Wednesday 26 November 2008

Colin Russell and Sean Power on GST

Colin Russell:

Let's start with his manifesto. It says:
 
"It is evident that the GST system is so complex that to have certain items excluded is too problematical for any formula or structure to be agreed upon."
 
On the contrary, to exclude domestic heating and lighting would be simple.
 
Easily identified chain of supply: JEC, Gas, Coal, Oil. All "approved trader status", so no extra manpower needed to exempt their imports.
 
Easily identified domestic users - by tariffs (JEC, Gas, Oil) or generally (coal). Cost to company - one off change to zero rate on those customers. No cost to the States in manpower.
 
GST returns - already allow for zero-rated supplies to be noted. No extra manpower implications.
 
I don't really see how this is "too problematic"?

Sean Power:

On Planet Jersey, he has made the following statements:

"I do not want any excuse to hire more Treasury officials. Exemptions will do that.  If we have to have this tax, let us see how it operates in it's most simple form"

"Exemptions would cause Treasury to need more staff. Look at the UK VAT codes. It is an administrative nightmare. Look at yogurt and the classic Jaffa cake argument."

"I have no problem with lowering the % rate, or getting rid of the thing completely.  I have a problem with the tinkering or exemptions in any way or form.  That is a cost option and that is simply not an option for me."

I cannot see the "cost option" on domestic energy.

Let's look at it from an accounting point of view (which I have to often enough advising clients)

For instance, the JEC identifies domestic customers and commercial ones. It excludes domestic ones (or makes them zero rated). A one off cost to implement on their computer systems (most systems allow global changes of default VAT class to selected clients, so it is not that complicated).

Domestic fuel - again oil for central heating is easily identified by the supplier into home/commercial. They do it already internally even if not for GST.

Domestic gas - gas is again easily identified by the supplier into home/commercial.

If the import of the goods (oil/ elecrecity/gas) is treated (as it must surely be) as "approved trader status", the only charge is the one made not by customs but by the end user. If an end user is exempt (as happens with at least one business I know), no charge is made.

Cost to states of administration: none extra.

Where is the cost to the States in terms of extra people needed to manage anything?

The GST forms still get entered up by these companies, the GST remitted (albeit some less) than before. GST forms already deal with businesses which have some zero rated customers. No extra complication needed there.

Cost to states in terms of extra manpower - none.

Not much cost to the company either once in place - a one off change.

So, I'm sorry, I must be thick, but I can't see what on earth Sean is on about with this "cost option"?

The bureaucratic nightmare if food was exempt is fair comment, but on domestic heat and light, this does not apply. To conflate the two kinds of exemptions is to create a "straw man" argument against exemptions.
 
JEC say their costs are rising and consumers can expect a rise of 25%. That is 25.75 if one allows for GST.
 
Time for a rethink?
 
Conclusion:
Their thinking on these matters is a classic case of "false dilemma". When two alternatives are presented, they are often, though not always, two extreme points on some spectrum of possibilities. This can lend credence to the larger argument by giving the impression that the options are mutually exclusive, even though they need not be. The inability to come to terms with arguments against this, and just continue repeating a position like a mantra, is a dangerous weakness in a politician.

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