Yes. My point was that the majority of the “value aded” is labour and profit, as essentially almost all other inputs are taxed and hence that tax is deducted from the finished good’s tax liability. So a value-added tax is a labour and profit tax.
Not that I object to this - it’s the simplest process for distributing the full value of the tax on the contributing industries. Just recognize this is what it is - so this is what the average merchant is paying to the system.
I don’t know if the merchant collects a tax on the credit card fees. Some things are exempt from sale taxes. (Or “Goods and Service Tax”) I have heard there are some states where any state taxes are over and above local or federal sales taxes - i.e. you pay taxes on the tax. I believe this is similr to how in Canada you pay GST on your gasoline total price, een though about half the price is assorted other taxes.
Another factor of production that is taxed in this system, in addition to labour, is land. Every physical product will ultimately be made of raw materials that have either been mined or farmed, and for this you’ll need land. So at the very first stage of the value chain, where land is used to make the raw materials, that land usage will be included in VAT.
The credit card fee is folded by the merchant into the sales price, so yes, VAT will be charged on it. From the perspective of the merchant, VAT is a pass-through item, so it’s not part of its profit for the purposes of taxing the merchant’s income (called corporation tax in the UK), but it will increase VAT. Another question is whether the credit card company adds VAT onto the fees it charges merchants. I suppose it does (because the fee is a remuneration for a service provided). In this case, the VAT on the credit card fee paid to the CC company is input tax for the merchant and deductible from the output tax liability.
That is an interesting issue - seems to be getting into the area of simplicity vs. complexity. So the extra price level of a good includes an assumption there will likely be a -let’s say - 2% extra due to credit card use fees. The nerchant’s VAT to customer includes VAT on that 2%. The CC company then pays the government a percentage of fees collected - so presumbably the merchant at the end of each month can tally up the total CC fees and say “X% of that was VAT I paid.”
Some fees are not part of the GST system - for example, insurance premiums. If you pay VAT on an insurance premium, then the government should give you a X% rebate along with any insurance payout you get? At a certain point it does not make sense.
(Canadian GST also exempts things like groceries. But not snacks - there was the classic line in a commercial way back when - “one donut, GST. Six donuts, no GST.” Bakery in bulk was “groceries”. So now the merchant would need to figure out what proportion of the credit card fees he paid were in relation to non-GST items… We wonder why accountants have no sense of humor.)
Yes. The problem for merchants is that the card is a pig in a poke. They don’t know until after the swipe (I guess tap now in most cases) exactly how much the cost is going to be. Someone rocks up with a Visa, it could cost 1.15% + 50 cents or 2.75% + 50 cents.
Theoretically you could show the cost somehow on the POS terminal and the retailer could decline the purchase if the customer turns out to be holding a 2% cash back card with a 2.75% fee, but I don’t know of any retailer who does that.
I’m not current on what the merchant agreements even allow now. 15 years ago this certainty wouldn’t be allowed, but many types of “bundling” are not allowed, where the retailer is forced to take all Visa cards, no matter what the fees are, or none at all.
Oh wow, I had no idea this was the case. I assumed that the issuers that offered bigger rebates were just cutting their margins due to intense issuer competition. This is really bad. I don’t know why the FTC isn’t all over this. Any market where a participant cannot get clear price information is dysfunctional.
Generally speaking the FTC isn’t concerned with B2B transactions unless they are impacting the consumer.
In this case the card issuers have successfully portrayed themselves as champions of the consumer. Basically if you have good credit, you effectively get a discount from retailers in the form of cash back, which comes out of either the profit of the retailer or from other customers who have less good credit.
True, but many of the costs of using cash are hidden. Few both to think of the extra hour a nite with two employees counting and checking to cash. Not to mention employee pilering, insurance, etc.
Sure, but this does impact the consumer. Opaque setups like this are always deliberately designed to hide the true economics of a transaction from consumers and prevent consumers from making rational economic choices that would put competitive pressure on profit margins.
I have to apologize that in any modest defense of some aspects of the system upthread I simply didn’t understand the facts.
I can assure you that we do account for this quite rigorously and gave at every retailer I’ve worked at or consulted for.
Unless you believe that employees are able to pilfer cash by not recording sales in the POS system. I don’t think there’s a major retailer subject to that. The POS and CCTV systems are very sophisticated.
My understanding was similar (or the same) as what I think you are describing. If a merchant agreed to accept Visa/MC they had to accept any Visa/MC and for any purchase amount. Are you saying that might have changed? Perhaps due to regulation?
In the UK, bread and cake are exempt but biscuits are not, This creates a problem with some products that had to be resolved in court.
VAT is payable on fuel for road-going vehicles and is charged on the excise duty as well. Fuel for tractors that don’t usually go on roads, id duty-free, but still VATable.
When I worked for the NHS, we had to charge VAT on any service we charged for, if it was in completion with the private sector. This applied to things like incineration services as well as private treatments.
The various taxes on road vehicle fuel aren’t charged for the diesel used for farm vehicles and some other non-road uses like heavy mining equipment. Which of course leads to rampant cheating as the taxes are a material fraction of the retail price of road vehicle fuel.
HMRC are sometimes seen in motorway service areas dipping fuel tanks. They have the power to do this even without any “probable cause”. Another happy hunting ground is agricultural shows and county fairs where farmers gather.