Sunday, November 21, 2010

UK VAT policy undermines free enterprise

Britain's Observer newspaper reports that two more multiple retailers - J Sainsbury and the US retail giant Best Buy - are joining the Channel Island VAT dodging scam. They join other retailers in on this market distorting tax dodge including Amazon, Tesco and Asda/Walmart.

We blogged on this subject a few days ago (see here, for a short description of how tax havens have killed a slew of small businesses across Britain) or here for an older story). But no effective action is being taken to curtail what is clearly abusive practice that harms market competition. Small retailers selling CDs, DVDs, pharmaceutical products and the entire range of small gifts and knick-knacks that fall below the VAT threshold, find themselves unable to compete against what the government's business secretary Vince Cable has described as an "extraordinary and seriously unwise" tax loophole.

Today, bang on cue, TJN was contacted by a retailer in England's west country. She opened her business twenty years ago. It thrived for the first 15 years. Now she will be closing the shop in February 2011 and laying off her three staff. She places the blame for this closure entirely on the VAT loopholes, saying that "the imminent rise in the VAT rate from 17.5 to 20 percent was the straw that broke the camel's back. Her shop was in a town which suffers from high unemployment and few amenities for young and old. Its closure will be another step towards Clone Town Britain.

The coalition government in Britain is constituted of two political parties both of which claim to promote free enterprise. This festering VAT scam shows they do no such thing. Successive governments turn a blind eye to fiscal loopholes that favour multinationals over small and medium businesses. Such subsidies undermine market competition and sustain complex monopolies.

The absurdity of exporting goods to the Channel Islands simply to have the,m return to the UK by return post to avoid VAT is plain for all to see. We have asked John Hemmings MP, a member of the ruling Liberal Democrat party, to investigate this matter. He tells us that he has written to the Chancellor, George Osborne, and we look forward to his reply.

Meantime we can only speculate on the reasons why successive British governments talk the talk of free markets, but time and again support measures which achieve the exact opposite.

As a postscript its worth noting that the west country retailer who approached Tax Justice Network this weekend told us she had originally contacted the Tax Payer's Alliance, but quickly realised they aren't interested in tax avoidance and market distorting practices. This VAT scam is costing the UK exchequer hundreds of millions of lost revenue, but that doesn't seem to be a matter of concern to the TPA. We can't help wondering why not...


Blogger Demetrius said...

You assume that the goods are actually physically removed to the Channel Islands. My belief is that this is not the case. We have placed orders for goods and the speed of delivery, given UK parcels arrangements is too great. In one case we know where the original despatchers were before shifting sales and it is my belief that have not moved.

9:33 am  

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