Tax Reform: An International Perspective

1
Tax Reform An International Perspective

• OECD-IEF seminar on Tax Reform Trends
• Madrid
• May, 16, 2005
• By
• Jeffrey Owens
• Organisation for Economic Cooperation and
  Development

2
OECD Member Countries
OECD Member countries
Countries which engage in Tax Dialogue
3
Outline

• Introductory Comments
• Overview of OECD Tax Systems
• Recent Tax Reform Initiatives
• Alternatives of taxing income
• Concluding Comments

4
Tax Revenue as GDP (2003)
Note countries have been ranked by their total
tax to GDP ratios. ) 2002 figures
5
Change in tax as of GDP
1975 to 2003
Tax as GDP
6
Source of tax revenue, 2003
) 2002 figures
7
Top personal and corporate tax rates
8
The tax wedge income tax and social security
contributions as of labour costs
Single individual at average earnings
2004
9
Top statutory personal plus corporate tax rates
on dividend income(1), 2003
70.0
65.0
EU15 Avg 47.9
60.0
OECD Avg 46.4
55.0
50.0
45.0
40.0
35.0

30.0
25.0
20.0
15.0
10.0
5.0
0.0
Italy
Spain
Korea
Japan
Turkey
Iceland
Finland
Greece
Poland
Ireland
Austria
France
Norway
Mexico
Belgium
Sweden
Canada
Portugal
Hungary
Australia
Germany
Denmark
Switzerland
Luxembourg
Netherlands
New Zealand
United States
Czech Republic
United Kingdom
Slovak Republic
1) This is the overall (corporate plus personal)
top marginal tax rate on distribution of domestic
source profits to a resident individual
shareholder, taking account of imputation
systems, dividend tax credits etc.
10
RD Tax Treatment of Large Firms, 2001/2002
0.6
0.4
Spain Portugal Australia Canada Austria Korea Denm
ark United Kingdom Netherlands United
States France Mexico Japan Ireland Belgium Finland
Switzerland Iceland Greece Sweden Norway New
Zealand Germany Italy
Comparative RD tax incentives calculated as one
minus B-index
0.2
0.0
-0.2
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VAT tax rates and revenues (1)
2003

• Countries ranked from highest VAT standard rate
  to lowest rate. The comparisons include all
  levels of government
• 2) 2002 revenue figure 3) 2001 revenue
  figure

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Revenues from environmentally related taxes in
per cent of GDP
5.0
1994
2001
4.5
4.0
3.5
3.0
Per cent of GDP
2.5
2.0
1.5
AUS
BEL
NOR
POR
ESP
SWI
UK
HUN
IRL
JAP
LUX
NET
CZE
FIN
GER
1.0
AUT
CAN
POL
SVK
SWE
TUR
US
ISL
ITA
KOR
MEX
NZE
DEN
FRA
GRE
0.5
0.0
Italy
Japan
Korea
Poland
France
Spain
Finland
Iceland
Ireland
Austria
Canada
Greece
Mexico
Sweden
Turkey
Belgium
Norway
Portugal
Hungary
Australia
Denmark
Germany
Netherlands
Switzerland
Luxembourg
New Zealand
United States
United Kindom
Czech Republic
Slovak Republic
Weighted average
Arithmetic average
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Since mid 1980s a Wave of Tax Reform in All OECD
Countries Driven by

• A fairer tax system
• similar treatment for similarly placed taxpayers
  (horizontal equity)
• achieve desired allocation of tax burden by
  income level (vertical equity)
• improved compliance
• An efficient and competitive tax system
• promoting a competitive and flexible fiscal
  environment
• making work, savings and investment pay
• A simpler tax system
• reduce compliance costs for taxpayers
• reduce administrative costs for tax authorities
• The need for revenues
• Protecting the environment through tax and
  related measures
• Balance between revenues and expenditures of each
  level of government
• Dealing with the restraints imposed by the ECJ

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Main Characteristics of Tax Reform in OECD
Countries

• Lower tax rates broader tax bases
• Move towards flatter personal income taxes
• Move towards dual income taxes (lower rates on
  capital than on labour)
• Integrate social benefits into the tax system
  (earned income tax credits)
• Relief for taxation of dividend income
• Change in mix of income and consumption taxes
  (VAT)
• Reduction of complexity
• Introduction of market based environment
  instruments

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Three Approaches to Taxing Income

• Comprehensive income taxes
• Dual income taxes
• Flat taxes

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Flat Tax Rate Systems
Gross income (Y)
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Successful Tax Reform Requires Administrative
Reform

• Tax administrations face challenges due to
  globalization
• proliferation of tax shelters and abuse of tax
  havens
• changing attitudes towards compliance
• The response of OECD tax administrations
• move to integrated tax administrations
• administration by segment/function rather than by
  type of tax
• move to cumulative withholding and information
  reporting
• improved risk management
• better access to information
• Use of new technologies
• Good compliance requires good taxpayer service
  and effective enforcement
• Putting tax compliance on the good corporate
  governance agenda

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Key Elements for successful tax reform
Experience of OECD Countries

• Political champions who can mobilize popular
  support
• Clear and well-articulated principles
• A package approach, with gains and pains
  intricately linked
• Policy reform matched by administrative reform
• Limited time between announcement and full
  implementation
• Transition rules matter
• Education and guidance package available from Day
  One