Economists can be wrong, Lord knows, but the usual view -- with which I concur -- is that the tax base for VAT and retail sales are identical. Retail prices are just accumulated value-added, as far as income accounting goes.
[WS:] I am familiar with the argument, i.e. producer of the intermediate goods passing their cost, including taxes, on the buyer. I wonder, however, if it still holds with imported goods. Say, you import a gizmo from China that costs you $10 a piece, and you sell it for $100. Then the $90 (your profit plus compensation of your employees who actually sell the stuff) is the value added subject to VAT in the destination country. The $10 of the original cost is taxed in China (and the value added by the Chinese producer does not enter the destination country's GDP.) With the sales tax, however, the entire sale price of $100 would be taxed, resulting in double taxation of the $10 (in China and in the destination country). It thus follows, that ceteris paribus sales tax results in a slightly higher amount of tax paid than VAT, no? That discrepancy can be quite substantial when the value of intermediate goods is relative high vis a vis retail price, no?
As to your question whether customers will be willing to pay 20% VAT - it depends on the retail price of the product. If they were unwilling, the resultant drop in demand would result in price drop, no? In other words, the 20% VAT would eat mostly into the profit margin (i.e. value added) of the seller rather than the pockets of the consumers, no. So I tend to believe that consumers would be just fine with 20%VAT - especially that they would not see VAT portion of what they pay, as VAT is not added to the sale price, as the sales tax is - because it would not result in a substantial increase in the retail price (assuming competitive markets.) However, the vendors would be bitching to high heaven, as VAT would reduce their profit margin.
Wojtek