The Current Tax Model Is Flawed
The existing tax model is evidently flawed, which can be seen in the continued examples of tax avoidance in the news. Tax avoidance is legally acceptable in Britain, Europe, and internationally, but it is ethically reprehensible. Expensive accountants are more than happy to exploit the tax loopholes in British law. This has been demonstrated by Vodafone UK, Barclays Bank, Starbucks, Google, Amazon, and other big brands in Britain, as well as individuals.
If governments are unable to effectively gather tax due to these tax avoidance schemes it has two immediate effects:
- Rich companies and individuals will continue to get richer, simply because they are not paying tax. Those who cannot afford expensive accountants will go on paying their taxes, thereby increasing the divide between the rich and the poor.
- The state has fewer resources to protect and support those individuals that need it. With less resources to draw upon state services will inevitably suffer, including education, child protective services, health services, state housing, police, and armed forces. In many countries around the world these state services are in dire need of repair, including Britain and New Zealand. A symptom of this is the high rate of homelessness and people relying upon food banks or charities to meet their basic needs.
The Proposed New Tax Model
The current tax model is based around having a brick-and-mortar company and the company sorts out the tax on their side. Multinational companies willing to exploit complex international tax laws can pay well below the national tax rate. As demonstrated above, multinational companies should not be expected to ‘do the right thing’ and ‘pay their fair share’. Instead of relying on the company to pay their tax it would be simpler to shift the expectation from the companies to the banks as part of every transaction.
Whether a purchase is made in-store or online, most payments are now performed electronically / digitally. This usually means that the person making a purchase makes a payment with an EFTPOS, bank, debit, or credit card. These payments are performed by the shop to the bank. People making purchases typically bank with a bank in the same country that the purchaser lives. It would be straight forward for the bank to ‘clip the ticket’ and take the tax as part of every transaction, whether the transaction was made in-store or online. This means that the bank would immediately take the tax as part of the transaction and immediately pass on the tax to the government immediately. To allow this process to happen the tax percentage would need to be simplified, such as to 15% tax on every transaction made by individuals and 25% tax made by companies.
This model is based on shifting tax law from focusing on companies and individuals to the purchase and transaction. In computer science, the current tax model is similar to a server-side model. The proposed new tax model would be similar to a client-side model. This shift has the following benefits:
- By reducing tax laws to a dozen simple rules would make tax laws far easier to enforce. In-turn this would make auditing companies and individuals far easier for Inland Revenue / Internal Revenue Service.
- There would be much less tax avoidance because there would be far fewer loopholes to exploit. This would make complex international tax laws irrelevant because the tax is taken at the point of sale on the purchaser’s side.
- The state would have more resources to protect and support those individuals that need it, in the form of education, child protective services, health services, state housing, police, and armed forces.