Value Added Tax

In my country, companies have to register to pay for VAT if they earn a taxable income of P250,000 annually. Up until April this year, people were charged VAT of 10% since 2002. It has now risen to 12% to consumers.
since companies need to register, some just go without registering, or the smaller ones go on and charge consumers for VAT, and claim it is the law, and go forth and pocket the money.
This has proved to be a great problem, especially with the current economic crisis, with a rise in inflation. Business are abusing the 2% rise in VAT by charging even more then the expected amount, making the already expensive prices even more so.


In the wake of what some have called “unwarranted price increases” after the VAT rate was increased from 10 to 12 percent effective 1 April, there are calls for the re-introduction of price controls. Notably, what is a price control? It is “a form of government intervention in the economy in which a government agency uses its law-making power to regulate the prices at which otherwise voluntary private exchanges may take place (Johnson 2005)”. Notably, price controls have a long history; e.g., medieval governments placed price ceilings on bread (Rockoff 2002) and modern governments experiment with all kinds of price controls (Zimbabwe offers instructive lessons). Thus, price controls are effected through either ceilings (maximum legally allowable prices) or floors (minimum legally allowable prices). In the present case, most caller consumers were advocating for price ceilings.

To conclude, price controls are generally opposed by economists because they result in market inefficiencies; chiefly, shortages or surpluses. Arising from the foregoing, they are only countenanced under exceptional circumstances; e.g. emergencies, and for brief periods. Thus price controls are bad public policy prescriptions. As a solution, consumers, as utility-maximising homo economicus [economic men] must comparison-shop and, at a macro-level, laws that outlaw socially-undesirable behaviour and protect consumers (e.g., Competition Act) must be enforced.

Written by DR EMMANUEL BOTLHALE
http://www.gazettebw.com/index.php?option=com_content&view=article&id=6176:vat-rate-increase-and-the-call-for-price-control&catid=21:columns&Item