Another thing that appeals to people about VAT is that it acts like a kind of import duty, thus appealing to protectionist instincts. I don't agree with protectionism, but even if I did, then following their logic, VAT must also discourage people in the UK from trading with each other, thus dampening the economy quite significantly. So clearly, getting rid of VAT has to be top priority once we've left the EU (who say that we have to have it).
On a tit-for-tat basis, however, and seeing as UK exports to other countries are probably liable to import duties in other countries, or to VAT at point of sale in other EU Member States, could we do the honest thing and replace VAT with import duties alone? According to HMRC Trade Info the total value of imports in the eleven months to November 2011 was £366 billion, which rounds up to £399 billion for a full year (out of which around £50 billion is oil).
As it happens, forecast VAT receipts for the current year 2011-12 are £97 billion (from PSFD), which means that we could replace VAT in its entirety with a flat 24% ad valorem import duty on all imported goods. Imports of services are a quarter as much again (from here) (i.e. around £100 billion for a full year, but it's much more difficult taxing those).
As it happens, 24% is not far from the average import duties, sales taxes or VAT to which UK exports are liable when they are sold in other countries.
Just sayin', is all.
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It would be interesting (but difficult) to work out how such a tax would compare with the actual VAT payable when imported goods are sold in the shops; the main rate of VAT is 20% but this applies to the entire purchase price, which is usually a large multiple of the amount paid to the factory or farmer abroad. So if a telly is imported for £100 and sold for £300, a 24% import duty on the £100 is actually far less than the 20% VAT on the £300; but if beans are imported for 50p and sold for £2, clearly 24% of 50p is 12p and there is currently no VAT on basic food and groceries, so the import duty would be more.
Put On Your Big Boy Pants, Maybe?
1 hour ago
15 comments:
MW
Slightly tangential: I seem to remember that one of the reasons given for abolishing purchase tax and introducing VAT (all part of the wonder of joining the EEC) was the export-boosting effect of selling stuff abroad free of tax. Purchase tax was payable by exporters (and not repaid on export because of the way trade agreements were then struck) whereas VAT wasn't (by being zero-rated). Indeed there was a lot of hoo-hah in Parliament at the time purchase tax was introduced (1940) about the fact that the US ad valorem import duties would accordingly be increased due to purchase tax being levied on exports.
However, coming back (more or less) to the subject of your post, why impose import tariffs at all? The only economic justification for import tariffs might be (I'm not convinced) the "infant industry" one. A political reason for us imposing import tariffs is to counter those imposing tariffs on our exports of goods and services (cf your "tit for tat" comment). Another political reason is that import tariffs are "invisible" to the ultimate consumer thus making the tax (sort of) "painless" (like PAYE). I think though on this one - the abolition of import duties - we're on the same road as LVT: desirable? Probably. Possible? Unlikely!
U, I'm not convinced by import duties either, I think they are a bad idea, this was just to see whether the maths stacks up (it clearly does). And if push came to shove, I'd prefer tit-for-tat 24% import duties to flat 20% on most of the productive economy.
As to the politics, as I've said before:
You can also tell who invented VAT - an unholy coalition between German mercantilist manufacturers and French farmers. The fact it was gleefully embraced by UK Home-Owner-Ists and banks was more or less inevitable.
... and as to the politics of the electorate, I think they'd be happy with flat 24% stealth tax on imports to raise £100 billion if that meant LVT was reduced by £3,000 per household.
It's the same people paying of course, trade is so international that supply is more or less completely elastic, if foreigners can't sell to us at a profit they'll just sell to somebody else. Demand is rather price inelastic, so duties would be nearly all borne by the consumer in higher prices, such is life.
What about looking at the MW 24% import duty tis way?
Most of the people who export to us are heavily subsidised by their governments, aka taxpayers. This skews pricing and is a form of economic warfare. Let's call it mercantilism. If the MW 24% adjusts for this then it seems to be a way around outright protectionism. Of course I would much prefer that the Germans, The Chinese, The Japanese, the French and especially the Americans stopped all the subsidy nonsense, but they're not going to, so we need to add back the subsidy to make the prices 'true'. Or perhaps not?
L, yes, the only way I can justify protectionism (which includes tariff barriers as well of course) to myself is on a tit for tat basis - they put sales taxes on our stuff and subsidise their exports, so import duty levels the playing field.
It also gets prices paid by our consumers back to where they would be in a free market i.e. our producers are neither taxed nor subsidised; Johnny Foreigner is subsidised and taxed in equal measure.
"but if beans are imported for 50p and sold for £2, clearly 24% of 50p is 12p and there is currently no VAT on basic food and groceries, so the import duty would be more."
Which is why it would never fly politically: the man from Tesco, he say NO.
B, more than half of Tesco's sales are VAT-able items, so the chances are, they'd end up paying less in tax. What's an extra 12p on beans if he pays £26 less when he sells a television (£300 x 20/120 minus £100 x 24%)?
Non- food only contributes £5b of the £44.6b sold by Mr Tesco
Anon 10.51, congratulations for posting the least true fact I've seen on this 'blog for a while!
Tesco's turnover is around £30 billion and VAT-able items (i.e. non-food) are nearly 60% of total sales. See breakdown here.
You'd save everybody a lot of time if you actually look stuff up before commenting.
On that note, the World Customs Organization recently held a forum in China recently, themed "Borders divide, Customs connects". Only civil servants can come up with such a backwards statement.
Could slapping x% tariff = VAT in country of origin be a simple policy if abolishing VAT?
-Kj
Most of the people who export to us are heavily subsidised by their governments, aka taxpayers.
Clearly this hurts developing countries with few options, but as for most developed countries, isn't the loss for domestic producers exactly the same as the foreign subsidy to domestic consumers, thereby it nets off for the importing country as for the whole economy? It's clearly unjust to the domestic producers though, and I wouldn't be comfortable advocating unilateral free trade and elimination of subsidies on farm products when we know almost all competitors are subsidised.
-Kj
http://www.guardian.co.uk/business/2011/oct/05/tesco-sales-slide-consumers-cut-back#start-of-comments
.?please explain my (or the Guardians) mistake. Also I don't find easily the fact myself in Tesco figure..could you isolate it for me. Sorry for my vast stupidity. May I be audacious enough to bid for irony rather sarcasm in the delivery of criticism please. Thanks.
Kj: "Could slapping x% tariff = VAT in country of origin be a simple policy if abolishing VAT?"
Yes, import duties are the second oldest tax in the book (after LVT).
Anon, The Guardian can say what they like (I suspect that £44 bn is world turnover not UK turnover), my original statement was that more than half of Tesco's sales are VAT-able (which is clear from their accounts*), which I glibly assumed to mean non-food.
Strictly speaking, it is possible that Tesco sells an enormous amount of VAT-able food and drink (i.e. sweets, alcohol, tobacco etc), I don't know.
* Their accounts tell us how much VAT they pay, and if you divide that by 20% we know how much of their turnover was VAT-able, simples.
Anon, having now trawled their 2011 accounts, you are probably correct on UK turnover being £44 billion. We live and learn.
The accounts also say this:
Our general merchandise, clothing and electrical businesses have continued to grow, despite the challenges of weak demand in some of our important markets... In order to align with our new structures, we will going forward define non-food as general merchandise, clothing and electricals (excluding health & beauty and household). Overall Group sales in this category rose 8.8% during the year to £10.3 billion.
So that's £10 billion, then add on health, beauty and household and petrol sales; then add on alcohol, sweets and tobacco, and total VAT-able stuff is indeed more than half of total sales.
A little anecdote on import duties I came across; San Marino levies a 17% import tax on everything, and raises between 7-10% of GDP every year with it (and apparently according to the IMF, that's 40% of tax revenue). It's being forced to adopt regular VAT however, through "tax harmonisation", since there has been a lot of carousel frauds operating out of SM.
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