OPINION | Tax Policy
by 50% and poverty reduced from 50% of the population to 15%, this in a nation which had no natural resources apart from its then poorly educated people. Immigration of escapees from China could have placed intolerable burdens on the state but the reverse has been the case. The quandary for Hong Kong is that it enjoyed democracy under British rule and reacts to the imposition of authoritarian rule from China but its citizens are also apprehensive that elsewhere in the world, democracy has resulted in heavy taxes on income whereas tax in Hong Kong is very light and poor people and the less well paid working people pay virtually no tax. There is no PAYE (pay as you earn) and employees pay the tax themselves for the year when income is earned and also for the following year, which gives the government a future resource to draw on. The people therefore are directly aware of their tax burden which is 16% of income, while people in other countries have no idea how much tax they pay obfuscated as it is in myriad different forms. Hong Kong’s success demonstrates
the value of a) low flat rate of tax, b) tax is concentrated on high income earners, c) the amount of tax each person pays is visible to the tax payer, d) tax is applied to consumption because it is fairer to take it from those who consume than on those who input into the common wealth. Hong Kong’s taxes are low and also simple, its Inland Revenue Ordinance (IRO) is 200 pages long, compared with the UK where Tolley’s Tax Guide is over 11,000 pages long and grows each year. A comprehensive analysis is given by Michael Littlewood, How Simple Can Tax Law Be?: The Instructive Case Of Hong Kong. In Hong Kong, tax is not levied on dividends or interest on savings or capital gains and allowances for plant and machinery are generous. By this means investment is encouraged. All tax originates from businesses which
produce profits and employ people to provide services, make goods, work in agriculture or import and sell products.
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‘ By lowering WPT for specific industries, for instance, consumer electronics or consumer plastics, where Britain lags other nations, could be used to stimulate businesses growth’
salary would be reduced by £10,000 and the employer would pay this as a lump including corporation and other taxes. These direct and indirect taxes would be deducted from the profits made by the employer. The actual amount wealth producers
Arthur Laffer in 1981. His theory linking tax cutting and economic growth has been revived in President Trump’s plan
These ‘Wealth Producers’ have to pay their employees a sufficient amount for them to maintain their living standards. We are all taxed many times over, if we deal only with the well-known taxes which come easily to mind, they are, PAYE, VAT, Car Purchase Tax, Fuel Tax, Road Fund Licence, Business Rates, Rates on our homes, National Health, Capital Gains Tax, Inheritance Tax, Stamp Duty. There are others and it is obvious that taxation takes too much of the nation’s resources and in doing so suppresses enterprise. So that employees can pay these taxes, employers have to increase the income of their staff by an extra amount over and above what they would have to pay them to have reasonable living standards.
T
he proposed new means of gathering revenue for the exchequer would be via a
Wealth Producers’ Tax (WPT). Employers would pay their own taxes plus those of their employees. If we simplify an example for the sake of illustration only; imagine an employee with an income of £30,000 and we say that £10,000 of that income goes to pay the taxes the employee is liable for. Under WPT, the employee’s
pay in tax would decrease because COVR would be much closer than the current system to 100%. Because of the simplicity and efficiency of collection, the savings over the existing machinery would mean that the Revenue would have a greater tax take. All forms of taxation except for that which would be applied to the wealth producers would be removed. Since the employer already has an accounts section which deducts such taxes as National Insurance, the incremental cost of paying WPT would not be significant and would be certainly less than that under the
current tax regime. By lowering WPT for specific industries, for instance, consumer electronics or consumer plastics, where Britain lags other nations, could be used to stimulate businesses growth. There will be questions about the tax
applicable to employees such as teachers, MPs and civil servants. Since these are wealth consumers and the finance for their operation comes from wealth producers, they would not pay tax but their income would be reduced by the amount they would otherwise pay in to settle their tax liabilities. WPT has the potential to so simplify
the tax regime that it could stimulate economic progress in UK. There will undoubtedly be objection and demerits with WPT but the advantages would outweigh the extreme complexities of the current taxation methods and we hope will stimulate debate on simplification of tax. n
Derek Bates is a consulting scientist to industry and has written books and articles on social, economic, political and taxation reform. He recently lectured at the London Futurists conference at Birkbeck College
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