THE latest OECD Study has revealed that the tax revenue has been on
decline, and many governments across the world have been facing historic high
levels of deficit and debt. In many countries, the fall in tax collections has
been more than 10%.
The
OECD’s “Tax Policy Reform and Fiscal Consolidation” states that for tax regimes
to support sustainable economic growth, governments must decide the right way to
raise additional tax revenues. Taxes can be a disincentive to work, invest and
innovate, with adverse effects on economic growth and welfare. But such
distortions can be minimised:
+ Change the overall tax structure to raise
more revenue from taxes on consumption and residential property tax and less
from personal and corporate income taxes;
+ Broaden tax bases to enable
rates to be kept as low as possible;
+ A “green” tax system, crucial to a
Green Growth strategy, will achieve environmental objectives and the additional
revenues raised may facilitate wider growth-oriented tax reforms;
+
Ensuring that all citizens pay their fair share of taxes contributes to fiscal
consolidation. OECD initiatives to counter offshore non-compliance are yielding
billions of euros in extra tax revenues.
These arguments are further
explored in two Tax Policy Studies.
Tax Policy Study No. 19 details the
rationale for tax breaks, asks whether they are still justified, and cites case
studies such as VAT reduced rates and tax reliefs for house buyers. It notes
that ”tax expenditures” are often entrenched in tax regimes and urges countries
to evaluate whether they are worthwhile.
Tax Policy Study No. 20
recommends ways to make taxes less distortive and more growth-friendly. It also
looks at the “political economy” of tax reform – why governments are able to
design, legislate and implement growth-oriented tax reforms in some
circumstances and not others and how to overcome obstacles.
Tax reforms
will only work if taxpayers agree they are fair. For example, reforms that
recycle some of the additional revenues to poorer households can be helpful.
Governments must consider the distributional impact of the whole tax reform
package – balancing the impact on taxpayers against future growth prospects and
ensuring that all taxpayers continue to pay their fair share.
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