VATs and Informal Suppliers

The general sales tax (IGV), however, affects both formal and informal activities. Although it appears to be a tax on gross income, it is actually a tax only on added value, which is why it is levied at each stage of production. At the second stage, for instance, one pays a tax on gross income but receives credit for the payments made at the first stage. This is a major handicap for informal suppliers of intermediate goods. The customer pays the gross tax but cannot obtain credit for the intermediate good purchased from the informal supplier. This places in informal supplier at a comparative disadvantage.

Indeed, and it also places an informal supplier at a comparative advantage if he is supplying finished, rather than intermediate, goods.

Which is really one of the problems with the Fair Tax idea, as it places all formal suppliers of final goods at a 30% price disadvantage to informal suppliers of same. That\’s the sort of price difference where even Farmer\’s Markets can compete with WalMart, isn\’t it?

2 thoughts on “VATs and Informal Suppliers”

  1. “Although it appears to be a tax on gross income, it is actually a tax only on added value, which is why it is levied at each stage of production”

    Total and utter bollocks.

    VAT (currently 17.5% in UK) IS a tax on gross income. If you buy for £80 (net) and sell for £100 (net) your cash flows are:

    Tax paid to supplier £14
    Tax paid to HM Revenue & Customs £3.50
    Total tax paid £17.50,
    which is just under 15% of your gross income (or 85% of your pre-corporation tax profit of £20).

    Maybe you buy the goods from an exempt supplier, you buy for £80 (net and gross) and sell for £100 (net), your cash flows are:

    Tax paid to HM Revenue and Customs £17.50
    Total tax paid £17.50

    Which again is just under 15% of your gross income.

  2. BlacquesJacquesShellacques

    It’s all part of BlacqueJacques tax logic.

    Axiom1: Governments and civil servants are assholes.

    Axiom2: They are the stupidest members of the commercial community.

    Theorem1: Taxes should be fiddled, to thwart the assholes.

    Theorem2: Taxes can be fiddled, because the taxman is so damn stupid.

    Corollary1: The more complicated the tax system, the easier it is to fiddle, because a child can deal with the complexities better than that stupid taxman.

    Tchah, simple innit? Send my Nobel prize for economics by courier please, I eschew the state run post office.

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