TAKING STOCK : Cut taxes for prosperity George W Bush, the American president, wants to do it. And so does Gerhard Schroder, Germany’s chancellor. Both are united in their fight to cut and simplify taxes for the people who put them in power. Bush campaigned last year on a pledge to simplify the US tax code. John Snow, his treasury secretary, is in the forefront of those who want reform. Unusual as it may be for the head of the country’s finances to criticize his own tax code, Snow did just that by saying that the US tax code has grown “larger, bulkier, more burdensome and lethargic with every passing year”. Snow’s straight talk is a welcome change from how bureaucrats and politicians normally talk. He realises that the 50,000 page US tax code makes America less competitive in the world. Snow has so far held six meetings this year to hear suggestions about tax reform. Among the proposals which have been made to Bush and Snow is the one advocating a flat tax rate of 15 to 17 per cent. This idea was originally mooted by Steve Forbes, editor of Forbes magazine, and a one time contender for the US Presidency from the Republican side. Whether the US embraces this radical change or not, it is the opinion of most economists that such a change makes eminent sense. The current six levels of tax varying from 10 per cent to 35 per cent along with a myriad exemptions make the filing of tax returns in the US a nightmare. Snow has himself said that “the code is so filled with loopholes, exceptions and lengthy explanations that individuals spend more than six billion hours every year on paperwork and other tax headaches.” The cost of this ritual to the US taxpayers is $130 billion every year. Though the US has not yet accepted the Forbes flat tax proposal, ironically, Putin, president of Russia, embraced it in 2001. Since then Russia has had a 13 per cent flat tax, government revenues continue to soar having increased by over 50 per cent in the first two years of its institution and, now, people willingly pay taxes in a country where no one had earlier bothered about compliance. It is not Russia alone, several other countries of the former Soviet bloc too have moved to a flat tax code. Without exception, they have done well and have given a huge boost to their economy. Estonia was the first on target, it has the best flat tax on corporate income – 0 per cent. In Latvia and Lithuania the rate is 15 per cent. Poland at 19 per cent finds it difficult to compete as its rate, though low, is still high when compared with its neighbours. Austria with its rate at 25 per cent finds it has problems because Hungary and Slovakia sit on its borders, eager to tempt Austrian companies with corporate tax at just 16 & 19 percent respectively. For far too long Europe’s leaders squeezed their citizens with high rates, and the tax payer just had to bear the burden. There were no options. So Europe stagnated under the weight of high taxes and excessive regulations, America not so burdened achieved higher growth rates. Not any longer. Today, European countries lead America and the rest of the world in cutting taxes. It is this competition from the eastern block economies – some of them new entrants to the EU – which prompted Schroder to call for lower taxes in Germany. In reality the chancellor has hardly any choice. It can keep squeezing its companies and watch them flee, one by one, or relieve the pressure, come to a fairer tax regime, and preside over a growing economy once again. As the world becomes increasingly boundaryless and as companies shift their operations to take advantage of favourable tax codes, it is for Nepal to sit up and take notice. It is possible for Nepal to attract investment. Chinese and Indian companies would be happy to set up shop here. Charge them income tax at a flat rate of 10 per cent and see investment and employment boom. (The writer can be contact at: everest@mos.com.np)