I reject entirely the Deputies allegations about the role and equity of the indirect tax system. A simple look at the facts will show that the conclusions in the report she refers to are misdirected.
Firstly, there is no VAT on the main low income items such as food, oral medicines, childrens' shoes and clothing.
Secondly, most excise revenue (60%) comes from excises on petrol, diesel and cars. These are not items that low income groups spend most on. As far as the remaining 40% of excise revenue, this comes from duties on tobacco and alcohol where there are solid health grounds for using the tax system to discourage consumption.
Thirdly, there are special reliefs in the VAT and Excise system for medical and other equipment for the disabled. There is no VAT on public transport and diesel used in buses and trains is subject to reduced rates of excise. Most public services are not liable to VAT.
Furthermore the report referred to is simply wrong when it claims that we are relying more on indirect taxation now than in the past as the following table will show.
|
1964/5
|
1975
|
1985
|
1995
|
2005
|
|
%
|
%
|
%
|
%
|
%
|
|
VAT1
|
7
|
19
|
25
|
26
|
31
|
|
Customs and Excise
|
53
|
36
|
25
|
21
|
14
|
|
Income Tax
|
26
|
36
|
38
|
36
|
29
|
|
Corporation Tax
|
5
|
3
|
4
|
10
|
14
|
|
Capital Taxes
|
4
|
3
|
3
|
4
|
13
|
|
Other2
|
5
|
3
|
5
|
4
|
—
|
1. Turnover Tax in 1965.
2. Includes Road tax (from 1964/5), Agricultural levies (from 1975), Income/Youth employment levy (1985), Employment and Training Levy (1995).
In fact, we are relying far less on indirect taxation than before, with the gap being made up by greater revenue yield from company tax and taxes on capital and property.
The Report, in my view misses many of the big issues in indirect taxation. In fact, every effort is made, as far as EU law will permit, to reduce the incidence of VAT and Excise on low incomes, but, by their nature, such taxes are not direct taxes on income (this is why they are called indirect taxes) and cannot be easily related to one's ability to pay, however good one's intent.
