I would like to state at the outset that I do not particularly enjoy paying tax. I think I am just like everyone else - I expect to get everything for free and whatever I earn, I should have the freedom to spend it on whatever I want, depending on my life's priorities.
However, I also appreciate that I live in a society and I do expect society to provide certain services, that just cannot be left to the private sector to provide. I am referring to education, security, health, water, pensions, and roads. The provision of these services and others like them has to be paid for by someone.
Effectively the yearly budget is an exercise of how these different services are provided and be funded. Part of this funding comes from fees that are charged for specific services such as the money we pay when getting a passport, another part today comes from EU funds (for example the funds that will be used to improve Mcast), and yet another part comes from taxation. Thus, taxation is nothing more than a way of redistributing income in society (which is necessary to achieve social cohesion and social justice) and a way of providing services to persons, who would otherwise not have the means of acquiring them.
Thus, taxation is necessary, but it is not a necessary evil, even though I would rather not have to pay it. It is necessary, as without it society would not survive. Irrespective of what some eminent people may feel, there is such a thing called society. Obviously the provision of these services has to be done in the most efficient manner possible to get maximum value from every lira spent, but reducing the concept of taxation to a personal issue of what I, as an individual, pay and what I, as an individual, get in return, would be negating the concept of society.
This why we cannot reduce the budget to what government takes away from me and what government gives in return - the truth is that whatever government picks up in taxation spends it again on services for us all. The critical point to make is when government runs the budget at a deficit it is putting back more than it takes. However, government cannot do this forever and therefore the objective for any government is that over a number of years the budget needs to be balanced.
So, how much tax do we really pay? The National Statistics Office recently published some data on tax revenues and what emerges is an interesting picture. The total tax take in last year was Lm734 million. This represents an increase of 27 per cent over 2002. 45.6 per cent of this taxation comes from indirect taxes, up from 43.2per cent in 2002. The contribution of direct taxation to the total tax take went down from 36.1 per cent in 2002 to 35.9 per cent last year; a marginal change. The contribution from social security contributions decreased from 20.7 per cent to 18.5 per cent over the same period. Thus, there is definitely a perceptible shift towards indirect taxation away from direct form of taxation.
This is interesting as indirect taxation can be seen as discretionary, whereas direct taxation is compulsory and I cannot get away from paying it. My income is taxed at source and so I have to pay it. On the other hand I can always choose whether to consume that good or service is being taxed. The best example is cigarettes and alcohol. If I do not like to pay tax, I can always cut my consumption of cigarettes and alcohol, and this is what makes indirect taxation discretionary.
Another important indicator is the tax burden - the amount that is collected in tax revenues as a percentage of the gross domestic product. The tax burden stood at 34 per cent last year while it was 31.5 per cent in 2002.
The shift towards indirect taxation is evident also here, as direct taxation and social security contributions increased as a percentage of GDP from 17.9 per cent to 18.5 per cent, while indirect taxes increased from 13.6 per cent to 15.5 per cent of GDP over the same four-year period. Personal income tax did increase as a percentage of the gross domestic product, but this would be something that is expected when incomes are also increasing.
In fact a small mathematical calculation would show that with a tax-take of 31.5 per cent of GDP in 2002, disposable GDP would amount to Lm1,257 million, while with a tax-take of 34 per cent last year, disposable GDP would amount to Lm1,423 million. Thus we were still better off, even though the tax-take was higher.
I strongly believe that we still have to address the issue of taxation in this country more seriously. It is good to reduce tax evasion and to adopt measures that would reduce the amount of tax paid by individuals. However, we need a thorough tax reform that would take into account today's and tomorrow's realities such as the need to increase female participation rate in the labour market, the environment, protection of the consumer and an ever-increasing need for social cohesion.