Wednesday, March 19, 2008

taxes - encouraging to be dishonest & migration

The man who has found a loophole in the law, one through which he can drive his gold platted Rolls, will certainly keep the secret to himself.

What should be a true tax rate, rather a rate that seems to be acceptable not only to the taxer but also to the taxed. Well for one, most people would like to live with no tax; governments would not take too kindly to that note.

So we refer to experience and that seems to imply that the magical figure is 10%. At 10% most of us would rather get along with life; rather when the effort to evade is greater than the effort to pay, then we will pay. This should be the nominal tax rate and this would translate to roughly about a months pay form the taxed to the state exchequer, I think it is fair, I mean if an employer is ready to provide a months paid leave, I am sure an employee can provide for the state exchequer vide a months paid leave. (easy come, easy go)

Significantly, 11 months of work for oneself and one for the state exchequer is not a bad deal.

So the question is with a tax rate of 30%-35%, does the exchequer really believe that
people would pay their taxes. Actually roughly translated that is three and a half months of work going to the state exchequer and quiet naturally that is met by general evasion.
You don't need to be Einstein to figure out that increasing taxes further from this rate would not yield any additional taxes to the exchequer what it would yield is increased evasion.

So why not reduce tax rates, well as of now there is no precedent that tells any bureaucrat that a reduction will yield an increase in tax collections, logically a decrease in tax rates would yield a lower revenue but we already know that the converse works.

Another aspect is the high tax rates make it comfortable for a bribe.
Yes, my life is easier and richer still(by evading taxes) and the tax-mans life is comfortable by cadging a bribe. So the high tax rates will stay, for how can we stifle the income of the tax man.

So the question is should we increase bureaucracy and thus generate more income for our state officials but reduce income for the state exchequer or should we reduce taxes which empirically will get more people to pay taxes and not evade taxes but reduce income for our state officials.

I think the answer is empirical, not logical.
Systems get more bureaucratic so that means state officials continue to make money and we still live but with a tad dishonesty. If systems do get less bureaucratic, then that state is actually asking you to be honest at the cost of its state officials who is poorer now, but you are living a hassle free and honest life.

Could that be?, I think not.
our systems makes us dishonest, which will one way or the other has become a part of the culture as it is a part of the land we live in.
So what do people do in such a scenario, well the same that people did a thousand years ago, they migrate to other lands.

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