September 3, 2007
Encouraging Efficiences
Interesting tidbit (no idea if it’s accurate) from this week’s interview with Richard Jerram in Barron’s:
“Around 70% of companies never pay tax [in Japan], and this isn’t because they are unprofitable, it’s because they exploit loopholes. The ability to operate without any tax liability encourages inefficiencies.”
Shouldn’t it encourage efficiencies, as in we’re not being taxed, let’s make as much as possible?
Cat: | Time: 3:39 pm (utc+8)
September 3rd, 2007 at 7:59 pm
It will encourage inefficiencies if there are taxes and ways to avoid them and companies go through ridiculous hoops doing so. If there is no corporation tax, that would be efficient though the existence of other taxes could still lead companies to do silly things. The sentence though sounds like it has it all mixed up.
September 4th, 2007 at 1:08 pm
You are confusing bottom line profitability with operational efficiency.
September 4th, 2007 at 2:27 pm
dayo: Since when are the two unconnected?
September 4th, 2007 at 11:31 pm
Hmmm, I thought you said you had an MBA.
A very simplified example: resources deployed to avoid taxes versus resources deployed to enhance production and growth. Which has the greater long run economic benefit, both macro and micro. Are they connected?
September 5th, 2007 at 8:25 am
dayo: I do have an MBA — not that it means anything. The curious sentence is “The ability to operate without any tax liability encourages inefficiencies.” He’s not talking about resources being deployed to avoid tax, he’s saying inefficiencies are encouraged when there’s no tax liability… this strikes me as counter-intuitive, but maybe the idea of “maximizing profit” isn’t their goal in Japan … if they can make an x% margin that’s good enough for them (even though they could make much more).
On a sort of related note, I remember Buffett saying he could never find anything to buy in Japan because the returns on equity there were so low and it’s a very unfriendly place for shareholders (I’m paraphrasing from dim memory).
September 5th, 2007 at 12:00 pm
You are too literal in your reading of that sentence. What he is saying is, because companies can use loopholes to avoid taxes, they will follow that course instead of focusing on creating the most efficient enterprise possible when the tax liability is unavoidable.
September 5th, 2007 at 12:07 pm
dayo: Yes, I’m reading it literally … this is the trouble with being simple. ;-)