From the BBC:
Retail sales in Japan fell 4.4% in April, compared with the same period last year, as the effect of an increase in the country's sales tax began to be felt. Japan raised the tax from 5% to 8% on 1 April - the first hike in 17 years.
The country faces rising social welfare costs due to an ageing population and is trying to rein in public debt.
So that hopefully puts to rest this nonsense which the politicians bandy about, and which so many armchair economists trot out, that "The consumer pays the sales tax". The consumer only pays the tax if demand is price insenstive (tobacco, booze, petrol/diesel); the supplier pays the tax if supply is price insensitive (fixed supply, such as land, or fixed high overheads/low marginal costs).
Analysts said sales had dropped in part due to consumers rushing to make purchases ahead of the tax rise. That trend was evident in March, when sales surged 11% - the fastest pace of growth since March 1997.
Illustrating why it is a bad idea to announce changes to tax rates in advance.
UPDATE: Dinero says:
A lot of the time, where the word consumer is approriate, the consumer does pay the sales tax. It is often a very competitive market with items being sold close to the cost of production, and so VAT along with the cost of raw materials are included in what establishes the price.
Problem is, there is no evidence to support that and plenty of evidence to debunk it.
The UK ran the real life experiment of changing VAT from 17.5% to 15%, back to 17.5% and then up to 20% over consecutive years.
The ONS publishes separate retail price indices for the main categories of consumer spending, some VAT-able, some not. If you look at total selling prices for VAT-able and not VAT-able (inclusive of VAT, where appropriate), rather unsurprisingly, overall inflation, from the point of view of the consumer was exactly the same for each.
If Dinero's theory held water, then RPI for VAT-able supplies would have been 2.5% lower than for not VAT-able in the first year and then 2.5% higher in the two subsequent years.
... if a bar of chocolate is being sold in a supermarket for 100p inclding 20p VAT and VAT is removed - what is the process that enables the price to stay at 100p?
Supermarket retail is very competitive and a retailer who left the price at 100p would be undercut by a competitor who would be removing the full 20p to attract the customers to himself.
That's all supposition. I do facts. Then I try and discern patterns and only then do I try and work out the logic. Charles Darwin knew bugger all about DNA and molecular biology, but he accepted and refined the theory of evolution.
1. I did some more number crunching looking at Tesco's gross margins during the period of VAT changes and their gross margin went up (or down) by about two-thirds of the VAT reduction (or increase).
2. During the recession, the EU graciously allowed a couple of Member States to experiment with VAT cuts in labour-intensive businesses. Sweden did quite a significant VAT cut for restaurants and pubs (from 25% to 12%). Menu prices only went down slightly; what happened was a huge increase in custom and hence employment.
3. Although supermarkets are competitive inter se, they act as a cartel to the outside world and have already set prices at the profit/revenue maximising level. If they can get away with making an extra 20p profit per chocolate bar, why would they give it away again?
4. Every penny they reduce the price is 5% off their extra net profits; would people eat 6% more chocolate if a bar costs 99p instead of £1? Would people eat more than twice as much chocolate if the price were 90p instead of £1?
5. Look at the whole supply chain; manufacturers are geared up to a certain level of output; supermarkets only have so much shelf-space etc. Even if their pricing guru tells them that they could sell more than twice as much chocolate if they cut the price to 90p, it simply physically can't happen. So supply is fairly fixed; suggesting that the tax is borne by suppliers.
Thursday, 29 May 2014
From the BBC:
My latest blogpost: VAT is borne by the supplier, part 94: Japan.Tweet this! Posted by Mark Wadsworth at 10:19