Tax wars (Business Mirror (Philippines))

WHILE hoping that it has never happened to you personally, to understand the situation that most developed nations are facing right now, imagine receiving your monthly credit-card statement. And you do not have the money to pay it.

For years you have been using your credit line to get you from paycheck to paycheck. Because you have always been able to pay the monthly amortization on time, the bank has increased your credit balance.

Now you find yourself stretched too thin. While it would be nice just to ignore the bill, you need that credit card to buy your daily gasoline just to get to work. That P1,000 note that you keep for emergencies in the back of your wallet comes out first. If the required payment is large enough, you might take some money out of your kid’s educational savings account. Finally, the money allotted for next week’s groceries goes to pay the bill.

But it is even worse for the political leaders trying to meet their government’s debt obligations than it is for you trying to pay your credit-card bill. These government officials not only face losing their comfortable jobs, but they also have to worry about the people rioting in the streets, as has happened too often in the last years.

Governments are in a mad scramble to raise cash and to keep their populations under control.

An easy way to control the people is by attacking their money. It only takes a law or two made in the public good. In this case, going after people’s money achieves control and raises cash. What could be sweeter?

The US Foreign Account Tax Compliance Act, or Fatca, requires foreign banks to monitor bank accounts of both US citizens and current or former US residents. The government wants to make sure no one has any money outside of their reach. But it is not just the US that is going after peoples’ money. France has passed rules that limit any cash payments to €1,000.

However, the most effective method for both control of the population and grabbing all the money a government can is through taxation.

The Australian government is aggressively pushing for a bank-deposit tax that will tax the amount people put into their savings account, not just a tax on the earned interest.

Think about that. You are income taxed when you make it. You are value-added taxed when you spend it. Now you are deposit taxed when you save it.

The lyrics to the 1966 song Taxman by The Beatles’s member George Harrison now sounds like a prediction; Be thankful I don’t take it all-Cos I’m the taxman.

Governments are not only waging a tax war on their citizens but on other governments. Global companies doing business in multiple countries are facing an onslaught of new rules so that every nation gets their cut of the pie.

Apple, Google and Microsoft are the principle targets. These companies set their corporate structure so that their net income goes to countries where the income-tax rates are lower. American companies shield an estimated $1.9 trillion income offshore, safe from the US taxing authorities.

But here is the irony. The US originally supported this type of move but now has backed away since it potentially will reduce US tax revenues from these companies, as the foreign nations where these do business will get a larger share.

Indonesia intends to open another front in its own Tax War against other regional neighbors. It will lower corporate-tax rates from the current 25 percent to 17.5 percent. This is to keep foreign companies from doing business in Singapore, which has a lower tax regimen and attract business to Indonesia. Singapore loses; Indo wins.

This new taxation scheme by Indonesia will provide a boost to their already record-high foreign direct investment of $37 billion in 2014, a 16-percent increase from the previous year. President Joko Widodo’s administration understands that in addition to making doing business in the country easier, the bottom line for most companies is their bottom line. Incentives are transitory but for the longer term, a lower tax rate makes a huge difference in their decision where to do business.

The Philippines, on the other hand, takes a more peaceful approach in the tax war between nations, having the highest corporate-tax rate of any of our neighbors, even 50 percent higher than Thailand and Vietnam.

But perhaps not wanting to be totally out of the war, the Philippines also levies the highest individual rates-based on income-of all our neighbors. This includes people from the poorest 10 percent through the richest 10 percent of Filipinos. We know who the losers in this battle are going to be.