28 June 2007

Nothing is Certain but Death and Taxes

The above phrase, mentioned by a number of authors during the course of history, was inscribed in the form we are most familiar with; "In this world nothing can be said to be certain, except death and taxes", by Benjamin Franklin in 1817.

And yet for a while, those of us living in the GCC were under the rosy impression that we had managed to evade one of the two, completely escaping the terrible grip of taxes. But Franklin's quote rose to the light to promote its truth, and suddenly the tax-haven that is the GCC is seeing that dirty three letter word creep up slowly on us.

It couldn't have lasted for ever though. Any society that expects to grow and keep up with the rest of the world probably cannot survive for too long without taxes; Taxes provide revenue for the government to invest in the infrastructure, the enforcement of law and order, and so on. Taxation is needed to redistribute funds around a country, moving money from the hands of the rich, and providing funds for the poor, in order to have a more balanced society. Taxation can also be used to reprice certain goods in the market, to make certain items or services more or less desirable (higer taxes to cut down on tobacco sales, for example).

Dubai has decided to slap a toll-booth onto the Shaikh Zayed Road; the main highway through Dubai, also leading to both Abu Dhabi and Sharjah on the North and South, respectively. Now, if you live in Dubai, there is a pretty high chance that you use that highway, and probably on a daily basis.

Commuters are infurious; most, if not all, are against this 'indirect taxation', and some have even started to sign a petition requesting a delay on the decision. Sure, I can relate; no one likes a tax placed on them, as an individual. But take a look at the bigger picture here:

Tolls on driving through the highway mean:

- Less people driving through it, unless they really have to
- Less congestion on the road, due to the decreased number of drivers
- People might start car-pooling in order to divide toll costs between them;
- Leading again, to less congestion, and less pollution produced
- More money generated to provide for road repairs, expansions, etc

Doesn't seem like as much of a bad idea now does it? The truth is, taxes can benefit an economy if used in the right way. The rest of the world has taxes anyway, why should we be any different? Even if the government generates a comparatively greater income from oil exports, that supply won't last for ever. There are other exports, foreign investments, tourism projects, and all contributing towards a country's income, but tax is a necessary evil.

The Bahraini population has been complaining about the 1% unemployment deduction (ie, tax) that has been imposed on them this month. A country that previously knew nothing about taxes has been shocked to learn that, yes, some of your money can be involuntarily taken away from you. Yes, that is a law. No, it isn't stealing, and it probably isn't "haram" either, as some religious scholars have argued. Yet people have taken to the streets to demonstrate, one after the other writing articles of discontent in newspapers, magazines and other local publications.

But to no avail. Taxes are finally here; they are "as certain as death", and whether you like them or not (most probably not), you will have to learn to deal with them. We still haven't felt the real bite though - I don't think 4 Dirhams at a toll booth or 1% of your salary can even be considered a tax. It's more of a rough tickle, preparing you for the real slap in your face that will shortly follow.

VAT (Value Added Tax) on purchases in the UK is 17.5%. In France? 19.6%. In the United States, Federal Taxes on your income can go up to 35% depending on how much you earn (and this does not include State Tax, etc). When I used to work in Boston, I was paying almost 45% of my salary as tax. And those are just a few examples.

So right now, my fellow GCC citizens, we're still getting a free ride.

But we still have one problem.

In those countries, tax is collected, and every single cent is accounted for; payments are auditied, government official salaries are looked at, amounts in the tax funds are under constant surveillance, with verification of where every amount spent from them is spent, and why. Any amounts invested in the infrastructure, pay for the poor or homeless, unemployment, healthcare, etc is published. Tax-payers in those countries know exactly where their money is going.

That is our problem.

Do we know where our money is going?

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