1. Tax Reform
Session 5-6

2. Pre-requisites of tax reform
Analyze fiscal structure and economic structure
A pro growth fiscal environment must not have excessive taxes, but it must include quality infrastructure features, such as quality education, hospitals , roads and public safety

3. Pre-requisites of tax reform
Evaluate the current revenue system in light of widely accepted criteria for high quality revenue/tax systems
Develop revenue neutral reform proposals to replace the defective system

4. Pre-requisites for tax reforms
Provide options that might be politically feasible rather than theoretically ideal but politically impossible
N.B The tax reform should be broadly based rather than piecemeal reform for substantial improvement.

5. DESIRABLE CHARACTERS A greatly simplified system
A substantially broadened tax base
Lower tax rates
Expansion of user fees
Low income tax relief
Lower and fairer business taxes

6. .
Accepted Criteria

7. 1. Equity or Fairness to tax payers
There is supposed to be equal treatment for those in similar circumstances. For a system to achieve fairness should exclude many exemptions , credits and ad hoc tax benefits.

8. 2.Fair, effective and efficient
The overall system should be fair, effective and efficient largely by adhering to the other principles.

9. 3. Avoid tax distortions
Recognize that all taxes tend to change economic behavior
Tax distortions can be minimized within limits , by using low marginal tax rates on broad tax base and including an effective system of user fees.

10. 4.Users should pay for some services
Direct beneficiaries should pay for some services and in light of equity concerns.
Some services are overused because they are under priced, increasing public use.
Higher funding levels to support such services add to the overall distortion of the tax system by requiring more revenue

11. 5.Broaden tax rates with low rates
The tax base could be broadened and tax rates lowered across the board by eliminating most tax exemptions/credits/special deals and by appropriately pricing /expanding user fees for many services now subsidized by tax payers

12. 6.Compliance
The tax system should have high compliance rates and low compliance costs. To achieve this the tax system should not be too complex

13. 7.Independence
The revenue system normally should entail independence from spending decisions to maintain fiscal flexibility.

14. 8.Transparency
The system should be transparent and accountable to taxpayers
Complexity and multiple exemptions /credits/special deals reduce possibility that taxpayers can monitor the overall system

15. 9.Reliability
Reliability and certainty through time and over the business cycle are essential for sound fiscal planning

16. 10.Balance Balance among system revenue sources is important.
Narrow bases for income and VAT( sales tax) and underutilization of fees/charges reduce system balance

17. 11.Competitiveness
The country’s competitive position should be protected /enhanced by the overall revenue system

18. Improving revenue system
Country’s needs to upgrade their infrastructures to effectively compete yet the exact level of spending required is a policy decision
Proposals should be comprehensive rather than piecemeal reform

19. Sales Tax/ VAT
VAT rates should be lowered by expanding the tax base to include the informal sector.

20. Individual income taxes
Income tax base should be broadened and simplified by eliminating most exemptions, deductions and credits. Any remaining deductions should be for general and well understood policy purposes. The broadened base makes it possible to reduce tax rates across the board.

21. Corporate Tax
Substantially reduce corporate income tax

22. Property taxes
The property tax system should be greatly simplified and uniformly trained assessment professionals should be used throughout the country.

23. Fees and charges
Tax rates could be adjusted down to partially or fully offset the increased flow from user fees.
More services are paid for by the direct users of those services than by tax payers as a whole. This shift from taxes to fees for services makes possible tax relief for all taxpayers through lower rates, specific tax relief for low income groups and a reduced tax burden for businesses.