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Think the Boston Tea Party or Magna Carta

Kitty Miv, Editor
07 January, 2019

Tax is something that most people merely grin and bear, albeit through gritted teeth. But it's sometimes much more exciting than that. Indeed, it can change the course of history. Think the Boston Tea Party or Magna Carta. America might still be ruled by Britain, and Britain ruled by kings and queens, or portly prince-regents with more interest in pies than the parliamentary process. All (or largely) because of tax.

In many countries, 2018 ended in an inferno of tax-motivated protests. Not quite revolutions, but fervent enough to change a government's mind. The "gilet jaunes" demonstrations in France was the most widely-reported example. But the movement has seemingly inspired similar tax-motivated outcries as far afield as Canada and Taiwan. The streets of Jordan's capital, Amman, have also reverberated to the sounds of anti-tax protests recently.

Tax cuts, on the other hand, never, or very rarely, have the same impact, do they? As far as I'm aware, an income tax cut has never brought people out onto the streets for a spontaneous carnival. We're certainly not seeing this in India, despite the fact that several sectors of the economy will face substantially reduced rates of goods and services tax.

Last month, the GST Council announced a cut in the rate of GST on cork (roughly squared or debagged, no less), agglomerated cork, and articles of natural cork, from 18 percent to 12 percent. But where are the cork sellers? Furthermore, the GST Council has decreed that pulleys, transmission shafts and cranks, gear boxes will be newly subject to the 18 percent rate of GST instead of the top rate of 28 percent. That's a 10 percent tax cut. Yet, nobody seems to be cranking up the party music as a result. Suppliers of music books – which are being zero-rated – haven't played a note in celebration.

Even in the United States, the biggest transformation of the tax code in a generation seemed to leave half the country grumbling. Governments are damned if they do, damned if they don't, it seems. But what did they expect? The first taxes were only supposed to be temporary. Hardly surprising taxpayers get a little bit upset when taxes go up, and are decidedly nonplussed on the rare occasions they fall.

At least with ever-advancing information technology, much of the strain of complying with and paying taxes will be eased, even if the financial sting of paying the actual tax will remain. Indeed, let me introduce you to the tax authority of the future – Airbnb! Or, to be more accurate, just possibly one of the tax authorities of the future.

According to the company itself, by the end of last year it had collected and remitted a total of USD1bn in tourist and accommodation taxes, which is a remarkable statistic considering that such taxes usually amount to not much more than a few dollars here and a few more there. But the firm is also moving into the income tax compliance space, courtesy of agreements with the Danish and Estonian governments. Expect many more similar agreements to follow.

This has been made possible because such platforms are built on data. Personal data, company data, transaction data etc, etc. For the tax authorities, they are a veritable gold mine of information. So it doesn't take a huge leap of the imagination to foresee this extended to other types of tax and more online portals in an increasing number of jurisdictions. In some countries, Germany and the United Kingdom to name but two, online marketplaces have already become the de facto VAT police, charged with ensuring buyers and sellers comply with their VAT obligations.

But where tax compliance is concerned, especially in the area of VAT, perhaps all roads lead to the "blockchain." According to my more technologically-savvy acquaintances, a "blockchain" is a decentralized digital ledger – a continuously growing list of records, or virtual "blocks," which are linked and secured using encryption. These "blocks" include the complete history of all the transactions that have occurred along the chain. It is widely used to track virtual currency transactions, but it is expected to soon play a major role in tax administration and enforcement.

Such talk isn't just a virtual cloud of hot air, digital pie in the sky. In December 2018, the Bangkok Post reported that Thailand's tax agency is actively developing a blockchain technology-enabled framework for VAT administration. This entails the testing such technology to track payments, and to authenticate the validity of VAT refunds.

In fact, the blockchain will be just as valuable to governments from the point of view of fraud prevention as it will be due to increased efficiency of tax collection. The decentralized nature of the blockchain makes it highly secure, meaning that tampering with the information contained upon it is very difficult. So they tell me. But I'm sure we've heard stuff like that before with regards to the digital world.

What makes this really interesting though, is that by deploying advanced IT systems to effectively connect taxpayers directly with the government's coffers, tax authorities might be about to do away with themselves. Can you imagine a world without the IRS, HMRC, the ATO, SARS, etc, etc? We may at the moment be glimpsing the future. Or perhaps that's wishful thinking.

Tags: Government

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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