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
2
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
3
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

4
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
5
60
50
40
Corporate and personal income taxes
Social security contributions
For more details, see Table 1 in the Appendix.
Ita
No ly
rw
ay
Fr
an
c
Fin e
la
Be nd
lgi
De um
nm
a
Sw rk
ed
en
Tax as
% GDP
Un Mex
ic
ite
dS o
tat
es
Ko
re a
Ja
p
Sw
an
it z
e rl *
an
d
Ire
l
an
Au
s tr d
ali
Po a *
la n
d*
Slo
va
T
k R urk
e
ep
ub y
lic
*
Ca
na
da
Po
Ne rtug
al
*
Un w Ze
ite
ala
dK
n
ing d
do
m
Sp
ain
Gr
ee
Ge ce *
rm
Hu any
ng
ar y
Ne
t
he
*
Cz
r
ec
l
h R and
s
ep
ub
li
Ice c
Lu
l
an
xe
mb d
ou
r
Au g
s tr
ia
The overall tax burden and structure
2003
Consumption taxes
Other
EU 15 Average 40.6
OECD 15 Average 36.6
30
20
10
0
6
18
For more details, see Table 1 in the Appendix.
It al
y
Tax as
% GDP
Hu
nga
Cze
ry (
ch
*)
Rep
ubl
ic
Net
her
Slo
lan
vak
ds
Rep
ubl
ic (
*)
Pol
an d
Un
(*)
i ted
Sta
Un
i ted
tes
Kin
gdo
m
Ge
rm
any
Ir el
an d
Can
ad a
Sw
i tze
rlan
d
Me
x
i co
Lux
em
bou
rg
No
r wa
y
Jap
an
(*)
Au
st r
ali a
(*)
Bel
giu
m
Au
st r
New
ia
Z ea
lan
d
Fin
lan
d
Fra
n ce
Sw
ed e
n
Den
ma
rk
Ice
l an
d
Ko
r ea
Por
tug
al (
*)
Gr e
ece
(*)
Tur
key
Spa
in
Change in tax to GDP ratios
1975 to 2003
16
14
12
10
8
6
4
2
0
-2
-4
-6
-8
7
Top personal and corporate tax rates
2004
Countries ranked by top PIT Rate
Top CIT Rate
PIT – EU average = 48
60.0
Top PIT Rate
50.0
PIT – OECD average = 44
CIT – EU average = 31
30.0
CIT – OECD average = 30
%
40.0
20.0
10.0
Ita
ly
Sp
a
Ic in
e
Sw
la
it z nd
er
la
nd
I
Un re
ite lan
d
d
St
at
e
Tu s
rk
Un
e
ite Po y
la
d
n
Ki
ng d
do
G m
re
e
Po ce
rtu
ga
Ne
Ko l
w
re
Z
a
Lu e al
xe a n
m d
bo
u
Hu rg
ng
ar
Cz
y
M
ec
e
x
h
i
Sl
c
ov Re p o
ak
ub
Re lic
pu
bl
ic
De
n
m
a
Sw rk
ed
en
Fr
an
Be ce
lg
iu
m
F
Ne inla
n
th
er d
la
nd
s
Ja
pa
Au n
s
Au tria
st
ra
l
No ia
rw
G
er ay
m
an
Ca y
na
da
0.0
Includes Central, State and Local Taxes
For more details, see Figure 2 and 3 in the Appendix.
8
ex
ic
Ne
o
K
w o
r
Ze e
al a
a
Ire nd
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A p
Sw us a n
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Sl
ov D a
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Re ma
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Cz t la
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b
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nl
a
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st
ria
Hu Ital
ng y
a
Fr r y
an
Sw c
e
e
G de
er n
m
Be an
lg y
iu
m
M
The tax wedge – income tax and social
security contributions as % of labor costs
Single individual at average earnings
60
2004
50
40
% 30
20
10
0
Personal Income Tax
Employee Social Security Contr.
Employer Social Security Contr. and payroll taxes
For more details, see Figure 4 and 5 in the Appendix.
9
DE
HU NM
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IT O R
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AT
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VAT – tax rates and revenues (1)
30
2003
25
20
15
10
5
0
VAT/sales tax revenues as % of total tax revenues
1)
Countries ranked from highest VAT standard rate to lowest rate.
The comparisons include all levels of government
2)
2002 revenue figure
VAT standard rate
3) 2001 revenue figure
10
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
11
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
12