Tax Retrenchment Now!

Learning from B-EST practice

James OatesGlasgow 4th October 2014

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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

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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

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Tax competitiveness

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Tax take as % of GDP

Source: Eurostat

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Cost of Tax Administration

UK Estonia

Source: OECD

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Time to file tax return / year

Estonia UK US Germany0

50

100

150

200

250

Hours

Hours

Source: World Bank

Esto-Tax System

A Quick Overview

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OK So, where again?

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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

– 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

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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

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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

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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 0.1-2.5%.

• 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.

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Conclusions

• 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