Centre for Tax Policy and Administration Organisation for Economic Co-operation and Development INTERNATIONAL TAX TRENDS: An OECD Perspective Jeffrey Owens Director, Centre for Tax Policy & Administration, OECD

Centre for Tax Policy and Administration Organisation for Economic Co-operation and Development PART I Tax reforms in OECD countries

General Tax Reform Principles  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 Reduce tax-induced distortions  A simpler tax system: Reduce compliance costs for taxpayers Reduce administrative costs for tax authorities  A green tax system  A stable and fair sharing of powers between different levels of government

Tax reform trends in the OECD  Revenue mix Reduction in share of personal income tax Increase in share of corporate income tax, but not in the large- sized OECD countries Increase in share of social security contributions More VAT and sales taxes (general consumption taxes) and less excise and import duties (specific consumption taxes) Relative constant share of property taxes No increased share of environmentally related taxes  Corporate Income Tax Lower standard corporate income tax rates Broadening of corporate income tax base, e.g. reduction in use of accelerated tax depreciation Increased use of R&D tax subsidies

Tax reform trends in the OECD (II)  Personal Income Tax Reduction in top personal income tax rates Replacement of tax allowances with tax credits Trends towards flatter PIT systems also as a result of the reduction in the number of tax rates Integration of social benefits into the tax system (earned income tax credits) in order to reduce the tax burden on lower incomes.  Move towards (semi-) dual income tax systems Reduction in the use of imputation systems Reduction in the overall tax burden on dividend income  Value Added Tax Increase in standard VAT rates But no reduction in use of reduced VAT rates / tax exemptions  Environmentally-related taxes

Growth-enhancing tax reform policies: the way of the future  Rebalancing the revenue mix More property taxes (but not transaction taxes) Away from direct taxes and more indirect taxes More environmentally related taxes  Reduction in top PIT rates stimulates entrepreneurship and reduces incentives to incorporate  Make work-pay policies  Broadening of PIT, CIT and VAT base will improve efficiency and equity  Reducing tax complexity and strengthen tax administration Low rates, broadening of tax bases with good taxpayer service and compliance

Successful tax reform requires also administrative reform  Tax administrations face challenges due to globalisation 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 reinforcement  Putting tax compliance on the good corporate governance agenda

Political economic key elements for successful tax reform: OECD experience  Political champions who can mobilise 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

Centre for Tax Policy and Administration Organisation for Economic Co-operation and Development PART II Statistical Comparisons

10 Tax revenue as % GDP (2007) * 2006 values, 2004 values for China and India, ‘country estimate Source: Revenue Statistics (OECD); China Statistics Yearbook

11 Change in tax as % of GDP (2000 to 2007) * 2006 value, ** 2007 estimate, China excludes social security contributions ( ) Source: Revenue Statistics (OECD); China Statistical Yearbook

12 Source of tax revenue (2006) * 2003 data Source: Revenue Statistics (OECD) and data from national authorities

13 Revenue shares of major taxes in the OECD-area over time

14 VAT revenues (2006) and rates (2007) Source: Revenue Statistics (OECD) OECD Tax Database:

15 Top corporate and personal tax rates Includes Central, State and Local taxes India: CIT rate for domestic firms (including surcharges) = 33.99% Source: OECD Tax Database ( National sources.

16 Trends on top corporate tax rates Source: OECD Tax Database:

17 Corporate tax rates and GDP across the OECD

18 Corporate tax rates and GDP across regions within the OECD

19 Taxes on corporate income as % of total tax revenue Source: Revenue Statistics

Rate of tax subsidies for USD 1 of R&D ( ) 20 OECD Science, Technology and Industry: Scoreboard 2007 (benchmark = immediate expensing)

21 Top statutory marginal tax rates on dividend income *2006 data Source: OECD Tax Database:

22 Tax wedge – income tax and social security contributions as % of labour costs (2007) Data for: single worker at 100% of AW with no children Source: OECD Database / Taxing Wages (2006)

23 Tax wedge progressivity (TW167 – TW67) / TW167

24 Property Taxes (OECD average as %GDP)

25 Property taxes in Brazil compared to the OECD average (2006) as % of GDP BRAZIL OECD average Property taxes 2.23%1.98% Recurrent taxes on immovable property 0.44%0.95% Recurrent taxes on net wealth (individuals) -0.14% Estate, inheritance and gift taxes 0.04%0.15% Taxes on financial and capital transactions 1.75%0.66%

26 Environmentally related taxes (% GDP)

27 How does Brazil compare to other leading economies and neighbors?

Centre for Tax Policy and Administration Organisation for Economic Co-operation and Development Thank you for your attention!