I. Tax Base and Rates of Tax
27.A2. Sales tax was initially a broad-based levy; over the years, however, the base has been eroded through the granting of exemptions. A single rate of tax was imposed from 1930 to 1940, when the Second and Third Schedules were included in the Sales Tax (Exemptions and Classifications) Act. At present there are three rates of tax (see paragraph 27.7).
27.A3. In paragraph 27.40 the Committee has expressed the view that VAT should be introduced as soon as possible. But in the meanwhile certain transitional steps might perhaps be taken, including widening the base of the existing sales tax and bringing rates of sales tax into greater uniformity. However, while steps of this kind would serve to cushion the impact of VAT at the time of its adoption, any withdrawal of exemptions and realignment of tax rates as an interim measure would no doubt be criticised as discriminatory and unfair by those adversely affected: in the result, an unnecessary degree of hostility to VAT might be engendered in the preliminary stages.
27.A4. Where the range of exemptions and the classification of goods under the different schedules has been allowed to vary over the years in piecemeal fashion, it is inevitable that anomalies will occur. There are difficulties, however, in reversing the process by stages. While gradual reversal would correct some of the anomalies and inequities, there would inevitably be complaints of discrimination by those first affected, whatever the order of reversal adopted.
27.A5. The widening of the base of the present tax and unification of rates should be important objectives if a change to VAT is not to be made in the foreseeable future. But the Committee would not favour the gradual reversal of exemptions and a move towards uniformity of tax rates solely for the purpose of facilitating transition to VAT.