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INTERNATIONAL MONETARY FUN D

Explore tax revenue concepts, including uncollectible taxes, tax credits, and AEG recommendations on accrual basis recording and classification issues.

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INTERNATIONAL MONETARY FUN D

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  1. INTERNATIONAL MONETARY FUND Tax Revenues Uncollectible Taxes Tax Credits Adriaan Bloem Assistant Director Real Sector Division

  2. CONTENT • Background and context • Tax revenues (definition and coverage) • Issues • Advisory Expert Group (AEG) recommendation • Accrual basis of recording of tax revenue (including uncollectible taxes issue) • Issues • AEG recommendation • Tax credits • Issues • AEG recommendation

  3. Background And Context • Review of SNA 1993 • Paper prepared by Task Force on the Harmonization of Public Sector Accounting (TFHPSA) • Considered by AEG at its July 2005 Bangkok meeting

  4. Tax RevenueDefinition And Coverage • Current SNA definition of taxes • ‘Compulsory, unrequited payments to government.’ • Issues related to the borderline between taxes, fees, licenses and permits are significant

  5. Taxes Versus Fees, Licenses And Permits • Fees, licenses and permits can be: • Unrequited transactions (usually a tax) • Requited transactions • Purchase of a service • Acquisition of an asset • The label (tax, fee etc) is not determinant of classification, but • Whether a service is received by the payer approximately commensurate with the amount paid determines whether it is a fee or tax.

  6. AEG’s Recommendation • The AEG supported the general definition of tax revenue. • Examples should be provided to illustrate the underlying concepts (particularly on the issue of fees, licenses and permits). • But these should not be seen as exhaustive or prescriptive. • Discussions on distinction taxes-licenses are still ongoing.

  7. Tax – Accrual Recording • General principle of accrual recording ‘Flows are recorded when economic value is created, transformed, exchanged or extinguished and not when cash payments are made.’ • Flexibility is permitted in practice for taxes because reliable estimates of the amount of tax may not be known until time of tax assessment • Time-adjusted cash method • Assessment of due taxes

  8. Tax – Accrual Recording • Unresolved issue: prepaid taxes • Accrue over reference period or • Record in period of payment

  9. Uncollectible Tax • Uncollectible tax is the difference between what is actually collected and what has theoretically accrued • Two methods of accounting • Net – only record as tax the amount that is realistically expected to be collected • Gross – record all tax that has theoretically accrued and record a transfer for the amount not collected

  10. AEG’s Recommendation • AEG reaffirmed the accrual basis for recording tax revenue • The principle of not including uncollectible taxes (net recording method) was agreed

  11. Tax Credits • 1993 SNA does not make recommendations on treatment of tax credits • Two types of tax credits • Payable – if the tax credit owed to a taxpayer exceeds his/her tax liability, the difference is paid out • Non-payable – the tax credit to an individual is limited to his/her tax liability.

  12. Tax Credits Continued • Non-payable tax credits are recorded as reducing tax revenue • Payable tax credits – debate about how to record • Net – amount of tax credit up to a taxpayers tax liability recorded as reducing tax revenue, and amount paid out in excess recorded as government expenditure • Gross – tax revenue not reduced, and full amount of tax credit (not just the excess over the tax liability) recorded as tax expense

  13. AEG’s Recommendation • The AEG recommended that payable tax credits should be recorded on a gross basis. • With the presentation being such that it would permit the derivation of tax credits on a net basis as well

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