no wonder French presidents tend to end up so unpopular
Kitty Miv, Editor
01 September, 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.
China may have been upbraided by the International Monetary Fund earlier this month for the lack of progressivity in its personal income tax regime – how ironic that a country run by communists has, according to the IMF, the highest level of income inequality in the world. However, in many other ways, China seems to be making good progress in adapting its tax system to the demands of today's economy, including with proposals to improve tax incentives for scientific research.
Value-added tax has now been extended to all areas of the economy, and earlier this month, Chinese Premier Li Keqiang said that reform of the VAT regime would continue. VAT has already saved businesses an estimated CNY1.6tn (USD239.8bn) since its introduction, the Ministry of Finance said.
It was also announced recently that China is to allow foreign investors to defer tax on dividend income if it is reinvested into approved projects through an increase in the areas of the economy that foreign investors can participate in, via a reduction in the industries covered in China's "negative list" of precluded investment.
China also dished out CNY1 trillion worth of tax cuts in the first half of this year alone, with businesses having seen tax savings worth CNY2 trillion during the four years between 2013 and 2016, Li claimed recently, adding that further reforms are planned to reduce the discretion of tax authorities and prevent arbitrary taxation.
This last point could be of particular significance for foreign enterprises operating in China. Deloitte's 2017 Asia Pacific Tax Complexity survey showed that there was a sharp contrast in respondents' views on China's tax regime, with some viewing the country's tax environment as predictable, but others unpredictable, reflecting the fact that taxes tend to be administered and collected at local, rather than central, level. So, one's experience with the Chinese tax system can vary depending on the local tax office's interpretation of tax legislation and regulations, which in a country China's size is not conducive to predictability.
As to the tax compliance burden, other surveys suggest that China has a long way to go before the tax regime can be considered even remotely simple. However, it would appear that good progress is being made.
Canada's tax regime isn't usually considered as complex as China's (although some taxpayers might be inclined to disagree), but there is a growing sense that the Government is neglecting the tax system. In July this year, the IMF recommended that the Canadian Government undertake a "holistic" review of the tax system, to identify areas for improving efficiency while maintaining the country's competitiveness. The IMF said that the last comprehensive review was carried out in the mid-1980s, while last week, the Fraser Institute said that the average Canadian family spent more on taxes in 2016 than on housing, food, and clothing combined.
Small companies in particular have noticed a change in attitude to taxation under the Liberal Government elected two years ago, with the emphasis now firmly on preventing tax avoidance and evasion rather than improving the tax regime for businesses. While many would argue that it is only right that the Government cracks down on dishonest taxpayers, others warn that the severity of the crackdown is coming at the expense of small firms. The Canadian Advanced Technology Alliance went so far as to describe the Government's proposed measures against tax planning strategies as "a wholesale attack on small business." For its part, the Society of Trust and Estate Practitioners said that "this dramatic tax policy change could fuel uncertainty and bring unintended consequences including very significant tax increases that negatively affect entrepreneurs." And these are by no means isolated voices. They are merely the latest in a steady stream of complaints from small firms about tax policy.
The Government could even be accused of being anti-small business, given that planned decreases in the small business corporate tax rate were deferred indefinitely in the Liberals' first Budget. If so, it is a strange position for the Government to hold. After all, SMEs employ the vast majority of the workforce in most economies.
Doubtless, ministers would vehemently reject such a suggestion, and could probably trot out endless statistics to support the view that small business are thriving under the Liberals, in that way that politicians do but nobody quite believes. Nevertheless, perhaps it's not unreasonable to suggest that the Government has vacated the middle ground between securing the tax base while freeing up honest taxpayers in favor of the former.
To France now, and as presidential or prime ministerial honeymoon periods go, Emmanuel Macron's was particularly short and sweet. Supposedly a breath of fresh air when he put himself forward for the French presidency, the atmosphere is already beginning to curdle as his approval ratings take a tumble. Reports that the President has spent EUR26,000 on makeup since May certainly won't help matters. Although at least this wasn't as much as the EUR10,000 his predecessor, Francois Hollande, reportedly spent on barbers' bills each month to tidy his ever-receding hair. No wonder he had to put up taxes so much! And no wonder French presidents tend to end up so unpopular!
So, it was with unfortunate timing that the Government announced, amid the furor and bewilderment over the grooming habits of French leaders, changes to the social security system, aimed at reducing the vice-like grip of mandatory contributions on French workers' incomes. Due to take effect next year, these measures will supposedly put EUR7bn back in the pockets of 21m employees, according to the Ministry of Finance, and therefore represent a major step in the Government's promised program of tax cuts.
However, the program won't be easy to deliver. The proposed EUR20bn in tax cuts will need offsetting with painful public spending cuts, and rumblings of discontent over these have already begun. Maybe Macron could help his cause by opting for a less expensive preening regime.
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.
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