Monday, December 15, 2008

Tax Cut 9: Flat Tax, 26 Countries Now

A friend, Bjorn Tarras-Wahlberg of the World Taxpayers Association (WTA) sent me this updated list of countries that have flat, low income taxes.

Flat income taxes 2009
from 1 to 26 countries in 15 years

Kyrgyzstan (since 2006) 10%
Kazakhstan (2007) 10%
Macedonia (2007) 10%
Mongolia (2007) 10%
Albania (2008) 10%
Bulgaria (2008) 10%
Serbia (2008) 10%
Georgia (2005) 12%
Macau 12%
Belarus (2009) 12% New
Russia (2001) 13%
Hong Kong (1947) 15%
Ukraine (2004) 15%
Iraq (2004) 15%
Montenegro (2007) 15%
Mauritius (2007) 15%
Czech Republic (2008) 15%
Romani (2005) 16%
Slovak (2004) 19%
Jersey and Guernsey (1940) 20%
Estonia (1994) 20% Lowered
2010 19%
2011 18%
Iceland (2007) 22,5%
Lithuania (1994) 24%
Jamaica (1984) 25%
Latvia (1994) 25%
Trinidad & Tobago 25%

Why flat income taxes?
1. Simple and fair
2. Promotes economic growth
3. Promotes tax competition
4. Neutral to inflation

Why mostly in the new democracies?
1. Liberal values with more individual freedom
2. Wish to get rid of socialistic high taxes
3. Wish to reduce the black economy
4. Wish to promote economic growth and increased tax revenues with lower taxes (see Russian example)
5. No heavy package of social welfare

Copyright: Björn Tarras-Wahlberg, CEO, World Taxpayers Associations 2008-12-05. Any news to: +46 70 325 00 11.

Meanwhile, I am posting 2 short papers on taxes early this year.

(1) Taxes vs. Subsidy

May 26, 2008

A Malaysian friend, Wan Saiful Wan, head of Malaysia Think Tank London, shared with us a news story, "Making the rich pay more for fuel", May 23, 2008. The article went this way:

"Malaysia's rich will have to pay more for heavily subsidised items including fuel as part of a new two-tier scheme to reduce government spending, reports said today. "We need to have a good system for those who deserve the subsidy, such as the lower and middle-income groups," Second Finance Minister Nor Mohamed Yakcop was quoted saying by the Star daily."

I think the headline was wrong. It says "Government wants to tax the rich" when the story says the "government wants to reduce subsidy to the rich". These 2 -- taxes and subsidy -- are different things. The first is taking money away from the people. The second is giving money to the people, the money coming from various taxes.

My take on this and almost any other issues on other sectors is that subsidies should be kept to the minimum – and taxes should be kept to the minimum too. You encourage something, you'll have more (consumption) of it; you discourage it, you'll have less of it. That's one of the "7 Principles of sound public policy" made by Larry Reed. So you provide more fuel subsidies, you encourage more fuel consumption. You tax oil, you discourage more fuel consumption.

If oil taxes around the world are removed, or at least drastically cut by one-half of their current rates, especially in European and North American countries, retail price of oil will drastically go down, which will encourage more fuel consumption, which will result in ever-higher world crude prices, perhaps shot up to $200 a barrel within a year or less. But at least people will not complain of the artificially high retail oil prices caused by oil taxes. They can complain of high retail price because of the high crude oil prices, high cost of refinery, high cost of transporting refined oil, etc.

If government revenue from oil taxes will decline if not evaporate, where will government get money to build new roads, or improve and expand existing ones? Road, especially expressways, should be on user-pay via toll roads. Roads can be privatized. So that the more you use the road, say you drive 100 kms a day on average, the more you will pay toll fees. If you use less, say only 20 kms a day, you pay less. This still discourages high fuel consumption. The rich who have more meetings, more places to visit and work, will pay more on toll roads and fuel. There is still "equity" there.

(2) On Tax Registration

April 01, 2008

Many firms and enterprises in developing countries operate in the informal sector or the "underground economy". There's one paper on Bolivia that says that on average, formality leads to higher profit. This is especially true for mid-sized firms but not for both smaller and larger enterprises.

Many small- and micro-level enterprises in developing countries indeed remain to be informal. This is because business registration in those countries are very bureaucratic and time-consuming, and the fees are plentiful too.

For medium-level enterprises, formal business and tax registration helps increase profit because the owners and managers of such enterprises can concentrate on their business, and worry less on extortion and harassment by the state's tax and trade bureaucrats.

* See also Tax Cut 8: Comparing HK and Philippine Taxes, March 04, 2008

1 comment:

Unknown said...

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