Our value added tax (VAT) rate is being increased in January 2011 to 20% here in the UK.

It took a lot to get used to 17.5% when I first moved here from Texas. Sales tax for most items when I was growing up was at 8.25% tops. This new increase is a bitter pill; especially when you consider that consumer purchases are made with after tax money.

Thinking that we here in the UK were being unfairly burdened, I decided to look at the tax rates in other European countries.. and I was pretty shocked.

Country/Standard VAT rate

Iceland – 25.5%
Denmark- 25.0%
Hungary – 25.0%
Norway – 25.0%
Sweden – 25.0%
Romania – 24.0%
Croatia – 23.0%
Finland – 23.0%
Greece – 23.0%
Portugal – 23.0%
Poland – 22.0%
Belgium – 21.0%
Ireland – 21.0%
Latvia – 21.0%
Lithuania – 21.0%
Austria – 20.0%
Bulgaria – 20.0%
Czech Republic – 20.0%
Estonia – 20.0%
Italy – 20.0%
Slovenia – 20.0%
Ukraine – 20.0%
United Kingdom – 20.0%
France – 19.6%
Germany – 19.0%
Netherlands – 19.0%
Slovakia – 19.0%
Belarus – 18.0%
Georgia – 18.0%
Macedonia – 18.0%
Malta – 18.0%
Russia – 18.0%
Serbia – 18.0%
Spain – 18.0%
Turkey – 18.0%
Bosnia and Herzegovina – 17.0%
Montenegro – 17.0%
Cyprus – 15.0%
Luxembourg – 15.0%
Switzerland – 7.6%

Wow. It seems that plenty of other countries tax their citizens highly.. and other than the fact that the UK is now higher than Germany and France, in comparison to other countries it doesn’t seem so outrageous.

But comparing ourselves to others should not be our approach. Would our economy be better off (and with it the Treasury’s share) if we dropped VAT to 10%? If only. Apparently there is a law in Europe that sets the minimum VAT rate for member countries to 15%. But what if we could change that? Wouldn’t it be better to create an environment where consumption is not the primary source of government revenue? (VAT, petrol, alcohol, etc). Wouldn’t we create a more stable tax system if the government’s taxes were based more on production (corp / income tax)?

Even if you accept that the VAT rise is agreeable. Even if you believe that consumption is where its at. Don’t you think that the government missed a huge opportunity with the recent rise? Why not incentivize local governments to be more entrepreneurial? Why not get them to work with their local businesses more effectively by allocating between 2.5% and 5% of the VAT spent in an area to the council in which it was spent? So that they get a piece of every VAT penny earned by businesses based in their region.

You could replace central government funding to some minimal levels and everything else would be dependent on their ability to increase trade in their area. It would mean that councils would compete for businesses. They would become more business friendly. Tourism. Trade shows and exhibitions. Shopping centres. Business parks. They would stop running businesses out of town to make room for flats like they have done in Portsmouth and take time to see how they can help entrepreneurs grow their business.

Just sayin’…