Taxation policies expose government inefficiency

The concept of taxing the more affluent isn't new. Robin Hood and his merry men of Sherwood Forest would rob the rich to provide for the poor. The caveat was to blunt the Sheriff of Nottingham's dastardly idea of exploitative taxation of the poor. The same British that came up with this concept, had no compulsions in allowing the Zamindars of the sub-continent impose crippling taxes on peasants and farmers irrespective of whether they had brought home healthy crops. From all those years ago not much has changed.

The Republican Party has always found a way to provide benefits to the super-rich and Donald Trump's latest tax cut plans is no different, even though he emphasised the puny benefits to less effluent citizens. Notable has been the relief proposed in Corporate Tax under the umbrella of encouraging them to invest more and create jobs. Theresa May, having hijacked the UKIP manifesto to scramble back to power, is now suggesting taxation policy recently floated by Labour, taxing the rich a little more as well as Corporates. If those do go through, the top-bracket earners could end up paying 50% of their income as tax. That there's a breaking point in patience with such measures has been amply proven by the taxation disaster in France where top earners moved their custom and their presence to more friendly environments.

Mr. Trump was stating the most obvious known in saying that half of the American population don't pay their taxes; this despite the fact that the country's revenue authority, Internal Revenue Service (IRS) is both active and feared. What he didn't provide is a remedy to the malady. Likewise, Theresa May has not explained what seven years of austerity has given the UK or indeed, what hasn't worked, why and the quinine that needs to be applied. There's a similarity in what the late former Finance Minister Saifur Rahman had said about increased taxation not being required if businesses paid their dues. Ever since the taxman began to award top individual and corporate tax-payers, the glaring facts emerged; none of the individual and very few of the corporates were either vocal, well known or headed any of the trade bodies that have a list of tax cut proposals each time the budget approaches. What is more bizarre is that the major bank defaulters and large businesses, too, aren't in the list of awardees. Ina lower middle-income country, where per capita GDP is nearing $ 1500, only two million or so registered tax-payers exist. Many of them don't file returns. Nonetheless, anyone suggesting that only two million or so people have taxable income is talking through their hats. Yet, the initial reaction to any sub-standard services of government or City Corporation wings is 'Don't we pay taxes?'. For the large majority the answer is 'No'.

The National Board of Revenue has tinkered with various options ranging from atrocious Know Your Customer information made mandatory for anyone with a bank account to spot inspections, essentially in the wrong places. This document asks some very silly questions such as frequency of deposits and withdrawal and the source of such deposits. Salaried individuals may have a monthly deposit but there are still many business houses that don't deposit straight in to account. Interestingly enough few questions are asked when deposits to the treasury or utility bill payments are concerned. Sillier still is the Bank response of barring withdrawals and credit card debits while continuing to allow deposits. Spot inspections never seem to expose public servants who cannot have enough money for the houses they build, the schools they send their children to or the lifestyle they maintain.

People shy away from paying taxes essentially for a few reasons. The combination of direct, indirect taxes and the money and time spent to address inflated bills or to secure routine services results in an unsustainable situation. The visible corruption in development activity is galling, with hardly any public service personnel ever investigated for their roles. Year after year, the cost of mega projects burgeon and time lines for completion extend. And too often completed projects require repairs too soon. A case in point are the Roads that require attention every year before the festival season, not to mention a total lack of coordination between agencies that are charged with implementation. Thirdly, they are on their own as they battle to make ends meet in a galloping inflation in prices of essentials.

The simple exercise of a typical person's monthly expense list based on income will provide clarity on how much taxation he or she can afford. Discretionary powers of tax officials are still too broad and too invasive and it's the dreary story of tax on tax for essentially the same group. Flat levels of taxation and the impact of VAT have to be quantified. It's good governance to analyse and research Tax to GDP ratios. The real costs to an individual and business requires similar analysis. The government is attentive to deducting tax on income at source, tax on bank deposits and VAT. It does not look at bank fees paid by the individual, the punitive and annually increased tax on vehicles plus the inexplicable VAT on those taxes. The cost of living index is incomplete given increasing transportation fares and the other cost increases. Someone, somewhere needs to look at input vs output of earning and expense on a realistic basis. Chasing those who pay taxes cannot be preferred over not running after those who don't pay.

Each year, the NBR is achieving higher results in tax and revenue collection. That's partly due to increased trading and imports. With more businesses moving from inflation related salary increase to performance based increases, with many not getting anything additional the equation has changed. On the other hand wastage, pilferage and losses of government assets due to poor maintenance is not being addressed.

Saifur Rahman's basic philosophy of chasing big business, high-income individuals i.e. the mega-rich and visible and clear steps to recover defaulted loans is the path to follow. While private individuals must pay their taxes, the process needs to be made consumer-friendly; the public sector and elected representatives must also declare their income. That way the individual of the state will regain confidence that the government is addressing its inefficiencies.

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