Thursday, 8 January 2015

Oh No, you too China ?

The United States believes, sometimes, that it is so unique that it exists in Planet HIP 116454b (discovered yesterday). Some of its laws and practices are completely unintelligible to other members of the species Homo Sapiens. Chief amongst them is its laws relating to guns. A lesser dramatic field is the one on taxing global incomes of Americans (and now even green card holders). This blogger railed about it in the past here.

Now it appears that the Americans are no longer alone in Planet HIP 116454b, at least in regard to the taxation law. The Chinese are also joining them there.

World over, the principle of taxing income is that you pay income tax in the country where you live and not in the country you are a citizen of. So, if you are an expatriate living in another country, you pay taxes in that country of residence. This seems reasonable. You utilise the services of the state where you live - infrastructure, police, defence, healthcare, etc etc. It is therefore only right that you pay taxes to enjoy those facilities.

America believes differently. It believes that you pay taxes where you live (it can do precious little about that) AND pay taxes in America. To control and monitor this, America has enacted the draconian FATCA, which can be considered reasonable only in Planet 116454b.

Now China is proposing to engage in the same stupidity. Actually , it appears the law was always like that in China, except that it just wasn't enforced. Considering that the "law" in China is not what is enforced by the judiciary, but what is the prevailing interpretation of the Communist Party, this in reality is a change in the law. They are going down the same path as the Americans - demanding that other countries hand over information relating to their citizens, and starting to hound them with Ramamrithamesque legislation.

It actually is quite stupid of China to be trying this. The wealthy Chinese who are emigrating abroad all want to give up their Chinese passport as fast as possible and become citizens of America or Australia or wherever. The majority of their overseas citizens who will be affected are the poor migrant workers working in Lesotho or Burkina Faso building roads or constructing buildings. If the attempt is to get at local Chinese stashing their wealth abroad (of which there are plenty), they can already do that and in any case this move is not targeted at those who are Chinese residents anyway.

A real danger is that our own home grown Ramamritham is eyeing all these moves with undisguised glee. Its probably a matter of time (next budget ?) that he will make a similar move. This blogger is least affected - he lives in India and pays his taxes here anyway. It is his overseas friends , who are readers of this blog and have retained their Indian citizenship, who must start to quake in their boots.


Sriram Khé said...

How can anybody possibly get excited to blog about taxation laws!!! A strange parallel world of people ;)

Yes, you and I don't care about these laws, given that we live in the country in which we are also taxpaying citizens ... the difference is that I continue to work to pay for my needs and wants whereas your full-time work now is to watch sports on TV ;)

Ramesh said...

You are not "excited" when somebody puts a hand inside your pocket and takes away half your money ????

I know , I know - your secret wish, which you will never admit to is to watch sports all day long :):) Hahahahaha

Ravi Rajagopalan said...

As Sriram says, you really must be short of subjects if you can blog about taxation. However, having been victim to two or three tax regimes simultaneously for most of my life I can write with some feeling.

The digitisation of the world has not been lost on the tax man. As we speak there is a cell in the OECD that is working on tax collaboration between member countries and associate countries (India and China are not OECD members but are associates - some sort of reverse snobbery). Since most accounted income is traceable into bank accounts, and banking is increasingly digital, there are moves to achieve some sort of taxation collaboration tied into various DTA Treaties that exist bilaterally across the world. However these are far away from reality given that there is no common tax ID. Since it then depends on voluntary declaration the tax man resorts to bludgeons. The UK effectively taxes worldwide income. THe US does it. Incidentally India does it too. But so far UK and India do not get such a bad name. I think this is the new reality and the only solution for us poor global citizens is to hire good accountants and hope for the best.

Ramesh said...

With the learned comment you have made, you could have written this post yourself. Taxation IS a "sexy" subject :):):)

No, India taxes global income only if you are resident in India. It does not tax if you are a NRI. That's the correct principle I believe. In all my years as an expat, I never paid tax on overseas income in India just because I am an Indian citizen. I paid taxes in the country I was residing in.

The problem with the US, and now China, is that they want to tax global income even if you are not resident in that country. This is tantamount to the UK now taxing you on Indian income (in addition to the Indian taxman) - that doesn't happen today because Her Majesty is more enlightened :)

Sandhya Sriram said...

Like Ramarathinams, now we will help the reproduction of a new species - The suited, booted and styled Tax Advisor. i will leave the priviledge of naming this species to you Ramesh - as you are the best at it.

i dont know - at one end you argue that there arent enough incentives to entreprenuers and hence not enought job are created and at the other end, you are completely missing the point here. there are millions of non resident indians. all of them, have hard linkages back to india, family, property, whatever. and all of them just dread one single homo sapien species - the ramarathinams and this newly created species will be their saviour. they will multiply quite quickly and promise to provide them shield against the ramarathinam and charge them in dollars - afterall better than giving up half your income.

just look at the power of this self fulfilling prophecy. more ramarathinams, more "Ramesh to name species", more litigations, more lawyers, more judges, same amount of courts, many years of fight by which time, probably, the life tenor of the NRI will finish and the case will close itself.

How can you not see the larger picture here Ramesh :-) :-) :-)

Ramesh said...

Ha Ha. Nice idea. I shall rush to the patent office to trademark Ramamritham :):)

Hopefully, India will not have the idiocy to go the US/China way.

Sanjay Balachandran said...

Ramesh I hope and in my view India will not do this right now. Modi has been very aggressive in garnering support (and of course money) from Indians living abroad. So they would want to upset the NRI community. Moreover I do not think India has the clout to demand information about its citizens from another country.

Ramesh said...

You are right Sanjay. Its very unlikely, given the reaching out happening to NRIs. You can sleep easy :)

But never underestimate Ramamritham !

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