VAT Chance

I wrote for The Spectator’s Coffee House blog this week on why Michael Gove’s plans to scrap VAT and bring in a US-style Sales Tax should be reject.

At first glance, a US-style sales tax is much simpler. The tax is only charged at the final point of sale. In theory, only the final consumer should pay and resellers are exempt. It is easy to see why the Environment Secretary might think swapping a VAT for a retail sales tax would reduce the burden on business.

But in practice, retail sales taxes aren’t so simple. Businesses have to pay the tax unless they can prove the item was bought to sell on to a customer. But resale exemptions are often limited; it’s not always clear whether someone is a consumer (and therefore should pay the tax), or a business (and therefore shouldn’t pay the tax). If a reseller is wrongly identified as a consumer, then the tax can build up over multiple stages of production. The final consumer ends up paying way more than they were meant to.

Rather than reducing the bureaucratic burden on small businesses, this would give bigger businesses, who have brought their suppliers in-house, an unfair advantage.

Read the whole thing.