Proportional Tax Research Articles

Analysis of the Effect of Tax Rates and Understanding of Taxation on MSME Taxpayer Compliance in Lamongan Regency

MSMEs are one sector that has the potential to contribute to state tax revenues. This research aimed to examine the influence of tax rates and tax understanding on the level of taxpayer compliance in Micro, Small and Medium Enterprises (MSMEs) in the Lamongan Regency. Through a survey approach using a questionnaire, primary data was got from MSME owners as a research sample of 94 respondents. The results could provide a deeper understanding of the factors that influence tax compliance among MSMEs, especially in the Lamongan Regency. Regression analysis was used to test the relationship between tax rate variables, tax understanding, and the level of tax compliance. The results could provide a deeper understanding of the factors that influence tax compliance among MSMEs simultaneously or partially, especially in the Lamongan Regency. The implication of these findings was the importance of managing proportional tax rates and effective tax counseling to encourage MSME taxpayer compliance in the Lamongan Regency. This research contributed to further understanding of tax factors that could form a better tax environment for MSME growth and Regional Tax revenues.

EFFECTIVE TAX SYSTEM AS A DRIVER OF INNOVATION PROCESSES: A COMPARATIVE STUDY OF FINLAND AND UKRAINE

This article explores the theoretical and methodological aspects of a country's tax system in terms of its impact on the development of innovation processes. It identifies the role of tax revenues in the economic and innovative development of a state, serving as a primary source of funding for sectors providing public services. The study emphasizes the role of tax policy in the development of a national innovation system, focusing on elements such as startups, venture business, incubators, accelerators, and technology parks within the current business ecosystem. The tax system is defined as a key element in the functioning of a state and the regulation of its economy, considering the needs of innovative structures to facilitate national development. Ukraine and Finland are chosen for the analysis of the impact of the tax system on innovation processes, representing Eastern and Northern Europe, respectively. The study analyzes proportional taxation in Ukraine, including the option of a simplified system, and progressive taxation in Finland, where tax rates increase with income growth. The research highlights significant differences in tax payment culture between the two countries. Finland exhibits a high level of tax culture, supported by the effective use of budgetary funds to create public goods. In contrast, Ukraine has a relatively low tax culture due to the population's low trust in the government and satisfaction with their social needs. The analysis of both countries' tax systems helps determine the role of tax policy in the innovative development of a state and the support of an innovative environment, including the implementation of startup projects.

An Old song in a New Way: About the Progression in the Personal Income Tax

The issues of choosing between proportional and progressive taxation of personal income and assessment of the principle of fair taxation in relation to these methods accompany the centuries-old history of world tax policy, which is the relevance of the research, being the subject of discussions of Russian and foreign scientists. The purpose of the study is to develop the idea of taxation of income of the population in Russia, taking into account the principle of fair taxation. The theoretical objectives of the study include an analysis of the validity of the method of taxation chosen, as well as an analysis of the progressive method of taxation, which allows for a fair redistribution of income through the progression of rates and an adequate system of tax deductions. The practical objectives of the study are to study the influence of income taxation methods on the formation of budget revenues and incomes of the population, to assess the “shadow” fiscal potential of income, to determine the level of demand and significance of tax deductions. As a result of the research, it has been scientifically proven that proportional taxation and weak progression discredit the principle of vertical equity, lead to a hidden progression in the withdrawal of income, have no obvious positive effect on capital outflow and, in combination with insurance premiums, affect the size of the potential tax base. The practical significance of the study is to develop concrete proposals for the methodological development of personal income tax through differentiated tax deductions, tax mechanisms for strengthening the institution of family and marriage, and the expansion of the tax base.

New light on Adam Smith’s view of taxation via the concept of equity

This paper aims to defend Adam Smith’s ideas of taxation via moral philosophical approaches. In the conventional interpretation such a view is assumed to be inconsistent particularly due to the shortcomings of his economic theory. We suggest that via his notions of justice and equity, and of surplus income counted on an equilibrium basis in his natural price system, his argument for proportional taxation is rather coherent, while considerations for horizontal equity would result in a support for some progressivity in taxation. In the latter sense the equity-based tax reform plans have some policy implications on distributive justice in the modern state.

Friedrich Hayek on Taxation and Income Redistribution

Friedrich Hayek was a staunch advocate of the free market principle. He was convinced that progressive taxation was a great threat to individual liberty and social fairness, particularly because there is no limit how high a progressive rate can be in it. The only explanation by which a progressive taxation can be defended is a wish to alter the income distribution, but this approach cannot be explained by any scientific argument. Progressive taxation is unjust and short-sighted while, according to Hayek, a proportional tax system satisfies a standard of fairness and justice because it applies the same general rule to all and prevents discrimination against the well-off taxpayers. Key words: redistribution, fiscal system, tax policy, Friedrich Hayek.

Rethinking the Welfare State

The United States spends significant amounts on non‐medical transfers for its working‐age population in a wide range of programs that support low‐ and middle‐income households. How valuable are these programs for U.S. households? Are there simpler, welfare‐improving ways to transfer resources that are supported by a majority? What are the macroeconomic effects of such alternatives? We answer these questions in an equilibrium, life‐cycle model with single and married households who face idiosyncratic productivity risk, in the presence of costly children and potential skill losses of females associated with non‐participation. Our findings show that a potential revenue‐neutral elimination of the welfare state generates large welfare losses in the aggregate, although most households support the move as losses are concentrated among a small group. We find that a Universal Basic Income program does not improve upon the current system. If, instead, per‐person transfers are implemented alongside a proportional tax, a Negative Income Tax experiment, it becomes feasible to improve upon the current system. Providing per‐person transfers to all households is costly, and reducing tax distortions helps to provide for resources to expand redistribution.

The economic costs of insecurity on businesses in Mexico: A general equilibrium perspective

This article contributes to the study of the economic consequences of crime among businesses in Mexico. To this end, we construct a static general equilibrium model of the Mexican economy based on a social accounting matrix, introducing crime as a combination of sales or capital use taxes. We found that the effects of crime on businesses in Mexico (robbery, extorsion and the costs of crime prevention) are not minor. Calibrating the tax rates with the Enterprise Survey of the World Bank, the loss for the insecurity is of the order of 4 to 5 percent of GDP. Even the model is static, this study contributes to the literature, since it shows that if firms are able to shift the crime tax forward, the household losses are equivalent to a proportional tax. To the extent that firms shift it backward, especially to capital, crime functions as a progressive tax.

Inventory control under corporate income tax and accrual accounting

Corporate income tax constitutes a significant portion of financial costs in business operations. A typical tax system is characterized by the tax structure, accounting method, and loss carryover rule. In this article, we study the optimal inventory policies under taxation and accrual accounting. We consider a lost-sales periodic-review inventory system under a proportional tax with loss carryforward. We formulate the problem as a cyclic stochastic dynamic program with multiple accounting periods, each of which consists of multiple review periods. We show that an income-dependent basestock policy is optimal. We find that tax function convexity and loss carryforward may introduce conflicting incentives into inventory decisions: the former drives risk-averse decisions whereas the latter induces risk-seeking behavior. We identify two intertemporal effects of taxation, the intra-accounting-period effect and the inter-accounting-period effect, both inducing smaller basestock levels. We further extend the analysis to the progressive tax, backordering system, and cash accounting method. Our numerical study examines the effects of various characteristics of taxation on the optimal policies. Our results demonstrate that ignoring taxation in inventory decisions may lead to significant losses especially when the tax rate and demand uncertainty are sufficiently high, which reveals the value of tax considerations in inventory management.

The VAT in practice: equity, enforcement, and complexity

The value-added tax (VAT) is meant to be an efficient and self-enforcing tax on consumption. Yet, being a rather sophisticated tax, the VAT can also be complex and costly to administer. By examining the case of Rwanda, this paper assesses the extent to which the VAT’s potential materialises in the context of a lower-income countries. Using a mixed-methods approach, which combines qualitative information from focus group discussions with the analysis of administrative and survey data, this paper makes two contributions. First, it documents reporting inconsistencies in VAT data, providing new evidence on how weak capacity prevents tax administrations in lower-income countries from reaping the full benefits of the VAT. Second, it shows that the VAT, as applied in practice, differs substantially from its theoretical functioning. This generates differences in tax burdens across firms, despite a proportional tax rate, with important distributional implications. We also document that the VAT chain often breaks down, with implications on the VAT’s efficiency.

The contribution of tax-benefit instruments to income redistribution in Italy

Over the last two decades, interest in understanding what determines the redistributive role of tax-benefit systems has burgeoned worldwide. In the case of Italy, previous analyses tended to focus on quantifying the contribution of marginal tax rates, deductions and tax credits to the redistributive capacity of the personal income tax (PIT), while neglecting the effect of proportional taxes, social insurance contributions (SICs) and tax-free cash benefits on income redistribution. This paper aims to address this gap by applying Gini-based decomposition methodologies (Onrubia et al., 2014; Urban, 2014) to the vertical and horizontal effects of the Italian tax-benefit system for the 2018 year at the national level and the macroregional level. The findings show that tax-benefit instruments different from progressive taxation can contribute up to more than 50% of the redistributive effect with marked spatial differences regarding social transfers and SICs.

A Dynamic Analysis of Financial Interruption on a Small Open Economy: A Case Study on South Africa

The paper examines the effectiveness of the financial embargo on South Africa, which was imposed in 1985 and lifted in 1993. The theoretical framework is a simple, small, open economy version of Ramsey’s growth model calibrated to South African conditions. The South African embargo limited the country’s ability to borrow through imposing a proportional tax on foreign borrowings to capture the disinvestment during the embargo period. By assuming apartheid as a constant tax on foreign borrowings to South Africa, the effect of the embargo on South African apartheid was incorporated. Using quarterly data from 1960 to 2008, our empirical findings, based on the logit and intervention methods, indicate that (i) there is a negative relationship between financial isolation and foreign investment, and (ii) there is a negative link between the embargo and the degree of apartheid. The policy implication of our results is that the financial embargo was effective in dismantling South African apartheid.

Public expenditure allocation, lobbying, and growth

AbstractI develop a two sector model of growth where the final good in each sector is produced using labor and a publicly provided private input (public input). The public input is funded by a proportional tax on the consumption of the two final goods. In the benchmark case, the government allocates the public input between the two sectors to maximize consumer welfare. I contrast the benchmark case to one where the public input allocation is determined via lobbying by firms in the two sectors. In this set up, I first show that allocation of the public input is determined by the relative lobbying power of the firms in the two sectors. Further, lobbying can generate the welfare maximizing allocation only under a very specific set of conditions and, if those set of conditions are not met, then an initial misallocation of the public input gets magnified over time.

Determinants of the Proportional Income Tax Revenue: A Comparative Assessment of Russia and Bulgaria

Initially flat-rate income taxes only existed in tax havens, but presently, 26 countries have adopted the proportional tax as a fiscal instrument to increase budget revenues and accelerate economic growth. This article empirically examines the determinants affecting the revenues from a proportional income tax with non-taxable minimum (negative flat tax) used in Russia and a proportional income tax without non-taxable minimum (pure flat tax) used in Bulgaria. The research objective is to estimate the impact of the macroeconomic variables such as gross disposable income, employment, gross capital formation and government expenditures on the revenue from the proportional income tax in Russia and Bulgaria. The study employs an ordinary least square (OLS) method and quarterly seasonally adjusted data for the period 2008–2020. For Russia, quarterly seasonally adjusted data for the period from March 2008 till December 2020 were used, including 52 observations. For Bulgaria, quarterly seasonally adjusted data for the period from March 2008 till March 2020 were used, including 49 observations. Basing on the results, it may be inferred that the increase of the gross disposable income and higher marginal tax rate of the proportional tax with a non-taxable minimum collect more nominal revenue in the budget, as Russia’s example showed. The increase of the employment related with a lower marginal tax rate of the proportional income tax without a non-taxable minimum collect less nominal revenue as Bulgaria’s example shows. A standpoint of the revenue in the budget the proportional income tax with non-taxable minimum is more effective than proportional income tax without non-taxable minimum.

РЕФОРМИРОВАНИЕ ПОДОХОДНОГО НАЛОГА В РОССИИ

The social orientation and economic significance of income tax gives it a special place in the tax system of the state. Throughout its existence, income taxation has been in constant reform, including in terms of the tax rate. The article provides a periodization of the application of progressive and proportional tax rates in Russia from 1812 to 2021. The modern stage, which is marked by a gradual transition to a progressive tax rate on personal income, is covered in detail. Changes in the direction of raising the tax rate, undertaken in Russia from 2021, will affect only a small share of the country's population so far. However, the initiated reform may lead to a more significant and tangible transformation of the tax rate for taxpayers in the future.

PEMIKIRAN PEMBERDAYAAN EKONOMI ISLAM ABU YUSUF

At the time of Abu Yusuf's life, the Islamic State had developed very rapidly and the Abbasid Caliphate was one of the centers of the world economy and also the center of world education so that several views and economic thoughts emerged from Abu Yusuf, while the main ideas of Abu Yusuf about public finances are contained in his book. namely, al Kharraj which is a regulation of the tax system in force at that time. Abu Yusuf believes that the price may come from the power of supply. In the issue of the government's role in determining economic activity, Abu Yusuf also discussed that the government participates in completing all infrastructure for the smooth economic growth of the people. with the Misahah system (mixed tax) with the proportional tax Musaqqah (proportional tax) that benefits both parties, both the government and the people come true.

ПРИЧИНЫ ЭКОНОМИЧЕСКОГО НЕРАВЕНСТВА НАСЕЛЕНИЯ САМЦХЕ-ДЖАВАХЕТСКОГО РЕГИОНА И ПУТИ ЕГО СНИЖЕНИЯ

The introduction discusses the importance of the study problem, study subject and object, the goal and objectives, the described research methodology and findings of the research. The innovations of the research are highlights. The research was conducted in Samtskhe-Javakheti region. At the beginning, the reasons of unequal distribution of income from the perspective of different scientists, the coefficients of the equal and unequal distributions are reported. For presenting global economic inequity we referred the study of Monetary Fund, according to it the global inequity index is 0.55-0.70. In 2018 Gini coefficient in Georgia reached to 0,37, while it is close to the critical range (0,41-0,46). Gini Coefficient are as follows according to the municipalities of Samtskhe-Javakheti -Akhaltsikhe - 0,41, Adigeni - 0,52, Aspindza - 0,52, Borjomi - 0,47, Akhalkalaki - 0,50, Ninotsminda - 0,56. According to the findings an average inequality index of the region is 0,49, or 0,09 higher than it is estimated by the Geostat for the region (0,40). We conducted a public attitude survey on starting up business and immigration. 60-80% of surveyed reported that they have no business as they cannot start it. 90-100% plans to immigrate. In order to develop an inclusive business, it is necessary to support skilled young people from the vulnerable families, include them in the business study and organizing business incubators. The study reports an explain establishment costs per one business incubator which should be covered by the local budget. Another problem referred is substitution of a proportional tax by introduction of progressive tax. All the promoted countries in the world apply the progressive tax system, what means that tax payer with higher income pays more compared to those who have less income. There is untaxed income as well. We developed the scale for progressive tax for Georgia and Samtskhe-Javakheti region in particular and defined the size for the non-taxable income as well (500GEL).

Analysis of Fairness of Personal Income Taxation in the Russian Federation

The paper explores the issue of fairness of progressive taxation. The introduction of progressive taxation in the Russian Federation in 2021 was announced by the President of the Russian Federation Vladimir Putin in his Address to citizens on June 23, 2020. The issue of returning to progressive taxation has been repeatedly raised in the scientific community, and one argument in its favor was the provision that progressive taxation is more fair than proportional taxation. At the same time, as Putin’s words suggest, the main goal of the introduction of tax progression is to find funds for financing certain projects, but not to achieve justice. However, the task set by the President does not exclude the need to investigate the issue of fairness of progressive taxation and the doctrinal justification of the proposed changes, which makes the chosen topic relevant.The paper deals with the essence of “fair taxation” on the basis of the theories of justice, developed by John Rawls and Amartya Sen, and principles of taxation. The author analyzes the Federal Law of November 23, 2020, No. 372-FZ “On Amendments to Part Two of the Tax Code of the Russian Federation in Part Concerning Taxation of Personal Income Exceeding 5 Million Rubles for the Tax Period” that introduces application of a combined tax rate to the income exceeding 5 million rubles per year, as well as the issue of prospects for further changes in personal income taxation in the Russian Federation in the context of achieving justice. Methodologically, the paper is based on the principles of the dialectical approach. The author applies general scientific methods of cognition, namely: analysis, synthesis, generalization, induction.Based on the principles of taxation and several approaches to the interpretation of fairness, it is concluded that progressive taxation is more fair than the ones in force until 2020, including proportional taxation. The author proposes amendments to the Tax Code of the Russian Federation aimed at enhancing fairness of taxation. They include intensification of tax progressiveness (taking into account amendments entering into effect on January 1, 2021) and the introduction of a tax-free minimum on personal income.

Механизм действия и социальная справедливость изменений по НДФЛ

Since 2001, Russia has introduced a flat scale of taxation of personal income, which for twenty years has been causing discussions in the scientific community and society. The proportional taxation of wages does not take into account the differentiation in incomes of various strata of the population and does not meet the principle of social justice. However, the difficulties of economic development have led to the need to introduce an additional rate on income of individuals, which is presented as progressive taxation. The article examines the situation with the differentiation of the population in terms of living standards in Russia and the compliance of innovations with a progressive approach.

Progressive Taxation and Economic Stability*

AbstractRecent empirical evidence finds that progressive taxation is an effective economic stabilizer, but theoretical results disagree. This paper shows that a lifecycle model with total factor productivity shocks can match the empirical evidence. If the US economy switched from progressive to proportional taxation, output volatility would increase by 5 percent. Progressive taxes act as stabilizers by reducing income volatility among the young and soon‐to‐be retirees. Thus, incorporating a rich lifecycle structure in the model is important to match the data. The model is then used to study the welfare implications of reducing tax progressivity.

Taxation and human capital accumulation with endogenous mortality

We study the impact of taxation on human capital when the mortality of household agents is endogenously determined based on their past levels of consumption. We characterize and solve the dynamic optimization problem facing household agents in the economy. Even though all households in our economy have identical preferences and have access to the same human capital accumulation technology, with endogenous mortality, there is a possibility of multiple equilibria. Households with an initial endowment of human capital above a threshold choose to accumulate human capital, while those below the threshold end up with very low levels of human capital. We use empirical estimates of the income–mortality relationship in Canada, France, and the US to simulate our model. When income has a strong protective effect against mortality, we find that multiple equilibria are empirically plausible. Our simulations suggest that changes in proportional tax rates have more than twice the impact on aggregate human capital in the endogenous mortality model compared to the infinite horizon model.