Designing a Presumptive Income Tax Based on Turnover in Countries with Large Informal Sectors
Title | Designing a Presumptive Income Tax Based on Turnover in Countries with Large Informal Sectors PDF eBook |
Author | Feng Wei |
Publisher | International Monetary Fund |
Total Pages | 47 |
Release | 2023-12-22 |
Genre | Business & Economics |
ISBN |
Turnover (sales) is frequently used in developing countries as a presumptive income tax base, to economize on the costs of tax administration and taxpayer compliance. We construct a simple model where a size threshold separates firms paying turnover tax from those paying profit tax (regular income tax), and where firms have the option of producing in the untaxed, informal sector. The optimal turnover tax rate trades off two policy concerns: reducing informality and avoiding strategic reductions in sales by firms seeking to remain below the threshold for the profit tax. We provide analytical results and calibrate the model to compute the optimal policy using realistic parameter values. The optimal turnover tax rate for countries with large informal sectors is found to be around 2.5% across most scenarios, while the threshold separating the turnover tax regime from profit tax lies for the most part between $65,000 and $95,000. Introducing an optimally designed turnover tax reduces the rate of informality of businesses by about 12 percentage points in the calibrated model.
Presumptive Taxation in Sub-Saharan Africa
Title | Presumptive Taxation in Sub-Saharan Africa PDF eBook |
Author | Mr.Günther Taube |
Publisher | International Monetary Fund |
Total Pages | 50 |
Release | 1996 |
Genre | Business & Economics |
ISBN |
This paper analyses presumptive taxation methods and their application in Sub-Saharan Africa. Presumptive taxation involves simple techniques to capture domestic transactions and sources of income that frequently escapes conventional taxation.
Brazil: Tax Expenditure Rationalization Within Broader Tax Reform
Title | Brazil: Tax Expenditure Rationalization Within Broader Tax Reform PDF eBook |
Author | Maria Delgado Coelho |
Publisher | International Monetary Fund |
Total Pages | 46 |
Release | 2021-09-24 |
Genre | Business & Economics |
ISBN | 1513596624 |
The excessive complexity and burden of the Brazilian tax system, riddled by cumulative indirect taxes and heavy payroll contributions, have led to an accumulation of fiscal incentives aimed at reducing its burden on taxpayers and productive activities. Federal and subnational tax expenditures currently stand at over 5 percent of GDP. Rationalizing them can only be comprehensively feasible in the context of a broader sequenced tax reform, and could reduce resource misallocation and income inequality, as well as provide new revenues.
A Firm Lower Bound: Characteristics and Impact of Corporate Minimum Taxation
Title | A Firm Lower Bound: Characteristics and Impact of Corporate Minimum Taxation PDF eBook |
Author | Aqib Aslam |
Publisher | International Monetary Fund |
Total Pages | 50 |
Release | 2021-06-08 |
Genre | Business & Economics |
ISBN | 1513561073 |
This paper examines the role of minimum taxes and attempts to quantify their impact on economic activity. Minimum taxes can be effective at shoring up the corporate tax base and enhancing the perceived equity of the tax system, potentially motivating broader taxpayer compliance. Where political and administrative constraints prevent reforms to the standard corporate income tax, a minimum tax can help mitigate base erosion from excessive tax incentives and avoidance. Using a new panel dataset that catalogues changes in minimum tax regimes over time around the world, firm-level analysis suggests that the introduction or reform of a minimum tax is associated with an increase in the average effective tax rate of just over 1.5 percentage points with respect to turnover and of around 10 percent with respect to operating income. Minimum taxes based on modified corporate income lead to the largest increases in effective tax rates, followed by those based on assets and turnover.
Designing a Tax Administration Reform Strategy
Title | Designing a Tax Administration Reform Strategy PDF eBook |
Author | Ms.Katherine Baer |
Publisher | International Monetary Fund |
Total Pages | 37 |
Release | 1997-03-01 |
Genre | Business & Economics |
ISBN | 1451980396 |
Building on previous FAD work in the tax administration field, this paper defines broad criteria for diagnosing the problems in a country’s tax administration and formulating an appropriate reform strategy. To be effective, this strategy should be based on the size of the tax gap and the country’s particular circumstances. This paper discusses some guiding principles which have provided the basis for successful reforms, including: reducing the tax system’s complexity, encouraging taxpayers’ voluntary compliance, differentiating the treatment of taxpayers by their revenue potential, and ensuring the reform’s effective management. Also discussed are specific bottlenecks that hinder the effectiveness of the tax administration’s operations.
Revenue Mobilization in Developing Countries
Title | Revenue Mobilization in Developing Countries PDF eBook |
Author | International Monetary Fund. Fiscal Affairs Dept. |
Publisher | International Monetary Fund |
Total Pages | 86 |
Release | 2011-08-03 |
Genre | Business & Economics |
ISBN | 1498339247 |
The Fund has long played a lead role in supporting developing countries’ efforts to improve their revenue mobilization. This paper draws on that experience to review issues and good practice, and to assess prospects in this key area.
The Optimal Turnover Threshold and Tax Rate for SMEs
Title | The Optimal Turnover Threshold and Tax Rate for SMEs PDF eBook |
Author | Feng Wei |
Publisher | International Monetary Fund |
Total Pages | 34 |
Release | 2019-05-07 |
Genre | Business & Economics |
ISBN | 1498312292 |
Presumptive income taxes in the form of a tax on turnover for SMEs are pervasive as a way to reduce the costs of compliance and administration. We analyze a model where entrepreneurs allocate labor to the formal and informal sectors. Formal sector income is subjected either to a corporate income tax or a tax on turnover, depending on whether their turnover exceeds a threshold. We characterize the private sector equilibrium for any given configuration of tax policy parameters (corporate income tax rate, turnover tax rate, and threshold). Given private behavior, social welfare is optimized. We interpret the first-order conditions for welfare maximization to identify the key margins and then simulate a calibrated version of the model.