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Debate: Abolishing direct taxation

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Should direct taxation be abolished?

Background and context

At the moment, the British government raises revenue by two different forms of taxation. One of these is direct taxation, which is a tax on wealth or earnings. For example, death duties, National Insurance and Income tax are all direct taxation. It does not relate to the amount spent by the person being taxed. In contrast to this, indirect taxation is a tax on transactions between two people, for example VAT ( Value Added Tax ) and customs charges on imported goods. The proposition is suggesting the abolition of direct forms of taxation in favour of indirect, presumably whilst keeping the total amount raised constant. This topic has been written from a UK perspective. The same arguments could be adapted for arguments in other countries too.

Argument #1


Direct taxation is a crude intrusion by an overbearing state into citizen’s lives. Its image is that of a crude appropriation of a chunk of a persons earnings, and is thus seen as oppressive. Because of this, tax paying is something to be moaned about avoided, rather than a duty that one takes pride in. By abolishing direct taxation, this stigma would be removed, and an overweening mechanism replaced by something equally effective but more subtle.


Governments have a right to demand money from their citizens in return for providing certain services, such as education, welfare and defence. The proposition is being amazingly obtuse and naive if it thinks that such demands for money will ever be gratefully received, as human nature doesn’t work in such a reciprocal way. In these circumstances, there is no real reason for switching taxation systems in search of an elusive public approbation.

Argument #2


The poorer sections of society currently believe themselves disproportionately burdened by taxes, in comparison to the rich, who are stigmatised as living off those worse off than themselves. Whether this has any basis in fact, the governments needs to act to make taxes seem fairer.


People will always think that the rich do not pay their dues, because notions such as that of an ‘Establishment’ blur the distinctions between the well off and the government who is responsible for collection of taxes. In fact, direct taxation is much better for the worse -off sections of society, as indirect taxation really would ensure that the poor paid proportionally more tax. His is due to the fact that above a certain level of income the rise of the cost of living rises slower than income.

Argument #3


Further steps towards redistributing the burden of taxation more fairly could be taken by varying the amount of taxation dependent upon the nature of the item being taxed. For example, caviar would be taxed more than baked beans, and a yacht more than a Robin Reliant. Thus the rich would pay tax suitable to size and quality of their expenditure.


Such a system would be unworkable, as it would require a value judgement on different types of good. Is car a luxury item? Do you differentiate between a Ferrari and a Transit van? If so, here exactly do you draw the boundary? These sort of problems for every sort of object would make the system arbitrary and impossible to administrate.

Argument #4


Switching to indirect taxation would mean that British would become a tax haven for wealthy people, ensuring that they spend their money on British items, and thus boost our economy over that of other countries.


This might happen, but it is not far more likely that they might go to other more attractive, not to say temperate, parts of the world? Even more important is the problems that would be caused when people went abroad to places such as France to do their shopping, thus depriving us of revenue.

Argument #5


Tax evasion is easy with direct taxation, as has been shown by the countless legal loopholes, such as offshore companies, that accountants use to ensure as little tax is paid as possible. Indirect taxation side-steps this, and also cuts down on the huge amount of money currently spent trying to detect tax evasion.


Not at all. Indirect taxation is perhaps even easier to avoid, due to smuggling, unlicensed trading, car boot sales and so on. For example, it was estimated that half the cigarettes sold in Britain were done so illicitly. Indirect taxation would be both disastrous for revenues and far harder to trace than income tax evasion.

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