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A simple % transactional tax that can't be avoided or claimed back

A simple % transactional tax that can't be avoided or claimed back

By taxing a simple % (i.e. 2.5-5%) on every exchange of money (or value of a traded asset) which has no way of being exempt, claimed back or avoided by any means. This one tax would take over income tax, company tax, gst & any other direct tax. Very easy to manage, simple to check & no hiding. Everyone & everything pays it's fair share. Business purchases, income, owner drawdown, bonuses, Charities, religious entities, inheritance, overseas purchases, house purchases, interest gained, donations & gifts ........ everything has a transactional tax. The hardest part is valuing a traded asset but this would also need to be done otherwise there would be a way to bypass the spirit of the law. Money only has value when it's spent & this treats everyone equally. The rich can't hide personal purchases as an expense & claim them back. Either way they buy, someone or something is paying that tax. Because this tax is charged at every point along products/services journey to the consumer it can actually be quite low & still gain a huge revenue for the government (which would pay for our social services). Whatever the % is, it needs to collect equal or greater tax revenue than we already collect.

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    • Alan Forster
      commented 2017-01-07 11:21:10 +1300
      1.Ps. Sorry about the typos in my posts.
      2. Pss. The illegal trade of things like the sale of stolen cigarettes currently is not taxed as thieves dont declare ( though they can)
      the income to ird. With a TT every spend event gets taxed no matter who by and regardless of its source, so an income stream is added.
      3. The term Goods and services tax
      GST Could be kept and recycled.?
      The term is very familiar to everyone and the TT would in fact be a comprehensive tax on all goods and all services.
    • Alan Forster
      commented 2017-01-07 10:23:36 +1300
      Thanks for that. There is a discusion that i dont see any party having. Its a layer of complexity in our system that at least needs checking fully to see its effects.That is basicly to challenge the idea that economic policy be used as a lever to controll citizens behavior.
      It is obvious that some economic policy affects peoples spending, saving, borowing and tax.
      There are pros and conns.
      Take as an eg: a sugar tax.
      The tool is tax.
      The aim is to reduce obeisity.
      So here the economy becomes involved in attempting to change a health outcome. it would effect the sales of sugar laden drinks and breakfast cereal and beer and many many food items. Those inndustries protest the predicted
      ( on est by them ) losses.
      End result, the tax does not go ahead as the nock on effects are to widespread and will be ploliticaly unpopular.
      And nothing ends up being done, obiesitty continues to climb sales of sugar continue to climb.

      Are we politicaly hamstrung by our own economy.?

      Should taxes have one purpose only ( gathering govt revenue). ?

      The standard definition of money
      Is approx . A coin or paper or electron representation of value to facilitate trade snd exchange of goods. Funny no mention of it as a
      Political control tool.?

      No one i think will dispute that useing money as a behavior controller does work.
      The question is should it be used to controll behaviors.
      Like using a capital gains tax to attempt to halt the housing bubble
      ( a financial dis incentive).
      Have we developed a jenga system where its now very difficult to change anything because of the interlock of party politicing, complex policies and behavior controll with the economy. ?

      The system is so complex that an average inteligent citizen only has a vauge idea how it all works.
      That may keep a few accountants and economists in work, but there can be no transparency in the midst of these levels of complexity.
      It is anti democratic.
    • Steve Cox
      commented 2017-01-07 08:59:50 +1300
      Hi Alan
      If I may use the cigarette excise tax as an example of variables / unknowns. Previous tax increases have resulted in drops in consumption. But not all the drops in consumption have been the same size for the each increase in tax. A larger than expected drop in consumption may upset gov’t planning as their tax take drops – an unknown.
      But it is the unintended consequence that can catch you. Have you noticed the jump in dairy robberies aimed at stealing cigarettes? Higher cost makes the black market more lucrative.
      Coming back to a TT, the higher it is the more “those people” will try to evade it.
    • Alan Forster
      commented 2017-01-06 15:29:59 +1300
      Steve Cox . Not sure i agree with
      " too many variables ".
      The tax take is a known figure also the evasion amounts are for possibly the fist time in ever being calculated. We know the bulk of the maths required, we know the loop holes, we know even the likely people to cheat what ever system is in play. Ok there migjt be advantages to a staged change over as opposed to a full implementation from day one.?
    • Steve Cox
      commented 2017-01-06 12:52:07 +1300
      Hi Alan
      In the short term a TT could not be used to replace all other taxes, There are just too many unknowns about what it’s effect would be.
      I saw a quote once that there is approx $100 billion of forex traded daily. Most of that is money being shifted around looking for a place to park and earn the best interest. A 1% TT on that would earn $1 billion a day, but it won’t because a fair whack of that $100 billion just wouldn’t come to NZ – the interest they would earn would be far less than that.
      As this TT would be on each and every withdrawal of money from a bank account it would strain some businesses that work on low margins. I think we can agree that putting forex speculators and sharemarket day-traders out of business wouldn’t be such a bad thing.
      But there are real businesses out there that work on a low margin / high turnover model. They couldn’t survive a high-ish TT without being forced into increasing their margins i.e. prices.
      Agreed that any tax should be kept as simple as possible, but politicians!
      In the short term i would like to see a TT replace GST, see what effect it has, then decide on the next step.
    • Alan Forster
      commented 2017-01-06 11:27:34 +1300
      Mr Cox.
      Yes i mean both or all taxes.
      One of the major methods used by the tax heaven set and their legal advisors is “complxity” of laws and systems to hide behind.
      So how do we get transparency into the laws and systems.?
      By removing the ability to hide wealth and leveling the field for everyone. By simplifying the whole ecconomic system so that ordinary people can actualy understsnd their own money system.
      One tax on everything for everyone. Call it TT , value transaction tax. Consumer tax or even repurpose gst.
      This of course will put some out of work. But the question needs asking, are those jobs actualy
      " work" that contributes to our wellbeing or are they extractive of wealth for little to no contribution.
      These things need discusding in a latger context that includes.
      The banking sysyem, a UBI, the real nature of work in this transition to automated workforce.
      The future of the " consumer" given that 30-70 % (est)will not be able to earn their living by 2060 ish.
      As ive sugested elswhere the single tax rate could be much higher than the apealing 1-5%. It needs to bring in at least the same value in tax as at pressent. It is partly offset of course by an effective rise in personal incomes due to no taxing at this point but only when spending. The system is very flexable at this stage. But simplicity must be a guiding principle for the sake of efficiency, transparency and fairness.
    • Steve Cox
      commented 2017-01-05 17:32:54 +1300
      Hi Alan, and welcome to this discussion.
      Are you suggesting it replace income tax or GST or both?
      I have suggested it replace GST, i.e. one consumption tax with another that is more widespread.
      There would be serious problems if it were to replace income tax as it just wouldn’t earn enough.
      And it would be very % rate sensitive. On a different thread that also talked about a TT there was a forex trader who complained that 1% would put him out of business, so naturally he wasn’t in favour. (P.S. it wasn’t John Key).
    • Alan Forster
      commented 2017-01-05 16:46:25 +1300
      Ok I think this where we have to go, yes a Single Comprehensive Transaction Tax. (“the tax”) (TT) is what i have been advocating for several years.
      Simple in concept and easily understood and applied from GST. No income tax has to be
      the major selling point. Shifting the operational point to spending makes it proportional automatically so fairness is installed. The act of buying rather than earning is a more rational place to tax. It is inclusive of all and singles out no group, except all spenders.
      Consider the fact that it being one tax percentage across the board means that it is easily changed at will across the whole economy . Consider also tax takes of up to 35% – 40% , Because currently im paying 19.5% + 15 % Tax in real terms. The countries, Den, Nor, Swe, with the very best of citizen care and support take ( 40 – 60 ). A very flexible taxing mechanism has great advantages in responding to a turbulent global economy.
      This TT
      in effect becomes the controller of the economy, since the government would have control of the flow and direction of the entire tax take.
    • Alan Forster
      tagged this with good 2017-01-05 16:46:25 +1300
    • Earl Mardle
      commented 2017-01-05 15:33:35 +1300
      Looks like a real-world experiment is in the offing. http://www.firstpost.com/business/budget-2017-after-demonetisation-a-carrot-by-way-of-banking-transaction-tax-on-1-feb-3107552.html after trying to demonetise the Indian economy, Narendra Modi may be about to abolish income tax and switch to BTT. We should watch with interest.
    • Ant Brown
      commented 2016-12-20 09:44:01 +1300
      Interesting. This needs more discussion.
    • Ant Brown
      tagged this with good 2016-12-20 09:44:01 +1300
    • Robert Murray
      commented 2016-12-16 01:07:56 +1300
      Ian, I thought a lot of those intermediate steps were created by companies to obfusticate the process and hide some profits, and I’m pretty sure shortening those supply chains would be desirable (except from the tax angle) but I note your point about large companies. I also note the co-ops don’t seem to do this anyway.
    • Steve Cox
      commented 2016-12-15 13:46:40 +1300
      Hi Ian
      Yes, you are right, it is a possibility.
      But I would have the law’s and IRD’s position be one of: – “Are you doing things the same as you did before TT came into being or have you changed your policies to avoid TT?”.
      If the answer is Yes to the second part then IRD would get the power to rule on it based on the specific facts.
      A big Corporate consisting of many companies forming this chain could have it’s inter-company accounts deemed to be bank accounts and therefore should have TT deducted. Inter-company accounts being how they transact with one another.
      There’s also the possibility of transfer pricing: – selling the product at cost at each stage through the corporate with the final sale being where all the profit is taken. I’d rule this as evasion.
    • Ian Orchard
      commented 2016-12-15 12:50:43 +1300
      One fish-hook: you have to circumvent large companies owning the entire farm to plate process (or it’s equivalent) so the product is only ‘sold’ & taxed once, to the consumer. Normally products pass through multiple raw material-manufacture-wholesale-retail steps each accruing a small amount of tax, but big corps can have an unfair advantage.
    • Ian Orchard
      tagged this with good 2016-12-15 12:50:43 +1300
    • Tim O'Donnell
      commented 2016-12-14 14:47:09 +1300
      I hate to come back & will try to make this the last points:

      Your account number is effectively an address in computer terms. The numbers mean: What bank, where the bank is situated & to who the account belongs. To do a transfer of money you have already given the address where the money comes from (you don’t enter it, it’s automatic) & where the money going to. Therefore you know if it’s a foreign account or a local account. This is not hard.

      Every time you talk of ways the corps & businesses would get around paying the tax it WOULD be classed as illegal. The simple rule is EVERY TRANSACTION is taxed. It doesn’t matter if that transaction is cash or any other form (barter, exchange of assets etc etc etc). Just because they find a way that would make it harder to track doesn’t make it legal. If it was intentional avoidance, such as every suggestion I’ve seen so far, wouldn’t the law hand out a harsher punishment accordingly?

      When you have a question on escaping the tax try & think of the answer yourself. I wish I could show this on a flow chart:

      1. Is your suggestion Legal or Illegal (all transactions are taxed so most would have to be illegal)

      2. If it’s illegal how will they do it & will the cost out way paying the tax. I.e Fonterra have a pay out of $1.0mil to farmers. Since they can’t direct credit it & are going to pay it by cash how do they get it to the farmer? Collection, post, armoured delivery service?

      3. If it’s illegal how will they hide it so they don’t get caught? Businesses have to account for every dollar (even lost stock & theft etc) with records. I.e Where did the $1.0mil come from? An account? Where did that money disappear to once withdrawn? Did it come from a secret cash vault (that know one will ever find out about or talk about) & they keep no record of? How do you stop every person you sent the cash to from talking? If they deposit it, where did the money come from? Do they have to keep a safe to hold their secret money?

      4. If it’s legal (or illegal but you think they will get away it after ruling out the above safe guards) & they will be happy to pay the extra costs involved in the suggested practice, How much of a problem would it be? Would it lose more money or less money than we currently lose. If it’s less, does it really matter? If it’s more (or you really think it does matter) it can be looked at as a seperate loophole to be amended.

      5. Does the unwanted outcome from your suggestion happen now under the current system? What from this new system is going to create more problems? What is going to make more people & companies believe it’s “ok” to become a crimial? I.e. How is going from 15% gst to a 2.5% TT going to increase the numbers of cashies
    • Robert Murray
      commented 2016-12-14 11:13:00 +1300
      James, agreed most people are honest but if there is a simple way to reduce outgoings that is not actually illegal even they will feel tempted to use it – (especially, I believe though not being in this position) as they amass disposable income.
      But corporates are the real problem and unless the system we devise is foolproof they will use it. Who would have thought Apple et al would devise the system it has – especially since Apple now has $181 Billion squirreled away in the Caribbean which it can’t even return to its shareholders.
      We also need a system that is simple and comprehensible. That is why I suggest a flat rate tax on any money going into any NZ bank account – we get the money before any mischief can occur. Cash is hit with double that rate on leaving or entering the banking system to deter a black market. The only flaw I can see in this is the use of bitcoin/alternate currencies but the money to enter these alternate systems would, initially, come from the bank. A change of notes (as is currently causing consternation in India) would eliminate present cash stocks. The banks would administer this system as a reward for their increased business/control with the penalty of being nationalised if fraud was detected. This would be the only tax. No more IRD, no more tax returns.
      I’d love to have the flaws in this proposal clearly exemplified – although I have to admit my belief in the proposal may blind me to those flaws
    • James Turnbull
      commented 2016-12-14 09:42:11 +1300
      Robert … most people are honest and when taxes are light the rate of ‘willing of compliance’ is high. As taxes rise and especially when they become punitive then wealthy people ( as they do now now, invest heavily to try and avoid taxes by finding loopholes. In the worst cases they find such glaring loopholes that we have APPLE, AMAZON, GOOGLE and their ilk who pay virtually nothing under the current system. However when taxes are high the cost to the nation increases because compliance divisions expand and often the cost of compliance exceeds the revenue gained. How often do IRD spend millions on lawyers and lose cases as an example, How many times do they spend millions, win and get nothing because it’s so easy to fold a company and leave debts etc… The NUMBER of such cases may be few but the stakes are high! Very nice for the adrenaline junkie IRD lawyer … but I don’t know that I want to pay for their fix when a simpler system could be more effective!

      It would probably be quite easy to deal with purchases by NZ customers from overseas entities – as easy as, for example, applying foreign currency fees when I use a CC or Debit Card … the seller would receive the funds ’less 1% (if that was the figure) and the NZ customer would have the 1% debited to their account when they sent funds.

      Of course as you pointed out it’s going to be terribly , terribly difficult for the banks to "distinguish foreign accounts " and no doubt it will require massive investment and a herculean effort. To do so might possibly insurmountable for them I imagine … unless of course they had some sort of system in place … someone will make a lot of money when they invent SWIFT / FedWire and the like eh.

      Oh, but hang on … SWIFT and FedWire and similar systems already exist … so what do you see as the problem ?
    • Steve Cox
      commented 2016-12-14 08:08:19 +1300
      Hi all

      Thanks for the conversation. You’ve given me a few ideas for my version of TT. Maybe we’ll meet on some other threads.
    • Tim O'Donnell
      commented 2016-12-14 06:55:27 +1300
      Robert, not sure what you’re talking about. I just wrote how cash WAS taxed. The only people that could potentially get away from this tax is small time cash deals. It would be very hard to hide large transactions without getting found out & the penalty harsh if you do (cost them a lot more). I agree corps will try to find anyway to get around it (that doesn’t cost more to adminisor, and keep this thought in mind) but this make it next to impossible. It’s a computer program that take the tax as it’s transacted. The information on where money is coming from & going to is already known, I’m just thinking to use that info to define which account to take the tax. Either way one of those accounts is getting taxed. The IRD will be monitoring & auditing. The computer hack could happen like it did in the past, as well as it could still happen now. No different.

      James, unfortunately true. I just seem to be going over the same stuff from earlier threads anyway.

      Thanks everyone, See ya
    • Robert Murray
      commented 2016-12-14 00:30:11 +1300
      Tim, People will avoid the law because they can: it is considered stupid to pay for something if you don’t have to. Corporations will avoid paying tax because its part of their ethic and a corporation can save a lot of money on 2.5% (especially if they’re already paying less than that) if their dealing in large volumes eg If Fonterra has $1million payout a week that would be a saving of $2,500 by using cash – if they don’t do it officially some manager will see the opportunity to pocket the difference. Remember the IT guy who reputedly pocketed the half and quarter cents that were rounded off in transactions.
      You started by proposing something simple but now you want the bank to assess both source and destination of the funds and to distinguish foreign accounts on withdrawal
      Not taxing cash is a huger loophole than Earl’s.
    • James Turnbull
      commented 2016-12-14 00:00:54 +1300
      It seems we’re just wasting time here having a chat amongst ourselves about something that ‘we’ seem to see value in but those at the TOP are paying no heed to, and not replying to.

      Frankly, I think that’s why so many people grew apathetic about politics in NZ (and elsewhere) and I’m bothered that ‘this’ looks so much like ‘that’.

      In joining and supporting GM I expected that founder membership would be a participatory thing … seems not.

      I’ll stick around and see what the other policies turn out to be, but hand on heart I couldn’t see me ever casting a vote in favour of TOP 1 – its too unfair, it’s an economic theory based idea that does not fit the realities of NZ ( NZ Is NOT Germany) it looks way too complex to operate and it would horrifying to operate (just exactly the sort of thing that brings out the worst from IRD) . Nor can I really see me voting another ‘One Man ’Vanity’ Party’ such as ACT or UF.
    • Tim O'Donnell
      commented 2016-12-13 22:32:58 +1300
      The “Cash Economy” or similar idea keeps coming up but I think it’s a non event. It also seems to be implied that this cash economy would be more rampant than what we have today. For this to come true you’re saying:
      1. A mass of people are going to chose to break the law (more so than we currently have)
      2. They are going to break this law to save 2.5% (or Similar tax)
      3. This 2.5% (or Similar tax) is going to be seen as worse than the 15% we pay now (the only reason more people would chose to break the law)
      4. People are going to revert to a more difficult process for this saving
      5. People are going to forgo their consumer rights & warranties for this saving

      I just don’t see the point of not paying & I think the vast majority of others will feel the same. That’s the beauty of using a low tax rate. The pros of paying well out weight the cons of not paying. The people not paying taxes now are the people that have the money to find lawful (yet unethical) ways not to pay. I don’t think you can do that with this system.
    • Tim O'Donnell
      commented 2016-12-13 21:58:12 +1300
      Earl, If you applied that to the law there would be a massive loophole for business & the cunning to use.

      I agree the money needs to have a destination for it to be taxed. Murray says as it goes into an account but I say has a destination because I think the tax comes out inbetween the money leaving one account & arriving at another. Steve/Earl, If the TT worked the way you suggest it would not catch the foriegn bank or tourist. If you only capture it leaving an account their banks would not be subject to our laws.

      Under my reasoning the bank (or other transaction entity) would “see” where the money was coming from & where the money was going to, remove the tax from the correct NZ account as required, then complete the transaction. So, like in a previous post, E.g. I buy goods online from a local NZ source priced at $100, $100 leaves my account & the seller recieves $97.50 in their account. Same item to an off shore account $102.56 leaves my account $100 enters the sellers. Or you could just have in on the buyers side in which case it always takes $102.56 from the account & you have a simple calculator program when paying where you input the amount of the item you are purchasing & it gives you the amount to be deducted from your account. If money comes in from a foreign source, overseas payer sends $100 to your account & $97.50 turns up (same type of calculator can show the amount that turned up & what that was actually worth, it would be one extra column on a statement).

      You shouldn’t need to pay tax for removing cash from your own account. I don’t see taking your own money out of your own account as a transaction, they are only holding it for you. Otherwise when you spend your money you’ll be taxed a second time (when the business, or other, receiving the money is banking their takings). A transaction is between two entities. When you “exchange” foreign currency you are actually buying another currency, not swapping. It’s the same as buying shares.
    • Earl Mardle
      commented 2016-12-13 10:08:27 +1300
      Tim, a thought about “reasonable value”. How about anything large enough to entail a change of ownership registration, such as house, land, vehicles, shares and leave it at that?
    • Earl Mardle
      commented 2016-12-13 10:06:48 +1300
      Steve, yep, that’s my thought as well. It would be similar to a foreign exchange transaction where the form of money is changed and the bank takes a %age. Moving from digital to physical.

      Murray. The tourists would not get a free ride because they would use either a credit card, in which case the movement of money from a foreign bank to an NZ one would be taxed, or use cash, in which case it would be taxed at the point of withdrawal and then again on payment. That would be why I suggest making an electronic transaction a single event, taxable once, whereas cash would be taxed on withdrawal and deposit. The amount should be small enough that it doesn’t make a big difference, but it might be enough for a retailer to give preference to ETF over cash.
    • Robert Murray
      commented 2016-12-13 09:34:39 +1300
      The issue about what is a transaction, was why I initially proposed only taxing all the money that went into any account. This makes it an income tax – more aligned with current concepts and easier to administer. It does give those operating from foreign accounts, such as tourists, a free ride except for the fact that the prices they pay will reflect the fact that the recipients will have to pay it.
    • Steve Cox
      commented 2016-12-13 08:21:52 +1300
      Hi Tim
      You said “I did read somewhere here someone suggested that taking money out of the bank was a transaction. I don’t see that as a transaction as it’s not transferring between 2 or more parties. The bank is only holding your money. There maybe something I’m missing but I can’t see it.”
      My belief is that money in your bank account is yours, and once it leaves there you no longer control it, therefore a transaction has occurred. If you pay for something by Eftpos the transaction occurs there and then. the money leaves your bank account.
      But if you pay by cash instead of Eftpos how does the bank know to charge you TT? The only efficient answer is to say when the cash leaves your bank account. And by taxing the cash withdrawals you also limit the chances of a TT free cash economy developing.
    • Tim O'Donnell
      commented 2016-12-13 07:24:36 +1300
      We’re not looking to stop people buying presents for each other but when items are of reasonable value a TT should be enforced.

      Sorry I wrote the last piece late & quickly so there’s a few spelling/terminology mistakes. Hopefully you get the idea I was aiming for. It’s a pity you can’t touch up previous posts like you can with the main post.