Meet Mart Laar the Jeff Bezos of Taxation 7
Just read this cool article Pioneer of the Flat Tax about Mart Laar the first prime minister of an independent Estonia.
It reads almost like the story of a typical hard headed young entrepreneur who doesn’t yet know all the reasons why something can’t be done.
Imagine a place with no tax accountants, where the annual return takes a businessman an hour to complete. Think how you could lead a country and design an economy just as you liked. Consider the joy of creating a tax system with no loopholes and exemptions, where everyone is treated the same.
When he became the prime minister of Estonia at the tender age of 32, Mart Laar saw this opportunity as a beautiful thing. The Soviet regime that once ruled his country had been overthrown, and he was starting with a clean slate – and the confidence that came from reading only one book on economics.
This table shows how it compares to UK Tax.
“Most experts advised against it and said it was a very stupid idea,” he said. “My finance minister said don’t do it, the IMF said don’t do it. But it’s not very easy to convince a young person that he is wrong and I was that type of young person. So I did it.”
This is how Bezos started Amazon. Max and Peter PayPal. Classic hard headed entrepreneurial spirit.
Thanks to Scott at Baltic Blog for bringing this article to my attention. He says:
As an American with a screwy tax system that confounds me, even that as an ex-pat, doesn’t owe any money but can’t figure out the proper filings forms because of the Byzantine nature of the U.S. tax system, Estonian tax filing is simplicity in itself. It is all Web-based, and generally take 10 minutes to file.
As all of us entrepreneurs know, tax is a pain in the *ss. While obviously paying a huge percentage like we do here in Denmark is bad enough, I think for many smaller entrepreneurs the reporting overhead is actually worse.
Also in places like Denmark you tend to worry more about your deductions than your income. Imagine a 0% tax on your business. What kind of clarity in your daily life would this give you? Focus on your business effect and not the tax effect. I have been considering Estonia for a while as it certainly is an attractive place for a startup.
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Nice to know the citizens of Estonia will subsidize businesses regardless of whether or not they do business with them. I’m sure they will be so much better off for it. No, it’s not a direct donation, but unless there are laws banning lots of businesses, then regulation will always have to be present and will require government funding.
The citizens of Estonia are not subsidizing businesses. They recognize the importance of a business to the growth of their economy.
Flat tax has also shown to give higher tax receipts through growth of the economy and also that it makes it harder to avoid paying taxes.
I’m sure that Estonia can manage their economy well without building all kinds of regulation. I’m sure it’s not perfect, but from what I’ve seen it is a relatively well run country by European standards.
Maybe some Estonians would like to comment?
Actually there is a tax 24% for corporate profits, but it should be payed only when dividends are payed out of the company.
If the profit is kept in the company and invested for business growth, then you do not have to pay tax on the “accountable” profit. So companies do not have to hide their profits, can invest into growth and that is how the economy is growing and in the long-term the goverment will get more taxes.
So we are really happy with that kind of tax system :)
Pelle, intrigued to know how Panama ranks up. Can you add a column to the table?
Mart Laar was in Osnabrück (Germany) two days ago. It was the national holiday, the day of the unification. He was explaining the Estonian perpective on Germany.
Addressing Germany and its important role in Europa he also emphasized that it has to be in a good condition. But at the moment it is occupied with domestic problems.
Flat Tax: Just think about it. As a surpise we (Estonian state) are receiving money floating into the state budget. Look at the Middle European countries.
Economy: Remember the Witschaftwunder after WWII , it is legend now, but there was tight, controversial decision making, laws often passed the parliament with a tiny majority. The oppostition was servere. Don´t hesitate(Germany) to do it again.
And a lot more
Linked your blog and took your headline over to flickr entitling the foto set wtih it. http://flickr.com/photos/65817306@N00/sets/1063942/
I come from Estonia and generally i am liberal. However Estonian political scale is way too much liberal. so estonian ultra liberal in western europe would be considered as ultra-liberal. and thats what bothers me. this liberalism is too much controlled by the 2% oligarhs. YOu might think this 24% flat income tax is easy and low. people normally do not see the 33% of social tax here. so, at the end of the day every Est. citizen gives 48% of their income to gov. ans since it is flat and this 48% affects low-income citizen more than those at the other end. this f..ng liberalism is just an illusion which has brougth Estonia to a situation where there is no strong middle-class. instead , there is high middle class and aristocrats (politicians, oligarchs etc) and the rest are poor.