Should we tax the rich with a luxury rate of VAT?
Towards a fairer tax system.
There are three rates of VAT in the UK, zero for some foods, newspapers, children’s clothes, etc.; 8% on energy and 20% on most everything else. Should we have a luxury rate for the rich? How would it work? How can we define a luxury? Is luxury toilet roll, impregnated with aloe vera; a luxury or just bog standard?
If we define luxury as referring to goods and services that are generally only enjoyed by the very wealthy and promoted as such then we get close to an acceptable definition. Luxury toilet roll probably wouldn’t attract the 50% rate of VAT, but staying at a luxury hotel would. Being a member of an exclusive golf club would. The tax rate would apply to cars that were advertised as luxury cars and priced much higher than the average person could afford.
There would be anomalies, if a Rolls Royce was described as luxury and a Ferrari described a sporty and the tax applied to the former and not the latter, it would be wrong. The HMRC would need the power to decide that both are in fact only affordable by the rich and so both are luxuries. What about that designer handbag that many people can afford, but is marketed as exclusive and for the rich? Yes, it’s a luxury and so apply the luxury tax. Ladies carrying the bag, will send out a message to the world, “Yes, I can afford it.”
The rich like to show off their wealth and what better way than to have things to buy that are even more expensive? That necklace that costs 12,000 goes up to 15,000; will daddy say, “No, darling, we can’t afford that.” or will be reach for his gold card and look happy. Will sales of Ferrari’s drop and cause the company to lay off workers or will the media attention to luxury goods result in even higher sales?
Now imagine, you have a product that the rich might be interested in. A new luxury gold plated smart phone. Will you market it as a luxury and pay the 50% rate of VAT or insist that it’s not a luxury, just a phone? Yes, you will want it perceived as a luxury that only the very wealthy can afford and you will actually welcome the luxury rate of VAT being applied.
A luxury rate of VAT across Europe could not only solve many of the economic problems that we have, it would be welcomed by just about everyone. A tax that is accepted? The poor will welcome it and the wealthy will welcome it; it will make luxury even more luxurious!
Now if this was introduced at the same time as a financial transactions tax, they could even scrap income tax for the poorest in society and make it worthwhile for people to come off benefits who are able to do so. The could scrap the TV licence, they could scrap car excise licences and other bloody stupid taxes. Dare i say it, we would be on our way to a fair tax system!
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