A bad tax, or a good tax?
Let me start this post by saying I am not a tax expert. But from my accounting studies, I do remember that one of the fundamental principles of any tax is that it should be fair. If you read my blog from time to time, you’ll know that I do try to encourage thinking about the costs and revenues of making decisions. This post combines this thinking about the costs/revenues associated with decisions and what mat/may not be a fair tax.
In July 2012, a story hit the German media about a baker in Saxony (Eastern Germany, bordering the Czech Republic and Bavaria) who was subject to a tax audit. You can read the story here (in German), but I’ll summarise it here. The baker donated his stale bread to charity – which was of course a morally good deed. But, the tax people seen this a different way. As the bread had been created from flout, water and so on, some value had been added and thus this implied value-added tax (VAT) was payable according to tax law. So the tax authorities duly assessed the baker for VAT owing.
This story has too points. First, the German tax authorities were legally probably correct – and most European countries would probably also be so. But, if such good deed cease because of a tax law being rigidly applied, how much extra does it cost the state to make good this charitable donation. I have no idea, but I would guess it probably would be better for the German (or any other) tax authority to ignore minor infringements of the law in such cases. The alternative might be to feed the local poor, which I think it is not too hard to conceive as being more costly than forgoing the VAT “due”.