Skip to main content
Home
The Online Resource for Modern FP&A Professionals
Please register to receive the latest FP&A news, updates and tips Login

Main menu

  • Home
  • FP&A Insights
    • FP&A Trends Digest
    • FP&A Trends Research
    • FP&A Trends Insight Paper
    • FP&A Trends Survey
    • Short Videos
    • Our Contributors
  • FP&A Events
    • International FP&A Board
    • FP&A Trends Webinars
    • Digital FP&A Circles
  • AI/ML Committee
    • Introduction
    • Members
    • Resources
    • Meetings
  • FP&A Tools
    • FP&A Trends Maturity Model
  • About Us
    • Company Policy
    • Privacy Policy
    • Editorial Guidelines
    • Our Ambassadors
    • Our Sponsors & Partners
    • Contact Us
image
Making the Case for Tax Neutrality
June 30, 2022

By Michael J. Huthwaite, Director of Product Management at Walmart

FP&A Tags
Cash Planning

As someone who is passionate about Cash Flow, I often find that the single most frustrating impediment stopping companies from implementing optimal management practices centred around Cash Flow is, without a doubt, the tax system.  

The tax system, whether it be corporate or personal, is often a complex system that is based on rules-based accounting, which often has little to do with the actual health and well-being of the taxable entity.  

For the record, I’m not a tax expert, but I am an ardent believer in Cash Flow, and it irks me that we can’t build a tax system that is logical and straightforward. A system that aligns the collection of tax with the creation of personal wealth or shareholder value.  

Why can’t we build a system where business decisions are made irrespective of tax? Where loopholes and creative tax accounting aren’t rewarded? Business decisions are made purely on the ability to create value for the shareholder and not on how to manipulate the tax system.  

This is the world I want to live in… and here is a blueprint for how it could happen.  

Disclaimer

Before I go on, it’s important to point out that I’m not trying to make a political or social-economic argument for why someone should pay more or less tax than someone else. Nor am I concerned with how governments spend tax revenue. I will leave that up to the politicians.  

What I want is a tax system that is more transparent, simple and efficient for everyone, whether that’s an organisation or an individual.  

But, in order for this to occur, underlying tax calculations must be simple to understand and easy to forecast. The tax rules have to be so straightforward that it doesn’t require a tax accountant or a series of forms to fill out. And finally, it has to leverage modern technology so that it can operate efficiently without the need for the IRS, Inland Revenue or any other government tax agency.  

Tax Based on Cash Flow

The easiest way to tax is based on Cash Flows. In other words, if you receive more cash, then you disperse in a given period, then you pay tax; otherwise, you don’t. That’s essentially it. Under this approach, every cash inflow and outflow is counted equally, hence the name “tax neutrality”. This is true if you are a company or an individual. 

Depreciation, Amortisation and other non-cash activities are completely irrelevant in this cash-based system. As a result, individuals and companies don’t need to worry about maintaining tax schedules or applying complex and often arbitrary rules that benefit some but not all.   

Treat all Cash Flows the Same

It should not be up to the government to decide what is a taxable expense or not. If you have a mortgage or pay rent, you can deduct the outflow of cash. If you invest in your business, then that should reduce your tax payment in exactly the same way as taking a customer out to lunch.  

In short, it should not be up to the government or any other agency to decide what is a tax-deductible outflow. If you want to make money, then you as a business must decide what expenses are necessary and which aren’t. After all, a company that can’t manage cash flow on its own will ultimately go out of business.  

Alternative ways to Stimulate the Economy

The truth is a tax-paying entity that spends money stimulates the economy. This is beneficial to the economy even if it means that the company or individual pays less tax. It’s also likely to increase the velocity of cash through the economy. As money flows faster, it brings down interest rates. This phenomenon benefits the economy even if it doesn’t result in direct tax revenue.  

Tax Authorities

When governments stop policing what expenses are taxable and nontaxable, the need for government tax authorities, tax accountants and tax lawyers reduce significantly.

This not only saves everyone the agony of added expenses; it also eliminates the underlying incentive for trying to game the tax system in the first place.  

Use Technology to Manage Cash Flow

Let’s face it - we live in a digital world. Tracking flows of cash is becoming easier and easier. This is especially true as we become less dependent on physical cash. Tracing the flow of cash and even consolidating that cash flow across multiple accounts is not a big ask these days.  

Pushing the tax collection burden away from employers in favour of the banks enables financial institutions to track not only the sources but also the uses of cash.  

Open for Discussion

What should the tax rate be? Should we have graduated tax rates based on Cash Flow levels? How often should taxes be collected? Should we allow losses to be carryforward?  

These are all good questions for debate, but my only thought here is that we should keep it as simple as possible. Doing so will lower the rate for all and reduce the amount of overhead required to manage the tax system.  

When everyone is sharing in the creation of wealth, I don’t see why the tax rates couldn’t reach the single digits.  

Conclusion

Tax Reform based on Cash Flow not only ties value creation to tax it also radically simplifies the system reducing bureaucracy and reducing a ton of waste (time and resources). The result is a streamlined system that would be far easier to track and plan, justifying economic growth and reducing costs for everyone.
 

The full text is available for registered users. Please register to view the rest of the article.
  • Log In
  • or
  • Register

Related articles

fp&a
Practical Cash Flow Modelling - A Technological Perspective
May 3, 2022

The cloud holds some exciting prospects for the development of cash flow planning. It will bring...

Read more
fp&a
Cash Flow Planning Is Paramount
March 15, 2022

This article provides an overview of the topics and cases presented and discussed by the experts...

Read more
costs
Managing Fixed Costs During Uncertainty
October 28, 2020

Any crisis raises the question of whether costs can be truly fixed. What fixed costs can be...

Read more
Magnifying glass
The Balance Sheet: A Tool to Manage Value
October 6, 2020

This article focuses on why there is a risk of too much focus on the profit...

Read more
+

Subscribe to
FP&A Trends Digest

We will regularly update you on the latest trends and developments in FP&A. Take the opportunity to have articles written by finance thought leaders delivered directly to your inbox; watch compelling webinars; connect with like-minded professionals; and become a part of our global community.

Create new account

image

Event Calendar

Pagination

  • Previous
  • May 2025
  • Next
Su Mo Tu We Th Fr Sa
27
28
29
30
1
2
3
 
 
 
 
4
5
6
7
8
9
10
11
12
13
14
15
16
17
Transforming FP&A Together: Human & AI Synergy
 
18
19
20
21
22
23
24
Moving from FP&A to Extended Planning and Analysis (xP&A)
 
Five Critical Roles for Building a World-Class FP&A Team
 
25
26
27
28
29
30
31
FP&A Business Partnering and AI: A New Era
 
All events for the year

Future Meetings

The Face-to-Face Amsterdam FP&A Board
The Face-to-Face Amsterdam FP&A Board Transforming FP&A Together: Human & AI Synergy

May 15, 2025

The Face-to-Face Milan FP&A Board
The Face-to-Face Milan FP&A Board Moving from FP&A to Extended Planning and Analysis (xP&A)

May 20, 2025

The Face-to-Face Frankfurt FP&A Board
The Face-to-Face Frankfurt FP&A Board Five Critical Roles for Building a World-Class FP&A Team

May 22, 2025

BPAI
The FP&A Trends Webinar FP&A Business Partnering and AI: A New Era

May 28, 2025

The Face-to-Face London FP&A Board: Data Management & Analytics: Unlocking FP&A Value
The Face-to-Face London FP&A Board Mastering Data in FP&A: Smarter Analytics, Better Decisions

June 5, 2025

FP&A Trends Webinar The Evolving Role of FP&A: From Number Cruncher to Strategic Advisor
The FP&A Trends Webinar Making FP&A Teams Fit for the Future

June 11, 2025

The Face-to-Face New York FP&A Board
The Face-to-Face New York FP&A Board From Insight to Impact: FP&A Business Partnering in Action

June 17, 2025

The Face-to-Face Sydney FP&A Board
The Face-to-Face Sydney FP&A Board Modern Financial Planning and Analysis (FP&A): Latest Trends and Developments

June 26, 2025

The Face-to-Face Singapore FP&A Board: Modern Financial Planning and Analysis (FP&A): Latest Trends and Developments
The Face-to-Face Singapore FP&A Board Modern Financial Planning and Analysis (FP&A): Latest Trends and Developments

July 8, 2025

AI/ML FP&A
AI/ML FP&A
Data and Analytics
Data & Analytics
FP&A Case Studies
FP&A Case Studies
FP&A Research
FP&A Research
General
General
Integrated FP&A
Integrated FP&A
People and Culture
People and Culture
Process
Process
Technology
Technology

Please register to receive the latest FP&A news, updates and tips.

info@fpa-trends.com​

              

Foot menu

  • FP&A Insights
  • FP&A Board
  • FP&A Videos

Footer countries

  • Amsterdam
  • Austin
  • Boston
  • Brisbane
  • Brussels
  • Chicago
  • Copenhagen
  • Dubai
  • Frankfurt
  • Geneva
  • Helsinki
  • Hong Kong
  • Houston
  • Kuala Lumpur
  • London Board
  • London (Circle)
  • Melbourne
  • Miami
  • Milan
  • Munich
  • New York
  • Paris
  • Perth
  • Riyadh
  • San Francisco
  • Seattle
  • Shanghai
  • Singapore
  • Stockholm
  • Sydney
  • Tokyo
  • Toronto
  • Washington D.C.
  • Zurich

Copyright © 2025 fpa-trends.com. All rights reserved.

0