# Presentation: 505511

## Tax Reform: An International Perspective

- The President’s Advisory Panel on Federal Tax Reform
- San Francisco
- March 31, 2005
- By
- Jeffrey Owens
- Organisation for Economic Cooperation and Development

## OECD Member Countries

**OECD Member countries**

**Countries which engage in Tax Dialogue**

## 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
- Protecting the environment through tax and related measures

## 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 labor)
- 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

## Trends in the Taxation of Dividend Income (2000-2004)

| Country | Reform Year | Pre-Reform System | Post-Reform System |
| --- | --- | --- | --- |
| United States | 2003 | Classical | Reduced scheduler PIT rate (15% federal) |
| Germany | 2001 | Full imputation (with split rate) | Classical (with PIT rate) |
|  | 2002 | Classical (with split rate) | Partial inclusion |
| Italy | 2004 | Full imputation | Partial inclusion |
| Korea | 2001 | Classical | Partial inclusion |
| Portugal  | 2002 | Reduced scheduler PIT rate | Partial inclusion |
| Slovak Republic | 2003 | Classical | Personal tax exemption |
| Turkey | 2003 | Partial imputation | Partial inclusion |

## The overall tax burden and structure

**EU 15 Average 40.6**

- 2003

**USA**

**OECD 15 Average 36.6**

**For more details, see Table 1 in the Appendix.**

**Tax as ****% GDP**

## Change in tax to GDP ratios

- 1975 to 2003

**USA**

**Tax as ****% GDP**

**For more details, see Table 1 in the Appendix.**

## Top personal and corporate tax rates

- 2004

**USA**

**CIT – OECD average = 30**

**CIT – EU average = 31**

**PIT – OECD average = 44**

**PIT – EU average = 48**

**For more details, see Figure 2 and 3 in the Appendix.**

**Includes Central, State and Local Taxes**

## The tax wedge – income tax and social security contributions as % of labor costs

- 2004

**USA**

- Single individual at average earnings

**For more details, see Figure 4 and 5 in the Appendix.**

## VAT – tax rates and revenues (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

- 2003

**USA**

## 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

## 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