VAT is an indirect tax that, by its nature, is regressive (it takes a higher proportion of the income of poor households compared to the rich). The UK has always sought to mitigate the regressive nature of VAT by excluding things such as food, children's clothing, books and newspapers and taxing energy at a lower rate.
So not taxing cosmetic surgery undertaken for reasons of vanity only, that must be the preserve of the rich, seems odd. To my mind this is simply a fair application of the tax.
The problem of indirect taxes, such as VAT, is that they change relative prices. The price mechanism is the means by which resources are allocated in the market. So when the relative price rises less resources are allocated to that product. Not taxing cosmetic surgery makes it relatively less expensive than goods that do attract VAT, so more resources are devoted to cosmetic surgery than would be in a free market.
Governments can get these things wrong by applying indirect taxes poorly and causing an inefficient allocation of resources. But using indirect taxes to reduce tobacco, alcohol and carbon consumption correct market failures. The important thing is to treat all goods appropriately and try to avoid making the distribution of real income worse. So I think this move should be applauded, although somebody should be asked why it has taken forty years to remove this anomaly.
Interestingly it wasn't to my attention that VAT was even considered when it came to cosmetic surgery.The goverment reducing texes on essentials, beneficial for the poor allowing less recession and propably why it hasn't reached hyper-inflation yet.
ReplyDeleteTaxing on cosmetic seems a bit pointless to me, only the rich can afford and they pay masses of amount of money already, without having to pay more. i suppose you could say they have enough money for it, but then again not only the rich get cosmetic surgery. chaging relative prices, which meaning lack of resources on that product.
I think you have missed the point here.
ReplyDeleteHyper-inflation isn't a possibility in any circumstances in the EU.
It isn't pointless to tax anything, it just depends on what you are trying to do. Tax should be 'fair' and that is generally taken to mean it should be 'progressive' with the rich paying a higher proportion of their income than the poor. VAT is bad at this as it is an indirect tax, so the best way to achieve it is to tax 'luxuries' and not necessities. Notice that necessary plastic surgery is not charged VAT, just 'vanity treatments' such as botox injections.