taxes

Tax Deadline Approaches: Uncompetitive tax regimes make my blood boil as they extract more than a pound of flesh!

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Yes, even in Taiwan we all have to pay Taxes, and even here Death is certain, too! Just to dispel any rumours. However, tax deadline is much later than either the UK or the US. And that day is tomorrow, May 31st! F32in2

So, after spending hours fighting with the paperwork (actually just two or three!) and plugging the data into our ‘free’ (did I say, free!) software, provided by the Republic of China National Tax Administration (Thanks, guys! Good job!)! No Quicken or Intuit here! … we were able to complete this year’s tax paperwork.

We printed it off, and promptly forgot to go to the Post Office! So that’s what I’ll be doing first thing tomorrow! I don’t usually mention taxes on this blog for several reasons: the most important of which is that taxes are SO different from country to country – and so much lighter a part of the burden for individuals in some jurisdictions than others.

Suffice it to say, Western countries, like the UK or Germany have tax rates that are CRUSHINGLY high for most people: income taxes, house taxes, car taxes (gas, licensing, etc.), VAT (17.5% in the UK), taxes for this, taxes for that, taxes for the next, … When other countries (like Hong Kong, and Japan…) adopt UNCOMPETITIVE tax regimes (EU Tax commissioners words, not mine), I just want to shout, “Yes! That’s right!” But it’s not these NIC countries that are being UNCOMPETITIVE, it’s YOU, it’s YOU OLD EUROPEAN countries that want high taxes, to line your treasuries’ pockets, not your citizens’ pockets. Yes, you might create social benefits with the monies, but then yet again, you might spend it on creating and maintaining beaurocracies! Why not let your citizens decide what to do with THEIR money!?

Now, I know and freely admit that I’m not an expert on taxation issues; nor do I care about European taxes that much! But when tax authorities that operate under profligate governments who want to create little fiefdoms at the expense of individuals cry that other countries with low-tax regimes are UNCOMPETITIVE, it is a signal that things are not right.

Let’s put this on an individual level: Two neighbors live in an average priced housing area with similar incomes and similar general expenses. One of the neighbors, however, spends more on gardening, house renovation, has more children, goes on more expensive holidays, purchases more food; while the other seeks to rein in non-essential spending, preferring simpler decorations, … Do you think it makes sense the first neighbor goes around shouting: “Neighbor, you’re being uncompetitive! You need to spend more! Spend more like me! Then we can be good neighbors!”

Do you think you’re government is profligate or thrifty? Is your government a good neighbor or a bad neighbor? Does your government encourage fiscal responsibility or fiscal stupidity? Comments, please! Perhaps someone more knowledgeable than I can weigh in on what tax competition means, too!

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This posting is an entirely personal and unresearched opinion on TAX issues. I do not pretend to KNOW anything about taxes or principles of taxation, except as much as I need to to file my own taxes. As with any financial issues, you need to seek validated and professional advice from qualified and authorized sources!
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Assets vs. Liabilities

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A reprise of Rich Dad Poor Dad. There has been much discussion of the authenticity of RDPD’s and the background of the author. You can read about that at other blogs: Rich Dad, Poor Dad, Liar Dad, Thief.  However, one criticism of the book is below along with my own interpretation of RDPD’s theories.

Jeff writes – “You tried to demonstrate that a house is a liability because you pay property tax on it. That is irrelevant. You also have to pay a tax on your car (license fee). Does that make your car a liability? You pay taxes on your income. Does that mean that earned income is a liability?”

Actually, RDPD clearly defines an asset as something that puts money in your pocket and a liability as something that takes money out of your pocket. So, if you live in your house, you pay a mortgage, taxes, etc., it is effectively a liability because the money comes out of your salary to pay this stuff. In other words, the house is costing YOU money.

Whereas if you rent out a house to someone who pays rent, as long as the rental income covers ALL expenses (inc. taxes) plus a little, the house becomes an ASSET, ie. it is making money for you.

In truth, this is a simplification of the situation, as in a balance sheet, a house with a mortgage would be recorded twice, as an Asset and a Liability. Anyway, he makes an interesting point that our passion for buying houses to live in really isn’t such a great way to make wealth (except through capital gains) as it produces no regular benefit.

But I do think he makes an interesting point: somethings that we attribute as having asset value aren’t really assets at all. A Car is a quickly depreciating asset, and if you are paying car loans, some of the time, the net difference between the value of your car and your outstanding loan may turn it into a clear liability on your personal balance sheet, esp. in the first six months where you haven’t paid anything off, and the car has suffered the sharpest decline in its value.

“A house is an asset, period. ”

Another point that RDPD makes is that yes, the house is an asset, but the question is whose? If you buy a house and its price decreases, your mortgage (assuming you have one) shifts into negative equity position, ie. if you sold, you would still have to repay the amount of the loan beyond the sale price of the house. Could it be said to be an asset then?

And if you don’t believe, do you honestly think that housing prices will keep heading up as they have been doing so ‘Mmm’.

Does this clarify things a little?

What I admire is RDPD’s ability to string simple observations out to a whole book! That’s quite an achievement. I did enjoy playing the game, though it is pricy.

Kenneth

Hong Kong, Taxes and Us…!

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Today’s Issue of Steve Sjuggerud’s DailyWealth

Hong Kong Adapts to the
Brave New WorldOne of our favorite anecdotes about Hong Kong dates back to 2003, when the S.A.R. was mired in doom and gloom (property prices were down –70% from their highs, people were hysterical about SARS…). That year, taxi drivers went on a strike to ask for… lower cab fares! The logic was that, at a lower price, more people would ride taxis (the government refused on the premise that the cabs would then start competing with the buses, tramways & MTR). If nothing else, this story illustrates HK’s amazing power of adaptation and “can do” attitude.

An interesting discussion that seems to follow on logically from the Globalised Economy. I had wondered if HK was in fact just raising taxes, but it seems to be actually shifting its tax portfolio. Continue reading →