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Recently a small group of people decided to take it upon themselves to change our nation’s tax system. Their goal was admirable - making more money for our country. However their method was flawed. What I hope to show you in this article is how the tax system works, what we have here in eIsrael, and how we should move forward. Please keep in mind that I am no economic master mind, the thoughts and ideas put forward in this article are my own opinion. But then again nobody in eIsrael is an economic master mind or else we would be raking the gold.




How Taxes Work

In eRepublik we have three different types of taxes: Income, Import, and VAT. All three of these taxes are set by our government through the Knesset and President. Whenever we wish to change these taxes a bill must be introduced, voted on, and pass the vote in order to take affect. Let’s walk through each tax and see how it effects us.

Income tax is comes about when a General manager (person who manages a company) collects money from his/her company’s account. It is also deducted from wages received by employees. The tax revenue taken as income tax is added to the country's account. So this means whenever a business owner decides to remove money from his company and put it into his own personal account he is taxed for doing so and the wages he pays his employees are taxed. So a business owner has to keep these things in mind while running a company.

Example: If a general manager collects $100 from a food company, and the income tax rate for food companies is 5%, then the general manager receives $95.
Example 2: If an employee works for a food company for a $5.00 wage, and the income tax rate for food companies is 5%, then the employee would receive $4.75 when they work.

To get around having to pay income taxes on with-drawls many business owners use the money market. What this means is from their company they place gold/money onto the money market at an inflated value. Then they use their own personal account to buy up that gold/money.

Example: I have 100 gold in my company. I want to put it into my personal account to use for my own food and weapons. So from my personal account I put up an offer to buy 100 gold for 1 NIS. Nobody in their right mind would give me 100 gold in return for 1 NIS - except myself. I then go into my company account, find the offer I put up, and accept it. I have now moved 100 gold from my company into my personal account and 1 NIS the other way. If I had simply donated it to myself I would have been subject to the income tax. If this was a food company the income tax is 10%, so 10 gold would have gone to our country and I would only have gotten 90 gold out of 100.

VAT (which stands for Value Added Tax), is a tax set that increases the selling price of items at the marketplace. Tax revenue is added to the country's account. This is how the majority of our country’s tax money is made. Every time someone sells something on the market it is taxed. The only exceptions to this tax are raw materials, which are not subject to the VAT. So when we sell raw materials in eIsrael the government receives no tax profit from them.

Example: If a company decides to sell one unit of food for $1.00, and the countries VAT for food is 5%, then the offer at the marketplace would be $1.05.

Import tax is a tax that increases the selling price of items when the company selling the item is outside of the country. Tax revenue is added to the country's account. Import taxes only affect foreign companies trying to sell goods in another country and do not affect home companies. Import tax and VAT both occur at the same time (if there is a level) on foreign companies.

Example: If a company from Spain decides to sell one unit of Food at the marketplace in France for $1.00, and France's import tax for food is 50%, and France's VAT is 5%, then the offer at the marketplace would be $1.55. $0.50 of that is due to the Import Tax while $0.05 is due to the VAT tax.




What We Have in eIsrael

Finding out what our levels are in eIsrael is very simple. You can go to the Country Administration - Economy Page (http://www.erepublik.com/en/country/economy/Israel). On the bottom of the page are the tax levels for our country. It lists every available raw material and good as well as the tax level for all three types of taxes. As you can see we have some pretty uniform levels of taxes. Most manufactured goods have a 10% Income Tax, 15% Import Tax, and a 5% VAT tax.

The only exceptions to this are Hospitals and Defense Systems. The reason those two differ is because both are extremely expensive to create, there are few companies that create them, and the government is the only entity that can buy them. Keeping taxes on these two items at the minimum allows the government to have the most wiggle room possible when attempting to purchase these two goods.

When we look at raw materials things differ more. Grain has a 2% Income Tax and a 1% Import Tax, Oil-Titanium-Stone all have a 50% Income Tax and 1% Import Tax, and Iron has a 1% Income Tax and 1% Import Tax.

Also available on the economy page is a listing of what eIsrael is able to produce (on the top). You can see that we are able to produce fish (Haifa, Tel Aviv), fruits (Jerusalem, Nazareth), and saltpeter (Beersheba). eIsrael lacks grain, cattle, deer, iron, aluminum, oil, and rubber.




What This Means for eIsrael

As stated above we have access to fish, fruits, and saltpeter. Fish and Fruits give us a bonus for food companies while saltpeter gives us a bonus for weapons companies (rifle, tank, artillery, air unit). Each food company we have in eIsrael will receive a 10% production bonus (5% from the fish in Haifa/Tel Aviv and 5% from the fruits in Jerusalem/Nazareth), each weapons company in eIsrael will receive a 5% bonus (from the saltpeter in Beersheba), and eventually any saltpeter, fish, and fruit companies (when implemented by the admins) will receive a 25% bonus.

Each resource can only be counted once for the bonus. So while eIsrael has two f both the fish and the fruit it only counts once each. The maximum bonus a food company could receive would be 25% (5% from each grain, fish, deer, cattle and fruit) while the maximum bonus a weapons company could receive would be 25% (5% from each saltpeter, iron, oil, rubber, and aluminium).

What this means is that we are able to get bonuses for food and weapons companies as well as (when implemented) fruit, fish, and saltpeter raw material companies. This means that these eight goods (fish, fruit, saltpeter, food, rifle, tank, artillery, air unit) are things that we can produce on some level. However our food companies lack access to grain and our weapons companies lack access to titanium and iron. This means our manufacturing companies are at a disadvantage right off the bat.




How to Manage the Taxes

As stated above our food and weapons companies are given an advantage by the resources we have. However they lack access to their main needed ingredients. To make sure that we have viable jobs here in eIsrael and are earning money for our country we need to be very careful about our taxes.

Let’s look at food first. We have some nice resources in our country that give us a 10% bonus towards producing food (fish and fruit). This makes the idea of owning and operating a food company in eIsrael appear attractive. However eIsrael does not have a high grain region. Because of this we lack the 25% bonus for producing grain. While we can still make grain here in eIsrael it is more difficult and likely to not be very profitable. So how do we get grain to our food companies? We import it. Other countries have high grain regions, making it easier for them to produce grain at a profitable level. Remember, a company will not continue to run unless it is making a profit. We can’t do that with a grain company here in eIsrael, but other countries can.

Instead of trying to compete with foreign countries on their grain (which would be at a disadvantage because of our lack of a grain region and the 25% bonus) we should focus on importing grain. This means we need to keep the import taxes low. Why? Because we want foreign grain companies to import grain to us. If our import tax is too high they will receive less money for the grain they sell here and are more likely to sell it elsewhere. eIsrael has the advantage in producing food and should focus on that. But in order to do so we need grain, and lots of it. Keeping the import tax low entices foreign companies to sell grain to us.

Now we have the grain in eIsrael and are able to produce food with a 10% bonus. How do we make money off of that? Well, we need to keep foreign food companies from flooding our market with foreign food. But we need to keep some of them interested so that we do not deplete our own food supply. If we become involved in a war we need to be able to consume massive amounts of food and we will need foreign food companies to help supply that. So we need to manage our food import tax at a higher level than the grain import tax, but at a level that won’t scare away all the foreign food companies. This will take some more effort and tweaking by our government over a long period of time and should be done slowly and with discussion.

Let’s move to weapons. We have the saltpeter bonus which means our weapons companies get a 5% bonus. That isn’t much, but it is better than nothing. However, our weapons countries lack access to high titanium and iron regions and the 25% bonus that comes with them. So we need to follow the food/grain model above - keep titanium and iron import tax levels low to encourage the availability of those resources while monitoring the import tax levels of our weapons (all four).

What about oil and and stone you say? Well those are used for ticket and house production. In eIsrael we do not get a bonus for either, so a smart business owner is not going to invest much into that here. However we should keep both import tax levels low on both of those resources.

Wait, doesn’t all of this mean our government is likely to get less money from lower import taxes? It may. It may not.

Example: Company A is from the eUS and produces grain. They want to export it to eIsrael. The current import tax on grain in eIsrael is 1%. So if they import grain to eIsrael at a price of $1 the final market price is actually $1.01. This means they have to charge $0.01 more than a company native to eIsrael to receive the same profit. If we increase the import tax to 25% the final market value of their grain would be $1.25, meaning they have to charge $0.25 more to receive the same profit as an eIsraeli company. While the eIsraeli government would get more money with a higher import tax ($0.25 more per unit) it is also more likely that less of that grain would get sold because it is at a higher price than the native company offers. If 100 of the grain sells at the 25% import tax level that is $25 to the government from only 100 grain. At the 1% import tax level a company could sell 2500 units of grain and only lose the same $25. It is much more cost effect for the company and allows more grain to reach our food companies.

So how do we make up for any money lost by lower import taxes? We manage our income tax and VAT more carefully. Income taxes need to be kept a a fair level. If we raise the income tax then that means a business owner has to put more money towards an employee to make up for the increased taxes.

Example: eIsrael’s income tax level on food is 10%. A company sets a salary at $10. When an employee takes the job and works he/she receives $9, the rest goes towards eIsrael. If the income tax level is increased to 20% the employee would only take home $8. If that company wanted to make sure the employee got more money again he would have to increase the salary and risk losing more money.

What we can do is use the income tax to funnel people into companies that help eIsrael. As mentioned above eIsrael has food and weapons bonuses. This means we should focus on creating food and weapons (less so than food) and then export them to countries who cannot produce as much. By using the income tax we can help control what type of companies open up in eIsrael. We set our food and weapons income taxes to a manageable level while raising other income taxes to a higher level. This entices company owners to produce food and/or weapons, which will lower the market price for those goods and entice the companies to export them to other countries. By using this method we could have cheaper food in eIsrael while still making good money working for our companies (through foreign markets). At the same time we would cut down on the number of struggling and useless companies that cannot make it in our country.

The VAT will also need to be managed in over a long period of time. We will want items produced in bulk (like food and weapons) to be taxed at a medium level. These are the goods that we produce as a nation and by taxing them we can increase the funds of our government without damaging companies or consumers.

Example: The food VAT in eIsrael is 5%. If a company sells food here at $1 then the market price is actually $1.05. Each time food is sold $0.05 goes towards our nation. If we increase the VAT to 10% the actual market value of that food becomes $1.10 and we double our nation’s income on that produced good. A $0.05 increase in price is not much to a consumer (who more than likely is buying limited numbers of food) but can add up fast for our nation.

By managing the income tax (keeping it low for our best companies - food and weapons) we allow companies to send more money directly to their workers without having to lose any towards taxes. We then make up for any losses there by increasing the VAT. Employees now have more money to spend (as more is getting to them from the company) and can afford any increased VAT we may implement.

So we import grain from another country. This means that money is leaving eIsrael to pay for a raw material. How do we get money back? By exporting our own goods. Remember, we have the ability and bonuses to make food. We can take the grain sold to us and turn it into food. Which is worth more money- grain for good? You got it, food. So we spend some money to take in grain but make money by selling food. If we manage our tax levels correctly we should be taking in far more than we give out.




Discussion is Needed

As always more discussion is needed. We need to be able to sit down as a country, look at our companies, taxes, and needs. We should then be able to discuss these things. All sides should be heard before a tax proposal is implemented. When that occurs we also should make sure that someone in the government is watching our nation’s income, market offers, and company levels to determine what the results of the tax changes are.

Randomly proposing tax changes without any discussion just makes things harder on everyone. Not only do we see more fighting then but company owners and employees have to adjust to the increases/decreases in their profit. Short term fixes are not helping us out. We need people dedicated towards a long term solution with a lot of monitoring, guiding, and discussion.

If we can do this we can become an economic power. We have the bonuses and resources to increase our government’s funds. We just have to be smarter on how to do so.

Thank you for your time. If anyone would be willing to translate this I would be grateful.

Joshua Hoss