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Session objective: Participants understand the concept of VAT and VAT exemptions, can identify how VAT can affect the prices of goods and services, and understand the justice implications of consumption taxes. Furthermore, they can make connections between the loss of corporate tax and an increase in consumption taxes.
Learning objective(s):
- Learners understand the concept of VAT and VAT exemptions
- Participants identify how VAT can affect the prices of goods and services
- Learners understand that VAT is often an unfair tax, as it makes both rich and poor pay the same, and sometimes further impoverishes people living in poverty
- Learners understand how the loss of corporation tax encourages an increase in VAT or GST.
- Learners understand the gender inequalities associated with VAT.
- Learners understand that there is a need for reduced rates or exemptions for basic goods and services in the Global South
Time required: 1 hour
Group size: 24
Materials:
- Flip chart sheet with 3 columns drawn on; wealth, income, turnover
- Markers
- Lots of post its
- Lots of pens
Methodology:
- Explain the learning objectives.
- Draw three columns on a flip – wealth, income, turnover.
- Ask the group what kinds of taxes exist in society, and ask them to explain what they know about these taxes. Write the answers (short-hand) in the correct column to which they correspond. Encourage them to think through their day to day life and where they pay taxes. Use this opportunity to supplement by providing more information where necessary.
- Ask participants to get into groups of 3 and discuss how they think governments might plug the revenue gap that comes with the loss of corporation tax. To prompt them, ask: Who might they choose to tax? How might they choose to tax? Give them some post its and ask them to write each point clearly and briefly on each post it, using as many as they need.
- Come back into plenary and ask each group to, one at a time, bring their post its up to the flip, telling the rest of the group their points.
- As each new group comes up, encourage them to cluster their points around similar points and support them in doing this.
- After each group has done this, ask the group for some reflections on the patterns they’ve noticed.
- Begin by discussing the implications of reduced corporate tax on the government’s use of consumption taxes, using the information in the guide.
- After this, ask the groups to re-form and to think of 3 items that can be bought in their society that some social groups might need more than others. You may need to give some examples here, but do not give too many. One prompt might be; this of basic family care, think of items that tend to be used by one gender or sex, that of what people need at different ages in their life, or if they live in a particular place. Examples might be hearing aids for the elderly, school books for children, or period products for people with periods. Ideally just give prompts, but if necessary give an example or two.
- Ask them again to write them on post its and stick them on the flip, saying their three items as they do so and what social groups or demographics might need the item more.
- Finally, ask them to repeat steps 9 and 10, not imagining that they are in a country in the global south that has been short-changed by the exploitation of global tax rules.
- Ask the group in plenary what impact increased VAT might have on Global South countries?
- Conclude by summarising that essential products such foods that are eaten most often or items that particularly help poor or vulnerable people (like fertilizer or schoolbooks) can sometimes be free from tax. Products can be made free of tax if they are exempt from VAT or if they are zero rated (the VAT rate applied to them is zero). That helps to keep food prices low, as the seller is not required to add VAT and the government does not receive the revenue. However sometimes governments eliminate VAT exemptions and food and essential goods prices go up, making it harder for poor people. Poorer people spend most of their income on basic goods and services. This means they pay a larger part of their overall income on VAT than rich people who have more money and are able to save some of it. Explain that VAT can be more fair for poor people when: (1) the general VAT rate is low and (2) VAT exemptions or a zero rating are given to basic products.
Facilitator tips / advance preparation:
Before working through this tool the facilitator needs to review:
- Whether the country uses VAT or GST (Goods and Services Tax, similar to VAT), or another type of a consumption tax
- The VAT/GST rate in the country
- The VAT/GST exemptions on goods and services, especially those related to basic family care products.
- If the government does not impose VAT, but rather GST or another type of a consumption tax, the facilitator adjusts instructions and explanations accordingly.
