Progressive taxation at last?

For much of the country’s history, the taxation system has been remarkably regressive. While income taxes have always been progressive – that is higher rates for people who have higher incomes – they do not account for the bulk of taxes collected by the government. Revenues come from sales tax and customs duties, taxes which disproportionately affect the poorer segments of society.

Yet it appears that the government has finally committed itself to making the taxation system more progressive. In proposals for the next budget the government is reportedly considering either raising the minimum taxable income or reducing the lowest three tax rates. While this is an admirable step, perhaps the government should shift the burden of taxation from regressive taxes – sales and value added taxes – to the income tax and capital gains taxes.

The value added tax, which is expected to be imposed from July 1, is the least damaging of all consumption taxes, since it distributes the burden of taxation more evenly throughout the supply chain while raising higher revenues for the government. But it remains a regressive levy. If the government is truly committed to shift the burden onto the rich from the poor it must increase collection of the income tax, especially the corporate income tax.

There are too many corporations that claim to be earning losses for the last decade and far too many rich individuals who claim to be earning a pittance. It is encouraging that this time the government has hired policy analysts from think tanks and educational institutions to assess the impact of the budget on the population. Now that they are improving the policy-making process, it is time to focus on improving enforcement as well.