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Deeper and deeper into the mire that is tax devolution

Kitty Miv, Editor
02 November, 2015

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.

Singapore may not be everybody's cup of tea. Social and cultural attitudes are still quite conservative, it's often insufferably hot and humid, and, like in many Asian cities, lungs of steel are required when the haze descends. But as a place to do business, it's second to none. At least according to the latest Doing Business report by the World Bank, which attempts to measure how easy (or not) it is to establish and operate a business in a given country, and which again ranks Singapore first out of the 189 jurisdictions reviewed. The relative ease with which companies in Singapore are able to discharge their tax obligations combined with relatively low tax rates are, of course, a major factor in Singapore's enduring success in these sorts of polls. But it also goes beyond tax. It's all well and good charging companies low rates of tax, but if it takes forever and a day to actually start your company, obtain any necessary licenses, and get hooked up to water and electricity, or you can't trust the judicial system to enforce contracts and property rights in a fair and even-handed manner, you might as well not bother. Singapore has the best all-round package it seems – as long as the air conditioning works!

Another country worthy of mention in the new Doing Business rankings is Spain, which was singled out for especial praise by the World Bank for the dramatic improvement it has made in the "paying taxes" sub-index, having surged 19 places from last year's 79th place to 60th this year. Apparently, what has made the difference is the introduction of a new e-government portal, which has dramatically simplified interactions between the public and government agencies, especially in the area of taxation, with taxpayers now able to submit income tax and VAT returns online, as well as access tax information for past years. I suppose this represents another milestone on the path to Spain's economic redemption, which has necessitated some quite painful economic reforms. Yet, without wishing to sound too harsh, e-government is hardly a revolutionary concept, and the submission of tax returns online has been fairly standard practice all over the world for a number of years now. What I suppose this shows is how far behind the pack some countries fell in the pre-crisis years as they failed to reform rigid bureaucracies and turned a deaf ear to the pleas of taxpayers and investors. Indeed, the 2016 Doing Business Index shows that Spain has a lot of ground to make up on somewhere like the UK, languishing as it is back in 33rd place overall, which is only a marginal improvement on last year's 34th. And I again make the point that being competitive isn't always just about taxes. The overall regulatory and legal framework is just as important, and this is where there is much room for improvement. Still, it's progress, and worthy of an encomium.

For a high-tax European economy, the United Kingdom usually fares quite well in Doing Business, and even in Paying Taxes (it was ranked 6th this year in Doing Business, and 16th in the most recent version of the Paying Taxes). I'm starting to wonder though how long these positive ratings will last, as the country descends deeper and deeper into the mire that is tax devolution. Those with a fairly peripatetic lifestyle, or who have left home for pastures new, will know all about the pitfalls of tax residence, either trying to establish it or shaking it off. That's fairly par for the course when you're moving between two countries, have interests across several jurisdictions, or live within a federalist system. However, the UK is trying to create two tax systems – actually, more like one-and-a-half – within one jurisdiction (the United Kingdom is still, in a strict constitutional sense, a united kingdom), and to me it sounds like a car crash waiting to happen. In order to help those taxpayers who might be affected by the changes, HM Revenue and Customs has published a battery of guidance, including some more recently on how to identify a Scottish taxpayer. However, I've got my own advice if you happen to identify a Scottish Taxpayer [Caledonius Tributum] in the wild. First and foremost, DO NOT APPROACH! Having just received his first Scottish tax return, Caledonius Tributum may very tired, extremely confused, angry, and liable to lash out. Second, slowly back away Caledonius Tributum, preferably without being spotted; Caledonius Tributum has magical properties and may confer on you Scottish tax status without you even noticing. Third, scurry back down south as fast as possible!

I've been following the world of tax for more years than I care to remember, and therefore I've heard all the excuses under the sun that finance ministers give when they need to increase tax. Or so I thought. I'm going to remember October 23, 2015, as the date when Malaysia's Prime Minister and Minister of Finance sprung a new one on me by announcing in the 2016 Budget statement that a hike in income tax would make the country more "competitive." No, that's not a mistake, and you haven't misread that, he actually said it. From the budget speech itself, I quote: "In an effort to strengthen the tax structure to be more competitive and progressive, it is proposed that the taxable income band for the highest tax rate be increased," etc., etc.… Progressive, certainly. But competitive? I've yet to hear anyone say "I've decided to move to such-and-such a country, because, guess what, they've just put tax up! Yipee!" And I'm acquainted with some pretty odd people. I'm not sure which is worse: the raising of taxes or politicians' pathetic attempts to sugar-coat tax hikes. I do understand that sometimes tax increases are unavoidable, but political double-speak certainly is avoidable, and the world would be an infinitely better place without it.


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

Singapore champion

Spain progress

Kitty's Execrations

United Kingdom messy

Malaysia sugar-coats



Tags: Euro

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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