Why Is VAT Called A Stealth Tax?

13 January 2009, 00:31

Everyone knows how painful taxes can be. Whether it is income tax, value added tax, council tax or anything else… they all boil down to one thing. And that is an extra amount that we have to pay whether we like it or not.

But you will never hear income tax being called a stealth tax. After all, we all know we have to pay it. If you receive your wage slip from your employer, you can see exactly how much you have paid in tax right there in black and white.

But it is different for value added tax, or VAT. Unless you have your own business you probably won’t think too much about VAT at all. And even then you won’t be affected by it to a great degree unless you are bringing in more than the VAT threshold says you need to be.

This is why it is called a stealth tax.

Let’s take an example. Let’s suppose you go out and buy a magazine and packet of luxury biscuits. You may not realise this, but the magazine does not have any VAT charged on top of it. The luxury biscuits, however, will have the full 15% charged on them (as it stands at the moment).

But all you will see is the total price you have to pay. Unless you scan your receipt to see exactly how much you actually paid in VAT, you probably won’t even think about it.

The shop you bought those items from will have to give the government the amount of VAT that they collect from all the sales they make though – assuming they are earning more than the current threshold of £67,000. They do get to deduct the VAT they have had to pay out, but it can still add up to a reasonable amount that the government requires.

There is of course the idea that you are more in control of how much VAT you pay as a consumer. This is because you can choose whether or not you buy many things; for example you could buy Jaffa Cakes instead of biscuits, and not pay any VAT on them as a result. You can’t exactly choose whether or not you are going to pay your Income Tax.

So we do at least have a little control over the amount of VAT we pay. Although no one can avoid it altogether – not unless you only buy those items that are exempt from it! But the chances of doing that successfully are virtually nil.

You can read more about the ins and outs of VAT on the BBC website, including who to thank for coming up with the idea anyway.

It seems certain that none of us will ever like paying taxes of any description. But for many of us who don’t own businesses it is a small comfort that we simply have to check the prices on the shelves and accept that VAT will comprise a small percentage of that.

 

Comments

  1. I work as hairdresser and my employer deduct VAT from my wage. Then they also deduct the taxes and the NI. Is this correct? Why should they deduct also VAT from my salary?

    — jennifer · Jun 3, 11:36 PM · #