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International Monetary Fund
This paper discusses the Former Yugoslav Republic of Macedonia’s Second Review Under the Stand-By Arrangement and Request for Waiver of Performance Criteria and Rephasing of the Program. The 2007 fiscal deficit target increased modestly to 1 percent of GDP. Taxes were cut and budget quality improved, but there remain fiscal risks, in particular in delivering the planned reduction in transfers and subsidies. Over the medium term, the government aims to keep the fiscal deficit below 1½ percent of GDP, cutting overall government spending by 2 percent of GDP while raising public investment.
International Monetary Fund. Asia and Pacific Dept
This Selected Issues paper describes the current tax system in Bhutan and suggests options for tax policy reform. Though significant hydropower revenues are expected in the medium term as major projects come on-stream, reforms to the existing tax system in the interim will generate fiscal room and prevent recourse to domestic debt to finance development needs. Key reforms include reducing tax exemptions in the near term and introduction of value-added tax in the medium term. The paper also analyzes the adequacy of international reserves in Bhutan using a customized risk-weighted metric. The results indicate that Bhutan’s reserve levels are ample.
International Monetary Fund
The staff report for Albania’s Sixth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility is presented. The economy has achieved robust noninflationary growth, albeit with increasing external imbalances, and has begun to tackle longstanding problems in the business environment. The upcoming elections risk diverting policymakers’ attention from stability-oriented policies. Despite significant buffers and inbuilt strengths of the financial sector, continued diligent supervision, high-frequency monitoring, and enhanced cooperation with foreign supervisors of resident banks will be needed to underpin prompt, proactive responses to changing circumstances.
International Monetary Fund
This Selected Issues paper analyzes the sources of recent growth in Tajikistan. It concludes that economic growth has been mainly driven by the services sector and a surge in remittances that have been mainly used for private consumption and small-scale private investment. The paper summarizes the recently introduced revisions to the Tax Code, which are an evolutionary step in simplifying the tax system and setting the base for better revenue administration. It also examines the likely impact on households of increasing electricity prices to cost-recovery levels.
International Monetary Fund
The Selected Issues paper discusses Cambodia’s poverty and growth, private sector development, public financial management reform, and debt sustainability. It summarizes the Poverty Assessment and describes the regime of tax incentives, costs, and limits for private investment. It also summarizes the assessment of Cambodia’s Public Expenditure Management system and Public Financial Management Reform Program. It highlights the key reform priorities, and provides historical background on Cambodia’s external and domestic debt. It also includes a statistical appendix and a summary of the tax system.
International Monetary Fund. Asia and Pacific Dept
This 2019 Article IV Consultation with India discusses that India has been among the world’s fastest-growing economies in recent years, lifting millions out of poverty. However, growth slowed to a six-year low in the first half of 2019, with both consumption and investment decelerating owing to weak, especially rural, income growth, stresses in the nonbank financial sector, and corporate and environmental regulatory uncertainty. On the external sector, following a rise in vulnerabilities in 2018, stability has returned, anchored by high foreign reserve buffers and a modest current account deficit. With its strong mandate, the new government has an opportunity to reinvigorate the reform agenda aimed at boosting inclusive and sustainable growth. In the near term, given the cyclical weakness of the economy, monetary policy should maintain an easing bias at least until the projected recovery takes hold. Fiscal stimulus should be avoided given fiscal space at risk and revenue losses from the recent corporate income tax rate cut should be offset.
International Monetary Fund
The classical corporate profits tax in the United States involves non-neutralities between: different sources of financing; different forms of business organization; and retaining or distributing earnings and may result in the U.S. investor being at a disadvantage vis-à-vis foreign investors. An international comparison is provided, and the potential effects of different integration schemes on the user cost of capital and tax revenues are assessed. The integration of corporate and individual income taxes in the United States could lead to a more efficient domestic and worldwide allocation of resources.
Ruud A. de Mooij and Mr. Shafik Hebous
Tax provisions favoring corporate debt over equity finance (“debt bias”) are widely recognized as a risk to financial stability. This paper explores whether and how thin-capitalization rules, which restrict interest deductibility beyond a certain amount, affect corporate debt ratios and mitigate financial stability risk. We find that rules targeted at related party borrowing (the majority of today’s rules) have no significant impact on debt bias—which relates to third-party borrowing. Also, these rules have no effect on broader indicators of firm financial distress. Rules applying to all debt, in contrast, turn out to be effective: the presence of such a rule reduces the debt-asset ratio in an average company by 5 percentage points; and they reduce the probability for a firm to be in financial distress by 5 percent. Debt ratios are found to be more responsive to thin capitalization rules in industries characterized by a high share of tangible assets.