tax incidence in thailand

Tax Incidence in ThailandJonathan HaughtonSuffolk University, [email protected] the World Bank.May 11, 2011

mailto:[email protected]

JH: Tax & Expenditure Incidence in Peru

The Questions

1. Who bears the burden of taxes?2. Who benefits from government

spending?3. What are the net effects?4. Who would gain/lose under different

possible tax reform packages, and by how much?

May 11, 2011


Example 1: Peru: Tax Revenue Central government tax revenue

11.6% of GDP in 2004 Buoyant since 2002 71% of revenue from indirect tax

▪ Vat: 19% rate; but yields just 4.9% of GDP Income tax: 3.4% of GDP

May 11, 2011

Example 2: VietnamCentral Government Revenue

-

5.0

10.0

15.0

20.0

25.0

30.0

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 (e)

Rev

enue

+ G

rant

s as

% o

f GD

P

Vietnam: Main taxes (% of GDP)

Corporate income tax, 7.96

Individual income tax, 0.60

Value-added tax, 7.11

Excise taxes, 1.46

Natural resources tax, 1.44

Taxes on trade, 1.93

Fees, charges, and non-tax revenues,

2.36

Grants, 0.00

All other taxes, 0.91

Vietnam: Noteworthy trends

Revenue/GDP: 20% to 2000, now 25% VAT: 7% of GDP (at 10% rate!) Trade: from 4% to 2% of GDP, despite

explosion of imports All income tax: Peaked at 10% GDP in

2006, but dependent on SOE sector NB: PIT raises 2% of revenue;

surprisingly, not rising

Thailand

Revenue Results of the SimulationBudget revenues, million baht 2005 2006 2007 2008 2009

Total Net Revenue after Deductions 1,502,423 1,690,494 1,623,052 1,557,898 1,536,615

of which:Revenue Department 969,966 1,142,926 1,212,640 1,271,371 1,141,817 Personal income taxes 153,514 188,697 211,043 204,000 199,090 Corporation taxes 339,325 394,024 408,934 462,134 392,339 Petroleum income taxes 41,019 57,442 66,569 75,379 87,799 Value added taxes 400,967 459,822 480,497 501,743 437,038 Specific business taxes 27,887 34,882 37,418 20,220 17,578 Stamp duties 6,991 7,803 7,920 7,647 7,747 Others 264 257 259 249 225 Excise Department 394,760 418,039 283,987 264,118 334,723 Oil taxes 107,641 106,316 76,969 54,081 123,445 Tobacco taxes 52,207 53,021 42,372 41,844 46,348 Liguor taxes 41,777 47,622 32,008 36,779 39,477 Beer taxes 62,317 69,561 52,817 52,316 51,974 Car taxes 85,412 88,919 56,290 57,944 53,200 Beverage taxes 14,363 16,675 11,596 12,394 12,747 Electronic appliance taxes 5,290 5,200 3,757 3,743 2,749 Motorcycle taxes 2,688 2,947 1,580 1,789 1,602 Battery taxes 1,095 1,769 1,562 1,627 1,580 Telecommunication taxes 19,634 23,278 3,564 111 - Others taxes 1,715 1,770 1,191 1,169 1,068 Miscellaneous 621 961 281 321 532 Customs Department 107,662 100,526 99,434 98,961 81,527 Import duties 104,095 98,151 96,676 96,250 77,923 Export duties 278 362 390 474 340 Miscellaneous 3,289 2,014 2,368 2,237 3,263 Other 200,977 239,362 208,292 167,412 182,787 Other government agents 85,626 105,490 67,720 81,887 83,718 Treasury Department 5,254 4,372 3,661 5,386 3,574 State Enterprise Reforms 1,484 647 10,659 - - State Enterprises 108,613 128,853 89,301 80,138 95,495 Total (Gross) 1,673,365 1,900,853 1,836,939 1,801,862 1,740,853 Deduct - - - - - Tax rebates of Revenue Department 150,626 175,356 196,258 220,660 183,567 VAT 128,675 142,314 169,023 186,480 141,128 Other taxes 21,951 33,042 27,235 34,179 42,439 VAT allocation for PAO (Provincial Administration Organizations)7,889 9,399 10,879 11,471 9,183 Export duties compensation 12,428 11,766 11,420 11,833 11,488

49,825 - - 33,229 45,181 Total (Net) 1,502,423 1,690,494 1,623,052 1,557,898 1,536,615


Measuring Incidence (1)

Step 1. Make assumptions about incidence Statutory incidence ≠ Effective

incidence See Table

May 11, 2011

Incidence assumptions VAT: on consumers Excises: on consumers PIT: on earners Business profits: on earners Other taxes:

▪ Property transfer; local fees and contributions: on payers.

▪ In this study, CIT, trade taxes, natural resource taxes, not included. Incidence covers half of revenue.

Partial equilibrium incidence

quantity

supply

S(1+t)price

demand

Pd2

Q1

Q2

P1

Ps2

Elastic supply

quantity

supply

S(1+t)

price

demand

Pd2

Q1

Q2

P1=Ps2

What elasticity?

JH: Tax & Expenditure Incidence in PeruMay 11, 2011

Table 4. Incidence Assumptions Tax Incidence Assumption Comments on operationalization

Personal income Borne by earners (because their take-home pay would rise if there were no tax).

Uses amounts paid as reported in the ENNIV-2000 survey, and grosses these up to get an appropriate total yield.

Value Added Tax Shifted onto consumers. Assumed to be 0% on exempt items – which understates the tax – using 57 expenditure lines. No adjustment was possible for the source of purchases (e.g. supermarket, street market, etc.), which overstates tax, especially on poorer households.

Fuel excise Shifted onto consumers because of horizontal supply curve.

Allocated in proportion to reported household spending on energy. [This is an overstatement, as some effects work via transport, electricity, and individual use, where the incidence pattern is different.]

Alcohol excise Shifted onto consumers because of horizontal supply curve.

Reported spending on alcohol is typically highly understated.

Tobacco excise Shifted onto consumers because of horizontal supply curve.

Allocated in proportion to reported household spending on tobacco; also typically highly understated.

Car excise Shifted onto consumers. Allocated in proportion to car value. Subsidy/spending Incidence Assumption Comments on operationalization

Education Benefits accrue to households whose children are currently enrolled in publicly-supported schools.

Applied average budgetary cost per enrolled student, differentiated by main level of education (primary, secondary, tertiary).

Health Benefits accrue to households whose sick members sought help at a publicly-supported hospital or clinic.

Survey provides information on costs in public and private facilities; subsidy was taken to be the differential between the amount actually paid and an appropriate private-sector norm.

Social subsidies Benefits accrue to households to the full extent of the subsidies.

This overstates the benefits, given that labor supply is not completely inelastic, but probably not by much.



Step 2. Quantify the effects Trace effect of a tax, spending change

on every household in a survey ENNIV 2000. 3,997 households, 19,957

people, LSMS template NB. Assumes equal sharing within

household

May 11, 2011



Operationalize the analysis Excel spreadsheet Stata dataset and programs.

Change spreadsheet; it invokes Stata, returns the results.

May 11, 2011

Vietnam: Main data source: VHLSS-2006

9,189 households, including 4,298 from 2004 round.

Two visits per household; 93% of interviews in June, Sept or Oct.

Some explicit tax information (e.g. business taxes); otherwise has to be inferred (e.g. VAT, PIT).

Thailand

Socio-economic survey, 2009 47-page data dictionary 139,590 individuals From 43,844 households

▪ Aside: US 1% IRS file plus non-filers: c. 150,000 filers.


Peru: Tax 1: VAT 19% rate. Fairly stable since 1992. Exports zero rated Exemptions include clothing, rice,

milk, fish, vegetables, ed. fees, home consumption, housing

In 2000: 42% of central gov. tax revenue Collected 7.3% of household

expenditure.

May 11, 2011

Vietnam (like Peru): How robust are the survey results?

Table 11. Reconciling Survey with Budget Data Tax revenue, based on VHLSS-2006 Based on budgeted Per capita, VND ‘000 Nationally, VND trn national receipts, VND trn

VAT 0.522 43.9 54.8 Excise taxes 0.085 7.1 17.1 Personal income tax 0.006 0.5 5.2 Business profits tax 0.121 10.2 100.8 Fees 0.212 17.8 3.9 Source: VHLSS-2006 data from Table 7; budgetary information from Table 1.


Peru: VAT incidence

May 11, 2011

Figure 2. Incidence of Value Added Tax, 2000 VAT/expenditure by expenditure decile

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

1 2 3 4 5 6 7 8 9 10Expenditure per capita deciles

VAT/income by expenditure decile

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0


VAT/income by income decile

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

1 2 3 4 5 6 7 8 9 10Income per capita deciles

Table 6: Incidence of Value Added Tax, 2000

Categories Tax Rates

Wide base of goods, 2004 19.0% Wide base of goods, 2000 18.0% Exports 0.0% Most services, some goods Exempt

Revenue

Tax revenue, 2004, m soles 13,206.9 Tax revenue, 2000, m soles, net of refunds 9,550.6 Tax revenue as % of total tax revenue, 2000 41.5 Actual tax revenue / estimated revenue 85%

Distributional effects, 2000 Expend/cap Inc/cap Gini coefficient 0.470 0.535 Quasi-Gini coefficient, tax/capita 0.455 0.358 RS1 measure (>0 = progressive) -0.00116 -0.01145 RS2 measure (>0 = progressive) -0.00125 -0.01207 Kakwani measure (>0 = progressive) -0.015 -0.176 Note: RS1 is the Reynolds-Smolensky measure of disproportionality and RS2 is the Reynolds-Smolensky measures of redistributive capacity. Source: Based on ENNIV-2000. More complete results are shown in Appendix 1.


Peru: VAT incidence

Regressivity probably overstated, if poor are more likely to buy in informal sector

By expenditure/cap: slightly regressive

By income/cap: highly regressive

May 11, 2011


Income or Expenditure incidence? Income:

Easy to measure Widely used in developed countries Overstates regressivity: “lifetime

income” Expenditure

Less underreporting than income Closer to “permanent income” May understate regressivity

May 11, 2011


Peru: Tax 2: Excises

In 2000, summarized: Alcohol, especially beer (t=27.8% of

84% of rec. prodr. price) Soft drinks (t=17% ex factory) Cigarettes (t=37.2%) New vehicles (t=10%) Motor fuel

▪ Gasoline (S/.2.90 per gallon)▪ Diesel S/.2.29 per gallon)

May 11, 2011


Figure 3. Incidence of Excise Tax on Alcohol, 2000 Alcohol Tax/expenditure by expenditure decile

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8


Alcohol tax/income by expenditure decile

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8


Alcohol tax/income by income decile

0.0

0.5

1.0

1.5

2.0

2.5


Figure 4. Incidence of Excise Tax on Soft Drinks, 2000

Soft Drinks Tax/expenditure by expenditure decile

0.00

0.02

0.04

0.06

0.08

0.10

0.12

0.14

0.16

0.18


Soft Drinks tax/income by expenditure decile

0.00

0.02

0.04

0.06

0.08

0.10

0.12

0.14


Soft Drinks tax/income by income decile

0.00

0.10

0.20

0.30

0.40

0.50

0.60



Figure 5. Incidence of Excise Tax on Cigarettes and Tobacco, 2000 Cigarette Tax/expenditure by expenditure decile

0.00

0.02

0.04

0.06

0.08

0.10

0.12


Cigarette tax/income by expenditure decile

0.00

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.08

0.09


Cigarette tax/income by income decile

0.00

0.05

0.10

0.15

0.20

0.25

0.30


JH: T

ax &

Exp

endi

ture

Incid

ence

in P

eru

Sin taxesExpend/cap:Kakwani (>0 = progressive)

Income/cap:Kakwani (>0 = progressive)

Revenue as % of all tax revenue

Actual revenue as % of estimated

Alcohol 0.057 -0.110 3.6 213Soft drinks -0.105 -0.283 0.6 127Tobacco -0.003 0.5 170

May 11, 2011

Note under-reporting of expenditures


Figure 6. Incidence of Excise Tax on Petroleum Products, 2000 Gasoline Tax/expenditure by expenditure decile

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00


Gasoline tax/income by expenditure decile

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50


Gasoline tax/income by income decile

0.00

0.50

1.00

1.50

2.00

2.50


Figure 7. Incidence of Excise Tax on Motor Vehicles, 2000 Gasoline Tax/expenditure by expenditure decile

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.45


Gasoline tax/income by expenditure decile

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40


Gasoline tax/income by income decile

0.00

0.05

0.10

0.15

0.20

0.25

0.30


JH: T

ax &

Exp

endi

ture

Incid

ence

in P

eru

Transport taxesExpend/cap:Kakwani (>0 = progressive)

Income/cap:Kakwani (>0 = progressive)

Revenue as % of all tax revenue

Actual revenue as % of estimated

Motor fuel 0.378 0.246 9.3 732Vehicles 0.412 0.288 1.0 225

May 11, 2011

Notes: Fuel numbers overstate progressivity, because of the “bus and truck problem”Vehicle numbers assume purchases in proportion to ownership, which is awkwardIdeal is to run this through an input-output table

Thailand: Indirect taxes (1st pass)Distributional Expenditure/cap Est. tax/capita Est. tax/expenditure

Results of the simulation 2009 2009 2009

Expenditure per capita deciles 1 (poorest) 14,536 809 5.6% 2 20,212 1,221 6.0% 3 24,473 1,564 6.4% 4 29,099 1,944 6.7% 5 34,391 2,400 7.0% 6 41,082 2,987 7.3% 7 49,595 3,897 7.9% 8 61,650 5,100 8.3% 9 82,146 7,173 8.7% 10 (richest) 163,833 15,511 9.5%

Regions 1: Bangkok Metropolis 102,720 8,020 7.8% 2: Central (excluding Bangkok) 60,462 5,163 8.5% 3: North 41,138 3,289 8.0% 4: Northeast 37,126 2,897 7.8% 5: South 53,224 4,715 8.9%

Areas Urban 76,862 6,334 8.2% Rural 46,010 3,328 7.2%

Thailand overall Average 52,102 4,261 8.2%

Thailand: Indirect, then 3 baht/l on petroleum products


Peru: Tax 3: Personal Income

May 11, 2011

Figure 8. Incidence of Personal Income Tax, 2000 PIT/expenditure by expenditure decile

0.0

0.5

1.0

1.5

2.0

2.5


PIT/income by expenditure decile

0.0

0.5

1.0

1.5

2.0

2.5


PIT/income by income decile

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5


Table 12: Personal Income Tax, 2000


0 – 27 UIT (i.e. 0 – S/.86,400 p.a.) 15% 27 UIT – 54 UIT (i.e. S/.86,400 – 172,800 p.a.) 21% > 54 UIT (i.e. > S/.172,800 p.a.) 30% Wages & salaries, # of UITs deductible 7

Revenue

Tax revenue, 2003, m soles 2,669 Tax revenue, 2000, m soles, net of refunds 2,117 Tax revenue as % of total tax revenue, 2000 9.2 Actual tax revenue as % of estimated revenue 467

Distributional effects, 2000 Expend/cap Inc/cap Gini coefficient 0.470 0.535 Quasi-Gini coefficient, tax/capita 0.627 0.582 RS1 measure (>0 = progressive) 0.00257 0.00065 RS2 measure (>0 = progressive) 0.00217 0.00031 Kakwani measure (>0 = progressive) 0.157 0.047 Note: RS1 is the Reynolds-Smolensky measure of disproportionality and RS2 is the Reynolds-Smolensky measures of redistributive capacity. Source: Based on ENNIV-2000. More complete results are shown in Appendix 1.


Peru: All taxes

May 11, 2011

Figure 13. Incidence of All Taxes, 2000 Taxes/expenditure by expenditure decile

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0


Taxes/income by expenditure decile

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0


Taxes/income by income decile

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0


Table 19: All Taxes, 2000


Includes: Personal income tax Excises on alcohol, tobacco, beer, cars, soda Fuel excise tax

Revenue

Tax revenue, 2003, m soles Tax revenue, 2000, m soles, net of refunds 15116 Tax revenue as % of total tax revenue, 2000 65.7 Actual tax revenue as % of estimated revenue 120

Distributional effects, 2000 Expend/cap Inc/cap Gini coefficient 0.470 0.535 Quasi-Gini coefficient, tax/capita 0.545 0.460 RS1 measure (>0 = progressive) 0.00971 -0.00801 RS2 measure (>0 = progressive) 0.00831 -0.01087 Kakwani measure (>0 = progressive) 0.075 -0.075 Note: RS1 is the Reynolds-Smolensky measure of disproportionality and RS2 is the Reynolds-Smolensky measures of redistributive capacity. Source: Based on ENNIV-2000. More complete results are shown in Appendix 1.

Progressive or not?


NB: Horizontal inequity

May 11, 2011

0

.1.2

.3Ta

x bu

rden

rel

ativ

e to

exp

endi

ture

0 10000 20000 30000 40000 50000Expenditure per capita, S/.

Fitted values taxburd

Peru, 2000Incidence of Main Taxes

Vietnam: tax by tax (1)Tax as a % of expenditure, by decile, 2006

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

1 2 3 4 5 6 7 8 9 10

Expenditure per capita decile (poor = 1, rich = 10)

Taxe

s pa

id a

s %

of e

xpen

ditu

re

VAT as a % of expenditure, by decile, 2006

-

1.0

2.03.0

4.0

5.0

6.0

7.08.0

9.0

10.0

1 2 3 4 5 6 7 8 9 10


Taxe

s pa

id a

s %

of e

xpen

ditu

re

Overall

VAT

Excise Tax as a % of expenditure, by decile, 2006

-

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1 2 3 4 5 6 7 8 9 10


Taxe

s pa

id a

s %

of e

xpen

ditu

re

Educational Fees as a % of expenditure, by decile, 2006

-

0.5

1.0

1.5

2.0

2.5

1 2 3 4 5 6 7 8 9 10


Taxe

s pa

id a

s %

of e

xpen

ditu

re

Excises

Educational fees

Vietnam: tax by tax (2)Agricultural Fees as a % of expenditure, by decile, 2006

-

0.1

0.20.3

0.4

0.5

0.6

0.70.8

0.9

1.0

1 2 3 4 5 6 7 8 9 10


Taxe

s pa

id a

s %

of e

xpen

ditu

re

Other Fees as a % of expenditure, by decile, 2006

-

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1 2 3 4 5 6 7 8 9 10


Taxe

s pa

id a

s %

of e

xpen

ditu

re

Agricultural fees

Other fees

Tax on business income as a % of expenditure, by decile, 2006

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

1 2 3 4 5 6 7 8 9 10


Taxe

s pa

id a

s %

of e

xpen

ditu

re

Personal Income Tax as a % of expenditure, by decile, 2006

-

0.1

0.1

0.2

0.2

0.3

0.3

1 2 3 4 5 6 7 8 9 10


Taxe

s pa

id a

s %

of e

xpen

ditu

re

Business income Personal Income Tax

Vietnam: tax by tax (3)Tax as a % of income, by decile, 2006

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

1 2 3 4 5 6 7 8 9 10

Income per capita decile (poor = 1, rich = 10)

Taxe

s pa

id a

s %

of i

ncom

e

VAT as a % of income, by decile, 2006

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

1 2 3 4 5 6 7 8 9 10


Taxe

s pa

id a

s %

of i

ncom

e

Overall

VAT

Excise tax as a % of income, by decile, 2006

-

0.2

0.4

0.6

0.8

1.0

1.2

1 2 3 4 5 6 7 8 9 10


Taxe

s pa

id a

s %

of i

ncom

e

Educational Fees as a % of income, by decile, 2006

-

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

1 2 3 4 5 6 7 8 9 10


Taxe

s pa

id a

s %

of i

ncom

e

Excises

Educational fees

Vietnam: tax by tax (4)Agricultural fees as a % of income, by decile, 2006

-

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

1 2 3 4 5 6 7 8 9 10


Taxe

s pa

id a

s %

of i

ncom

e

Other fees as a % of income, by decile, 2006

-

0.1

0.2

0.3

0.40.5

0.6

0.7

0.8

0.9

1.0

1 2 3 4 5 6 7 8 9 10


Taxe

s pa

id a

s %

of i

ncom

e

Agricultural fees

Other fees

Tax on business income as a % of income, by decile, 2006

-

0.5

1.0

1.5

2.0

2.5

3.0

1 2 3 4 5 6 7 8 9 10


Taxe

s pa

id a

s %

of i

ncom

e

Personal income tax as a % of income, by decile, 2006

-

0.1

0.1

0.2

0.2

0.3

1 2 3 4 5 6 7 8 9 10


Taxe

s pa

id a

s %

of i

ncom

e

Business income Personal Income Tax

Vietnam: Incidence: comments 1 In Vietnam, incidence pattern by

expenditure/cap decile similar to that by income/cap Contrast with Peru

These taxes are progressive overall Heavier, more progressive, than 1998 VAT is generally progressive – mainly due to

home production (1/3 at bottom, 1% at top); not the case in all countries

Excise taxes are progressive – also a bit surprising.

Vietnam: Which tax is most progressive?

Table 10. Measures of Tax Progressivity Gini coefficient (GX)

Expenditure per capita 0.390 Income per capita 0.408

Concentration Ratio (CT,X) Kakwani measure (CT,X – GX) All allocable taxes 0.461 0.071 Personal income tax 0.986 0.597 Business income tax 0.686 0.296 Excise taxes 0.504 0.114 Fees: other 0.459 0.069 VAT 0.443 0.054 Fees: educational 0.354 -0.036 Fees: agricultural -0.018 -0.408 Property tax 0.632 0.242 Property tax: own residence 0.619 0.229 Property tax: other than residence 0.751 0.361 Property tax with VND100m threshold 0.776 0.386 Source: Based on Vietnam Household Living Standards Survey 2006.

Technical Issues

Regional effects Personal Income Tax Property Tax Expenditure incidence Marginal full incidence Policy reforms

Regional effects: Vietnam Tax paid Expenditure Tax as % of Memo: VAT as Income # of households

per capita expenditure % of expend. per capita sampled

'000 VNDRegion

1 923 8,241 11.2 6.8 9,951 1,944 2 592 5,772 10.3 5.3 7,916 1,317 3 508 4,393 11.6 6.3 5,678 429 4 584 5,053 11.6 5.6 6,729 1,014 5 1,261 6,766 18.6 10.0 8,396 852 6 814 5,955 13.7 7.3 8,113 582 7 1,506 11,852 12.7 6.5 13,882 1,188 8 944 6,698 14.1 8.2 9,008 1,863

Urban 1,685 12,394 13.6 6.7 14,377 2,307 Rural 676 5,602 12.1 7.3 7,518 6,882

Overall 946 7,417 12.8 7.0 9,351 9,189

'000 VND

Higher tax rates in south Highest rate in South-Central Coast (sampling

error?) Urban/rural gap in burden is surprisingly small

Vietnam: Tax policy 1: PIT

Table 12. Structure of Current and Proposed Personal Income Taxes Current tax New tax Coverage Wages, salaries, bonuses, housing

allowances. Wages, salaries, bonuses, housing allowances, business income, interest, dividends, capital gains, prizes.

Rates & Base For Vietnamese Income p.a., VND m Tax rate, % Taxable income p.a.,

VND m Tax rate, %

0 – 60 0 0 – 60 5 60 – 180 10 60 – 120 10 180 – 300 20 120 – 216 15 300 – 480 30 216 – 384 20 >480 40 384 – 624 25 For foreigners 624 – 960 30 0 – 96 0 >960 35 96 – 240 10 240 – 600 20 Personal deduction: VND 48 m 600 – 960 30 Deduction/dependent: VND 19.2 m > 960 40 Sources: IMF (2007); Shukla (2006); Law on Personal Income Tax /2007/QH12.

Vietnam: Method 1: VHLSS-2006

1 (poor) 2 3 4 5 6 7 8 9 10 (rich) All % hh

paying

Household expenditure per capita 2,000 2,938 3,640 4,324 5,077 5,981 7,149 8,811 11,593 22,681 7,417

Total tax paid 156 252 372 458 557 709 984 1,151 1,679 3,146 946 100.0 of which: taxes on household enterprises 3 3 12 12 30 35 163 116 184 651 121 15.4 personal income tax - - - - - - - - 1 61 6 0.2 Total new tax paid on income 8 1 13 190 21 1.0

Total tax paid 7.8 8.6 10.2 10.6 11.0 11.9 13.8 13.1 14.5 13.9 13.4 of which: taxes on household enterprises 0.1 0.1 0.3 0.3 0.6 0.6 2.3 1.3 1.6 2.9 1.6 personal income tax - - - - - - - - 0.0 0.3 0.1 Total new tax paid on income - - - - - - 0.1 0.0 0.1 0.8 0.3

Expenditure per capita deciles

thousands of VND p.a.

as percentage of expenditure

Notes. Revenue from value-added tax, excise taxes, and personal income tax, are estimated based on spending and income patterns. Based on the VHLSS survey of 2006. All figures are in prices of 2006.

Vietnam: PIT: comments 1 Method: strip out business income

tax and PIT, and apply rules of new tax Revenue: from VND127k to VND21k per

person. New tax highly progressive.

But: excludes foreigners; very small sample size for PIT and for large household enterprises.

Vietnam: Method 1: High-income survey Done by General Dept. of Taxation in

2005, using tax rolls Survey, asking about income, spending 15,500: 3,200 foreign, 7,200 PIT, 5,100

business income tax 11,535 responses (74%); low in HCMC,

among foreigners. Results re-weighted. Anything equivalent in Thailand?

Vietnamese Foreigners Household Full sample % foreignenterprises

Taxpayer income 195,003 631,835 244,158 302,514 of which: Wages and salaries 71,263 620,939 43,753 177,172 Enterprise 498 810 327 507 Business 37,474 1,548 191,095 80,459 Finance and capital 79,732 8,190 7,022 40,869 Transfers 98 5 227 121 Other 5,938 342 1,734 3,386

Memo items: Total household income 370,619 671,127 266,619 399,276 Household current spending 79,273 116,266 39,741 74,014 Household asset purchases 255,995 38,100 59,914 145,971

Personal income tax/taxpayer Estimate, 2005 4,504 239,751 74,315 77,792 Estimate, 2009, old rules 15,907 527,604 136,219 175,319 Memo: % growth 253% 120% 83% 125% Estimate, 2009, new rules 39,057 392,175 162,330 153,426

Personal income tax revenue Estimate, 2005 628 14,849 7,336 22,812 65%Memo: Actual PIT revenue, 2005 Estimate, 2009, old rules 2,217 32,677 13,446 48,340 68% Estimate, 2009, new rules 5,443 24,290 16,024 45,756 53%

thousands of VND per year

4,200

Vietnam: Comparison, old vs. new PIT Based on 2009

NB. PIT very elastic Total revenue: -5%

▪ Foreigners: down by a quarter▪ Vietnamese: tax payments up

Reconcile with VHLSS data High-income individuals would pay more Not-so-high income individuals would pay less, and not be in the

tax net as much Difficult to merge the two; in progress.

Keep: taxes foreigners, adds equity. Enforcement could be better. Perhaps limit top rate to top CIT. Adjust brackets for inflation (as in US).

Vietnam: Property tax?

VHLSS has limited data on property: Residence; non-agric. real estate Assume tax would not apply to

agricultural property, or to movable property.

1% of capital value; arbitrary

Vietnam: Who would bear a property tax?

1 (poor) 2 3 4 5 6 7 8 9 10 (rich) All % hh

paying

Household expenditure per capita 2,000 2,938 3,640 4,324 5,077 5,981 7,149 8,811 11,593 22,681 7,417

Total tax paid 50 82 119 168 210 277 384 545 1,028 2,944 580 97.9 of which: taxes on residence 49 80 113 157 200 257 357 500 922 2,587 522 97.5 taxes on other property 1 2 5 10 10 20 26 46 106 358 58 8.9 Total tax paid with VND100m threshhold per household 1 4 12 44 62 109 197 335 798 2,677 424 35.8

Total tax paid 2.5 2.8 3.3 3.9 4.1 4.6 5.4 6.2 8.9 13.0 7.8 of which: taxes on residence 2.4 2.7 3.1 3.6 3.9 4.3 5.0 5.7 8.0 11.4 7.0 taxes on other property 0.1 0.1 0.1 0.2 0.2 0.3 0.4 0.5 0.9 1.6 0.8 Total tax paid with VND100m threshhold per household 0.1 0.1 0.3 1.0 1.2 1.8 2.8 3.8 6.9 11.8 5.7

with VND100m threshhold per household 2 9 23 51 81 149 247 419 813 2,443

of which: taxes on residence 2.3 2.6 2.9 3.2 3.5 4.0 4.5 5.1 6.5 8.0 taxes on other property 0.1 0.1 0.1 0.2 0.2 0.2 0.3 0.6 0.6 1.2

with VND100m threshhold per household 0.1 0.3 0.5 1.0 1.3 2.0 2.7 3.8 5.5 8.3


thousands of VND p.a.

as percentage of expenditure

Notes. Revenue from value-added tax, excise taxes, and personal income tax, are estimated based on spending and income patterns. Based on the VHLSS survey of 2006. All figures are in prices of 2006.

Vietnam: Comments on property tax Highly progressive 1% is steep; 7.8% of expenditure, so

politically infeasible at this level. Cash flow concerns Based on bubble prices? Introduction of tax would reduce base

Excludes corporate ownership

Vietnam: regional effects of property tax

Note: The regions are: 1: Red River Delta, 2: Northeast, 3: Northwest, 4: North Central Coast, 5: South Central Coast, 6: Central Highlands, 7: Southeast, 8: Mekong River Delta.

Tax paid Expenditure Tax as % of Tax paid with Tax as % of # of householdsper capita expenditure threshhold expenditure sampled

'000 VNDRegion

1 791 8,241 9.6 599.6 7.3 1,944 2 305 5,772 5.3 172.6 3.0 1,317 3 244 4,393 5.5 140.8 3.2 429 4 248 5,053 4.9 119.5 2.4 1,014 5 387 6,766 5.7 238.1 3.5 852 6 312 5,955 5.2 190.4 3.2 582 7 1,422 11,852 12.0 1,224.0 10.3 1,188 8 277 6,698 4.1 135.7 2.0 1,863

Urban 1,425 12,394 11.5 1,211.6 9.8 2,307 Rural 272 5,602 4.9 136.2 2.4 6,882

Overall 580 7,417 7.8 423.6 5.7 9,189

'000 VND


Spending Incidence

Applied to education, health, targeted social programs

Step 1: Measure unit subsidies Step 2: Identify coverage Step 3: Present results

May 11, 2011


Peru: Spending 1: Education In 2000

▪ 98.8% of children 7-10 were at school▪ 94% of 14-year-olds were at school▪ 13% of pupils/students were at private schools

Costs▪ Pre-K: S/. 583 per child per year▪ K & primary: S/. 386▪ Secondary: S/. 624▪ Tertiary: S/.2,506

Assigned based on attendance

May 11, 2011


Peru: EducationFigure 9. State Spending on Education, 2000

Education spend./expenditure by expenditure decile

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0


Education spending/income by expenditure decile

0.0

2.0

4.0

6.0

8.0

10.0

12.0


Education Spending/income by income decile

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0


May 11, 2011

Table 14: State Spending on Education, 2000

Categories Cost per pupil, S/.

Pre-kindergarten 583 Kindergarten & primary 386 Secondary 624 Tertiary 2,506

Spending

Spending, 2003, m soles 5,921 Spending, 2000, m soles 4,740 Spending as % of total tax revenue, 2000 20.6 Actual spending as % of estimated spending 69

Distributional effects, 2000 Expend/cap Inc/cap Gini coefficient 0.470 0.535 Quasi-Gini coefficient, tax/capita 0.102 0.090 RS1 measure (>0 = progressive) 0.01282 0.01305 RS2 measure (>0 = progressive) 0.01234 0.01271 Kakwani measure (<0 = progressive) -0.369 -0.444 Note: RS1 is the Reynolds-Smolensky measure of disproportionality and RS2 is the Reynolds-Smolensky measures of redistributive capacity. Source: Based on ENNIV-2000. More complete results are shown in Appendix 1.


Table 14: State Spending on Education, 2000 Sorted by expenditure/capita Sorted by

inc/cap Spending/

Expend, % Spending/ Income, %

% of spending

Spending/ Income, %

All Peru (2000) 3.6 3.0 100.0 3.0 Decile 1 (poorest) 15.6 11.4 7.9 34.7 Decile 2 9.8 6.0 8.1 13.5 Decile 3 7.6 5.8 8.3 8.3 Decile 4 7.0 5.0 9.5 6.2 Decile 5 5.4 4.2 9.0 4.7 Decile 6 4.8 3.7 9.8 4.4 Decile 7 4.0 3.4 10.1 3.6 Decile 8 3.5 2.8 11.0 3.0 Decile 9 2.9 2.7 12.7 2.2 Decile 10 (richest) 1.3 1.2 13.7 1.0 Lima/Callao 2.2 n/a 27.2 1.8 Amazon (4 depts) 4.5 n/a 15.7 3.9 Rest of Peru 4.8 n/a 57.1 4.0

Note: RS1 is the Reynolds-Smolensky measure of disproportionality and RS2 is the Reynolds-Smolensky measures of redistributive capacity. Source: Based on ENNIV-2000. More complete results are shown in Appendix 1.

“progressive but not well-targeted”

Peru: Incidence of educational spending

Figure 10. State Spending on Education, 2000 Education spend./expenditure by expenditure decile

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0


Education Spending/capita by expenditure decile

0.0

50.0

100.0

150.0

200.0

250.0

300.0


Pre-K Education Spending/capita by expenditure decile

0.0

5.0

10.0

15.0

20.0

25.0


Primary Education Spending/capita by expend. decile

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0


Secondary Educn. spending/capita by expend. decile

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0


Higher Education Spending/capita by expend. decile

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

200.0



Peru: Spending 2: Health Cost of procedures

Used ENNIV-2000 reported data on cost at private facilities

Adjusted downwards substantially to be consistent with government spending

▪ Cost/consultation S/. 0.75/minute▪ Cost of hospitalization S/. 75/night▪ Cost of an analysis S/. 6.2/item

May 11, 2011


Peru: Health

May 11, 2011

Figure 11. State Spending on Health, 2000 Health spending/expenditure by expenditure decile

0.0

1.0

2.0

3.0

4.0

5.0

6.0


Health spending/income by expenditure decile

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5


Health spending/income by income decile

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0


Table 16: State Spending on Health, 2000


Consultation, S/. per minute 1.5 Hospitalization, S/. per day 150 Analysis, S/. per person 12.5

Spending

Spending, 2003, m soles Spending, 2000, m soles, net of refunds 1,922 Spending as % of total tax revenue, 2000 8.4 Actual spending as % of estimated spending 48

Distributional effects, 2000 Expend/cap Inc/cap Gini coefficient 0.470 0.535 Quasi-Gini coefficient, tax/capita 0.137 0.006 RS1 measure (>0 = progressive) 0.00480 0.00641 RS2 measure (>0 = progressive) 0.00371 0.00546 Kakwani measure (<0 = progressive) -0.334 -0.529 Note: RS1 is the Reynolds-Smolensky measure of disproportionality and RS2 is the Reynolds-Smolensky measures of redistributive capacity. Source: Based on ENNIV-2000. More complete results are shown in Appendix 1.


Table 16: State Spending on Health, 2000 Sorted by expenditure/capita Sorted by

inc/cap Spending/

expend Spending/

income % of

spending Spending/

income All Peru (2000) 1.5 1.2 100.0 1.2 Decile 1 (poorest) 5.6 4.1 6.9 17.9 Decile 2 3.4 2.1 6.9 7.3 Decile 3 3.5 2.7 9.4 3.1 Decile 4 2.1 1.5 6.9 3.2 Decile 5 2.5 1.9 10.1 1.7 Decile 6 1.5 1.2 7.6 1.9 Decile 7 1.9 1.6 11.7 1.0 Decile 8 1.6 1.3 12.6 1.2 Decile 9 1.3 1.2 14.0 1.0 Decile 10 (richest) 0.6 0.5 13.9 0.3 Lima/Callao 0.8 n/a 23.3 0.6 Amazon (4 depts) 2.4 n/a 21.2 2.1 Rest of Peru 1.9 n/a 55.5 1.6



Peru: Spending 3: Social Subsidies

Allocated based on reported usage

May 11, 2011

Table 17. “Social subsidies,” 2000 Mean amount received per

household, S/. p.a. School meals (“desayuno escolar”) 23.58 Milk (“vaso de leche”) 34.31 Food support (“comedor popular”) 23.14 Mother’s groups (“club de madres”) 1.48 Family food basket (“canasta familiar (panfar)”) 1.05 Food for work (“alimento por trabajo”) 1.67 Direct food support (“donación directa de alimentos”) 0.90 Child nutrition (“papilla u otro alimento para menores”) 1.94 School uniforms 4.25 School books and materials 14.13 Source: Based on ENNIV-2000.


Peru: Social Subsidies

May 11, 2011

Figure 12. Social Subsidies, 2000 Social Subsidies/expenditure by expenditure decile

0.0

5.0

10.0

15.0

20.0

25.0


Social Subsidies/income by expenditure decile

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0


Social Subsidies/income by income decile

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0


Table 18: Social Subsidies, 2000


Major items: School meals 23.58 Milk 34.31 Food support 23.14

Spending

Spending, 2003, m soles Spending, 2000, m soles, net of refunds 3,646 Spending as % of total tax revenue, 2000 15.9 Actual spending as % of estimated spending 256

Distributional effects, 2000 Expend/cap Inc/cap Gini coefficient 0.470 0.535 Quasi-Gini coefficient, tax/capita -0.217 -0.191 RS1 measure (>0 = progressive) 0.01854 0.01651 RS2 measure (>0 = progressive) 0.01504 0.01438 Kakwani measure (<0 = progressive) -0.688 -0.725 Note: RS1 is the Reynolds-Smolensky measure of disproportionality and RS2 is the Reynolds-Smolensky measures of redistributive capacity. Source: Based on ENNIV-2000. More complete results are shown in Appendix 1.

JH: Tax & Expenditure Incidence in PeruMay 11, 2011Page

61

Table 18: Social Subsidies, 2000 Sorted by expenditure/capita Sorted by

inc/cap Spending/

expend Spending/

Income % of

spending Spending/

income All Peru (2000) 2.8 2.3 100.0 2.3 Decile 1 (poorest) 20.5 15.0 13.5 44.6 Decile 2 14.0 8.7 15.1 19.0 Decile 3 9.1 7.0 12.9 9.3 Decile 4 7.2 5.1 12.6 5.8 Decile 5 5.2 4.1 11.3 4.6 Decile 6 4.4 3.4 11.6 3.4 Decile 7 2.8 2.4 9.2 2.3 Decile 8 1.7 1.4 7.1 1.6 Decile 9 0.7 0.6 3.8 1.0 Decile 10 (richest) 0.2 0.2 2.8 0.1 Lima/Callao 1.9 n/a 31.0 1.6 Amazon (4 depts) 3.7 n/a 16.9 3.2 Rest of Peru 3.3 n/a 52.1 2.8



Peru: Taxes net of social spending

System seems progressive overall But

▪ Some taxes not included (e.g. CIT)▪ Not all spending can be included▪ Rely on our incidence assumptions

May 11, 2011Page

62

Figure 16. Taxes Net of Social Spending, 2000 Tax net of spend./expenditure by expenditure decile

-40.0

-30.0

-20.0

-10.0

0.0

10.0

20.0

1 2 3 4 5 6 7 8 9 10


Tax net of spending/income by expenditure decile

-30.0

-25.0

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

1 2 3 4 5 6 7 8 9 10


Tax net of spending/income by income decile

-70.0

-60.0

-50.0

-40.0

-30.0

-20.0

-10.0

0.0

10.0

20.0

1 2 3 4 5 6 7 8 9 10

Income per capita deciles


63

Table 21: Taxes Net of Social Spending, 2000 Sorted by expenditure/capita Sorted by

inc/cap Tax/

expend Tax/

income % of tax revenue

Tax/ income

All Peru (2000) 3.7 3.1 100.0 3.1 Decile 1 (poorest) -34.3 -25.1 -17.1 -60.9 Decile 2 -19.1 -11.9 -15.7 -23.8 Decile 3 -11.1 -8.5 -11.9 -8.1 Decile 4 -6.5 -4.6 -8.6 -4.1 Decile 5 -3.4 -2.6 -5.5 -0.5 Decile 6 -0.5 -0.4 -0.9 0.0 Decile 7 1.7 1.4 4.1 1.9 Decile 8 3.7 3.0 11.6 3.2 Decile 9 6.4 6.0 27.6 4.5 Decile 10 (richest) 11.5 10.5 116.4 9.1 Lima/Callao 6.8 n/a 82.5 5.6 Amazon (4 depts) 0.0 n/a 0.0 0.0 Rest of Peru 1.5 n/a 17.5 1.3



64

Table 22. Revenue and Progressivity Measures for Taxes and Spending, 2003 Reynolds-Smolensky measures

Revenue or spending, S/.

millions Disproportionalit

y (RS1) Redistributive capacity (RS2)

Kakwani measure of progressivity

Social subsidies 3,646 0.01854 0.01504 -0.688 V. progressive Educational spending 4,740 0.01282 0.01234 -0.369 Progressive Gasoline excise tax 2,145 0.00626 0.00582 0.378 Progressive Health spending 1,922 0.00480 0.00371 -0.334 Progressive Personal income tax 2,117 0.00257 0.00217 0.157 Vehicle excise tax 240 0.00075 0.00075 0.412 Progressive Alcohol excise tax 817 0.00036 0.00032 0.057 Cigarette excise tax 106 0.00000 0.00000 -0.003 Soda excise tax 141 -0.00011 -0.00011 -0.105 VAT 9,551 -0.00116 -0.00125 -0.015 Memo: All taxes 15,116 0.00971 0.00831 0.075 Social spending 10,308 0.03451 0.02975 -0.475 Tax net of spending 4,808 0.04755 0.04036 1.254


Marginal Full Incidence

Addresses question: If a tax were raised, and spending

increased as a result, what would effect be on incidence?

Step 1: Estimate effect of more tax revenue on spending

Step 2: Simulate effect of higher VAT in Peru

May 11, 2011Page

65


Effect of more tax

Estimated using regression of form

i.e. spending/GDP (y) is a function of tax revenue/GDP (x)

Panel Data: 16 Latin American countries, 1980-2002. “Fixed effects” estimates.

May 11, 2011Page

66

itiitit xy .


67

Table 25. Average and marginal effects of incremental tax revenue % of GDP % of tax

revenue Sample

size Marginal

effect p-value

Tax revenue 16.0 100.0 283 100.0 Government expenditure 21.7 135.4 283 109.4 0.00 Of which: Education 3.0 18.8 265 7.6 0.00 Health 2.0 12.6 263 7.3 0.00 Social security 4.9 30.8 251 36.2 0.00 Law and order 2.7 16.7 169 26.0 0.00 Interest payments 2.8 17.5 273 -0.2 0.79 Other 5.5 34.4 163 35.1 0.00

Note:•Low marginal effects for education, health•No marginal effect for interest payments•High marginal effects for social spending


Peru: Simulation: VAT +1%

2000: assume VAT from 18% to 19% Of extra revenue:

▪ Education takes 7.6%▪ Health takes 7.3%▪ Social subsidies take 28.4%▪ Remaining spending not allocable

May 11, 2011Page

68


69

Figure 18. The Effects of a One Percentage Point Increase in VAT with Associated Social Spending

Tax net of spending, S/., by expenditure decile

(500.00)

-

500.00

1,000.00

1,500.00

2,000.00

2,500.00

1 2 3 4 5 6 7 8 9 1 11


Initial position

Higher VAT and spending

Change in Tax net of spending, S/., by expenditure decile, with higher VAT & spending

(10.00)

-

10.00

20.00

30.00

40.00

50.00

1 2 3 4 5 6 7 8 9 10


Tax net of spending, S/., by income decile

(500.00)

-

500.00

1,000.00

1,500.00

2,000.00

2,500.00

1 2 3 4 5 6 7 8 9 10


Initial position

Higher VAT and spending

Change in Tax net of spending, S/., by income decile, with higher VAT & spending

(10.00)(5.00)

-5.00

10.0015.0020.0025.0030.0035.0040.0045.00

1 2 3 4 5 6 7 8 9 10



Peru: In short, a higher VAT: A higher VAT need not hurt the poor

Result is robust to whether we use expenditure/cap or income/cap to sort households

May 11, 2011Page

70


Future directions: Peru

Greater disaggregation of spending Sensitivity to assumptions about

incidence Source of purchases/evasion Better treatment of transport Use income tax data Add social security pensions

May 11, 2011Page

71


Future directions: General

Confidence intervals (bootstrapping?) Create integrated “calculators”; and do

it in-house Need better access to primary data Adjust for quality/value of benefits Theory: why income/cap results differ so

much from expend/cap results▪ Measurement error (Deaton)/permanent

income

May 11, 2011Page

72

Lebanon

7. Nine Current Issues of Tax Policy Having set out the key features of each main tax, we now turn to an analysis of several current issues of tax policy, one at a time. We are then ready, in the final section, to discuss a number of complete tax reform strategies. Issue 1: How High a VAT?

Given the government’s need for more revenue, it is widely accepted that the VAT rate will need to rise. The issue is: by how much?

A good place to start is with an analysis of an increase in the VAT from 10% to 12%, which is the smallest increase under serious consideration and is generally accepted to be quite feasible. The impact is set out below: overall tax revenue would rise by 3.9%, equivalent to 0.65% of GDP; and the increase in the tax burden would be relatively larger for more affluent households. We have assumed that as the VAT rate rises, people purchase fewer goods that are subject to the VAT; in part this is because they face a budget constraint, so a rise in the VAT rate from 10% to 12% would, if spending is held constant, raise revenue by 17.9% and not by 20%. In addition, faced with a higher VAT rate, buyers would tend to substitute items that are not subject to the VAT. We use a “revenue loss parameter” of 0.8, which means that a 20% increase in the VAT rate would be accompanied by a 16% (i.e. 0.8 times 20%) rise in revenue (and we allow for an additional response for motor fuel and tobacco). Even this may be too low; Agha and Haughton (1996) estimate, based on data from OECD countries, that every percentage point increase in the VAT rate is associated with a 2.7% fall in compliance, which would imply a revenue loss parameter of about 0.7.

An increase in the VAT from 10% to 12% would raise little more than a fifth of the revenue that is considered necessary if Lebanon is to escape from its current vicious cycle of debt. This prompts one to ask what would be the effect of an increase in the VAT rate from 10% to 16%. The result would be a LBP510bn rise in revenue, equivalent to 2% of GDP. Again, the burden would fall slightly more on rich than on poor households, although even the latter would find their real expenditure cut by 2.3%. Here too we have taken into account that a 60% rise in the nominal VAT rate would lead to an increase in revenue of substantially less than this.

An important question is whether the VAT, introduced just over two years ago, is robust enough to withstand a substantial increase in the rate. This is a clear case where “Tax administration is

Exercise 1: Raise Value Added Tax from 10% to 12% Categories Old New % change Revenue Loss

Parameter Total tax revenue, LBP bn 4,502 4,679 +3.9 Of which: VAT 1,361 1,555 +14.3 0.8 Fuel excises 819 804 -1.8 Tobacco excises 185 182 -1.8 Memo: Gini coefficient for all taxes 0.474 0.472 Change in tax/expenditure Change in tax/expenditure

LBP/cap p.a. % change LBP/cap p.a. % change Beirut -71 -0.95% All Lebanon -51 -0.99% Suburbs of Beirut -59 -0.98% Rest of Mt. Lebanon -70 -1.01% Poorest quintile -14 -0.81% North Lebanon -40 -1.03% Poor-mid quintile -24 -0.85% South Lebanon -37 -1.02% Middle quintile -35 -0.88% Nabatieh -40 -1.02% Mid-upper quintile -52 -0.94% Beka'a Valley -36 -0.94% Upper quintile -130 -1.11%

Lebanonfrom the capacity and evolution of tax administration.

Of the 15,400 registered VAT payers, roughly 1,000 are audited every quarter, almost double the proportion of most other jurisdictions, and a reflection of the newness of the tax. On the other hand the VAT department is well trained and adequately staffed, and could probably make a VAT of 16% work without too much leakage, particularly as three fifths of the revenues are collected on imports.

A broader question is how far one can push a VAT. Agha and Haughton have constructed an interesting graph, reproduced here, that shows that once the VAT rate exceeds about 15%, the pressure to shrink the base becomes very strong. The implication is that the revenue-maximizing point is then reached quite quickly, and appears to be in the region of 7-8% of GDP; all the countries in the sample whose VAT raised more than 7% of GDP are ranged along the frontier in this diagram.. Our simulations, detailed above, show that a VAT of 16% would raise about 7.0% of GDP in revenue, which is as far as one can reasonably expect to go.

Exercise 2: Raise Value Added Tax from 10% to 16% Categories Old New % change Revenue Loss

Parameter Total tax revenue, LBP bn 4,502 5,012 +11.3 Of which: VAT 1,361 1,923 +41.3 0.8 Fuel excises 819 777 -5.2 Tobacco excises 185 175 -5.2 Memo: Gini coefficient for all taxes 0.474 0.472 Change in tax/expenditure Change in tax/expenditure

LBP/cap p.a. % change LBP/cap p.a. % change Beirut -205 -2.74% All Lebanon -148 -2.86% Suburbs of Beirut -172 -2.84% Rest of Mt. Lebanon -204 -2.92% Poorest quintile -42 -2.34% North Lebanon -116 -2.97% Poor-mid quintile -70 -2.46% South Lebanon -106 -2.94% Middle quintile -100 -2.56% Nabatieh -115 -2.94% Mid-upper quintile -152 -2.71% Beka'a Valley -105 -2.73% Upper quintile -375 -3.19%

Lebanon2. A Revenue-Neutral Reform, Emphasizing Equity An alternative revenue-neutral reform would keep the VAT at 10%, but improve the efficiency of taxes on the income side. The wage and salary tax, and the tax on proprietors’ income, would be unified with a 10% basic rate, rising to 20% on income above LBP60 million; and with a personal tax deduction of 1.5 million. The corporation income tax would rise to 20%, while the capital gains and inheritance taxes would be abolished. A property tax levied at 0.5% of the value of property above LBP120m would replace the current graduated built property tax. Total revenue would rise fractionally, but the tax system would become more progressive, with the tax Gini rising from 0.474 to 0.480. Further details are provided in the table. 3. The Prime Minister’s Proposal of 2003

Although it is no longer actively under consideration, the Prime Minister proposed, in 2003, a radical set of tax changes that would shift the weight of taxation away from income and onto expenditure. Specifically he suggested raising the VAT from 10% to 16% and the corporation income tax from 15% to 20%; at the same time several taxes would be abolished, including those on wages and salaries, built property, and inheritance, as well as some minor excises, and educational fees.

We estimate that the plan would have raised tax revenue by 5.8% in 2003, an increase of LBP263bn. Although the plan would have considerably simplified tax administration, it had two drawbacks. First, it did not raise enough additional revenue to be convincing to the Paris II donors, who wanted (and still want) to see a more substantial effort to achieve fiscal balance, and would not have favored the elimination, even temporarily, of taxes on personal income. Second, the proposal would have fallen most heavily on the poor, who spend on consumption (and so would be hit by the higher VAT) but are less likely to pay taxes on wages or capital income (and so would not benefit from the reduction in those taxes.

Exercise 2: A Revenue-neutral equity-enhancing tax reform Categories Old New Change, LBP bn % change Revenue Loss

Parameter Total tax revenue, LBP bn 4,502 4,534 32 +0.7% Of which: Wage and salary tax 173 184 11 +6.3% 1.0 Sole proprietorships 119 107 -12 -9.7% 1.0 Corporation profits 295 393 98 +33.3% 1.0 Dividends & capital gains 51 0 -51 -100.0% 1.0 Inheritance tax 37 0 -37 -100.0% 1.0 Built property tax 82 201 119 +146.0% 1.0 Property registration fees 203 122 -81 -40.0% 1.0 Other taxes and stamp duties 305 289 -16 -5.2% 1.0 Memo: Gini coefficient for all taxes 0.474 0.480 Change in real expenditure Change in real expenditure

LBP/cap p.a. % change LBP/cap p.a. % change Beirut -44 -0.59% All Lebanon -27 -0.52% Suburbs of Beirut -40 -0.66% Rest of Mt. Lebanon -49 -0.70% Poorest quintile -1 -0.06% North Lebanon -11 -0.29% Poor-mid quintile -3 -0.10% South Lebanon -9 -0.25% Middle quintile -4 -0.09% Nabatieh -9 -0.24% Mid-upper quintile -15 -0.26% Beka'a Valley -17 -0.43% Upper quintile -113 -0.96% Components of tax proposal: Simplify tax on wages and salaries, and on the self-employed: 10% basic rate, rising to 20% on income above LBP60 million. Remove: tax on dividends and capital gains; inheritance tax; minor excises (alcoholic & non-alcoholic beverages, entertainment tax, 5% sales

tax on small hotels); fees related to education (examination fees, registration fees for schools and University of Lebanon). Raise corporation income tax to 20%. Raise Built property tax to flat 0.5% of value, but cut property registration fees from 5% to 3%.

Lebanon: Hariri proposal

Exercise 3: Prime Minister’s Tax Reform Package floated in 2003 Categories Old New Change, LBP bn % change Revenue Loss

Parameter Total tax revenue, LBP bn 4,502 4,765 263 +5.8% Of which: Wage and salary tax 173 0 -173 -100.0% 1.0 Sole proprietorships 119 93 -26 -22.0% 1.0 Corporation profits 295 393 98 +33.3% 1.0 Inheritance 37 0 -37 -100.0% 1.0 Built property tax 82 0 -82 -100.0% 1.0 VAT 1,361 1,923 562 +41.3% 0.8 Fuel excises 819 777 -41 -5.2% Elasticity = -0.2 Tobacco excises 185 175 -10 -5.2% Elasticity = -0.2 Other taxes and stamp duties 305 278 -26 -8.7% 1.0 Memo: Gini coefficient for all taxes 0.474 0.452 Change in real expenditure Change in real expenditure

LBP/cap p.a. % change LBP/cap p.a. % change Beirut -73 -0.97% All Lebanon -84 -1.63% Suburbs of Beirut -90 -1.48% Rest of Mt. Lebanon -107 -1.53% Poorest quintile -39 -2.18% North Lebanon -80 -2.04% Poor-mid quintile -61 -2.15% South Lebanon -77 -2.14% Middle quintile -82 -2.10% Nabatieh -87 -2.23% Mid-upper quintile -100 -1.79% Beka'a Valley -70 -1.81% Upper quintile -136 -1.16% Components of tax proposal: Raise VAT rate from 10% to 16% Raise corporate tax rate from 15% to 20% Remove: tax on wages and salaries; built property tax; inheritance tax; professional tax; minor excises (alcoholic & non-alcoholic beverages,

entertainment tax, 5% sales tax on small hotels); fees related to education (examination fees, registration fees for schools and University of Lebanon).

[email protected]

tax incidence in thailand

Documents

tax expenditure incidence

thailand tax incidence

tax revenuecollected

gdpincome tax

incidence assumptionsvat

explicit tax information

household expenditure

main taxes