Prepared by Christoph Klingen (FAD).
See Ahmad, Ehtisham, and Nicholas Stern, The Theory and Practice of Tax Reform in Developing Countries, Cambridge University Press, 1991.
A tax is called cascading if a commodity/service is taxed more than once as it passes through the various stages of the production-distribution chain and the effective tax burden therefore exceeds the nominal tax rate.
For a discussion of the problems involved and possible solutions see Keen, Michael, 2000, “VIVAT, CVAT and All That: New Forms of Value-Added Tax for Federal Systems,” Canadian Tax Journal, 48, 409–24.
Rules and regulations still need to be modified to take into account the special requirements of service taxation. This includes practices related to the import of services, the complex issue of taxing air travel and communication services, and the formulation of rules that apportion inputs of companies supplying goods as well as services.
Income tax accounts for almost 95 percent of direct tax revenues. The balance is made up by the wealth tax, workers welfare fund tax, capital value tax, and corporate assets tax.
The rate pertaining to supplies was increased from 2 to 2.5 percent in 1991/92 and from 2.5 to 3.5 percent in 1997/98; the one pertaining to contracts was increased from 3 to 5 percent in 1995/96; and the one pertaining to services was raised from 3 to 5 percent in 1991/92.
It was raised in 1991/92 to 2 percent, in 1995/96 to 4 percent, in 1997/98 to 5 percent, and in 2000/01 to6 percent.
The same is true of withholding taxes that are, in principle, creditable but not actually credited. With holding taxpayers might chose not to file a return, in particular if that would involve having to pay taxes over and above the ones already withheld. The withholding tax then becomes, de facto, a final tax.
The scope of the regime was extended to include part of the corporate sector in 2000/01. It was also available to companies in 1980/81 and 1981/82.
Banks were subject to a statutory tax rate of 30 percent, a supertax of 35 percent and a surcharge of10 percent. Companies were faced with a statutory tax rate of 30 percent, a supertax of 25 percent, and a surcharge of 10 percent Public companies, i.e., companies that are listed on the stock exchange, were eligible for a 5 percent rebate on the supertax. The top marginal personal income tax rate was 60 percent and a 10 percent surcharge applied to income above a certain threshold.
Banks were subject to a statutory tax rate of 30 percent, a supertax of 30 percent, and a surcharge of10 percent. Companies were faced with a statutory tax rate of 30 percent, a supertax of 15 percent, and a surcharge of 10 percent. Public companies were eligible for a 5 percent rebate on the supertax. The top marginal personal income tax rate was 45 percent and a 10 percent surcharge applied.
Banks are subject to a statutory tax rate of 58 percent. Companies are faced with a statutory tax rate of 43 percent, and a surcharge of 5 percent. The statutory rate for public companies is 33 percent and they are also subject to a 5 percent surcharge.
For a broader discussion of the revenue implications of trade liberalization see Ebrill, Liam, Stotsky, and Gropp, Revenue Implications of Trade Liberalization, IMF Occasional Paper No. 180, 1999.
The effective tariff rate is defined here as customs duty collections (including revenue from paratariffs) in percent of the value of dutiable imports.
Regulatory duties were reintroduced in the context of the unification of excise duties between imported and domestically produced goods. They will be removed once antidumping legislation goes into effect.
See Tanzi, Vito, “Quantitative Characteristics of the Tax Systems of Developing Countries,” in Newbery, David and Nicholas Stern (eds.), The Theory of Taxation for Developing Countries, Oxford University Press, 1987.
The efficiency ratio of a tax is defined as its yield in percent of GDP divided by the tax rate. Adjusted efficiency ratios are normalized by the share of the tax base in GDP. For instance, a sales tax yielding 5 percent of GDP at a standard rate of 10 percent and consumption accounting for 80 percent of GDP has an efficiency ratio of 0.5 and an adjusted efficiency ratio of 0.625. A low efficiency ratio would be indicative of weak tax administration, widespread exemptions, or many sales being taxed at a reduced rate.
Calculation of the efficiency ratios is based on the average tariff rate (simple average of tariff bands).
Defined as the average growth rate of (nontrade) tax revenue relative to the average growth rate of nominal GDP.