Participants discuss what ‘VAT’ and ‘VAT  exemptions’ are by looking at local products they have bought recently. 

Objectives

• To introduce the idea of ‘VAT’ and ‘VAT exemptions’ and link them to the daily purchase of products and prices. 

Steps in the process

Before using this tool the facilitator needs to review: (1) the VAT rate in the country and (2) the VAT exemptions on goods and services, especially those related to essentials, to know whether VAT is charged on these products.

1. Ask participants to bring (or name) products they recently bought. Put all the products together on the floor in front of the group (or write a list of the products).
2. The facilitator asks participants to select 3-5 products for discussion. S/he asks how much money each of these 3-5 products costs and writes the prices down.
3. [Optional] The group can calculate the VAT of each product according to the national VAT rate.
4. The facilitator asks who they give the money to when they buy these products. After the participants’ response (probably the seller), explain that the price of a product does not only cover the money for the seller, but that some money also goes to the government. This is called ‘VAT’ (‘value-added tax’) or consumption tax. VAT is a type of tax. It is the bit of money the government gets every time we buy.
5. Ask participants to name which of the products are essential for basic family care. The facilitator explains that essential products like the food we most often eat (like maize or rice) or items that particularly help poor or vulnerable people (like fertiliser or school books) can sometimes be free from tax. This is called ‘VAT exemption’. That helps keep food prices low since the seller does not have to add the VAT. Yet, sometimes, governments eliminate VAT exemptions and food and essential goods prices go up, making it harder for poor people. The facilitator should explain the situation of VAT exemptions for basic products in her/his country.

Questions for discussion

• Is the current situation fair?
• Who buys basic needs products at home, men or women? Who do you think is more affected by the lack of VAT exemptions, high VAT and price product increases?

Key ideas

• VAT is often an unfair tax, because both rich and poor people pay the same VAT even if they don’t earn the same income. 
• 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 richer people who have more money in general. Thus VAT reduces poor people’s income making things worse. 
• VAT helps poor people when: (1) general VAT is low and (2) VAT exemptions are given to basic products.

Action points

• Are there any action points you want to do based on this tool?

Resources

• ActionAid’s Tax Power Campaign Reflection-Action toolkit, ActionAid, December 2015