The world needs a new taxation paradigm
by Leif Thomas Olsen, Associate Professor, International Relations, Rushmore University
As taxation is both an administrative and a political issue of prime importance to all societies and their power-structures, are changes in modes of taxation both rare and slow. Income taxes, profit taxes and VAT dominate, and are so heavily entrenched in our societies so we hardly even notice how outdated this combination has become.
All societies are burdened by tax problems. This problem is two-fold:
- It is a major administrative problem for the State (etc) to collect all the taxes needed, and even harder to show that funds are used in a justifiable manner.
- Taxes indirectly drive the socio-economic behaviour of all tax subjects - turning them into ‘social’ slaves of whatever economic model that prevails.
As tax fatigue spreads throughout the world, and tax evasion has become an art (tax planning), and therefore hardly raises eyebrows anymore, are tax bureaucrats ever busy inventing new taxes - along traditional lines - in order to finance the constantly increasing administration of their respective societies. That the State’s cost side increases is not strange. Technical infrastructure, administrative systems, collection activities and fraud detection also costs money, at the same time as all the traditional undertakings of the State gets more expensive in the light of higher salaries and (consequently) higher tax burdens for people working the systems. In addition to all this will challenges of more recent date - environmental and humanitarian problems caused by globalisation in particular – also require colossal investments.
The problem is that the human incentive system works against more taxation, at the same time as corporate as well as individual greed has proved - beyond doubt - that communal needs must be communally financed. To anyone willing to examine the evidence it is clear that ‘the market’ cannot solve the problem of (e.g.) low cost education, low cost housing and low cost medical care. Nor can ‘the market’ ensure that resources are fairly distributed within reasonable time-frames (e.g. food and medicine before those starving dies, security before those threatened must flee, peace of mind before those exposed to stress drops out of the system, etc. Many more examples could be listed, but I trust the point is already made.
A serious divide is also building between tax payers and authorities in terms of trust. This is critical to a post-modern world, since the tax payers are supposed to be the Masters of any system based on free and fair elections of ‘representatives’ - who in turn appoint the bureaucrats assigned to implement their political decisions.
In my upcoming book Good Governance in the New Millennium I discuss the general problem facing the West’s current democratic model, where governments’ legitimacy based on election results must be questioned. Too many inaccuracies are displayed when election campaigns are compared to implemented policies, too few people care to vote, and too many governments rule simply because they are the largest party, not because they have a majority vote to support them. The nowadays endemic influence of corporate capital in many countries’ politics is also a reason for this lack of legitimacy in the eyes of ordinary citizens.
Evidence of this lack of trust, so often displayed in discussions between ordinary citizens but withheld when the system’s representatives are present (as the general public often feel they lack hard evidence or can be accused of speaking their private concern only), is now piling up on the Internet – the only place where people from across vast geographical distances can pool their views. Although few people seem to disagree to the concept of taxes as such, do most feel some kind of despair over the way their society’s tax burden is distributed and the collected funds allocated.
A new taxation paradigm must take the issue of incentives into consideration. In today’s world have taxes become a ‘collective punishment’, where a seemingly noble principle of solidarity (collective pooling of funds for the common good) has been replaced by individual efforts to become (legally or illegally) exempt.
Most taxes are based on individual tax subjects’ profit, income and consumption. This mere summary of the model shows how it drives the ‘bowling alone’ syndrome - i.e. the fact that what we used to do together with others we now often do in solitude. In combination with scores of taxpayers’ above noted lack of trust in the system that these taxes bankrolls, this model – in philosophical terms – actually works against the intended concept of taxes as a means for communal funding of the common good. This note is in no way meant as a political statement. It a simply a reflection over how the system actually counteracts its own intended objective. Any system that counteracts its own intended objective is poorly constructed, outdated or simply inefficient.
However, to design taxation models that are not based on the individual tax subject’s situation (whether corporate or private) will also prove futile, since that would bring back the already failed communist agenda. The true challenge is therefore to find a new philosophy for taxation of individual tax subjects that:
- converts taxpayers to true stakeholders in the system
- offers greater transparency in how taxes are collected and used
- offers incentives to taxpayers to declare (not hide) their economic activities
- allows speedier adjustment of priorities with active support from the taxpayers
- allows different societies to use a similar model but apply local preferences
Once this is achieved can today’s outdated taxation-philosophy be retired for good. This is crucial, and urgently needed, since current models actually drive (rather than impede) the vicious spiral whereby the ‘corporate view’ tends to equal the world to a single stockpile of increasingly scarce resources - resources that one hence better consume (or at least book or reserve) as quickly as possible. The below draft intends to offer an embryo for such a philosophical model.
The starting point is that all governments – believe it or not - actually enforce models where they themselves are the eventual losers. Corporate taxation systems make many companies consume unlimited quantities of ‘free’ resources, e.g. clean water, fresh air, free-to-use infrastructure, public institutions, etc, without being charged or taxed for their actual consumption. Although water is charged if it comes from a treatment facility is e.g. cooling water taken from the sea not charged by the general public actually ‘owning’ it. As indicated are many other resources (including parts of the State’s administrative and/or infrastructure capacity) also consumed free of charge, making such consumption seem like a free resource which need not be economized with. Even if corporate tax subjects are taxed for the pollution they incur (whether measured as CO2, ecological footprint or otherwise) and the profit they declare (the latter supposedly contributing to State administration and common infrastructure), is the key driver for any well managed business, i.e. lean production, not at all inspired by this model.
Corporate taxes are mainly output-based (rather than input-based). In the past were corporate taxes sometimes turnover-based, but today are most such taxes abolished, since they tend to strike unfairly those businesses that have large turnovers but limited profit margins. In all current models are accounting systems and other control mechanisms necessary to control the tax subjects. But any tax philosophy that is based on number-crunching of output data also provides its tax subjects with ample opportunity to over-consume resources not directly charged for, while minimizing taxes with the help of creative accounting and manipulative statistics. Companies’ incentives are - through the reliance on complex accounting models – much more geared towards number-manipulation than towards lean production. As long as the result of each and every activity is presented in numbers – and taxed accordingly – will the way the numbers are computed and eventually presented be at the core.
If the actual consumption of scarce and plentiful resources respectively were instead taxed - or at least measured as the basis for taxation - would companies rush to develop technologies based on the use of plentiful resources rather than scarce ones. Plentiful resources can in today’s eco-terminology also be called renewable resources. Here the tax incentive need to be structured so that the company must pay a tax for the use of the renewable resource that at least equals the cost for restoring it to its original state, after it left the production process (e.g. cleaning or cooling air and water, clearing bio-gradable materials from toxic substances, etc, etc). The use of scarce resources will automatically be reduced to a minimum if they are taxed in a way that discourages their use, reflecting the fact that the resource cannot be replenished. Nevertheless, when streamlining terminology in this way we must never lose sight of the human resources. Human resources are perhaps the only resource that tends to become more and more under-utilised in our modern societies, leaving the responsibility to keep them alive and well to the State. If human resources were included among what here is referred to as plentiful or renewable resources, and companies taxed for its use based on whatever was required to meet the cost for replenishing their ‘standard’ capacity after they left the production line (given their age, education, etc), then would any taxes imposed on human resources be used to finance health care and human well-being. This would ensure that also human resources were cared for when a lean production process was planned for.
Rather than inspiring lean production are the world’s current tax systems actually encouraging tax subjects to hide away or manipulate the basic parameters used for tax-calculation. Today’s taxes are in essence designed to punish those who pollute or earn profits - not to encourage companies to use less of what is costly to replace or replenish but more of what is destructive to let remain idle. In the industrialized world do tax systems even punish companies for employing human resources, which - as I will explain below - is the greatest logical error of all.
Yet another negative effect caused by output-driven tax philosophies is that even more scarce resources are needed to finally eliminate the harmful waste products and/or side-effects that a less than lean production model generates. Eventually must all pollution be cleaned up, all depleted resources be replaced, and all unemployed people be re-employed or taken care of. Today is the system such that the more successful the tax-subjects are in hiding the consequences of their production, the less taxes and/or fees they will be charged - and the larger part of their own actual cost will they be able dump on the State. The State can, in the end, not ignore overall effects, why it will – if enforcing such a tax philosophy - end up footing the bill for all the costs the tax subjects manage to avoid paying for.
My claim that the taxation of human input equals the greatest logical error of all may require some elaboration. Both wage taxes and income taxes are today considered a key source of income for governments across the globe. However, humans constitute perhaps the only resource which causes the society to be worse off if the corporate sector does not consume it. Unemployment as a concept is a heritage from the industrial era, mentally still looming over post-modern societies’ political minds. The ‘old’ world’s agro-based communities did not have unemployed people in that sense, and post-modern professional societies do not need the traditional employer-versus-employee relationship to organise knowledge-based production.
Due to the extortion that governments lend themselves to when it comes to taxing human input in any organisation’s activities - whether private or public - will all self-financed organisations actively try to reduce their consumption of human resources. Since salaries proper, i.e. the pay the ‘human resource’ receives him-/herself for doing the job, actually are market-driven, is it not because of them that employees have become too expensive in the eyes of their employers. It is because of wage- and income taxes, from which the corporate bottom line (i.e. the key ‘driver’ for any CEO in today’s stock-price driven environment) suffers directly - without adding any advantages to the employer vis-à-vis the competitors.
Here politicians truly fool themselves. By taxing human resources in ways that make employers view themselves as victims of a tax-system rather than stakeholders in a social system, they cause organisations to reduce staff to a minimum (in the interest of their shareholders). By minimizing staff they cause un-employment which, in turn, governments have to bankroll the consequences of. As taxes are among the easiest costs for managers to estimate, will s/he have no problem in seeing the advantage in reducing tax expenses by reducing staff numbers. Since staff costs are semi-fixed costs, i.e. do not vary in direct relation to production volume (as e.g. raw materials do), there is always a theoretical window of opportunity that a few staff less shall be able to produce the same output as the current number. By pushing the remaining staff to work harder and/or more efficiently may this also be achieved in the shorter term. However, over time will staff reach their limits, and physical as well as mental and psychological stress will take its toll. This combined consequence of laid off staff and overworked (remaining) staff is nowadays for the State to manage and carry the cost for. This is a cost the State is causing itself through the tax regime it enforces, but one that our politicians seem conceptually unaware of - or at least unwilling to tackle.
However, most States do not tax the consumption of the ‘common good’, which causes over-consumption of (and potentially the depletion of) resources critical for the survival of our societies at large - something that yet again forces governments to bankroll negative long term consequences of short term corporate decision making.
A similar case of failed logic, here on the individual side, is the personal income tax. To charge people for earning their living may seem necessary for any governments’ treasury, but why then do it in a way that makes people prefer not to be seen earning more? Again is the incentive simply wrong. Politicians tend to see it only from the fiscal perspective - i.e. how to generate maximum revenues? Instead they need to view it from the taxpayers’ horizon – a collective of which they as individuals are also a part. How shall a tax system be designed to at least feel fair and transparent? A flat rate may not seem at all fair, but in combination with variable tax breaks in favour of the less wealthy, I will below show how it can be both simpler and more transparent than a traditional system.
With a transparent tax system can politicians also more easily redirect resources to where the electorate consider them necessary. This takes years to do in the current model, in effect alleviating politicians from defending their actions when compared to their promises. Forcing them to adopt a more transparent system with shorter lead-times and greater involvement from tax subjects will therefore also help improve the democracy-aspect of taxation.
Summarizing the above does this document suggest taxation of inputs rather than outputs on the corporate level - coupled with a more incentive-driven ‘stakeholder-approach’ for wage-taxes - and a flat rate coupled with variable deductions, in favour of low income earners, on the individual side.
Let’s first elaborate on the “incentive-driven ‘stakeholder-approach’ for wage-taxes”.
Corporate profit taxes typically average 25% after balance sheet adjustments. Wage taxes varies considerably with the level of social security offered by each respective society, but can, for the sake of comparison, also be said to average 25% - however based on total gross salary payments, which in most cases well exceed the gross profits upon which profit tax is calculated. Wage-taxes are therefore likely to be the larger of the two in terms of payables, and hence even more important to address if incentives shall be known as a keyword. Personal income taxes are here seen as a salary expense only, and are instead discussed under individual taxes below.
By ‘eliminating’ all wage taxes, but forcing (by law) all companies to buy specially issued government purpose-bonds for an amount equivalent to what they otherwise would have paid in wage taxes, will the door open for a totally new incentive-model.
Under this scheme shall governments issue purpose-bonds linked to each Ministry’s area of responsibility, not to the State as single institution. This means there will be Ministry of Health bonds, Ministry of Industry bonds, Ministry of Defence bonds, etc. The Central Government will then give the priorities to these bonds – and, whenever deemed suitable, also change these priorities for future issuances. These priorities shall be reflected through three different factors (see below). By weighing these factors against each other, and compare to the company’s own priorities, can the company’s management choose which purpose bond(s) they wish to invest in, on that particular occasion. The three factors are:
Rate (in % -age) to which that particular bond-investment shall be viewed as a tax- deductable expense. The scale can vary, but can for example range from 80% to 120%. A lower government priority means it shall be appointed Factor 80%, a higher priority means it shall be appointed Factor 120%.
Rate (in % -age) to which that particular bond-investment shall be allowed to be annually depreciated. The scale can vary, but can for example range from 0% to 5 % per annum. A lower government priority means it shall be appointed Factor 0%, a higher priority means it shall be appointed Factor 5%.
Number of years during which the annual depreciation is allowed for that particular bond-investment. As this depreciation is an incentive only, and does not reflect any reduction in an underlying asset-value, is there no need (nor is it the intention) for these depreciations to ever reach 100%. The third factor is hence the number of consecutive years that the government will allow the company to make the annual depreciation listed as Factor 2. The scale can vary, but can for example range from 1 to 5 years. A lower government priority means it shall be appointed Factor ‘1 year’ and a higher priority means it shall be appointed Factor ‘5 years’.
By governments mixing (and annually re-mixing) the incentive-factors listed above, can companies contemplate whether they consider a short term effect better than a long term effect, and/or which mix of purpose-bonds they consider most preferential to their own current financial situation. By using this system can governments offer (e.g.) a strong incentive for a corporate taxpayer with higher than normal earnings (due to e.g. stronger than normal sales) to invest in e.g. Health Bonds – by rising Factor 1 (the deduction factor) and/or Factor 2 (the depreciation factor). If the State still needs to maintain the same overall balance, it can reduce Factor 3 (number of years during which depreciations are allowed for that bond), thereby discouraging investments in this particular bond by companies looking for longer term effects. This approach will allow CEOs to choose the most appropriate mix considering their own priorities, at the same time viewing these purpose-bonds as deductable and to some extent depreciable investments in the society in which they exist.
Which are this model’s key advantages?
The first advantage is that it allows a mix of ‘investments’ (although the investment is both forced and suffers from a limited return) that best suits the particular company’s financial position. If the company prefers higher tax deductions one year (having higher than normal gross profits), at the expense of future depreciations, it can choose purpose-bonds with that particular incentive structure. If the company has poor profitability one year, it may instead choose a purpose-bond (or bond mix) with a lower deduction-rate, albeit a higher depreciation rate and/or longer depreciation period. In the latter case will the bond-mix give a higher ‘yield’ in the years that follow, but offer a lesser effect in the year it was purchased. Tax planning hereby becomes a fully transparent activity.
Predictability and Accountability:
Another advantage is that the State can alter the three factors to stimulate shorter or longer term effects in a predictable manner, and openly direct funds to where they are needed. The predictability and accountability of the State’s tax collection vis-à-vis actual use will hence increase exponentially.
A third advantage is that organisations wishing to send a strong message to the market - or the society at large - that they support certain causes (which could be the case for e.g. pharmaceutical companies or energy companies), can focus their bond-mix on related bonds, even if the mix from time to time does not maximize the purely financial benefits of that company, as compared to another mix. The company can in this way strengthen its corporate image – something most companies nowadays spend large amounts on doing through branding, advertising, IR-activities, etc.
All in all will this strengthen the tax paying organisation’s role as a stakeholder in the development of whichever society it operates. It will in particular strengthen important aspects of ‘good governance’, such as transparency, predictability and accountability - at the same time as it can serve as an inexpensive way to add to the organisation’s profile and/or image.
As for the above described change in the philosophical approach to personal income tax, it must initially be recognised that most jurisdictions today apply some kind of progressive tax regime. This progressiveness is also what typically differs from one political party to another. Right-wing parties often promote less progressive scales, while left-wing parties promote stronger progressivity. By starting out from a flat rate tax regime, and add a weighted deduction scheme in favour of less favoured groups will new incentives emerge.
By pricing all (or at least as many as at all possible) services provided by the State, including those currently charged for by the State (for which cash payment may be requested also under this alternative model) as well as those that the State currently provides for free (for which this alternative model may simply offer a ‘credit’), issuing tax receipts for each one of them (whether paid in cash or by credit), will tax subjects annually collect a large amount of tax receipts for services provided by the State. This may include anything from toll-road receipts to medical-/hospital bills, bills for childcare and schooling, for attending public universities, for self-initiated interaction with local or State authorities (accounted for either by ‘case’ or by the hour), for using public libraries, receiving legal assistance from community funded lawyers, etc, etc.
When the annual tax return shall be calculated will all the above indicated expenses be summarized. Each tax subject’s total consumption of State-/community-services will thereby be calculated, using the same item cost for each and every tax subject. However, depending upon the gross income earned during the taxation-period will individuals be allowed a pre-determined level of tax-deductions (stated in %), based on these expenses. Governments can use whichever factor-scale they find suitable, but for the sake of making an example can top income earners for instance be given a 0% deduction rate, by which I mean they can deduct 0% of their accumulated expenses for State-/community-services from their pre-tax income, while average income earners can be given a 50% deduction rate (i.e. 50% of their actual accrued expenses for State-/community-services), and low income earners a 300% deduction rate (i.e. 3 times their actual accrued expenses for State-/community-services). This means that high-income earners subsidise low-income earners, which is a normal practice in almost all today’s taxation models.
In this system would, contrary to most tax-systems today, all individuals pay for their own consumption of non-State goods and services at cost, as these - including loan-interest, travel expenses, various ‘expenses incurred for the generation of one’s income’ as well as all / any other currently tax-deductible expenses - would not be considered tax-deductible expenses any longer. Since personal income taxes would not be paid based on gross income alone, would individual tax-subjects different contribution to the State’s coffers instead be based on their consumption. This is firstly because higher income earners tend to consume more, paying more direct consumption-taxes like VAT – and secondly because they would pay a higher portion of the actual cost for State-/community services, based on their financial ability (gross income), where a higher gross income gives a lesser rate of deduction for such services (e.g. 50%) than does a lower gross income (e.g. 100%). Priority-groups in the society, e.g. those living off a State pension, could hence quite easily be given a higher deduction-rate, allowing the State to maintain a decent purchasing-power for this group, without forking out extra cash to retirees which - if it is done - simply contributes to inflation.
In this ‘private income tax’ case, as well as in the ‘corporate profit tax’ case above, is the underlying argument ‘relevance’. By creating a relevant link between taxation and State-/community expenditures, will each tax subject become a stakeholder in the system that s/he – take note - actually own. Today’s systems, on the other hand, create the illusion that the State has the right to collect any taxes they see fit, arguing that the individual taxpayer has voted that government to power, and hence has to accept whatever way in which they decide to use this power.
By changing the corporate sector’s taxation-base to input-based taxes, calculated on the ‘cost’ for replenishing the resource they consume (in the jurisdiction from where it was obtained) and buying bonds (of their own preferred mix) for the same amount as they otherwise would have paid wage taxes (in the same jurisdiction the employee is based), a strong incentive will emerge for corporate executives to engage in lean production and transparent (and officially backed) tax planning. If a larger number of jurisdictions apply the same model will the advantages of moving profits between tax- jurisdictions drop - whether such cross-border transactions are done in theory or in real terms. In the same way will it reduce today’s urge to engage in complicated depreciation- and off-balance sheet transactions currently taking pole position in most CEOs’ minds prior to every quarterly report, intended to minimize taxes and maximize net return on equity. On the same note would the changing of the individual’s tax-base from solely income based to a mixed base, comprising actual consumption of State-/Community services and financial capacity, make the case for better transparency, encouraging prudent use of overall communal capacity.
Above all would the above changes create far stronger sense of stakeholder-ship in the system - rather than the uneasy feeling of being a mere token in one or several governments’ battle for more tax revenues. The possibility to influence one’s own overall tax expenses through one’s own priorities constitutes the incentive needed for lean production in the corporate sector and prudent use of communal resources among individuals. In today’s systems are neither of those incentives present.
VAT and other direct taxes may not need to change in character, but suffers from the fact that most governments don’t realise that also these taxes must - just like other taxes - serve as incentives for consumption patterns that benefit the society at large. It must be considered close to criminal behaviour to apply the same VAT-tariff on a commodity that causes harm to the environment as is applied to a commodity that is environmentally friendly and/or ‘sustainable’. In some jurisdictions the State is even so mean so it adds extra taxes in order to level consumers’ cost of using e.g. wind-power with that of using oil, thinking they otherwise would lose tax revenues if people actually switched from oil to wind (since x % VAT of a higher raw material cost, e.g. oil, generates a higher tax-revenue than x% of a lower raw material cost, e.g. wind).
It is indeed strange to note that most governments first encourage consumers to buy ‘ecological’ products – being good both for the environment and the consumer - but then refuse to lower the VAT on such products in order to offset the higher production costs, in turn being the result of the treasury failing to offer such support. The result is that only consumers with a stronger economy can afford to ‘go green’ or enjoy ‘junk-food-free’ lives, further increasing the divide between ‘haves’ and ‘have-nots’. This is a direct consequence of mean tax policies, with negative knock-on effects in terms of increasing costs for the environment – as well as for public health.
To further the philosophical aspect of taxation it must be noted that inheritance tax - as well as capital gain tax - on fixed assets also lack in logic. Capital gains on fixed assets (e.g. real estate) rather ought to be taxed as work (did the tax subject making the gain put in any efforts of own to create the value-increase?) or VAT, if and when applicable. To charge capital gain tax for an increase in value caused by inflation, or by an increase in market prices due to general market movements is a sure way to drive inflation and/or create ‘bubbles’. Inheritance tax simply equals institutionalised double-taxation - and must therefore be considered highly unfair – as the wealth inherited already have been taxed for by the deceased.
Capital gains on trading-assets (e.g. stocks and derivatives) should also be a source of concern for any society wishing to create a ‘fair’ tax system. The current system of taxing the net gain over a given period carries a huge potential for multi-level tax planning, which may in fact create ‘gains’ for institutional investors at the expense of the individual investors contributing the funds. As institutional investors may benefit in terms of tax-expenses from ‘cutting its losses’ close to the end of the taxation period, may such an action seem like a good idea when viewed from a portfolio management point of view. These particular losses will however hit certain private investors (fund-contributors) directly - but not others - causing certain groups of contributors realized trading-losses they would not agree to take, had they made the calls. In this case is the taxman also the loser, since s/he may have to accept capital-loss deductions at both the institutional and individual level for losses made for strategic purposes, if/ when individual investors decide to sell their stakes in funds causing strategic losses.
Given the massive and negative effects trading in junk bonds and subprime financial papers have caused, not only to the originating societies, but also the world at large (costs which taxpayers around the world have to carry), should tax rates actually vary for trading gains deriving from different types of papers. Just like the VAT should such taxes vary with the desirability of the trade, where low-risk trading activities in stocks, bonds or derivates issued by organisations contributing to the common good of society should fall under the lowest tax bracket, while high-risk trading activities of stocks, bonds or derivates issued by organisations causing environmental harm to society (in its wider interpretation) should fall under the highest tax bracket.
Once again; the tax system must include incentives for creating common good, not simply be developed and/or used as a collection tool for the Ministry of Finance. No doubts are the traps in any tax system endemic, and impossible to predict. It is also true that it is easier to criticise existing systems than to suggest alternatives. This paper has, nevertheless, only one core message: Any tax system - essential to its issuing society for the pooling of resources with the aim to fund whatever ‘common good’ is required by that particular society - must also work as an incentive system for its tax subjects. The system will only work well when its tax subjects consider themselves stake-holders rather than victims of the system. Then it will, however, function not only as a system for pooling resources, but also as a driver for the kind of social interaction that that particular society decided to give priority to - through whatever democratic mechanisms it applies.
The principles for taxation proposed above are anchored in the belief that only when the philosophy behind a system is true to the interests of its actual stakeholders will the system be considered ‘fair’. It is therefore totally wrong if a Treasury invents taxes based on the assumption that they need more money - without first ensuring that these taxes are in ‘philosophical’ harmony with the interests of the tax payers. Today’s taxmen cannot be charged with that challenge. This is a political task.
No doubt would this require any country’s treasury to recalculate their flows, but this should not discourage the switch from one system to another. This idea is not meant to suggest that any particular State must decrease (or should allow itself to increase) their overall tax revenues. This idea is meant to suggest that a new set of incentives must be introduced, where less grey zones reduce tax evasion opportunities for the general public as well as the space for un-expected tax imposition by the State; where the interpretation of tax laws is more coherent and predictable and where the taxpayers become true stakeholders in the system. Till date have most tax systems rather helped intensify a permanent state of war between taxpayers and collectors.