Presentation on theme: "Measuring tax complexity in Canada: application to individual income tax credits Marco Lugo François Vaillancourt CIRANO/Université de Montréal."— Presentation transcript:
Measuring tax complexity in Canada: application to individual income tax credits Marco Lugo François Vaillancourt CIRANO/Université de Montréal
Outline What is complexity What data we use What do we find
Complexity There is no universal definition There is no commonly agreed to measurement tool Tax related work is the most developed area in law Recent work by FV on adequacy of Justice budget –Québec- proposes a price index approach to output measurement
Complexity -3 Policy intent=> # of measures =# tax expenditures Policy into legislation=> # of pages of law Policy into action=> # of pages in tax booklet and lines in tax form => Taxpayer compliance cost Complementary measures
Data used Survey data (spring 2008) of 2000 individual Canadian tax fillers for tax year 2007 Filters for missing values + extreme values=> 1196 useful answers Information on 10 specific tax preferences used :10; 2(∑5each) and 1 used in analysis Information on all/ some of these credits from Tax Statistics (CRA) and Tax Expenditures (Finance) documents
Five family preferences Low=1; Medium=2 High=3 Tax preferences Complexity is judgment of author Formal Complexity Workload complexit y Total complexit y EducationHighMedium5 Medical expensesLowHigh4 Child fitnessLowMedium3 Urban transitLowMedium3 Pension incomeMediumLow3
Five Investment preferences Low=1; Medium=2 High=3 Tax preferences Complexity is judgment of author Formal Complexity Workload complexit y Total complexity Natural resourcesHigh 6 Stock optionsMediumLow3 L S V C CLow 2 Foreign tax creditMediumLow3 Investment creditMedium 4
Findings -1 Probit analysis of use of tax preferences example of results : – the presence of children increases the likelihood of using medical or child fitness preferences; – the unemployed (students) are more likely to use educational preferences; – higher income individuals are more likely to use investment related tax preferences
Findings-2 OLS analysis of impact of tax preferences on TCC 10 preferences estimation : only Medical (34$) and Foreign Investment (141$) significant 2 aggregates of preferences : Family= 34$ and Investment 58$ significant 1 aggregate of preferences : 50$ but 1.6 preference on average=>31$ per preference ( 24$ and 44$ for each of 2)
Link between complexity and TCC: gross and net Canada,2007
Some indicators linking policy and tax preferences Tax measureCC 000$ % compliance cost/ Tax Ex % users Y > 100 000$ Education 92 7099,5%5% L S V C C 22 76219,0%20% Medical expenses 121 75313,3%4% Child fitness amount 43 59448,4%18% Urban transit amount 43 41139,5%6% Pension income splitting 29 3303,5%10% Foreign tax credit 58 5877,5%28%
Conclusion No best practice yet for the measurement of tax complexity. The use of TCC is a reasonable choice. Our results provide some estimates of the tax complexity for family preferences and investment preferences. These costs are linked to tax policy indicating that some measures are more complex than others but not obviously linked to a simple measure of complexity or outcome.
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