BWorld 171, Global vs national tax reforms

* This is my column in BusinessWorld last December 13.

“The problem is not that the people are taxed too little. The problem is that government spends too much.”

— former US President Ronald Reagan

Until 1980, much of the world’s countries and governments were socialistic in their taxation and spending policies. For instance, the top marginal income tax rates that year were 60% in Malaysia and Thailand, 70% in the Philippines, 75% in Japan, 89% in South Korea, 70-75% in the US, and 83% in UK.

Then the Reagan-Thatcher era in the ’80s changed this, they cut their respective tax rates by half. Both were advocates of limited government and free market as indicated by Reagan’s statement above. He also once described role of many governments as “if it moves, tax it; if it keeps moving, regulate it; if it stops moving, subsidize it.” Ms. Thatcher on the other hand once said that “the problem with socialism is that you eventually run out of other people’s money.”

In the Philippines, former President Cory Aquino and other world leaders in the ’80s also joined to institute drastic income tax cut.

Fast forward today. The Duterte administration initiated drastic personal income tax cut, which is a good thing. The problem is that it also increased taxes elsewhere as it expanded public spending big time. The average increase in the national government budget of the previous administration was around P250-300 billion/year. Dutertenomics easily doubled this level: P670B increase in the first year (from 2016’s P2.68 trillion to 2017’s P3.35 trillion), another P420B increase next year with 2018 budget of P3.77 trillion.

Among the global NGOs that fight high and multiple taxes, big and wasteful public spending, is the World Taxpayers Association (WTA).

Formed in 1998 as Taxpayers Associations International, it was renamed as WTA IN 2000. It has many members from over 60 countries promoting lower tax rates, limited government, and more individual freedom.

The WTA held its regional forum and meeting last week, Dec. 9-10 at Rembrandt Hotel Bangkok, Thailand. I went there and I was the only participant with an institute from ASEAN countries. Other participants were from China, Hong Kong, South Korea, Japan, India, Nepal, Australia, UK, Sweden, US and Canada. Former WTA Sec. Gen. Bjorn Tarras-Wahlberg, current WTA Chairman Troy Lanigan who is also the president of Canadian Taxpayers Foundation (CTF), and current WTA Sec. Gen. Cristina Berechet were there.

Among the biggest members of WTA and represented in the Bangkok meeting are the Korea Taxpayers Association (KTA) with 1.2M dues-paying members, CTF with 117,000+ members, Taxpayers Alliance (UK) with 75,000+ members, others.

The Philippine government seems to be the most tax-hungry among the 10 members of the ASEAN as reflected in the total tax rate (TTR) as % of commercial profit. This is reported by the Price Waterhouse Coopers (PWC) in its “Paying Taxes” annual reports. TTR is the sum of corporate taxes + labor taxes (mandatory contributions for employees’ SSS, health, housing insurance, etc) + other taxes and fees (by other national and local government agencies).

On the country list, I chose members of the proposed Regional Comprehensive Economic Partnership (RCEP), composed of ASEAN 10 countries + 6 regular dialogue partners China, Japan, South Korea, India, Australia, New Zealand; then the two tiger economies in the region, Hong Kong and Taiwan. Also included are the biggest economies in North America (US and Canada) and Europe (Germany and UK). Of the 22 countries covered, only four (indicated by *) have experienced increase or deterioration in TTR (see table). 

The good news is that over the past five years, many countries and governments have learned to cut their various taxes and fees collected from corporate job creators. The bad news is that after such decrease, the level of TTR remains high.

Take the Philippines.

Its TTR has declined from 46.4% of firms’ commercial profit in 2012 to 42.9% in 2017, that’s the good news. The bad news is that this 42.9% is the highest in the ASEAN, even higher than socialist Vietnam.

So can the Duterte TRAIN help remove this dubious image of the Philippines having the most tax-hungry policies in the ASEAN and other neighboring countries?

With new tax hikes affecting the prices of cars, oil, electricity, and sweetened beverages; high VAT affecting many goods and services, the answer seems to be an ugly NO.

Dutertenomics could have improved this situation by cutting the VAT from 12% to 8% or lower with zero exemption except raw agri and fishery products. But Dutertenomics is focused on spend-spend-spend with little regard for the inflationary pressure of its tax-tax-tax policies.

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See also:

BWorld 168, Uncertainty in mining policy and the Manicani debate, December 12, 2017 

BWorld 169, On tobacco tax and plain packaging, December 12, 2017 

BWorld 170, The Habito carbon tax distortion, December 28, 2017

Tax Cut 14: APTU Meeting in Bangkok, March 1-2

The Asia-Pacific Taxpayers Union (APTU) meeting will be held in Bangkok this coming March 1-2. I got this notice and invite from a good friend, the Chairman of APTU and Sec-Gen. of the World Taxpayers Association (WTA, http://worldtaxpayers.org/), Mr. Bjorn Tarras-Wahlberg.

I met Bjorn first time in Seoul, S. Korea in October 2006 for the APTU meeting. I was then an official of the Philippine Taxpayers Union (PTU) headed by Mr. Veredigno "Vernie" Atienza. Photo here from left: Bjorn, Grover Norquist of the Americans for Tax Reforms (ATR, http://atr.org) during the Pacific Rim Policy Exchange in October 2009 in Singapore.

I realized I could not do my function well with PTU as I was also busy with Minimal Government Thinkers, so I told Vernie that I have to leave PTU but will work with it in its main advocacy -- to have a low, flat income tax (corporate and personal) in the Philippines. Abolition of income tax is actually possible as the government has dozens of various consumption-based and business taxes and fees, both national and local government units.

Bjorn came to Manila a few  times in 2009 and 2010. I was able to join him and Vernie in his meeting with former DOF Secretary Gary Teves (my former boss in Congress and in Think Tank, Inc.) and at Bjorn's talk at the Rotary Club of Rizal West, among his other activities here.

Additional photo also during the Singapore conference in 2009, Mr. Kim Sun-taek (middle), President of the Korea Taxpayers Association (KTA); the girl beside her was his English interpreter as Mr. Kim does not speak English. Next to Mr. Kim is Jargal Dambadarjaa of the Mongolians for Fair Taxes and Wise Spending, and Ms. Jamie White, then head of the Grassroot Institute Hawaii.

I told Bjorn that I cannot attend the Bangkok meeting this coming March due to my limited financial resources now. But I will try to blog and write about this important meeting. Below is the conference agenda and other details.
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Asia-Pacific Taxpayers Union Conference 1-2 March 2013
                      Hows to get Members & Money
                                  Pan Pacific Service Suites,
                  Eight Thonglor, Sukhumvit Soi 55, Bangkok

All taxpayers associations in the world, and their specialists, are invited to the Asia-Pacific Taxpayers Union Conference in Bangkok for a 2-days meeting, Friday-Saturday March 1-2. 

No Conference Fee.

Arrival: Thursday Feb 28. Welcome Drinks from 7 p.m. followed by dinner.
Departure: Sunday March 3 or when it suites you. Earlier arrival and longer stays are possible.

Regional meetings for taxpayers associations in Asia and the Pacific have taken place since 1995. In this part of the world you find taxpayers associations in Australia, China, Georgia, Hong Kong, India, Indonesia, Japan, Kazakhstan, Kyrgyzstan, Malaysia, Mongolia, Nepal, the Philippines, Pakistan, South Korea and Turkey.

Agenda: Friday 1 – Saturday 2 March

1. Presentations with information of latest achievements from participating associations
2. The 100-years history of taxpayers associations (Mr Bjorn T-W, World Taxpayers Associations
3. “Replace Income Tax by Consumption Tax” (Mr Bjorn T-W)
4. Protect the Flat Income Tax - now under fire in many countries (Mr Bjorn T-W)

     How to get Members & Money
5. Creating a Strategic Plan that Works (Mr Troy Lanigan, Canadian Taxpayers Federation) 
6. Different Techniques for Getting Members (Mr Bjorn T-W)
7. Empower your Donors to Fulfill Their Wishes - the different fundraising in Canada (Mr T. Lanigan)  
8. How Beijing Taxpayers manage to get 170.000 members and how extensive service can finance the organization,
now developing independent taxpayers associations all over China (Mr F. Liu, China)
9. How South Korea has achieved 1.300.000 internet members and how these are used and managed (Mr. Kim Sun Taek, Korea Taxpayers Association)
10. How a taxpayers association can work in developing countries (Mr Otieno Igogo, Tanzania Taxpayers)

      Better communication
11. How to Get Free Publicity with Creativity. (Mr Raymond Ho Man Kit, Momentum 107, Hong Kong)
12. Establishing a better Communication system between all APTU-members (Mr Fengjiang Liu, China)
13. Opportunity for paying APTU-members to communicate with members in other countries (Mr Fengjiang Liu, Beijing Taxpayers)
14. News in the Chinese tax system (Ms Qiao Shuping)

      Exchange of printed material
15. Exchange of magazine, books and other material between the member associations.
      Bring your samples to Bangkok (Mr. Fengjiang Liu, Beijing Taxpayers)

      Formal Issues & Elections
16. Report from the World Taxpayers Conference in May in Kiev. Words of welcome to the World Taxpayers Conference in Vancouver, Canada 29 - 31 May 2014 (Mr. Troy Lanigan)
…. Other issues

Hotel & Conference in the same building
15 min walk from Sky Train Station “Thonglor” (Close to stations Asok and Nana).
We offer reduced hotel prices incl. taxes & service, big breakfast, internet, gym and pool etc.
- Executive Suites (Studio 37 sqm) Baht 3.500 net/night (USD 117).
- One bedroom Suites (61 sqm) Baht 4.200 net/night (USD 140).
Cheaper hotels are also available. Urgent booking of hotels are requested.

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See also:
Tax Cut 10: Mongolian Taxpayers Movement, July 28, 2009
Tax Cut 11: US Tax Cuts, Retain Them, September 18, 2010
Tax Cut 12: Removing Taxes on Foreign Airlines, April 02, 2012
Tax Cut 13: Remove the Excise Tax on Oil Products, July 04, 2012

Abolish Income Tax 5: Consumption taxes, other government fees, November 25, 2009
Abolish Income Tax 6: Income tax and VAT trade-off, February 08, 2010
Abolish Income Tax 7: Rene Azurin, Peter Wallace, John Mangun, August 19, 2011
Abolish Income Tax 8. From low flat tax to zero income tax, September 30, 2011

APTU meeting in Bangkok, April 2011

The Asia-Pacific Taxpayers Union (APTU) will hold its annual meeting in Bangkok, Thailand, late this week, April 29-30. Venue will be the Rembrandt Hotel. I am supposed to be a part of this meeting, but I could not find a local sponsor to finance my trip.

APTU is the regional "branch" of the World Taxpayers Association (WTA). Members of APTU and WTA are taxpayers' associations or organizations or unions in various countries that fight for low and simple taxes, accountable government and taxpayers' rights. Minimal Government Thinkers, Inc. which I represent, is not exactly a member of APTU because MG is a think tank, not a taxpayers' movement. But we got into the APTU network because "small government, small taxes,..." are among our major advocacies.

This is my favorite picture in the WTA network. Bjorn, the Secretary General of WTA and Chairman of APTU (left), Grover Norquist, President of Americans for Tax Reforms (ATR), and me. This was during the 3rd Pacific Rim Policy Exchange held in Singapore in late September 2009. WTA and ATR are among the major sponsors of that big conference. ATR is also a member of WTA.

Among the members of APTU are the Korea Taxpayers Association (KTA), represented by its President, Mr. Kim Suntaek, 2nd from right, and the Mongolians for Fair Taxes and Wise Spending, headed by Jargal Dambadarjaa, right. KTA is perhaps the biggest taxpayers movement in the whole of Asia as they have several hundred thousands of dues-paying members. This picture was also taken during the Singapore conference in 2009.

Another affiliate of APTU is the Lion Rock Institute (LRI) in Hong Kong, headed by Peter Wong, here speaking. Some LRI fellows and members were the founders of Momentum 107, a taxpayers' movement in HK.

Some may wonder why HK, having among the lowest tax rates around the world, would need a taxpayers movement, or a free market think tank. Precisely the point, as there are moves by some HK politicians, to raise certain taxes, to expand government, to provide more welfarist programs, to enact interventionist policies like having a minimum wage law and creating a new bureaucracy, an Anti-Trust Commission. LRI and Momentum 107 are among the vocal groups that oppose such moves, to remind the HK government that HK progressed because of free market, not because of government interventionist policies.

Another important member of APTU is the Japanese for Tax Reforms (JTR) headed by Masaru Uchiyama or simply "Mr. You", leftmost. Mr. Raymond Ho, rightmost, is the the head of Momentum 107-HK, rightmost. Picture taken during the 4th Pacific Rim Policy Exchange in Sydney in late September 2010. Beside Mr. You is Khalil Ahmad, the head of Alternate Solutions Institute, Pakistan's real free market think tank, based in Lahore. AS Institute is not a member or affiliate of APTU yet.

I wish Bjorn and the participants from various Asia-Pacific countries, success in holding the annual meeting and conference.

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: BTW@worldtaxpayers.org +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

Tax Cut 3: Flat Tax Countries in the World, 2006

Below are countries which have low, flat income tax; parenthesis is year of introduction.
Note the "tax competition" sweeping eastern Europe.

Kyrgyzstan (2006) 10%
Kazakhstan (2007) 10%
Georgia (2005) 12%
Ukraine (2004) 13%
Russia (2001) 13%
Iraq (2004) 15%
Macedonia (2007) 15%; by 2008, 12%; by 2009, 10%
Romania (2005) 16%
Hong Kong (1947) max 16%
Slovakia (2004) 19%

Jersey and Guernsey (1940) 20%
Estonia (1994) 26%
by 2006 23%; by 2007 22%; by 2008 21%; by 2009 20%
Latvia (1994) 25%
Lithuania (1994) 33%
by July 2006 27%; by 2008 24%

source: World Taxpayers Association (WTA, www.worldtaxpayers.org)
Thanks to Bjorn Tarras-Wahlberg, the Sec-Gen. of WTA.

If the same type of "tax competition" will happen in Asia, then it will supplement the environment of less-regulated economy, at least compared to Europe, and should result in more dynamic economies.

But many Asian governments also aspire to be like the welfare states of Europe, paying less attention to the fiscal burden of such policy and just think more of the votes they can get during elections.