CBI president Sir Roger Carr's claim that there can be no moral basis to concerns about tax avoidance is

a grave misjudgment (Never mind morals, tax is all about the rules, 21 May). A great many ordinary
people see payment or rather non-payment of tax as fundamentally a moral question. Perhaps it
might be talked about as justice or fairness, but it boils down to the same thing. Christian Aid supporters
have been campaigning on matters of tax justice for five years.

At the heart of their concern is the moral question of how societies raise revenues and how that money
is spent. We estimate that developing countries lose around $160bn a year in tax revenue from
multinational corporations. Contrast this with the UK's aid budget (12bn) or the UN's Food and
Agriculture Organisation's estimated cost of tackling global hunger ($50bn a year on top of existing
funding to 2025). The fact that tonight one in eight people in the world will go to bed hungry shows that
the moral case for a fair and just taxation system is undeniable.
Canon Geoff Daintree
Church advocacy adviser, Christian Aid

Simon Jenkins is spot-on when he calls on David Cameron to crack down on the UK's own tax havens
(Comment, 22 May). Global Witness's investigations have found numerous examples of dodgy deals
routed through places such as the British Virgin Islands, favoured by tax evaders and corrupt dictators.
There is often a misperception that the UK can't impose its will on these last outposts of empire. In fact,
from the decriminalising of homosexuality to banning the death penalty, there are repeated examples of
UK governments telling its tax havens what to do, sometimes against their will. After Radio Caroline
started broadcasting from the Isle of Man, the UK banned pirate radio stations from there and from the
Channel Islands.

If the PM really wants to crack down on tax evasion, corruption and money laundering, he should force
the British-linked tax havens to lift their veil of secrecy, for example by requiring them to publish the
names of the ultimate owners of companies and trusts registered there.
Robert Palmer
Campaigner, Global Witness

Paying tax is a social obligation. It is the price we pay for being part of a civilised society and one
defining characteristic of such is its willingness to support those who are not considered to be
economically productive. This doesn't just mean the unemployed, the sick, disabled and the old, but also
artists, musicians and writers, those who enrich us and our society both intellectually and emotionally.

In the commercial world, businesses view taxation as just another cost of doing business and therefore
within their fiduciary responsibility to seek ways of reducing their tax obligation as part of their cost
base. This is wrong. The payment of corporate tax should be viewed not as a cost of doing business but
as the price for gaining access to society.

Businesses that manipulate the tax rules to reduce or avoid paying tax impoverish the society in which
they operate both financially and ethically. Good corporate citizenship requires the commercial world to
fully engage in society by making a fair and equitable contribution to the tax receipts of a nation and
by paying its employees an appropriate living wage.
Mike Kellett
Cardiff

In 1974, the then Tory prime minister, Edward Heath, called an election with the question Who
governs Britain? his premise being that the unions had too much power. Forty years on we can ask the
same question in respect of big business (Cut tax and we'll pay, says Apple boss, 22 May). I thought
governments, elected by their peoples, decided tax rates. Apple (and Google, Amazon and the others)
rely on their customers to be healthy and well-educated and for the states where their customers live
and buy their products to be stable, orderly and defended.

Without all the benefits that a state provides there would be no Apple sales. Big business has grown
increasingly arrogant and no longer plays and pays its part in contributing to the costs that are essential
to their profits. Perhaps there should be an additional and hugely hefty tax on the products of those
companies who are refusing to pay their way, so that in the end they are left with no profits to quarrel
about.

s Malaysians rally in protest in Kuala Lumpur, it is clear that the April 1st introduction of the Goods and
Service Tax (GST) has changed Malaysias political landscape. In the last few months the Najib
administration has significantly redefined the rights of citizens, reducing freedoms while simultaneously
adding to their responsibilities. Valuable analyses have focused on the worrying changes in the rule of
law, particularly the political use and legal expansion of sedition and the negative implications of
potentially introducing hudud, but less attention has centered on the measure that arguably directly
affects more people, the GST. This tax is highly contested and has the potential to serve as a catalyst for
further conflict in Malaysias already increasingly fractious polity. For Malaysias Prime Minister Najib
Tun Razak, the GST has emerged as his policy Achilles Heel that has the potential to undermine his
leadership.

Politically-Loaded Interpretations

There are three interrelated issues that underscore why the GST is so divisive and damaging. This first of
which is the polarizing views of the tax itself. Based on the results of Asia Barometer Survey late last
year (detailed below), Malaysians were evenly divided over the GST even before it was implemented,
with the majority opposed to the measure. Ethnic groups were similarly divided. Majorities in all ethnic
groups opposed the GST, with more Chinese Malaysians opposed compared to other communities. The
divide that stands out however is partisanship, with BN and opposition supporters strongly in favor and
opposed respectively. This indicates that the GST is highly polarizing, reflecting Malaysias deep political
divisions. In fact, the views are so strong that 5.9% of Malaysians feel that the GST is among the most
important problems facing the country.

Favor GST (%) Oppose GST (%) Decline Answer/Dont Know

All Malaysians 40.0 56.7 3.3

Malays 45.8 51.8 2.4

Chinese 28.3 66.2 5.5

Indians 39.8 57.0 3.2

Others 44.5 53.9 1.6

BN Supporters 53.2 44.1 2.7

Pakatan Supporters 18.6 79.8 1.6

Undecided 31.3 63.9 4.8

Source: Asia Barometer Survey, Malaysia Third Wave

The interpretations of the GST have been politicized in other ways as well, with racial politics at play. For
some Chinese, the GST is portrayed as Malays finally paying their dues. For some Malays, the GST has
been painted as getting at Chinese who have purportedly evaded taxes. These misperceptions have
been fed by years of negative stereotyping. The racial mobilization around GST has gone further, with
the government attempting to deflect the blame for the policy on others. Within UMNO, there has been
a campaign on the ground, especially in the heartland, to lay the blame of the GST on the supposed
exploitation of the Chinese middlemen and traders. All of these lens reflect the ethnic fragmentation of
Malaysia, point to the continued attempts to divide Malaysians along racial lines, and to blame other
communities rather than the government for policies. They also reflect the persistence of the
mobilization of race for political ends.

If the racial dimensions of the GST were not enough, there has been a religious heuristic as well. The GST
has been labeled haram and officially in a fatwa as halal. Some religious figures have gone as far to
call for Muslims who already receive considerable tax benefits by being able to write off their zakat
contributions on their taxes (often well beyond the legal 2%) while other faiths lack this right, to excuse
Muslims from paying the GST. This development reveals not only how much religion has become part of
Malaysias political fabric, but shows that some Malaysians Muslims do not believe they have a
responsibility to the nation as a whole. The religious divide is even more cutting, in that it is cloaked in a
false sense of morality that has lost any real sense of justice and community.

As the tax has come into effect in the last month, the interpretation that has resonated the most is that
the Najib government is taking from the people. With views extending from robbery to grudged
acceptance, the public is now aware of taxation more than ever before and sentiment is overwhelmingly
negative. This forced marriage (to coin the label of the GST given by UMNO veteran leader Mohd Ali
Rustam) has led to greater reflection of what is being paid and what is being delivered by government,
with the dominant view that the government is falling short in delivery and even uncaring. Najibs close
association with the GST has led to him receiving the bulk of the blame and reevaluation of governance,
with views of his leadership becoming increasingly antagonistic. The premier now has the lowest
popularity rating of any of his predecessors, to the extent that his presence has been intentionally
minimized in the countrys ongoing by-elections.

Burden Transfers: Tax Incidence

The divisive perceptions of the GST are enhanced by debate over who pays taxes generally and who will
bear the burden of the GST. Any reliable analysis of tax incidence requires detailed household
information and greater transparency in data than currently is available in the public domain. Twenty
years ago there were regular published works on tax incidence by class and race in Malaysia, but today
these are in short supply, and estimates have to be made with what little information is available.

Malaysia stands out in the region for its relatively low payment of direct taxes. According to published
figures by the Department of Statistics in 2013, less than three million taxpayers paid income tax, or
roughly 22% of the labor force. A higher percentage of corporations pay, especially local businesses that
do not have the lucrative benefits of the tax incentives and foreign multi-nationals who adeptly use
loopholes to avoid tax. In 2013, 261,000 businesses paid taxes, roughly 25% of registered companies.
The amounts paid by business reach a share of GDP in line with rates in OECD countries, but the actual
number of payees of both individuals and companies is comparatively low. This is compounded by the
fact that there is considerable tax evasion. Despite the vigilant efforts of Malaysias Inland Revenue,
there remains serious gaps in collection, as there is systemic underreporting, and capital flight.
Nevertheless, direct taxes comprise nearly 80% of national tax revenue. Proponents of the GST have
argued that indirect taxation is needed to address the shortcomings in direct taxation. This has
underscored the rally toward the most popular form of indirect taxation, the GST.

Indirect taxes have long been an integral part of Malaysias tax regime, from sin taxes on liquor, and
cigarettes inherited from the colonial era to the sales and service taxes introduced in the 1970s. Before
April, the sales and services taxes have been limited in scope, concentrated on particular goods such as
imported cars and a narrow range of services. The introduction of the GST significantly widened the
scope of items subjected to the 6% GST tax. Now indirect taxes affect everyone, assuring that the 78% of
individuals and 75% of companies not taxed directly are now contributing to government coffers.
Premier Najib has already tweeted that there is will be estimated 35% increase in the revenue collected
from indirect taxes, to reach RM47.7 billion this year.
The widening of who pays indirect taxes has sparked public debate. The focus has been the impact on
those with lower incomes, as a majority of Malaysians earn incomes of less the RM4,000 monthly.
Competing studies by the government and DAP-governments Penang Institute last year argued over the
monthly costs imposed on those most economically vulnerable. They differed in the amounts (and their
studies are now irrelevant as the list of exemptions/zero rated items has changed), but both agreed that
those with lower incomes would now be part of the countrys tax base.

The GST is a regressive tax, and although there are exemptions and zero-rated items, there is no getting
away from a higher tax burden in everyday life. Malaysians have experienced this over the last month. A
6% increase in costs has already brought an additional tax burden on ordinary citizens, even with the
exemptions. With Malaysias household debt at over 80%, one of the highest in the world, this burden
has been especially hard for those living on the financial edge. The long-term ramifications remain
unknown. These added financial pressures from the GST on the majority of Malaysians have the
potential to contribute to rising indebtedness and strains on families to increases in crime and add to
the tensions in society as a whole. Independent studies are needed to measure the socioeconomic
effects.

The widening of Malaysias tax burden has nevertheless resonated politically in a short time. This tax has
especially hit UMNOs political base. Disproportionately the incumbent government receives its political
support from the lower classes, many of whom have not paid taxes in this level before, or ever. Many of
those in favor of the GST initially are no longer as positive. The GST is thus not only a seismic shift in the
relationship between the Malaysian government and its citizens, it has become a major shift in the
dynamic between UMNO and its supporters. This is one of the reasons why veteran UMNO politicians
including former premier Mahathir Mohamad are openly calling for the GST not to be implemented.
They are worried about the potential losses for UMNO from GST under Najibs leadership. As the fuel
subsidies did for his predecessor Abdullah Badawi, the GST serves as a rallying cry against Najib within
his own ranks.

To understand Najibs GST initiative one has to step back and look at his economic management and
outlook. Najib has depended heavily on foreign advisors in shaping his economic policy, and appears to
follow their ideological lens. The Najib administration has worked hard to conform to external orthodox
expectations, with the hope that this will attract capital and strengthen Najib himself. Following the
rightwing Margaret Thatcher who nearly doubled Englands VAT from 8 to 15%, Najib believes that the
GST as a needed measure to assure that those with capital can drive the economy. He argues that the
GST will increase GDP growth, although the more common pattern is an initial slowdown in an economy.
He has indicated that the GST will rise to 10% in the coming years. He has coupled the introduction of
the GST with a promised reduction in the corporate tax rate next year fitting this neo-conservative
policy paradigm.

This Thatcherite view of economic growth is not going down well at home. Najib is increasingly
perceived as taking from everyone but giving breaks to a few. This perception reinforces the perception
that his government is for the rich, not the struggling middle and lower classes. This image is enhanced
by the reported wealthy lavish lifestyle of Najib and his immediate family. As Mahathirs nationalist
campaign against the premier has gained traction, Najib has been quietly portrayed as appeasing
foreigners at the expense of Malaysians.

One irony of the GST is that it is being introduced at one of the weakest points in Najibs tenure. His
leadership is currently tainted with arguably the worst and most expensive corruption scandals in the
countrys history, with a number of these (notably 1MDB) negatively affecting the countrys financial
credibility and revenue position. Concerns have also been raised about public debt. His premiership has
spent (and borrowed) the most money to shore up his political support, reflecting his insecurity as a
leader. There is a genuine need for more money in government coffers, but public confidence in how it
will be spent is low. There is even lower confidence in Najibs leadership over the spending. Najibs
efforts to win foreign investor support by introducing the GST is not gaining the ground he expected.

Questions of Competency: Flawed Implementation

Despite the political criticism surrounding the GST, there are strong supporters of the measure, who see
the tax as part of the modernisation of Malaysias taxation system and place less emphasis on the
transfer of the tax burden. They see this as a needed and justified reform. They argue correctly that
good implementation of a GST can indeed ameliorate the most serious socio-economic effects of a GST,
especially if these measures are coupled with other policies that widen the social safety net. Yet, this is
not what has happened to date under Najibs administration of the measure. In fact, as noted by UMNO
veteran politician and former trade minister Rafidah Abdul Aziz, the problems in GST implementation
are serious. This is arguably the most damaging for Najib, as he is the minister in charge of finance.

The administration was given eighteen months to prepare for GST. Every country that implements the
tax has teething problems, but Malaysias problems go beyond the norm. Almost one month after the
GST was introduced, Malaysians still do not fully know what is or isnt taxable. As the parody Cantonese
song by Eugene Chung reveals, confusion reigns. A proper list of zero-rated and exempt items was not
circulated before implementation and even now (one month later) there are contradictory reports.
Inadequate preparation was spent on educating the public and communicating the tax to the public. The
public relations campaign concentrated on shoring up support for the tax itself, in a RM2 million cartoon
campaign, rather than engaging businesses and citizens on the fundamentals of the GST.

The citizen education effort was hampered by delays in settling the list of items, which were being
negotiated and changed in the days prior to the GST introduction. These negotiations, behind closed
doors and without public accountability, have contributed to Malaysias list of zero-rated and exempt
items not conforming to international standards, a dimension that has added to the confusion over the
GST itself. Questions are also being raised about who was able to secure exemption and why, given the
anomalies. The persistent debate among ministers in the government itself over who has to pay what, in
areas such as phone charges, highlights the unresolved mechanics of the GST.

The public was not properly brought into the GST implementation. The lack of adequate public
consultation on the GST is evident with the confusion over the service charge, a measure that
companies have used to provide compensation for workers but has been interpreted as services.
Debates have addressed whether the service charge should be subject to the 6% GST. The problem is
not just about the service charge itself but the way in which many companies pay their employees, as
they have used the service charge to keep wages low. The public (including businesses) is confused on
what is to be paid and why.

This is compounded by a lack of understanding in some of the administrative departments themselves.

When citizens and businesses call the Customs Departments hotline for answers, they are not getting
the answers they need. There is often general knowledge on the line, but there are difficulties in getting
answers to technical questions, especially from Malaysians who do not speak Malay. The training and
preparation to handle the public enquiries could have been improved, as this has contributed to
frustrations. Questions are being rightly asked whether the Customs Department is the right collecting
body, or whether the collection might have been better served by coming under Inland Revenue.

Legitimate concerns also have been raised about implementing GST at this point of time, when the
regions economy and Malaysias economy have been slowing down. Similar issues have been raised
about coinciding the GST with rises in transportation costs. The governments introduction of the policy
did not coincide with any meaningful measures of offset the burdens on citizens. This timing of the
policy introduction appears not to have been assessed holistically.

The flawed implementation has raised fundamental questions of preparedness. Najib has claimed that
studies were done to assess the GST. These studies have not been properly shared with the public, or
debated in parliament. One alleged study is based on year 2000 numbers, using fifteen-year old
projections to analyze the impact of the GST. It is little wonder there are comprehension challenges.
There appears to be a deficit in studies looking at important questions associated with the GST the
impact on small businesses, the impact on growth in the economy, the disparate effects on different
communities, including women and East Malaysians, the relationship with other policies such as the fuel
subsidy removal and distribution of BR1M payments. Importantly, there has been no connection of the
GST with the social safety net or public discussion of the transfer of the tax burden on citizens.

To make matters worse, the implementation focus has been on punishment of those who do not
conform to the GST. Rather than spend more funds on public education, allocations have been primarily
allocated to enforcers, with fines already imposed on confused businesses. The structure put in place for
payments for Malaysias GST is extremely burdensome, requiring payments twelve times a year rather
than the international norm of quarterly. The penalties are harsh at RM100,000, including multiple high
fines for each payment period and jail time. Practically, these many points of engagement with
enforcement increase the potential for corruption and avoidance rather than encourage revenue
generation and public cooperation.

Poor implementation of the GST already accounts for the negative effects on small businesses, with
sundry shops, traditional retailers and small hawkers closing down. The media is full of stories of
closures, with the overall numbers increasing as the October business compliance date arrives. Most of
these closures are the product of poor communication about the GST itself. This dynamic has hurt local
communities, who now have to rely on more impersonal outlets for their medicines and provisions
rather than their neighbors.

From communication and consultation to preparedness and timing, Najibs poor record in
implementation has enhanced frustrations. Of all the issues of ineffective implementation, the one that
is affecting Malaysians the most is the use of the GST to increase prices. While Asia as a whole
experiences deflation, Malaysians are now facing the worst level of inflation in over three decades with
unofficial estimates reaching as high as 20%. The inflation rate is a highly contested number in Malaysia
as a result of how it is calculated, with many of the exempt and zero-rated items included, but the
number that matters most is ordinary perceptions. This are sadly high. There are major discrepancies in
the prices charged post-GST well beyond the GST levels. The Federation of Malaysian Consumers
Association (FOMCA) has highlighted this regularly in reports, stating that this is unacceptable. From
the fees of foreign workers to send remittances moving from RM8 to RM11 due to GST to the sticker
shock on groceries and food, often coupled the smaller portions, individuals and businesses alike are
struggling to deal with this more expensive reality. Some of the price increases are due to higher inputs
and relatively low profit margins, but there are many incidents of companies taking advantage of the
GST to increase profits without effective oversight by the government. The Najib government is
ultimately being held responsible. The GST has translated in a loss of support for Najib on multiple
fronts.

Each bill, each charge, each fee all at 6% or above are reminding Malaysians of their contributions as
citizens and putting Najib into the spotlight. Views of government and governance and questions of
rights and responsibilities are changing. Increasing taxes in Malaysia historically served to provoke
rebellion in 1895 in Pahang, 1915 in Kelantan, 1929 in Terengganu and more. Time will tell whether
Najibs GST will have a similar response, but the reality is that one month after the GST implementation
the grumbling has gotten louder, protests over taxation and governance have started, and the GST has
become the main policy issue of Najibs tenure. In contrast to the flexibility and increased opportunities
the introduction of indirect taxes usually provide for leaders globally, the GST has become a problem for
Najib and this problem is only likely to intensify as the politics surrounding the measure grow more
contentious.

http://www.freemalaysiatoday.com/category/opinion/2015/03/30/why-gst-is-so-deeply-objectionable/

https://www.quora.com/What-are-the-problems-of-imposing-higher-income-taxes-on-the-rich

https://thewire.in/119853/gst-implementation-issues/

rticles

The Ethics of Taxation

Richard Baron finds that philosophy need not be taxing.

In the Western world the proportion of the economy controlled by the state has grown enormously over
the last century, and pressures on the state are set to rise as people live longer, meaning that tax will
continue to rise for the great majority of the population. What are the rights and wrongs of asking so
many people to pay so much?

To answer this we can ask several questions, including how much tax should be collected in total, which
objectives of taxation are legitimate, and how individuals should conduct themselves as taxpayers. We
will address these questions by using arguments from political philosophy, and the following three
approaches to ethics:

Utilitarianism, which tells us to aim for the greatest total happiness across the population. In the
economic sphere, we can interpret happiness as the satisfaction of our desires; and so utilitarianism as
aiming for maximum satisfaction of desires.

Deontology, which bases ethics on the idea of duty.

Virtue ethics, which focus on the virtues we should have, and on what constitutes a virtuous life. A
broad conception of the virtues must be used here, encompassing not only virtues such as honesty, but
also virtues such as using ones talents and leading a fulfilled life.

The Total Amount of Tax

For a utilitarian the most important economic goals are to ensure that goods and services are available
to allow everyone to have a decent life, and to ensure that these resources are distributed widely
enough for all or most people to enjoy them. A true utilitarian would only care about total satisfaction,
not about the evenness of its distribution, but with taxation were discussing the distribution of
resources. If each person has modest resources, that should generate more satisfaction in total than if
the same total resources are concentrated in the hands of a few people. Taxation plus government
spending are an obvious way to achieve redistribution to ensure that everybody gets something.

There is a certain tension here. Taxation and spending help to achieve wide resource distribution, but
high rates of tax reduce investment and incentives, which makes it hard to generate sufficient total
resources. Too much redistribution may thus mean too small a pie to share out. Utilitarians must
therefore strike a balance. Economists, rather than philosophers, are the ones to advise them on how to
do this balancing of interest to get the most productive result. This is not surprising. Utilitarianism
merely lays down a computational rule. Utilitarians need experts from other disciplines to do the
computations for them.

Unlike the utilitarian, the deontologist does not tell us to make computations. Instead, he or she lays
down absolute duties. One common such duty is to respect other peoples property rights. This could be
interpreted to mean that there should be no tax at all, because tax is the forcible transfer of property
away from taxpayers. On the other hand, the duty to respect property rights could be used to argue that
any social resources one used should be paid for, even if one did not ask for those resources to be
provided. Thus in order not to be a thief, anyone who uses a public hospital, or even a public road,
should make sure that he or she pays tax to cover their use. But it is difficult to make this argument
watertight. Is it realistic to ask people to opt out of using public roads if they dont want to pay tax? They
would have to move to a wilderness somewhere. But why should they be made to do that, when they
already own their homes? Deontology therefore does here what it often does. It offers arguments which
pull in opposite directions, and leaves us completely uncertain about what to conclude.

Virtue ethics can be a bit more helpful on the question of the justice of taxation. Several virtues seem
more likely to be exercised if tax rates are moderate than if they are very high. One should use ones
talents to the full. Financial incentives can encourage people to use their talents, but very high taxation
dampens down those incentives by reducing take-home pay. Another virtue is charity, either in cash or
in time. The more take-home pay people have, the more likely it is that they will feel able to afford
charitable donations; and the higher peoples pay rates, the easier it will be for them to take time away
from paid work to perform charity work or other forms of civic service, as school governors or
magistrates for example. A third virtue is independence. It is good to earn what one needs rather than
to depend on subsidies from others. Lower rates of taxation make independence more easily achievable.

Let us also turn to political arguments based on the fact that taxation is coercive. In Anarchy, State, and
Utopia (1974), Robert Nozick argued that imposed taxation is a violation of our rights. Property is mainly
shared out among us initially by a process of acquisitions a long time ago, and by exchanges since then.
If the initial acquisitions and the subsequent exchanges were just, then the current distribution of
property is just, and it would be unjust to interfere with that distribution by force. If people individually
agree to pay for things like a police service, thats fine; but the majority should not force the unwilling
minority to contribute.
One of the most interesting challenges to this line of thought was given by Liam Murphy and Thomas
Nagel in The Myth of Ownership: Taxes and Justice (2002). They say that we should not think in terms of
a natural distribution of income and wealth, with a tax-levying state interfering with that distribution.
Rather, the state is what gives the stability that allows high incomes. They point out that in a world
without government there would be no security of property, no system of enforceable contracts, and so
on. As a result, overall levels of wealth would be much lower than they actually are. It is not the case
that the existing wealth would be distributed differently without a tax-levying state: the wealth would
mostly not exist.

This seems to be true. But Murphy and Nagels argument is not enough to legitimise high levels of
taxation and a big state. Suppose we had a minimal state, which provided security and a legal
framework for business, but no more. So there would be no state benefits, and all schools, hospitals and
roads would be private, profit-making, enterprises. The distribution of income and wealth in that
minimal state might be very different from what it actually is, but the total income and wealth might not
be so different. Thus Nozick could reply that this distribution, with a minimal state, should be assumed
to be just. If so, any coercive interference by taxation to create a bigger state would violate peoples
rights.

This response does not show that a big state would be wrong, but it does put the pressure back on those
who advocate a big state to show that a big state is justified despite the coercion involved.

The Legitimate Objectives of Taxation

Tax can be used for all sorts of purposes, and it is often clear what ethicists of any particular kind would
say about these purposes. We can start with the provision of law and order and the more extensive
public services such as healthcare and education. Utilitarians will approve of taxation for these things
because they allow more goods and services to be produced, and they also allow more non-materialistic
desires to be satisfied. Virtue ethicists will approve because these services enhance peoples
opportunities to use their talents and to lead flourishing lives.

When we turn to aid to the poor, utilitarians will approve because transferring resources from rich to
poor increases the happiness of the poor more than it reduces the happiness of the rich. Virtue ethicists
will approve because with redistribution the poor can be helped to flourish and develop virtues, and
because looking after the less fortunate is itself a virtue (although voluntary charity may be a greater
virtue than forced payment). And deontologists can recognize a duty to care for the poor. The greatest
of all deontologists, Immanuel Kant, certainly believed in duty to the poor, although he did not have a
tax-funded welfare state in mind as a response. However, none of this means that any kind of ethicist
would favour unlimited provision of any of these good things through the tax system. As we have
already seen, one has to consider the consequences of the overall level of taxation.

A more controversial objective is the promotion of equality, in the sense of equality of economic
outcome (ie wealth) rather than of equality of opportunity. Taxation can very easily be used to make the
distribution of incomes and wealth more equal, either by transferring cash from the rich to the poor, or
by providing the same state services to everyone while taxing the rich more than the poor in order to
pay for them. Greater equality may also be an accidental outcome of using the tax system to do other
things. But it can also be a goal in itself. Is it legitimate to pursue equality through taxation?

There is a utilitarian argument for greater economic equality. If more equal societies are happier, more
stable, have lower crime rates and so on, then a utilitarian would want to promote equality unless that
interfered too much with other utilitarian objectives. We must let the sociologists tell us whether more
equal societies do have those advantages.

One can also argue for equality on the basis of justice. The idea is that if there is no positive justification
for people receiving unequal shares of the available resources, then they should receive equal shares,
otherwise an injustice is done to those who get less than they would under an equal distribution.

To consider the merits of this argument we should start with the work of John Rawls, and in particular
with his book A Theory of Justice (1971).

Rawls argued that social inequalities should be arranged so that the greatest benefit is gained by the
people with the fewest advantages. However, he says an unequal system might actually benefit the
disadvantaged more than an economically egalitarian one. For example, inequalities of income would be
perfectly acceptable if they were a necessary result of there being incentives which encourage skilled
people to work hard and entrepreneurial people to take risks, so long as the result was that those with
the least income-earning potential were still made better off than they would otherwise have been. That
looks sensible. Why not let the rich grow richer, if the poor are helped by their doing so? The poor will
possibly even be grateful.

Not everyone accepts that inequalities like these would be just. For example, in his book Rescuing
Justice and Equality (2008), Gerald Cohen argued that Rawls was far too permissive of inequality. He
pointed out that we are free and conscious beings. However, the talented person who says that he or
she will only work hard, and thereby benefit the whole economy, if enough money is offered, is acting
like a vending machine. A vending machine will only give you what you want if you put the money in.
But we are not vending machines. We can work out what we would do, given the financial incentives.
Then we can decide to do it anyway, without the incentives.

Cohen said that we could work out what we would do in Rawlss society, which has inequalities to give
the right incentives to develop wealth, and then we could do the same things without the incentives
and without the inequality. Cohen argued that this would give us even greater justice than Rawls
system would achieve. Cohen could not claim that this approach would be practical the fact is that
people do respond to financial incentives but he could claim that it would be just. At least, he could
claim that, if we accepted the basic premise that equality is generally more just than inequality. But
should we accept that premise?

Rawls provides a key argument for equality. In his view, the way to establish what means of distribution
of goods and resources is just, is to imagine what people would want if they were designing a society in
which they themselves would live, but they had no idea of what family, talents or other circumstances
they would have in that society. In that situation, they could expect nothing better than an average
share, and would have no reason to accept as just anything substantially worse. They would therefore
choose an egalitarian society, subject to the allowance for inequalities we have discussed.

But it is not at all clear that people would only accept inequalities which benefited the worst-off, as
Rawls supposes. Suppose people had a choice between two societies, X and Y. In both societies,
everyone would have at least a tolerable standard of living, and no-one would suffer abject poverty. In
society X, the worst-off person would have an income of 15,000 a year, a few people would have
incomes of 20,000, and the great majority would have incomes of 25,000. In society Y, the worst-off
person would have an income of 14,000, a few people would have incomes of 19,000, and the great
majority would have incomes of 27,000. Someone making a choice of which society they would prefer
to be part of, but who did not know who they would be within it (Rawls veil of ignorance), could
reasonably take a chance on being someone with the income of the majority, and so prefer society Y.
Rawls was wrong to assume that he or she must rationally prefer society X.

The Conduct of Taxpayers

Most taxpayers pay their taxes, without fuss. But not all taxpayers act in this way. So lastly lets look at
whether two other forms of behaviour can be ethically acceptable: tax evasion, and tax avoidance.

Tax evasion involves knowingly mis-reporting the facts: for example, declaring an income of 50,000
when the true figure is 60,000; or declaring that an asset is owned by one company in a group when
its really owned by another, so paying less tax.

It would be very hard to give an ethical justification for tax evasion. One way to try to do so would be to
argue that the state, in imposing taxation, engaged in theft, and that in order to prevent the theft one
could lie to the state, just as one could lie to a thief. This argument would have some plausibility in the
context of a regime that was imposed, rather than one democratically chosen in free elections. That is, it
is possible to see a regime that is not freely elected as merely a gang of bandits, even if they are
sometimes benevolent bandits. But there are many countries in which governments are freely elected,
and therefore their taxation demands may be considered legitimate.

Unlike tax evasion, tax avoidance does not involve concealing information or lying. Instead, it involves
structuring business transactions to ensure that less tax is payable than one might otherwise expect. The
most ethically challenging examples in this area are to be found in the complex schemes used by some
groups involving networks of companies and partnerships in several countries. Tax avoidance works
through compliance with the precise letter of the law, not through breaking the law. That is to say, tax
savings achieved may be accord with the words of the law, but it is clear that if Parliament or other
legislative bodies in other countries had thought about such schemes, it would have passed different
laws in order to defeat them.

A utilitarian, concerned with aggregate welfare, might be quite relaxed about tax avoidance. After all,
when tax is avoided, wealth is not destroyed: it is merely kept in the private sector instead of being
transferred to the public sector. The main utilitarian concern would probably be that it would result in
an unintended distribution of the tax burden, as some of the burden would be shifted from the rich onto
people on modest incomes who cannot afford clever tax lawyers. That would reduce their satisfaction
more than it would increase the satisfaction of the better-off people who have reduced their tax
burdens. But that loss to the poor might not happen. For example, where shares in companies are held
by pension funds, the pensions of ordinary people can be boosted when those companies avoid tax. A
virtue ethicist would be likely to view tax avoidance with disfavour. It is, after all, hardly virtuous to
exploit rules knowing that one is exploiting them in unintended ways to redistribute the disadvantage
away from oneself. A deontologist would not positively favour tax avoidance, but might not condemn it
either. Deontologists can easily argue for a duty to obey the law: yet obeying the law is something the
tax avoider takes care to do, in his own special way.

The Tax Debate: Should Morals Come Into It?

Katie in Tax and Accounting | May 16, 2016

Have you, or are you considering setting up your digital business in a tax haven?

Many thousands of businesses have done so without much in the way of second thought it makes
perfect sense to them if they can reduce their tax liabilities somehow. But is there more to it? Is it
morally right or wrong that they find ways to pay less?

Tax-motivated behavior ought to be discouraged . This is because tax planning produces nothing of
value to society. It may benefit the taxpayer whose taxes are reduced, but the social product is not
increased. Martin J. McMahon Jr

Often, when we discuss the topic of business and taxes, were looking at ways to minimise tax
obligations, but its always interesting to look at the other side of it: should morals play a role?

Its common, and in fact generally promoted as good business practice, to take advantage of any
opportunities to reduce tax obligations. Of course, as long as businesses are operating within the law.

But should we be concerned with this? Do we have a moral obligation to contribute what we can for
societal purposes? The previous Martin McMahon Jr. quote highlights this idea of tax planning
producing nothing of value to society.

On the other hand, youve got this quote from Learned Hand:

Anyone may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose
that pattern which will best pay the Treasury; there is not even a patriotic duty to increase ones taxes.

Or from the late (and very wealthy in his time) Kerry Packer:

Anybody who does not minimise his tax wants his head read.

We dont shy away from potential cans of worms, so lets take a look at the arguments.

Should morals come into the tax minimisation debate? There are moral arguments for both sides.
Click To Tweet

Your Taxes Benefit Society

This tends to be the crux of any moral-based argument against minimising taxes: the idea that the
money you pay benefits society, a society which you potentially owe for benefits it may have given
you.

If youve had things like free education or healthcare, decent roads to drive on or public recreation areas
to enjoy, theres a good argument to be made that you should be paying your fair share and
contributing to these amenities.

Fair share is the piece which often becomes arguable. Unless you are actively practising tax evasion
(hiding assets to illegally avoid paying taxes on them), it can be argued that anything within the law is
your fair share

unless the law is unfair. Laws around taxation tend to be complex, no matter which government you
are dealing with. This is why we have lawyers and accountants who specialise in taxes and tend to
charge sizeable fees for their services in interpreting the law and finding every little nuance or loophole
which may give their clients an advantage.

Want some more reading on the tax debate? Check out these resources

Click Here

Another piece of the argument centres around whether or not tax laws are equitable for all, as they are
generally expected to be in any modern society.

If the laws are so complex that they require paying an expensive professional to help minimize your tax
obligation, doesnt this then put those who are more wealthy at an advantage?

What of the laws themselves? Is it moral for lower-income individuals to be making a greater
contribution as a percentage of income just because corporations may have been able to use lobbyists
to petition for the passing of laws which suit themselves?

This is a strong argument in America in particular, where lobbyists have been commonplace since the
1970s.

Heres what a Business Insider piece on politics and corporations within the U.S. had to say:

The tax code may be the most compelling example of how the increased particularism of business
lobbying undermines the interests of business as a community. Most everyone in the business community
realizes that the U.S. tax code is, as a whole, bad for the economy. But while there is always talk of a
grand bargain on taxes, nobody is willing to be the first to put their tax benefits on the table.

Its usually difficult to make a moral argument which can be defined in exact shades of black or white,
especially when it comes to taxes. Whether the law itself is moral has been argued probably since the
beginning of time, but when it comes to lobbying for a better deal, its a fact that this is really only an
option for those with the resources available to pay for it.

Heres an opinion from Quora user Jason MacDonald:

There is nothing immoral about acting within the law to pay the lowest rate of taxation possible.
However, most people/organizations/corporations who are in a position to do so also tend to have
lobbyists who help produce the loopholes that make tax avoidance easier.

This could be considered a moral grey area, as someone without the same resources, say someone who
earns their money through a paycheck, does not have the same ability to influence legislation to lower
their taxes. Its not necessarily immoral, but it is definitely unfair.

Source: The Guardian

Tensions have run particularly high since the Global Financial Crisis, when many of the little guys were
left bereft while bailouts of large businesses saw the phrase too big to fail coined. The general public
tends to be downright suspicious of corporate tax behaviours and there have been especially strong
feelings since then.

If youre a small business owner reading this, you can probably equally argue that you dont have the
resources to influence tax law, or possibly even pay professionals to minimise your tax as much as
possible. Should you then feel any kind of moral unease over taking advantage of the tax breaks which
you can access, especially when the giants are avoiding paying billions of dollars?

What If I Make Bigger Charitable Contributions?

There is a notion which has been argued by the wealthy for a while too: the idea that they self tax
through greater philanthropic contributions. This is often positioned as an argument as to why its fine if
they work to minimise tax obligations.
Foster Friess argues that individuals are far better at managing and distributing money than
governments are, therefore it is completely moral for the rich to significantly lower their taxes if theyre
making charitable contributions.

Chrystia Freeland, author of Plutocrats: The Rise of The New Global Super-Rich and the Fall Of Everyone
Else argues that the idea of the wealthy self-taxing (often with some kind of notion that their self-tax is
superior to state levied taxes), threatens the credibility of state power to impose taxation on its
citizens.

Studies in the U.S. at least, show that its not necessarily true that the wealthy give more in the first
place. The Chronicle of Philanthropy found that the wealthiest people had actually decreased charitable
contributions as a percentage of income, while lower and middle income earners had increased theirs.

What If The Taxes Arent Moral?

If you can successfully argue that the taxes themselves arent moral, does that absolve you of any kind
of guilt or feelings of moral obligation over paying taxes?

There is quite a large body of people who share the view that it is a governments role to protect the
interests of its people and that taxes are taking away their personal property, thereby not protecting
their interests. This is especially argued because the people dont tend to get a say over how taxes are
spent and often feel that too much is spent on things they dont agree with (wars, high government
salaries, etc.).
Source: CBIZ

Heres a fairly typical answer from people in this group, sourced from Quora:

Given the compulsory nature of taxation, and the inherent threat of force that stands behind it as its
primary and majority incentive, one could easily argue that it is not only moral to seek lower incidences
of forceful seizure of personal property (in this case, monies) but is, in fact, a moral imperative.

(Especially if such an action is instructive to others on how to do the same.)

In my view, its not much different from taking a self-defense course to stop regular muggings, and then
teaching those techniques at the local neighborhood center so that others can do the same.

(And, no- It really makes no difference if the mugger is using that money to fill potholes or is distributing
it to the people in his housing project.)

Of course, you can argue about what would happen to the poorer people in society if taxes werent
compulsory would those who have more means really step up and look out for them? Would they all
have the same opportunities to rise above their circumstances?

Want some more reading on the tax debate Check out these resources

Click Here

Whats Your Answer?

There are very eloquent arguments you can make for either side of this tax debate, whether you have
no problem with tax minimisation or whether you find it to be immoral.

Do you owe some kind of debt to society for which you should avoid tax minimisation and pay up?

Are tax-minimising techniques unfair anyway because they disadvantage those less wealthy?

Is it your moral obligation to make philanthropic contributions while you actively minimise your taxes?

Are taxes themselves unfair? Are they an attack on your personal liberty?

Everyone will have a different view, and wed love to hear your thoughts on it. Leave us a comment
below!

In this world, nothing can be said to be certain, except death and taxes. Benjamin Franklin