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Originally Posted by DiapDealer
WHATEVER THE SELLER WANTS TO CHARGE!!
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This.
The seller hasn't worked out that £3.32 is the exact best price point for a book, then added on VAT to get to £3.99. They have decided that £3.99 is the best price point.
If people were willing to pay £3.99 for the book before, why wouldn't they be just as willing to pay £3.99 for it afterwards.
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Let me ask you this. Take a product that costs £3.99 including VAT. The government decides that this product should be sold without VAT. The company that makes the product does not alter the price in any way after the VAT is removed, what should the price be the the customer is going to be paying for this product now that there is no VAT?
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I'm not quite sure what you are asking? What should (morally) the price be changed to, or what the legal effect of the VAT rate changing.
If the VAT rate changes, and noone does anything, the customer will pay exactly the same price afterwards as they did before, all that changes is how much of that money the seller gets to keep. That is the difference between sales tax and VAT. The price that is printed on the box is the price you are charged, it is irrelevant what part of that ends up getting paid to the government in VAT.
For prices to be lowered requires a conscious choice on the part of the seller, if they do nothing, the price remains the same, regardless of an increase or decrease in VAT rate. If the company 'does not alter the price in any way', then the price remains the same, and the customer pays the same.
Amazon chose to immediately lower the prices of ebooks whose prices they set, to reflect the VAT change. Some publishers may have chosen to do the same, some might not.
To try to explain the difference.
Lets say we have two shops, one in the US, one in the UK, with pricing systems that instantaneously update to reflect any changes in sales tax/VAT.
In the US shop, you pick up an item priced at $10. You know that your sales tax is 10%, so you expect to be charged $11. As you are walking to the checkout, the sales tax rate is lowered to 5%, and you are actually only charged $10.50. 50c goes to the state in tax, $10 goes to the shop. You have been charged less than if the rate had stayed the same, the store has got the same amount either way.
In the UK shop, you pick up an item priced at £10. You know that the VAT rate is 10%, so you expect to be charged... £10, because that is the price of the item. As you are walking to the checkout, the VAT rate is lowered to 5%, and you are actually charged... £10, because that is the price of the item. 50p goes to the state in tax, £9.50 goes to the shop. You have been charged the same price as if the rate had stayed the same, the store has kept more.
In the US, the product is priced without sales tax, and the tax is added on at the till. This make some sense, as sales taxes can vary in different locations.
In the UK, the product is priced including VAT. This makes sense, as VAT is the same throughout the country.