Wednesday, 22 February 2017

Judge rules that snuggies are blankets, not clothes

Whatever faults you think New Zealand's GST regime has, the one thing it is definitely not is overly complex. At least, not in comparison to similar VAT or GST regimes in other countries. New Zealand's GST applies at the same rate (currently 15%) to pretty much all goods and services with the exception of some zero-rated services like dwelling rents, interest payments and some other specified financial services (see here if you are interested, or if you are an insomniac looking for a cure). Overall, this makes it fairly easy to work out which goods and services attract the tax, and what rate applies. It also avoids costly and stupid legal cases like the great Jaffa Cake controversy in the UK (a controversy that was reignited by an episode of The Great British Bakeoff - I kid you not). Anyway, on the original controversy, the Guardian reported:
As a nation we face many challenges and issues that no doubt we should be keenly debating. However, when gathered around their kettles you are just as likely to hear a couple of Brits trying to decide on the precise phylogeny of the biscuits, bars and assorted cakes that they are about to dispatch with their brew. To many of us, trying to win acceptance for our world view on whether a certain item is a cake or biscuit seems like quite an important task.
Typically, this debate has raged most fiercely over the Jaffa Cake, which despite being called a cake and having sponge cake as its base will always be viewed by many as a biscuit. However, within the industry its long been known that there is a Cinderella figure in the "cake or biscuit" debate, the teacake, which was once a cake, then became a biscuit and then a cake again.
"Does it really matter?" you may wearily sigh. Well, in the case of the Jaffa Cake it mattered a great deal to the taxman, as the somewhat bizarre rules concerning which products were subject to VAT and which escaped it due to zero-rating were a bit woolly in regard to the inhabitants of the biscuit kingdom. As a cake, the Jaffa was zero-rated, and given how many of them we see off as a nation that equates to a great deal of missed revenue. Biscuits are zero-rated too, unless they are "luxury" items, which according to the guidelines includes any that have chocolate on top. Cakes, no matter how opulent or fancy, are always classed as a staple food and zero-rated. In 1991 McVitie's and the taxman famously had their day in court and after a 12-inch-wide Jaffa Cake was produced as evidence they found, that while the product also had characteristics of biscuits or confectionery which was not cake, it had sufficient characteristics of cakes to be a cake for the purposes of zero-rating.
That's right. A court was asked to rule on whether a Jaffa Cake was a cake (and therefore attracted no VAT) or a 'luxury biscuit' (in which case VAT would apply). In a similar vein, I read with interest this story about Snuggies from last week:
Snuggies -- the wearable fleece coverings found on infomercials -- is now considered a blanket and cannot be taxed as clothing following a decision by the United States Court of International Trade.
The U.S. Justice Department argued in court that Snuggies are apparel and should be subject to higher taxes than blankets. The court disagreed, and found that Snuggies should be considered blankets and taxed at a lower amount.
Judge Mark Barnett's ruling means that instead of paying 14.9 percent duties when bringing Snuggies into the U.S., importers will only have to pay 8.5 percent duties, according to Bloomberg News.
Chalk it up to the craziness of tax and tariff administration. Luckily we have no such foolishness here. Yet. Which is why we should avoid any temptation to carve out exemptions or reduced rates of GST, such as for 'fresh food'. I'm sure based on the two examples above you can imagine some interesting cases of what constitutes 'fresh food' if this sort of proposal went ahead.

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