Sometimes it's the little things that matter in tax systems


A little story that helps to explain why the Greek economy is in the depths that it is:

But as happens so often in Greece, the bureaucrats had other plans. In a country where you are viewed favorably when you spend money but are considered a criminal when you make it, starting a business is a nightmare. The demands are outrageous, and include a requirement that the business pay taxes in advance equal to 50 percent of estimated profit in the first two years. And the taxes are collected even if the business suffers a loss.

I recall something similar from time in California: you must put up a bond for the amount of sales tax that you will be collecting in the future. Plus a fee for the privilege of opening a business in that great state.

This just isn't a sensible manner in which to be running a tax system. Yes, of course, tax must be collected for there are things that we really do need government to do (even if not as many as they attempt to do). And it's probably a good idea to have certain measures in the tax law to make sure that people don't dodge said righteously due taxes. But to add to the capital requirements for starting a business in this manner is simply ludicrous. It's a difficult enough, and expensive enough, enterprise at the best of times. Rather better, therefore, to leave the possibility of avoidance there in the process of leaving some room for a business to even start.

Our own dear HMRC seems to have cottoned on to this point: it's no secret at all that many new firms bolster working capital by delaying PAYE tax payments to the Treasury. It's not exactly desirable in the scheme of things but when looked at in the round better that such companies survive their growth pangs than that HMG gets its money on the nail.