23. Why don’t you charge tax on all non-cash transactions – for example when I cook and eat a meal myself?

23. Why don’t you charge tax on all non-cash transactions – for example when I cook and eat a meal myself?

Answer

This question goes to the heart of the dilemma with tax. There is no such thing as a perfectly neutral tax regime, it always distorts, the key is to minimise the distortions. The answer to your question is that we should in theory pay tax on all those DIY transactions. But issues of practicality and materiality mean we don’t. 

So there’s a test to apply really – is the potentially taxable transaction making a material difference to the operation of the economy, and does the cost of tax collection outweigh the revenue gathered? In the case of intra-household transactions it’s pretty clear that assessment issues preclude any serious consideration of inclusion in the tax net, and secondly there is no evidence that the DIY economy impairs the operation of the overall economy in terms of maximising national well-being. 

Freedom of choice underpins much of the DIY economy and freedom is a fundamental value of a society like ours. The anomaly when it comes to owner-occupied housing is patently evident now, because it is so large. Because housing is a capital item, the cumulative impact of the tax break is a lot more powerful than simply not taxing a current transaction like cooking your own meal. The sheer magnitude of the impact requires a response.


Showing 1 reaction