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Something doesn't quite add up here

Kitty Miv, Editor
25 January, 2018

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.

With many developments worthy of a mention in this week's round-up, I might, just might, be able to reach the end of this without mentioning Brexit or tax reform in the United States. But don't hold me to that.

Unusually, there is much to praise this week. On the plus side, in the past few weeks we've seen Saudi Arabia and the United Arab Emirates successfully implement the long-awaited Gulf Cooperation Council value-added tax regime after a number of false starts; the Philippines make strides towards reforming its much-criticized and highly inefficient tax regime; and tax cuts were announced in Germany and Norway.

With regards to first of these developments, you might be wondering what there is to celebrate about the introduction of a new tax. And it's true that the prospect of dealing with VAT is hardly likely to make business owners jump for joy, given its record-intensive and bureaucratic nature. But it's the not knowing that's the killer. Uncertainty is arguably the taxpayer's worst enemy, especially where such dramatic changes in the local tax landscape are concerned. And the GCC VAT has had something of an agonizing birth. So Saudi Arabia and the UAE deserve some credit for putting any lingering doubt to bed reasonably quickly.

But, every silver lining has a cloud. And in this case it's the legislative paralysis that continues to beset the remaining four GCC member states with regards to VAT. This is a far from ideal setup. Imagine the chaos if only half of the EU had VAT, and the other half had opted out. Or if a member state decided to leave the VAT area and forge its own path, like the UK might do as a result of Bre – phew, checked myself just in time there. I told you this would be a struggle!

Putting the "B" word aside, it's also been an interesting few days in terms of trade. And, I'm afraid, not always in a good way for taxpayers. Importers of solar panel equipment in India are probably feeling very aggrieved at their Government at the moment, after it announced a proposal to slap a 70 percent tariff on such products sourced from China.

India may well be justified in pursuing this somewhat drastic measure. After all, it wouldn't be the first time that China has been accused of selling its products around the world too cheaply to the detriment of local producers (local consumers, who of course benefit from low prices, never seem to count!). But trade disputes are rarely clear cut, and it seems that few parties ever come out of them completely undamaged. So it might not be India's smartest move.

Furthermore, this story was notable because it adds to a growing trend for governments to tax the production and consumption of renewable energy, surely a policy completely at odds with efforts to reduce carbon emissions through emission pricing. How are we going to save the planet at this rate?

If we are indeed doomed, at least have a wee dram afore ye go, as they say in Scotland. But, if you're in Canada, you might want to avoid Australian wine, because, if the Australian wine industry is to be believed, it's a rip off.

Yes, it sounds like a very strange claim doesn't it? You'd think Australian wine exporters would want to sell as much wine as possible in Canada. But apparently, it's not the Australians who are doing the overcharging, but the Canadians with their excessive taxes and bureaucratic requirements which combine to push up the price of a bottle. What the Australians, allegedly finding themselves unfairly squeezed out of the market, are doing, is complaining about it, to the WTO, no less.

How terrible of the Canadians! Surely, they can't be allowed to get away with this?

But hold on one moment. Something doesn't quite add up here for me.

For starters, Canada hasn't got much of a wine industry to protect. Although it's more substantial than you might think – the sector produced revenues of CAD1.1bn (USD884m) in 2012, according to the Government – the bulk of wine production in Canada is from bottling and blending operations, and 100 percent Canadian wine represents only about 30 percent of national industry's sales in terms of volume.

What's more, Australia is a relatively minor competitor, with the United States, France, and Italy accounting for most wine imports. So why is Canada deliberately picking on wine makers from Australia, as the complaint seems to suggest? Beats me. But if the history of trade disputes is anything to go by, it'll likely age like a true vintage over the next few years.

Nevertheless, claims that Canada overtaxes both the drinks industry and drinkers aren't completely without foundation. For last week saw Canada's brewers rail against the injustice of the Government's excise duty escalator.

Well they would say that, wouldn't they? Indeed, "industry lobby group complains about taxes&" is hardly grounds for holding the front page.

But with Canada's tax position vis-à-vis the United States looking all the more unattractive (careful!), perhaps we shouldn't dismiss these concerns completely out of hand. Indeed, Canada's brewers could be up against some stiff competition from craft breweries south of the border thanks to the recently enacted US tax refo – whoops, this is a lot harder than it seems!

You could be forgiven for thinking that tax-wise, Canada really is determined to shoot itself in the foot. Certainly, the country has had something of a bad trot on these pages recently on account of recent small business tax changes, among other measures. And a claim from a think tank that most taxpayers are in for a tax hike this year is likely to fan the flames of debate about Canada's declining tax competitiveness.

Yes, US tax reform has certainly sent shockwaves around the world, and countries are puzzling about how they should respond, not least Canada, given its location.

But perhaps I dwell too much on the negatives. Unlike the UK, at least Canada has a trade agreement with the EU and doesn't have Brexit to deal with.

And I was doing so well...

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

Saudi Arabia ready

United Arab Emirates prepared

Kitty's Execrations

India at odds

Canada over-taxed

Ciao

Kitty



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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