... asked L Fairfax at an earlier post, Shiney seconding:
Lots of reasons. Basically, VAT is the diametric opposite of Land Value Tax. The more specific reasons which immediately spring to mind are...
1. Because the EU says so, so they have to do it whether they like it or not.
2. They can palm off VAT as a "tax on consumption", so, the flawed logic goes, it does not affects savings, assets or production.
3. They can palm off VAT as a "tax on luxuries" because a few fig leaf "esential" items (housing, finance, food and education) are largely VAT-exempt and domestic power is only taxed at 5%. A bit of a coincidence that it is land-based/monopoly items which are lightly taxed, eh?
4. VAT is only payable when cash changes hands, so it is somehow a "voluntary" tax and always relates to "ability to pay".
5. VAT is the stealthiest of stealth taxes. The actual economic incidence is on producers/suppliers, and there are the ones who collect it and write the cheques, but they believe that magically "the consumer pays it" so don't complain much, but see also the Greggs pasty tax furore.
6. VAT puts some businesses out of business for good; they stop complaining about VAT because they are no longer there. Those who can't find work are blamed for their own misery. If they put up taxes on land, then the land is still there and somebody will be paying it and moaning about it.
7. If you look more closely at the numbers, a combination of higher VAT/lower corporation tax benefits large or mature businesses and thus acts as a barrier to entry to new competitors. Large corporations have more lobbying power, so this is self-enforcing. But the UK has a fig-leaf for that as well - we have a very high registration threshold, almost unheard of in other EU countries.
8. Exporters don't have to pay VAT (in the UK - they just pay it abroad) and VAT is supposed to be levied on imports (so satisfies the primitive mercantilist school of thought).
9. The only good thing to say about VAT is that companies with UK sales like Starbucks can fiddle their corporation tax as much as they want, but they can't fiddle their VAT-able turnover to the same degree, ditto energy companies. Google just circumvent this by routing sales to UK customers via other countries.
10. From the pol's point of view, the other big merit in VAT is that the tax base is very large and will not disappear overnight.
No doubt others can add to this depressing list.
Debate Magazine
