A Tale of Two Taxes

Income tax began as a voluntary levy to fund the war against Napoleon, and it is said to be the tax that defeated him. Corporation tax is the successor to income tax for companies, and for certain large international companies it appears to be still a voluntary tax.

There was a valley in France where year after year, the farmers reported low incomes and paid little taxes. Eventually the authorities decided to build a dam and flood the valley. The compensation they paid to the farmers was based upon reported incomes, so it was low. The farmers rioted!

It is not so easy to collect taxes in a country like that. What you do is to stand a man with a gun on a bridge, and levy taxes on the movement of people and goods across that bridge. This is the origin of Value Added Tax.

So we have two taxes with different historical origins and characteristics which are still with us today. Income or corporation tax is a complicated tax collected by civilians, while VAT is a simple tax collected in militaristic fashion. You can see that in Britain today. I can go online right now and check a client’s income tax or corporation tax account, but I cannot see their VAT account, only the returns. However, if a client fails to pay the tax, then the response of the VAT authorities is likely to be a lot harsher.

Now that we are leaving the European Union, it will be interesting to see what the future has in store. Will it be Pitt’s tax or Napoleon’s tax we have to deal with?