Thursday, 9 January 2014

Taxing Turnover

I have long had the idea that instead of taxing nett profits with corporation tax. A far better idea would be to tax the business turnover. This is because the present system has become so corrupted, with the use of offshore tax havens and also dubious expenses, and other deductibles.

Because the present system is so complex it has spawned a veritable army of tax collectors, accountants, auditors and lawyers, and compliance procedures. All of this has a massive ongoing and unavoidable cost for every business. As a rule of thumb most businesses earn approximately 10% Nett profit and on this profit they pay around 20% corporation tax.  This equates to a tax burden of 2% of Turnover.

Contained within the expenses of the business will be entries for Accountant, Audit, Lawyers and compliance costs and for bigger companies lobbying costs to make the whole system favourable for them at the expense of others. When the Government receives this corporation tax payment there will be significant costs for the whole tax collection process and also ongoing verification, compliance and enforcement costs.

With my proposal the business simply pays 2% of Turnover as a fixed business cost, So instead of Corporation Tax becoming a variable cost based on profits, it becomes a fixed cost based on turnover

The advantage to the business is significantly lower costs as they eliminate Accountants, Lawyers, Auditors, Lobbyists, and all the compliance costs. It also wipes out the offshore tax avoidance industry virtually overnight. It also frees the business of wasted time to concentrate on what they do best making money and not being unpaid tax collectors.

Business turnover this last year $1,000,000 tax to pay 2% = $20,000

When the Government receives these tax payments they have virtually no further tax collection costs. many tax collector employees could be laid off and tax offices closed. So a far higher percentage of the money collected goes to where it should to pay for services that the taxpayers actually receive. Rather than the present system where so much money is wasted in Tax Collection bureaucracy because of the enormously complex nature of the whole tax code and system.

I believe that because of the Offshore Tax Avoidance Industry, with my proposal of taxing turnover at 2% rather than collecting 20% of a very manipulated and massaged nett profit the Government would actually collect far more tax. This then opens the opportunity to actually reduce the rate to 1.5% or even 1% of turnover. If you complete a transaction within the country, either a cash till sale or invoice sale that is the turnover you simply pay tax at the end of the year on the value of all those transactions. If you have a bad debt, that is a credit note that is deducted from the value of all those transactions. It is so simple to operate and enforce. As the turnover then flows directly to the business bank account.

Businesses benefit with significant cost savings, It also levels the playing field somewhat as large companies loose the unfair advantages of the offshore tax industry. Government benefits with a larger and easily enforceable simple corporation tax system, that is far cheaper and easier to operate. The only people who would not benefit are Accountants, Auditors, Lawyers, Lobbyists as well as employees of the Tax Collection system as far fewer would be needed.

However lets be honest as regards the whole business process these people are simply hangers on, they add no value to the business, they are parasites who thrive within a deliberately complex system that only benefits themselves and not the Business or the Government.

With my system Business would have less to pay, and Government would have more to spend.


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