The Public Miseducation on Taxation
Tax is a topic that affects everyone’s life in some way. Whether it is paying taxes on property, tax on business activity, taxes on consumption (VAT) or taxes on personal income. Tax is something that most people dislike but realize they still have to pay. There is that feeling, when you just got a pay rise and you are eagerly waiting for payday, and you look at your bank balance, and remember how much went to the ‘Tax Man’. It is a horrible feeling.
As the public are personally invested in the topic of tax, there is a sense of injustice when we see headlines like “Big companies pay no taxes” or “high net worth individuals pay nil income taxes”. Though this indignation feels justified, because we all feel the pinch of tax out of our wallets, there is a question as to whether this indignation is coming from a place of understanding. There needs to be a greater understanding as to how the tax system works and whose fault it is when it does not produce the intended results. This feels even more painful during a global pandemic and we see the government spending vast amounts of money from our tax revenues. It can feel like everyone else is subsidizing the rich, that can already afford it.
There are a few things that come up in the public discourse around taxation, of which, a lot is either not accurate or misinformed. Some news headlines are easy to make. Some accusations are also easy to make. But having an accurate debate on the topic of taxation can lead to greater reform, sooner. I have picked two points that are part of the ‘miseducation’ on taxation.
- Headlines linking company revenue with tax paid
There are many headlines that hit the news about large multinationals not paying enough taxes. Over the past 10 years, more and more attention has been placed on this issue. During the public discourse on this debate, there is a phrase that keeps being said which is wrong and misplaced. The phrase is “Company X generated £billion revenue but paid £nil tax”. Though this fact is quite alarming and would raise eyebrows, there is something fundamentally wrong with this. Company taxes are paid on ‘taxable profits’ and this is quite an important distinction. Taxes are not paid on revenue. The tax geeks reading this article may point me to current discussions about ‘Digital Services Taxes’ but this is separate to what I am talking about. Taxes are paid on taxable profit and this is even different to accounting profit. With that being said, I would prefer there to be headlines which compared ‘accounting profit to taxes paid’ than ‘revenue to taxes paid’. The latter makes no sense and is wrong but the former is close enough, though still not a perfect correlation. This realization needs to be corrected in the public discourse on tax.
2. If you want to fix the tax system, you have to fix tax law
The tax system is based on the law. Tax is not created in a vacuum and people that abuse the system, are actually abusing the law. Therefore, the issue of inequality and imbalance in how taxes are paid falls at the feet of legislators. The buck stops with them. Abuse of tax laws have been going on for decades and it is surprising that not enough has been done to deal with it. A reason could be that legislators are not bold enough, to put in place radical reform, because of the fear of the rich and wealthy migrating to a ‘tax friendly’ country. Another reason could be that they just don’t know what they are doing. It could be a mixture of the two. If the public are disgusted by how the tax system is being abused, the next action should be requesting their local legislator to change the law. In the case of legislators, they should also be bold and implement tax reforms that bring fairness to the tax system. Tax is a topic that stirs emotions. It is important that legislators and the public don’t give into the emotional response lobbying groups want to ignite. The public and legislators should instead look at the evidence, statistics and facts. When discussing tax reforms there needs to be an open mind. If not, after several debates and consultations, things end up remaining the same.
