Many EU countries have a “VAT” and like feel like this is kinda targeting poor people. Like, for the rich, this is insignificant, for poorer people, a (example) 20% tax would be a huge burden. Why do they do this?
🤔
Just to make sure you know: Basically everyone has a VAT, except the US. It’s not some special EU thing.
We have it in Switzerland, Canada has it, Japan has it, China has it, India has it, Russia has it, Brazil has it, Indonesia has it, Australia has it, Ukraine has it, Mexico has it, South Africa has it… I’m stopping here, but every country I googled had it so far.
Doesn’t the US also have local taxes that are effectively the same as a VAT
You probably mean the sales taxes, those look similar from a consumer point of view, but they work differently.
In a VAT system the taxes are collected all along the value addition chain. Each sale of intermediary products has the VAT cost on it, but companies can claim the VAT that they pay for their inputs against the one they collected on their outputs. In effect each company hands over the part of VAT that is raised on their part of the value addition. In the end it all comes from the consumer who buys the final product but doesn’t sell anything onward so they can’t claim their paid VAT against anything. This system determines the end consumer automatically.
In a sales tax system, only the sale to the final end customer is taxed, and intermediary products are not taxed. Intermediary companies must prove to their suppliers that they are not end customers, that they intend to sell things onward, and that they are therefore exempted from sales tax and the supplier does not have to collect sales tax. If that fails, then that means mistakenly a company has to pay sales tax, and then their customer has to pay it again.
Other than that I don’t know enough to compare:
- What is more or less administrative overhead.
- What is more or less open to fraud.
- To what degree this is linked to the existence of a single national or many regional tax rates
We have taxes imposed by: -federal government -state government -county and city governments
Nothing will meaningfully improve until the rich fear for their lives
It’s regressive in the sense that poor people spend more of their money on goods and services that include VAT.
It’s also “broad based” in that wealthy people spend more money (in total) on things, and the vendors of those things collect the tax.
For example, if a company in Australia sells a $11m private jet to some asshole, that asshole just paid $1m in taxes.
Said asshole may well pay no income tax by virtue of their ability to disappear taxable income through complex business structures.
Because we let the rich people make the rules.
What do you mean “instead of”? There are many kinds of taxes in my country, which is in the EU. I pay a huge cut of my salary in taxes every month even before I pay VAT on things I buy.
VAT is a sales tax, not an income tax.
And yet the claim that it is regressive is accurate. It impacts those that have less wealth to a greater degree which makes it regressive.
How so? A poor person would buy less things, thus pay less VAT, than a rich person buying more things
They pay a larger percentage of their income in taxes
Depends on what is being paid, the VAT model being used, the country etc.
For instance in France the base tva is 20%, but food and hygiene products have a special status which reduces it to 5.5%
I forgot the exact details buI if I recall correctly in Germany they have two models A and B depending on the product, forgot the percentage though. And then if you’re buying something for work the percentage can change again.
Regardless how you frame a VAT it will always be regressive. That doesn’t mean they are bad. It just means it shouldnt be the primary source of revenue.
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Yes, you’re correct: Poorer people spend most of not all of their available on income on everyday goods like groceries, clothes, etc…
Richer people spend (relatively speaking!) less of their available income on these items and save me
It is, but it’s also a very efficient and difficult to evade tax. For many EU countries the VAT revenue is equal or larger than the income tax revenue.
Most Europeans don’t mind it. You can control your spending, so VAT doesn’t hit us in inconvenient ways, like for example, taxes on cars and property.
European countries compensate poor people with good social programs. So in the end, poor people are getting more benefits than the VAT they pay.
I agree overall, but VAT is not all that difficult to evade, at least in the service industry. Paying handymen in cash is common in many countries, and that’s a means to evade VAT. Hell, even using them to buy the building or landscaping materials for you (being a registered business they purchase for prices without VAT) saves you on most of the tax. Then there’s service barter. I did it only once, a long time ago, but it can serve as an example: I did family portraits (photography) for my physio, in exchange for a number of physio sessions. If we charged each other, it would have cost each of us, say, 250 Euros, but we’d only see 200 each, and the state would get 100. So, savings of 50 for each of us.
being a registered business they purchase for prices without VAT
That’s not true, sorry. A business pays stuff with VAT included too, but they can later claim back the VAT they paid against the VAT they raised from selling stuff, so they don’t have to hand all of that over.
I’m personally not sure how it works. But when we were upgrading our bathroom, the tile shop added the VAT to the quoted sale price. I then asked a friend of mine who is VAT-registeted to buy it for us, and he got it from the same warehouse for the non-VAT price.
Sure, but those are relatively small potatoes.
And if a single person does it a lot, then the tax authorities can easily examine their spending and prove that they are spending more than they are officially earning. And then they can apply punitive measures.
That tax is reduced for important goods in most countries, like with bread
All consumption taxes are regressive.
Fortunately they hit the rich harder than poor. Which means there’s more money for the social programs that keep those who are struggling alive
They do not.
Not everywhere. Tax evasion is a thing, and some countries have messy laws. But for vat it does, rich people simply tend to buy more, and more expensive stuff
No, consumption taxes (such as VAT) are generally considered to be regressive, because the rich spend less on consumption relative to their income.
In almost all countries, the top income decile was estimated to have paid a share of their income that is only 60% of what the bottom half pays in consumption taxes.
The inequality impact of consumption taxes: An international comparison - ScienceDirect - https://www.sciencedirect.com/science/article/abs/pii/S0047272723000798
More taxes paid are still more taxes paid. Regardless of whether that’s a large or small portion of someone’s income.
More tax revenue is more money for social services.
I know it’s not all perfectly fair, but it’s not all bad.
Children’s clothing too.
Someone wanna tell me one of those countries with reduced VAT for children’s clothing or bread?
We get reduced VAT on hotel stays and medicine only. Bread, children’s clothing (or more importantly if you need to use it, milk formula, which is going to cost you more) are all full VAT. Estonian here.
In the UK we don’t pay any vat on “essential” goods. And we have a raft of tax relief for lower earners.
Not that it helps much, but it’s better than a poke in the eye.
it’s better than a poke in the eye.
Idk why but this comment made me want to watch something with witty British humor and endearing characters
Can recommend Ludwig for this purpose.
I really enjoyed it, although I do wish it wasn’t so “draw the rest of the owl”.
How’s income taxation?
Here in Estonia we have 22% income tax if you earn enough, but also there’s a 33% tax on the employer’s side + some tiny ones on both sides. 22% sounds completely fine except your pre-tax income is NOT what your employer pays for you, they pay a significant extra. Which is still coming out of your salary in the end, because your employer has to offer you a lower pretax income lol
We get a tax free allowance of £12,570 annually, and then it’s banded from there: Income from £12571 to £14876 is taxed at 19% Income from £14877 to £26562 is taxed at 20% From £26523 to £43662 is taxed at 21% From £43663 to £75000 it’s 42% £75001 to £125140 it’s 45% And anything north of that is 48%
This is calculated on income after any deductions from pay are made, like national insurance contributions, pension scheme payment, salary sacrifice schemes, student loan repayments and so on.
The Netherlands, Germany, France, Belgium, Poland. I knew some, others I just Kagi’d
Ah fair enough, not sure the reduced VAT for bread of children’s clothing is going to matter much compared to the insane 1000+ euro kindergarten fees per kid monthly (in the Netherlands). Some of the rest might be nice places to live though.
I don’t know where in the Netherlands you are, but kindergarten is free. I happen to live in the Netherlands. You’re going to get costs such as pens and paper for your kid. But there’s no fees.
I’m not, but I looked into the CoL as it’s the highest paying country in the EU for software engineers. Maybe it was just the it private ones that are paid and I was looking at those implicitly because I was looking at international ones where it wouldn’t be expected for kids to speak Dutch at home already
Youre always allowed to pay. But they’re not allowed to require it
Essential goods have a 6% taxation in my country (Portugal). This also applies to the first 200kw/h you use in your home.
Then there is a 13% for services, like restaurants. I think wine is also taxed thia way.
The higher tier is reserved for non essential items, like cookies, chocolate, fuels (which are technically being double taxed), cars, etc.
We also pay a direct contribution for our social security system (11% over your gross salary, monthly), plus a direct taxation over our overall monthly salary (the minimum wage workers are exempt from this).
The discussiom on these taxes is long, old and boring but it essentially boils down to having those who want something, pay for it.
Your whole post can be summed up as “consumption taxes are regressive but some think they are more fair”
What is the alternative? Asking honestly.
More progressive income taxes like a land value tax would be a great start.
I pay those. I have a plot of land and pay tax on it.
Any other suggestion?
You almost certainly do not unless you are incredibly wealthy and own multiple plots of land . Land Value Taxes are not the same as property tax.
That’s correct. My country does not observe it.
Most countries do not have a LVT because it would hurt the very wealthy as it is taxes on unused land not on your primary home.
They also tax the rich through progressive income taxes, capital gains taxes, corporate taxes etc.
If you’re asking why not just tax the rich in place of a VAT, well, it’s sort of why not tax the rich to pay for absolutely everything we could want. The costs and difficulties in taxing the rich generally scale to the point where the marginal revenue raised by the tax becomes negative.
And this is why the 1983 tax cut in the US increased revenue as at the reduced rates more wealthy people paid rather than avoided taxes.
Oh interesting, I wasn’t aware there were actually examples of the Laffer curve working in reality! I alwats thought it was just a theoretical that conservatives had latched onto…
It is the only incident of Laffer being proven correct as far as I know. It is the 2nd to last time spending was cut along side taxes.
Cool to know about, thanks!
Sadly we should cit spending along side tax cuts. Had we done that things would be better
Honestly, I’m just not sure deficit spending outside of wars/economic emergencies was a great strategy and instead, a time bomb Reaganomics left everyone else to deal with. I think that’s the ridiculously outsized part of spending that would’ve been the best to cut. If I remember correctly, servicing the debt is now on par with American military spending…
Yeah but honest well thought out economic conservative budgets are rare and unpopular.
If you’re asking why not just tax the rich in place of a VAT, well, it’s sort of why not tax the rich to pay for absolutely everything we could want.
So basically, you can only tax so much before the rich get mad and leave the EU? 🤔
No, you can only tax the rich so much because a lot of the money is laundered through internationally sanctioned loopholes. There was a plan for that, but then some morons elected Trump so now that’s probably not happening.
But sales tax still works for that, since if you want to buy a Ferrari we’re keeping 20% automatically at the point of sale.
And since rich people tend to spend more money than poor people, sales tax is more regressive than other taxes, but not as much as one would think.
But sales tax still works for that, since if you want to buy a Ferrari we’re keeping 20% automatically at the point of sale.
Unfortunately, that is very easy to circumvent. Rich people usually own companies which made them rich in the first place. They can easily buy cars in the company name and write not just the VAT off, but income taxes as well.
Not really. You have to provide your own business ID in order to not be charged VAT, and they gets noticed and registered.
You’ll have to then explain why the Ferrari, specifically, was a business expense. If the tax administration doesn’t think it’s a good reason, you then have to pay the VAT anyway.
And don’t even get me started on the fucking bureaucratic stupidity that is importation or I’ll have to take my blood pressure medication.
Source: starting up my own business in Finland. Rip 25.5%VAT. Fuck NCP.
Oh here in Estonia you just declare the VAT and you’ll be good. They COULD look up what’s going on, but the Lamborghini Urus I saw registered as “for work driving only” the other day, begs to differ. You can look up vehicle data for all Estonian reg vehicles and oftentimes you’ll see them as being company cars without an exception for private driving (which would cost extra taxes, based on engine power)
I should have elaborated.
In the EU, if buying from another EU country, you just put in your VAT# to exclude VAT. But your country’s tax administration can then ask to justify a business expense. You can only claim VAT paid on foreign (non -EU) imports once doing taxes for reimbursement if it was paid.
I have a feeling Estonia’s tax administration doesn’t ask as many questions as the Finnish one.
That said, there’s usually an actual exception for luxury cars, if it’s for your sales people (or if you do the sales, yourself). Luxury branding can be used as a “marketing tactic” due to “presentation”. Basically, if you’re meeting with a potential customer, looking like you’re successful technically makes you look more reliable. Essentially business attire for your personal transportation.
Not saying it’s necessarily true, but it’s actually a really old thing done in many countries.
In Estonia with a company car it’s basically “Oh I use it to visit clients” if you ever get asked. Doesn’t matter what your company does and if sales is involved - you’re just visiting established clients from time to time for business reasons, instead of having, idk, an online meeting, or sending an email.
And nobody at the tax administration seems to care if you visit your customers in a Dacia or a Porsche. And if someone DOES ask, the whole presentation thing you pointed out, would be an excellent excuse.
That is true with or without VAT. VAT isn’t paid by the buyer, either. It’s the seller that makes the VAT payment.
So sure, the rich asshole may try to write off the Ferrari in their business tax, along with all the other loopholes (good luck with that, too-- I’ve gotten audited for much less), but 20% of that cost still went into taxes because the dealership paid in their VAT every three months like a good boy. That’s the entire point.
VAT dodging is an art and a science for contractors of all stripes and other grey economy actors, but if you’re a standing business like, say, a former Fiat subsidiary with a large worldwide business headquartered in Italy, VAT is the one tax you don’t get to mess with because it’s baked into every invoice.
More like the rich will get even more proficient in tax avoidance
No, EU member states handle taxes individually.
But, that ease of travel is one inducement. (Consider, as billionaire Spaniard learns the government plans to tax an additional 100 million euros. With no border, is moving a few km next door to Portugal worth a 100 million?
More meaningful though is business taxes/regulations, which are a large part of why Europe has lost so many Unicorns to the NYSE and why within America, Texas is kind of killing it in terms of business relocations.
I personally think it’s a race to the bottom but those are the constraints that exist.
No
Sales taxes, including VAT, are inherently regressive. Normally things like unprocessed food are exempted to minimize impact, but it does still affect the poor more than the rich. Why keep them? They are easy to collect, hard to avoid and can bring in lots of revenue without people noticing or complaining.
We have VAT in America. The States got pissy that we were buying things online and not paying sales tax. Now we have to pay VAT and sales tax because Google and such caved in to pressure, and the rich assholes still do whatever they want. Capitalism is hell and America is doomed.
Good luck y’all.
There is no VAT in America. Just sales tax at a state and local level. VAT is a very specific method of taxation that isn’t the same as a general sales tax. I’m still not sure how you are relating that to Google either though. Google sells very little compared to someplace like Amazon.
I don’t know what State you live in but we sure as shit have it in Illinois.
Illinois has a use tax, commonly called retail sales tax, which is NOT VAT.
Read up on the differences here: https://www.fonoa.com/blog/vat-vs-sales-tax-where-the-difference-hides
Yes, you’re correct: Poorer people spend most of not all of their available on income on everyday goods like groceries, clothes, etc…
Richer people spend (relatively speaking!) less of their available income on these items and save me
It’s a vat. Like a vat of oil. They deep fry the money, and then recirculate the crispy delicious money into the ecconomy. That’s what thfy mean by eat the rich. Deep fry their money, and eat their faces.
…what? Whys everyone looking at me like that?
Username checks out.
:P
