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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
OECD Member Countries
OECD Member countries
Countries which engage in Tax Dialogue
2
Outline

Introductory Comments

Overview of OECD Tax Systems

Recent Tax Reform Initiatives

Alternatives of taxing income

Concluding Comments
3
Tax Revenue as % GDP (2003)
50
EU-15 AVG 40.6
40
OECD AVG 36.5
30
20
10
0
Note: countries have been ranked by their total tax to GDP ratios.
*) 2002 figures
4
Change in tax as % of GDP
Tax as
% GDP
1975 to 2003
18
16
14
12
10
8
6
4
2
0
-2
-4
-6
-8
5
Source of tax revenue, 2003
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Personal income
*) 2002 figures
Corporate income
Social security contributions & payroll General consumption
Other
6
Top personal and corporate tax rates
2004
Countries ranked by top PIT Rate
PIT – EU average = 48
PIT – OECD average = 44
Top PIT Rate
50.0
40.0
CIT – EU average = 31
CIT – OECD average = 30
30.0
%
Top CIT Rate
60.0
20.0
10.0
0.0
Includes Central, State and Local Taxes
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The tax wedge – income tax and social security
contributions as % of labour costs
Single individual at average earnings
2004
60
50
40
% 30
20
10
0
Personal Income Tax
Employee Social Security Contr.
Employer Social Security Contr. and payroll taxes
8
Top statutory personal plus corporate tax
rates on dividend income , 2003
(1)
70.0
65.0
60.0
55.0
50.0
45.0
40.0
% 35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
EU15 Avg 47.9
OECD Avg 46.4
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.
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Italy
Germany
New Zealand
Norway
Sweden
Greece
Iceland
Switzerland
Finland
Belgium
Ireland
Japan
Mexico
France
United States
Netherlands
United Kingdom
Denmark
Korea
Austria
Canada
Australia
Portugal
Spain
Comparative R&D tax incentives calculated as one
minus B-index
R&D Tax Treatment of Large Firms,
2001/2002
0.6
0.4
0.2
0.0
-0.2
10
VAT – tax rates and revenues (1)
2003
30
25
20
15
10
5
0
VAT/sales tax revenues as % of total tax revenues VAT standard rate
1)
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
11
Revenues from environmentally related
taxes in per cent of GDP
5.0
1994
4.5
2001
4.0
Per cent of GDP
3.5
3.0
2.5
2.0
1.5
AUS
1.0
BEL
AUT
CZE
CAN
FIN
DEN
GER
FRA
HUN
GRE
IRL
ISL
JAP
ITA
LUX
KOR
NET
MEX
NOR
NZE
POR
POL
ESP
SVK
SWI
SWE
TUR
UK
US
0.5
0.0
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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

14
Three Approaches to Taxing Income

Comprehensive income taxes

Dual income taxes

Flat taxes
15
Flat Tax Rate Systems
Disposable income (YD)
No tax
(Y=YD)
Single rate, no
basic tax
allowance
Single rate with
basic tax
allowance
Single rate with
refundable tax
credit
(basic income)
Basic
income
Basic
allowance
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
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