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surfing the line between order and chaos

Kitty Miv, Editor
20 July, 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.

Given that most taxpayers can connect to the internet, the announcement by the South African Revenue Service (SARS) that it is withdrawing some paper forms to encourage higher rates of e-filing might not be too bad of an idea. Indeed, considering what's been going on at SARS recently, with the investigation into allegations against its former head and revenue collection failings, it's probably a good thing all round that human intervention is being removed from the tax collection process.

Smaller, electronic tax forms seems to be the way the world is going. Last week, I praised the US Internal Revenue Service for releasing a substantially truncated version of the main personal federal income tax form, which should hopefully make tax time a slightly less harrowing experience for many. Yet, this week, I might well have to whip that encomium away from the US after the American Institute of Certified Public Accountants urged the IRS to rethink the contents of the new version of Form W-4.

The original purpose of this form was to provide employers with basic information to enable an employee's taxes to be withheld appropriately. But, according to the AICPA, form W-4 has grown into something of a monster, in placing too much of a burden on employees and compelling the disclosure of potentially sensitive data, it says.

Maybe the moral here is that we'll always experience a certain tension between simplification and complication in taxation. As tax authorities seek more and more information about us in order to enforce laws passed by their political masters, the same political masters are passing tax reforms instructing authorities to make life easier for taxpayers. It's kind of a yin and yang thing, or like surfing the line between order and chaos. And unfortunately taxpayers continue to experience tax wipe-outs.

Chaos must also be an appropriate word to describe the present state of carbon taxation in Canada. On the one hand, we've had various carbon taxes and pricing schemes springing up at provincial level across the country, and on the other, we've now got federal legislation in place to compel those provinces that don't yet have carbon pricing in place to adopt one of two preferred systems. However – and we've already run out of hands now – businesses must also contend with the possibility that schemes in certain provinces will be rescinded after local political changes, such as in Ontario.

It's difficult to know what's going to happen next here. Maybe Canada will end up going the way of Australia, and vote in a government that scraps carbon pricing altogether. That would seem a bit of a stretch at the moment perhaps, with the Liberal Government committed to the Paris Agreement, and few signs of a policy u-turn coming down the road. However we've almost come to expect that few things can be ruled out in this unpredictable world of ours. It's enough to make the brain fire on all cylinders. So much so you might end up blowing a gasket and spewing out carbon-rich fumes from the ears.

Moving on (rapidly, as it turns out) and the main focus of national and international tax policy makers at present is on the highly mobile, hare-like nature of business income, which whizzes from one jurisdiction to another at lightning speed, leaving tortoise-esque tax regimes trailing in its wake. But let's not forgot that people are highly mobile too, as major advances in transport and communications technology have enabled individuals to live and work in all corners of the world and stay in touch with their work and family base with relative ease.

However, personal income tax codes, specifically rules on residency, have by and large also failed to catch up with the often-peripatetic nature of modern life. Indeed, some of these laws are so ancient, I'm sure Homer would still recognize them. Although the bit in the Odyssey about how Odysseus had to fill in numerous tax returns on his epic journey home was edited out of the final version. Understandably.

A major issue seems to be that once you've lived in a certain country for a certain amount of time, tax residency starts to stick, and in certain circumstances it becomes very difficult to shake off. At the same time, the land of one's birth also may want a piece of the action too. I'm sure most of the approximately nine million US expats living overseas are familiar with this issue, or the numerous "accidental Americans" facing tax demands from the IRS despite having the most tenuous links to America. The United Kingdom also has the ability to make life difficult for former residents with its pernicious domicile rules. And attempts to clear things up with a residency test don't look to have entirely succeeded, either, so tangled is this web.

Tax, therefore, remains dangerous territory for people with internationally mobile 21st century lifestyles, as well as fertile territory for litigators, with taxpayers often looking to the courts for answers. It is to be hoped, therefore, that Australia makes a better fist of things as it seeks to reform outdated tax residence laws that have remained largely untouched since the 1930s.

Finally, and on a related theme, I simply can't allow the Netherlands to escape scrutiny over its proposals for a new tax on the aviation sector. Especially as one of the proposals included in the recently launched public consultation on the matter is for a per-passenger flight tax. Far from unusually, this has been dressed up in the virtuous cloak of an environmental tax measure. Basic math tells us that it's anything but.

Imagine if a 747 en route from Amsterdam to New York had just one passenger. Not only would that passenger be the luckiest flyer in the sky, an awful lot of aviation fuel would be consumed to get him from A to B. His carbon footprint would be enormous – jumbo-sized, you could say! Yet the tax paid for this extravagant flight would be negligible. Now imagine the next flight from Schiphol to JKF is full. This flight would be taxed heavily, yet the level of carbon emitted per passenger could be three or four hundred times lower. In other words, the profligate use of carbon-emitting fuel is rewarded, and efficiency is punished.

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

South Africa automates

Kitty's Execrations

United States yang

Canada chaos

Netherlands illogical



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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