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Business and Economics > Corporate Taxation

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Cover Tax Law Technical Note
Legislating for Fair and Effective Tax Collection
Irving Aw
,
Brendan Crowley
,
Cory Hillier
,
Lydia E Sofrona
, and
Christophe J Waerzeggers
Fair and effective tax collection is critical to the success of any tax system in raising revenue and should be properly legislated. Voluntary payment of taxes by taxpayers is always preferred and should be encouraged and supported by the tax procedure legal framework. However, the law should also provide for protective measures to prevent taxpayers from frustrating tax collection efforts by taking either themselves or their assets out of the tax administration’s reach. As a last resort, the tax administration should be able to compel the recovery of outstanding tax debts from taxpayers or certain third parties through different legislative measures. Such powers should however be complemented by adequate safeguards for taxpayers. This note focuses on the key issues that should be taken into consideration in designing tax law provisions to support fair and effective tax collection.
Keywords:
Tax Collection; Legislation; Protective Measures; Compelled Recovery; Tax Liens; Installment Arrangements; Crisis Events; clearance mechanism; penalties regime; tax procedure; tax law provision; clearance certificate; tax rulings regime; IT system; Tax administration core functions; Tax arrears management; Tax law; Collateral
Cover Staff Discussion Notes
Broadening the Gains from Generative AI: The Role of Fiscal Policies
Fernanda Brollo
,
Era Dabla-Norris
,
Ruud de Mooij
,
Daniel Garcia-Macia
,
Tibor Hanappi
,
Li Liu
, and
Anh D. M. Nguyen
Generative artificial intelligence (gen AI) holds immense potential to boost productivity growth and advance public service delivery, but it also raises profound concerns about massive labor disruptions and rising inequality. This note discusses how fiscal policies can be employed to steer the technology and its deployment in ways that serve humanity best while cushioning the negative labor market and distributional effects to broaden the gains. Given the vast uncertainty about the nature, impact, and speed of developments in gen AI, governments should take an agile approach that prepares them for both business as usual and highly disruptive scenarios.
Keywords:
Artificial intelligence; AI; technological change; labor market; fiscal policy; social protection systems; tax systems; IMF Staff Discussion Note SDN2024/002; gen AI; advance public service delivery; role of fiscal policies; replacement ratio; job displacement; income support; tax treatment; market power; Labor markets; Corporate income tax; Automation; Capital income; Global
Cover IMF Staff Country Reports
Luxembourg: Selected Issues
International Monetary Fund. European Dept.
This Selected Issues paper explores implications for safeguarding fiscal space in Luxembourg. The analysis discusses the main drivers of revenues and expenditures in recent years. Against the background of rising ageing costs, the analysis discusses the fiscal outlook, accounting for the announced government plans, as well as fiscal risks. Additionally, it offers options for helping to safeguard ample fiscal space, in view of the spending pressures and risks. In order to preserve its ample fiscal buffers, which will support the government’s commitment of keeping Luxembourg’s AAA rating, a more prudent fiscal policy would be advisable. Recent revenue increases should not be taken as given, and additional tax reforms should be done in a budget-neutral manner. The growth of compensation of employees should be limited, social programs better targeted, and their efficiency increased. Early pension reform would also help limit spending pressures. Finally, a national framework could help anchor fiscal policy and maintain a credible commitment to prudent fiscal policies.
Keywords:
personal income taxation; copyright page; ample fiscal space; spending pressure; CIT revenue; property taxation reform; GDP share; Corporate income tax; Social protection spending; Personal income tax; Global
Cover IMF Staff Country Reports
Djibouti: Selected Issues
International Monetary Fund. Middle East and Central Asia Dept.
This Selected Issues paper focuses on empowering diverse futures. The economy of Djibouti grew at an unprecedented rate during the last decade, but the investment-led economic expansion did not translate into tangible labor market’s improvements. The capital-intensive nature of the country’s growth model limits job creation, while growing skill mismatches in the labor market have increased structural unemployment. While access to education has increased dramatically since the 2000s, more could be done in improving the quality of education and expanding vocational and adult learning. Moreover, stepping-up diversification would support the development of more labor-intensive sectors, further spreading the benefits from growth to all Djiboutians. The timely collection of labor market statistics remains a key constraint for supporting decision-making and job creation. The design and implementation of adequate policy frameworks to foster job creation requires complete and timely labor market data. The frequent collection of basic labor market data, such the unemployment rate, remains a priority for policy design and implementation.
Keywords:
revenue productivity; productivity of the VAT; SOE governance; telecom cost; sector investment lag; Corporate income tax; Labor markets; Personal income tax; Middle East; North Africa; Sub-Saharan Africa; Africa; Middle East and Central Asia
Cover Technical Assistance Reports
Republic of Moldova: Technical Assistance Report-Analysis of the Draft Law on the Anti-Corruption Judicial System and on Amending Some Normative Acts
International Monetary Fund. Legal Dept.
Upon the request of the authorities of Moldova, the Legal Department provided Technical Assistance on the establishment of the Specialized Anti-Corruption Judiciary (SAJ) in Moldova. The TA report provides analysis of the draft law on the Anti-Corruption Judicial System and other related laws, and proposes recommendations. The recommendations are informed by international standards and good practices on judicial independence and integrity, and are designed to respond to specific challenges faced by Moldova. The creation of the SAJ is an important new initiative aimed at strengthening anti-corruption efforts following the establishment of the Anti-Corruption Prosecutor Office (APO) in 2016. A SAJ composed of judges selected through competitive process with the participation of civil society and reputable anti-corruption experts, can significantly contribute to reducing corruption through effective adjudication of corruption cases.
Keywords:
Republic of Moldova; specialized courts; anti-corruption; rule of law; judiciary; judges; judicial independence; Pre-selection Commission; vetting.; draft law; parliament of the Republic of Moldova; legal department; subject matter jurisdiction; SAJ member; comments from the World Bank; Corruption; Allowance for corporate equity; Civil society organizations; Europe
Cover IMF Staff Country Reports
Ireland: 2023 Article IV Consultation-Press Release; and Staff Report
International Monetary Fund. European Dept.
This 2023 Article IV Consultation highlights that Ireland’s economy has shown remarkable resilience in the face of consecutive shocks. The Irish economy has displayed remarkable resilience in the face of recent consecutive shocks and is well-positioned to achieve a soft landing. Growth is expected to moderate to a still solid level in 2023-24, from a very high base, as tighter financial conditions, domestic capacity constraints, and weakening external demand weigh on the economy. Continued fiscal prudence is warranted to complement monetary tightening in sustaining disinflation and to build adequate buffers for the future. As fiscal policy should avoid adding to aggregate demand amid still elevated inflation, tax revenue over performance should be saved. The 2023 fiscal stance is appropriate. Fiscal policy should support growth-enhancing investment and broaden the tax base. The authorities’ decision to save part of excess corporate income tax revenues in two savings funds is welcome. Tighter financial conditions, persistent inflation, and rising vulnerabilities in the commercial real estate market with linkages to leveraged non-banks call for continued heightened vigilance of financial stability risks.
Keywords:
liability positions vis-à-vis nonresident; inflation development; transparency policy; money market rate; quarterly balance of payments; growth-enhancing investment; Medium-term fiscal policy; persistent inflation; Ireland's economy; Housing; Inflation; Corporate income tax; Credit; Global
Cover IMF Staff Country Reports
Ireland: Selected Issues
International Monetary Fund. European Dept.
This Selected Issues paper provides an international perspective to the authorities’ two recent policy measures: setting up new savings and counter cyclical and climate infrastructure funds and reforming the judicial review of planning decisions in Ireland. The first essay presents international best practices in the design and operation of sovereign wealth funds that could inform the setup of the two new funds in Ireland. It highlights the importance of operating the funds within a strong fiscal policy framework. The second essay reviews Ireland’s planning and permitting system, underscoring the key elements that have hindered public investment. It also looks into the government’s proposed Bill to reform the planning system and contrasts its key features with those of other international jurisdictions. It finds that several issues may contribute to the inefficiencies in the planning and judicial review system, such as the loose standing requirements and lack of mandatory timelines related to judicial review, as well as institutional governance issues within the planning board, which the newly proposed reforms and legislative measures seek to address.
Keywords:
housing affordability; D. policy option; savings fund; modernizing judicial review; impulse response; Housing; Housing prices; Pension spending; Global
Cover IMF How To Notes
How to Design a Presumptive Income Tax for Micro and Small Enterprises
Jean-François Wen
Turnover taxes are prevalent in developing countries as a simple form of presumptive taxation of business income. Such simplified tax regimes can reduce the relatively high compliance costs of micro and small enterprises, which might otherwise discourage entrepreneurs from formalizing their activities and paying taxes. The note addresses design issues for a turnover tax regime—which taxes it replaces, what the criteria are for eligibility, how to determine the optimal threshold, and how to set the tax rate. A key observation is that, although low turnover tax rates may incite larger firms to artificially reduce their sales, the rate should also not be so high as to discourage formalization of activities. A table of tax rates and turnover thresholds observed internationally is provided. The note concludes by suggesting analytical steps to guide practitioners in designing turnover tax regimes.
Keywords:
Presumptive tax; turnover tax; informal sector; microenterprises; taxpayer Compliance cost; turnover tax rate; turnover tax systems; IMF library; Sales tax; Income and capital gains taxes; Income tax systems; Corporate income tax; Effective tax rate; Africa; South America; Eastern Europe; West Africa; Western Europe
Cover Selected Issues Papers
Drivers of Corporate Cash Holdings in Japan: Japan
Seho Kim
,
Pablo Lopez Murphy
, and
Rui Xu
In Japan, corporate savings have risen since 2000 in line with profits. A large share of the additional savings was kept as cash holdings (i.e., cash and short-term investments) rather than used for investment. Building on a rich literature, this paper identifies two additional drivers of corporate cash holdings using financial data of public and private Japanese firms. First, a higher share of intangible capital is associated with more cash holdings. This indicates the presence of financial frictions as intangible capital is not easily collateralizable. Such financial friction could be alleviated by shifting towards cash flow-based lending that is prevalent in the United States (US). Second, corporate tax cuts are associated with more cash holdings while having no significant effect on investment. Given the significant fiscal cost, the efficiency of corporate tax cuts should be re-evaluated.
Keywords:
Corporate cash holdings; Investment; intangible assets; financial frictions; tax cuts; Japan; cash holding; corporate tax tax cut; drivers of Corporate Cash Holdings; firm sample; short-term investment; Intangible capital; Corporate income tax; Effective tax rate; Tax allowances; Global
Cover IMF Staff Country Reports
Panama: Selected Issues
International Monetary Fund. Western Hemisphere Dept.
This Selected Issues paper presents the main features and weaknesses of the current Panamanian tax system and provides an international comparison of its performance. Panama’s macroeconomic performance has been notably robust. Panama’s macroeconomic performance has been notably robust, but Panama’s tax collection has been historically low. A tax system without adequate revenues led to chronic fiscal deficits and a lack of resources to invest in human capital (education and health) and promote social inclusion policies. In addition, the tax system is notably regressive, and several rules are very inefficient and distortive contradicting the overall policy objective of the country to attract investment. Taxation of the business sector is very complex. On the other hand, the system is very generous regarding benefits. Overall, the desirable reform direction is clear: A reduction in tax incentives, following their analysis, as well as stronger anti-abuse provisions, and revenues from an international minimum tax can finance reductions in the inefficient parts of the tax system, such as the multiple business taxes and the strict loss carry forward.
Keywords:
VAT indicator; directorate General; C. consumption tax; tax comparison; revenue performance; International reserves; Total factor productivity; Tax incentives; Corporate income tax; Caribbean; Central America; South America; Global; Asia and Pacific