So many tax havens, so little time

BILL JAMIESON

FEELING jaded after the election? Looking to escape higher tax? And desperate to avoid the Holyrood election in just two years' time? Then join what may well be Scotland's fastest-growing club this morning: the Escape Club. There are no fees or dues. Membership simply comprises those looking for a quick exit and prepared to travel to the furthest corners of the world.

High on the escape list must be the South American republic of Paraguay, a haven, of sorts, for political refugees in the past.

The country, according to the CIA factbook, "has a market economy marked by a large informal sector". In fact, the economy is so informal it is hard to work out whether it is growing or slowing. It appears to be organised like a gigantic car-boot sale.

Paraguay does have taxes. But judging by the large number of people with guns, it seems these may be optional. Fraud and corruption are rife. And you never know who you might bump into. There is a risk the harmless old codger next door has a disconcerting line in Nazi memorabilia.

More alluring, surely, have to be the Cayman Islands, an English-speaking dependent territory of the UK with a population of 30,000, some of it intermarried.

There are no taxes in the Cayman Islands. Government revenue comes from customs duties and annual fees on corporations.

But opening a bank account can be tricky. Having filled in a detailed form at a bank in the capital, George Town, a few years back to open an account, I was asked to pay in a minimum deposit ... of $50,000.

Stamp duty is also a little steep, at 5 per cent. The problem here is that, as last year sadly proved, the islands can be vulnerable to hurricanes that could blow your biggest investment away.

Alternatively, there are the British Virgin Islands (population 22,000). There is no capital-gains tax, wealth tax or gift taxes. Income tax is being scrapped this year and replaced by a payroll tax of 14 per cent, of which 8 per cent is payable by employers. However, like the Cayman Islands, it has chosen to apply a withholding tax on savings paid to nationals of EU member states. Not so good.

The Seychelles (population 80,000) are a byword for tropical beauty. They comprise 115 islands near the Equator and outside the cyclone belt. There is no income tax to speak of, but social-security payments and tax on locally sourced businesses can range up to 40 per cent.

High on any tax refugee's list must be Vanuatu, a group of 80 mountainous tropical islands on the eastern seaboard of Australia. The capital is Port Vila, the population 210,000 and the time-zone is GMT plus 11 hours.

There is no crime of tax evasion on Vanuatu, since Vanuatu has no taxes. There is a stamp duty on property transactions, but this is capped at 1 per cent. There are no state social-security contributions.

Vanuatu is a free-market economy. But there are regrettably some snags. Economic growth is slow because of adverse climatic conditions, most goods are imported and import duties are high.

More worrying still is that some of the islands have active volcanoes. The otherwise helpful Low Tax internet website does not specify which ones. This may add an explosive degree of risk to the most gilt-edged portfolio.

Nearer home, there's Estonia (population 1.3 million, capital Tallinn), land of the flat tax. The economy has grown by an astonishing 73 per cent in ten years. Yes, there is a flat tax - 26 per cent, and coming down to 20 per cent.

But national insurance payments average 33 per cent of income, giving an effective total tax rate of 44.4 per cent.

Oh, and there are six different political parties preparing for an election in just two years.

My personal favourite, both for its topographical similarity to Scotland and ease of entry (and exit, should things go wrong) is the American state of Wyoming (population 501,000, capital Cheyenne).

The landscape is in many parts similar to Scotland, but the state website instantly proclaims the difference. Wyoming does not levy a personal or corporate income tax, there are no taxes on bank accounts, stocks or shares. The state does not assess any tax on retired income earned or received from another state.

"Further," declares the website in a glorious sentence that the Treasury and Scottish Executive could usefully copy, "there is no legislative plan to implement any of these types of taxes."

A "Just the Facts" web page - one that Scottish Enterprise could learn from - shows that unemployment is just 3.9 per cent, the average university teacher salary is $62,000, there is 73 per cent home ownership and the average house price is $143,000.

So where's the catch? Those familiar with the wonderful stories of the writer Annie Proulx will know the feeling. When you start reading her description of the awesome beauty of Wyoming, you cannot help but wonder why so few people live there. But after describing what "bad dirt" life can really be like for its inhabitants, you end up puzzling why anyone lives in Wyoming at all.

Better surely, then, to stay put at home. But sadly, staying home in Scotland is not at all the same as staying put. For we are slowly drifting north-east towards Sweden. This is the cradle-to-grave welfare model our politicians crave.

But it comes at a price. Earned income in Sweden attracts a local income tax of between 26 and 35 per cent. Then there is the national income tax of between 20 and 25 per cent.

Income from savings is taxed at 30 per cent. The VAT rate is 25 per cent. Even books and newspapers (zero-rated here) have to pay VAT of 6 per cent.

There are 16 excise duties and swingeing taxes on alcohol and tobacco. The ratio of total taxes to GDP is just over 54 per cent.

Sweden really knows how to tax. In addition to income taxes, there are motor-vehicle tax, road-user charges, fertiliser tax, gift tax, waste tax, nuclear-power tax, lottery tax, advertising tax, taxes on most life assurance premiums, a real-estate tax and (here's the killer) a wealth tax - assuming you have any disposable income left after all the other taxes. Astonishingly, 300,000 Swedes were liable for this tax last year.

It is, of course, a wonderful health and welfare system. But despite this, or perhaps because of it, more Swedes phone in sick than in any other country in Europe.

And, yes, the political system is boringly stable, with the prime minister, Goran Persson, having been in power longer than Tony Blair. But give Sweden a big miss if you want a rest from politics. There are seven political parties, including Lefts, Greens and Centres. And an election is due next year.

So if you're feeling restless this morning and in need of a change, there's no lack of places to choose from. The good news is: the grass certainly looks greener on the other side. The bad news? Perhaps it really isn't.