Proponents of the Ifo Institute's proposal argue that the current dual-rate VAT system is unnecessarily complex and prone to errors. By moving to a uniform tax rate, the government would eliminate the need for businesses to navigate arbitrary distinctions between different types of food products. This would reduce the bureaucratic workload for retailers and tax authorities alike, creating a more transparent and efficient economic environment.
From a fiscal perspective, the current reduced rate represents a significant loss of potential tax revenue that could be better utilized elsewhere. Supporters point out that a uniform rate would provide the state with the financial flexibility to lower income taxes or invest in infrastructure. They argue that the current system is an inefficient way to provide social support, as the tax break benefits all consumers regardless of their income level.
Instead of using a broad tax exemption that applies to everyone, advocates suggest that the government could use the extra revenue to provide targeted financial assistance to those who truly need it. By replacing a blunt tax instrument with more precise social policies, the state could achieve its welfare goals without distorting market prices or maintaining a convoluted tax structure that complicates daily business operations.