The future of world taxation
We should know where our tax money is going.
This week’s column is by Roy Saunders, a London- based international tax specialist and editor of International Tax Systems and Planning Techniques (ITSAPT). He believes we should know where our tax money is going. In an upcoming article, we will review an Israeli case where this proved problematic.
How to operate smoothly
Oil is a three-letter word that is required for the smooth operation of a combustion engine. Tax is a three-letter word that is required for the smooth operation of a social infrastructure. Both words are associated with the rich being the donors and the poor benefiting from the smooth operation.
Unfortunately, the poor don’t benefit in the way they should, and governments need to be careful that they are not so hard on the rich that they stem the flow of oil or tax.
Too much pressure on the oil price and the producing nations will turn off the flow since the exploitation will become non-profitable. Too much pressure on tax rates and the same will happen: entrepreneurs will leave one country for another, unemployment will rise and the social infrastructure will drastically suffer. That is why aliya to Israel and even corporate migration are such interesting topics.
Keeping government on its toes
Governments should be challenged with the simple question:
Is tax working?
Capitalism isn’t the culprit, as many demonstrators would have you believe. Tax is the culprit. That is not to say that tax should be abolished far from it. Like oil, it is a fundamental resource for the functioning of a properly socially aware society.
This statement has no political nuance, and neither is it restricted to a particular country. Ask the public in Spain and Greece, where 50 percent of their youth are unemployed; or in France and Germany, where taxpayers are unaware of how their tax revenue is being used. Like most culprits, tax should be made accountable for its actions.
The above is not so bizarre as it sounds. What is required to achieve this is a radical overhaul of the world’s tax systems, something which many have advocated for a long time. There should be ringfencing of revenues for specific social requirements and accountability if revenues are not used for the purposes stated.
There is an old adage amongst fund-raisers: There is no such thing as a person who doesn’t give, just a person who doesn’t ask. And judging from the number of people who give to specific causes, no matter how wealthy or poor they are such as Comic Relief, Alzheimer’s Society and Cancer Research people would be happier if they could see that the tax revenues they provide are allocated for the purposes stated.
I have always thought the national insurance contribution is a con trick. It is a tax just like income tax, and it doesn’t go specifically toward funding illness, unemployment or other welfare benefits. In truth, employers would be far happier to know that the employers national insurance contributions were allocated to youth training; perhaps youth employment could be exempt from employers national insurance contributions to encourage youth employment. We motorists might not be so upset with the fuel price if we knew that the government tax was being utilized for new roads or other transport requirements. A specific old age tax such as exists in the Netherlands would be accepted if the money were utilized for nursing homes for the elderly.
It is not only in the field of direct tax that this should be considered. Stamp duty on house sales would be better tolerated if the government could produce evidence that the money was being used for the construction of new affordable homes. VAT could have varied rates, the highest being on the luxury items generally purchased by the wealthier members of our society, a middle rate for standard purchases and low rates for items required for normal living purposes by everyone.
I believe we wouldn’t mind being asked (or obligated) to give if we understood where our tax revenues were going. Unhappily, we feel that our tax revenues, 40% of GDP in the UK and even higher in Israel (45.5% in 2010 according to the OECD) and elsewhere, are supporting massive wastage within the public sector, and we are powerless to do anything other than move to another country (where the system is probably the same or worse!).
The remedy is not simple, I’m afraid, since accountability is complex, with so many items within our social infrastructure being dependent on the public purse. But if we don’t try to change the tax system as a complete whole, we may find that, like oil, the well runs dry at some stage.
As always, consult experienced tax advisers in each country at an early stage in specific cases.
Roy Saunders heads the International Fiscal Services in London and the ITSAPT professional association. The regular columnist is Leon Harris, is a Israeli and UK accountant and member of ITSAPT.