with Raziah Ahmed
the Christian tradition, some 2,000 years ago, one of the
greatest women to walk the earth, the Virgin Mary (may God
bless her), journeyed to Bethlehem, for the express purpose
of paying taxes.
History also records that in the Arabian peninsular, taxes
were paid to the king based on an assessment of
the animals owned by herdsmen, and such money was used to
feed poor pilgrims. The fact is that taxation has always served
a social function.
More recently, taxation serves as revenue for government,
to fund services and infrastructure for communities. Income
tax is what is called a progressive tax. This is a tax in
which the amount levied increases more than proportionately,
as the amount of income increases. This situation poses a
particular difficulty since the more one earns the more one
pays, and the net increase in take home, is significantly
The best money to save is pre-tax dollars. This
is the subtle art of saving the money before any tax is levied
upon it. Pension plans, long-term savings plans, and other
forms of tax incentives allow the consumer to save money before
any tax is removed. These are usually called tax deductibles.
Another form of savings is tax credits. These
are essentially reimbursements of taxes already deducted,
on the basis of participation, typically in schemes that support
In todays local market, the average return on pre-tax
dollars, for an individual annuity is about nine per cent.
This is significantly way above the return on savings accounts
and CDs, which average two per cent to five per cent
. But what is more attractive about such individual annuities
is the overall return, in light of the Tax Refund claims.
If the consumer claims a 30 per cent refund on his contribution,
and adds to that the per annum return of nine per cent, you
can see the potential for some exponential growth in saving.
For example, if you contribute $10,000 for the year into an
individual annuity, and you earn a nine per cent return, plus
a 30 per cent refund on contributions, you realise $3,000
in refunds and $900 in per annum earnings, totalling an earning
of $3,900 in approximately one year.
Without the annuity, you will pay tax on the $10,000 at 30
per cent , and end up with $7,000. Participation in the tax
shelter allows you to achieve your savings goals faster.
Current tax laws also allow a percentage of such individual
annuity funds to be used by first-time homeowners to assist
in the purchase of homes.
Taxation does serve a social function, and the need to assist
the poor is inherent, but you should reduce your taxation
There are two concepts in tax law, relevant today, since our
local revenue service, BIR, has been running newspaper ads
on the subject. These are known as the doctrine of constructive
receipt and the economic benefit theory.
In 167 BC, the infamous publicans, were a band of tax
farmers who worked for the provincial governors, seeking
to collect taxes from the people, above and beyond what was
due. They then used the money to buy up grain at a low rate
at harvest time, and trade it again at high prices in times
There is a lesson here: the tax collectors may be involved
in subterfuge, but the example for us to follow is that of
the great lady who journeyed to pay the tax.
We have been chosen to pay for welfare, yes, but we need to
avoid collapsing into the welfare net ourselves, for mangers
and stables are not common today, and wise men bearing gifts
are an illusion.
Next weekeconomic benefit theory.
n Raziah Ahmed is a registered financial consultant.