Monday, June 17, 2024


Dhaka Tribune

OP-EDPowered by Froala Editor

The definition of 'top taxpayers'

Update : 11 Dec 2021, 11:11 PM

Sometimes it's necessary to be very precise with language in order to understand what is actually happening. 

Sure, for most of life we can get by with a certain fuzziness. 

But there are certain times when only accuracy, exactness, will do. For only then do we understand the truth behind a statement.

So it is with the recent awards to various companies as “top taxpayers”. For the truth here is that they're not top taxpayers at all, they're top tax collectors.

The idea of giving out awards for top taxpayers is very good by the way. We all know that most folks have an ego and people will do quite a lot to boost their own ego. 

Further, if it can be done with other peoples' money – as managers of a company are doing – then giving a little statue to company managers might well be a way of gaining more tax revenue.

And yet, we do need to be precise here. 

BAT Bangladesh has sent Tk26,000 crore to the Treasury – note that I said sent, not that BAT has paid. For some 900 crore of that was the income tax on the company's profits. Sure, a very decent amount, but that's not quite the same as that whole 26,000 figure coming from the company or its shareholders.

The big portions here are the taxes on tobacco products – we should have those – and also VAT. 

Which is fine, someone has to collect those taxes and the way the system works is that it's the company that does. Which is, again, just fine. 

But it's not the company paying those taxes

It's us consumers out here who pay those taxes. The company is just the collector.

The same is equally true of another winner of one of these prizes, Pran Dairy. They've paid enough to gain one of those awards but, once again, a significant part of that revenue is VAT. Which is something that is collected by Pran Dairy, not something that is paid by them. 

We consumers out here are the people who pay the VAT.

Not that there's anything wrong with any of this of course. 

All taxes are, in the end, paid by us the people because there's only us people out here to pay taxes.

All corporate taxes, all duties, tariffs, everything, come from the wallets of actual people. 

Therefore all taxes are paid by people. 

Sometimes it's just more convenient, or more efficient, to collect via some legal membrane, like a company. But that doesn't mean that it's the company paying the tax, even as they hand it over.

The more formal name for this is “tax incidence”. 

Who is it that really, in the form of their wallet getting lighter, pays a tax? 

And the truth is that for most of these large corporate taxpayers it is never the business itself. Could be the shareholders, as it is with a profits tax. 

But most of this revenue is coming from VAT and taxes on specific products like tobacco. Which are paid by the consumers of those goods.

As long as we know this then that's fine. But the thing is most of us don't.

Like the claim made in this case, that BAT has paid 10 percent of all tax collected. That's not true, BAT hasn't.

When we're talking about awards this distinction is pretty unimportant. It's when it gets turned around the other way that it becomes vital to understand the difference. 

For there are plenty who say that “companies must pay more tax”. But companies never pay any tax, they only collect it.

Who they collect it from can change. Profits tax are, in that first effect, taken from shareholders. 

Or VAT and duties from consumers. 

Or, a going little wider, import tariffs are taxes upon consumers, not importers.

If we are to understand the tax system, we have to understand this difference between who hands over the money and whose wallet it’s coming from. 

For if we don't, we'll find ourselves applauding other people being taxed without realising that it's us that has to pay up.

Tim Worstall is a senior fellow at the Adam Smith Institute in London

Top Brokers


Popular Links