What are your thoughts on the Brunei government imposing personal income taxes on Bruneians?

Immediately, the first thoughts come to mind:

• The new regulation would require taxes to be paid by all unincorporated businesses.
• This includes all sole proprietorships and partnerships operating as business names.
• Taxes would probably start low 5%, then gradually ramp up. The opposite of that - starting taxes high, would discourage start ups but encourage established businesses to incorporate to avail themselves of the lower corporate rate of tax. I think they would not do this, but just impose a flat 5% of income tax on unincorporated businesses.
• Instant across-the-board rise in cost of living and doing business. Landlords operating as sole proprietorships would simply pass the increase in taxes on to their tenants.
• The first thing the public would ask is … what is the cost-benefit analysis of imposing this new regulation?

Some more analysis after the break.

The cost-benefit analysis will be a tough question to answer. Say Brunei’s GDP is approx US$15bn. From that, say 95% is from the oil & gas industry, leaving the rest of us producing some $750m of national output. Even if we taxed that at 100%, the $750m resulting taxes would be relatively small compared to the $14.3bn generated by the oil & gas industry. Not to mention the costs of administrating, monitoring and controlling such a taxation system.

Raising taxes also raises the sticky question of accountability. Private citizens putting in to the pot would want to know the efficiency and effectiveness of public spending.

Brunei would lose some of its competitive advantage against the other ASEAN nations. What advantages would a company have in wanting to locate here vs. elsewhere in the region?

To keep things in balance, personal income arising from salaries and wages would be exempt from taxes. Otherwise business profits would end up being taxed twice – once at the corporate/unincorporated business level and again at the personal income level.

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