Tuesday, March 30, 2010

The Value Added Tax

Every good Student of the ineptitude of leadership should read this outline of the dangers of the VAT. What is not defined clearly in the Post compels me to speak on the obvious; namely, that all that intricate detailing of the lives of small business is specifically for the purpose of hiding the VAT impact from the taxed Public. The Taxpayer, who is also most times a Voter, cannot define a Tax which he cannot see or explain; lack of definition brings on a lack of opposition. The VAT was designed to hide the magnitude of the Tax, inciting the Public to blame the economy rather than Government for their misfortune. Politicians enjoy the false Spring of being able to Spend great volumes of Taxpayers’ Income without complaints from Anyone; no one being able to precisely rant on the Costs to the Public.

One can read about the actual operation of a VAT here, where the theory is discussed. The article does not mention the near impossibility of maintaining neutrality of the VAT, and after imposition of the tax, the real impossibility of reordering that neutrality without dumping the entire system. The only method to pay the minimal tax when it is a VAT remains purchasing early in the chain–a near hopeless feat; while double taxation becomes the Standard for the common household. Every attempt to save discrete elements from the heavy taxation automatically vastly reduces the tax revenues; all Production has to be taxed in order to gain the immense benefit of high revenues. Remember that the VAT is an attempt to tax household consumption, and most of that consumption comes from lower Income households. The VAT faces the same restriction as all other Taxes; restriction of the tax base leads to lower revenues, and as the VAT is an accelerating compound taxation, quickly loses revenue from a constricted base of Taxpayers.

VAT administration is a huge and complex bureaucratic procedure, and fraud is always rampant within the system. There are no Checks and Balances within the administration, and Tax Evasion in the early stages bring huge losses in the final stages. All this is of little moment, though, as in the final outcome households pay a huge tax on their consumption. It is a tax system built by bureaucracy for bureaucracy, and has no empathy at all for the Taxpayers. Politicians love the system, because they can spend wildly, without fear of complaint from Taxpayers; the later not understanding how their Standard of Living dropped so drastically and rapidly. Small business likes the VAT, because they can devise methods to pay less Tax than they had previously in personal Income or Sales taxation. Large Business enterprise know they only have to corrupt small hidden bureaucratic elements to avoid rightful taxation with little chance of being caught. Only households are left to complain, and they cannot trace a Track of Taxation, which Accounting firms would have difficulty in following. It is one hell of a system, but if I were the Taxpayers; I would vote No on the VAT. lgl

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