Center of Excellence in Finance

1
Center of Excellence in Finance

• International Academic Forum on Flat Tax Rate
• Session 1 Discussion

2
Flat Tax Rate system

• After Session 1 it is unclear whether Flat Tax
  Rate system has positive impact or not
• Different approaches, theories, experiences, etc.
  of all previous experts therefore new dilemmas
  are raised

3
What is agreed

• In which Points is Flat Rate Tax system positive?
• It will simplify the tax code
• It will reduce the administrative burdens on
  individual taxpayers

4
What is probably agreed

• In which Points is Flat Rate Tax system probably
  positive?
• Reducing of tax administration officials
• Fewer Taxpayers under a Flat Tax Rate System

5
What is not agreed

• Will administrative burden of VAT continue?
• YES VAT and PIT, but not as intensive as in
  present system
• Probably NOT PIT
• Will Payroll taxation administration system
  remain?
• YES deduction of taxes and social security
  contribution at source will remain

6
What is not agreed cont.

• Will taxation of benefits in kind remain?
• YES the problem of assessment will remain
• Will administrative burdens for business stay as
  complicated as they are at present tax system?
• Probably NOT, but Accounts will still have to be
  prepared according to adequate accounting
  standards and financial reports which will remain
  a base for tax returns
• YES new burdens TP documentation, etc.

7
What is not agreed cont.

• Reduction of tax Rate
• YES and NO for whom and for which taxes
• VAT, CIT, PIT
• PROBABLY depends on several facts
• future target budget revenue (determination of
  Tax Rate)
• will tax rate be at present lowest tax rate
  (probably not)
• standard VAT tax rate level
• allowances, etc.

8
What is not agreed cont.

• Influence on decreasing of tax evasion and tax
  avoidance
• Experts Flat Tax Rate system will reduce tax
  avoidance
• Lower tax rates will reduce incentive to avoid
  tax (YES, if tax rate will be lower than in
  present system, otherwise NOT)
• The elimination of allowances and reliefs will
  remove the opportunity to avoid tax (YES, if
  there will be not allowances and reliefs, which
  is not likely)

9
Tax evasion cont.

• The flat tax base will close loopholes (YES, if
  legislation will be prepared deliberately VERY
  IMPORTANT good Practice and experiences in
  countries with implemented Flat Rate Tax system
  (Russia, Estonia, Slovakia, etc.)
• Flat Tax Rate system does not eliminate tax
  evasions in case of VAT

10
Tax evasion cont.

• It should have grate impact on decreasing of tax
  evasion and tax avoidance if
• the legislative measures are clear, loophole
  less, etc.
• all income is subject of taxation (capital gains,
  investment income, etc.)
• the coordinated action will take place on EU
  level (perhaps to optimistic at present time)
• Common Tax Base
• Home State Taxation
• EU Corporate Income Tax

11
What is not agreed cont.

• Is Flat Rate Tax system fair or fairer than
  present system?
• Special consideration Flat Tax Rate system is
  regressive in most cases (example VAT)
• Can fairness be obtained with allowances for
  poorest? Is it than still a Flat Rate Tax?

12
Conclusion

• Is any conclusion at this stage possible?
• Is it better to talk about Single Rate Tax or
  modified present Tax system than about Flat Rate
  Tax?
• Big problem (harmful) tax competition in Europe
  (in particular in EU)
• Who will benefit in this tax competition?
• Are Plans of European Commission regarding CCCTB/
  HST / EUCIT realistic?

13
Conclusion cont.

• Pre-term cutting off public (state) consumption
• Important Tax system redistributes income in
  society and such redistribution is widely
  supported and accepted
• Flat Tax Rate system can demolish this present
  redistribution in particular if implemented
  without deep consideration

14
Conclusion cont.

• Flat Tax Rate system changes structure of society
  which has some very positive and also some
  negative impacts
• Therefore reasons must be widely supported
• Possible reasons Economic growth for universal
  prosperity, more and better (paid) jobs, etc.