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ISBN : 978-0-9742114-2-7
ABSTRACT
One of the biggest and unexpected financial and economic crises affect the world. After a
period of welfare, economies of the world are quiet close to the collapse . Governments have
tried to find solutions in these insecure conditions. Many governments decided to invest in
important companies that was close to the bankruptcy in order to avoid the collapse of the main
sectors of economy. Coherent and strong policies applied at national and international level are
necessary in order to re-launch global economy. Taxation is one of the main governmental
instruments for fighting against crises. That is the reason for tax cuts and additional deduction
implemented by the world governments.
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Taxation, a governmental instrument in order to re-launch world economy – Study case
Author :
CATALINA MIKLO(BUDA)
Title :
EC. PH Student
Institution:
WEST UNIVERSITY OF TIMISOARA, ROMANIA
ECONOMY AND BUSINESS ADMINISTRATION
Address :
Simfoniei street, nr. 3, Ap 5, Romania - ARAD
Email:
norbert.miklo@gmail.com
Tel.
0040/728.040.060
Author :
MONICA MOLCUTA( TUDOR)
Title :
EC. PH Student
Institution:
WEST UNIVERSITY OF TIMISOARA, ROMANIA
ECONOMY AND BUSINESS ADMINISTRATION
Email:
monicatudor@yahoo.com
Tel.
0040/ 727395916
October 16-17, 2009
Cambridge University, UK
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9th Global Conference on Business & Economics
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Taxation, a governmental instrument in order to re-launch world economy – Study case
Abstract
One of the biggest and unexpected financial and economic crises affect the world. After a
period of welfare, economies of the world are quiet close to the collapse . Governments have
tried to find solutions in these insecure conditions. Many governments decided to invest in
important companies that was close to the bankruptcy in order to avoid the collapse of the main
sectors of economy. Coherent and strong policies applied at national and international level are
necessary in order to re-launch global economy. Taxation is one of the main governmental
instruments for fighting against crises. That is the reason for tax cuts and additional deduction
implemented by the world governments.
ACTUAL FINANCIAL AND ECONOMIC CRISES looks to have the biggest impact in the
last 50 years. Economic downturn expanded to USA, Europe and Japan and seems to be deeper
than the crises from 1981-1982.
A big uncertainty level from consumers and business
environment produce spending and investment decrease. Governments from USA and European
countries bought stocks from companies closed to the bankruptcies in order to avoid the collapse.
In this period the states are important players for fighting against crises. The deepest reason for
financial crises was the big level of liquid resources due of main central banks policies also by
the fight of companies
that export gas and oil to keep a low level of exchange rate for their
currency. As a consequence, interest rate and volatility decreased. Both of them influence
economic environment to buy expense assets. Reduced volatility of the market conduct to
underestimated risk investments. At microeconomic level, failure at rating agencies, rational
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outsourcing from private point of view but unefficiency for social reasons, decentralized policies
trends was few items that affect economic situation. Low interest rates combined with rapid
product innovation in structured credit marks increased credit lending and in leverage. In these
conditions the risk of credit investors was excessive. Failure of household to pay the loans
conduct to a less liquidity . Banks started to refinance their activity . In these conditions interest
rate become higher. Governments from USA and European countries fight for improving
liquidity, assured governmental guarantees for loans, invested in financial institutions, big
interconnected companies in order to avoid the collapse, bought stocks from banks, reduced
interest rates. Despite of these actions, financial crises grow and affect all the economies.
Governments should take in considerations actual conditions described by
wealth
decrease, credit constraints, interest increase, unemployment risk which lead consumers to cut
consumption. Few actions like target tax cuts, the greater provision of unemployment benefits,
increases in earned income tax credits could re-launch the consumer.
TAXATION
Tax is referred as the involuntary financial charge imposed on the individuals or groups
or businesses or on any legal entity by any level of the government in order to finance govt.
activities. Taxes are generally levied upon property, personal assets, upon income and upon sale
or purchase of goods. These taxes are levied by the state or any functional equivalent of the state
with definite aim. The aim is to cover government spending, to promote stable economic growth
and to lessen the inequality of income and wealth distribution. In every country several types of
tax exist with different rules and regulations associated with it..
In economic terms, taxation transfers wealth from households or businesses to the
government of a nation. The side-effects of taxation and theories about how best to tax are an
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important subject in microeconomics. Taxation is almost never a simple transfer of wealth.
Economic theories of taxation approach the question of how to minimize the loss of economic
welfare through taxation and also discuss how a nation can perform redistribution of wealth in
the most efficient manner.
The origin of taxation
The first known system of taxation was in Ancient Egypt around 3000 BC - 2800 BC .
Records from the time document that the pharaoh would conduct a biennial tour of the kingdom,
collecting tax revenues from the people.
Even in the Bible, In Genesis (chapter 47, verse 24 - the New International Version) we
find proves about earlier taxation. Joseph told to the Egyptian people to give to the Pharaoh a
fifh( 20%) from their crop : "But when the crop comes in, give a fifth of it to Pharaoh. The other
four-fifths you may keep as seed for the fields and as food for yourselves and your households
and your children."
In India, Islamic rulers imposed jizya starting in the 11th century. It was abolished by
Akbar.
Greece: In times of war the Athenians imposed a tax referred to as eisphora. No one was
exempt from the tax which was used to pay for special wartime expenditures. Also, the Greeks
imposed a monthly poll tax on people who did not have both an Athenian Mother and Father, of
one drachma for men and a half drachma for women. The tax was known as metoikion.Roman
Empire The earliest taxes in Rome were customs duties on imports and exports called
portoria. Caesar Augustus was consider by many to be the most brilliant tax strategist of the
Roman Empire.
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Direct and indirect taxation
The economists established many criteria for taxes classification but the most frequently one
is the way how taxes are collected. Based on this criteria taxes are split in two main categories :
direct and indirect.
Direct taxation – is the taxation the effect of which is intended to be borne by the person or
organization that pays it. Economists distinguish between direct taxation and indirect taxation.
The former is best illustrated by income tax, in which the person who receives the income pays
the tax and his income is thereby reduced. The latter is illustrated by VAT, in which the tax is
paid by traders but the effects are borne by the consumers who buy the trader's goods. In practice
these distinctions are rarely clear-cut. Corporation tax is a direct tax but there is evidence that its
incidence can be shifted to consumers by higher prices or to employees by lower wages.
Inheritance tax could also be thought of as a direct tax on the deceased, although its incidence
falls on the heirs of the estate.
Direct Taxes include Property Tax, Income tax, Estate Tax, Inheritance Tax, Taxes on Net
Worth.
The indirect taxation is characterized by the fact that it exclusively refers to the consumption of
goods and services, determining a distribution of the fiscal obligations. The indirect taxes are
those sources of budgetary incomes that are achieved, mainly, by means of the taxation on the
consumption, being collected for goods sale, for the performance of certain services,
respectively of some works.
They are borne by the final consumer, namely by the one that acquires and/or uses for
himself the good or the service within the price of which the tax is included the tax
Indirect Taxes include Sales Tax, Excise Tax and Value-added Tax.
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Tax Rates around the world
Tax laws in most countries are extremely complex, and tax burden falls differently on
different groups in each country and sub-national unit. The lists below give an indication by rank
of some raw indicators.
(Table 1. - Tax rates around the world )
TAXATION MEASURES IMPLEMENTED IN U.S.A., GERMANY AND JAPAN
Taxation in United States
Taxation in the United States is a complex system that include payment to at least four
different levels of government and many methods of taxation.
Individual Income Tax: The U.S. individual income tax rates for 2009 are 10%-35%. However
if under the AMT, Alternative Minimum Tax, method the tax payable exceeds the tax payable
under the regular income tax method, the AMT calculation is effective. The AMT method is
based on the gross income with reduced tax deductions and credits.
In general, the U.S. income tax is progressive, at least with respect to individuals that earn
wage income.
Also, de deduction are higher for a person which has bigger income . For this person it is
allowed to deduct expense as payments to doctors, premiums for medical insurance, prescription
drugs and insulin expenses, state taxes paid, property taxes, and charitable contributions.
(Table 2. - Single taxpayers)
(Table 3. - Married individuals filing joint and surviving spouses)
(Table 4. - Married individuals filing separate)
(Table 5. - Heads of households in U.S.)
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The U.S. federal corporate tax rates for 2009 are 15%-35%, depending on the annual taxable
income.
(Table 6. - US federal corporate tax rates for 2009)
Corporations may be taxed under certain conditions with the 20% AMT method
Personal Service Corporations in U.S is imposed to a flat tax of 35%.
Personal Holding Company in U.S.
Personal holding companies are subject to an additional tax on any undistributed personal
holding company income.
(Table 7. - Personal holding companies)
Accumulated Earnings Tax
In addition to the regular tax, if a company has accumulated taxable income over $250,000
($150,000 for personal service corporations), will pay additional Earnings Tax.
(Table 8. - Accumulated Earnings Tax)
Capital Gains
For individuals long term capital gain(property more than 12 months), the tax rate is
generally 15%. Short term capital gain is added to ordinary income and is taxed at regular tax
rate.
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Withholding Tax
The withholding tax from the following payments from non-residents:
Dividend- 30%.
Interest- 30%.
Royalties- 30%.
Existing treaty for avoiding double taxation with the country of nonresident will reduce
the applied tax .
Social Security
Social Security includes OASDI, Old Age, Survivor Disability Insurance, and Medicare.
Measures implemented in 2009 in order to stimulate the economy
United States implemented a series of measures to stimulate economy1 beginning with 2009 as
following:
Corporate tax
•it was extended the carry back period for net operating losses for small businesses with gross
annual receipts of USD 15 million or less from two years to three, four or five years.
• also allows to business taxpayers to elect to defer cancellation-of-debt (COD) income when the
taxpayer or a party related to the taxpayer repurchases a debt instrument issued by the taxpayer.
The deferral period is five years for a reacquisition of a debt in 2009 and four years for those in
2010.
1
Source: www.deloitte.com/dtt/article
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•
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government extend with additional year the special provision
allowing corporations to
accelerate their use of a portion of their carry forward alternative minimum tax (AMT) and
research credits in lieu of claiming 50% bonus depreciation.
• it was modify the New Markets Tax Credit by increasing to USD 5 billion (from USD 3.5
billion) the total amount of credit allocation awarded for years 2008 and 2009.
• the percentage exemption for gain on the sale or exchange of qualified small business stock
held was increased from 50% to 75% for stock issued after the date of enactment and before 1
January 2011.
Individual income tax
• the government will provide about USD 116 billion in tax relief over the next two years. The
credit is equal to the lesser of USD 400 for individuals and USD 800 for couples or equal to
6.2% the taxpayer’s earned income, and is refundable even if the taxpayer otherwise has no
income tax liability.
• The Act provides another temporary patch to the
individual AMT at a cost of nearly USD 70 billion.
For families, the AMT patch will eliminate a
potentially substantial tax increase by raising 2009
exemption amounts to USD 46,700 for individuals
and USD 70,950 for joint filers.
• the deduction for state sales tax and excise tax on purchase of certain motor vehicles
exempts from tax up to USD 2,400 of unemployment benefits for 2009
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Taxation in Germany
The German tax system
was changed to ease the actual rate of tax for
individuals and
companies.
Individual income tax
An individual permanent resident will pay tax based on income obtained in Germany and
from overseas.
A non- resident who is employed in Germany pays tax only on income earned in Germany.
To be considered a German citizen, a test must be met of either a life centered in Germany
or a continuous stay of 6 months in Germany during two tax years.
A self-employed person must prepay income tax that will be offset on filing an annual
return.
Germany individual income tax rates 2009
(Table 9. - Germany individual income tax rates 2009)
Corporate tax
The standard rate of Germany corporate tax in 2009 is 15%. There is a reduced rate for
part of a corporation's income.
An additional tax, solidarity tax, 5.5% of the normal rate payable, is
levied on
individuals and companies in the conditions established by law.
An additional tax has been imposed to help the merger of the two Germanys. This is
"solidarity tax" which is 5.5% of the normal rate payable. The tax is levied on corporations and
individuals, subject to the conditions specified in the law. A "business tax", payable to the
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municipality, is added to the standard tax. In 2009 the effective corporate tax rate, including
trade tax and solidarity tax is about 30%-33%.
Capital Gains
It is exempt from tax the profit obtained by individual from real estate sold and owned more
than 10 years. Also the profit from securities sold and owned more than 12 months.
Sale of a shares held less than one year when the percentage of the investment is less than 1% is
subject to a flat 25% tax. On the other hand, when the percentage of the holding is in excess of
1%, tax is payable on 60% of the profit.
Social Security contributions cover pensions, unemployment and nursing insurance and are
payd by employees and employer.
Withholding Tax
The withholding tax from the following payments from non-residents:
Dividend - 26.375% (including solidarity tax).
Royalties - 15.825% (including solidarity tax).
Interest - 0%.
Existing treaty for avoiding double taxation with the country of nonresident will reduce the
applied tax .
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Taxation facilities implemented in 20092
- introduction of declining balance depreciation at a rate of 25% for movable fixed assets for a
two-year period
- increase in the amount established for defining SMEs which can apply a special type of
depreciation
- for individual, increase in the tax-free amount, a slight drop in the entry-level tax rate from
15% to 14% and further rate adjustments to compensate for inflation-related tax progression
Taxation in Japan
Individual income tax
Taxation of an individual's income in Japan is progressive.
In other words, the higher the income, the higher the rate of tax payable.
The tax rate for an individual in 2009 is between 5% - 40% There are reduced rates of tax for
certain income earners.
Japan corporate tax in 2009 is currently fixed at 30% and, again, there is a reduced rate of tax for
certain corporations it is important to point out that the effective tax, for individuals and
corporations, is higher as a result of the other local taxes that exist in Japan.
Tax Individual Income
For a resident an individual pays tax on the income obtained in Japan and abroad.
A foreign resident who is employed in Japan pays tax only on income earned in Japan.
(Table 10. - Japan individual income tax rates)
2
Source: www.deloitte.com/dtt/article
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Japan's individual income tax rates including local taxes are among the highest tax rates in the
world. The effective top marginal tax rate is around 50%.Non residents pay for salary income in
Japan 20%.
Capital Gains
The rate of tax imposed on capital gains is identical to the tax on regular income. Only
50% of the net capital gain is taxable when the asset ( real estate) sold was owned more than 5
years. The tax rate for listed shares in Japan is 10% (7%-income tax, 3%-local tax).The tax rate
for sale of other shares is generally 20%.
Japan Corporate Tax
In 2009 Japan corporate tax is 30%. Corporate tax on income below 8 million yen is 22%
on condition that the total equity is less than 100 million yen.
In addition to corporate tax (a national tax) there are two local taxes paid by the
corporation Inhabitant Tax and Enterprise Tax, that conduct to increased corporate tax rate that
reach 41%.
A dividend received from a resident company and the first company owned at least
25% from the second company is imposed with a regular tax, but only 50% of the income .
Social Security
The social security covers matters such as health insurance, pension insurance, unemployment
insurance and more. The rates are as follows:
Employer - 12.9%
Employee - 12.0%
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Withholding Tax
The withholding tax from the following payments from non-residents:
Dividend
20%
Royalties
20%
Interest
20%
Facilities in 20093
Corporate income tax changes
• Japan is re-instating the net operating loss Carry back for one year for small and medium-size
enterprises (capital of JPY 100 million or less) for accounting periods ended on or after 1
February 2009.
Personal income tax changes
• was approved JPY 2 trillion in cash payments ( treated as nontaxable) to individuals eligible.
The cash amounts are JPY 20,000 per each individual which is 18 years old or younger or 65
years old or older . All other eligible individuals receive JPY 12,000 per person.
3
Source: www.deloitte.com/dtt/article
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CONCLUSIONS
As we can see even from these study cases, governments implemented fiscal stimulus
packages in order to help both individual and companies in this difficult time and also to relaunch economy.
This crisis has struck at a time of great global interdependence. The response to these
unprecedented events cannot be “business as usual”. New institutional mechanisms are needed to
generate global, integrated and multidimensional responses.
Coordinated fiscal stimulus has been an important part of the long-term actions to address
the crisis. The immediate response has seen a major injection of public resources into the private
sector, either directly, through liquidity support or outright public capitalization of banks and
financial institutions, or indirectly, through increased use of public subsidies and guarantees.
Such important intervention it is possible to
produce very undesirable consequences in the
medium run by distorting the incentive structure for households, firms, and financial
intermediaries. It could also affect the structure and size of government budgets and debt,
endangering fiscal sustainability and reducing resources for long-term growth, as social
protection costs rise and incoming revenue weakens due to the downturn. This is the reason for it
is very important that governments to ensure coordinated policies .
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References:
Minea, M. S, & Costas, C. F. (2006). Fiscalitatea in Europa la inceputul mileniului III. Bucuresti,
Romania: Editura Rosetti.
Spilimbergo, A., & Symansky, S., & Blanchard, O., & Cottarelli, C., (2008). Fiscal Policy for the
Crisis. International Monetary Fund
Tulai, C. I. (2003). Finantele Publice si Fiscalitatea. Cluj, Romania: Edit Casa Cartii de Stiinta.
Valee, A. (2004). Les Systemes fiscaux. Paris, France: Edition du Seuil.
Deloitte’s report (2009).
Tax Responses to the Global Economic Crisis, March 20, 2009
[available at http://www.deloitte.com/dtt/article]
OECD (2008). Strategic Response to the Financial and Economic Crisis, Contributions to the
global effort, December, 2008, [available at www.oecd.org/crisisresponse].
***
http://en.wikipedia.org/wiki/Taxation
www.mof.go.jp/english/index.htm
www.scopulus.co.uk/taxsheets/usa_taxrates_2009.htm
www.smbiz.com/sbrl001.html
www.worldwide-tax.com/index.asp#
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Table 1. - Tax rates around the world
Country
Income Tax
VAT
Corporate
Individual
Argentina
35%
9-35%
21%
Australia
30%
17-45%
10%GST
Austria
25%
21%-50%
20%
Belgium
33.99%
25-50%
21%
Brazil
34%
7.5-27.5%
17-25%
Bulgaria
10%
10%
20%
Canada
19.5%(federal)
15-29%(Federal)
5%(gst)
China
25%
5-45%
17%
Cyprus
10%
20-30%
15%
Czech Rep.
20%
15%
19%
Denmark
25%
38-59%
25%
Egypt
20%
10-20%
10%gst
Estonia
21%
20%
18%
Finland
26%
7.0-30.5%
22%
France
33.33%
5.5-40%
19.6%
Germany
30-33%(effective)
15-45%
19%
Gibraltar
27%
0-40%
-
Greece
25%
0-40%
19%
Hong kong
16.5%
2-17%
-
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Hungary
16%
18% and 36%
20%
India
30-40%
10-30%
12.5%
Indonesia
28%
5-30%
10%
Ireland
12.5%
20-41%
21.5%
Israel
26%
10-46%
15.5%
Italy
31.4%
23%-43%
20%
Japan
30%
5-50%
5%
Latvia
15%
23%
21%
Lithuania
20%
15%/20%
19%
Luxemburg 21%
0-38%
15%
Malta
35%
15-35%
18%
Mexico
28%
0-28%
15%
Monaco
33.33%
0%
19.6%
Morocco
35%
0-41.5%
20%
Montenegro 9%
12%
17%
Netherlands 20-25.5%
0-52%
19%
New Zealand 30%
0-39%
12.5%
Norway
28%
28-49%
25%
Pakistan
35%
0-25%
15%
Philippines
30%
5-32%
12%
Poland
19%
18%/32%
22%
Portugal
25%
0-42%
20%
Romania
16%
16%
19%
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Russia
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20%
13%
18%
Saudi Arabia 20%
20%
--
Serbia
10%
10-20%
18%
Singapore
18%
3.5%-20%
7%
Slovakia
19%
19%
19%
Slovenia
21%
16%-41%
20%
South Africa 28%
0-40%
14%
Spain
30%
24-43%
16%
Sweden
26.3%
0-57%
25%
Taiwan
25%
6-40%
5%
Thailand
30%
5-37%
7%
Tunisia
30%
15-35%
18%
Turkey
20%
15-35%
18%
U.K.
28%
0-40%
15%
Ukraine
25%
15%
20%
U.S.A.
15-35%
15-35%
-
Vietnam
25%
5-35%
10%
Zambia
35%
0-35%
16%
Source: http://www.worldwide-tax.com/index.asp#partthree
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Table. 2. - Single taxpayers
If taxable income is over--
But not over--
The tax is:
$0
$8,350
10% of the amount over $0
$8,350
$33,950
$835.00 plus 15% of the
amount over $8,350
$33,950
$82,250
$4,675.00 plus 25% of the
amount over 33,950
$82,250
$171,550
$16,750.00 plus 28% of the
amount over 82,250
$171,550
$372,950
$41,754.00 plus 33% of the
amount over 171,550
$372,950
no limit
$108,216.00 plus 35% of the
amount over 372,950
Source: http://www.scopulus.co.uk/taxsheets/usa_taxrates_2009.htm
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Table 3. - Married individuals filing joint and surviving spouses
taxable income is over--
But not over--
The tax is:
$0
$16,700
10% of the amount over $0
$16,700
$67,900
$1,670.00 plus 15% of the
amount over 16,700
$67,900
$137,050
$9,350.00 plus 25% of the
amount over 67,900
$137,050
$208,850
$26,637.50 plus 28% of the
amount over 137,050
$208,850
$372,950
$46,741.50 plus 33% of the
amount over 208,850
$372,950
no limit
$100,894.50 plus 35% of the
amount over 372,950
Source: http://www.scopulus.co.uk/taxsheets/usa_taxrates_2009.htm
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Table 4. - Married individuals filing separate
taxable income is over--
But not over--
The tax is:
$0
$8,350
10% of the amount over $0
$8,350
$33,950
$835.00 plus 15% of the
amount over 8,350
$33,950
$68,525
$4,675.00 plus 25% of the
amount over 33,950
$68,525
$104,425
$13,318.75 plus 28% of the
amount over 68,525
$104,425
$186,475
$23,370.75 plus 33% of the
amount over 104,425
$186,475
no limit
$50,447.25 plus 35% of the
amount over 186,475
Source: http://www.scopulus.co.uk/taxsheets/usa_taxrates_2009.htm
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Table 5. - Heads of households in U.S.
if taxable income is over--
But not over--
The tax is:
$0
$11,950
10% of the amount over $0
$11,950
$45,500
$1,195.00 plus 15% of the
amount over 11,950
$45,500
$117,450
$6,227.50 plus 25% of the
amount over 45,500
$117,450
$190,200
$24,215.00 plus 28% of the
amount over 117,450
$190,200
$372,950
$44,585.00 plus 33% of the
amount over 190,200
$372,950
no limit
$104,892.50 plus 35% of the
amount over 372,950
October 16-17, 2009
Cambridge University, UK
24
9th Global Conference on Business & Economics
ISBN : 978-0-9742114-2-7
Table 6. - US federal corporate tax rates for 2009
Taxable income over
Not over
Tax rate
$0
$50,000
15%
50,000
75,000
25%
75,000
100,000
34%
100,000
335,000
39%
335,000
10,000,000
34%
10,000,000
15,000,000
35%
15,000,000
18,333,333
38%
18,333,333
..........
35%
Source: http://www.smbiz.com/sbrl001.html
Table 7. - Personal holding companies
Year
Rate
2009
15.0%
Source: http://www.smbiz.com/sbrl001.html
October 16-17, 2009
Cambridge University, UK
25
9th Global Conference on Business & Economics
ISBN : 978-0-9742114-2-7
Table 8. - Accumulated earnings tax
Year
Rate
2009
15.0%
http://www.smbiz.com/sbrl001.html
Table 9. - Germany individual income tax rates 2009
Tax %
Tax Base (EUR)
0
Up to 7,664
15%
7,665-52,152
42%
52,153-250,000
45%
250,001 and over
http://www.worldwide-tax.com/germany/germany_tax.asp
Table 10. - Japan individual income tax rates
Tax Base (Yen)
Tax
1 - 1,950,000
5%
1,950,001-3,300,000
10%
3,300,001 - 6,950,000
20% of base exceeding 3,300,000
6,950,001-9,000,000
23% of base exceeding 6,950,000
9,000,001 - 18,000,000
33% of base exceeding 9,000,000
18,000,001 and over
40% of base exceeding 18,000,000
Source:
http://www.mof.go.jp/english/index.htm
October 16-17, 2009
Cambridge University, UK
26