Join the new world

INTRODUCTION

The senate has been engaged in debate regarding the appropriate import tax settings for eAustralia. There are proponents of higher and lower import taxes, both with their own arguments. I believe that it is not productive to discuss the appropriate setting of a specific tax on a specific market without considering the wider implications, a 'whole of economy' or at least a wider fiscal policy-setting perspective. So while waiting for my health to refresh I though I might fill some time with a wider look at tax policy in the hope I may contribute to the discussion in some meaningful way.

This is Part I of a 3 part essay on taxation and provides some background on how taxes work in eRep today for the inexperienced reader, note I use the word 'today' as it will probably all change tomorrow.

Part II will look at considerations for taxation policy, and recommends what is IMO some good principles for tax policy.

Part III looks at import taxes on a more in-depth level, considering that these are the specific taxes under discussion at the moment.

Readers familiar with taxation and the black market can skip this part (after voting and subscribing) and move on to the next article.



BACKGROUND PART I- TAXATION IN EREPUBLIK TODAY

Taxes are set by the congress in-game by proposing laws. Each tax law applies to a specific commodity (food/weapons raw materials, food, weapons) and applies to all quality levels of that industry (for manufactures) for the entire country. Taxes are added to the country treasury immediately after being incurred, and are the only stream of government revenue (ignoring government investments, donations, money market trading etc.) There are 3 types of tax; Income tax, Value Added Tax (VAT), and Import Tax.

Income tax is applied to salary earned by working. It is set per industry, and applies to all workers in that industry regardless of the quality level of the company they work in. Note that 'work as manager' earns no salary therefore pays no tax.

VAT (same concept as GST in RL Aus) is incurred when goods are purchased from the market. It is set per industry regardless of the quality level of the goods purchased.

Import tax is also set per industry, and is an additional tax incurred when goods are purchased from the market from a foreign supplier (in this case a citizen account who does not hold citizenship in the market where the goods are sold).



BACKGROUND PART II - THE BLACK MARKET

Unlike RL, using the black market to avoid tax carries no official penalty and is a legitimate part of gameplay. Tax avoidance is quite simple, the only risks being the possibility of being exploited by unscrupulous business partners and the extra effort involved in sourcing goods.

Income tax can be avoided by working in a company owned by a trusted friend. Your friend sets a salary equivalent to minimum wage (currently $10 AUD), with the balance of your salary provided by direct donation of money or goods. (In the case of direct payment by donation of goods VAT is also avoided). You only pay tax on the minimum wage amount, not your actual salary.

VAT can be avoided by making private transactions with a person you trust. Instead of buying goods from the market, you donate money to your business partner and in return they donate goods to you. Because no market transactions take place, no VAT is incurred.

Import tax can be avoided either by making a deal with a trusted business partner in another country. Eg a foreign weapons producer may donate weapons to you and have you put the weapons on sale on your country market, donating the proceeds back to your supplier. Alternately if there is a large price differential it makes sense for buyers to move to a country with cheaper goods, purchase them in bulk, then move back to their home country. Import tax is avoided, the foreign country earns the VAT revenue, and the home country misses out entirely.

As discussed earlier, the only disadvantage of using the black market is that there are higher transaction costs in terms of the effort required to perform the transactions and the risks associated with unscrupulous business partners and potentially foreign exchange risk.



That’s it for the basics of taxation policy and black market in eRepublik today.

Part II will look at considerations for taxation policy, and recommends what is IMO some good principles for tax policy.

Part III looks at import taxes on a more in-depth level, considering that these are the specific taxes under discussion at the moment.