Reply to post: Re: @TonyJ cloud fave Amazon comes under fire for tax bill

Jon 37

Re: @TonyJ

A 22% turnover tax would be unlikely to bankrupt supermarkets directly, although that might happen as a side effect of it destroying the economy.

A 22% turnover tax would lead to all shops raising all their prices by at least 44% and probably more than 100% overnight. (22% for the shop, 22% for the supplier, probably an extra 22% for the distributor, and similar percentages of some smaller sums for the ingredient suppliers / producers / distributors).

Companies would also start start sourcing as much as possible from suppliers outside the UK that are not subject to this tax, who would be much cheaper - the UK shop would still have to pay the 22% but the manufacturer and it's suppliers wouldn't have to. Exports would drop to almost zero due to the added costs of this tax.

The price rises would cause lower-paid people with no savings to have trouble feeding their families, and the move to increase imports and reduced exports would cause massive unemployment.

That in turn would cause starvation, strikes, and riots. Workers would demand huge pay rises, which would cause further price rises on goods and services, which would cause even middle-class people to feel the pinch. This hyper inflation would risk spiraling out of control and destroying the already seriously damaged economy.

However, this would probably bring down the Prime Minister and/or government, and hopefully before it did too much damage. (It would make the poll tax pale into insignificance, and that brought down Maggie Thatcher). The new PM & new government would promptly repeal the tax.

A very gradual introduction of the tax might work better, but it's still going to heavily penalize products that pass through many companies before reaching the consumer, especially if this tax was implemented worldwide. You can imagine it causing a lot of companies to be vertically-integrated and/or join into massive conglomerates to avoid paying 22% tax on each sale between companies. A PC manufacturer would want to buy a CPU company, a hard drive company, a memory company, a display panel company, a lot of electronic component companies, and even a chemical company to make the electrolytes for its capacitors, to avoid paying 22% on the cost of the components.

It would also cause some businesses to be restructured to avoid the tax - e.g. distributors could stop buying products from producers and selling them to supermarkets, instead they would "facilitate a transaction directly between the producer and the supermarket", and the supermarket could pay them a fee for that, which dramatically reduces the distributor's taxable turnover.

Note that a 22% VAT (perhaps with less / simpler exemptions) is basically a turnover tax modified to avoid the double- and triple-taxation problems of a turnover tax. It's very similar to the 20% VAT we have now so could be introduced without all these problems.

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