SNA REVIEW General government accounts

1
SNA REVIEWGeneral government accounts

• Tax revenue, accrual recording of tax, Tax
  credits (J-P Dupuis)
• OECD Working Party on National Accounts (Paris,
  13 October 2004)

2
Definition of tax revenue

• Reminder
• SNA93 (7.48 and 8.43) compulsory, unrequited
  payments to government (nothing in return)
• GFSM 2001 (4.21) compulsory transfers received
  by the government sector
• IFAC PSC (2.8) non- exchange transaction and
  (3.1) same def. as GFS
• (government exercises sovereign powers)

3
Proposal for the new SNAcore definition of tax
revenue

• Taxes are compulsory, unrequited payments, in
  cash or in kind, made by institutional units to
  government units. They are described as
  unrequited because the government provides
  nothing directly in exchange to the individual
  unit making the payment, although governments may
  use the funds raised in taxes to provide goods
  and services to other units, either individually
  or collectively, or to the community as a whole
• This should be followed by the presentation of
  the 3 categories of taxes (D.2, D.5, D.91).

4
Further guidance/borderline issues

• Tax revenue vs sale of asset
• A licence as asset tradability, market value
• Some taxes/revenue may be part of sale of
  assets (financial or non-financial) see cases of
  indirect privatisation or sale of licences

• Tax versus Fees (SNA, 7.55)
• If a licence/certificate is automatically granted
  on payment Tax
• If the licence implies a regulatory function of
  government purchase of a service

5
Accrual recording of taxes

• Does the implementation of the accrual principle
  for tax raise only the issue of time?
• Or is there also an issue with the amounts of tax
  to be recorded? (in parallel with accrued
  interest?)
• In practice, there is an issue!
• Need for a pragmatic approach.

6
Accrual recording of taxes

• Time of recording (present guidance)
• SNA93, ESA95, GFSM2001 and IFAC-PSC refer to the
  same general principle When the taxable event
  occurs
• Practical flexibility (SNA, and GFS) income tax
  deducted at source and regular prepayments when
  they are assessed or paid (SNA93 is ambiguous).
  ESA (4.82) and EMGDD (Eurostat) extends to
  income tax due when assessed with certainty by
  tax authorities.

7
Accrual recording of taxes

• Amounts to be recorded (present guidance)
• General principle (SNA, ESA, GFSM2001) amounts
  due, but
• SNA cash is allowed in some cases
• GFSM2001 only record amounts expected to be
  collected
• EMGDD (Eurostat) 3 options allowed
• Assessed amounts adjusted by a coefficient
• (Full) amounts due, but corrected by a capital
  transfer
• (Time-adjusted) cash

8
Accrued taxes (for the new SNA)

• Time of recording
• General principle, and some flexibility is
  permitted in two cases (time of the tax
  assessment)
• 1. Parallel economy
• 2. Taxes on income (when it is assessable)
• Amounts to be recorded
• No inclusion of amounts unlikely to be
  collected. Possible options
• 1. Amounts assessed as due adjusted by a
  coefficient
• 2. (Full) due amounts but capital transfer
• 3. Time-adjusted cash.

9
Accrued taxes proposal for new SNA

• General principle Like most transactions in
  the SNA, taxes and social contributions are to be
  recorded on an accrual basis. Accrual recording
  means basically that flows are not recorded when
  cash payments are made, but when economic value
  is created, transformed, exchanged or
  extinguished.
• Controversial issue
• When economic value is created implies like
  for accrued interest that the flows recorded at
  this time are amounts due as the consequence of
  the underlying economic event, under the tax law.

10
Accrued taxes proposal for SNA

• Time of recording
•  This is when the activities, transactions or
  other events occur which create the liability to
  pay taxes in other words, when the taxable
  event occur and not when the payments are made.
  In the case of taxes, this usually means when
  income is paid or when a transaction (purchase of
  goods and services etc.) generating the liability
  is made 

11
Accrued taxes proposal for SNA (Time of
recording, continued)

•   Some flexibility is permitted in two cases
• 1. Parallel economy some activities,
  transactions or events escape the attention of
  the tax authorities. Notwithstanding the fact
  that the amounts to be recorded can be determined
  only when the tax assessment is made, some
  flexibility should be accepted concerning the
  time of recording in the system. 

12
Accrued taxes proposal for SNA (Time of
recording, continued)

•  2. Taxes on income in some cases, depending on
  the tax system, the liability to pay taxes can
  only be determined in a later accounting period
  than that in which the income accrues and becomes
  taxable. This is the case when amounts due are
  evidenced and known with sufficient certainty
  only through tax assessments, declarations etc. 

13
Accrued taxes proposal for SNA (Time of
recording, continued)

•  Therefore, in these two cases, an acceptable
  time of recording taxes may not be the time when
  they accrued (when the economic event generated
  the obligation to pay taxes), but the time when
  they were assessable, known as due to be paid
  with sufficient certainty. This is not
  necessarily similar to the accounting period of
  the payment. 

14
Accrued taxes proposal for SNA

•  Amounts to be recorded
• Like other transactions, accrued taxes are often
  understood as due amounts of taxes, as generated
  by the economic event. However, recording accrued
  amounts of taxes and social contributions at
  the time they are due or generated should not
  lead to record amounts known to be uncollectible
  , or unlikely to be collected.
• The revenue and net borrowing / net lending of
  the GG sector should not be artificially improved
  by the recording of amounts unlikely to be
  collected. 

15
Accrued taxes proposal for SNA (Amounts to be
recorded, cont.)

•  The amounts of taxes to be recorded are
• Either, amounts assessed as due
• .adjusted by a coefficient reflecting the
  assessments never collected in the recent past.
• .adjusted by a capital transfer
• Is an adjustment on the revenue side preferable
  to an adjustment on the expenditure side?
• - Or amounts actually paid (time-adjusted cash) 

16
Tax credits

• SNA93 and ESA95 no provision ar present
• GFSM2001 (chap 5 and 6)
• Amounts deductible from tax due are negative
  taxes
• Net payments by GG are expenses
• OECD Revenue statistics any amount exceeding tax
  liability and paid by GG is expenditure
• IFAC-PSC distinguish tax expenditure and
  expenses paid through the tax system.
• The latter should be expensed (majority view).

17
Tax credits proposal for new SNA

• Definition a tax credit is a reduction of tax
  usually of tax on income - offered to households
  or other entities which is embedded in the tax
  system.
• It is common that tax systems comprise elements
  of social redistribution (tax scales, marginal
  tax, impact of the size of the household, of the
  number of children). This does not influence the
  recording of taxes in national accounts. Tax
  credits may be one element of such
  redistribution.

18
Tax credits proposal for new SNA

• Non-payable tax credits (usually a strong
  indication of tax-reducing operation) they are to
  be recorded in deduction of due taxes
• Payable tax credits more questionable. When a
  tax credit is embedded in the tax system, the
  element exceeding the tax liability and paid out
  by the government is to be recorded as an
  expenditure (most of the time, a social benefit)