The impact of a value-added tax on the cash flow of corporations.

Advocates of a value-added tax claim VAT is superior to the existing corporate income tax (CIT) in the area of economic efficiency, i.e., tax neutrality. Since tax neutrality is a major criterion for tax policy analysis, VAT's superior allocative efficiency relative to a corporate income tax is an argument VAT proponents use to promote adoption of a value-added tax. VAT supporters maintain that CIT distorts allocation of production resources while VAT, a proportional tax, is insensitive to production methods or use of production resources.