The VAT of the land: a government-planned hike in the Swiss Value Added Tax (VAT) on food, books, hotel bills and medical services, is meeting with stiff political opposition. But the finance ministry insists it is actually trying to put more money back in our pockets.

AuteurLedsom, Mark
Fonction BUSINESS

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The annual ritual of filling out federal and cantonal tax forms fills many a Swiss resident with dread. But how many of us give even a moment's thought to the small but steady trickle of tax that we pay every time we buy groceries, eat out at a restaurant, pick up a newspaper or climb in a taxi?

Although often small in terms of the individual contributions we make, the VAT included in these transactions--along with those paid out by companies--makes up the biggest single source of federal tax revenue. In 2006, just 11 years after VAT was first introduced in Switzerland, the tax brought in SFr 19 billion for the national government, constituting roughly a third of all national taxation.

It is unsurprising, then, that plans to overhaul the country's VAT system have caused quite a stir, particularly within those sectors of industry whose exemptions or lower rates of VAT are set to be swept away.

But while admitting there will be clear losers (as well as winners) under the new proposals, the finance ministry is adamant that the changes will not lead to an overall increase in the tax we pay.

Instead, it argues, the reforms are aimed at lightening the administrative load involved in calculating the amount of VAT to be paid, particularly by small and middle-sized companies.

Not so simple?

The first step towards achieving this involves a bundle of fifty highly technical and largely uncontroversial measures aimed at simplifying the taxation process itself. The second step, and the one that is attracting the most newspaper coverage, involves standardising three existing VAT rates at a fixed 6.1 per cent.

"When VAT was first introduced in Switzerland in 1995, the general principles were based roughly on the practices already in place in the European Union," Claudio Fischer, leader of the finance ministry's VAT reform project, tells Swiss News.

"But even in the EU we have seen a number of recent studies showing that the various exemptions and reduced rates of VAT applied to some sectors are based more on social-political sensitivities than sound fiscal reasoning, which can result in unfair handling of some individuals or businesses."

By way of example, the finance ministry points out that aerobics classes are currently deemed subject to VAT, while ski classes are not. Take-away food is meanwhile charged at a lower rate than if you were to eat the same items in a restaurant.

"And there is also the diversification of many shops to...

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