Greece proposes to raise the Corporation Tax rates from the current 26% to 28% (and possibly to 29%, if needed) in the plans submitted to its various creditors, alongside other measures such as tax rises and pension savings. This immediately draws the usual complaints - that businesses would have less money to invest and create jobs - and makes an interesting contrast with the UK, where the Chancellor has proposed a reduction of Corporate Tax rates, all the way down to 18% by 2019. The rationale presented is simple - that this would attract businesses and create jobs. Both countries are technically in austerity, though in completely different economic positions. Though the welfare cuts in UK were no less severe than those proposed by the Greeks, the two countries are taking two different lines as far as businesses are concerned. Greeks are proposing to raise corporation tax - something that is completely out of fashion at this day and age - while UK is trying to become, almost, a tax haven.
So, can countries tax businesses?
The two sides of the argument are pretty clear. On one hand, it is a question of fairness. Businesses must bear their fair share of the public expenses. They indeed benefit as much from all the infrastructure, schools, health services, public pensions, security that the State has to provide for. Besides, it makes little sense to let them go free when everyone else is paying taxes. On the other, one may argue that this means they do not invest in the jurisdiction at all, do not create local jobs. This is indeed the fashionable view, one taken by George Osborn, but media loves this as do the companies. The development through investment from abroad, where the question of tax attractiveness really comes in, has become the reigning orthodoxy of policy making in developing country, and in India, a new government has just won an election on the basis of this promise.
Reading through these arguments, one knows that the fairness argument is a moral one, appealing but less persuasive than the practical logic of the country attractiveness. Creating jobs is essential in a modern economy, which is constructed around consumption and exchange, rather than Walden-style restraint and self-reliance. Framed in these terms, the case for making countries attractive to companies is a no-brainer.
But there is more to this debate which we usually overlook, perhaps intentionally. Being a tax haven does not necessarily create local jobs, though certain professional trades - accountants and lawyers - may somewhat benefit. Companies invest in countries, particularly larger ones, not because they are tax havens, but because they have one of the two things - plentiful human or natural resources, or a large consumer base. Both of these are pretty geographical, perfectly in control of national governments. It is not just fair, but also practical, to tax companies which want access to these - local resources or local demands - and allow the proceeds to go to further development of skilled and healthy workforce, for productive capacity, and physical and institutional infrastructure, for consumer demand.
Now, in all fairness, it may be different in George Osborn's case as he may be thinking more about investment banks, which are vastly more mobile than the other businesses which need to produce something. But, the usual jobs argument usually do not apply to investment banks, because, at the very least, they employ people who would anyway find employment (the impact on the wider economy is much larger, per dollar of revenue, of any other enterprise compared to an investment bank).
One may make taxing businesses sound like the North Korea option (or the Greek option, soon perhaps). But, in all proven cases of development, tariff barriers and business taxes played a role. Taxing businesses who wants access to local markets or resources create a space for local businesses to grow, which is really the experience one should take from the developing countries like China and India. Some may have used the tax money well whereas others may not have (and one could indeed argue that there are more of the former kind), but the existence of at least one - my favourite example is Botswana - may prove that the model is workable.
In conclusion, being well-informed today is defined by the ability to understand what the media does not say and why. Business taxes are one clear example, where policy-making reflects power balances, rather than common sense. And, therefore, the arguments in favour of it, repeated so many times in the media, reflect merely the need for justifying it over and over again [If this worked, one would make an open-and-shut case - this happened in Country X and we know this works - rather than talking always in future tense, as they do, that jobs will happen!]. Countries can tax companies, they do, and should continue to do so - and it is indeed a fair and sensible policy.
Popular posts from this blog
A friend has recently forwarded me a quote from Lord Macaulay's speech in the British Parliament on 2nd February 1835. I reproduce the quote below: "I have traveled across the length and breadth of India and I have not seen one person who is a beggar, who is a thief. Such wealth I have seen in this country, such high moral values, people of such calibre, that I do not think we would ever conquer this country, unless we break the very backbone of this nation, which is her spiritual and cultural heritage, and, therefore, I propose that we replace her old and ancient education system, her culture, for if the Indians think that all that is foreign and English is good and greater than their own, they will lose their self-esteem, their native self-culture and they will become what we want them, a truly dominated nation." The email requested me to forward me to every indian I know. I was tempted, but there were two oddities about this quote. First, the language, which
Introduction : The Business of Gift Giving Business gift giving has always been common and contentious at the same time. Business gifts are usually seen as an ‘advertising, sales promotion and marketing communication medium’ (Cooper et al , 1991). Arunthanes et al (1994) points out that such gifting is practised usually for three reasons: (a) in appreciation for past client relationships, placing a new order, referrals to other clients, etc.; (b) in the hopes of creating a positive, first impression which might help to establish an initial business relationship; and (c) giving may be perceived as a quid Pro quo (i.e. returning a favour or expecting a favour in return for something). The practitioners of gift-giving generally argue that doing business is often an aggregation of personal interactions and relationships, and gift-giving should be seen as a natural way of maintaining and enhancing these relationships. ‘Business gifts, especially one given in the course of the festive s
In most societies today, making profits are accepted as moral, if not especially praiseworthy. This was not as obvious as it appears today – people used to be embarrassed about making a profit not so long ago. Crazy as it seems today, it is worth thinking why it was so. Profits, as economists will put it, is the reward for risk-taking, for putting a business enterprise together in the pursuit of an objective. In this definition, remember, profits are not what it is commonly understood to be – the gross middle-line towards the bottom – but a figure net of entrepreneur’s earning [wages for his labour], dividends and interests on borrowed capital, and provisions for building and other physical assets [a sort of rent, offsetting what these assets could have earned if leased out]. This pure profit – surplus – accrues to a business as a reward to its organisation, for the act of entrepreneurship itself. Economists were divided on how this surplus comes about. The conventional wisdom was,
Buzzwords have disadvantages. Right now, experiential learning is one, and that means we put the label on everything and it stops to mean anything. Also, this means reasonable conversation about experiential learning becomes difficult - at times such as this, either you preach experiential learning or you are traditional, antiquarian and hopelessly out of touch. But, overlooking the limitations of experiential learning can cause big problems. Experiential Learning does many things - putting practice at the heart of learning is an important paradigm shift - but not everything, and it is important to be aware what it does not do. Usually, we equate the terms Project-based Learning (the method) with Experiential Learning (the idea) and Learning from Experience (the ideal), treating them as one and the same and using the terms interchangeably. Any talk about distinctive meaning of these terms is usually seen as pedantic, but really represent very different ideas about education.
Today, Helen Goddard, 26, a highly popular music teacher of a City School for Girls, has been sentenced to 15 months in prison. Her crime was to carry out a year long lesbian affair with one of her pupils, who appeared in the court and admitted that the affair was consensual and it was she who pressured Helen into the affair. For Helen, a bright musician and a devout Chistian, this is an extraordinary lapse of judgement. Also, she was teaching in the £13,000 private girls only school in London. She was surely aware what the consequences of her action will be. The fact that she still could not stop herself tells us that lovers do not always act rationally, something we always knew. There is more in this affair than personal tragedies. For a start, this has all the dramatic elements: a bright, beautiful teacher more in Julia Roberts mould [as in Mona Lisa Smile], a stiff upper lip school [not unlike Wellesley] and a story like Notes On A Scandal with an added twist. Indeed, Helen
Introduction Erna Petri née Kürbs, a farmer’s daughter from Herressen in Thuringia, arrived in Ukraine with her three year old son to join her husband Horst in June 1942. Horst, an SS leader inspired by Nazi ideologue Dr Richard Walter Darré, settled in the plantation of Grzenda, just outside today’s Lviv, to become a German Gentleman-Farmer. Erna saw Horst beating and abusing the workers in the plantation within two days of arriving there, which was, as Horst explained, necessary for establishing authority. Erna joined in enthusiastically, settling into a combination of roles of ‘plantation mistress, prairie Madonna in apron-covered dress lording over slave labourers, infant-carrying, gun-wielding Hausfrau.’  However, there were clear rules in the plantation, and Erna was very much expected to play the woman’s role of being a Cake-and-Coffee hostess. When four Jews were caught in the estate while trying to escape from a transport to a death camp, Horst told Erna and her female
A week into lockdown and things are beginning to change. Mornings are late, afternoons are lazier and evenings never end; meditations are filling out the time for Yoga routines and Netflix profiles are strewn with half-finished movies. This state-mandated, state-funded period of idleness is being likened to being called up to serve, but is nothing like that: Such a comparison is really an affront to the idea of service. Instead, this is just one long streak of panic; of the centre not holding and life not going on as usual. With the usual patterns and rules in suspended animation and business talk - and business - being rendered meaningless, space is opening up for unusual questions: Is Capitalism about to end? Is this the death of globalisation? Does it get uglier from here? My grandfather's generation would have scoffed at us. They saw through wars and pandemics. But, in fairness, we haven't had a life-ending crisis of our own. Notwithstanding the experiences of th
The ‘Why’ Question? Adolf Hitler was appointed the German Chancellor by President Von Hindenburg on 30th January 1933. This was an extraordinary turn of events. Previously, President Von Hindenburg consistently refused to appoint Hitler the Chancellor, despite the impressive electoral performance of NSDAP in July 1932, Hitler’s uncompromising demand of the Chancellor’s post and a repeat election in November 1932 which failed to break the deadlock. Explaining his refusal, Hindenburg wrote in a letter on 24th November, “a presidential cabinet led by you would develop necessarily into a party dictatorship with all its consequences for an extraordinary accentuation of the conflicts in the German people.” The question ‘why’ Hitler was appointed Chancellor, despite the President being acutely aware of what might follow, is therefore a significant one. The NSDAP had election successes throughout 1932, and was already the biggest single party in the Reichstag and various Landtags acros
I wrote a note on Kolkata, the city I come from and would always belong to, in July 2010. Since then, the post attracted many visitors and comments, mostly critical, as most people, including those from Kolkata, couldn't see any future for the city. My current effort, some 18 months down the line, is also prompted by a recent article in The Economist, The City That Got Left Behind , which echo the pessimism somewhat. I, at least emotionally, disagree to all the pessimism: After all Kolkata is home and I live in the hope of an eventual return. Indeed, some change has happened since I wrote my earlier post: The geriatric Leftist government that ruled the state for more than 30 years was summarily dispatched, and was replaced by a lumpen-capitalist populist government. Kolkata looked without a future with the clueless leftists at the helm; it now looks without hope. However, apart from bad governance, there is no reason why Kolkata had to be poor and hopeless. It sits right
Meritocracy is a convenient lie, as Socrates foretold, and it is the ballast of the social system we have built. The story goes like this. Once upon a time, we had kings and queens and their families and nobles, who got the best meat and the best mate, and everyone lived happily. But then the things fell apart as luxury corrupted the nobles and feebled the spirits of their offsprings - and the peasants and the artisans came claiming their fair share. So we had the age of revolutions in Europe and North America, when we created a new, fairer social system, under a 'natural aristocracy of men', where destiny was no longer shaped by birth but by intelligence and hard work, and anyone could make it in life. And, everyone again lived happily ever after. Of course, this did not really happen. Slavery persisted, at least for a long time. The 'fair' system mostly excluded the real peasants and workers and once they have done their duty dying for various revolutions, they were s
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.