Thursday, November 16, 2006

Tax Cut 2: Ireland, Turkey

Another good development in the "tax cut" and "tax competition" movement in the world -- N. Ireland planning to slash its corporate income tax from 30% to only 12%! Wow! And it looks like this tax cut can help unite further theProtestants and the Catholic Sinn Fein, which will further improve peace and order situation there.

The tax-hungry finance officers of UK are somehow panicking, naturally. More and more UK-based companies will start moving to N. Ireland and do business there. While N. Ireland's tax rate goes down, it does not necessarily lead to lower revenues as the revenue base -- the numberof companies doing business and paying taxes -- will go up*.

(* Note: Tax Revenue = tax rate x revenue base)

My country's legislators -- egged by Finance and congressionalbureaucrats -- raised corporate income tax, along with VAT hike,effective this year from 32% to 35%. This is 3x that being planned inindustrialized N. Ireland!

As I have posted in the previous blog re "flat tax countries in the world", the extent of tax competition in eastern Europe is really hot, and some economies in Western Europe, like Ireland, are simply adjusting. But EU rules and bureaucracies make their plans a little bit more difficult.

I hope the same tax competition will happen in Asia too!
A lower tax rate but plentier number of business and entrepreneurs doing businesses, expanding the production of various goods and services in the economy, should work well in creating more jobs and slashing poverty.

Below is the news report from the Financial Times:
12% business tax proposed for N Ireland

By John Murray Brown in Dublin
Published: November 13 2006 22:40

Companies in Northern Ireland would be exempt from corporation tax on the first 60 per cent of profits under a private sector plan to be put to the UK government on Wednesday in a bid to stimulate the province's economy.

The paper is published by the Economic Research Institute, a local think tank, and backed by Sir George Quigley, former chairman of Ulster Bank and head of the Northern Ireland civil service. It represents the most detailed case yet made for special tax treatment for the province, which is emerging from three decades of unrest.

Under the proposal, after the zero-rated first 60 per cent of profits, the remainder would incur tax at the prevailing UK rate of 30 percent. This would mean businesses based in the province would have a rate of 12 per cent, in effect, just less than that in the Irish Republic.

The issue has become embroiled in the political negotiations on therestoration of the assembly and power sharing executive. Both theProtestant Democratic Unionists and largely Catholic Sinn Féin arecalling for lower tax rates. Ian Paisley junior, son of the DUP leader Ian Paisley, says that without a tax deal the DUP will not agree to go into government with Sinn Féin by the deadline of the end of next week...

Meanwhile, I posted this last June 23, 2006:

Tax Cut: Turkey

Turkey will abolish (ie, drop to zero) the 15% withholding tax on income and dividends from financial instruments held by foreign investors starting January next year. While the rates applied to Turkish residents would be cut from 15 to 10 per cent.

Government though, will retain the 15 per cent withholding tax on deposits and repos held by domestic investors, while the tax exemption for derivative instruments will stay.
See FT report today, "Turkey to scrap tax for foreign investors" (

Such moves are meant to help reverse the flight of capital from risky emerging markets that started last May.

Turkey is still waiting for EU nod to be admitted as a new member of the currently 25-countries union. EU is known for heavy regulations. Previously liberalizing countries that later on became EU members went back to multiple regulations. Dominant member-countries of the EU like France and Germany do not like low corporate taxes in other member-countries because the former are afraid that they might further lose some of their corporations and move to countries with lower taxes.

So this tax cut move by Turkey might not sound good to the ears of certain EU bureaucrats who want more, more taxes and avoid any competition in tax policies (ie, bringing down taxes as low as possible).

Finally, here are the corporate income taxes for the following Asia-Pacific countries, 2006 (in %):

Japan 40.1 (40.7 in '05)
S. Korea 35
Pakistan 35
Philippines 35 (32 in '05)
India 33.7 (36.6 in '05)
China 33
New Zealand 33
Sri Lanka 32.5
Australia 30
Bangladesh 30
Indonesia 30
Thailand 30
Malaysia 28
Vietnam 28
Taiwan 25
Singapore 20
Hong Kong 17.5

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