Incremental Tax Research Articles

Consideration of the Application and Risk Prevention of VAT Tax Rebate Policy for Construction Enterprises at the End of the Period

The “Announcement on Deepening the Value-Added Tax Reform” clearly outlines the preferential policy regarding incremental retention tax rebates. With the advancement of value-added tax (VAT) reform and the improvement of VAT legislation in China, VAT tax planning for construction enterprises, particularly related to retained tax credits, has become routine. This paper, focusing on the characteristics of construction enterprises, analyzes VAT retained tax credits at the end of the period, the status of tax refunds, practical issues, and related processes, and offers suggestions for policy application and risk prevention.

Market Power in Coal Shipping and Implications for U.S. Climate Policy

Abstract Economists have widely endorsed pricing CO2 emissions to internalize climate change-related externalities. Doing so would significantly affect coal, the most carbon-intensive energy source. However, U.S. coal markets exhibit an additional distortion: the railroads that transport coal to power plants can exert market power. This article estimates how coal-by-rail markups respond to changes in coal demand. I identify markups in a major intermediate goods market using both reduced-form and structural methods. I find that rail carriers reduce coal markups when downstream power plant demand changes due to a drop in the price of natural gas (a competing fuel). My results imply that decreases in coal markups have increased recent U.S. climate damages by $11.9 billion, compared to a counterfactual where markups did not change. Incomplete pass-through would likely erode the environmental benefits of an incremental carbon tax, shifting the tax burden towards upstream railroads. Still, a non-trivial tax would likely increase welfare.

Price elasticity and affordability of aerated or sugar-sweetened beverages in India: implications for taxation

BackgroundThe sale of aerated or sugar-sweetened beverages (ASBs) has been consistently growing in India which has also experienced a major increase in non-communicable diseases. This study estimates the price elasticities of ASBs by different household-income groups in India and examine the trends in their affordability.MethodsThe price elasticity for ASBs were estimated using a nationally representative household sample survey on consumption of ASBs in India and with Deaton’s method which is robust to self-reported household expenditure surveys. Trends in affordability of ASBs were estimated using relative income price (RIP) which measured the proportion of per capita gross domestic product (GDP) required to purchase 100 L of ASBs in a given year. The elasticity parameters were used to estimate the incremental tax needed for a 10% reduction in ASB consumption.ResultsThe own-price elasticity of ASBs is − 0.94 in the overall sample and varied between − 1.04 to − 0.83 from low- to high-income households. There has been an annual average decline of about 6.8% in RIP of ASBs or an increase in their affordability over the last 13 years. Increasing the compensation cess on ASBs under the current Goods and Services Tax (GST) to 29%, will have the effect of decreasing ASB consumption by 10% and increasing the tax revenue by about 27%.ConclusionThe taxation policy on ASBs in India has largely been ineffective at increasing the real retail prices of ASBs as a result of which ASB consumption grew. ASBs should be classified along with other unhealthy products like tobacco and alcohol as demerit products for the purpose of taxation and their taxes should be regularly increased sufficiently enough to compensates for both general price inflation and income growth so as to decreases their affordability.

Capital Equipment Expensing: Incremental Tax Reform for a Transition Realization-Based Income Tax

Three years ago, I published an article that characterized the U.S. income tax as a specialized variant of a true income tax and dubbed it a “realization-based income tax” (RBIT). It analyzed then current cost recovery theory and policy with respect to equipment. The earlier article argued that normative cost recovery policy for a tax on capital income in a RBIT should exhibit two financial features: first, it should provide for the complete financial recovery of all capital invested in equipment; and second, it should financially measure any realized income produced by the investment in the equipment accurately. The earlier article evaluated three prototypical cost recovery approaches, and concluded that only immediate expensing produced financial characteristics consistent with those features of a normative realization-based income tax when applied to equipment purchases financed exclusively with “tax capital.”

Assessment of the impacts of different policy instruments on achieving the deep decarbonization targets of island energy systems in Norway – The case of Hinnøya

Norway enjoys an electricity-dominant clean energy system with a high share of hydropower. The power and heating sectors are characterized by high penetration of renewables. But the transportation and offshore industries remain challenging to be decarbonized; therefore, it needs more exploration on cost-effective energy transition strategies. This study develops a long-term energy planning model, TIMES-Hinnøya, for the Hinnøya island in Norway and couples it with a detailed electricity system model with hourly time resolution, EnergyPLAN, to overcome the low temporal resolution limitation of the long-term energy planning model. The two models run iteratively. Using the model, five scenarios are designed to investigate the effects of key policy instruments on the energy transition. These scenarios assume the continuation of current climate policies, such as carbon tax on fossil fuels, preferential policies towards purchasing and owning electric vehicles, ban on new internal combustion engine (ICT) cars as of 2025, and the potential incremental carbon tax rate. The results illustrate that although absolute reduction occurs in all the scenarios, the goal of net-zero emissions by 2050 can only be achieved by forbidding the sales of new ICE cars, highlighting the importance of zero-emission vehicles in the future transportation system.

A novel quantitative forecasting framework in energy with applications in designing energy-intelligent tax policies

Energy, monetary and fiscal policies are going to play a crucial role towards the broad transformation of global energy. The design and optimization of these policies as well as the efficacy in achieving the desirable results require quantitative approaches. In this study, we extend the methodology of our novel quantitative framework, the Energy Price Index (EPIC) that represents the average price of energy in the US, to the design, optimization and assessment of energy-intelligent tax policies. The non-availability of actual energy demand and price data for the recent months is addressed with the introduction of a rolling horizon methodology that demonstrates excellent forecasting ability over a testing period of 181 months. The mean absolute percentage error of the initial and the 2nd adjusted EPIC are just 2.71% and 1.02% respectively over this period, with the forecasting framework demonstrating excellent robustness even during the unprecedented pandemic of COVID-19. The same framework can be used to forecast the energy demands for the next four years. Two case studies for energy-intelligent tax policies are presented, investigating parametrically the effects that a gasoline tax hike and a carbon tax could have retrospectively and prospectively. A hypothetical gasoline tax hike of 15 cents per gallon would increase EPIC by 1.6%, with the greatest increase of 3.67% being associated with the transportation sector (TEPIC). This policy would result in an estimated annual average revenue of $20.253 billion. Likewise, a hypothetical incremental carbon tax hike over the next 10 years would lead in substantial reductions in CO2 emissions, while the average price of energy would increase by just $1.5/MMBtu, generating though more than $110 billion in annual revenue.

Unconventional monetary policy and income disparity in an aging society

ABSTRACT The main objective of the Bank of Japan’s monetary policy is inflation targeting; however, it may be associated with the recently increased income disparity in Japan. Using the autoregressive distributed lag (ARDL) estimation model, this study conducted in the context of an aging society revealed that the bank’s monetary policy increased income inequality through increased financial asset prices, resulting in a widening of the income gap. We also find that in the long run, the aging population will increase income disparity in Japan; however, tax policy will partially mitigate the adverse effect on income inequality. Unconventional monetary policy will not bring a desirable result for the Japanese economy and the nation as a whole. In addition, the government needs to revise the incremental tax system so that wealthier groups pay more tax than before. In addition, expanding the tax system by adopting the carbon taxation scheme would be beneficial. The government with this kind of tax can pursue two major goals: reducing poverty and environmental pollution, which are ongoing challenges in Japan.

Do Financing Constraints Lead to Incremental Tax Planning? Evidence from the Pension Protection Act of 2006*

ABSTRACTOver the past three decades, academic research has sought to understand how cash shortfalls impact a firm's ability to take all available value‐increasing investment projects. We investigate whether firms facing greater financing constraints turn to tax strategies that generate lower cash effective tax rates (ETRs) to mitigate the adverse effect of these financing constraints. We use the Pension Protection Act of 2006 (PPA 2006) as an exogenous shock to financing constraints for pension firms, but not for other firms. Using a difference‐in‐differences research design, we predict and find that pension firms experience a decrease in their cash ETRs by 1.8%–2.4% after the PPA 2006, relative to other firms. These cash tax savings mitigate the investment shortfall brought about by financing constraints by 19%. We also predict and find that the decline in cash ETRs is greater among firms more adversely affected by the PPA 2006. Our paper sheds light on the direction, causality, and economic magnitude of the association between financing constraints and tax planning activities. We also provide insight into the role of tax planning activities within firms' broader corporate business strategies in responding to financing constraints.

UNIFORM INTERNATIONAL TAX COLLECTION AND DISTRIBUTION FOR GLOBAL DEVELOPMENT, A UTOPIAN BEPS ALTERNATIVE

Under the guise of compelling multinational enterprises (MNEs) to pay their fair share of income taxes, the OECD and other multinational agencies have introduced proposals to prevent MNEs from eroding the income tax base of developed economies by continuing to shift income artificially to low or zero tax jurisdictions. Some of the proposals have garnered substantial multinational support, including recent support from the new U.S. presidential administration for a global minimum tax. This Article reviews many of those international proposals. The proposals tend to concentrate the incremental tax revenue from the prevention of base erosion into the treasuries of the developed economies although the minimum tax proposal known as GloBE encourages low tax countries to adopt the minimum rate. The likelihood that and zero tax countries will transition successfully to imposing the minimum tax seems uncertain.
 Developed economies lack a compelling moral claim to incremental revenue so this Article argues that collecting a fair tax from MNEs and other taxpayers should be a goal that is independent of claims on that revenue. The Article maintains that to prevent tax base erosion, the income tax base and administration must be uniform across national borders and the Article recommends applying uniform rules administered by international taxing agency. The Article explores the convergence of tax rules under such an international taxing agency.
 Distribution of tax revenue by the international agency should follow contextualized need. In addressing the conundrum of absolute poverty in the undeveloped and developing world vis á vis relative poverty in the developed world, the Article proposes that the taxing agency should distribute all incremental revenue from the uniform tax where the need is greatest to ameliorate absolute poverty and improve living standards without regard to income source. The location of income production, destination of the produced goods and services generating the income, and residence of the income producers should not determine the tax revenue distribution. Rather, the use of contextualized need for distribution determination will enable developed economies to receive sufficient revenue to maintain their existing infrastructures and governmental services. Developed economies should forego new revenue, for which they have not budgeted, in favor of improving worldwide living conditions for all. The proposals for uniform, worldwide taxation and revenue sharing based on contextualized need are admittedly aspirational and utopian but designed to encourage debate on sharing of resources in our increasingly globalized world.

Repurposing Pillar One into an Incremental Global Tax for Sustainability: A Collective Response to a Global Crisis

This article proposes to repurpose the OECD/IF Pillar One Blueprint from a taxing rights reallocation mechanism into an incremental global tax for sustainability. With a common goal and DST-like feature for simplification, the proposal aims to ease the negotiation of essential and drastic simplifications required to deliver a workable solution.

Repurposing Pillar One into An Incremental Global Tax for Sustainability: Some Blue Sky Thinking in the Midst of Global Crisis

In this article, the authors make a case for repurposing the OECD Pillar One from a mechanism for reallocating taxing rights to a global tax on the largest and most profitable MNEs’ market-based profits. Such global tax would have the hybrid features of a net-basis corporate income tax and a turnover-basis digital services tax through a conversion formula that ensures a low-rate DST on sales can replicate a higher rate CIT on a country’s share of the profit determined using under the formulary allocation method. More importantly, the authors instill a common purpose of the international tax consensus – to help finance spending on achieving the UN Sustainable Development Goals and targets committed in the Paris Agreement. They also argue that the repurposed Pillar One would be a win, win, win proposition for governments, MNEs and the Planet.

Estimating the public economic consequences of cardiovascular disease-attributable events and evolocumab treatment in Australia

Background Following cardiovascular events, individuals often make choices about their working life that pose fiscal costs for the government in relation to lost tax revenue, increasing disability or early retirement. We evaluate the fiscal consequences for the Australian Government in atherosclerotic cardiovascular disease (ASCVD) patients with low-density lipoprotein >3.3 mmol/L after the maximum tolerated doses of a statin or when contraindicated or intolerant to statins, compared to evolocumab added to the standard of care. Methods The natural history of patients with ASCVD was evaluated using a multi-state Markov cohort model comparing evolocumab with current treatment practices. Published rates for the likelihood of being disabled and retiring prematurely in patients experiencing stroke or myocardial infarction were modeled. Reported government costs for annual disability payments and lost tax revenues from the nationally representative STINMOD + data set were used to estimate the fiscal consequences associated with attributable ASCVD events. Results The incremental tax gain associated with evolocumab in someone aged 40, 50 or 60 results in additional tax revenues of Aus$15,716, Aus$9,810 and Aus$4,217, respectively. Cost-savings attributed to disability payments of Aus$3,483, Aus$2,495 and Aus$4,619 were observed in those aged 40, 50 and 60, respectively. The ratio of evolocumab to fiscal benefits indicates that up to 52% of evolocumab costs are offset by future lifetime taxes paid and reduced social benefits payments in those treated aged 40. The ratio of fiscal benefits to costs in treating those aged 50 and 60 were 37% and 31%, respectively. Conclusions Applying a cross-sectorial government perspective budget impact assessment improves our understanding of fiscal changes attributed to ASCVD based on changes in premature mortality and work activity and how this influences lifetime tax contributions and public benefits. The main cost driver observed was associated with reduced ASCVD events that enabled people to remain productive and paying taxes.

Do income contingent student loans reduce labor supply?

Government-backed income contingent student loans are increasingly being used to fund higher education. Until the outstanding balance is cleared, an income contingent repayment plan acts as an incremental marginal tax on earnings above a threshold. If this additional “tax” on earnings reduces the labor supply and hence the earnings of borrowers, this could reduce both loan repayments and tax receipts, increasing the cost of funding higher education. This paper investigates this under-studied topic by exploring bunching at various loan repayment thresholds between 2002 and 2014, using a novel, linked administrative dataset from the United Kingdom. Our findings suggest that the UK's income contingent repayment plan does not cause borrowers to reduce labor supply, at least for those with earnings near to the threshold.

The Economic Effects of Special Purpose Entities on Corporate Tax Avoidance

ABSTRACTThis study provides the first large‐sample evidence on the economic tax effects of special purpose entities (SPEs). These increasingly common organizational structures facilitate corporate tax savings by enabling sponsor firms to increase tax‐advantaged activities and/or enhance their tax efficiency (i.e., relative tax savings of a given activity). Using path analysis, we find that SPEs facilitate greater tax avoidance such that an economically large amount of cash tax savings from research and development (R&D), depreciable assets, net operating loss carryforwards, intangible assets, foreign operations, and tax havens occur in conjunction with SPE use. We estimate that SPEs help generate over $330 billion of incremental cash tax savings, or roughly 6 percent of total U.S. federal corporate income tax collections during the sample period. Interaction analyses reveal that SPEs enhance the tax efficiency of intangibles and R&D by 61.5 percent to 87.5 percent. Overall, these findings provide economic insight into complex organizational structures supporting corporate tax avoidance.

Corporate tax cuts, merger activity, and shareholder wealth

We study the impact of the Domestic Production Activities Deduction (DPAD) on mergers and acquisitions. DPAD reduces corporate tax rates on income from work or goods made in the U.S. Results indicate that the quantity and quality of acquisition bids by DPAD-advantaged firms conform to the predictions of the neoclassical theory of the firm and the theory of financial constraints. Specifically, bids, particularly those cash-financed, increase substantially in industries with large DPAD-related tax cuts and for firms with financial constraints. Moreover, DPAD improves acquisition quality where acquirers and targets are likely to generate incremental DPAD tax benefits through their merger.

Uniform International Tax Collection and Distribution for Global Development, a *(**)topian BEPS Alternative

Under the guise of compelling multinational enterprises (MNEs) to pay their fair share of income taxes, the OECD and other multinational agencies have introduced proposals to prevent MNEs from eroding the income tax base of developed economies by continuing to shift income artificially to low or zero tax jurisdictions. Some of the proposals have garnered substantial multinational support, including recent support from the new U.S. presidential administration for a global minimum tax. This Article reviews many of those international proposals. The proposals tend to concentrate the incremental tax revenue from the prevention of base erosion into the treasuries of the developed economies although the minimum tax proposal known as GloBE encourages low tax countries to adopt the minimum rate. The likelihood that zero tax countries will transition successfully to imposing the minimum tax seems uncertain. Developed economies lack a compelling moral claim to incremental revenue so this Article argues that collecting a fair tax from MNEs and other taxpayers should be a goal that is independent of claims on that revenue. This Article maintains that to prevent tax base erosion, the income tax base and administration must be uniform across national borders and the Article recommends applying uniform rules administered by an international taxing agency. The Article explores the convergence of tax rules under such an international taxing agency. Distribution of tax revenue by the international agency should follow contextualized need. In addressing the conundrum of absolute poverty in the undeveloped and developing world vis a vis relative poverty in the developed world, the Article proposes that the taxing agency should distribute all incremental revenue from the uniform tax where the need is greatest to ameliorate absolute poverty and improve living standards without regard to income source. The location of income production, destination of the produced goods and services generating the income, and residence of the income producers should not determine the tax revenue distribution. Rather, the use of contextualized need for distribution determination will enable developed economies to receive sufficient revenue to maintain their existing infrastructures and governmental services. Developed economies should forego new revenue, for which they have not budgeted, in favor of improving worldwide living conditions for all. The proposals for uniform, worldwide taxation and revenue sharing based on contextualized need are admittedly aspirational and utopian but designed to encourage debate on sharing of resources in our increasingly globalized world.

증분조세회피와 세무위험

증분조세회피와 세무위험

Tax stimulation of innovative activity: an accounting dimension

In the early stages of the establishment of an innovative enterprise, tax stimulation is an effective means of saving working capital that can be used for other purposes in order to develop business. The rational construction of the accounting system of an innovative enterprise helps to optimize its costs and tax calculations. The article shows that a startup is a form of innovation; the fundamental factors of the effectiveness of a startup company were identified, including integrity, honesty, and transparency of business, market knowledge and a «raw» product testing, reliable partners, effective staff with intrinsic motivation, high project ambitions, continuous development. The peculiarities of taxation of innovative activity were investigated, in particular, the activity of startup companies. The use of tax breaks for startup companies in the early stages of the establishment of an innovative enterprise is an effective means of saving working capital that can be used for business development. The article identifies the main types of tax stimulation (tax benefits) of startup companies, which include the following: tax holidays, tax innovation benefits, accelerated depreciation, reduction of the tax base by the amount of innovative capital expenditures (investment discount), reduction of tax liabilities of the income tax (simple (voluminous) and incremental tax credit). It was defined that the accounting nature of tax stimulation for startup companies, which contributes to the development of the startup company as a whole, provides optimization of its costs and tax calculations, and development of appropriate accounting support. All this will help to optimize the costs of the economic activity of an innovative enterprise and to optimize the tax payments of a startup company to the state.

INCREMENTAL TAX CREDIT FOR R&D (LEGISLATIVE PROPOSALS)

In conditions of limited resources, the government is looking for the most effective way of supporting and innovative development of priority sectors of the economy. Despite the fact that the question of the correlation between direct and indirect methods of stimulating investment and innovation activity remains open, more and more economically developed countries make a choice in favor of tax incentives and preferences. The need of finding the effective mechanisms of stimulating R&D in order to develop knowledge-intensive industries, creation of favorable conditions for innovation activity in the country - all of these confirm the importance of additional restructuring of the taxation system of the innovation sector of the economy. The most common form of tax incentives for innovation activity is tax credit. Based on the analysis of a wide range of foreign studies on the effectiveness of applying a tax credit for stimulating innovation activity, the article discusses and systematizes the positive and negative aspects of applying incremental and volume tax credits for R&D. In the study were used the method of comparative analysis to confront the experience of using different types of tax credit in different countries, the methods of cause-effect and system analysis to identify the main positive and negative aspects of applying volume and incremental tax credits. Based on dialectical method of knowledge, the directions of improving the mechanism of incremental tax credit were formulated. As the result of the analysis the assessment of applying the incremental tax credit for R&D in the existing tax system of Russian Federation and the recommendations for its transformation for increasing the effectiveness are given.

Tax Uncertainty and Incremental Tax Avoidance

ABSTRACTWe investigate whether tax avoidance becomes more uncertain as the rate of tax avoidance increases. We estimate a system of equations to demonstrate that as firms' pretax income increases, each additional dollar of potential tax results, on average, in 32.8 cents of tax avoided, which we refer to as incremental tax avoidance. Of the incremental tax avoided, 1.4 cents represent additions to the reserve for uncertain tax benefits (UTB reserve), or 4.3 percent of the total incremental tax avoided. We then partition sample firms into groups that prior research suggests engage in higher rates of tax avoidance, and examine the amount of incremental tax avoidance that results in additions to the UTB reserve. Results demonstrate that the percentage of incremental tax avoidance reflecting additions to UTB reserve is not larger for groups engaging in higher rates of tax avoidance, suggesting higher rates of tax avoidance may not be more uncertain.JEL Classifications: H26; M41; M48.