A number of mitigating measures have recently been introduced to consolidate previously introduced actions in this area. Among others, these include possible measures to reduce the use of cash. A new joint task force that encompasses the Inland Revenue, VAT and Custom departments along with the Tax Compliance Unit has been established with the aim of ameliorating information sharing.
In addition, property lease and renewal agreements are now subject to registration with the Inland Revenue Department. Moreover, the Maltese tax policy does not include additional taxes on dividends paid to shareholders, apart from the fact that they are entitled to tax credits. Fiscal incentives enhance the competitiveness of various economic sectors and attract foreign direct investment.
Special tax incentives are also available for industrial research and development projects, experimental development and the registration of intellectual property. The budget, while not introducing any new direct or indirect taxes, introduces new tax reduction incentives for SMEs and schemes for Malta-based companies.
The Moon administration is expected to impose higher tax rates on wealthy people and businesses that can afford to pay more, with the aim of paying for expanded job-creation and social-welfare policies. In August , the Ministry of Strategy and Finance announced new tax-reform proposals designed to redistribute wealth and increase the tax-revenue base. Tax reform is hotly debated in South Korea by various interest groups. Citations: Kim, Boram, August 2, S. Korea implements tax hike policy to back income-led growth. Yonhap News. OECD , Tax revenue indicator.
Taxation policy in the Netherlands addresses the trade-off between equity and competitiveness reasonably well. Pre-taxes the Netherlands have a Gini coefficient of 0. The Netherlands has a progressive system of income taxation which contributes to vertical equity. There is a separate tax for wealth. Indirect taxes and local taxes hit lower income groups most.
Yet, partly as a result of ad hoc measures to alleviate crisis impacts, the tax system loses credibility because of its increasingly unequal treatment of different groups. For example, between self-employed and employed workers, between entrepreneurs operating as sole traders or private limited companies, between single-parent families and families where both parents earn a living, and between small savers and the very wealthy. There is more inequality than meets the eye.
In particular, middle-income families only manage to make ends meet because women are working more; increasing the number of hours worked per household and the female labor participation rate. The Dutch state is taking a number of measures designed to ease budget pressures, including a gradual decrease in allowable mortgage-interest deductions, a decrease in health care and housing-rent subsidies, and a gradual increase of the pension-eligibility age to Under strong pressure from opposition parties, the Rutte II cabinet intended to further simplify the tax system.
However, this plan was postponed until after the elections. Corporate income tax for foreign companies — an aspect of the trade-off between horizontal equity and competitiveness — has also come under political scrutiny. An extensive treaty network that encompasses 90 tax treaties aims at protecting foreign companies from paying too much tax, effectively making the Netherlands a tax haven.
After tax scandals involving Google and Starbucks, and increasing pressure from the OECD and the European Commission to reduce treaty shopping and transfer pricing, the Dutch government will gradually have to change these corporate-tax laws for foreign companies. Citations: CBS, Nederland in The United Kingdom has a progressive income-tax system. The balance between direct and indirect taxes is reasonably fair, as measured in terms of horizontal equity. The system is, however, very complex. In relation to vertical equity, there are too many opportunities for tax avoidance, with the results bordering on evasion for the rich.
Property taxes are high and have been increased for purchases of high value houses, but labor taxes are low compared with many other EU countries. The financial crisis and the ensuing economic downturn sharply reduced tax revenue with the squeeze on wages contributing to a lower yield from income tax. However, overall tax revenue has risen in the past years and is projected to be sufficient to continue to narrow the public deficit over the course of the current parliament. A risk factor is, though, that the potential costs of leaving the European Union are still unclear and therefore not calculable yet.
The Autumn Budget included some reduction of stamp duties imposed on sales of lower priced houses, but critics have argued that this will not improve the housing shortage and may even increase market prices for flats and houses — especially since at the same time the government has also postponed its investment in loan support for home builders and small-building companies. At a broad level, the tax system achieves a reasonably high degree of horizontal equity, with income generally taxed at the same rate irrespective of the source of the income.
A further significant exemption arises in respect to retirement savings known as superannuation , which are minimally taxed. That aside, the income-tax system is moderately progressive. Only minor changes to income tax occurred in the review period. Arguably, the low level of taxation creates bottlenecks in infrastructure development, which have not been sufficiently addressed.
Particularly Sydney and Melbourne are exposed to infrastructure bottlenecks. Moreover, there is a long-standing concern about the fiscal sustainability of state and territory governments, which have very limited capacities for raising revenue. Growth in health and education expenditure demands on the states and territories in particular have outpaced revenue growth. Canberra: Commonwealth Government, Conversely, much capital income e.
Taxation and Economic Growth in a Resource-Rich Country: The Case of Nigeria
Several factors have prevented the country from tackling these issues. There is a lack of political willingness to engage in significant tax-system reform, and no wealth registry that would enable detection of mismatches between declared income and spending. Moreover, federal-level fiscal administration is decidedly suboptimal, with the government seemingly unable to effect improvements in performance. Consequently, while horizontal and vertical equity within each income source i. Belgium is technically numbered among the most equitable countries worldwide on the basis of measured inequality, but this is based on official taxed income, which is blind to untaxed incomes.
Since taking office, the present government has additionally tasked itself with reducing government spending as a share of GDP. Its efforts have been disproportionately focused on health care and social security spending, which may increase purchasing-power inequality in the medium term. Nonetheless, some significant and positive developments must be noted. Due to increasing pressure from the European Union, Belgium is engaging in deep reforms of its corporate tax structure. However, the recalculated structural balance still points to a structural deficit […] in However, the measures needed to support the planned deficit targets from onward have not been sufficiently specified.
To safeguard and enhance current welfare levels, more emphasis should be placed on productivity gains and investment in knowledge-based capital. This was part of reforms aimed at addressing weaknesses of the tax collection and processing mechanisms, including auditing, tax evasion and avoidance.
Termination of a special levy on salaries was expected in and political parties voted in to drastically reduce a real-property tax imposed in and end it in Some tax deductions and benefits are alleviating the weight of taxation. Benefits provided to businesses have over time made Cyprus very attractive to international companies.
These include deductions for equipment and a corporate tax of Bilateral treaties aim to avoid double taxation. However, the favorable flat rate for companies appears to lead to distortions, where liberal professions can benefit by creating their own company, thus paying In addition, the flat rate for businesses means that highly profitable companies do not pay a higher tax share as individuals do.
Beyond efforts to improve tax collection, the European Commission characterizes the Cyprian tax-benefit system as the least effective in reducing inequalities February These contributions were a condition for being released from the capital control restrictions that had been in place since The government in office from January to November did not change significantly from the tax policy of the government.
Accessed 21 December Accessed 24 December Israel taxation policy is somewhat regressive. It includes increasing indirect taxes such as VAT, which is levied equally on all products. Furthermore, although the direct income tax is progressively structured, and a large portion of the population makes too little money to pay any income tax at all, the system creates a curve that forces middle-income individuals to pay proportionately more tax than high-income individuals. This apparent distortion is an intentional economic strategy meant to induce growth by reducing the tax burden associated with investments and companies.
While controversial, it is not necessarily unfair as such.
Like most other countries, Israel utilizes its tax system as a political instrument. For instance, it offers tax reductions to army veterans.
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In most instances the Israeli tax system has a valid rationale for tax reductions that appear to violate the principle of horizontal or vertical equality. Recently, Prime Minister Benjamin Netanyahu hinted that Israel may initiate tax cuts for the business sector, following the U. Israel has had annual tax surpluses, relative to forecasts, for the last five years.
In , the tax surplus was estimated at ILS 16 billion, stemming largely from the sale of the controlling stake in Keter Plastic, the sale of Mobileye, and Israel Tax Authority collections operations that yielded more tax revenue than forecast. Although a recent OECD report advised policymakers to devote tax revenues to improving social services, the current government has advocated tax cuts.
Generally speaking, Japan has a reasonably fair tax system that in the past allowed its corporate sector to thrive. In , the combined national and local corporate effective income-tax rate declined from The fact that authorities are following up on their initial promise to lower corporate-tax rates despite the fiscal tension is a positive signal. Raising the comparatively low consumption tax is important for easing budgetary stress, particularly given the huge public debt and the challenges of an aging population.
In June , Abe postponed the tax hike to October , and reconfirmed this date in mid, when announcing a snap election for October of that year. However, Abe also announced that the proceeds from the tax hike would not be fully deployed to reduce the public debt; instead, half would be used for education and child care, he said. This served to deepen worries about fiscal reliability and prudence. However, compared to self-employed professionals, farmers and small businessmen, salaried employees can take advantage of far fewer tax deductions.
Tax Policy Reforms and Economic Growth in Nigeria
Compared to other East-Central European countries, the corporate tax burden and the extent of red tape as well as frequent temporal changes associated with the taxation of enterprises have been relatively high. In its second year in office, the PiS government largely focused on fighting tax evasion and tax fraud, which have been comparatively high. In March , the government created the National Revenue Administration by merging tax administration, fiscal control and customs service.
Moreover, tax auditors were given more authority to prevent and fight fraud through electronic controls, and harsher penalties were introduced. These changes contributed to stronger revenues in Justified as a means to mobilize resources for renovating local roads, this plan was widely perceived as breaking an election promise and was abandoned by the government because of mass protests.
SWD final. Darasz, J. Whereas the first Fico government left the flat-tax regime almost untouched despite earlier criticism, the second Fico government in reintroduced a progressive income tax and increased the corporate-income tax, thereby increasing vertical equity to the detriment of competitiveness. Under the third Fico government, the focus has rested on the fight against tax evasion and improvements in tax collection.
The introduction of reverse charge on VAT for imported goods was deferred and made subject to a pre-defined level of public budget deficit, which means it will likely not come into effect before These changes have lacked a clear direction and have further undermined the reliability of the tax system. While corporate-income tax revenues in were lower than expected, stronger-than-expected revenues from VAT, personal income tax and social insurance contributions helped to reduce the fiscal deficit.
Paur, D. Spain collects less in taxes relative to wealth than do most other euro zone countries. The tax-to-GDP ratio in Spain increased slightly from The tax reform of , which came into force in , amended the personal-income-tax system with generous tax cuts before the inconclusive elections held in December.
Tax policy is more difficult to assess with regard to equity and competitiveness. Vertical equity exists in principle with strongly progressive income taxes and different VAT rates on products and services , but horizontal equity suffers due to 1 corporate-tax engineering, 2 the prevalence of fraud and 3 the scope of the underground economy, from which the state does not collect taxes at all.
After years of reducing spending in public administration, the human resources of the AEAT have been increased. Nevertheless, a reform of the taxation agency expanding its human, ICT and financial resources is clearly needed. Citations: Heritage Foundation Austrian tax policy is characterized by a significant bias, as the source of tax revenue is overwhelmingly skewed toward the personal income of the working population.
As employees and self-employed individuals pay the maximum tax rate beginning at a level of income considered to be only middle class, and the country has virtually no property taxes and no inheritance taxes, the system of taxation as a whole is unbalanced. The new government to be formed at the very end of has declared that it will shift this burden. In order to create incentives for business, the new government will also reduce the tax burden on businesses e. As tax cuts and a balanced budget are difficult to reconcile even during an economic boom, these ambitious goals may be difficult to achieve simultaneously.
The Austrian tax system — compared to transfers — has a rather minimal redistribution effect. As the maximum income tax rate is today paid by a significant and increasing proportion of income taxpayers, the tax system seems to be less responsible for any redistributive effect than are the welfare system and other direct transfers designed to reduce inequality and improve the living standards of the poor.
Taxation is clearly secondary — the Austrian social system relies more on welfare transfers. The tax system and its supposed imbalances have become a controversial political issue. Politically conservative actors have sought to reduce the income tax generally, while politically leftist and economically more interventionist actors are promoting a shift from the income tax to greater reliance on property and inheritance taxation.
In the long run, the new government might be tempted to exclude more and more foreigners — who live, work and pay taxes in Austria — from the benefits of the welfare system. As this would within the rules of the European Single Market not be possible for EU citizens, it is realistic to assume not much can be achieved by focusing on non-EU citizens. Immediately after coming to office in November , it presented a comprehensive reform package. The reforms have made the Croatian tax system more transparent and competitive.
At the same time, the personal income tax has become less progressive. This has further limited the redistributive effects of the tax system, which relies strongly on VAT and social insurance contributions. The postponement of the introduction of a property tax originally planned for the beginning of has also spelled for a limitation on redistribution. The budgetary effect of the tax changes has been relatively low, with direct revenue losses estimated at 0. Citations: European Commission : Country report Croatia Including an In-Depth Review of the prevention and correction of macroeconomic imbalances.
Government of the Republic of Croatia : Prime Minister Plenkovic: Tax reform aimed at boosting growth and employment. Tax policy, tax reform and the insufficiency of tax collection have been on the political agenda in Mexico for at least the past 50 years. During this long period there has been little progress either in collecting more tax revenue or making the tax system more equitable. While some taxes are collected at the state and municipal levels, the most important tax collector is the federal government.
While well-targeted and effective within its limited scope, the reform was rather modest given the challenges that Mexico faces. Tax evasion and tax avoidance in the formal sector is one cause, as is the large size of the informal sector, which is notoriously tax resistant. Most Mexicans distrust their government and do not believe that money paid in taxation will be spent wisely. Additionally, the market-reforming economists who have run Mexico over the past 30 years have not prioritized raising revenue, putting more emphasis on controlling government spending in order to decrease the size of government.
Many also assert that as an oil-exporting country, Mexico should earn a significant amount of public revenue by taxing oil income. Overall, further efforts are needed to better coordinate income tax collection with social security, improve the use of property taxes and broaden the overall tax base.
As of , possible changes in the tax policy of the U. The corporate tax advantages that the new U. The very high levels of taxation on income and consumption noted in the previous SGI reports have remained in this period. The changes to the surtax meant that the tax burden as a percentage of GDP fell in for the first time in four years, from However, levels remain very high by historic comparison, a consequence of the massive tax increase of , which boosted the tax burden from Indeed, the average tax burden between and was about However, even with this change, tax policy continued to fall short of achieving horizontal and vertical equity during this period.
While the government has adopted measures to combat tax avoidance, the problem is far from being eradicated regarding income tax. Moreover, at the corporate level, the effective tax rate often remains disproportionately low for comparatively profitable companies.
Tax revenues have been relatively high in relation to GDP but have not been enough to prevent high budget deficits from emerging. As the thresholds are set rather low, however, the majority of middle class citizens fall into the second- or third-highest category. The tax burden for enterprises is below the EU average, but higher than in most other East-Central European countries.
Moreover, tax procedures for both individuals and companies are complex.
Tax Policy Reform And Economic Growth: OECD Tax Policy Studies -
Labour market policy reforms are often designed to boost aggregate employment through behavioural effects such as labour supply incentives, and via this channel, GDP per capita. At the same time, these policies also affect income inequality through their impact on the earnings distribution. For some reforms, these two impacts on measures of inequality may be offsetting each other.
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For example, reducing unemployment benefits and lowering the statutory minimum wage relative to median wages are associated with both higher wage dispersion and higher employment rates among low-skilled workers. This may result in a very small net change in inequality among the working-age population, while the impact on overall inequality is uncertain.
For other reforms, however, wage and employment effects may reinforce each other, resulting in both stronger growth and less inequality. This could be the case of policy reforms aimed at easing the strictness of job protection on regular contracts as a way to tackle labour market duality, i. Many tax policies raise well-known trade-offs with respect to growth and equity objectives. Economic theory and empirical evidence suggest that the tax structure influences macroeconomic efficiency.
In particular, that direct taxes have relatively more distortionary effects by reducing incentives to work and invest. One of the highest ranked growth-friendly tax reforms, shifting the tax burden away from income taxes to consumption and property taxes, may in principle have adverse effects on inequality through various channels.
For instance, reform-driven positive employment effects can be counterbalanced by increased income dispersion resulting from lower tax progressivity. Also, empirical evidence suggests that consumption taxes can be regressive, at least in the short run. There is ambiguity with respect to the distributional effects of property taxes. On the one hand, depending on how they are designed, recurrent taxes on immovable property can be regressive with respect to disposable incomes; on the other hand, inheritance and capital gains tax clearly reduce wealth inequality.
Relaxing anti-competitive product market regulation can bring productivity and employment gains in the long run, therefore spurring economic growth. Ultimately, a number of different, and often competing, objectives need to be balanced against each other. When most social security taxes are excluded, South Africa has the tenth highest tax-to-GDP ratio in the world.
Given the current scenario, there is little scope, if any, to increase taxes without negatively impacting economic growth. Ideally, South Africa should be looking to reduce its tax burden over the medium term in order to increase its attractiveness as an investment destination and promote economic growth. However, this is probably not feasible having regard to the current economic and fiscal climate.
VAT was the second largest contributor to total tax revenue, totalling R The third largest contributor to total tax revenue was corporate income tax totalling R Currently, South Africa has a high reliance on tax revenues from corporate taxes that does not compare favourably to global averages. In the average contribution of corporate tax to total tax revenues for OECD countries was 8. The South African tax system does not support economic growth as well as it could. This is due to the mix and rates of different types of taxes, in particular the high reliance on corporate income tax and personal income tax.
Studies carried out by the OECD show that corporate income tax is the least growth friendly type of tax, followed by personal income tax and indirect taxes, respectively. Progressively altering the mix of taxes to support economic growth, while simultaneously supporting fiscal sustainability, will produce clear benefits in the future. As part of its terms of reference, the Davis Committee is tasked with considering and making recommendations on the overall tax base, tax burden and tax mix.