Revenue-productive income tax structures and tax reforms in emerging market economies - evidence from Bulgaria

Using a household budget survey for 1992, The author shows the poor revenue performance and distributional impact of Bulgaria's personal income tax system. He explores the implications for revenue and income distribution of two alternative tax systems - a flat tax and a progressive but simpler three-brackets tax system. He demonstrates that simpler tax structures with lower tax rates could achieve at least equal revenue and distributional objectives and are superior in terms of efficiency and equity. (The findings are robust when Bulgaria's significant tax evasion is included). But tax changes since 1992 have, if anything, moved Bulgaria even further from a simple income tax system: the number of rates and brackets increased from 7 to 10, and the levels of exemption remain unchanged. (Complex, higher rates complicate administration and enforcement and provide incentives for tax evasions. And in the alternative systems the author explores, the poor are protected with higher exemptions.) Fortunately, the country's personal income tax structure began to move toward less nominal progressivity after Bulgaria's 1997 tax reform program. The tax rate in thetop income bracket was reduced from 52 percent to 40 percent, the number of tax brackets was halved, and the exemption level was increased 20 percent (reducing tax burdens on the poor).Environmental Economics&Policies,Public Sector Economics&Finance,Regional Governance,Tax Policy and Administration,Economic Theory&Research,Governance Indicators,Economic Theory&Research,Public Sector Economics&Finance,Environmental Economics&Policies,Tax Policy and Administration

Panel discussion: Evil in politics

This is the archive of a panel discussion given by Krzysztof Michalski, Professor of Philosophy, Boston University; Rector, IWM; Lilia Shevtsova, Senior Associate, Carnegie Moscow Center; Aleksander Smolar, President, Stefan Batory Foundation, Warsaw; Fareed Zakaria, Editor-in-Chief, Newsweek International

Distribution of income and the income tax burden in Bulgaria

Using the 1992 Bulgarian household budget survey, the authors analyze the distribution of income and of the income tax burden by income and expenditure class and by rural-urban sector. They find: 1) Low income inequality (although that is changing rapidly). 2) A progressive income tax system. The poor (the lowest two-income decile) pay only 1.4 percent of their per capita income in income tax; the rich (the top decile) pay nearly 6 percent. In-kind income and expenditures are excluded from taxation. 3) The urban sector pays proportionately more in taxes than the rural sector. For example, urban households pay 5.3 percent of their per capita income in income tax, whereas the rural sector pays 2.4 percent. 3) Income tax contributes significantly to reducing income inequality at both the national and sectoral (rural-urban) level, as the poor pay a smaller share of taxes than their share of national income. These results hold whether income or expenditure is used as an indicator of economic well-being. The authors caution that as in-kind income becomes monetized and the economy becomes more market-oriented, the system will become less progressive and urban-rural differences will diminish. They contend that the bias toward higher urban taxes is justified to some extent by the fact that urban households benefit more from government services than rural households do.Payment Systems&Infrastructure,Environmental Economics&Policies,Public Sector Economics&Finance,Economic Theory&Research,Income,Environmental Economics&Policies,Economic Theory&Research,Income,Inequality,Governance Indicators

Consequences for Non-Payment of PAYE and VAT Compared

This article shows that, whereas a bilateral legal relationship exists between the South African Revenue Service (SARS) and a vendor in relation to value-added tax (VAT), a tri-partite legal relationship exists among the SARS, employees and employers in relation to Pay As You Earn (PAYE). This article shows further that employers are, as withholding agents of PAYE, in the same legal position as vendors as regards VAT, namely, they are not in a trust or agency relationship with the SARS. Rather, this article argues that PAYE is in the nature of trust funds held by employers on behalf of employees from whose remuneration it is deducted. Since the employees retain ownership of the PAYE deducted, this article argues that employees have locus standi to lay a charge of theft against employers who misappropriate PAYE. Such a charge of theft is not grounded in tax administration. This article shows further that, as the law presently stands, a charge of theft falls outside the ambit of the remedies available to the SARS against employers and vendors who default in remitting PAYE or VAT. The Tax Administration Act, 2011 read with the Income Tax Act, 1962 and Value-Added Tax Act, 1991 codified only a limited range of criminal sanctions and administrative penalties that may be imposed against a defaulting employer or vendor. If theft is to be included, then a legislative amendment is required

Warrantless search and seizure by SARS: A constitutional invasion of taxpayers’ privacy? – Part two

Sec. 63 of the Tax Administration Act 28 of 2011 (TAA) grants officials of the South African Revenue Service (SARS) access to taxpayers’ private and confidential information by, first, searching a taxpayer’s person and premises without a warrant and, secondly, permitting the seizure of taxpayers’ possessions and communications. Part One of this article (see Journal for Juridical Science 2021(1)) argued that the TAA is a “law of general application” as envisaged by the so-called “limitation clause” contained in sec. 36(1) of the Constitution, 1996 and that, in terms of the threshold stage of analysis prescribed by this provision, the exercise of the powers conferred by sec. 63(1) and (4) limits a taxpayer’s constitutional right to privacy as entrenched in sec. 14 of the Constitution. In this Part Two of the article, it will be hypothesised that, although the search and seizure powers in sec. 63(1) and (4) of the TAA are not models of drafting with absolute clarity, they ought, in terms of the second stage of enquiry that is triggered by the findings in Part One, nevertheless to pass muster under sec. 36(1) of the Constitution, because of the justifiability of the limitation imposed on the right to privacy by these provisions