Post on 23-Dec-2015
Tax Reform: An International Tax Reform: An International PerspectivePerspective
The President’s Advisory Panel on Federal Tax ReformThe President’s Advisory Panel on Federal Tax ReformSan FranciscoSan Francisco
March 31, 2005March 31, 2005ByBy
Jeffrey OwensJeffrey OwensOrganisation for Economic Cooperation and Organisation for Economic Cooperation and
DevelopmentDevelopment
22
OECD Member CountriesOECD Member Countries
OECD Member countries Countries which engage in Tax Dialogue
33
Since mid 1980s a Wave of Tax Since mid 1980s a Wave of Tax Reform in All OECD Countries Driven Reform in All OECD Countries Driven by: by: A fairer tax systemA fairer tax system
• similar treatment for similarly placed taxpayers similar treatment for similarly placed taxpayers (horizontal equity)(horizontal equity)
• achieve desired allocation of tax burden by income achieve desired allocation of tax burden by income level (vertical equity)level (vertical equity)
• improved complianceimproved compliance
An efficient and competitive tax systemAn efficient and competitive tax system• promoting a competitive and flexible fiscal promoting a competitive and flexible fiscal
environmentenvironment• making work, savings and investment paymaking work, savings and investment pay
A simpler tax systemA simpler tax system• reduce compliance costs for taxpayers reduce compliance costs for taxpayers • reduce administrative costs for tax authoritiesreduce administrative costs for tax authorities
Protecting the environment through tax and related Protecting the environment through tax and related measuresmeasures
44
Main Characteristics of Tax Reform Main Characteristics of Tax Reform in OECD Countriesin OECD Countries
Lower tax rates; broader tax basesLower tax rates; broader tax bases Move towards flatter personal income taxesMove towards flatter personal income taxes Move towards dual income taxes (lower Move towards dual income taxes (lower
rates on capital than on labor)rates on capital than on labor) Integrate social benefits into the tax system Integrate social benefits into the tax system
(earned income tax credits)(earned income tax credits) Relief for taxation of dividend incomeRelief for taxation of dividend income Change in mix of income and consumption Change in mix of income and consumption
taxes (VAT)taxes (VAT) Reduction of complexityReduction of complexity Introduction of market based environment Introduction of market based environment
instrumentsinstruments
55
Trends in the Taxation of Dividend Trends in the Taxation of Dividend Income (2000-2004)Income (2000-2004)
CountryCountry Reform Reform YearYear
Pre-Reform SystemPre-Reform System Post-Reform SystemPost-Reform System
United StatesUnited States 20032003 ClassicalClassical Reduced scheduler PIT Reduced scheduler PIT rate (15% federal)rate (15% federal)
GermanyGermany 20012001 Full imputation (with Full imputation (with split rate)split rate)
Classical (with PIT rate)Classical (with PIT rate)
20022002 Classical (with split Classical (with split rate)rate)
Partial inclusionPartial inclusion
ItalyItaly 20042004 Full imputationFull imputation Partial inclusionPartial inclusion
KoreaKorea 20012001 ClassicalClassical Partial inclusionPartial inclusion
Portugal Portugal 20022002 Reduced scheduler Reduced scheduler PIT ratePIT rate
Partial inclusionPartial inclusion
Slovak RepublicSlovak Republic 20032003 ClassicalClassical Personal tax exemptionPersonal tax exemption
TurkeyTurkey 20032003 Partial imputationPartial imputation Partial inclusionPartial inclusion
66
The overall tax burden and structureThe overall tax burden and structureM
exic
oU
nite
d S
tate
sK
orea
Japa
n *
Sw
itzer
land
Irel
and
Aus
tral
ia *
Pol
and
*Tu
rkey
Slo
vak
Rep
ublic
*C
anad
aP
ortu
gal *
New
Zea
land
Uni
ted
Kin
gdom
Spa
inG
reec
e *
Ger
man
yH
unga
ry *
Net
herl
ands
Cze
ch R
epub
licIc
elan
dLu
xem
bour
gA
ustr
iaIta
lyN
orw
ayFr
ance
Fi
nlan
dB
elgi
umD
enm
ark
Sw
eden
0
10
20
30
40
50
60
Corporate and personal income taxes Social security contributions Consumption taxes Other
EU 15 Average 40.6
2003
US
A
OECD 15 Average 36.6
For more details, see Table 1 in the Appendix.
Tax as % GDP
77
Change in tax to GDP ratiosChange in tax to GDP ratiosH
ung
ary
(*)
Cze
ch R
epub
lic
Net
her
lan
dsS
lova
k R
epu
blic
(*)
Pol
and
(*)
Uni
ted
Sta
tes
Uni
ted
Kin
gdo
mG
erm
any
Irel
and
Can
ada
Sw
itze
rlan
dM
exic
o
Lu
xem
bou
rgN
orw
ayJa
pan
(*)
Aus
tral
ia (
*)B
elg
ium
Aus
tria
New
Zea
lan
dF
inla
nd
Fra
nce
S
wed
enD
enm
ark
Icel
and
Kor
eaP
ortu
gal
(*)
Gre
ece
(*)
Tu
rkey
Spa
in
Ital
y
-8
-6
-4
-2
0
2
4
6
8
10
12
14
16
18 1975 to 2003
US
A
Tax as % GDP
For more details, see Table 1 in the Appendix.
88
0.0
10.0
20.0
30.0
40.0
50.0
60.0
Slovak
Rep
ublic
Czech
Repub
lic
Mex
ico
Hungary
Luxem
bourg
New Zeala
nd
Korea
Portugal
Greece
United
Kingdom
Poland
Turkey
United
State
s
Irela
nd
Switzerla
nd
Icel
and
Spain
Italy
Canada
Germ
any
Norway
Australia
Austria
Japa
n
Nether
lands
Finlan
d
Belgiu
m
France
Sweden
Denmar
k
%
Top CIT Rate Top PIT Rate
Countries ranked by top PIT Rate
Top personal and corporate tax Top personal and corporate tax ratesrates
2004
USA
CIT – OECD average = 30
CIT – EU average = 31
PIT – OECD average = 44
PIT – EU average = 48
For more details, see Figure 2 and 3 in the Appendix.
Includes Central, State and Local Taxes
99
The tax wedge – income tax and The tax wedge – income tax and social security contributions as % of social security contributions as % of labor costslabor costs
0
10
20
30
40
50
60
%
Mex
ico
Korea
New Zeala
nd
Irela
nd
Japa
n
Australia
Switzerla
nd
United
State
s
Icel
and
United
Kingdom
Luxem
bourg
Canada
Portugal
Greece
Norway
Spain
Denmar
k
Slovak
Rep
ublic
Turkey
Poland
Nether
lands
Czech
Repub
lic
Finlan
d
Austria
Italy
Hungary
France
Sweden
Germ
any
Belgiu
m
Personal Income Tax Employee Social Security Contr. Employer Social Security Contr. and payroll taxes
2004
USA
Single individual at average earningsSingle individual at average earnings
For more details, see Figure 4 and 5 in the Appendix.
1010
VAT – tax rates and revenues VAT – tax rates and revenues (1)(1)
0
5
10
15
20
25
30
DENMARK
HUNGARY (2)
SWEDEN
ICELAND
NORW
AY
CZECH REPUBLIC
FINLAND
POLAND
BELGIUM
IRELAND
AUSTRIA
ITALY
SLOVAK REPUBLIC
(2)
FRANCE
NETHERLANDS
PORTUGAL (3)
GREECE (2)
TURKEY
UNITED K
ING
DOM
OECD
GERMANY
SPAIN
LUXEMBOURG
MEXIC
O
NEW Z
EALAND
AUSTRALIA (2
)
KOREA
SWIT
ZERLA
ND
CANADA
JAPAN (2
)
UNITED S
TATES
VAT/sales tax revenues as % of total tax revenues VAT standard rate
1) Countries ranked from highest VAT standard rate to lowest rate. The comparisons include all levels of government
2) 2002 revenue figure 3) 2001 revenue figure
2003
USA
1111
Successful Tax Reform Requires Successful Tax Reform Requires Administrative ReformAdministrative Reform
Tax administrations face challenges due to Tax administrations face challenges due to globalizationglobalization• proliferation of tax shelters and abuse of tax havensproliferation of tax shelters and abuse of tax havens• changing attitudes towards compliancechanging attitudes towards compliance
The response of OECD tax administrationsThe response of OECD tax administrations• move to integrated tax administrationsmove to integrated tax administrations• administration by segment/function rather than by type administration by segment/function rather than by type
of taxof tax• move to cumulative withholding and information move to cumulative withholding and information
reportingreporting• improved risk managementimproved risk management• better access to informationbetter access to information• Use of new technologiesUse of new technologies
Good compliance requires good taxpayer service and Good compliance requires good taxpayer service and effective enforcementeffective enforcement
Putting tax compliance on the good corporate Putting tax compliance on the good corporate governance agendagovernance agenda
1212
Key Elements for successful tax Key Elements for successful tax reform: Experience of OECD reform: Experience of OECD CountriesCountries
Political champions who can mobilize Political champions who can mobilize popular supportpopular support
Clear and well-articulated principlesClear and well-articulated principles A package approach, with gains and A package approach, with gains and
pains intricately linkedpains intricately linked Policy reform matched by Policy reform matched by
administrative reformadministrative reform Limited time between announcement Limited time between announcement
and full implementationand full implementation Transition rules matterTransition rules matter Education and guidance package Education and guidance package
available from Day Oneavailable from Day One