Tax Retrenchment
Now!
Learning from B-EST practice
James Oates
Glasgow 4th October
2014
Tax Efficiency
• Maximise revenue with minimum
distortion
• “Pluck the goose to get the maximum
amount of feathers with the minimum
amount of hissing”- Colbert
• Debate should not be about marginal
rates, but tax efficiency
2
Defining the problem
• The United Kingdom has a tax code in
excess of 11,325 PAGES long
• It is the Longest Tax Code in the world
• Nominally Progressive it is actually
highly Regressive
• It is literally impossible to understand
and has been designed that way
3
Tax competitiveness
4
Tax take as % of GDP
Source: Eurostat
5
Cost of Tax
Administration
UK
Estonia
Source: OECD
6
Time to file tax return / year
Hours
250
200
150
Hours
100
50
0
Estonia
UK
US
Germany
Source: World Bank
7
Esto-Tax System
A Quick Overview
OK So, where again?
9
Flat may not be regressive
•
•
•
•
Flat Tax of 21%
Basic Tax Free Rate= €144/month
€355/month minimum wage (av. €1023)
Limited exemptions to lift BTFR
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–
–
–
–
Housing loan up to € 160 / month
Pensions payments up to 210/ month
Training costs
Donations
All not greater than 50% of total income
• 99.7% of filings made Online
10
Social tax is high
• Social tax rate is 33% of gross wages
• Min. rate which is the basis for payment
of social tax is €320 /month
• Minimum social tax liability of employers
is €105.60 (monthly rate x 33%)
Minimum social tax liability of sole
proprietors is €316.80 per quarter
(€1267.20 per year)
• 1% (2%) unemployment insurance
11
Entrepreneurship fostered
• Corporation tax is 0% on undistributed
profits, 21% on distributed profits
• Takes minutes to set up limited
company and open bank accounts
• Expectation of entrepreneurship
• High PISA rankings show quality of
workforce
12
Land Tax
• Collected as state level tax, but 100% of the revenue is
used to fund Local Councils.
• The rate is set by the Local Council within the limits of 0.12.5%.
• is levied on the value of the land only, improvements are
not considered.
• Few exemptions- even public institutions are subject to the
land value tax. Land that is the site of a church is exempt,
but other land held by religious institutions is not exempt.
• >90% of residences within Estonia are owner occupied
compared to a rate of 67.4% in the United States.
13
Conclusions
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•
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Simple & Clear tax system
Low cost of administration
High use of technology (land registry)
Structural rather than policy-driven
goals
• Plenty of feathers but much less hissing
14