Swiss taxation self calculated on a yearly basis, self made deductions, and adjusted / estimated going backwards and forwards depending on state, gemeinde, and bundessteur.
Why go through all that instead of just tax income at source? Is it mainly because we can figure out our own deductions for various things? Why not just set an appropriately lower tax at source figure and get rid of deductions instead?
I'd just like to understand the main drivers, if there is something I am missing.
Why? Well you can draw your own conclusion - it’s a way for people to reduce their tax burden.
The Swiss system will s fragmented due to Federalism, similar to the US and Germany - compare and contrast with centralist tax systems like the UK and France.
- Under a residence jurisdiction, income may be taxed under the tax law of a country because of a nexus between the country and the person earning the income, irrespective of the place where the income is earned.
- Under a source jurisdiction, income may be taxed under the tax law of a country because of a nexus between the country and the activities that generate the income, with no reference of the residence of the taxpayer.
- Most countries or jurisdictions adopt both the residence and source concepts in the tax system, such as the U.S. and China. Some of the jurisdictions only adopt the source concept in the tax system such as Hong Kong and Macau. Tax residents are entitled to claim credit for tax paid on foreign income but non-tax residents are not entitled to do so.
That is certainly a relevant point. I suppose it could be eliminated and averaged out in a taxed at source system however, since wealth taxes are generally not that big a component of overall taxation.
Italy also has a tax-at-source system, but then you have a lot of special cases and deductions, so actually many people end up having to do some sort of tax declaration in any case. Bigger companies would offer the service to employees, otherwise the Unions would do it. An office commonly found even in small towns is the CAF - Center for Fiscal Assistance, where they can give you advice or even do the whole work, for a fee of course. They are a business of their own, and until recently they were not even liable for their mistakes.
Recently they tried hard to improve the system with reasonable success. The medical expenses are centralized and automatically accounted for, as well as some common life events, bank statements, mortgages and so on. It's pretty efficient, easier and quicker than the Swiss one if you have a not too complicated situation (and if you are not self employed).
And why having so many deductions in the first place? Well, fiscal deductions are one powerful leverage for a state to encourage or discourage a particular behavior, and sometimes even a more efficient alternative to passing a law that mandates or forbids something.
PAYE workers in the UK are not to be trusted and neither are foreigners in Switzerland at least in the early years unless of course they are married to a foreigner, then it's assumed you Swiss spouse will ensure you pay your taxes.
Exactly - the amount of additional paperwork required in the UK for the mandatory fixed bands of tax is ridiculous. For example charging tax on your child benefit payments but only if you're in the 40% bracket, requiring potentially you to fill in a self-assessment statement being one example even if you have no other major income sources. There is a huge overhead with having to means test people for multiple payment systems/benefits based on the 40% threshold just for starters.
Then obviously you have things like emergency tax codes, people trying to avoid hitting the 40% bracket via cash payments etc. due to the massive doubling of the tax tate once you hit the threshold. Never mind the 'payment on account' for self-employed people in essence forcing you to pay your tax six months in advance - obviously you don't HAVE to do this but then if you end up earning more than they estimated for this six months they charge you interest on the whole lot because you didn't pay it before you actually owed it.
I'm pretty sure if they adopted a similar progressive line curve payment of tax like the Swiss not only would everyone get less pissed off about their tax (since they can see the really rich would pay much more which they don't now) and also save probably a ton of jobs at HMRC removing masses of unnecessary staff dealing with the constant queries due to the complexity of the rules.
Also don't forget in the UK you dont get:
1. Tax relief on your childminding fees (often upwards of 10k)
2. Tax relief on your travel costs (which for a 50km journey into London from my UK home is about £6k p.a).
UK has a residence based taxation. Don't mistake the fact that some taxes are withheld at source to mean that the UK has a source tax only system.
Just looking at the relative size of tax legislation quickly reveals that the UK has a much more complex tax system. That's before you even consider case law (ha ha, you thought you could just go by what's written in statute?).
Another thought: ever tried to contact your UK tax office? As Swiss tax is primarily raised by your local commune, you have an office in you town hall and can pop in and have a chat...