benefit from the introduction of VAT
There has been much debate and controversy in regard to the new zero percent credit tax on imported goods. The main concern is whether it is good economic policy or not. There are also issues of resource allocation. This article attempts to put some weight on these issues. It is also hoped that by the time you have finished reading this article you will have a better understanding of how zero percent importers can benefit from the introduction of VAT.
We have firstly looked at the nature of imports and exports in terms of their relationship with UK tax and why VAT was introduced. We then looked at how changes in indirect taxes and the implementation of VAT by the United Kingdom could have an effect on both import and export trade. We have now looked at how changes in UK tax law and the introduction of VAT by the United Kingdom could have an effect on trading between the United Kingdom and other countries. Finally, we have looked at how the introduction of VAT by the United Kingdom might have an effect on resource allocation.
The first factor is the effect it will have on companies
The analysis here of how the introduction of VAT would affect the supply of goods and services rendered in different regions of the United Kingdom is based on two main factors. The first factor is the effect it will have on companies that do not sell their products directly to consumers in their country of origin. These companies will have to register for sales in the UK and pay the appropriate taxes and other charges. These companies will most likely have stored their profits in non-UK domiciled accounts offshore in order to minimize their tax liability to the UK.
If such companies did not change the type of business they conduct so as to become domiciled in the UK, they would be required by the UK law to charge their consumers’ prices that would be higher than their costs of production in order to make up for the difference in indirect taxes and the additional VAT due to the domicile of the non-domestic company. In order to make up for this increased cost of goods and services rendered, consumers will tend to purchase goods and services from other countries that are not affected by the introduction of VAT. The other effect of VAT is on the transfer of credit risk. The transfer of credit risk implies that a bank will transfer funds to a business in another country if the latter’s share of a credit risk in that country increases due to the introduction of VAT. This will reduce the demand for bank loans from non-UK domiciled businesses.
a rise in selective consumption tax
An increase in cross-border purchases also has a detrimental effect on the amount of goods and services offered by companies trading through the ports of destination countries. In particular, a rise in selective consumption tax will reduce the volume of sales by companies trading from within the UK to those abroad. A similar argument to this can be made for an increase in indirect tax due to the introduction of VAT. The increase in indirect tax may discourage companies from offering goods and services to clients outside the UK, or it may cause a reduction in the volume of imports by consumers into the UK from overseas.
Thus, an increase in indirect taxes (VAT and VED) would reduce the volume of imports and increase the cost of imported goods and services rendered by UK companies. Moreover, these indirect taxes have been found to reduce the volume of sales by UK companies. Thus, any increase in these taxes would have a detrimental effect on the ability of UK companies to compete in international markets. The UK government’s VAT reform strategy, which is currently under review, aims to mitigate these effects by introducing a number of measures in line with attempts to promote trade within the country, increase the accessibility of VAT discounts for low-income earners, reduce the cost of imported goods and reduce distortions caused by VAT rebates to the extent possible. The UK rebate model was introduced as an attempt to promote trade within the country by removing indirect taxes, in theory reducing the average cost of imports across the board. However, in practice the rebate has not been effective and some economists argue that removing the distortion of VAT in its current form may not even be beneficial for the UK economy in the long term.