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yet another reason to fret

Kitty Miv, Editor
27 April, 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.

We often hear how trade barriers hinder trade between nations. But they can also inhibit trade within a country, particularly in ones with federalized systems of government. So, credit is due to Canada for introducing its own internal free trade agreement, which should ease trade in goods and services across provincial and territorial borders.

As I've observed here before, trade is something of a touchy subject politically at the moment, and depending on what you believe, free trade either destroys industries and jobs by opening them up to cheap competition with which they cannot hope to compete, or is the bringer of prosperity to all corners of the world. From a purely business perspective, tariff and non-tariff barriers add a further layer of complication to international commerce, especially for companies with long international supply chains, which already battle to remain compliant with complex and shifting domestic tax and regulatory regimes the world over. And what a bizarre situation it is that in some countries, as observed by the Canadian Federation of Independent Businesses, due to internal regulatory differences, it's sometimes easier for individuals and businesses to trade with counterparts half way across the world, than in the province, state, or region next door.

Talking of being unpopular with the neighbors, we move once again to the United Kingdom, which set the cat among the pigeons again after Prime Minister Theresa May caught many off guard by calling a snap general election last week. Added to the weight of uncertainty already bearing down on the UK as a result of Brexit, the timing of this election is hardly ideal, and the announcement demonstrated just how flexible politicians can be with their views, with May having repeatedly rejected the idea of calling an early election to consolidate her and the Conservative Party's position in power on numerous occasions recently.

But while this development could strengthen May's hand in the upcoming Brexit negotiations – provided, of course, she gets the comfortable victory pollsters are predicting – it is not, however, going to be very helpful for taxpayers. The 2017 Budget was announced only six weeks ago, and the Government has already performed a u-turn on the most significant proposal, the two percent increase in self-employed social security contributions. Now the Government faces a rush to legislate for the 2017 Finance Bill before parliament dissolves shortly before the June 8 election. And that won't be easy.

The Chartered Institute of Taxation has pointed out that, under normal circumstances, we could expect two days of debate on the bill in the House of Commons, in addition to 14 to 20 standing committee sessions, and two days of report stage and third reading debate – in other words, plenty of parliamentary scrutiny of the proposed measures. Precedent suggests that, instead, the committee and report stages will be compressed into a single day. And such a truncated timetable, the CIOT warned, would not allow for adequate consideration of the matters it has raised, including areas such as loss relief and interest deductibility.

The CIOT is urging the Government to drop the majority of the current bill and keep only those measures essential to maintain the Government's revenue-raising capacity, such as renewing the provision of income tax, and other measures that are required urgently, such as anti-avoidance provisions. It said that measures dropped could be reintroduced in a post-election Finance Bill where they can be scrutinized at greater length.

We must wait and see if the Government listens to what seems like a reasonable proposal. And this gives taxpayers in the UK yet another reason to fret.

Another group of people who are getting used to fretting are American expats, which, mounting evidence suggests, are becoming financial pariahs, denied access to even basic financial services in their country of residence due to the increasing reluctance of foreign financial institutions to deal with anybody with a US passport. Why? In a word (or, more accurately, in an acronym): FATCA.

Attention was drawn to this issue again last week, when the Indian Finance Ministry warned account holders that where Foreign Account Tax Compliance Act-related self-certification and due diligence in relation to financial accounts have not taken place by April 30, 2017, affected accounts may be frozen until such time as these checks have taken place.

But are FATCA's days numbered?

President Donald Trump has been strangely silent on the matter of FATCA, not only during the campaign phase, but also as President-elect, and as President. So too has the Republican leadership in the House of Representatives, from where the tax reform process, if it ever gets started, will begin.

But if FATCA is ever going to be repealed, surely now is the time, while there is a pro-business, anti-regulation President in the White House, and a Republican Congress in place to support him. The  pre-election 2016 Republican Platform called for FATCA's repeal, calling it a "warrantless seizure of personal financial information without reasonable suspicion or probable cause" and a threat to the "ability of overseas Americans to lead normal lives.” So the injustices of FATCA are close to the heart of the GOP rank and file, it would seem. Furthermore, it could be argued that FATCA may be superfluous once the OECD's global version, the Common Reporting Standard, comes on stream over the next 18 months.

Clearly, President Trump has other items at the top of his agenda on the domestic front, principally the repeal of Obamacare. But tax reform is expected to come next, and we'll have to wait until then to see if the President maintains his silence on FATCA.

Remaining on the theme of deregulation, I mentioned last week how India is on the final straight towards the introduction of goods and services tax, which is due to replace a plethora of cascading and inefficient state and central indirect taxes, and usher in a much more rational and modern system of taxing consumption. I have always been slightly skeptical that GST would actually happen, fearing that the deadline would be pushed back ad infinitum, with the central and state governments unable or unwilling to fully embrace this unprecedented, dually administer law. However, after the President ratified the necessary legislation last week, even I am beginning to believe. Still, the transition is unlikely to be smooth.

By all accounts, India seems quite unprepared for GST. The Federation of Small Medium Enterprises has said that 70 percent of SMEs are not even close to being ready for the upcoming changes, and in something of an ironic turn of events, the very businesses that have been urging successive governments to accelerate this long-awaited reform are now calling for the law to be delayed.

With just over two months to go before the Government's preferred July 1 introduction date, companies with inter-state trade are now in a race to ensure compliance with the GST, which, due to the various compromises struck along the way, is by no means a simple law, even if it does simplify the existing system. Oh, how the tables have turned in India!


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

Canada free

India one giant leap

Kitty's Execrations

United Kingdom snap!

United States matter of FATCA



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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