How to remove the EU motivated unfairness in Taxation.
In an earlier article (see it here) I commented on the way taxes are taken from the poorest in society by stealth. I pointed out that the tax with the greatest potential to be “progressive” is, contrary to common opinion, VAT.
“Ah no!” declare some. It is an EU tax. Well no! It is not. It is a tax principle that was adopted and corrupted by the EU. A familiar tale eh? Whatever they touch turns to something distinctly less pleasant than Midas’ gold. Yes! That!
When we leave the Customs Union and Internal Market of the EU we are free to undo the damage the rEU Establishment has caused. Let us rename VAT and call it RVAT (Reformed Value Added Tax). Let us take it back to the principles that make it the most efficient, potentially least bureaucratic and equally potentially most progressive of taxes. Let us remove the rEU adjustments that made it move from its inventor’s principles.
The History of VAT
Allow me to explain. VAT was the brainchild of Wilhem Von Siemens shortly after the First World War, long before either the EEC or EU was even a glint in the eyes of the mainland power mongers. It addressed the problems of traditional purchase tax, as levied in the UK, whereby the more stages there were in the manufacturer and distribution of items the more exponentially the taxes levied increased and thus complex manufacturing became uncompetitive. Taxes on taxes on taxes!
The Comparative Benefits of a VAT System
One major (largely ignored) factor in the design of VAT is the ability to levy differing rates of tax according to the nature of the product sold to the end consumer. Hence it is possible to zero rate products such as food and thereby ensure the poor do not pay a disproportionately high rate of tax. The EU introduced rules that insisted that once VAT was applied to any goods or services then it could not be removed. This cripples the ability of our Government to apply essential adjustments.
The Iniquitous Taxes We Actually Pay on Essentials
VAT is levied on the amount charged for goods or services. The seller is able to reclaim the VAT paid on costs. Those costs may well attract a higher rate of VAT than the VAT due on the end product. Hence food, for example, will no longer have to cover the hidden cost of taxes on, for example, petrol. Notice the UK Government levies a tax on petrol which is not recoverable and a further dozen or so taxes which, likewise, cannot be recovered. Hence the actual cost of indirect taxes on food is, frankly, prohibitive. Those taxes are taxed again since they form a part of the cost and when sold they attract VAT. It is a lie to say food is not taxed. In other words they have, by stealth, reintroduced all the ills of Purchase Tax.
By insisting that the only indirect tax levied should be RVAT such unfairness can be removed. It may well be, then, that a 5% RVAT rate would be fair given that the end cost of food would be reduced by around 40% with such a move. Most indirect taxes are punitive in their effect and inflict very considerable damage. I cite, in particular, Business Rates which have led to the destruction of our town and City centres and to the unbridled advantage given to multi-national tax dodging online retailers. Meanwhile the hundreds of delivery vehicles trundling up and down every side street in the land contribute very significantly to an ignored problem of pollution. How can it be fair that a business, newly opened, should face a massive bill before it even has the chance to see whether or not it is going to see any custom? Council Tax is equally punitive on householders.
The Damaging Effects of Taxes on Incomes
Providing tax breaks in income tax does nothing to alleviate poverty. It is an illusion. It is a deliberate fraud. Furthermore Direct taxes are someone else’s Indirect tax. By taxing employment, which is what Income Tax and National Insurance do, you increase the cost of labour and make it uncompetitive. You do so in a way that makes the Nation uncompetitive. If you apply taxation by means of RVAT you tax imports as heavily as your own products. Surely that effect has to be obvious even to the most bigoted of “economists”?
New Thinking! Flatter, fairer taxes!
UKIP needs to be the party where there is new thinking on all issues. It must not stick to the old prejudices and lack of debate that have paralysed the old order parties. If UKIP is to be anything it must be the party aiming to deliver a free and independent nation. That necessarily means addressing the long term structural issues within our economy. The prime cause of our lack of competitivity is our taxation system. Reform needs to be top of our agenda after BREXIT.
Flatter fairer taxes should mean what is says. No tax where it causes economic damage. Taxes applied fairly across the board with imports bearing their fair share. Only one tax can deliver that: RVAT.
One word of caution. Predicting the actual level RVAT would have to be set at is quite a complex matter and would probably frighten the horses. Any increase would be offset by decreases or the abolition of other taxes and so the effect on overall price levels would be zero. However imports would become relatively more expensive to consumers while home produced goods and services would become cheaper. That would help remedy our massive trade deficit. It may even provoke a revival in industries such as machine tool manufacture.
Shopkeepers should keep in mind they do not pay VAT. It is paid by their customers. They are the collecting agents. That being said there is a deal that can be done to eliminate complexities in the accounting for VAT. That is too complex for a short piece like this but it is an issue I have considered.
© PJW Holland MMXVII
See more of what I have written: (here)