Monday, 12 May 2014

Ukraine and taxation: two disconnected stories

I must admit I felt quite sorry when the Russian duo in Eurovision on Saturday were booed and that whenever Russia was mentioned in the scoring, the same happened.  Whoever said Eurovision had nothing to do with politics.  It was as predictable as the outcome of the referendum in the eastern part of Ukraine—for the government in Kiev it was illegal and a ‘farce’ while the Russian Foreign Minister said Russia would respect the ‘will of the people’ in the eastern provinces.  It may have been illegal and expressed the ‘will of the people’—though precisely what this means is unclear—but it does little to resolve the on-going tension in Ukraine and the potential for direct Russian intervention.  The problem in Ukraine is that, whatever the nature of provincial government, it remains a largely centralised system of government based in Kiev.  It is hardly surprising that Russia is concerned about the westward looking agenda of Ukrainian politicians—Kiev was where the Rus state had its origins--and there was always little chance that it would accept a further EU country on its doorstep.  Whatever the aspirations of Euro-politicians, it was diplomatically and politically inept to encourage Ukraine to believe that it could become a member of the EU, an unlikely eventuality anyway given the parlous state of its economy.

Map: Ukraine's political and linguistic divide

The relationship and respective power of the different nationalities within Russia  had long been a divisive issue that the break-up of the Soviet Union simply exacerbated.  What do areas with Russian-speaking majorities do when they are no longer part of the Russian state?  As Ukraine clearly shows you can force those groups to remain within the state but at a huge cost in terms of political stability and political violence.  But is this the answer…well clearly not if the resistance of pro-Russian militias is any indication.  Whether the Ukrainian government agreed with the referendum or not, it is an expression of how a significant number of people feel about their position within that state.  The attitude of the Putin government is far from obvious—despite what the West feels—and may have more to do with assuaging internal critics rather than a reversion to the ‘salami tactics’—taking a piece at a time—of its Soviet past.  Annexing Crimea was undoubtedly an expression of Russian imperialism reversing what was an almost inexplicable decision in 1954 but whether this extends to the eastern provinces of Ukraine is far less clear.  There has been ample ‘provocation’ in the past week to ‘justify’ Russian intervention but its troops have remained firmly on the Russian side of the frontier.  Ukraine faces three equally unpalatable options.  It could cut the eastern provinces free allowing them to join with Russia; it could deal with pro-Russian feeling by giving those provinces autonomy within the Ukrainian state; or, it could imposed a military solution or at least try to. 

Yet another tax avoidance scandal has hit the headlines with the predictable moral outrage from politicians, a bit like the moral outrage of global politicians to Russia’s annexation of Crimea.  The difference is that the tax avoidance is not illegal.  Whatever you may think is the moral imperative, there is nothing legally wrong with individuals seeking to avoid paying some of their taxation.  If you don’t like this then make all tax avoidance schemes illegal: that would leave no wriggle room for those seeking to avoid paying their full tax bills.  This would mean, for instance, that you could not offset your tax bill against charitable donations or against personal losses in business.  But I hear you say that would be unfair on charities and , of course, you’d be right.  The problem is that as soon as you allow exemptions from paying taxes because of X, then people will try to exploit that legal loophole. If you give people allowances, they will apply those allowances within the rules even if you might think they are morally wrong to do so.   As soon as you say, you will pay £X in tax but…you’re into tax avoidance.  The solution is that we should tax all income—whatever its source—with no exceptions; so if you earn £200,000 or £20,000 a year, you pay all your standard and/or higher tax. 

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