The tax man cometh

Tax evasion is illegal but what is it? Faithful Wiki tells us that tax evasion is an illegal practice where a person, organization or corporation intentionally avoids paying his/her/its true tax liability. So not very helpful. Tax avoidance is legal but what is it? Tax avoidance, says Wiki, is the legal usage of the tax regime in a single territory to one’s own advantage to reduce the amount of tax that is payable by means that are within the law. Since when?

Notice how the ‘single territory’ has crept in like a bed-bug poised to bite. Anyway, the definition is wrong. Most tax authorities now have the right to challenge the lawful use of the law to minimise the amount of tax you shall pay. If you do something that is “deemed” to be for the purpose of avoiding (not ‘evading’) tax you can be clobbered. Not their fault that the law was a cack-handed ass. Quite the reverse – your fault for being too clever.

We do not have a world tax system, nor are we likely to have one in the foreseeable future. How taxes are raised and the amount collected will therefore continue to be different from one country to another. It is possible for you to choose to live in a country where taxation is low. You will likely find the costs commensurately higher or the standard of living disproportionately lower to compensate for your tax benefit. But where you live will for most people be a matter of choice, not of fiduciary convenience.

Many governments chop and change the tax system in a way that would lose a financial advisor his license. People plan their financial lives partly around what they need to save and partly around what they can afford to save. Both of these are determined by the tax regime. So someone who has led a prudent financial life until retirement can be seriously disadvantaged by sudden and major changes in tax.

For example, British citizens who, for whatever reason, live abroad in their retirement now find that the British National Pension to which they have contributed all their working life is frozen at the amount it was on their day of departure from UK. They lose, forever, the “guaranteed” inflationary increases they were promised when the premiums were extracted, involuntarily month by month, from their wages while they were employed. It is called theft.
There are many other examples.

There need to be two standards applied to personal taxation. First, the rules you were originally taxed under should, as far as possible, remain the taxation rules for your life. How otherwise are people to plan sensibly for their old age? Second, the rules should be the law and not some interpretation of it any Johnny-come-lately decides suit his or her political whims. A country that cannot draft its laws intelligently doesn’t deserve obedience to them.

People who deliberately cheat the tax man should go to prison. People who seek to minimise the amount of tax they have to pay within the law should be encouraged. They are behaving in a way that will minimise their dependence on the state when they are old and sick. That is commendable.

A cat-and-mouse game over personal taxation is a disgrace we should not put up with.