Tax increase should be judicious, says Nobel laureate

In an exclusive interview with The Nation, Mirrlees said that standards should apply especially with regard to progressive taxes like inheritance, real estate, and capital gains.
“Some countries have succeeded in collecting more than 50 per cent of the national income, so in prin-ciple you can collect as much tax
as you want but presumably there
is no point in collecting taxes if
there is nothing good to spend on,” he said.
“People naturally will not be keen on paying extra taxes if they do not think that the money would be spent on something that they value.”
Mirrlees is to give the keynote speech at the 5th Asean Bridges event series facilitated by the International Peace Foundation at the University of the Thai Chamber of Commerce. (UTCC) in Bangkok today.
He said one thing a country could do was concentrate on taxing something that relatively few people had and tax should be more for high-income earners while at the same time an efficient government would be needed to introduce the progressive tax.
Commenting on the inheritance tax, Mirrlees said as far as he knew there were very few countries that could raise a lot of revenue by collecting tax from a legacy but it made sense to have some inheritance tax.
“It is surprising how many countries do not have inheritance tax but you need to set a whole administration, as introducing a new tax is always at some expense to business,” he said.
Mirrlees said the current value-added tax in Thailand, which was lower than 10 per cent, was not that high when compared to the international standard and other Asean countries.
But the alternative would be to raise the income tax rate because it was more efficient than raising tax on merchandise, although many Asian countries still thought that collection was more efficient from sales taxes rather than income taxes, which was the wrong practice.
He is also in favour of a capital gains tax but it should be adjusted in line with inflation because people with significant capital gains were reasonably well off while its rate should be above the normal rate of return on assets.
He said introducing a foreign direct investment tax would depend on whether the country wanted to promote foreign business in the country.
But many countries saw the benefit of foreign direct investment without introducing a high tax on it, although it should be taxed.
Mirrlees said that to increase taxes on the rich to provide to the less fortunate and to lessen inequality “would certainly strengthen the case for doing so. This is called redistribution”.
But he said the question was, how much? And the problem was that a country needed an efficient government to do the distribution.