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Business and Economics > Corporate Taxation

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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 IMF Working Papers
Tax Policy for Inclusive Growth in Latin America and the Caribbean
Mr. Santiago Acosta Ormaechea
,
Samuel Pienknagura
, and
Carlo Pizzinelli
This study provides an overview of tax structures in LAC before the COVID-19 pandemic, compares it to OECD countries, and provides recommendations for growth-friendly and inclusive tax policy reforms. LAC countries collect significantly lower tax revenue relative to OECD countries and have tax structures that rely excessively on corporate-income taxes (CIT) while personal-income taxes (PIT) remain largely underutilized. LAC countries could strengthen their PIT to mobilize revenue and improve progressivity by addressing critical design flaws. Possible adverse growth effects could be mitigated by providing incentives to labor force participation and formalization (e.g., through earned-income tax credits). The ongoing global corporate income tax reforms present a great opportunity to reassess thoroughly the CIT in LAC. Specifically, reforms would need to focus on aligning CIT statutory rates with those of other regions—when assessed to be relatively high—to attract investment and alleviate profit shifting, and on broadening the corporate tax base. Value-added taxes (VAT) could be improved by tackling exemptions and reduced rates. Furthermore, while estimates of additional revenue from levying the VAT on the digital economy appear modest, taxing this sector as others in the economy is critical to avoid further tax base erosion.
Keywords:
Taxation; Progressivity; Inclusive Growth; Latin America and the Caribbean; OECD tax revenue statistics database; OECD sample; OECD countries sample; income level; OECD distribution; OECD group; OECD member; OECD benchmark; PIT revenue; Personal income tax; Corporate income tax; Income tax systems; Income and capital gains taxes; Caribbean; Global
Cover IMF Working Papers
Brazil: Tax Expenditure Rationalization Within Broader Tax Reform
Maria Delgado Coelho
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.
Keywords:
rationalization experience; Labor tax wedge; sequenced tax reform; cost of capital; zero rating; tax relief; single tax; Tax expenditures; Corporate income tax; Tax incentives; Personal income tax; Social security contributions; Global
Cover IMF Working Papers
The Tax Cuts and Jobs Act: An Appraisal
Mr. Nigel A Chalk
,
Mr. Michael Keen
, and
Ms. Victoria J Perry
This paper assesses the landmark Tax Cuts and Jobs Act (TCJA), from the perspective of both the U.S. itself and the wider world. The reform has many positive aspects including steps to broaden the base of, and reduce marginal rates under, the personal income tax (PIT), reduce distortions to investment and financing decisions, and mitigate outward profit shifting. But the TCJA has a large fiscal price tag and leaves significant uncertainty as to how the U.S. tax system will develop. The PIT changes could have better targeted relief at low earners, and there is scope to more fully address distortions in business taxation. The novel international provisions create a complex array of both positive and negative international spillovers, and have the potential to significantly reshape the wider international tax system.
Keywords:
WP; income tax; tax revenue; tax system; tax liability; taxable income; Tax Policy; Business Tax; Personal Income Tax; International Taxation; Pass-throughs; standard deduction; GILTI income; net effect; rate of return; cash flow; multinational company; business income; U.S corporation; GILTI provision; intangible income; Personal income; Corporate income tax; Income tax systems; Income and capital gains taxes; Global
Cover IMF Working Papers
Allowances for Corporate Equity in Practice
Mr. Alexander D Klemm
This paper provides an overview of full and partial allowance for corporate equity (ACE) tax systems in practice. In the recent past, ACE systems have been used in Austria, Croatia, and Italy. Brazil still applies a variant of such a system and Belgium introduced one this year. This paper summarizes the empirical literature on past ACE systems, and provides a theoretical and empirical assessment of the Brazilian ACE variant. The main finding is that the Brazilian reform introduced an ACE system for a minority of firms only, with the majority instead having a system of dividend deductibility. Despite the reduction in the tax preference for debt finance, capital structures have not changed much, but dividends have increased. Investment appears to have benefited from the reform, although the extent to which this was due to the new structure rather than the tax cut is unclear.
Keywords:
WP; ACE system; dividend deductibility; cost of capital; equity finance; ACE tax; ACE variant
Cover IMF Working Papers
A Superior Hybrid Cash-Flow Taxon Corporations
Mr. Howell H Zee
This paper proposes a new hybrid cash-flow tax on corporations that, on one hand, taxes only excess corporate profits as they accrue, and, on the other hand, treats real and financial transactions neutrally. It is, therefore, a superior tax compared to the cash-flow tax on real transactions that seems to have gained common acceptance. The hybrid tax is a modified version of the cash-flow tax on real and financial transactions combined. The modification involves replacing expensing of fixed assets with normal depreciation allowances, but the undepreciated value of fixed assets is carried forward with interest at the opportunity cost of equity capital.
Keywords:
WP; cash flow; tax burden; proceeds; Corporate income tax; cash-flow tax; tax reform; modified S-CFT; cash inflow; tax liability; tax calculation; tax depreciation; tax implication; equity capital; tax payment; tax deferral; Currencies; Tax allowances; Anti-money laundering and combating the financing of terrorism (AML/CFT); Depreciation
Cover IMF Working Papers
Rethinking Subnational Taxes: A New Look At Tax Assignment
Mr. Richard Miller Bird
The assignment of revenues in most developing and transitional countries to the central government has arguably facilitated irresponsible behavior by some subnational governments. One way to relieve this problem is to strengthen subnational tax regimes. The paper proposes two approaches to accomplish such strengthening in developing countries. The first—most applicable to large countries with important regional governments—is to establish subnational value-added taxes (VATs); the second is to replace the various unsatisfactory state and local taxes imposed on business by a low-rate value-added tax levied on the basis of income (production, origin) rather than consumption (destination).
Keywords:
WP; tax assignment; central government; developing country; provincial sales tax; tax administration; Subnational taxes; Local business taxes; Regional governments; local government; state ICMS; government needs; beggar-my-neighbor tax competition; national government; state VAT; multitiered government; importing state; destination state; Subnational tax; Value-added tax; Revenue assignments; Expenditure assignments; Corporate income tax; Africa; Global
Cover IMF Working Papers
Taxation in Latin America: Structural Trends and Impact of Administration
Mr. Parthasarathi Shome
From the mid-1980s to early 1990s, Latin American tax policy provided rich lessons for other reforming countries. Meaningful innovations led also to perceptible revenue gains. Later in the 1990s, tax policies began to drift. Shining examples of fundamental reform seemed to lose their luster. Revenue in terms of GDP also stagnated, partly reflecting over-reliance on consumption taxes and neglect of taxable capacity on incomes. The stagnation has been exacerbated by excessively simplified administrative practices. Based on these developments and on the limited taxability of internationally mobile capital, the paper anticipates a likely tax structure for the new century.
Keywords:
WP; tax administration; tax structure; personal income; tax administrator; tax reform; Latin America; taxation trends; tax policy; revenue enhancement; reform effort; tax design; personal income tax; tax statute; tax concession; environment tax; tax export; tax administration improvement; tax administration activity; Income tax systems; Income and capital gains taxes; Tax administration core functions; Personal income tax; Corporate income tax; Global; South America; North America; Central America