A frank look at the morality of taxation, some questions answered, plenty of food for thought and maybe a change of direction for you.

A slave has nothing, no legal rights, no property and no freedom. He exists purely at the whim of his master, all favours, perks and comforts are given if and when his master decrees. As they are given so can they be summarily taken away. He has no protection, no rights and certainly no recourse.

Makes the fine hair at the back of your neck stand up doesn't it? It should. You're in the slave category and your national revenue service is your master. That's right they can take whatever they want from you, your property, your wealth and if necessary your freedom without so much as a by your leave-and guess what, you have no legal recourse. If they don't have legit grounds they'll trump something up and chances are it will stick. You're in for the high jump one way or another.

Webster's Dictionary defines theft as the "taking away of another's property without his consent and with the intention of depriving him of it." So what's so different about taxation? It doesn't really matter whether the tax man is working for the dictator of a one-party state or under the auspices of a "democratic" government and its supposed approving electorate, he can and will remove a percentage of your wealth without your consent. Object too strongly or don't comply with his wishes and you could lose all your property, have your bank accounts attached, your passport confiscated and even face imprisonment.

In the third world a single despot usually winds up with all the taxation spoils. In more modern, so called democratic countries the booty is spread a little, subsidised industry, subsidised schools, subsidised health services, subsidised parastatals and the like are all in for a piece of the action. These recipients of government largesse combine to create what can only be called subsidised indolence. Let's not forget the bureaucrats, they score heavily whenever it's hand out time. Any additional funds they get will speed the promulgation of more rules, more regulations and more taxes.

Bureaucrats don't create wealth, they blow it.

Show me a high-taxation country and I'll show you a country where the level of benefits to citizens can never remotely equal the huge permanent losses to the economy caused by discouraged production, depleted capital and confiscated wealth. Which ever way you cut it the way the booty is split doesn't change the essential nature of a theft, it is an immoral, anti-social and destructive act.

You cannot ever separate taxation from the general control of human action. By placing taxes on some items and not on others human energy and wealth are diverted from those ends that men freely choose to only those of which the state approves. The inevitable result is the frustration of men's freely chosen ends and the disruption of economies.

Where taxation is total (e.g. Communist China) there can be no freedom. Without the right to property there are no rights at all: Freedom of speech is meaningless without the right to own printing presses and rent auditoriums. Freedom of association is impossible without the right to own land and houses. Freedom of enterprise cannot exist when everything is owned by the state. Political freedom and economic freedom cannot be separated: The society in which everything is owned by the state is the society in which everyone is controlled by the state.

Legalised theft (taxation) is rife in the world today all that varies is the amount that gets taken. This ranges from minuscule (Andorra, Bahamas) to moderate (Brazil, Switzerland) to great (Scandinavia, South Africa) to total (Communist China). It is no coincidence that political freedom is generally greatest in precisely those lands where taxation is lowest.

Tax Havens

Those countries with the lowest taxes in the world are known as Tax Havens. Every such country is small and relatively under-developed. That is why they are tax havens: The creation of a climate favourable to business is the only real chance most of these countries have of becoming prosperous. (One other way that growth can come to under developed countries is for them to discover that they have vast deposits of natural resources. They then give industrialised nations "eternal mining rights", in exchange for their investment in development and infrastructure. When things are going swimmingly, they then nationalise everything). Unfortunately, it is true to say that given the chance most governments will eventually "kill the goose that lays the golden egg." After a free market has given them a modicum of prosperity they will impose taxes, controls and regulations. This is why new tax havens appear periodically and old ones disappear.

There are also marked differences between the theory and practice of tax law in countries around the world. In the more advanced western countries, particularly those with an Anglo-Saxon heritage, the tax laws are generally severely but fairly enforced to the letter of the law. Bribing the tax collector in developed countries is dangerous. On the other hand, the Latin countries generally lack the efficiency to track down the evaders, and most citizens generally don't consider tax evasion to be a crime, but rather as a game that should be played to win. Taxes are negotiated in a friendly atmosphere; the tax collector is more often than not treated to a couple of drinks and an envelope stuffed with small, unmarked bills.

A country which presents a very favourable tax situation, however, may prove no bargain when everything is considered. Is it better to pay a 40% tax on earnings of $100,000 or a 10% tax on earnings of $50,000? A successful manufacturer's representative, or physician, or stockbroker may find that even if he builds his business up to maximum sustainable levels in a foreign locale, his new before-tax income still doesn't compare with his old after-tax-net. Also living expenses abroad may prove greater than those in his home country especially if the exchange rate is unfavourable. In countries like the Bahamas and the Caymans, a high portion of their food and other staples are imported and subject to customs duty; the same is true of fuel, clothing, building materials and most other necessities, all of which cost more than in producing countries. When you combine increased travel and communication expenses, you may easily find your standard of living has declined substantially in spite of lower taxes.

Other Taxes

Income taxes are the obvious taxes, but they are far from the whole story. Many countries have import duties of over 100% for many products-effectively doubling their cost to residents, and reducing their standard of living by a proportionate amount. These tariffs are justified by many plausible economic arguments, and their justification also takes advantage of feelings of nationalism. You are extolled to "Buy American" or "Buy British or whatever" because it's patriotic, even though it may be to your personal advantage to buy imports. Can you see why you should limit yourself to buying particular products anymore than you should limit yourself to buying from companies in your particular area of residence? I'm sure you can't. The only beneficiaries of this type of stupid arbitrary discrimination is the local government and local firms. Why is it bad to discriminate against poor black Americans who make $3,000 a year, but good to discriminate against far poorer Latin Americans who make $200 a year? Why should 250 million Americans be forced to pay twice the market price for Italian shoes so that a few thousand workers at American shoe plants can be kept in business? Import taxes and other trade barriers only benefit protected industries at the cost of higher prices for millions and the maintenance of the illusion that such protected firms are providing an efficient product. Even then the illusory "benefits" will last only until other governments respond with equally stupid and arbitrary counter-laws. The net effect is that relatively inefficient firms continue in their wasteful production of goods that other countries can produce more cheaply.

A form of tax that has gained great favour with governments the world over is the Value Added Tax -- or V.A.T. It is favoured because, as a sales tax added on at each step of the manufacturing process, it is both invisible (i.e. cost rises are ascribed to producers, not to tax authorities) and very hard to evade, unlike the income tax. In Europe where it originated, V.A.T. continues to escalate way beyond what was originally envisioned.

Avoiding Taxes

The best thing to do about taxes is simply not to pay them. The authorities don't look with favour upon those who evade taxes, but expatriates are in an ideal position to avoid them legally. As a general rule you can stay for up to 6 months in most countries before becoming liable for any taxation. Although many countries tax residents on world-wide income, they do so only if you live there for over six months a year (calendar or tax, depending on the country). This means you can have a summer home where it is cool, a winter home where it is warm, travel a good bit in between, and pay off your mortgage with your tax savings.

It's quite possible to pay no tax at all legally. This is often what some of the world's richest people do. The US government definitely presents a problem for Americans, however, since it's unique in taxing all your income wherever you go regardless of how long you stay out of the US.

Most countries will consider you liable if you are simply physically present for more than 183 days per year, but others consider you liable if you are domiciled within them, or own property therein, or have a place of residence. Note that although most tax residents are on world-wide income, non residents are only liable for local income; some countries tax only local income, regardless of residence. The biggest problem for Americans is not avoiding foreign taxes, but rather avoiding US tax while retaining the freedom to return to the US.

Nonetheless, the old adage "out of sight, out of mind" applies here. If you don't have any US income it's probably possible to write "deceased" on your tax form and be stricken from the records. But God help you if The American Secret Police (the IRS) find out.

If you can solve the problems presented by the US government, you're nearly home free. Even if the worst happens, very few governments handle non-payment of taxes in the brutal way the American authorities do. In most countries, tax evasion is only a civil, not a criminal, offence.

On the whole, however, one should be scrupulous in one's observance of national tax laws. The wisest course for an expatriate is to keep a low profile. There's no reason to take a chance on jeopardising your status when you can avoid taxes completely by hiring a competent tax advisor, not staying longer than allowed each year in a given country, and taking advantage of tax loopholes.

Back to the PT Shamrock Home Page Back Arrow
Copyright 1998 PT Shamrock Ltd. Unauthorized use prohibited. All Rights Reserved.