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fail to prepare and prepare to fail

Kitty Miv, Editor
20 September, 2018

Although I tend to steer clear of hackneyed phrases (I prefer to do blue sky thinking, preferably outside of the box), there's one saying that generally is a very good rule for life: fail to prepare and prepare to fail.

As far as taxation goes, preparation and planning have long been integral to a successful business or investment strategy, no more so than in today's post-BEPS, uber transparent world. The tax headlines are littered with seemingly well-prepared companies with well-staffed tax departments, embroiled in long, expensive disputes with the tax authorities. So woe betide any taxpayer who jumps into the world of international trade and commerce without having given thought to the tax consequences.

However, sometimes taxpayers can find themselves in an impossible position, planning for outcomes that are unknown. In Europe, both the United Kingdom and the European Union have been urging businesses to prepare for the possibility of a no-deal Brexit. Which must be a bit like asking them to plot a course on a map which has had all the names of the roads, towns, and cities deleted. You'll end up somewhere, but goodness knows where!

Both camps are reassuring businesses that it won't come to this worst-case scenario, and that some kind of trade agreement will be reached before the Article 50 countdown reaches zero on March 29 next year. But such an outcome is looking increasingly optimistic. I don't want to plunge into the more general debate about the merits of Brexit in the first place. Besides, I haven't brought my flak jacket. But surely, if achieved, this trade deal would win some sort of world speed record. Bilateral and multilateral trade negotiations tend to be slogs rather than sprints (it's no coincidence that former WTO Director General Pascal Lamy was a marathon runner). And neither camp looks particularly well-prepared to undertake such a feat. Funny that isn't it? Business are being asked to prepare for something that governments are largely unprepared to deliver.

On to more mundane matters now, and if there were an award for the most impressive tax statistic of the week (the ceremony's a low-key affair), surely it must go to India, where the number of personal income tax payers jumped by a gargantuan 71 percent from 2017 to 2018. However, I wouldn't get too excited by that. That's probably only an increase from two to three. I know, I know. That's 50 percent. But you get my point. India is starting from such a low base to begin with, it doesn't take an especially large increase in the tax-paying population to look like a surge.

According to the Central Board of Direct Taxes, it received 54m income tax returns electronically, up substantially from just 31m in FY2017, in a country where more than 800m people are said to be of working age. But credit where credit's due I suppose; that's still an impressive return on an investment in a compliance campaign that involved, to use the CBDT's words, "enhanced persuasion." Now there's a creepy sounding euphemism if ever I've heard one. Presumably, that's a step up from merely "persuasion." I shudder to think what the next stage would be.

Anyway, the CBDT will have to use all the powers of persuasion it can muster if it is to achieve the sort of individual tax compliance rates seen in the Western economies. For a country whose territory includes the Himalayas, recent results represent the first steps to base camp.

It's been something of a tax stat-heavy week, what with the release on September 5 of the OECD's Tax Policy Reforms 2018 report. But there were no especial surprises to be had. Confirmation that corporate tax rates continue to fall, but not quite as fast as they did around the time of the financial crisis, was expected, as was the finding that governments have pushed standard rates of VAT about far as they dare, have left social security taxes stubbornly high and unreformed (despite all the talk about the need to reduce the labor tax wedge), and governments are taxing smokers, drinkers, and sugar junkies into changing their unhealthy habits.

The revelation that personal income tax cuts for those on low and middle incomes have become something of a trend was somewhat interesting. But glancing through the executive summary of the report's findings, another statistic jumped out. And that was the wide difference in the level of taxation on immovable property. At the lower end of the scale, such taxes account for only about 0.3 percent of gross domestic product in Estonia. Surprisingly, and perhaps belying its claims to be a lean, mean, investment-friendly low-tax economy was the UK, where immovable property tax revenues are the equivalent to about 4.5 percent of GDP. They do say an Englishman's home is his castle. Maybe he should think of downsizing.

Tags: Euro | Business

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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