Jake's View | Action plan on tax an impossible task
For the proposed scheme to clamp down on tax evasion to be effective, it will require tracking down the domiciles of ultimate beneficiaries
The Group of 20 has fully endorsed an action plan to clamp down on tax avoidance which its creators say could lead to the biggest change in the global tax system since the 1920s
I shall go back a little further than the 1920s. The first income tax in the world was instituted by Britain in only 1798 and in the United States it was only permanently adopted in 1913. Before then, taxes were levied on imports, property, commodities, or were just straight extortion.
Income tax, therefore, has only a very recent history and is actually still more of a social experiment than a proven social institution.
It is also increasingly a failed experiment and for one simple reason - national governments, and therefore national tax authorities, are defined by national borders and their writ does not easily run outside them. Money, however, knows no borders these days.
Governments instinctively recognise it, which is why they now increasingly rely on other forms of taxation, most obviously value-added sales tax. They then compete against each other for foreign investment by reducing their income tax rates. Effectively, they increase taxes on the poor and reduce those on the rich.