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Fee trade area

Written on . Posted in Taxation.

The Single Market is described as a free trade area. In reality, is very expensive. It means that if you want to trade with me, even if we are next-door neighbours, we can only do so legally over a 20% high tariff wall between us – Value Added Tax. In some EU countries, the internal tariff wall is even higher – 25% in Sweden. That is not much of a free trade area. Fee trade area, more like.

Green and Brown are neighbours. Green does gardening work for Brown at an agreed price of £200. Brown services Green’s car for an agreed price of £200. There are three possibilities.

  1. They exchange their services and no money changes hands.
  2. They pay cash to each other.
  3. They bill each other and add 20% VAT.

If VAT is not a tariff barrier against legal trade, then what do you call it? What do you think they will do in practice? You could of course say the same about income tax. Why would Green pay Brown taxable wages when he could just pay cash under the table?

VAT and Income Tax are a pair of poisonous fruits.