Tax Reformation

We need to renegotiate the tax agreement between the citizens and the State.

Image by Freepik

The Reformation was a major Christian movement aiming to reform the practices, beliefs, and structure of the Catholic Church. It was sparked by widespread dissatisfaction with church corruption, such as the sale of indulgences (payments for the forgiveness of sins), etc.

Taxes need a Reformation.

Around a fire many millennia ago, a group of people came together to form a government to perform certain collective duties. This government needed money to perform its duties. This money is the tax.

People know taxes are necessary and that the government needs taxes to run the country. The government surely knows it has the power to extract taxes from the people. But it, quite possibly, does not know that the taxes are for running the country! Otherwise, the government would not be so profligate in spending them. Look at where we are:

The burden of taxes on an individual is exceptional.

1. Income is taxed

2. Purchases are taxed by VAT or GST

3. Our assets like house, car etc. are taxed through property taxes.

4. If assets appreciate, we pay capital gains taxes.

5. If we trade, we pay transaction taxes.

6. We pay a cess on credit card transactions.

The benefits have eroded.

1. In the early years, we could see tax dollars being deployed towards infrastructure development and improvements in quality of life. The satisfaction derived from life improved, and thus, people did not mind paying taxes.

2. Since the start of this century, the pool of beneficiaries has expanded rapidly, the qualifying criteria were relaxed, and the burden on the taxpayer has expanded considerably. There was no additional visible benefit from the paid taxes. Yet, there were no visible disadvantages either. People noted the poor efficiency of spending but there were no pain points.

3. Since the last decade, particularly post-COVID-19, people have been experiencing pain and disadvantage despite paying their fair share of taxes. It is now evident that our taxes are being used to support activities that are clearly against the tax-payers’ interests.

Taxpayers’ interests are compromised.

Governments across the world have embarked upon various schemes:

1. Housing has become unaffordable. From a point where houses were comfortably affordable on one salary are unaffordable on two generous salaries,

2. Inflation for daily goods has spiked. The household salary consumed as daily essentials (not fancy spending) has increased considerably.

3. The cost of education was high, and despite the availability of generous student loans, it remained high and unpayable from the jobs resulting from such an education.

4. On the contrary, the bureaucracy has expanded to its largest and they seem to be paid quite well. They have become a modern nobility.

Reset the tax contract with the government!

The first step towards this is a Tax charter that every government must publish. The charter should include:

• Name of the tax

• What is being taxed

• How (ad valorem, lump sum, etc.)

• How to calculate it

• How to comply with the law

• How to verify compliance

• Which authority has the power to levy this tax

• What is the raison d'etre for this tax?

• Who is it supposed to benefit?

• What initiatives is it supposed to finance?

• When can it be raised?

• When can it be excused through amnesty schemes?

• What are the services citizens are getting in return for the tax paid?

More tax reform suggestions to follow.

Frankly, tax reform is not something we can deal with all in one go. So, over the next year (yes, year), I will submit my suggestions about Tax reforms. I promise not to bombard everyone with tax reform posts. So please do not unsubscribe.

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