Do Firms Remit at Least 85 Percent of Tax Everywhere?

Abstract

In this note, we present new evidence about firm remittance in India, and discuss the remarkable similarity and prominence in the role of businesses in tax remittance in three very different tax systems – India, the United States and the United Kingdom. Previous studies of developed countries have concluded that firms remit the great majority of taxes: 83 percent of taxes in the United States, and 87 percent of taxes in the United Kingdom. A recent OECD working paper estimates the share for a sample of 24 OECD countries, and finds an unweighted average of 89.7 percent. The proximity of these estimates suggests an emerging “rule of 85,” but notably absent is any evidence for developing countries, where the tax structure and administrative capacity varies substantially from developed countries. We find, somewhat remarkably, that in India firms remit about the same fraction of total revenue as in the United States and United Kingdom – 87 percent of the total tax revenue collected by the central and state governments. This is true even though the composition of tax revenue in India is very different from that of the United States and the United Kingdom.