[Diggsey]

Not really. If you imagine a supply chain with raw materials at one end and finished products at the other, if every step along the chain is taxed even a small amount on their total revenue, the cumulative effect would completely dwarf the value of the final product.

To solve this, in most countries, companies are taxed VAT instead, so intead of taxing the total value of product at every step, you are only taxing the value the company adds in the process.

Effectively the government is taxing the total value of the product at a fixed rate once but that tax is being split among the companies which helped supply that product proportionally to the value added by each company.

[2Gkashmiri]

i would explain this in this way.

there are 2 taxes.

direct and indirect.

direct taxes are paid by recipient themselves. (income tax is an example. a person/corp pays a tax on "net income after deductions" at whatever percentage)

indirect taxes are "collected" by the taxpayer but the person who ultimately buys a product pays it as the cost of product is inclusive of this indirect tax. VAT or GST or whatever. a business who is registered for indirect tax collects it from the customer and pays it to government. this indirect tax is not shown in their profit and loss account because for a business, they are just an intermediary.

direct tax OTOH, is shown in p&l because it there is PBT>tax>PAT.

[isitmadeofglass]

> Not really. If you imagine a supply chain with raw materials at one end and finished products at the other, if every step along the chain is taxed even a small amount on their total revenue, the cumulative effect would completely dwarf the value of the final product.

Yes, and that’s why it’s weird that the most important resource for most big corporations is taxed like that. All the human labor gets taxed based on revenue and not profit, unlike all the other raw materials.