What is tax?
A compulsory contribution to state revenue, levied by the government on workers' income and business profits. (That's as simple a definition as I can find).
What is tax revenue used for?
Do we need to look at that? Ok maybe we should as missing one element of this can spell disaster. The most comprehensive use for tax that fits this discussion is on wikipedia:
Money provided by taxation has been used by states and their functional equivalents throughout history to carry out many functions. Some of these include expenditures on war, the enforcement of law and public order, protection of property, economic infrastructure (roads, legal tender, enforcement of contracts, etc.), public works, social engineering, and the operation of government itself. Governments also use taxes to fund welfare and public services. A portion of taxes also go to pay off the state's debt and the interest this debt accumulates.
So why pay tax again?
As outlined above, all services you require from government are provided for through taxes and borrowing (loans, grants, etc) both from internal sources and external sources. So failure to pay tax implies a vote to have little government provided goods and services. This actually is the real "If you wont pay, it will never show!". Your taxes determine what you will receive from government. In Zambia we have to be quick and say all things equal as we are used to seeing our money being used to enrich some leaders! Someone told me its the only way we know how taxes are used in Zambia is wrong ways.
So I believe its about time we started believing in the usefulness of the taxes we pay. But most importantly, leaders need to show us where the taxes we pay go to. That is the remedy. It does not go well when billions are being buried, with no sign of what was put up from the taxes paid!
So can we embark on this trip of Augmented Tax Incentive Economics!
Theres no argument on the need for tax. However the failure in the tax regime here as well as most countries around the world is its fairness.
ReplyDeleteIt is evident and not even hid by wealthy philantropists like warren buffet that the rich have a lower tax rate than the middle income and the poor.
Taxes were first introduced as a means or redistributing wealth. This later on required an organised methodology to continue but as more and more money was required for wider societal needs taxes were imposed to middle income which gradually moved to low income as it became incredibly more difficult to tax the rich.
I strongly believe better methods of taxation should be introduced, like the flat tax
I have always been a complete supporter of progressive tax. I believe progressivity (in taxes) brings with it a re-distribution of the the tax burden. More so that the rich will be taxed more than the poor. I oppose a flat rate tax on the basis that progressive tax systems are fair because they tax disposable income (income minus expenses). The rich will have more disposable income compared to the poor so the rich will pay more.
ReplyDeleteHowever, your point got me thinking about the merits of the flat rate tax. And I came across an interesting reading that flat tax encourages economic growth by avoiding a system in which you are penalized in higher taxes for being productive and earning more money (http://taxes.about.com/od/statetaxes/a/Flat-tax.htm). It makes sense since higher tax are applied to the rich, they would be no incentive to be productive so as to avoid those taxes, however, this exact point makes me smile, as it clearly shows that progressive tax rates will force a re-distribution of income from the rich to the poor.
Over the past years, I have realized another angle to the tax debate which makes me look at it more of contributing to societal progress than mere re-distribution of income. This is when you take taxes as a contribution to public services provided by the government. I believe the wealthy should pay an extra cent than the poor. The rich will have more to lose with the break down of any government service than the poor.
The fairness of tax in itself still has no clear lines to argue on. Thanks for the contribution and you made me look back at some tax aspects as well
I totally agree with you. There is need to have better methods of taxation.
ReplyDeleteAnd to add to that, in Zambia, there is a greater need to push and show tax payers that there taxes are contributing to the greatness of this nation. We need to see our taxes in form of infrastructure development and such. Not worrying about whose son used taxes for which house or car!