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A classic case of taxation without representation

Kitty Miv, Editor
13 November, 2017

Kitty's Country Rankings are below, with a description of how they are compiled. This week, as every week, I give out Encomiums to countries which have done Good Things, and award Execrations for countries which according to my highly personal and partial views have done Bad Things.

The tax reform legislation making its way through the United States Congress is amazing. It truly is. Because, like the universe, it seems to be filled with infinite possibilities.

Depending on what you read, it both slashes taxes for the middle class and raises them at the same time. It will be both deficit neutral yet be massively fiscally irresponsible. It will force the wealthy to pay more tax while effecting a massive giveaway to the rich. It will create millions of jobs and kickstart a golden age for the US economy, while simultaneously having no effect on the economy and investment. It will ensure multinationals pay their fair share of tax at the same time as massively letting them off the hook. It's a simple, yet complex law, which will make life both easier and harder for everyone and no-one, to be enacted before Christmas or not at all.

If, as some physicists surmise, there are an infinite number of universes, the tax reform bill has probably achieved an infinite number of outcomes already. But, coming back to the real world, we can only concentrate on the reform bill in front of us in the one universe that we know about. And as the above suggests, its outcomes, both economically and legislatively, remain uncertain.

Indeed, this is a delicate stage of proceedings for taxpayers. In recent years congressional gridlock ensured reform remained in stasis, and it's a lot easier to plan on the basis of nothing happening than lots of major changes at once. Now the stakes are raised. There's a huge amount of detail for taxpayers to absorb, but just about any of it could change between now and final approval.

Yes, these are exciting times for taxation in the US. But, equally, they are a bit scary for those with complex affairs trying to plan effectively.

While exciting times might lay ahead for American taxpayers, these are unsettling times for taxpayers in South Africa. There's a ZAR50bn black hole in the Government's Budget (that's about USD3.5bn), a budget deficit that's being revised upward seemingly by the month (now expected at 4.3 percent of GDP instead of 3.1 percent), the prospect of unending tax increases to fill the gap, rumblings of discontent among taxpayers and talk of a tax "revolt," and a new investigation into the South African Revenue Service's competence as a competent authority.  And all this against a backdrop of corruption allegations and official ineptitude.

Now the finger-pointing has begun. The Government blames SARS for weak revenue collections, and the taxpaying public for their "weakening tax morality." Taxpayers blame the Government for its largesse with public money. And I wouldn't be surprised if SARS blames both the Government and taxpayers for the mess.

Hold on to your seat as I say it but I do feel a modicum of sympathy for the tax man in this case. For SARS has managed to expand South Africa's taxpayer base hugely over the last 25 years or so. In 1994, there were just 1.7m registered taxpayers. By 2014, it had grown the base to almost 17m. Admittedly, not all registered taxpayers have to pay tax. But it's a remarkable feat all the same.

What's more, playing the blame game isn't going to solve anything. But ultimately, from where I'm sitting, it looks like it's the Government that needs to get its house in order.

Whatever happens though, you can bet your bottom dollar (or maybe that should be rand) that it'll be taxpayers who pay the price for the clean-up operation. Indeed, Finance Minister Malusi Gigaba has already softened up taxpayers to expect the inevitable in next year's Budget, announcing in his recently announced Medium Term Budget Policy Statement that tax increases are necessary. As to which taxes will rise, you can pretty much take your pick.

HM Revenue and Customs, on the other hand, is a revenue authority I don't feel at all sorry for, after it lost a case recently regarding its powers to tax those who have long since left British shores to pursue a life in greener pastures.

The somewhat unique and often vague concept in British law of tax domicile, which exists alongside tax residence, has probably muddied the waters sufficiently to embolden HMRC to go after those living abroad even when they have only tenuous links with the UK. But it has possibly made the tax authority a little over confident in its claims to tax both British expats and foreign-born individuals who have spent time living, working, and investing in the UK but no longer have ties there. So, in an age when some officials don't seem to think twice about exercising their powers extra-territorially, the High Court's ruling represents a welcome reminder, at least as far as HMRC is concerned, that the tax authority's powers do actually stop at the border.

Not only this, but surely there's an issue of natural justice at stake here too. UK-born expats lose their right to vote in UK elections after 15 years of expatriation. Yet HMRC's claim to tax them doesn't appear to have a commensurate expiry date. A classic case of taxation without representation?

Kitty's Encomiums and Execrations

Methodology: each week (this is the 147th) one or more countries are given encomiums and one or more are given execrations. Those are the entries below with descriptive links. In the following week, each encomium counts as + 1 for that country, and each execration counts as - 1, being added to that country's existing score. Over time, therefore, a ranking will build up for each country, and further countries will join the listing. Germany is at minus 2, since in the second week it had an execration and in the first week it had an encomium, leaving it at neutral; then it had an execration in week four, thus dropping to - 1, and another one in week six, dropping to - 2; finally in week 13 it got something right, so it went back up to - 1; then in week 16 it gained a further star, so then it was in neutral territory until week 23 when it dropped back to minus one, but reverting to neutral territory in the following week, then dropping to minus one in week 50, and back up to plus one in week 51, then to plus two in week 52. Some weeks ago it dropped a place, but then quickly recovered one step. Etc etc.

The rankings are intended to be a proxy for business friendliness; evidently they are highly partisan, but as time goes by they are becoming useful for decision-making. For any country in negative territory, you should think carefully before starting a business there.

Kitty's Encomiums

United States exciting

United Kingdom justice

Kitty's Execrations

South Africa rumblings



Tags: Government | Law

About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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