My ebook: Journeys with the caterpillar

My ebook
Journeys with the caterpillar: Travelling through the islands of Flores
and Sumba, Indonesia
" is available at
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Thursday, November 10, 2005

Taxing corporates and individuals

As global oil prices sky-rocketed this year, oil biggies mad profits like never before. Last quarter, Exxon Mobil a quarterly profit of $9.9 billion; Royal Dutch Shell made ~$9 B in 2004....And as the street agreed: That’s a whole lot of money to make in just 90 days.

Surprisingly despite such high oil prices and such stockpiles of cash available to the oil majors, few big investments were made to increase production capacities. As a result, many US and UK politicians suggested imposing a windfall tax on these companies and pass on the booty to consumers. Much of the business circles have been opposed to it.

But if we compare this with the case of individual taxation, it doesn't seem such a heinous proposition. After all, most countries have a graded tax system where people in the highest income bracket pay taxes at the highest marginal rate. And people are often allowed tax benefits on some investments - like house, infrastructure bonds etc.

Why can it not be the same for corporates: Net incomes can be divided into buckets and each taxed at different tax rates- the companies with the highest net incomes paying tax at the highest marginal rate? Since this may discourage companies from growing in size the marginal tax rates could be based on net income margins rather than absolute net incomes. Is this system regressive? Well, the most progressive system for individual income taxation is a system where there is only sales tax on goods. This may not work for companies, since, it is not that the most profitable companies spend the most on goods (unlike in the case of individuals). Companies already enjoy a huge advantage over individuals when it comes to taxation: they are taxed on net income instead of total gross income (unlike individuals). Thats why many entrepreneurs buy car and houses in their company's accounts. May be it's time to reduce some of such gap between companies and individuals.

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