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Taxing seriously

Taxation remains an issue of controversy, even though the basic structure is in place and unlikely to be drastically changed in the foreseeable future. It is made up of direct and indirect taxes, incorporating taxes on income, transfers of immovable property or rights thereto, value added tax, and excise and customs duty. The government has other major revenue sources, such as from registration of vehicles.

Social security contributions by employers and employees are also considered to be a technical form of taxation, since they reduce disposable income, but are not seen any more as a polemical factor.

The ongoing controversy is not so much about the structure of taxation, but on the amount of money exacted through it. There is no longer even a hint of a suggestion to abolish income tax or to replace VAT by some other indirect tax. On the other hand there is regular contrast about the amount of tax being collected by both, as well as on the range of applicability of VAT at its various rates (zero, five and 18 per cent).

Beyond the controversy there are basic facts which have to be the backdrop to any debate and changes that may be proposed. The starting point is that, as the black saying goes, taxes are as inevitable as death. There are those who avoid some of them especially as regards income tax. And the audit trail that was to be made possible through the introduction of the Value Added Tax has not been marked out as indelibly as desired. Legislative amendments in this regard may bring about some tightening. But fiscal immorality remains rampant in a society that does not include tax evasion as a form of sinning against one's neighbour. If fiscal morality were more widespread there could be room for some easing of the tax burden beyond that touted from time to time mainly for political reasons.

Even then, however, taxation would be inevitable. It provides the revenue the political administration requires to run the country.

Part of the ongoing debate includes the charge, which invariably springs from the Opposition of the day but tends to be shared by a broad majority, that the government, somewhat like Othello, spends too much, and not wisely at all. Waste and worse are charges regularly levelled at the government.

Again, even if governments spend wisely and well, practise thrift and efficiency and ensure value for money on all public expenditure, taxation would remain inevitable. Ongoing controversy recognises that, and centres on the burden of taxation within those fairly clear parameters.

The burden of taxation is different from the rates applied. The rates may remain the same, but the burden will rise. That happens if the nominal GDP goes up, that is, it increases at current market prices. That is where the government and opposition are at loggerheads.

The opposition regularly claims that the burden of taxation is rising. The government replies that rates have not been increased. Rather, they have been cut. The truth is wrapped in half transparent paper.

In recent years the income tax rate structure has travelled along a quasi-roller coaster. Some years back the bands were changed, such that the tax burden on those who do not evade increased. That was fairly quickly followed by a new adjustment, whereby the bands were eased more or less to previous levels. Last year there was another change. This time those who are taxable were given some tax relief. Other things remaining equal, their burden eased somewhat.

Needless to say, things do not remain equal. Every employee receives the statutory cost of living increase. Some employees are eligible for annual increments according to their salary scales, or to annual increases in line with their collective agreement.

Others change jobs and move to higher paying alternatives. (Those who lose their jobs and suffer a cut in income, ironically do not feature in this type of discussion.)

Such changes attract a higher tax burden. That may be grist for the political mill, but not grist of the serious type. One should talk about a real increase in the burden of taxation when tax rates increase, or bands are altered such that the marginal rate applicable to each band is made to kick in earlier than hitherto.

Nor is it the case that it is a serious government argument to claim that thousands of people do not pay tax. They may not pay income tax, especially given that such a high proportion of our society lives below or hovers at the poverty line. But practically everybody comes within the indirect taxation net. Aside from excise and customs duty, Vat is very flung. That was what that particular tax is all about.

It is amusing - should one be of good humour - to hear government spokespersons, including the Prime Minister over the weekend, say that tax rates have not gone up, but were eased. The easing refers to income tax rates as from this current basis year. The top Vat rate had hone up not so long ago, from 15 to 18 per cent.

John Dalli raised it when he was still Finance Minister. He does not try to hide that fact.

He actually reminded all and sundry very recently that the narrowing of the structural deficit had been in part due to that particular tax increase, for which he paid a personal political price.

The debate about the burden of taxation will continue. It would be more relevant if it was kept within its proper parameters.
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