Sales tax? what sales tax?

In the UK, goods and services have a tax built into the price, which has been 17.5% for quite some time.  Companies are required to pay tax on all of their earnings, and the tax authorities will act strongly if they don’t.  There are some businesses where less tax is paid.  These are typically cash in hand businesses such as plumbers, music teachers, Chinese and Indian take-away restaurants, fish and chip shops.  In these cases it’s hard for the government to accurately gauge the level of business going on.  The Tax authorities generally look to see if the numbers look about right, and will occasionally carry out spot investigations.  Generally, the UK system is one of trust, where you are required to self-declare how much your earnings are, and how much tax you think you should pay.

 

In the UK, say if I want to buy expensive computer parts, I know a shop where I can go and talk to the owner, and he can give me a ‘cash’ price for the goods – with a slight discount.  It’s really very much an exception – he doesn’t do this often at all, it makes him distinctly uncomfortable, and he has to be careful that his accounting books don’t show an anomaly.  It’s essentially a favour for a friend, but the risk is that the tax authorities could bury him in tax audits if they found out and wanted to cause him trouble.

 

In China, the tax system doesn’t seem to have filtered down onto the streets yet.    When haggling prices for goods or electronics, there are two kinds of receipts here.  A shop receipt, and a government receipt.  If you ask for a government receipt, then the price you get is inevitably higher, generally by 5%.  Even in Carrefour, or Ikea, or the New World Department Store you have to take your till receipt to another office in order to request an official receipt.  I was quite surprised when the corporate shipping company that delivered my belongings from the UK emailed me to ask whether I needed an official receipt, indicating in black and white that I would have to pay 6% extra if I did.  Accomodation is the same – rental price generally goes up 5% on mentioning receipts.

 

I do hope of course that Carrefour and Ikea are paying tax on the business that goes through their tills, not just on the official receipts that are requested from their office.  Certainly the shipping company’s behaviour implies that they don’t want to pay tax, and if I need a receipt then I’ll have to pay their tax for them.  Starbucks is the best I’ve seen – their till receipts have the official stamp built into them, just like taxi receipts, which means that their till receipts are one and the same as the government receipts.

 

It’s a curious difference to me, the UK’s system and China’s current system.  The China tax seems to be pretty low at 5%, and the authorities are most relaxed about how stringently it should be paid.  Perhaps the leniency is intended to promote business, or to keep prices low, and in some way to help international competitiveness. 

 

I’m sure the tax authorities are already making lots of money.  I’m also sure there’s an awful lot of paperwork involved.  As the tax rate grows, and tax compliance grows, revenues will be considerable.  There will also be big opportunities for advancing the operations of the tax system, to take out the paperwork burden, and to improve compliance governance.