Tuesday, 2 April 2013

Happy Birthday VAT.

Value Added Tax is one of the blessings that has been bestowed upon us by virtue of our membership of what is now called the European Union. We have now had this tax on our taxed earnings for forty years. Initially imposed at 10% we are now experiencing a 20% hit. For someone who is lucky enough to be taxed at the current maximum rate (50 %) that effectively means that on what are deemed to be ,"luxury," non essential items their marginal tax rate is 70%, exclusive of their national insurance contributions. To put this another way good old value added tax is being extracted from the residual pounds in their pockets at an effective rate of 40%.


Consumers don't like paying this tax and suppliers don't like acting as unpaid tax collectors, but this is a tax which will inevitably remain even if we manage to extract ourselves from Europe's clutches. It is just too successful. It raises almost one pound in every seven pounds that flows into the Government's coffers.


Who do we have to thank for coming up with inventing the concept of Value Added Tax? Why none other than our continental cousins, the French, ( a nineteenth century German economist may also have had a hand in it). Maybe the Entente Cordiale should not have been signed?

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