Tax receipt, last year
I recently paid my income taxes. For me, this involves two trips to Maharagama, one trip to the bank (or into the nether reaches of my closet where my checkbook dwells) and a sizable amount of money. This year it was mostly foreign exchange so my tax bill was paltry, but last year it was painfully huge. Evading taxes in Sri Lanka is not necessarily easy, but it’s not hard. Only about 600,000 entities (including corporates) pay tax, and a lot lot more are evading. So why do I pay taxes. Honestly, so I can bitch about the government.
Economics and democracy are related on the surface, democratic countries tend to be richer, but the relation is usually framed as ‘democracy leads to economic growth’. I think it may be the opposite. Take America for example. The American Revolution didn’t start over liberty or freedom or any such noble values. Those came, but the first protests were over taxes. Not that there were taxes, but that there was taxation without representation.
“A share of wealth (however modest) provided a broad range of citizens with a compelling incentive to demand better government, and emerging elites on both sides of the Atlantic insisted that taxation entitled them to political representation. Autocrats reluctantly accepted new political entitlements, giving birth to a more mature social contract between leaders and those they led. The right to vote spread gradually. (The End Of The Free Market, Ian Bremmer)”
If you can say no taxation without representation, couldn’t you also say, no representation without taxation? This is why many countries seem to be pursuing the economic development first model. Because that’s how America developed. If you give everyone the vote (as opposed to wealthy land-owners as in wealthy America) they seem to vote for autocratic systems that deliver growth.
The Executive Director of the IPS and sitter on Mahinda’s tax board has said that there are only about 600,000 tax paying entities in Sri Lanka (Sunday Times. I would presume that they have a greater regard for liberal democracy than the population at large, but they are also direct shareholders in the system. 80% of tax revenue, however, comes from indirect taxation. Taxes on petrol, food, energy, etc. Also inflation. Thus, poor people are shouldering most of the burden but with the least direct involvement. It’s a deceptive system.
I’m going through this book (Bremmer, above) which has a brief history of capitalism and it seems that there is a virtuous cycle between democracy and economic growth. “Free markets, they argued, produced greater prosperity; prosperity created middle classes; middle classes demanded better government.”
That is, Kings and autocrats have always had stakeholders. The history of democracy has broadly been the expansion of those stakeholder. England had a King with wide ranging powers until nobles demanded a stake through the Magna Carta. That system had wide powers over the American colonies, until they demanded representation, or else. Those white landowners had wide powers over black slaves, women, poor people, etc, till they had the civil war, civil rights movement, full enfranchisement in the last century, and then Barack Obama. Thus, democracy is an expanding system, and it seems to expand apace with the economy.
This makes one wonder if its even possible to drop democracy on weak economies and expect it to work. It may be putting the cart before the horse, putting representation before taxation.
I shall close with quote from the book, which, while not entirely relevant, is entirely hilarious
A government that robs Peter to pay Paul can always depend on the support of Paul – George Bernard Shaw.