Taxation: Tax Revenues, Direct
and Indirect Taxes,
Tax Harmonization
Outline
 Introduction and Tax Classification
 Tax Revenues and the Main trends: EU,
OECD
 Direct taxes – PIT, CIT
 Indirect taxes – VAT (GTS, ST), ED
 Introduction to Tax Harmonization
 Introduction to International Taxation
 Discussion
Tax System I.
 Legislation: National x International level (EU
– EC Directives, OECD – Tax Coordination)
 Tax Coordination (OECD):
 Ex. Bilateral of multi lateral contracts to prevent international double
taxation
 Prevent Tax Evasion, Tax Avoidance (Information exchange)
 Tax Harmonization (EU):
 EU Member States: Tax Policy has to reflect EC Directives
 One of access criteria for all candidate states
 More intensive Tax Coordination – unification or approximation of Tax
Structure, Tax Mechanism – collection, Tax base, Tax Rates..
 Indirect Taxes more harmonized: VAT (End of 60 ´s – one of condition to
entering EU)
Tax System II.
 Social changes
 The richer people become, the more solidarity in society (Typically
Europe, 2 nd mid of 20th Century), tax fairness reflects traditional values
(linked with religion)
 Now – Welfare State x Liberalism (Republicans, Tea Party) – Tax quota,
tax base – income x consumption
 Tax Revenues as the main Source for Social Policy
 Progress in technologies
 What can be subject to taxation - (ex. CIT: without existence of
accounting, impossible to tax profits, tax was based on the number of
workers, windows..)
 Tax Administration (VAT) – applicable for developed countries only
 PIT – also difficult to tax, administer, to monitor in less developed
countries – poor administrationve, poverty, corruption, illiteracy, so PIT
more important in developed countries
Tax System III.
 Economical issues
 GDP, inflation, Savings, Interest Rates..
 VAT- one of disadvantages: tendencies to rise inflation
 Economic recession: failure of tax revenues causes pressure on raising tax rates
(ex. Hungary, Latvia, Lithuania, Estonia, UK, Spain)
 Political changes in a long run
 Solidarity, size of Public Sector
 Globalization
 Need of Tax Coordination to prevent Tax Evasions..
 With increased mobility of capital, tax treatment to (multinational) firms in foreign
countries influences tax policy in other countries: tax competition
 Country, state or autonomous area, where
zero or very low tax rates are applied (mostly
on income)
 Unfair tax competition
 Differences in the focus of tax havens
 Sovereign areas, where the tax legislation is
managed in accordance to national
legislation, but are not subjected to
international agreements
Tax Haven/Tax Island
 Onshore company
 Country using tax incentives to motivate companies
 Enterpreneurs who want lower taxes and another
country laws
 Business partners and financial authorities are not
suspicious
 Established by local law
 Obliged to keep accounting, fill tax declaration,
undergo audit
 Netherlands, Luxemburg, Lichtenstein, Cyprus,
Malta, Sweden, USA, Great Britain
„Offshore“ vs. „Onshore“
 Offshore company
 Countries that have benevolent relationship to business
environment
 Dôvod zníženia daňových odvodov a skrytia totožnosti
 Different reasons – hide identity, avoid or decrease tax
obligation
 Formed in accordance with local law, but are not
developing any business activity in the country of
establishment
 Revenues from business activities are not taxed
 Taxes paid in the form of annual fees
 Don´t keep accounting, fill tax declaration
 Bahamas, Belize, Bermuda, Gibraltar, Jersey,
Panama, Seychelles
„Offshore“ vs. „Onshore“
Tax classification I.
 1000 Taxes on income, profits and capital gains
 1100 Taxes on income, profits and capital gains of individuals
 1200 Corporate taxes on income, profits and capital gains
 1300 Unallocable as between 1100 and 1200
 2000 Social security contributions
 2100 Employees
 2200 Employers
 2300 Self-employed or non-employed
 2400 Unallocable as between 2100, 2200 and 2300
 3000 Taxes on payroll and workforce
Tax classification II.
 4000 Taxes on property
 4100 Recurrent taxes on immovable property
 4200 Recurrent taxes on net wealth
 4300 Estate, inheritance and gift taxes
 4400 Taxes on financial and capital transactions
 4500 Other non-recurrent taxes on property
 4600 Other recurrent taxes on property
 5000 Taxes on goods and services
 5100 Taxes on production, sale, transfer, leasing and delivery of goods and
rendering of
 services
 5200 Taxes on use of goods, or on permission to use goods or perform activities
 5300 Unallocable as between 5100 and 5200
 6000 Other taxes
 6100 Paid solely by business
 6200 Paid by other than business or unidentifiable
Tax classification III.
 Income (typically 1 + 2): CIT, PIT, SSC
 Consumption ( typically 5): VAT, GST, ED, ID
 Property (typically 4)
Tax Quota I.
1975 1985 1990 1995 2000 2005 2007
OECD
Total
29,4 32,6 33,7 34,7 36,0 35,7 35,8
OECD
America
28,8 24,5 26,3 26,2 27,5 26,3 26,5
OECD
Pacific
22,5 25,7 28,3 27,7 28,6 29,9 30,4
OECD
Europe
30,9 35,3 36,0 37,7 38,4 37,9 38,0
EU 19
32,1 37,5 38,1 38,9 39,4 38,7 38,8
EU 15
32,1 37,5 38,1 39,0 40,6 39,7 39,7
Tax Quota II.
 Increase till 2000, than slight decline (average 36 %)
 America:
 lower taxes than OECD average (27 %), decline in 80´s
 Increase in 90´s, slight decline from 2000
 Only OECD America has lower Tax Quota in 2007 than 1975
 Pacific
 Lower rates than average, 30 %
 Increase: (Exception mid 90 ´s), 2nd lowest, but 1975: 1 st. lowest TQ
 Europe 15
 High Tax area
 Increase (Slight and short Decrease after 2000)
 Europe 19
 Not so different, but in can be seen that CZ, SVK, PL, HU – lower tax quota than
Western Europe
Zdroj: OECD.stat, 2013.
Tax Quota III. – International
Comparison (2011) % GDP
Tax mix I. - % of total Tax Revenues
Tax Mix II.
 Increase: SSC, CIT
 SSC - social policy become „more generous“ – last decades
 CIT – slight increase, revenues 2007 – before recession, CIT sensitive to
economic cycle
 Decline: PIT, Property, Consumption
 PIT: progressive x flat tax rate, connection with labor market
 Property x immobile – real estate
 Consumption as total, but: General tax – VAT, GTS: became more important x
revenues from ED become less important as a percentage of Tax Mix
1000
Income &
profits
2000
Social
security
3000
Payroll
4000
Property
5000
Goods and
services
6000
Others
Australia 14,6 0,0 1,3 2,4 7,3 0,0
Austria (1) 11,9 14,5 2,9 0,5 11,8 0,3
Belgium 14,9 14,1 0,0 3,0 11,2 0,0
Canada 14,5 4,7 0,7 3,6 7,5 0,0
Chile 7,5 1,4 0,0 0,7 10,1 -0,1
Czech Republic 7,0 15,3 0,0 0,4 11,3 0,0
Denmark (1) 29,1 1,0 0,2 1,9 15,2 0,0
Estonia 6,8 13,1 0,0 0,4 13,7 0,0
Finland 15,2 12,7 0,0 1,2 13,4 0,0
France (1) 9,4 16,6 1,4 3,7 10,7 1,0
Germany (2) 10,3 14,1 0,0 0,8 10,6 0,0
Greece (1) 6,8 10,9 0,0 1,0 12,0 0,0
Hungary 7,7 11,9 0,6 1,2 16,2 0,3
Iceland 15,6 4,1 0,2 2,5 12,4 0,4
Ireland 10,0 5,6 0,2 1,5 10,2 0,0
Israel 9,5 5,6 1,3 3,1 13,0 0,0
Italy 14,1 13,4 0,0 2,1 11,1 2,1
Japan 8,4 11,4 0,0 2,7 5,2 0,1
Korea 7,1 5,7 0,1 2,9 8,5 0,9
Luxembourg 13,6 10,8 0,0 2,7 10,0 0,1
Netherlands 10,8 14,1 0,0 1,5 11,9 0,2
New Zealand 16,9 0,0 0,0 2,1 12,5 0,0
Norway 20,2 9,7 0,0 1,2 11,8 0,0
Poland 6,5 11,1 0,2 1,2 12,5 0,2
Portugal 8,4 9,0 0,0 1,2 12,3 0,3
Slovak Republic 5,0 12,3 0,0 0,4 10,3 0,0
Slovenia 7,6 15,1 0,1 0,6 14,0 0,0
Spain (1) 9,1 12,1 0,0 2,0 8,6 0,2
Sweden 16,2 11,4 3,2 1,1 13,4 0,0
Switzerland 13,0 6,7 0,0 2,1 6,3 0,0
United Kingdom 13,1 6,6 0,0 4,2 10,7 0,0
United States 10,8 6,4 0,0 3,2 4,5 0,0
OECD-Total 11,3 9,1 0,4 1,8 11,0 0,2
Tax revenue % GDP
(2010)
Tax revenue % GDP
1000 tax revenues as % on GDP
1985 1995 2000 2005 2007
OECD
Total
12,2 12,4 13,1 12,8 13,2
OECD
America
9,8 11,0 12,5 11,0 11,8
OECD
Pacific
13,5 13,7 13,5 14,5 14,9
OECD
Europe
12,4 12,3 13,2 12,7 13,1
OECD EU 19 13,0 12,7 13,1 12,4 12,8
OECD EU 15 13,0 13,3 14,5 13,7 14,0
1000 – Income Taxes
 OECD Total: Growing importance – 13 %
 OECD America: lower average, share of indirect taxes
grows – 12 %
 OECD Pacific: Higher share of direct taxation (less
developed countries relies typically on CIT, PIT – difficult to control
and to administer)
 OECD Europe: on average
 EU 15 x EU 19: EU 15 relies more on Income Taxes (14 %)
– different level in PL, HU, SVK, CZ (EU 19 as total - lower average)
2000 tax revenues as % on GDP
1985 1995 2000 2005 2007
OECD
Total 7,6 8,9 9,1 9,1 9,1
OECD
America 4,2 4,8 4,8 4,8 4,7
OECD
Pacific 2,1 2,6 3,3 3,8 4,0
OECD
Europe 9,3 10,7 10,6 10,6 10,6
OECD EU 19 10,7 11,8 11,6 11,5 11,5
OECD EU 15 10,7 11,4 14,5 11,1 11,1
2000 – Social Security Contribution
 OECD Total - Importance slightly increases – 9 %
 OECD America - since 90´s remains stable, low share 5 %
 OECD Pacific - the share has doubled since 1985, but still
the lowest – 4 %
 OECD Europe - Higher importance – ex: CZ, Sweden,
France, Germany (at most 15-16 %)
5000 tax revenues as % on GDP
1985 1995 2000 2005 2007
OECD
Total 10,5 11,0 11,1 11,2 10,9
OECD
America 8,4 7,4 7,5 7,9 7,4
OECD
Pacific 7,4 8,2 8,6 8,5 8,2
OECD
Europe 11,4 12,0 12,1 12,1 11,8
OECD EU 19 11,8 12,3 12,1 12,1 11,8
OECD EU 15 11,8 12,0 11,9 11,9 11,6
5000 – Consumption Taxes
 OECD Total - 11 %, remain stable, differences between
groups of countries not important, compared with 1000 and 2000
 OECD America – Lower share than average, a slight
decrease – between 7 - 8 %
 OECD Pacific – a slight increase till last years – reverse
tendencies – 8 %
 OECD Europe – Upper Average – 12 %
 EU 19 higher share – PL, CZ, HU, SVK – relies more on
consumption taxes
Observable evidence
 Tax mix - differ from countries/ groups of countries: America x
Pacific x Europe – level of development, different, history, culture,
religion – reflected in tax structure, tax burden
 UE 15 - Highest level of tax burden, differences within Europe –
North x South x West x East – Central / post-communist countries
 From 60`s to 80` s - relative importance of direct taxes
increased x indirect taxes declined
 Today - slight reverse movement, consumption taxes gain
importance
Direct x indirect taxes
 From the half of 80` s - discussion of higher taxation of
consumption
 Within consumption itself - general taxes – VAT gain
importance, reverse tendencies – Excise Duties, Import Duties
 General Consumption – developed countries
(unlike less developed countries – relies more on tax of
selected consumption)
 Pros
 Cons
Indirect Taxes - Pros
 Savings Taxing Income – Impact Consumption + Savings, since I = C+S
 Limited possibility of tax avoidance or tax
evasion that is why states with worse tax morale rely more on consumption taxes
 Lower administrative costs
 Bigger stimulation to work - Income Taxation has impact on
work-leisure choice
 Correction of external effects – ex. Ecological taxes
 Easier to modify
Indirect taxes - Cons
 Distortion in decision of consumers – different rates –
VAT, ED
 Resentment of certain group of consumers
(low income groups)
 Less progressive taxation – could have diggresiv impact
 Costs of introduction of taxes on consumption
– especially VAT
 Greater increase in prices – inflation tendencies
 Do not stimulate the work supply Income effect
Consumption taxes
 Horizontal equity / ok
 Vertical equity / disregarding income
 Digressive character
 Principles of tax fairness ensuring indirectly /
through lower rates or allowances for commodity
typically bought by low-earning tax payers
 Tax incidence depends on elasticity of demand (the
more rigid the demand is, more tax burden
transferred to taxpayer: ex. tobacco)
 Tax Efectivness x Tax Fairness x Work supply
Personal income tax
 Meets Principle of Capacity to pay – the more you earn,
the more you are able to pay
 More – amount of money you pay (flat tax rate) or proportion of income you pay
(progressive rate)
 Tax revenues are flexible with economic
growth (progressive taxation)
 Economic stabilizer related with previous
 Cause not distortions in prices
Personal Income Tax
 Flat tax / per capita: non-distortional tax, but
regardless principle of vertical fairness
 Proportional / flat tax rate: simple, vertical
fairness, but not as accented as in case of
progressive taxation. With tax allowance
(supporting the principle of vertical equity) the
tax became progressive!
 Progressive / sliding scale
Corporate Income Tax (CIT)
 Corporations pay for using public services
(infrastructure)
 Compensation of limited guarantee for commitments
(debts)
 Tax profits that could escape taxation on personal
level
 CIT can be useful in economic policy (support of
investments)
 Tax burden transferred to consumers
 Double taxations: profit, dividends
Corporate Income Tax: readings
 Tax Competition (enormous growth since 80’ s of
FDI)
 But growing international capital mobility has not
significantly reduced reliance on corporate income
taxation
 Differences in taxation between small and large
countries
 Changes in statutory tax rates and tax base
 Effective tax rate: include both, more complex
indicator
Tax Harmonization I.
 Within EU Member States
 Consumption Taxes, than PIT
 VAT – construction of a tax base, principle of
functioning, tax rates
 ED – minimum rates, tax base, the
commodities submitted to taxation
Tax Harmonization II. – Positives x
Negatives
 Functioning of common
market – capital, services,
goods, labor
 Prevents Tax Dumping
 Impossible to avoid Taxation
 Easier administration - >
save costs, time and money
of firms
 Taxes = Fiscal Policy tools
(monetary politics is unified
- €), can be used to
accomplish specific goals in
social policy
 Different Traditions between
Member States
 Tax Competition is useful to
prevent from excessive Tax
Burden
Tax Harmonization III. - VAT
 Free Market as one of main goals of the EU (Directive
67/227/ES)
 „Sixth Directive“ 77/388/EHS – Subject to VAT, Main
terminology
 91/680/EHS – abolition of frontiers within ES
 92/77/EHS – minimum rates of VAT (Standard Rate min.
15%, 1-2 Reduced Rates, minimum rate 5%)
 Replaced by 2006/112/ES – Principal Document of VAT
(subject to Taxation, territorial impact, transactions submitted
to VAT, Tax Base, Tax Rates, Tax reliefs…)
 Principle of Country of Consumption – temporary (Principle
of Country of Origin would request closer harmonization of
rates)
Tax Harmonization IV. - ED
 „Horizontal Directive“ 92/12/EHS: general rules for
Collection of ED, Production, Distribution,
Authorized Storage etc.
 Minimum rates - since 1992
 Alcohol beverages, Tobacco, Fuel – rates varies
greatly among Member States – North x South
Europe
 Valorization: since 1.1.2014 – Excise Duty of
Cigarettes – at least 60% of the selling price, and at
the same time, min. 64 EUR z 1000 Pcs. of
Cigarettes
 Move on and set the unify prices?
 Higher Taxes on Energy (2003)
Tax Harmonization V. - Energy
 „„Corrective Tax,“ Eliminate of negative
External + principle „let the polluter pay“
 Tax Revenues varies at 2,6 % GDP (EU 27)
 Taxes on Carbon, Gas, Electricity
 2003/96/ES – energetic products, electricity,
Thank You For Your Attention 