Tax Reform in Developing Countries

In 1985, the government of Jamaica (to embark) on a comprehensive tax reform. This reform (to include) changes in the personal income tax, the company tax, and indirect taxes. The reforms of the personal income tax were particularly profound. A complicated, narrowly-based individual income tax levied under a progressive statutory rate (to replace) by a broadly-based single-rate tax in 1986. Before the reform, the highest marginal tax rate of 60 per cent (including payroll taxes) was reached at the relatively low annual income level of less than three times per capita GDP. The provisions of the tax code were complicated, with no standard deduction and sixteen separate credits. In addition, employers could grant nontaxable allowances to employees. The resulting tax system was difficult and costly to administer and (to contain) important disincentives; evasion and avoidance all but negated the progressivity of the statutory rate structure.

Under the reformed system, the complex rate structure (to replace) with a single rate of 33 1/3 percent; the 16 tax credits were replaced with a standard deduction equal to two times per capita GDP; most non-taxable allowances (to incorporate) into the tax base; and interest income was included in the tax base. Initial results (to suggest) that the combination of a higher standard deduction, a broadened base, and a lower flat rate (to improve) administration, increased the progressivity of the tax system, and raised tax yields.

The government of Indonesia (to adopt) a major tax reform in late 1983. An important aspect of this reform was the wholesale elimination of tax incentives for investment. Before 1983, numerous incentives in the investment code (to design) to favor specific industries, promote exports, develop remote regions, promote technology transfers, strengthen the stock exchange, and even encourage firms to be audited by public accountants. The numerous, and often contradictory, tax incentives created a complicated system unable to fulfil its revenue function or to serve the special purposes originally intended. Further, such incentives (to create) effective tax rates that varied both between and within sectors and thus misallocated the capital stock. Tax reform (to eliminate) nearly all special tax incentives, allowing the company tax rate to be reduced. The simplified incentive system was intended to minimize tax-induced intersectoral preferences, while the lowered company tax rate provided more uniform benefit to all investors.

Words you may need:

embark (on) v приступать к чему-л.

comprehensive adj обширный; масштабный; всеобъемлющий

profound adj глубокий

disincentive n отрицательное воздействие

negate v сводить на нет

statutory adj основанный на законе

incorporate v включать

tax yield налоговый доход

Ex. 11. a) FIB each gap with a suitable word from the box.

Дата добавления: 2014-11-29