The ability to tax plan and tax mitigate is now treated almost as the divine right of the wealthy, but in our straightened times is this attitude any longer morally defensible, assuming it ever was? Equally, Governments are ill advised to impose excessive taxation on such a group which is largely mobile, certainly creative and undoubtedly wealth creating. How can this dilemma be reconciled?
Taking the UK as an example, the present tax regime for resident non-domiciliaries, especially those who have lived here for a very long time, is pretty hard to justify as evidenced by the fact that this country is one of the last western economies which still permits such an advantage. Under current rules, the wealthier this group is the less tax it pays; so much for progressive taxation.
Is it really fair that someone in this position who chooses to take advantage of the benefits of long term residence in the UK can, with careful but not complex planning, limit their direct tax contribution to £30,000 a year, resulting in an effective tax rate so small it is almost impossible to quantify? Yes, argues this group, but we contribute significantly through indirect taxes. Agreed, counters the bulk of UK taxpayers, as do we all.
On a strict legal interpretation this group is doing nothing wrong; in fact it could be argued that the state is colluding with them to reduce their tax burden to a de minimus level. This raises the question: does the state have a moral obligation to devise that "holy grail" the fair tax system?
A truly fair system of taxation is almost impossible to create, and requires the moral compass of both the taxpayer and the state. On the one hand a fair contribution has to be extracted from all, whatever their circumstances. Equally, significant investors in and contributors to the economy cannot be alienated and disenfranchised to the extent that they vote with their feet. But, how to strike the right balance?
Even the very wealthy harbour a sense of unfairness if they feel the equally wealthy play the rules, however legitimately, to their advantage. Tax is intrinsically unfair, which is why the state has to be the ultimate arbiter by creating as level a playing field as possible. This way all taxpayers feel they are sharing an equal burden and the common enemy is the state as opposed to each other.
If only the wealthy applied the same philosophy to their personal contributions to the exchequer as they do to their currently fashionable corporate social responsibility policies, without which no self-respecting annual report is complete. In some quarters there seems to be a view that philanthropy is a substitute for paying tax. Although philanthropy is undoubtedly generous, suggesting it can be an alternative to paying tax is an almost deliberate moral confusion.
Life isn't fair, tax isn't fair and human nature will always dictate that those who can reduce their contribution to the minimum will do so. Therefore the onus lies with governments to devise systems of taxation that are transparent, fair and remove both the temptation and opportunity to pay little or nothing. Where the moral compass of the wealthier taxpayer isn't quite attuned, the state has an obligation to ensure it points the correct way to put temptation out of reach.