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Border Tariff or Border Adjustment Tax or US VAT?

Border Tariff or Border Adjustment Tax or US VAT?

On February 2, 2017 we posted Border Tariff or Border Adjustment Tax? where we discussed that there's a lot of talk these days about borders and taxes in Washington. U.S. President Donald Trump wants to hit firms that outsource with a simple tariff on imports. Republicans in Congress have pitched a more complex idea, a border adjustment, built into a corporate-tax overhaul.

Now TaxNotes discusses the idea is that U.S. companies that import goods in VAT countries (i.e., almost every other country in the world) are being charged with import VAT. This import VAT is creditable/recoverable for domestic importers, but not for U.S. importers. Therefore, U.S. companies that import goods elsewhere are significantly worse off than domestic traders. This is protectionism and must be retaliated against.

Trump indicated that as president he would respond to these allegedly "unfair trade practices" by imposing retaliatory tariffs on goods and services coming into the U.S. from any country that imposed an import VAT on American businesses exporting goods or services to their country.5 More than 160 countries have a VAT, and all of them impose an import VAT. Trump is, essentially, promising a global trade war. He vows to set U.S. tariffs at a rate that would force governments and businesses to take notice.

For example, Trump indicated that he would retaliate against Mexico's 16 percent import VAT with a 35 percent tariff, and respond to China's 17 percent import VAT with a 45 percent tariff. These rates appear to be far more than would be called for to level the playing field. Nevertheless, the president has the authority to set tariffs. In some instances, he needs the consent of Congress. In other cases, he does not. Trump could conceivably set tariffs this high -- or higher.

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Read more at: Tax Times blog

 
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