Presumptive Tax Research Articles

Presumptive Taxation in Ukraine Assessment of Previous and Current Systems from the Fiscal Perspective

Presumptive Taxation in Ukraine Assessment of Previous and Current Systems from the Fiscal Perspective

Presumptive Tax System and its Influence on the Ways Informal Entrepreneurs Behave in Tanzania

The paper provides an analysis of how the presumptive tax system in Tanzania influenced the ways in which informal entrepreneurs behave. The established presumptive income tax system is based on solid sector and fiscal policies, and effective legal and institutional systems. Whereas the absolute increases in presumptive tax revenues and SME behaviour changes have partly been contributed by improvement of the presumptive scheme system, the study suggests that overall government reforms, tax surveys and patrols, tax severance and tax audits: all have their contributions to these achievements. However, the relative contribution of presumptive tax to total tax has been low and insignificant despite the presumptive tax reforms. Many SME firms are still outside the TRA tax net, suggesting the existence of weaknesses in the existing presumptive tax system. There is a need to intensify effective presumptive taxation reforms for SME entrepreneurs through rationalizing turnover tax regime, monitoring and controlling factors influencing behavioural patterns of SMEs, promoting segments focused on education and service to drive voluntary compliance, and improving operational efficiency.

Legislating unorthodox taxes: The Hungarian experience

To date, a series of non-traditional schemes have proliferated in the area of tax law, challenging the widely accepted principles of tax legislation. Lump-sum or presumptive taxes, redemption fees or tax amnesty, corrective taxes (bank levies), or confiscatory taxes (e.g., banker bonuses) can hardly be reconciled with the hard core of tax legislation that is established on the principles of equality and legal certainty. The present paper discusses these unorthodox types of public charges.

PERBANDINGAN KEBIJAKAN PAJAK PENGHASILAN ATAS UKM DI INDONESIA DENGAN NEGARA-NEGARA ANGGOTA OECD

Government implement Government Regulation Number 46 Year 2013 regarding Income Tax on Income from Business that Have Certain Gross Circulation with the aim to improve tax compliance. For Small and Medium Enterprises, the application of this rule is expected to facilitate taxpayers in tax reporting. This study will analyze the application of 1% final income tax from the turnover of Small and Medium Enterprises policies. What are the underlying considerations to apply special rules for income tax for Small and Medium Enterprises, simplification of rules and procedures adopted and comparison of the various provisions of the few countries that have been surveyed. The discussion will be conducted on the application of tax policy for small and medium enterprises undertaken by the countries of the Organization for Economic Cooperation and Development (OECD) which has been surveyed. Taxation policy on small and medium enterprises that will be compared among others are income tax exemption to companies with a turnover below the threshold of small businesses; reimbursement of tax forms be presumptive tax calculation; use cash basis accounting system and accounting procedures more simplified.Keywords: Income Tax, SME, OECD.

Pengenaan Pajak Penghasilan Untuk Usaha Mikro, Kecil Dan Menengah (UMKM) Di Indonesia

Groups of micro, small and medium enterprises (MSMEs) in many countries are generally low in having the level of compliance to pay taxes. The high level of non-compliance, among others due to the high compliance costs to be incurred by MSMEs to meet their tax obligations through the tax system standards applied by a country. To overcome this, many countries generally use a simpler tax system or MSMEs and are known as the presumptive tax system. In addition, given the arge role of MSMEs to the national economy of a country, MSMEs are often given tax breaks and incentives. This paper aims to carry out a theoretical study of the application of the tax system applied to MSMEs in Indonesia.

Awareness and compliance levels of informal traders with regards to their presumptive tax obligations: a case of Harare central business district informal traders

The study investigates the awareness and compliance of the informal sector traders in the Harare CBD with a specific objective of recommending policy. By administering an interview questionnaire to 50 respondents, the study finds out that most of the informal traders are not registered, transact in cash, are not knowledgeable about their presumptive tax obligation, do not file returns and there has been no follow ups by the revenue authority. The study therefore recommends more focus to be put on client education, follow ups and proper administration of statutes to bring the informal sector in the taxation mainstream.

Has German Business Income Taxation Raised Too Little Revenue over the Last Decades?

This study presents comprehensive macroeconomic measures on the revenue from business taxation in Germany. A comparison of the tax base reported in tax statistics with the corporate income derived from national accounts gives hints to considerable tax base erosion. The high weight of reported tax losses underlines this result. The average implicit tax rate on corporate income was around 21 percent since 2001, and thus falling considerably short of statutory tax rates and effective tax rates discussed in the literature. For lack of detailed accounting data it is hard to give precise reasons for the presumptive tax base erosion.

A proposal to apply the Kiwi-VAT to insurance services in the European Union

In the spirit of the European Commission’s call for a simpler, more robust and efficient VAT system, this article proposes to integrate exempt insurance services into the European VAT, and to abolish the discriminatory, excise-type insurance premium taxes levied by the various Member States. The current VAT exemption (no taxation of insurance services and no credit for the VAT on inputs) is administratively complex and economically distortionary. Instead, the value added of property and casualty insurance companies can be taxed on a transactions basis by applying the VAT to insurance premiums (creditable by VAT-liable businesses) and allowing a presumptive tax credit for the VAT imputable to payouts (plus a credit for the actual VAT on purchases). The presumptive tax credit should be taxed at the level of business recipients, but individuals would receive the VAT along with indemnity payments without having to file a return. Exceptionally, the tax-credit VAT would not be applied to life and health insurance premiums, but insurers would be taxed on an accounts basis on the sum of wages and business cash flow.

Presumptive Taxation under Bangladesh VAT

The Bangladesh VAT system, which was introduced more than 20 years ago, is predominantly characterized by elements of presumptive taxation, in the form of turnover tax and notional valuation of transactions for VAT purposes. Those presumptive elements are remnants of the previously applicable excise duty. In this article, the author examines “presumptive taxation” in general and in the area of VAT in particular, and concludes that the presumptive elements in the Bangladesh VAT system are not only discriminatory but also have an adverse effect on the coherence of the modern tax.

Narrowing the Tax Gap Through Presumptive Taxation

This Article highlights the primary tax enforcement problem in the United States, that of noncompliant small and medium-sized businesses (“SMBs”), and it explores the possibility of a radical solution: shifting away from the current system, which attempts to tax the actual income of each business, and toward a system that taxes only a rough approximation (or probabilistic estimate) of business income. This sort of presumptive tax approach has been used for years in developing economies, where the problem of SMB noncompliance is even worse than in the U.S. This Article argues that the time has come to at least consider various ways of taxing SMBs in the U.S. on a presumptive basis as well. The particular regime that the Article spends the most time developing is a type of modified gross receipts (MGR) tax of the sort that is used in some developing economies. Under our version of the MGR approach, SMB taxpayers would be taxed on a rough estimate of their annual income using (a) their reported gross receipts and (b) presumed profit ratios based on historical line-of-business profit margins. Whether such a regime would make sense depends on a number of key unanswered questions, including how narrowly and accurately such historical line-of-business profit percentages can be drawn and at what cost. We also discuss whether such a regime should be mandatory or optional; and, if mandatory, whether it should be only a mandatory minimum (like the alternative minimum tax) or both a minimum and maximum. Moving to an MGR approach to taxing SMB income would require a major change in the Internal Revenue Code. As a more modest alternative, the Article also considers instead having the IRS begin to use presumptive-tax principles as part of their audit strategies. If the Service could credibly commit to applying some form of presumptive/probabilistic tax system in its auditing decisions (perhaps as part of the Discriminate Index Function), and if taxpayers reacted rationally to such an audit policy, the results could be similar to an optional presumptive business income tax.

Narrowing the Tax Gap Through Presumptive Taxation

This Article highlights the primary tax enforcement problem in the United States, that of noncompliant small and medium-sized businesses (“SMBs”), and it explores the possibility of a radical solution: shifting away from the current system, which attempts to tax the actual income of each business, and toward a system that taxes only a rough approximation (or probabilistic estimate) of business income. This sort of presumptive tax approach has been used for years in developing economies, where the problem of SMB noncompliance is even worse than in the U.S. This Article argues that the time has come to at least consider various ways of taxing SMBs in the U.S. on a presumptive basis as well. The particular regime that the Article spends the most time developing is a type of modified gross receipts (MGR) tax of the sort that is used in some developing economies. Under our version of the MGR approach, SMB taxpayers would be taxed on a rough estimate of their annual income using (a) their reported gross receipts and (b) presumed profit ratios based on historical line-of-business profit margins. Whether such a regime would make sense depends on a number of key unanswered questions, including how narrowly and accurately such historical line-of-business profit percentages can be drawn and at what cost. We also discuss whether such a regime should be mandatory or optional; and, if mandatory, whether it should be only a mandatory minimum (like the alternative minimum tax) or both a minimum and maximum. Moving to an MGR approach to taxing SMB income would require a major change in the Internal Revenue Code. As a more modest alternative, the Article also considers instead having the IRS begin to use presumptive-tax principles as part of their audit strategies. If the Service could credibly commit to applying some form of presumptive/probabilistic tax system in its auditing decisions (perhaps as part of the Discriminate Index Function), and if taxpayers reacted rationally to such an audit policy, the results could be similar to an optional presumptive business income tax.

Design of a Carbon Tax

We consider the design of a tax on greenhouse gas emissions for a developed country such as the United States. We consider three sets of issues: the optimal tax base, issues relating to the rate (including the use of the revenues and rate changes over time) and trade. We show that a well-designed carbon tax can capture about 80% of U.S. emissions by taxing fewer than 3,000 taxpayers and up to almost 90% with a modest additional cost. We recommend full or partial delegation of rate setting authority to an agency to ensure that rates reflect new information about the costs of carbon emissions and of abatement. Adjustments should be made to the income tax to ensure that a carbon tax is revenue neutral and distributionally neutral. Finally, we propose an origin-based system for trade with countries that have an adequate carbon tax and a system of border taxes for imports from countries without a carbon tax. We suggest a system that imposes presumptive border tax adjustments with the ability of an individual firm to prove that a different rate should apply. The presumptive tax could be based either on average emissions for production of the item by the exporting country or by the importing country.

The Design of a Carbon Tax

We consider the design of a tax on greenhouse gas emissions for a developed country such as the United States. We consider three sets of issues: the optimal tax base, issues relating to the rate (including the use of the revenues and rate changes over time) and trade. We show that a well-designed carbon tax can capture about 80% of U.S. emissions by taxing fewer than 3,000 taxpayers and up to almost 90% with a modest additional cost. We recommend full or partial delegation of rate setting authority to an agency to ensure that rates reflect new information about the costs of carbon emissions and of abatement. Adjustments should be made to the income tax to ensure that a carbon tax is revenue neutral and distributionally neutral. Finally, we propose an origin-based system for trade with countries that have an adequate carbon tax and a system of border taxes for imports from countries without a carbon tax. We suggest a system that imposes presumptive border tax adjustments with the ability of an individual firm to prove that a different rate should apply. The presumptive tax could be based either on average emissions for production of the item by the exporting country or by the importing country.

Trade Policy Reform and the Missing Revenue†

In many African countries, large discrepancies exist between revenues implied by published tariff rates multiplied by estimated import volumes and actual receipts. We develop a stylised trade model where average and marginal tariff rates diverge and incorporate insights from this model into a computable general equilibrium model of an African economy (Mozambique) to study the implications of trade policy reform. Model simulations indicate that lowering tariff rates and reducing duty-free importation in a manner that maintains official revenue benefit nearly everyone. The main exception is those who benefited from duty-free imports in the base.

Cost Benefit Analysis of Presumptive Taxation

Most of the literature on presumptive taxation limits its application to the less-developed economies. In this paper I argue that presumptive taxes are well entrenched in the modern world, although usually not classified as such. Presumptive taxes can take many forms, and can be incorporated in sections of a tax law that is not generally presumptive. The difficulties that developed economies face collecting tax revenues, the rising fear from an intrusive government, and efficiency considerations may all portend a larger role for presumptive taxation - whether or not so designated - in the developing and developed economies.

Cost-Benefit Analysis of Presumptive Taxation

Most of the literature on presumptive taxation limits its application to the less-developed economies. In this paper I argue that presumptive taxes are well entrenched in the modern world, although usually not classified as such. Presumptive taxes can take many forms, and can be incorporated in sections of a tax law that is not generally presumptive. The difficulties that developed economies face collecting tax revenues, the rising fear of an intrusive government, and efficiency considerations may all portend a larger role for presumptive taxation - whether or not so designated - in the developing and developed economies.

Using Human-Capital Theory to Establish a Potential-Income Tax

There are good arguments for an individual income tax on potential income, but a drawback to such a tax is the significant administrative concern regardingits implementation. This paper argues that human-capital theory provides a widely accepted and straightforward method to estimate potential income using observed characteristics of individuals, and operationalizes this approach using data for the U.S. The paper also suggests that a potential-income tax is verysimilar to a presumptive income tax. The paper concludes by reviewing some significant problems with the implementation of a potential or presumptive income tax.

Presumptive Taxation: Lessons from Bulgaria

This article draws on the experience of Bulgaria with two forms of presumptive taxes—the patent (licence) tax and the minimum social insurance income thresholds. It argues that there is an inevitable trade-off between efficiency and equity, which may drive presumptive taxation away from its initial objectives of simplicity and lower compliance and enforcement costs. Therefore presumptive taxes should not be overloaded with equity objectives, or used as tax incentives, but rather assigned to enhance collection efficiency and reduce the cost of voluntary tax compliance of the small business. The study concludes that their optimal use might be as licence taxes on micro-businesses and the self-employed levied by local governments rather than as central taxes on small business income.

The Box system in the Netherlands: an alternative?

The Dutch tax reform of January 1, 2001 replaced the progressive personal income tax on dividend, interest and rental payments by a presumptive capital income tax on the value of the assets net of liabilities. The tax code assumes that personally held assets earn a return of 4%, which is taxed at a proportional tax rate of 30%. Actual capital income is no longer relevant under the presumptive capital income tax. This paper discusses and analyses the Dutch capital income tax system after the tax reform of January 1, 2001. Further tax reform policies that might resolve the remaining capital income tax distortions (the Allowance for Corporate Equity (ACE) and the Allowance for Shareholder Equity (ASE) tax system) are also discussed. JEL codes: H2, H3.

Towards a simplified tax system for small businesses in transition countries

With the move to a market economy the number of small businesses has grown substantially in most transition countries. However, complicated tax laws and the lack of a culture of voluntary compliance provide strong incentives to operate outside the formal economy. This article gives an overview of the development and key design features of simplified, presumptive tax systems designed to encourage the number of small businesses registered for taxation in the region. It also attempts to evaluate the effectiveness of these systems, and finds that though the numbers of businesses registered for these systems has increased, the tax revenue deriving from them is very small as a proportion of total tax revenue. Nevertheless, these results are preliminary in nature, since in many transition countries the process of developing a stable tax system and a culture of voluntary compliance has not yet been completed.