Once upon a time, there was a kingdom by the sea. The air was fresh and crisp. The sky was so blue. The wind was soft and the grass sparkled with the morning dew.
Until one day, darkness covered the kingdom. The people were suffering from a plague. Factories, offices, and stores closed. People lost their jobs. Their families were hungry.
“What shall we do?” the King asked.
“Let us help them.” the Chief of Money said. Let us lower the income tax that they should pay the kingdom. They can keep more of their money if they pay 25% instead of 30% of their profit to government.
“I have a better idea! The Chief of Business said. “Let us have two tax rates—25% for big corporations and a lower tax of 20% for small companies.”
The owner of the biggest factory in the kingdom was about to protest. But then, he had an idea. He would divide his company into smaller ones so each company will only pay 20% tax. After all, there is no limit to the number of companies he can create. Under the new rules, a corporation does not need many shareholders. All that is needed is just ONE shareholder. And then he thought of another bright idea. “Great King, let us consider helping those companies who would locate near the mountains. Those are hard to reach. Let us lower their taxes even further. And, if they produce products and services which are “crucial” and “critical” to the kingdom, let us help lower the tax even more.”
The Chief of Good Government asked. “But what is meant by “crucial” and “critical’?”
The Chief of Money winked. “Don’t worry. We will create many departments that will define them. And they will formulate many rules and regulations to prevent abuse. Since, these departments will all report to me, I will see to it that the rules are followed. And if there are problems with the rules, the King and I can always change the law. ”
The Chief of Government felt very sad. He knew in his heart that temptations for corruption and abuse of power abound if officials are given much discretion. He did not even want to imagine the maze that would result from too many rules to follow and various documents to prepare and submit.
The Chief of the Poor shared his fears and shook his head. “Great King! Our problem is hunger, unemployment, and most of all, fighting the plague! We need to have more funds to protect the people especially the poor!”
“Do not worry!” the King said. “If you lower the tax of companies, it is equal to giving them more funds. They will have more money to help the poor and to produce more. My friends from foreign countries said, they will set up business in the kingdom if we give them tax benefits.”
The Chief of the Poor thought hard. He found the discussion hard to understand. For him, the right solution is for government to spend more for vaccines, provide more funds to hospitals, and give more help to those who lost their jobs. He also thought that small firms like restaurants, lodging houses, beauty shops, and retail stores had not been making money for more than a year. Of what use will be a lower tax rate for them? In his simple mind, what they need are loans without interest from government so they can keep their workers. But he is not a financial expert. He may not be listened to and it was better for him to keep silent.
The Chief of Money consoled him. “This law will help schools and hospitals who are helping the poor. Instead of a 10% tax, they will just pay 1%. Plus, we are also lifting the VAT on the inputs that “crucial” and “critical” firms will use, including those that they will import. And that is not all! “We are abolishing the tax on accumulated earnings. That means, they will not be penalized if they keep their profits to themselves and do not declare dividends!”
The Chief of Good Government could only shake his head. These were all beyond him. But he had his doubts if the kingdom will live happily ever after.
The King said proudly, “This is government’s big gift to the people. They will remember me for it.