I so love fairy tales, but they all have a moral don't they? Well, Zenobia Aunty decided to be a story teller recently. This is what happened, click here. As always, if the url doesn't work, read the story pasted below.
Once upon a time…
Taxes have been put to various uses
Taxes yield results, only if used well
Taxes must offer equity, certainty, convenience and transparency
Down with fever, this columnist recalled vividly the time when her Granny used to tuck her into bed and narrate a bed-time story. Well, Zenobia Aunty, decided to act that part, ahem- as well as she could.
Hot soup and toast, the pitter-patter of the rain, a cool breeze and story telling time, courtesy Zenobia Aunty, who had rushed from Mumbai to be at the bed side of her favourite niece, while the doctors pondered over the cause of this low but irritating fever that just refused to go away, cured this columnist in no time. After all, one can only tolerate tax stories, that much!
Knowing fully well, that her niece now also had an Irish boss to contend with “or vice-versa,” as he is bound to retort (though he sure knows how to deal with just about any situation this columnist can ever dream of conjuring up), Zenobia Aunty began with a story – no, not about pixies and fairies and other Irish folklore, but on the ‘plastic bag tax case’. Introduced in 2002, in the Republic of Ireland, it had an immediate impact where the plastic bag usage per person decreased within weeks by 94%. Years later there was again a slight increase in consumption of plastic bags, prompting the Irish government to increase the levy from Euro 15 cents to Euro 22 cents in July 2007, said the wise Aunt.
The New York Times, has a few months ago, written about this interesting experiment. The paper attributes the success of the tax imposed on plastic bags to several factors, viz: Creating environmental awareness by the government; lack of a power manufacturer’s lobby: there were no plastic bag manufacturers in Ireland (most bags were imported from China); strict enforcement– resulting in people carrying their own cloth bags – if retailers were to switch to paper bags, this too would have been brought to tax; easy adoptability to the new tax regime: most retail chains were highly computerised and adding the “plastic bag tax” involved minimal reprogramming; the means justified the end: the tax was put to good use – to finance environmental enforcement and clean up processes. It is clear it was not tax alone that did the trick. I am sure my Irish boss will agree on this one.
That said; Zenobia Aunty hopped over to a more recent example or rather Kelly’s post on her blog ‘taxgirl.com’ regarding the levy of tax on “alcopops” – pre mixed soda-like alcoholic drinks. Australia, to decrease dangerous underage drinking has sought to increase the tax on alcopops.
Has it helped? Kelly explains: The Distilled Spirits Industry Council (DSIC) says that the increase in tax on alcopops has led to increase in dangerous drinking. Specifically, the DSIC cites figures that show that sales of alcopops have fallen by almost 40% since the tax increase took effect last month. That would be good, right? However, in that same time, sales of bottles of pure spirits have increased by about 20%. Most people are now mixing their own drinks and are perhaps drinking even more alcohol. The Ministry of Health, however, may stick to clear narrow statistics alone.
Kay Bell, tax writer from the US chimes in, with her post on ‘dontmesswithtaxes.typepad.com’ Texas, where she resides, imposed a tax on adult entertainment last year. Lone Star State legislators authorized a USD 5-per-patron fee, aka pole tax, on strip clubs. The money, an estimated USD 40 million a year, is to go to anti-sexual-assault programs and health care for the uninsured. However, in March an Austin judge found that the tax infringed on First Amendment rights of freedom of expression and declared the tax on exotic dancers unconstitutional. While Texas is collecting the tax even as the case is on appeal, other States seem to be waiting and watching.
What is the point in taking you through the above cases? Is Zenobia Aunty just spinning a yarn. No, she isn’t. Every fairytale ends with a moral and here comes one.
She nods her head sagely and states that the plastic bag tax worked, because it fulfilled all the tenets of a good tax regime – viz: equity (the taxes were nominal and imposed on all users); certainty (the timing and amount was certain); convenience (it was easy to pay the tax); and lastly economy in collection (it was easy to administer). Moreover, there was no wiggle room, papers bags if used, would have been subject to a similar levy. Whereas in case of alcopops, probably the users just shifted to something else, a more dangerous situation, in fact. And yes, the tax laws must not to contrary to the fundamental constitution – while the Pole Tax, is an offbeat example, this tenet holds good.
Moral of the story: Taxes are a powerful weapon, but must be used correctly. Else like the alcopop tax, it may just lead to contrary results. That, law makers is something Zenobia Aunty wishes that you ponder over, whenever a new tax levy is being contemplated.