Tax is a necessary evil. Tax is never popular. Most of us accept that we should pay some tax. We are willing to see money given to people who cannot fend for themselves. We accept some social insurance to help people going through a bad patch, or who have lost their job. We need some common defence. In the UK there is strong public support for state financed healthcare and education. All these things need paying for from taxes.
The state’s aim should be to spend wisely and effectively to keep the overall tax bills under control, and to raise the money in ways which do as little damage as possible to incentives and economic activity. People on high, middle and low incomes need to feel it is worthwhile working more or smarter and earning more. Business people need to feel it is worthwhile selling more and making more profit.
It is difficult making the case that paying more tax is moral, and paying less tax is immoral. If an individual takes maximum benefit of ISAs, pension tax relief and the like to save, he or she is saving the state lots of money in the future: they will not qualify for or need substantial state means tested benefits later in life. Why is this a less moral position than the person who saves nothing, pays more tax when at work, and then relies on state handouts in older age? Why is a company immoral if it uses all the legal ways to avoid tax, enabling it to create many more jobs in the UK than it would do if it had to pay the full tax rates? Couldn’t the UK state be better off as a result? Isn’t that why the UK state offers all sorts of tax incentives and exemptions to stimulate more business activity?
Someone is not immoral if they pay cash to a tradesman. The BBC got in a muddle talking about it yesterday, wrongly calling it avoidance. If the tradesman receives cash for a service provided and then fails to declare the income for VAT or income tax purposes, then he is committing an offence. That is tax evasion. If the purchaser of the service knows the tradesman has offered him a lower price because the tradesman intends to evade tax, then the customer is aiding the tax evasion. The Tax authorities can and do find people under declaring their income, and levy the tax owing with penalties.
As paying in cash is a legal way of settling your bill it is difficult to say that the customer has a duty to ensure the tradesman nonetheless declares all the income and pays tax on it. The main onus to comply with the law must rest with the tradesman, as it is he who will owe the VAT and income or profit tax, not the customer. It is best to keep morality out of the equation. The government itself encourages small businesses by allowing them to avoid VAT, complicating the position of the customer trying to judge whether and how much tax the tradesman should pay.
The government actively encourages tax avoidance by allowing and encouraging many ways of doing it. If you have high rates and are over the tax saturation point, as I think the UK now is, tax avoidance becomes necessary to many hard working individuals and companies who want to use the available reliefs.Tax evasion is against tax law and will be dealt with. The government itself relies on tax avoidance to help finance its own excess spending, by offering tax free National Savings.