The way a VAT works is as a drag on every step along the way of turning raw goods into finished goods. Think of it as a sales tax at every step along the way, not just the final retail sale. It has never generated the amounts of tax revenue projected by the proponents, partly because people get really pissed off at having to pay it, and partly because it becomes a pretty hefty drag on small businesses who had thing margins. Larger companies that have more pricing power can muscle the smaller competitors out of business because the larger companies can rely on their economies of scale, coupled with the fixed VAT percentage, to out-price the small guys. So the tax revenue from the smaller businesses just goes away unless they go underground.

As a result VAT fraud is rather common in the EU, and the only way the government can get a handle on it is to inject the government into EVERY business that sells anything, in order to make sure that they can collect the VAT instantly or nearly instantly at the point of sale. You could see this in the US -- where the government injects themselves into the point of sale for every business in order to insure that they "get their cut."

IMO, the VAT should not be implemented here in the US. That we're even considering it is a sign that the Obama administration is having a serious attack of the stupids.