Amazon's tax bill (here we go again)

From The Independent:

Philip Hammond has said he will consider tax changes hitting online businesses to ensure there is a more level playing field for high street retailers.

The hint at a so-called Amazon tax for online companies that sell products over the internet comes as high street stores – under pressure from soaring costs like business rates – demand a fairer system.

The only logical way that a special 'Amazon tax' would help high street retailers is if the tax is so high as to discourage people from buying online; or so high as to push Amazon into a permanent loss-making situation.

Mr Hammond added: “The European Union has been talking about a tax on online platform businesses based on the value generated. “That’s certainly something we’d be prepared to consider.”

Amazon already pay two kinds of taxes on 'value generated', being normal VAT at 1/6 of their turnover and corporation tax on their residual profits. Do they play fast and loose and book profits sideways elsewhere? Quite possibly, says The Murphmeister, but that's a different topic. Try enforcing existing laws first before you start inventing new ones on an ad hoc basis.

The Guardian is of course going to town on this:

The company... revealed that pre-tax profits at its UK business tripled from £24m in 2016 to £72m last year. The figures were reported by Amazon UK Services, the company’s warehouse and logistics operation that employs more than two-thirds of its 27,000-plus UK workforce, in its annual financial filing to Companies House. The company almost halved its declared UK corporation tax bill from £7.4m in 2016 to £4.5m last year.

Amazon UK’s warehouse and logistics staff and management enjoyed a bumper $164m (£125m) payout from the company share scheme – a rise of almost a third on 2016’s £95m bonanza – thanks to the company’s surging share price... The payouts will have reduced Amazon’s tax bill because under UK tax law companies are required to deduct the vest value of the shares provided to employees.

Companies aren't *required* to claim this deduction, but they would be stupid not to (I've submitted such claims for my own clients, it's great fun). The value of those shares is liable to PAYE in full as if it were a cash payment.

PAYE rates are much higher than corporation tax rates, so these share-related gains don't *reduce* Amazon's tax bill, they significantly *increase* it, i.e. that £125 million was probably taxed at about 40%, meaning Amazon paid £50 million extra PAYE in addition to the £4.5 million corporation tax. Which is a pretty high overall tax rate when compared to £72 million profits.

For accounting purposes Amazon Services UK reports turnover as a charge to its parent company for the cost of delivering products, which hit £1.98 bn last year. Amazon will not reveal how much it paid in total to HMRC last year, beyond what it paid through Amazon Services UK.

That's turnover net of VAT, so Amazon will have paid about £400 million in VAT as well. Makes a total of £454.5 million tax paid. And we have no reason to assume that they don't pay full Business Rates on their offices and warehouses etc.

All the mugs who believe that 'the consumer bears the VAT' can go back to the remedial class. VAT is a tariff, just like the tariffs that Trump imposed on lots of stuff recently. Did all the businesses affected by them just shrug their shoulders and say 'Not to worry, consumers in the USA will pay the tax'? Of course not.

Killer Arguments Against LVT, Not (427)

Via MBK, a fairly positive article about LVT at Bloomberg, which then goes into the political objections:

Why so unpopular? Here's Friedman's theory:

"It's not unpopular for good economic reasons. It's unpopular in my opinion for one simple reason: It's the only tax left on the books for which people have to write a big check."

Income taxes and Social Security contributions are withheld from paychecks before the recipients get their hands on the money. Sales taxes (and value-added taxes outside the U.S.) are remitted by merchants and other business. It's only with property taxes that a regular person gets a bill and has to pay it.

Seeing as Friedman himself helped design the US PAYE system back in the day, this is partly his fault.

As the author of the article himself explains in footnote 3, it is perfectly possible to deduct LVT monthly from paychecks via the PAYE system. That would be a good idea, even if we only have a low level property tax, like Council Tax. If LVT replaced taxes on earnings and output, for most working households, the total tax deducted would go down. For lower income pensioners (Poor Widows In Mansions, whose annual tax bills would inarguably increase), there would be the deferment option anyway.

If people are thinking of buying a home, the decision will be no different to now - they compare the rent they currently pay with the total of mortgage payments (and LVT) which they (as landowners) will have to pay. Experience shows that recent FTBs pay roughly as much on their mortgage as they did on rent, or would have been paying if they'd been renting the home they ended up buying. There's no reason to assume that this would change - the two would move in line. So the choice would be between paying £1,000 rent a month and paying £600 in mortgage repayments and £400 in LVT a month (or whatever), absolutely no disincentive to owner-occupation.

I can think of at least two other reasons for property taxes' unpopularity that are actually side effects of what economists like about them. To wit:

1. Property tax bills can rise without property owners doing anything, and
2. Rising tax bills can push property owners (homeowners in particular) to make economic decisions they might prefer to avoid.

People can adjust their spending, and often their income. But they can't help it if, say, house prices go up 80 percent in just three years -- as they did in California from 1975 to 1978. Well, actually, they could help it, by going to the polls in June 1978 and approving Proposition 13, a set of restrictions on property tax rates and assessments that have shaped the state's economy and government ever since.

Argument 1 is classic Homey DoubleThink: "I worked hard, invested wisely and deserve my land value increase; but as I contributed nothing towards the increase, I shouldn't be taxed on it".

Basing LVT on selling prices is a bad idea as they fluctuate wildly (unless you are doing a really low level LVT of 1% or less). Proper LVT would be based on rental values, which go up in line with local average earnings.

So let's assume a typical couple's wages are £4,000 a month and their LVT bill is £600, so their net wages are £3,400. If wages go up by £100 a month in that area, rents go up by a bit less £100 a month and their LVT goes up by a bit less than £100 a month, let's say from £600 to £680.

A 13% increase in their LVT bill sounds dramatic, but even if their wages don't go up, their net wages only fall by 2.4%, which they'd barely notice. Even if they think, sod this home-ownership lark, let's go back to renting, there's no incentive to do so, because their monthly housing costs would not go down as a result (if they stay in the same sort of home in the same area).
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If we think all this through to its logical conclusion, LVT will then be attacked from the left by the Socialists, who say, "Ha! What you Georgists really want to do is price lower earners out of "nice" areas! You bastards!"

True dat, but so what?

Younger people and tenants of all ages are already priced out, even out of cheaper areas. It's only older low earners who bought decades ago who live in "nice" areas. Secondly, taxing land wealth (which is highly concentrated in a few hands) instead of earnings reduces inequality overall, it's redistribution from the few to the many, which is one of Mr J Corbyn's better slogans. Low earners who bought decades ago in "nice" areas are very much among "the few" and the priced-out under-40s; tenants of all ages; and low earning owner-occupiers who live in normal areas are "the many" for these purposes.

Ref BenJamin Post...as for VAT so for employment taxes

I want to increase an employee's pay by £2,000 per annum from £23,000 to £25,000. That is an extra £166.67 per month gross = £113.33 net to him.

So how much does that cost me? Calculation from our book keeper:

Current cost per month is £1,916.66 + £173.01 = £2,089.67

Total cost per year £25,076.04.

Cost per month would be £2,083.33 plus Employers NIC £196.00 Total per month £2,279.33

Total cost per year £27,352.00.

So, I spend £2,276 and employee gets £1,360. Employment tax = £916.

Why does anyone bother?