Taxes, uncollectible taxes and tax credits
UN STATISTICS DIVISION
Economic Statistics Branch
National Accounts Section
UNSD/NA/MR
1
Background
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Accruals accounting now an international norm, even for public
accounts
International comparisons (including tax burden) increasingly
based on national accounts
Accumulated experience shows difficulties to ensure
homogeneous recording.
It is neessary to:
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Clarify the SNA principles
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Provide more guidance (commonly agreed) on:
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The coverage of tax (borderline cases)
The acceptable methods for implementing accruals
The recording of tax credits, in particular the case of payable tax
credits
Definition and coverage of tax
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Taxes are described as unrequited because, in
most cases, the government provides nothing
directly to the individual init making the
payment, or nothing commensurate.
However, there are cases the government
provides something (granting a permit or
authorization) to the individual unit against
payment. The AEG decides that the payment
for the permit to engage in specific activities
was a tax.
Permissions to engage in specific activities
(with no underlying asset)
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The payment for the permit to engage in
specific activities was a tax.
When tax payment covers more than one
accounting period:
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If the tax payment is refundable, it is treated as a
tax prepayment and a corresponding government
liability.
If it is non-refundable, then the tax payment is
accrued in the period when the permit begins and
there is no government liability, but the permit
holder has a non-produced, non-financial asset.
Taxi medallion is treated in this category.
License/permit with services
provided in return
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Record as purchase of service (fees):
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If the issuance of the licence/permit implies the exercise of a
proper regulatory function of the government, and when a service
(like inspection, testing, etc.), is provided in return to the payment,
unless the payment is clearly out of proportion to the costs of
producing the service for all or any of the entities benefiting from
the services.
Examples:
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Driving permit, food operating permit, etc.
Public museum, library admission fees
Public television and radio fees
Waste collection and garbage disposal
Road tolls
Accrual recording of taxes
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Time of recording: Taxes are recorded based
on the basic principle: “When the taxable
event occurs to which tax relates occurs.”
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For example, tax on income is recorded/assessed
when income is received, not when tax is paid.
Amounts to be recorded: Only record
amounts “realistically expected to be
collected”.
Method for tax assement
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Three methods are proposed:
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“time –adjusted cash basis”: Amounts are initially recorded
when paid and then adjusted to the time the liability to pay
tax was incurred.
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Methods based on assessment of due taxes: there are two
statistical methods which may eliminate the effect of taxes
unlikely to be collected on these assessments:
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Net recording of taxes: amounts assessed as due are to
be adjusted by a coefficient reflecting the assessments
in the recent periods that were never collected. Thus,
the amounts of accrued tax are written down according
to this adjustment (…)
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Gross recording of taxes: amounts assessed as due –
based on realistic assessments - are entirely recorded
as tax. But the discrepancy between this due amount of
tax and the actual cash receipts shall be treated as a
capital transfer (in favour of defaulting payers).
Tax credits/ Tax reliefs
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Some subsidies or social benefits are made available
via the tax system in the form of tax credits.
Tax relief aimed at redistribution may be designed to
reduce the amount of tax that households pay
according to certain characteristics, such as the
number of children. Moreover, tax relief may also be
designed to encourage certain activities, such as
participation in the labour force or investment in R &
D.”
Tax credits represent tax relief and so reduce tax
liability of the beneficiary.
If the relief is greater than the liability, then the
beneficiary actually receives the excess, described as
payable tax credits.
Current 1993 SNA has no guideline.
Tax credits:Illustration
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+ Gross income
- Tax exemptions
= Net income tax base
- Tax allowances
= Taxable income
* tax rate
= Tax claim / liability
(otherwise due)
- Tax credits
= Tax revenue
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Tax relief refers to all
forms of exemptions,
allowances and credits
Tax relief: AEG recommendation
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A tax relief that is embedded in the tax
system should be recorded as reducing tax
revenue.
This is the case of tax allowances,
exemptions and deductions, as they enter
directly into the calculation of the tax liability.
This also the case for non-payable tax credits,
as their value to the taxpayer is limited to the
size of their tax liability.
The special case of payable tax
credits
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Payable tax credits occur in cases where the total
amount of the credit exceeds the amount of tax
liability (otherwise due) and so the element of the
credit in excess is paid by the government to the
taxpayer.
The amount actually paid by the government is to be
recorded as government expenditure (subsidy or
social benefit) while the rest is reducing the tax
liability. Actual government payments will not in any
case be deducted from the reporting of global tax
revenue.
Thank You