What is VAT?

S

sluice44

Guest
What is VAT?

I know it stands for Value Added Tax but what is it?? :\

I had a drunken conversation one time with a philosophy graduate and we got talking about taxes (as you do). Apparently taxes are morally ok to pay for hospitals and the roads etc etc.

As I understood it (at 2am in the morning), VAT is an EXTRA tax charged on luxury goods. The Govt does this to raise extra money for those who can afford to buy luxury and/or non-essential goods. A tax on the rich, if you will.

So why is VAT charged on almost everything such as ESB bills and books (my most recent gripes). And, in relation to hospitals, when the Govt announces €100M for this or that, they know they'll get 21% back straight away in VAT charges. VAT is not charged on food but, apparently, it's charged on the raw ingredients. How is food a 'luxury' item?

What does AAM think? How is it justified?
Sluice
 
It's a tax on spending. I suppose the richer you are the more you spend so in that sense it may even be fair. The only unfair aspect of VAT is that you buy things out of money on which you've already paid tax, so when you consider how much goes in income tax, and then how much goes in VAT, a whole lot of your money is going to the government.

I have often wondered why business to business sales incur vat since the purchaser claims back the vat charged by the seller. Seems like a waste of time and effort to me, but maybe I'm missing something.

-Rd
 
Sluice44,

VAT is not a tax on luxury goods or services.

There is no VAT on books.

VAT is a type of indirect tax. It is a tax on spending, or consumption. It is usually levied at each point of the sale process, i.e. the manufacturer charges the wholesaler VAT, then the wholesaler charges the retailer VAT. But each can claim back the VAT they paid against the VAT they charged.

At the end of the day, the consumers pay all the VAT.

There can be different rates of VAT on different types of goods and services. Most foods face a 0% VAT rate. Same goes for children's clothes, plus books. Then there is a 13.5% rate on other goods and services, e.g. hairdressing (I think), hotels (?) etc.

The main rate is 21%. So if you buy, say, a TV set for €242, then €42 is VAT, payable to the Govt.

Ireland has one of the higher (but I don't think the highest) standard VAT rate in the EU.

UK = 17.5%
Germany = 16%
France = 20.6% (or 19.6%)

Then there are excise duties. These are extra indirect taxes on a few specific goods (alcohol, tobacco, cars (VRT), vehicle fuels). These are generally very high in Ireland.

Note that although many countries have had VAT for decades, Australia only introduced it in the last few years (called GST, Goods and Services Tax). And the USA does not have a VAT, though most states levy some sort of Sales Tax, which is sort of similar to VAT.

The Irish Govt does rely heavily on indirect taxes, partly due to the policy of low income taxes and PRSI.

Contango10
 
Is VAT unfair?

In economics VAT is known as a regressive tax, in that a poorer person will pay a larger proportion of their income on VAT.

So, yes, it would seem to be unfair. In the above example, everybody pays €42 VAT when buying the TV set, irrespective of their income. €42 is not much to a millionaire but may be a lot to a single parent or a low-income pensioner.

Income tax may not be liked, but at least it is fairer, and is at least a bit progressive.

C10
 
VAT refund

Hi all,

I am a foriener and pay all my bils for electrisity,
phone,etc including VAT.
For example, I am going home, can I compliain for
refund VAt tax ?

Thanks

Tomas
 
Tax

QUOTE:
"The Irish Govt does rely heavily on indirect taxes, partly due to the policy of low income taxes and PRSI."

In all honesty I think it's a bit of a myth about Ireland having low income tax rates. It may have low rates for companies, but as for income tax...

I doubt there's a huge difference in the rate of income tax someone would pay in Ireland as opposed to the rate someone would pay in the UK.

At least there you get something for your tax. If you need to go to the gp, the specialist, hospital treatment, medicines, an ambulance, the fire brigade it's all free.

But here you have to pay income tax, and then pay for these services as well privately!

It's great having "low" income tax!
 
Re: Tax

Tomas - In answer to your question above I'm afraid its no.
 
Dividend's Tax

Thanks ELcato,

I have one question more.
Ricently I've got dividends from BOI shares.
Can I complain to get tax from shares' dividends?

Thanks for any advice

Tomas
 
Re: Dividend's Tax

Not sure what the question is but ...

Can I complain to get tax from shares' dividends?

Divident Witholding Tax of 20% is normally deducted from dividend payments and a tax cert sent out with the payment. If you are otherwise not liable (e.g. as a low earner) tax then (I believe) you can claim this tax back. If you pay 20% tax normally then you have no further tax liability. If you pay 42% tax normally then you are liable for a further 22% tax on the dividend payment. Does this make sense and/or answer your question?
 
Income tax in Ireland

Pete, yes, if you compare us with Britain, I doubt there is too much difference on the income tax area.

And yes, corporation tax rate is VERY low in Ireland

However, in the UK they pay 10% or 11% National Insurance. We pay 4% PRSI and 2% Levy, with an allowance, an exemption level and an earnings ceiling. So I'd say an average person here pays much less in Social Insurance.

Of course, as you point out, we also receive less benefits than in the UK.

Compared to Europe, though, our income taxes and PRSI are lower. I'm not saying they are the lowest, but they are well below average.

Also, the overall burden of all taxes is low in Ireland at approx 35% of GDP, versus 55% in Sweden and a EU average around 40-45%.

C10
 
Income tax in Ireland

While we might have a low tax burden as a percentage of GDP, I would guess or rates are very high in proportion to the quality of services we receive in return. If we had a health system comparable to Sweden, I wouldn't mind paying a little more. We have a problem with mismanagement of funds.
 
Income tax in Ireland

Just want to point out that in the uk, you pay *no* income tax at all on the first £4000 or £5000 of your income
 
Re: Income tax in Ireland

Just want to point out that in the Ireland, a single person pays *no* income tax at all on the first €11600 of your income. This is around £7900.

I pay 20-22% of my income in tax and PRSI, which is reasonable. Plus no Council Tax.

Contango10
 
Income tax in Ireland

"Just want to point out that in the Ireland, a single person pays *no* income tax at all on the first €11600 of your income. This is around £7900."

- how do you figure that?
 
Re: Income tax in Ireland

R2,

well the standard tax credits that an average PAYE worker are entitled to are as follows;

Personal credit 1520
PAYE credit 800

This means a single person has a minimum of 2320 tax credits. They may get more in respect of rent paid, or service charges, or trade union subs, etc.

But €2320 is the minimum. So that is at the standard rate of 20%, i.e. multiply by 5, and you arrive at €11600.

Example: say you, as a single person, earn exactly €11600. This will be taxed at 20% = €2320. Then you deduct your tax credits, leaving you with a net tax liability of NIL.

So when whingers down the pub/at work next complain about "high taxes" in Ireland, remind them that a single person earns this much tax free.
 
Income tax in Ireland

As you agreed above Contango, there is probably very little difference in the amount of income tax paid here compared to the UK.

Though here we have a higher VAT rate than the UK, tax on credit card payments (does not apply to the UK), then of course you have VHI payments; only about 10/11% of people in the UK have private health insurance, it's about 5 times that here.

Then you have all the other service charges above which I listed too (particularly medical charges). As well as bin collection charges.

btw, I'm not making the case that in Ireland we have a higher tax burden than any other EU country. I am pointing out that some think we have low tax.

Well, perhaps it is slightly lower - but that's a moot point if one then has to pay for services privately. It's swings and roundabouts.

Personally I think it's better if there's a good public system, especially when it comes to health. If there's a good publically funded health system, then everyone can avail of it. Whereas here we prefer to fund our own private health insurance. The consequence of this is that anyone who is unfortunate enough to be unable to afford it (about 1/2 the population), is left with the option of going through a 2nd rate system.

It really doesn't lead to a very inclusive society. Just my opinion anyhow.
 
Re: Income tax in Ireland

Maybe it's time to accept that we as a nation are incapable of looking after ourselves and it's time to get the French in to build our Health System, the Spanish in to build our Luas and Metro, and the Germans in to build our roads.

-Rd
 
Re: Income tax in Ireland

the Spanish in to build our Luas and Metro
Click to expand...
Eh, no thanks.

From [broken link removed]

 
Re: Income tax in Ireland

Of course, Irish contractors' health and safety records are impeccable.
 
VAT

I remember working on the shopfloor in a garage when a salesperson was emphasising the fact that road maps etc are considered educational and as such no VAT was payable. He was chirriping on about how much profit could be made by the retailer by selling such items. I have noticed maps are pretty expensive to buy - for what they are, but is this VAT story true?
 
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