Who Benefits from 0% and exempt rates of VAT

Value Added Tax (VAT) is one of the most far-reaching aspects of taxation systems, collecting revenue from almost all individuals and households irrespective of their means and age. The provision of 0% and exempt rates of VAT is a large area of (social) tax expenditure with many of these policy measures justified on the basis of social policy objectives. Estimates from the UK HMRC (October 2019) conclude that these VAT measures for food (£18.9bn), children’s clothing (£2bn), prescription medication (£3.2bn) and printed material (£1.5bn) cost over £25 billion per annum in revenue forgone – equivalent to 19% of the total annual VAT revenue.

This study will examine the distribution of these fiscal supports in both the UK and Ireland. The presentation focuses on Ireland, the first part of this research project, to examine questions including: how do the consumption patterns of these 0% and exempt VAT goods and services differ across households in the income distribution?; and do these tax reliefs benefit lower income households most (nominally and proportionally)?. The analysis uses data from the latest CSO Household Budget Survey in Ireland. 

The seminar also includes a discussion of the next stage of this project, the extension of the analysis to the UK system using the ONS Living Costs and Food Survey, which is being undertaken as part of the CHASM International Research Fellowship 2020, working with Professor Andy Lymer.

Watch Micheál’s full presentation: