Sunday, October 22, 2006

Max Newnham writes how there is nothing new under the sun ... but some things are worth repeating ...

With tax, we're all just history
THEY say that there are two inevitabilities in life — death and taxes. When you look at the history of taxation you also realise that with taxation came the other inevitability, tax avoidance. Income tax as we know it today is, however, a relatively new innovation. One of the earliest examples of tax was in the time of the Egyptian pharaohs who imposed a tax on the consumption of cooking oil.

The possibility that this tax was being avoided is evidenced by the activities of the scribes charged with collecting the tax. They visited households to ensure the occupants were not using lard and other forms of fat to avoid paying the tax.

The Romans were also taxation pioneers; their innovations included customs duties charged at ports on both imports and exports, and an inheritance tax used to provide funds for retired soldiers.

Julius Caesar imposed a 1 per cent sales tax that was eventually increased to 4 per cent on the sale of slaves.
Many of the earliest forms of tax in Britain were imposed on products and land.
The land taxes took many forms, including a tax based on the land area a house occupied or one based on the number of windows a house had.

Part of the distinctive look of Tudor-style houses comes from minimising tax rather than architectural inspiration. Apart from the use of painted white panels framed by wood, many Tudor-style houses are also distinctive because the ground floor is smaller than the upper stories.

This overhang of the building over the street was a design response to the fact that, the less land the ground floor occupied, the lower the property taxes.

Another feature of English architecture is the number of houses that appear to have once had windows that are now bricked up. This was another early form of tax minimisation. Buildings were taxed according to their glass windows, so some property owners simply did away with some of the windows.

The earliest form of income tax was introduced in Britain to finance the war against Napoleon in 1799. It was an unpopular tax and many people must have found ways to avoid it: instead of collecting an anticipated expected £10 million in the first year, they only got £6 million.

When a peace treaty was signed with France, the tax was repealed, but it was reintroduced when hostilities resumed.
It is this second tax act that is the model for most modern tax systems. In addition to imposing tax on different classes of income, such as property, farming, retirement annuities and wages, there was also a withholding tax on interest income paid by the Bank of England.

This second version of income tax was again extremely unpopular. Following the victory at Waterloo, it was not only repealed, all records associated with it were destroyed.

Britain's current income tax system was introduced in 1842 as another temporary tax, supposedly to last just three years. It is still a temporary tax that expires each year on April 5, and must be reapplied by an annual finance act.

The history of American income tax is similar to Britain's.
An income tax based on the original 1799 income tax was drawn up to fund war with Britain in 1812 but this tax was never imposed. It was not until the Civil War when a progressive income tax commenced.

Again tax avoidance must have been high as only 276,661 people filed tax returns in 1870 out of a total population of about 38 million.

The new the old approaches under the sun and the price of civilisation