Ability to pay (taxes)


Mohr and Fourie (2013, p 357) define taxation as “compulsory payments to government” and add that they are also one of the more emotional of all economic issues.

“There is only one tax that is popular, and that is the tax on the other fellow” Sir Thomas White.

“There is no such thing as a good tax” Winston Churchill

“The best of all taxes is that which is least in amount” Jean-Baptiste Say

In all nation states in the world today taxes are levied on the bulk of the population. As taxpayers we may agree that they should be as low as possible – politicians and those that benefit from wealth that is so confiscated do have other views.

JB Shaw

Denis the Menace

Irrespective of the view you may have of the quantum, the question does arise as to how to raise the revenue in the less disruptive way. Here Adam Smith outlined what he called “canons” or criteria for a good tax:

Equitable – in modern parlance it should achieve one of the economic goals of equity. Economical – The cost to gather the tax should not be exorbitant. Convenient - It should be simple to administer.

Certain – Often the uncertainty in modern tax regimes derives from its complexity.

One may also want to include the criteria of Neutrality which essentially means that the tax should not distort the smooth workings of the price system. All taxes have that effect and some more than others. For example – since VAT is such a broad tax that affects virtually every price its effect is devastating in its ability to retard economic growth. It is like pouring sand into an oiled machine. It is not like a once off tax like a poll tax – it has an ongoing negative effect on trade.The effect on the inflation may be once off - in the year that it is introduced, but it has the ability to keep the price levels on the higher level for how long it is in existence an keeps people poorer for as long as it is in effect.

C.M. Heydenrych

24 July 2015

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