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Is the gingerbread man wearing pants?

Write-Off: The Tax Blog

I have heard many interesting examples of nuances and complications of sales taxes/VAT, from the famous biscuit versus cake and Jaffa cakes controversy, to the fact that a sales tax in California hinged on whether animals in a zoo were edible and if they, in turn, were the ones consuming food, as opposed to either an edible animal or a human. But, this morning, someone sent me another amazing example. The VAT in the U.K. could depend, allegedly, on whether a gingerbread cookie is wearing pants. From Stipe.com:

Consider the treatment of children’s favorite tax avoider, the gingerbread man. In the United Kingdom, if a gingerbread man has just two chocolate eyes, it is legally a biscuit (tax exempt). However, if that gingerbread man is also wearing chocolate pants or a shirt, it is now legally taxed at a standard rate of 20%. We puzzled over whether we would need to add a boolean is_a_gingerbread_man_wearing_pants to the API before rejecting this approach.
This is all, of course, in the grander scheme, part of the grand trade-off. We can have taxes that are incredibly fine-tuned to serve exactly and specific purposes, or, we can have taxes that are easy and simple to administer. We often can’t have both. So, in cases when we want to fine tune, it will then end up, in at least one case, depending on whether the gingerbread man is wearing pants.

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