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There are arguments against VAT but your argument is nonsensical. It sounds like you're thinking of how sales taxes work. The VAT rate varies throughout the EU
by hnbad 4y ago
There are arguments against VAT but your argument is nonsensical. It sounds like you're thinking of how sales taxes work. The VAT rate varies throughout the EU so I'm not sure what you're basing the 21% on.
In most of the EU that I'm aware of, VAT must be included in all listed consumer prices because that's what the consumer pays. VAT is only excluded by default in B2B prices so yes, sometimes as a business you have to double-check listed prices to see what you'll actually pay. It sounds like you're arguing for consistent price labelling regulations (aka consumer protection laws), not against VAT.
VAT also doesn't really affect businesses. Businesses collect VAT from sales and pay it on purchases, then declare the difference to their tax agency and either pay any excess they collected or get refunded what they overpaid. It's literally a zero sum game and dealing with it in accounting is trivial on top of everything else you already have to keep track of.
The problem with VAT is that for consumers it is an inflexible tax that acts regressively in practice: because it's a flat tax on all goods, customers with less money spend proportionally more of their income on VAT than customers with a lot of money. It also doesn't apply to business expenses (due to the aforementioned zero sum) and people earning higher incomes are more likely to have access to "job perks" that convert regular expenses to business expenses (e.g. business lunches, company vehicles, etc).
If you wanted to reduce the burden on lower income households, you'd not just abolish the VAT but also abolish any other sales tax and instead raise income tax (especially the ceiling, which often lumps in millionaires and billionaires despite the 1000x difference in scale which often translates to an exponential difference in lifestyle) or (re)introduce a wealth tax (to discourage wealth hoarding and instead encourage reinvestment and commerce).
- hnbad 4y agoTo put it bluntly, a 20% VAT translates into an additional implicit 20% income tax for all income used to pay expenses. Assuming two people make €1k and €5k a month (after accounting for all other taxes) and both have fixed expenses of €1k, the former pays 20% taxes on their €1k and the other pays 20% taxes on their first €1k and gets to take the remaining €4k tax free to invest in retirement savings, repay loans or what have you. This translates into an effective 4% tax for the person making €5k compared to the 20% tax for the person barely making ends meet. This is why some people call it a regressive tax. You can literally take that €4k and put it all in a stable investment vehicle VAT-free. You only pay taxes on it if you spend it. The person making €1k a month will have the same 20% higher effective income tax but you will always pay a lower effective tax rate unless you also spend (i.e. purchase goods or services with) every single cent of your income. Cutting VAT would leave you both with more money but while nothing much would change for you it would increase the poorer person's effective disposable income by 25% (€800->€1000). Heck, even if income tax was raised by a flat 4% across the board, you'd be no worse off but their effective disposable income would increase by 20% (€800->€960).