Wednesday, 8 February 2012

Harry and Tax reform

Harry Redknapp and his former Portsmouth associates have been cleared of tax evasion. Of course, since the money appears to have been "lost", there is no way of knowing whether it really was tax evasion or not short of a confession.

If this payment really was intended to evade tax, then we have learned that it is easy to get away with doing so. If it was not, then we have learned that tax issues are very complicated and that attempts to uncover evasion are fraught with difficulties. Innocent people have had to go through a trial because their activities looked suspiciously like tax evasion.

Presumably, the defendants were found innocent on the assumption that the payment was a 'gift' rather than a 'reward'. The tax authorities pointed out that the gift corresponded exactly to the difference that Redknapp lost on deals since his previous contract. But why should gifts--particularly ones this large--be tax-free while payments not? This is an area that is ripe for abuse.

It seems to me that this case highlights the need for a much more joined up approach to taxation before it becomes totally impossible to impose any kind of progressive taxation at all. Where there are lots of taxes (with many gaps between them) and lots of loopholes many people (almost entirely consisting of the wealthy and powerful) will be able to shift their money around in such a way as to pay very little in tax.

Some kind of comprehensive approach to taxation would help to block off these loopholes. This could be an income or consumption-based approach, though I think some mix of the two with a lean towards income would be best. Either way, with the great increases in computer power over recent years it shouldn't be too difficult to develop a system which allots each financial account to an individual and taxes them on incoming funds from other persons or companies. Recent government IT projects might give us pause, but facebook and google seem able to manage it.

I realise this solution is limited and other issues would still remain, and I hope to get the chance to write more on this in the future. However, I hope that this case encourages people to take more of an interest in tax fairness, rather than that taxes are so complicated that taxes are totally unfair as people can avoid taxes and likely get away it.

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