Death and Taxes

Emerging markets

Death and Taxes

Tax avoidance is a serious issue for governments stretched by rising costs, in both emerging markets and developed countries.

Demographics are unfavourable

In most countries, populations are getting older and living longer, with clearly increasingly onerous implications for the corresponding expenses (healthcare, pensions and social benefits/care). To complicate matters further, the current flow of fit young migrants to the developed world is probably set to diminish, given the prevailing nationalist/protectionist sentiment in many countries, demanding jobs for the locals. This results in a rapidly reducing working population and an increasing tax burden, to be shared among less citizens.

Demographics are particularly unhelpful in (economically) developed countries. In the United Kingdom (UK), for example, there are currently 46.5 pensioners for every 100 working age citizens1. According to the latest United Nations (UN) report on World Population Ageing2, these hundred workers are expected to be supporting 56.5 pensioners in 2030, a 22% increase.

Japan is famously the oldest population in the world, with 78 pensioners per 100 workers.1 In 10 years’ time there will be 91 pensioners for every 100 working citizens. There are clear implications for government debt – yet already the country has the second biggest debt pile (after the USA), with government debt equal to 198% of GDP3. How is this financed? The Bank of Japan holds 44% of the Japanese government bonds in issue4. Not every country can do that!

For the record, the USA goes from 42 to 54 pensioners1 (+28%) in the same time frame, while Australia, a relatively young country with a better superannuation system than most, will go from 34 to 44 pensioners per 100 citizens by 2030, a 27% increase5.

Emerging markets are not immune

However, emerging markets are not immune; Chile, the pioneer of compulsory contribution pension systems, has recently experienced extraordinary social unrest, partly fuelled by the inadequacy of pension payments and the continued erosion of social benefits. The demographics are not favourable: in the next 10 years, the 26 pensioners per hundred working Chileans become 38, an increase of 46%6.

The Kremlin is well aware of its own vulnerability. Russia is a predominantly resource based economy constrained by sanctions, with a large working population that is educated, but not growing. That’s why it has built a robust macroeconomic moat around itself. The country has very low external debt (28% of GDP7) and its reserves are equal to 1,078%8 of short-term debt. For reference, the UK’s reserves are at 3.1% and the USA’s at 2.1%.

Government revenues depend on tax

The importance of tax revenues for governments has been inexorably rising. The OECD average9 stands at 34.2% of GDP for 2018, with value added tax (VAT) accounting for 20%. For reference, the UK and Australia are around the OECD average, whilst the US is at 27% of GDP, probably because this number does not account for state level taxes. There is however a big difference in the rate of tax collection – most developed countries’ tax revenues are at 20% of GDP whereas emerging countries’ average is 14%10.

Given their increasing importance, tax revenues have become priorities for most governments. The numbers that they are looking at are reflected in the following chart, which is based on work done by The United Nations University World Institute for Development Economics Research, in partnership with the International Centre for Taxation and Development (ICTD).

The Global Cost of Tax Avoidance

Estimated annual corporate tax losses in selected countries (billions U.S. dollars)

Source: UNU-Wider via StatistaCharts. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.

Case study: Russia

In 2010, the Kremlin implemented reforms that simplified processes and moved all tax collection online. In Russia, all businesses now have their cash registers linked to the Tax Service, and information on every retail or company to company transaction is recorded real time. This has raised VAT receipts by 20% and minimised the need for inspections, as the use of artificial intelligence has revealed patterns which help to pinpoint suspicious activity, which raises the efficiency of inspections.

The digitalisation of tax has pushed into the less formal sectors, by way of an app that allows childminders and Uber drivers to pay 4% directly at source and thus legitimises these workers.

So successful has the overhaul of the tax system been, that its architect, Mikhail Mishustin, was named Prime Minister in the January 2020 cabinet reshuffle.

Death is slowing, Taxes are growing

Essentially it is clear that governments around the world are going to be investing aggressively in technology and in improving tax collection. Then, the actual rate of taxation will inevitably be raised, in order to cope with the added burdens. Robots are increasingly viable as replacements of human workers, but they are unlikely to be paying taxes…

Taxes are still equal to Death in terms of certainty, but they will be increasing in magnitude, while Death seems to be slowing in terms of its ETA (Estimated Time of Arrival)!


1 The old age dependency ratio, as defined by the number of individuals aged 65 and over per 100 people of working age, is generally accepted as a good indicator to measure.

2 United Nations, Department of Economic and Social Affairs, Population Division (2019). World Population Ageing 2019: Highlights (ST/ESA/SER.A/430).

3 IMF – DataMapper 19/02/20

4 Japan Ministry of Finance, January 2020 Monthly Newsletter

5 United Nations, Department of Economic and Social Affairs, Population Division (2019). World Population Ageing 2019: Highlights (ST/ESA/SER.A/430).

6 United Nations, Department of Economic and Social Affairs, Population Division (2019). World Population Ageing 2019: Highlights (ST/ESA/SER.A/430).

7 Martin Currie proprietary country risk framework, World Bank and Central Bank of the Russian Federation 24/01/20

8 Martin Currie proprietary country risk framework, World Bank and Central Bank of the Russian Federation 24/01/20

9 OECD’s Global Revenue Statistics Database

10 Martin Currie proprietary country risk framework, World Bank 24/01/20


The Bank of Japan (BoJ) is the central bank of Japan and is responsible for the yen currency.

A childminder is somebody who provides childcare for children in the childminder's own home for more than two hours a day.

Developed markets (DM) refers to countries that have sound, well-established economies and are therefore thought to offer safer, more stable investment opportunities than developing markets.

Emerging markets (EM) are nations with social or business activity in the process of rapid growth and industrialization. These nations are sometimes also referred to as developing or less developed countries.

Gross Domestic Product (“GDP”) is an economic statistic which measures the market value of all final goods and services produced within a country in a given period of time.

The Organization for Economic Co-operation and Development (OECD) is an international organization that promotes policies to improve the economic and social well-being of people around the world.

Uber Technologies, Inc., commonly known as Uber, is an American multinational ride-hailing company offering services that include peer-to-peer ridesharing, ride service hailing, food delivery (Uber Eats), and a micromobility system with electric bikes and scooters.


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