tax, which means they're being double taxed. That is one of the few things the US corporate income tax gets right.

> If you subtract all costs within that market, including labour, it suddenly becomes more attractive to hire labour in the same market where you're selling.

If you like VAT you may enjoy DBCFT.

It is different, because the amount the wholesaler bought it for is not the only cost he has. He also has rent, labour and who knows what else, and not all of those withhold VAT on their end. In fact, in business-to-business transactions, VAT is often ignored, because the only that matters is the value at the end point where it's sold to the consumer or another non-VAT-paying entity.

At the end point, VAT is a revenue tax, not a profit tax. And revenue is certainly not the same thing as profit.

Here in the US, a sales tax is on the whole transaction and so is essentially a tax on sales revenue. It is very close to a pure consumption tax.

Sales tax in the US generates a comparatively small amount of revenue. Some states don't even have one. The majority of tax revenues in the US are paid to the federal government rather than the states and through personal income tax and payroll tax rather than consumption taxes.