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paying through the nose

Kitty Miv, Editor
06 September, 2018

Taxes aren't just there to raise revenue for the government; they're also there to save us from ourselves. Environmental taxes are intended to stop us from destroying the planet, and sin taxes to stop us from destroying our bodies and overburdening state-funded healthcare systems.

The effectiveness of such fiscal nudges (some may argue that "punches" would be a more apt description) is debated fiercely. It was revealed last week that Ireland is set to collect EUR30m this year from its new sugary drinks tax. But it's hard to judge whether that represents a policy success or failure. The proof of the pudding is in the eating, I suppose, which is exactly what governments would prefer us not to do.

Indeed, as befits the times, opinion on such matters is often starkly polarized. Let's continue to focus on sugar taxes. According to a 2016 World Health Organization report, fiscal policies that lead to at least a 20 percent increase in the retail price of sugary drinks tend to result in commensurate reductions in consumption. Not so, says the Institute of Economic Affairs in the United Kingdom. "The international evidence is clear," it has said: "there is no correlation between sugary drink consumption and obesity." Well that settles that then!

So who to believe? Governments are clearly coming down on the WHO's side, judging by the growing list of jurisdictions that have introduced or are planning to introduce some form of sugar tax – though, the revenue motive is bound to have colored their thinking on the matter to some degree.

The European Union's proposed VAT reforms is another polarizing topic. According to European Commissioner for Taxation, Pierre Moscovici, the so-called definitive EU VAT regime will make life easier for EU companies trading across borders, slash red tape, and simplify VAT-related procedures – "in short, good news for business, consumers, and national budgets, bad news for fraudsters."

Au contraire, argues CFE Tax Advisers Europe, a Brussels-based umbrella association of European tax advisers. According to CFE, under the definitive VAT regime, SMEs will face "considerable difficulties and expense" in determining what rates of VAT to charge and, far from actually encouraging intra-EU trade, "the proposals will have the reverse effect."

So, who's right? Will the definitive VAT system be the best thing to happen to businesses in the EU in recent years, or a definitive tax disaster? It's impossible to say. But that so many small businesses struggled when the EU began enforcing destination-based place of supply rules for VAT on electronic services in 2015 does not bode well.

Positive news for taxpayers in Australia last week perhaps. The Australian Tax Office has launched what it claims is its largest ever education campaign to help taxpayers get their tax returns right. According to the ATO, taxpayers are frequently misstating their eligibility to deductions. Goodness knows how countries manage to accurately calculate their "tax gap" when so many taxpayers can't be sure if they are paying the correct amount of tax.

Rest assured, taxpayers of Australia, this particular educational campaign includes a "toolkit." These seem to be the answer to all life's complications these days, particularly in the area of taxation. Got a problem? You need a toolkit! Is this, I wonder, so you can carry out an emergency repair on the fixture or fitting that received the impact of your frustration as you tried and failed to work out your tax return!? Maybe what you really need to do is sit down, take a breath, and relax a while with something fizzy – and pay through the nose for pleasure.

About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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