Tax systems in transition
How have tax systems, whose primary role is to raise resources to finance public expenditures, evolved in the transition countries of Eastern Europe and the former Soviet Union? The authors find that: (1) the ratio of tax revenue-to-GDP decreased l...
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| Language: | English |
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World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2003/01/2120326/tax-systems-transition http://hdl.handle.net/10986/19167 |
| Summary: | How have tax systems, whose primary role
is to raise resources to finance public expenditures,
evolved in the transition countries of Eastern Europe and
the former Soviet Union? The authors find that: (1) the
ratio of tax revenue-to-GDP decreased largely due to a fall
in revenue from corporate income tax; (2) the fall in
revenue from the corporate income tax led to a decline in
the importance of income taxes, notwithstanding a rise in
the share of individual income tax; (3) social security
contributions together with payroll taxes became less
important in the Commonwealth of Independent States; and (4)
domestic indirect taxes gained in importance in overall tax
revenues. Apart from the increased role of personal income
taxation, these developments go in a direction opposite to
those observed in poor countries as they get richer. They
show a key aspect of transition, namely a movement from a
system where the government exercised a preeminent claim on
output and income before citizens had access to the
remainder, to one with a greatly diminished role for the
public sector, as reflected in a lower ratio of public
expenditure to GDP, where the government needs to collect
revenue in order to spend. Can expected levels of public
expenditure be financed by the basic instruments of a modern
tax system without creating significant distortions in the
private sector? The authors suggest that transition
countries, depending on their stage of development, should
aim for a tax revenue-to-GDP ratio in the range of 22 to 31
percent, comprising value-added tax (6 to 7 percent),
excises (2 to 3 percent), income tax (6 to 9 percent),
social security contribution together with payroll tax (6 to
10 percent), and other taxes such as on trade and on
property (2 percent). The authors' analysis also sheds
light on the links between tax policy, tax administration,
and the investment climate in transition countries. |
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