Alan,

On Wed, 6 Sep 2006 14:56:26 +0100, Alan B. Pearce wrote:

> >On behalf of taxpayers everywhere, I object (strenuously
> >even!) to the phrase "the beauty of VAT".
> 
> While I would agree with the objection to the adjective "beauty" being used
> in this context, I would have to admit that the VAT/GST system is a better
> method of taxation than the old sales tax methods.
> 
> When GST was first introduced into NZ, I also thought it was an unwise
> imposition, but as time went by I did grudgingly agree that the way NZ did
> it, with an equal rate applied to everything, was the best way, and am
> rather appalled at the umpteen different rates used in the UK/Europe, with
> some items being classified 0 rated, others through political pressure
> having lower rates than the full rate, and then the differing rates between
> countries in the common market area, makes a mockery of what is otherwise
> (arguably) a fairer system.

When VAT was introduced in Britain, it was said that the rates could be changed month-by-month as the Government saw fit, and we had invoicing 
systems that allowed for historical VAT rates to be stored so that refunds had the correct tax, and up to 10 different rates to be shown on an Invoice 
(a row of boxes across the bottom showing rate and amount).  It turned out that it has changed extremely rarely, and we currently only have three 
rates: 0% (food, books, childrens' clothes), 5% (gas and electricity) and 17.5% (everything else).  This is effectively only one rate, since energy and 
anything else are rarely invoiced together.  

But there was a time when there were two "real" rates, 10% for ordinary items, and 25% for "luxury" items.  The latter included radios and 
televisions, so the problem arose:  when you're buying electronic components, what are they going to make?  Digital ICs were clearly not luxury 
(really!) but amplifiers were, but that leaves non-specific components like resistors, transistors, etc.  Customs & Excise didn't know how to deal with 
this, so the industry proposed that anything that was specific to non-luxury items, basically digital ICs, was non-luxury, and everything else was 
luxury!  C&E were happy to approve that idea, as you can imagine... so even if you bought, say, a kit to build an oscilloscope, some components had 
luxury rate VAT even though they were part of a kit to build something non-luxury.

Luckily the situation only lasted a year or so (if I remember rightly) until the rates were merged back into a 12.5% combined rate.  Wasn't long before 
that was upped to 15%, then a while later to 17.5%, where we've been for some time.  And I don't think we get very good value for our money!  (But 
that's a whole 'nother thread :-)

Cheers,


Howard Winter
St.Albans, England


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