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more akin to a game of chess with a grandmaster

Kitty Miv, Editor
07 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 long-awaited unveiling of the Republicans' tax reform bill in the United States is the obvious place to start this week. And the odds against an historic overhaul to the US tax code appear to have shortened considerably recently. But let's be clear, this is likely to be a marathon, not a sprint. And an obstacle-strewn one at that – a kind of 26-mile steeplechase. In which case, there's plenty of opportunities for the tax reform bill to trip, stumble, bog down, and ultimately run out of legs.

Not that I'm trying to deliberately talk down the GOP's tax reform efforts. If we ignore the politics of the proposals for now – as difficult as that may be – it is clear that the kinds of changes that tax reform will bring are long overdue: tax code simplification; lower rates, especially on corporate income; and a wider tax base.

There's no escaping the fact that there are some politically contentious provisions in the bill – perhaps unsurprisingly, given its comprehensive scope. As such, it seems improbable that it will sail through Congress mostly unaltered. Indeed, some commentators say that differences arising between House and Senate, and within the Republican ranks in Congress, could take weeks to iron out. Others say the process could take months.

Let's not forget that repealing Obamacare looked like it would be a cakewalk for the Republicans when President Trump arrived in the White House. But that effort was subject to a number of false starts, before limping from the track. Taxpayers hoping to benefit from tax reform shouldn't get their hopes up too soon, that's all I'm saying!

Doing business in India could also be equated with a sport or activity in which great physical and mental stamina is required to stay the course, so complex are its legal, regulatory, and tax systems. A walk in the park or a piece of cake doing business in India isn't. You could say it's more akin to a game of chess with a grandmaster, or scaling the north face of the Eiger, perhaps.

Despite the Government's best efforts to enhance India's standing in the foreign investment community, some pretty fundamental issues have yet to be tackled satisfactorily for investors. A key one is the tendency for multinationals to be ensnared in judicial proceedings over disputed tax bills for years on end, with seemingly no resolution in sight.

The Goods and Services Tax regime, as much as this reform was required, has also, not unexpectedly, had a difficult start to life. One notable set back occurred in October, when the Government was forced to scrap the proposed e-way bill, intended to remove non-tariff barriers to trading between states and help establish a single market across India – a move seen as crucial to unlocking India's vast economic potential.

Nevertheless, things are on the up – about 53 places up as it happens. That's how much ground India has made up between PwC's 2017 Paying Taxes Index and the paying taxes element of the recently released 2018 Doing Business Index by the World Bank. So the Government must have gone some way towards fulfilling its long-held commitment to improving India's ease-of-doing-business ratings.

Prime Minister Narendra Modi has always stressed that one of his main goals was to improve India's ease of doing business ranking, and this shows that, despite the fact that some high-level problems remain, much progress has been made towards making India a more efficient and less bureaucratic place to do business.

Elsewhere, while the United States embarks on its tax reform trek, further evidence emerged recently that the world is engaged in the corporate tax cut race. As the US finally begins its attempt to shed the highest-corporate-tax-in-the-OECD tag, Japan, the previous holder of this dubious honor, is considering corporate tax cuts for companies that give their workers a pay rise. Even Belgium, another country that seemed like it had bought a life-membership to the over-30 percent corporate tax club is at it, having recently included a substantial corporate tax cut in its program for government.

It certainly feels like the corporate tax cut bug is catching, and politicians in Belgium must have been aware of what the Joneses across the fence in France and the Netherlands were up to when this decision was made. Indeed, it seems that 30 percent is the new benchmark above which corporate tax is considered too uncompetitive.

It used to be that a corporate tax rate below 40 percent was considered competitive, at least among the wealthy industrialized nations. However, 30 percent is seemingly the new 40 percent in the corporate tax stakes.

So if 30 percent is the new 40 percent, can the European Union be the new OECD in terms of tackling the inadequacies of global tax rules? The European Commission seems to think so, judging by its recent output with regards to the issue of ensuring appropriate taxation of the digital economy. Or to put it another way – and if I may be permitted to stretch the sporting analogy just a little further – it looks like the EU has stopped batting for the same team as the OECD.

As usual, the EU's intentions here are laudable. But, as is also becoming customary, it has approached this issue in a rather heavy-handed way. Some have called its proposals in this area – particularly a digital "equalization tax" on the revenue of "digital companies (whatever they may be) – a blunt instrument which could lead to various unintended consequences, such as double taxation. What's more, with its digital tax agenda, it has broken ranks with the BEPS project, within which there is no place for unilateralism, especially from such an important partner, as OECD Secretary General Angel Gurria warned recently.

But then perhaps we shouldn't be too surprised. The EU has increasingly become a law unto itself recently. Just ask Apple or the Irish Government, to name but two exponents.

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 one small step...

India progress

Belgium muscles in Brussels

Kitty's Execrations

European Union unilateral



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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