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Taxes, taxes, taxes

There’s no half a day when I don’t encounter newspaper articles, radio reports, TV documentaries and talks about taxes. Every tax payer I come across sounds unhappy with how much they contribute to Government services.

Late last year, in France, there was the famous (or infamous) decision of one of its film stars, Gerard Depardieu, to take a Russian citizenship for tax reason, i.e. in response to the Socialist Government’s introduction of 75% tax on earnings above 1M Euros. Paying taxes is an act of duty and solidarity, but …

When we think of taxes, we often have ‘personal income tax’ in mind; but there are many other national, regional and local taxes, such as those imposed on capital gains, land and residential properties, corporations and specific situations (e.g. inheritance and lodging taxes in France). It’s true though that we mostly pay taxes on our personal income and purchases (VAT - Value Added Tax).

There are national similarities and differences when it comes to taxes and how these are spent. In France, its citizen-residents have to pay taxes on their world-wide income; whereas non-residents must complete a return only if they receive income from letting properties in the country. Similarly, in Australia, non-residents are taxed only on their Australian-sourced income.

According to the KPMG’s Individual Income Tax and Social Security Rate Surveys, top income rates across the world declined from 2003 to 2009 then rose in 2010 but fell in 2011, however, went back up in 2012 and 2013. In 2013, the world’s highest tax rate (marginal tax rate is used as a common denominator when comparing taxes) country is Aruba 58.95; then Sweden 56.6, Spain 52 and Finland 51.13 followed by Austria, Belgium, Israel, Japan, Slovenia at 50. The lowest personal income taxes were in Kazakhstan 10, Belarus 12, Russia 13 and Jordan 14. The Global average is 31.91. (Australia and France at 45).

Taxes are used to finance social and welfare services, health care, education, housing, transport, security and safety (defense, police, fire protection, prison, court). I’m sure you agree with me that these are necessary, but why don’t we just pay individually (or as a family) for what we consume? It’s because the majority of us won’t be able to afford all these and our society will even be more unjust, unstable and insecure.

Is it possible for us to decide on how our taxes be spent? In the 80s in Australia, I had friends who lobbied their politicians not to use personal tax money for military purposes but for overseas development aid. Their efforts didn’t result in the change of Government policies, but these made many tax payers change their voting behaviours and mentality.

Taxes are based on our ability to pay hence, on principle, the more we earn the more we pay. However, in some cases those who earn more pay less, and the main reason is that they know how to deal favourably with the taxation system and relevant regulations. For instance, saving money or investing in tax-free ventures and maximising tax deductions. On my desk there’s a receipt for a book that I’ve not had the time yet to file in my deductibles. One thing I don’t look forward to doing at the end of the year is filling out the tax form and calculating income and expenses to provide to the Government who’ll then tell me if I owe or being owed and how much.

Though there are loopholes and strategies to try out saving extra money, the average wage earners don’t make the most out of these, particularly those who can’t afford the service of an accountant. Is it possible to make taxation fairer? What reforms are needed? What shall we replace it with?

In the meantime, I’ve to get used to friends and colleagues whining about their increasing tax bills, including those who have to borrow to pay for overdue ones and their 10% interest. It seems very wrong to borrow money and slash grocery expenditures to pay for taxes and interest on late payment. Are there ways that a country can be better managed and citizens better served without a yearly increase in personal income taxes and introducing new ones?

...selected paragraphs from Being Intelligent Gifted

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