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Taxes finance public
expenditure. All of us pay taxes, especially indirect taxes on what we
buy. International trade, internet trading, transfer pricing by
multinational companies and use of tax heavens for anonymous deposits
pose great difficulties for governments to impose and collect taxes.
National tax systems in
the EU are unnecessarily complex. In the UK, there are three rates for
income tax: 10%; 22% and 40%. For investment income, the equivalent
rates are 10%, 20% and 40%, except for dividends, where they are 0%, 0%
and 32.5%. On top of this, there is a parallel, though different, system
of income tax by another name – National Insurance (NI). Capital gains
are taxed in a complicated way with 39 potentially effective rates,
depending on the type of asset sold and how long it has been owned.
Interacting with all these tax rates are, of course, numerous allowances
and exemptions.
Allowances and exemptions
in current tax systems encourage unnecessary expenditure resulting in
erosion of profits, taxes and dividends. Highly paid executives benefit
disproportionately at the expense of both shareholders and taxpayers as
they claim allowances for expensive company houses, luxury cars, first
class air travel and tax-protected bonuses that vary significantly.
These allowances neither promote corporate efficiency nor savings that
can help increase capital, share value and dividends. For shareholders,
there is no comparable relation between sales turnover, cost of sales,
profits and dividends.
How can we have a fair
tax for all that will minimise tax avoidance?
EU governments should
employ a system of “Classified Turnover Tax” (CTT) for different
classifications of employers and employees. Employers would incur tax on
Corporate Sales Turnover (CST) and employees would be taxed on Taxable
Personal Income (TPI) above the level of Untaxed Personal Income (UPI).
Earned income, investment income and capital gain would be taxed equally
as income. Exceptionally, inherited assets and capital gain on sale of
owner occupied homes would be exempt from tax. Indirect tax on purchase
of goods and services (VAT) would be an option for governments,
especially to cover trans-national internet trade.
The
CTT system would be as follows:-
For all employees
including self-employed:-
UPI 012:- Income
tax 0% for income up to £12,500 for age 0-60 years old
UPI 020:- Income
tax 0% for income up to £25,000 for age 60 and more
TPI 100:- Income
tax 20% for salary up to £100,000
TPI 200:- Income tax 30%
for salary up to £200,000
TPI 300:- Income
tax 40% for salary exceeding £200,000
For employers:-
Tax rates for Corporate
Sales Turnover (CST) to be fixed for each sector:-
CST (A):- Manufacturing
Industry
CST (B):- Farming
CST (C):- Wholesale
distribution
CST (D):- Retail
distribution
CST (E):- Catering &
Cleaning Services
CST (F):- Financial
services, including banking
CST (G):- Football Clubs
CST (H):- Airlines
Etc.
A single tax on sales
turnover of a business according to its classified sector would leave
the rest of sales revenue as profit to cover cost of sales, capital
investment and dividends. With no allowances or exemptions, businesses
would be forced to minimise their cost of sales by efficient management
of resources in order to offer maximum dividends to existing
shareholders and attract new investors. Shareholders and new investors
will be able to compare cost of sales of similar businesses to assess
management performance of executive directors and managers.
Multinationals and internet traders will not be able to use transfer
pricing or tax heavens to evade taxes as sales turnover will be taxed in
the country where the sale is transacted. Citizens will feel encouraged
to insist that all sales are recorded as higher tax revenue collected by
their government will assist funding of public services that benefit
them
.
Governments of EU Member
States will find it easier to set CST tax rates that best suit their
economies facilitating the assessment for investment by domestic and
foreign investors. The CTT system of taxation would inspire a culture of
business economy and efficiency, provide incentive for individual
savings and investments, ensure accounting transparency, minimise tax
avoidance and promote competition for attracting foreign inward
investment among the EU Member States. |
