Sunday, August 27, 2017


(adapted by C.M. Heydenrych fom other sources) Many statements are made in this article for which references need to be provided. There are many criteria for a "good tax" - all taxes however reduce the demand for that which is taxed. For example a sales tax would increase the price and that will mean that less of the product is demanded by the consumer. If less is demanded, less will be produced and that will affect employment and growth negatively.

Taxes are never neutral.

1. Equity:

The distribution of the tax burden should be equitable. Everyone should pay his or her ‘fair share’. A poll tax would be the fairest from that point of view.

2. Neutrality:

Taxes should be chosen so as to minimise interference with economic decisions in otherwise efficient markets. Such interferences impose ‘excess burden’ which should be minimised. This in reality is impossible.

3. Efficiency:

Where tax policy is used to achieve other objectives such as to grant investment incentives, this should be done so as to minimise interference with the equity of the system. In this regard VAT seems to meet the criteria best. 4. Certainty:

The tax which each individual is bound to pay ought to be certain and not arbitrary. The time of the payment, the manner of payment, and the quantity to be paid, all ought to be clear and plain to the contributor, and to every other person. This is not the case in South Africa - Mark Shuttleworth had to go the constitutional court to keep his money that the tax authorities wanted to arbitrarily confiscate

5. Economy:

Every tax ought to be so contrived as to both take out and keep out of the pockets of the people as little as possible over and above what it brings into the public treasury of the state. Administration and compliance costs should be as low as is compatible with the other objectives. Again the complexity of the South African tax system adds huge administrative costs.

6. Simplicity:

The tax system should permit fair and non-arbitrary administration and it should be understandable to the tax-payer. It means that the tax-system should be easily comprehensible to the tax-payer, i.e., its nature, method and basis of estimation should all be easily followed by each tax-payer. The SA tax system is very complex and creates many loopholes - this explains the huge "tax industry - accountants and lawyers need by business and individuals

7. Convenience:

Every tax ought to be levied at the time, or in a manner in which it is most likely to be convenient for the contributor to pay it.

8. Productivity:

A tax system to be thoroughly sound and enduring must be able to generate enough revenue to meet the requirements of the government. Government needs however seem to grow to the degree individuals are made to pay.

9. Elasticity:

In the system, there should be a capacity to respond quickly to the changes in the demand for revenue. This is particularly tru in war situations; however history has shown that once a tax is instituted it is very difficult to remove.

10. Diversity:

The tax system should be such that it depends on a number of taxes, so that every class of citizen may be called upon to contribute something towards the state revenue. This however leads to complexity of the tax system which then has its own problems.

11. Fiscal Objectives:

The tax structure should facilitate the use of fiscal policy for achievieng of growth objectives. This is the reason that many tax jurisdictions have reduced the tax levels to improve the economy. Mauritius, which is currently (2017) growing at more than 6% per annum is a good example.

ONE misconception regarding tax is that companies pay tax (in fact one often hears from the left that companies should pay more tax). Firms do not actually pay tax - taxes are paid by the owners of the factors of production: Labour (taxes on wages, skills levies and so on) Capital (taxes on dividends) and other taxes that eventually are paid by the customer and other individuals. Any tax on a company are paid for by individuals - there is less money available for wages,interest and profit.


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