Jake's View

What Hong Kong could teach the world about taxes

PUBLISHED : Monday, 11 April, 2016, 6:21pm
UPDATED : Tuesday, 12 April, 2016, 9:27am

When I settled permanently in Hong Kong I did so not just because the work was interesting, the transport infrastructure marvellous and the salary package attractive – nor simply to escape the awful British weather. I did so because I escaped onerous British taxes and horrendous, stressful weeks, completing nonsensically complex tax returns for Britain’s Inland Revenue.

David Dodwell,

Back to Business, April 11

Substitute Greater Toronto Empire for the word Britain and you have my case, right to the weather. In Vancouver they have two seasons, Rain and August, while unity with Toronto, 3,400 kilometres away, consists of not being the United States and having a tax code almost as bad.

What a delight it was to receive my first pay notice in Hong Kong. The bank told me my employer had deposited into my account exactly what he said I would get and not just half that figure with the other half lost to tax, union dues, workers compensation, unemployment insurance, provincial medical, Canada pension and on and on and on.

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“What about the taxes?” I asked and the boss replied, “Oh, we pay a year-end bonus to cover that. Make sure to pass it on to the taxman then or Immigration won’t allow you to come back in again if you step out.”

What a delight, right down to the low tax rate. And what a relief the tax form was – (1) Is this still your name? (2) Is this still your address? (3) Write down the income number your employer gave you. (4) Sign this form. (5) Mail it back to us. Yes, my friend, David Dodwell, and I are one here.

And I entirely agree with him that, provided you comply with the letter of the law, you are at liberty to use what means you can to keep the taxman at bay, even if it means doing it through a Panama law firm with a bank account in Bananas R Us. I simply cannot get worked up about this Panama “scandal”.

The big point here to my mind, however, is that the notion of income tax, always a flawed one, even when first conceived centuries ago, has been proved an utter anachronism in the 21st century.

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Governments are defined by the geographic territory over which they rule, not by any industry over which each separately has exclusive worldwide authority or by worldwide capital flow to which any can lay exclusive claim. The natural revenue base for government is land.

But, of course, this didn’t suit the privileged classes who exclusively ran government when income tax was invented. They themselves represented the almost exclusive ownership of land. They would only be taxing themselves. To fund their wars they wanted to spread more of the burden to those who already carried most of it. That’s the history of income tax.

And now the bureaucrats are screaming because money knows no borders in today’s world and can easily go where the ever grasping hand of government cannot. In any country that has had any success in erecting borders against capital flows, people are invariably poor and cannot be bled much more anyway.

I fully accept that many ages will pass before any government comes to its senses about this and realises that equitable taxes on land are easy to collect, that they will see the forced return to productive work of tens of millions of tax lawyers, and are also the ideal tool for land use planning.

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Meanwhile, no place on this planet can be closer to this ideal revenue system than our very own Hong Kong. The government already holds title to all the land, its revenues are already heavily based on sales of land leases and lease modifications along with rates and stamp duties on land transactions.

It would not take many years of gradual reduction of salaries and profits tax along with concomitant increases in land taxes to put our public revenues on a truly sustainable, minimally invasive tax base with low collection costs. We could become worldwide leaders here.

But I recognise futility. To paraphrase those immortal poets, Phil and Don Everly,

When I want sense and all its charms,

All I have to do is dream, dream, dream.