Income Tax System Research Articles

Tax Aggressiveness as a determining factor of Accounting Conservatism in Brazil

This paper investigates whether the degree of tax aggressiveness is a determinant of accounting conservatism. The taxable income has a dependent relationship with the accounting income in the Brazilian corporate income tax system. One way to reduce the corporate tax base is to adopt conservative accounting choices. After a conceptual discussion of accounting conservatism, differentiating conditional and unconditional conservativeness, and a thorough literature review on accounting conservatism by Brazilian academia. A literature gap was found since the relationship between a company's degree of tax aggressiveness, and its accounting conservatism behavior has not been investigated. For this research purpose, the Basu model was adopted, adapted with tax aggressiveness controls. The study period was from 2010 to 2019 for Brazilian firms from B3. The findings show a significant relationship between tax avoidance and conditional accounting conservatism. That is, more tax-aggressive firms tend to use more conservative accounting. The results provide insights that firms with higher effective tax rates are less inclined to use conservatism. The choice of a conservative accounting pattern may be in part to avoid the tax burden; therefore, this outcome states evidence that there is a difference between the degree of conservatism depending on the firm's tax aggressiveness profile.

Personal Income Harmonization Process

Purpose: The aim of the research is to determine whether harmonization of personal income taxation in the European Union countries is possible and desirable. Design/Methodology/Approach: The paper objective requires a comparative analysis of personal income taxation systems in the European Union countries, taking into account the specificity, common features and differences in income tax constructions in the surveyed countries as well as the areas, possibilities and potential directions for harmonizing this form of taxation. The main research method was induction. Moreover, the paper uses two general research methods, namely analytic and synthetic methods, characterized by detailed presentation of the reality research. Findings: The first is to determine whether harmonization of personal income taxation in the European Union countries is possible and desirable and the second is to find out the main reference points for transformation of an individual’s taxation system in European Union Countries. The assessment of the possibility and desirability of harmonizing this form of taxation has been limited (range of research) to personal income of individuals who do not conduct any form of business activity and it reflects the short and long-term run. Practical Implications: The specificities and different models of taxation of personal income in the EU and the different systems of integration of taxation with pension contributions make it impossible to standardise and harmonise this form of taxation. From a legal point of view harmonization is possible, but from an economic point of view it is not advisable. In addition, different wage levels, the way the minimum subsistence level is calculated and different tax allowance and exemption systems do not allow for effective harmonization of personal income tax. Originality/Value: The results reflect that despite the lack of Directives to regulate the rules of taxing personal income, the rules are emerging spontaneously and tax burdens are slowly equalizing. This process is the result of competition between EU member state tax systems—nations extensively are utilizing the construction of the personal income tax to utilize the stimulating functions of the tax system, which in turn impacts the possibilities open to spontaneous PIT harmonization.

Digital Services Tax: Assessing the Policy Reasons for its Introduction in the European Union

This article assesses the related potentially positive and negative implications of the possible introduction of an EU digital levy, as discussed in the February-April 2021 public consultation promoted by the European Commission. In doing so, it engages in an analysis based on broader policy considerations, thereby including interaction with the domestic corporate income tax systems of the Member States, as well as fundamental EU law considerations. On the grounds of such a critical reconstruction and assessment of the proposals under scrutiny, the article also sets forth considerations on possible alternatives and an overall outlook on the future of the taxation of the digitalized economy in the European Union. In particular, with regard to the adoption of an EU digital levy, the article elaborates on the shortcomings of turnover taxation when applied in isolation and the possible approaches to addressing overtaxation in cross-border situations in light of fostering the integration of said levies with income taxes. In doing so, this article is concerned, on one hand, with enhancing the proportionality of the proposed measures, and, on the other hand, with reinstating the need to ensure that the European Union does not lose sight of its originally stated long-term goals in connection with the reform of the taxation of the digitalized economy, not excluding the need to reshape the current nexus rules surrounding the taxation of cross-border business income. In this respect, the authors believe that the European Union could be the right laboratory in which to explore new avenues for steering international tax law development towards internation equity, fairness, simplicity and long-lasting solutions.

A Study on the Tax System of China’s Hainan Free Trade Port and Implications for Korea

Purpose - The purpose of this study is to introduce the background, development plan, and status of China’s Hainan Free Trade Port. It also focuses on the details and characteristics of the latest implemented detailed regulations related to the tax system of the Hainan Free Trade Port. Design/Methodology/Approach -The latest documents and data in China, as well as the content of the latest plans and detailed regulations related to the construction of the Hainan Free Trade Port, were collected and analyzed. The study was conducted in parallel with literature research and jurisprudence research. Findings - In this study, the content and characteristics of the tax system of the Hainan Free Trade Port in China were analyzed in three aspects: the no-tariff system, the corporate income tax system, and the personal income tax system. In addition, several implications for the Korean government and industry were presented in terms of the tax system, the construction of free trade ports, and the competitive strategy of the duty-free market. Moreover, it suggested alternatives such as reviewing Korea’s tax system, examining companies entering Hainan, fostering human resources and cooperation in education, and cooperation with Korean-Chinese industry and the government. Research Implications - In the future, it is necessary to continuously monitor the systems and policies of Hainan’s development plan and discover pioneer areas where mutual cooperation can be achieved through exchange with the Hainan Free Trade Port.

Asymmetric taxation, limited liability, and agency conflicts

Current income tax systems are characterized by an asymmetric treatment of gains and losses. This implies that the (effective) tax rate on profits exceeds that on losses. We study the contractural relationship between two parties (the principal and the agent). For example, such a relationship occurs if a franchisee (agent) contracts with a franchiser (principal) or when a new partner (agent) enters a partnership (principal). We focus on the effect of the agent's asymmetric taxation on the principal's optimal contract and show that the principal's expected profit is a non-monotonous function of the agent's loss tax rate. In particular, we show that the principal can be strictly better off if the agent is taxed more heavily. This result stands in contrast to the existing literature, which has only shown that lower taxation at the agent's level increases the principal's expected profit.

Оцінка міжнародної конкурентоспроможності системи оподаткування прибутку підприємств України

The article is devoted to assessing the international competitiveness of the corporate income tax system based on the approach of the US Tax Foundation, which develops International Tax Competitiveness Index of the corporate income tax (ICI) and takes into account the level of income tax rates, cost recovery, tax incentives and complexity of tax law. According to the analysis of the international ranking of OECD countries, Estonia, Latvia, Lithuania, and Hungary had the highest ICIs in 2019-2020. The main factors that have had a positive effect on their competitiveness are the low top marginal income tax rate, unlimited loss carryback and carryforward, no restrictions on the list of assets subject to depreciation, as well as the use of accelerated depreciation, which allows companies to compensate for a larger share of the initial value of assets, LIFO inventory or at least inventory by the weighted average cost method, no Patent Box; no tax credit for R&D, and low corporate income tax complexity. The calculation of the ICI for Ukraine, based on the approbation of the methodological approach of the Tax Foundation, found that in 2019-2020 Ukraine with a total score of 55.07 took 24th place out of 35 OECD countries. The author characterizes the main components of Ukrainian corporate income taxation in terms of their impact on international competitiveness; in addition, ways to increase ICI are substantiated.

1985 reform of the Australian tax system

After the tumult of the Whitlam government, the Fraser government (1975-1983) saw consolidation with less reform. The 1975 Asprey report remained largely unactioned, despite the fundamental problems that burdened the Australian tax system. The 1983 election of the Hawke government, however, set in train a series of economic reforms, and tax would play a big part in these. This paper tracks those developments, starting with the tax avoidance and evasion issues that plagued the era and the 1981 Campbell Committee financial system review. The main focus, though, is on the 1985 draft white paper and tax summit that delivered the first instalment of the Asprey blueprint. While the broad-based consumption tax didn’t get up, the package reformed Australia’s income tax system, with a capital gains tax, a fringe benefits tax, a foreign tax credit system and a dividend imputation system.

State Individual Income Tax Conformity in Practice: Evidence from the Tax Cuts & Jobs Act

Nearly every state incorporates the federal tax code into its individual income tax system. This widespread incorporation has many supporters and has been justified on the basis that it is necessary in order for states to have a simple and efficient tax system. This article explores the practical effects and dynamics of state tax conformity through a novel examination of how states that tightly conformed to the federal individual income tax responded to the recently enacted Tax Cuts and Jobs Act which, for these states, would have both raised state taxes and changed the distribution of state tax burdens. The study reinforces concerns raised in both the theoretical and economic literature regarding conformity’s enhancement of revenue volatility and likelihood of distorting state legislative decision-making, while adding several new observations of conformity’s impact. The study illustrates that conformity imposes significant time constraints on state legislatures, conformity causes not only revenue shocks, but tax policy shocks, and even where state revenue is kept constant following a federal change, conformity may cause relative state tax burdens to change. Based on these findings, the article concludes by offering suggestions for how states can move past the idea that extensive conformity with the federal tax code is required and instead design an individual income tax system that is simple, efficient, and enhances a citizen’s relationship to the state.

Simple rules and the Political Economy of Income Taxation: the strengths of a uniform expense rule

The complexity of the U.S. income tax system emerged in part from the differentiated fiscal treatment of specific investments and various sorts of business expenditures that, as Richard Wagner says, creates “a tax code so large that no one can read it and which creates nearly a unique tax liability for each taxpayer.” While tax scholarship documents the costs of complexity, current scholarship lacks a normative legal theory that could inspire an alternative to this practice of targeted credits and deduction rules. This paper builds on Epstein’s general Simple Rules framework to develop a radical simplification of income tax: the operationalization of a uniform expense rule, i.e., the application of a single deduction scheme across all expenses and investments. With regard to the trade-off between targeted rules and this general approach, this paper investigates the nature of a uniform expense rule and reveals its strengths with respect to political economy. First, a stable and universal expense rule would narrow the scope of politicians’ ability to concentrate benefits on special-interest groups and would limit rent-seeking. The abolition of deviating rules for investments would restrict the scope of tax optimization, meaning that individual and corporate tax liabilities would be more determined by the ability to pay them. The same policy would save companies and government millions of dollars that they currently spend on tax compliance and administration of the tax system, respectively. Last, a deduction rule that applies across all businesses and industries would be less price distortive and thus would enhance the quality of the price signal.

Does tax policy fit in the portfolio of COVID-19 responses?

Purpose Tax policymakers are currently navigating a path through a delicate dialectic of macro- and micro-level policy responses to the economic dislocation of the COVID-19 pandemic. The purpose of this paper is to examine initial tax measures that are aimed at helping taxpayers needing liquidity, solvency and income support. Design/methodology/approach This study undertakes a review of key tax policy responses of six jurisdictions across the globe that have similar tax regimes and virus mitigation strategies (albeit with different outcomes). Key initiatives implemented from February to April 2020 by Australia, Canada, New Zealand, Singapore, South Africa and the UK are examined. Findings This study indicates that tax concessions are a crude and mostly ineffective way of assisting individuals and enterprises in difficulty. In the longer term, if the crisis prompts desirable reforms such as extending the recognition of tax losses, the income tax system will emerge fairer and more efficient. Practical implications An investigation of the short-term reforms announced relating to asset write-offs, tax deferral, tax losses and goods and services tax/value-added tax rates in light of the liquidity, income support and stimulus objectives shows that in some cases the policies may have been misguided. The findings can be used by policymakers as the basis for designing better targeted alternative non-tax responses. Originality/value Jurisdictional responses to tax policy reforms during a modern period of significant economic dislocation have yet to be documented in the literature. Specifically, this paper highlights the limitations of tax policy initiatives as a response to financial hardship.

Intertemporal Labor Supply Substitution? Evidence from the Swiss Income Tax Holidays

This paper estimates intertemporal labor supply responses to two-year long income tax holidays staggered across Swiss cantons. Cantons shifted from an income tax system based on the previous two years’ income to a standard annual pay as you earn system, leaving two years of income untaxed. We find significant but quantitatively very small responses of wage earnings with an intertemporal elasticity of 0.025 overall. High wage income earners and especially the self-employed display larger responses with elasticities around 0.1 and 0.25, respectively, most likely driven by tax avoidance. We find no effects along the extensive margin at all. (JEL H24, H26, J22, J23, J31, R23)

Changing Places, Changing Taxes: Exploiting Tax Discontinuities

Abstract President Trump’s decision to move his official state of residence from high-tax New York to no (income)-tax Florida has brought public attention to an issue that has long troubled scholars, designers and administrators of income tax systems: how the interaction of tax rules deferring the taxation of income and tax rules based on residency allows taxpayers to reduce and even avoid taxation of their deferred income. These discontinuities in tax treatment may lead to excessive migration, as well as reductions in state income tax revenues and distortions in the design of state taxing mechanisms. This Article explains what states would have to do to eliminate these avoidance opportunities. However, it also points out that many of these policy changes would create other tax discontinuities. Ultimately, it leaves open the question whether making any of these changes would lead to fewer financial and behavioral distortions.

VOLUNNTARY COMPLIANCE DENGAN KONSEP KEADILAN PAJAK PERSPEKTIF IBNU KHALDUN BAGI WAJIB PAJAK

This research is to identify and analyze the concept of voluntary compliance with the concept of Ibn Khaldun's perspective of tax justice for tax duty. Research with qualitative descriptive type which uses data through interviews with participants: religious leaders, tax officials, tax consultants, tax academics based on the slippery slope framework research results show that voluntary compliance / tax compliance can be defined as mandatory will taxes to be subject to tax regulations in a country. The measurement of compliance that is measured by the knowledge and concept of justice shows that 25 respondents chose strongly agree and 12 respondents chose agree from 37 respondents, meaning that the community realized that tax was the country's biggest source of revenue. Public knowledge about self-assessment shows an average of 3.35, which means that the community has the potential to choose neutral in their knowledge, and 3.3 which shows the level of tax compliance. This tax compliance behavior arises because there is a fairly regulated income tax system, the way income tax is fairly distributed to each taxpayer, and the income tax that is charged is carried out fairly. The principles of convenience and productivity in the realization of taxes which are considered oppressive are emphasized with the concept of equality and neutrality. In other words, someone's awareness is recognized by how much someone's knowledge about the law, that someone's awareness is recognized by how much someone's knowledge about the law.

An empirically based just linear income tax system

ABSTRACT This paper develops and illustrates a method for empirically designing an income tax system that people will regard as fair. The paper begins with the classical Principles of Tax Justice, viz., as pretax income increases, three quantities should also increase – posttax income, tax amount, and tax rate. GSOEP data on residents’ pretax income and the posttax income they regard as fair are used to estimate a just linear income tax system. Analytic results include a signature standard form of the tax system showing the intertwined fates of poor and rich and the conditions which threaten fairness. Empirical results show that the estimated tax system lowers taxes for a majority of respondents, especially the relatively poorer, and substantially reduces inequality.

ПРОГРЕССИВНОЕ НАЛОГООБЛОЖЕНИЕ ДОХОДОВ: ЗАРУБЕЖНЫЙ ОПЫТ И ВОЗМОЖНОСТИ ДАЛЬНЕЙШЕГО РАЗВИТИЯ В РОССИИ

The relevance of the research topic is due to the fact that in 2021 there was an important change in wages-the introduction of a progressive personal income tax rate. This system of income taxation is just be-ginning to be implemented and, of course, will be subject to further changes. The state has an important task to carry out this process consistently, taking into account the peculiarities of the country and relying on the successful experience of developed countries. The article reveals the concepts of progressive and propor-tional taxation, considers the views of supporters of these types of taxation systems, examines foreign expe-rience in applying the progressive personal income tax rate, and makes suggestions for improving the existing system.

Migration and Redistribution: Federal Governance of an Economic Union Matters

Both the U.S. and the EU are an economic union: There is a single market for goods, capital, finance, and labor. That is, there is free mobility of goods and services, physical and financial capital, and labor among the member countries of the union. Nevertheless, there is much higher degree of economic policy coordination among the member states of the U.S than of the EU. For instance, the U.S. has a common (federal) income tax system which constitutes the major source of revenues in the union. Similarly, the social security system is more or less uniform across the U.S. There is also a single migration policy set up and enforced by the federal government. In contrast, there is very little coordination on these issues among the member countries of the EU. We argue by using a migration-based, fiscal-externality, model that the degree of coordination among the member states potentially contribute a great deal to our understanding of observed policy differences between the EU and the US as economic unions: the generosity of the welfare state and the skill composition of migration.

Missed Opportunities of Simplification Regarding Personal Income Tax Systems in Hungary

The paper investigates – considering also the simplified basic elements of the current system – the possibilities of simplifying the Hungarian personal income tax system’s composition in the previous years, while tax burden curves of the system change as little as possible. Tax burden curves of the theoretical, simplified tax model established for this investigation are fitted to the curves of the real tax system, while the parameters of the theoretical model are determined by a computer program. Since the modern Hungarian income taxation had been introduced, the system has long been subject to a wide variety of changes concerning the basic elements examined in the study. Selecting some of these years of changes, the study analyses the possibilities for simplification in order to ask the question again: whether it is necessary to maintain complex tax systems at all costs, possibly in favour of achieving the most equitable income tax system. The results of the investigation indicate that our simpler theoretical system could have replaced with a good approximation the elements of Hungarian tax systems of previous years with multi-bracket and sometimes complicated tax credit, which even applied more tax benefit elements compared to the theoretical system. On this basis, it may be an important aspect also for the more distant future that in the course of developing personal income tax systems, the sophisticated equity of the systems should be observed through the mathematical spectacles of simplification options.

How the proportional income taxation increases inequality in Bulgaria

The proportional income tax is popular in countries of Central and East Europe and 14 CEE countries adopted it with different tax rates from 1994 till 2008 year. But four of them have replaced it with the progressive tax yet. The main criticisms towards the proportional income tax is that it leads to an increase of the inequality after taxation. The article aims to evaluate the impact of the proportional income tax without non-taxable minimum on inequality in Bulgaria, measured by the Gini index. The relationship between the Gini index and the growth rates of GDP per capita, the gross average income and net average income was studied. The methods of Ordinary Least Square (OLS) and correlation were applied to determine the impact of proportional income tax on income inequality in Bulgaria. The research covers the period from 2008 till 2019. National statistical institute of Bulgaria data (12 observations) has been used. The empirical results confirm positive relationship between Gini index and the growth rates of GDP per capita, the gross average income and net average income in system of proportional income tax. Inequality in Bulgaria had increased by 22% after introducing the proportional income tax in 2008, the highest incomes have increased by 113% and the lowest only by 85%. The results of the study show that the increase of the gross average income and net average income leads to increase of the inequality measured with Gini index. Therefore, after taxation of incomes with proportional income tax the inequality does not decrease, but continues to increase. It may be inferred that the proportional taxation increase inequality in Bulgaria.

FOREIGN EXPERIENCE IN TAX REGULATION OF SOCIO-ECONOMIC PROCESSES AND POSSIBILITIES OF ITS USE IN UKRAINE

Introduction. In a market economy, the taxation system, determined by tax policy, has a significant impact on the socio-economic processes in the state. In the West, the development of public finance problems has long risen to a height that is unmatched in the world. Modernizing the tax system of Ukraine without Western practice, without comprehension, perception, use of such a unique scientific potential and practical experience is indispensable. At the same time, it is necessary to take into account the real conditions, national interests, historical features of our country and the creative heritage of Ukrainian scientists, the experience of domestic tax practice. The purpose of the article is to study the processes of tax regulation of socio-economic processes in countries with developed market economies, instruments of regulating the influence of the main budget-forming taxes: income tax, value added tax, excise tax and personal income tax in the context of borrowing and adapting foreign experience to Ukrainian realities. Results. The study of foreign experience in tax regulation of socio-economic processes has shown that the EU member states apply regulatory tax instruments, guided by harmonized principles and principles of fiscal solidarity. In European countries, it is permissible to provide VAT exemptions without refunding the tax credit. In the EU, VAT exemptions for small businesses are significant. At the community level, excise tax incentives for energy, alcohol and alcoholic beverages have been defined. Most countries apply them in the form of layoffs, but some in the form of reduced rates. In addition, at the discretion of the government of an EU member state, not all potential preferences may be introduced, so the list of benefits differs significantly from country to country. The unresolved problem of harmonizing the system of income taxation of legal entities does not mean that there is no opportunity to borrow the experience of tax regulation of individual countries. The policy of the governments of foreign countries (especially European ones) demonstrates the desire to exclude as much as possible exemption from income tax, however, the toolkit of investment tax credit and investment discounts, tax holidays, accelerated depreciation, tax-free funds (reserves) and differentiation of rates that have on the development of investment processes and serve to maintain a stable financial condition of economic entities. It is important to emphasize that most countries that differentiate tax rates based on profit margins use a progressive scale. In Europe, there is a tendency to socialize taxation through the introduction of a system of "family" taxation of personal income based on the differentiation of taxpayers by marital status and their actual ability to pay. Conclusions. The analysis of foreign experience of tax regulation of socio-economic development and the possibility of its adaptation to Ukrainian realities is carried out. A significant similarity of the main taxes in European countries that have common political and economic interests, historically interacting in solving global development issues, has been revealed. The mechanisms of the regulatory influence on the social and economic development of foreign countries of such taxes as VAT, excise taxes, income tax, tax on personal income have been investigated. The advantages and disadvantages of using in the world practice of taxation of various tax benefits and preferences, principles of taxation are determined. It has been substantiated due to what regulatory potential of taxes is achieved not only the fiscal efficiency of their collection, but also the leveling of the socio-economic situation of the population and the country as a whole.

THE ROLE OF INCOME TAX SYSTEM STRUCTURE IN TAX NON-COMPLIANCE BEHAVIOUR AMONG SMEs IN YEMEN

Tax is the main source of government revenue. However, a number of countries worldwide are increasingly besieged by challenges regarding compliance levels with the rules of tax systems. Thus, this paper aims to enhance an understanding of tax non-compliance behaviour by investigating the effect of the income tax system structure on Yemeni taxpayers’ behaviour. The study focuses on income tax compliance behaviour of owner-managers of small and medium enterprises (SMEs), as the Yemeni economy relies heavily on this sector. The SME sector represents 99.6 percent of business in Yemen. Based on a quantitative approach using a self-administered survey instrument, a total of 330 valid questionnaires were collected and the feedback provided analyzed. The results demonstrate that SME taxpayers exhibited a high level of tax non-compliance. Furthermore, the multiple regression analysis shows that the tax rate had a positive and significant influence on tax non-compliance behaviour, but the tax penalties rate did not. These results can be especially relevant to policymakers and practitioners of tax systems structures, particularly in a developing country such as Yemen.