Taxes uncollectible taxes and tax credits UN STATISTICS

Taxes, uncollectible taxes and tax credits UN STATISTICS DIVISION Economic Statistics Branch National Accounts Section 10/21/2021 1

Background n n n Accruals accounting now an international norm, even for public accounts International comparisons (including tax burden) increasingly based on national accounts Accumulated experience shows difficulties to ensure homogeneous recording. It is neessary to: n Clarify the SNA principles n Provide more guidance (commonly agreed) on: n n n The coverage of tax (borderline cases) The acceptable methods for implementing accruals The recording of tax credits, in particular the case of payable tax credits

Definition and coverage of tax n n Taxes are described as unrequited because, in most cases, the government provides nothing directly to the individual init making the payment, or nothing commensurate. However, there are cases the government provides something (granting a permit or authorization) to the individual unit against payment. The AEG decides that the payment for the permit to engage in specific activities was a tax.

Permissions to engage in specific activities (with no underlying asset) n n The payment for the permit to engage in specific activities was a tax. When tax payment covers more than one accounting period: n n If the tax payment is refundable, it is treated as a tax prepayment and a corresponding government liability. If it is non-refundable, then the tax payment is accrued in the period when the permit begins and there is no government liability, but the permit holder has a non-produced, non-financial asset. Taxi medallion is treated in this category.

License/permit with services provided in return n Record as purchase of service (fees): n n n If the issuance of the licence/permit implies the exercise of a proper regulatory function of the government, and when a service (like inspection, testing, etc. ), is provided in return to the payment, unless the payment is clearly out of proportion to the costs of producing the service for all or any of the entities benefiting from the services. Examples: n n n Driving permit, food operating permit, etc. Public museum, library admission fees Public television and radio fees Waste collection and garbage disposal Road tolls

Accrual recording of taxes n Time of recording: Taxes are recorded based on the basic principle: “When the taxable event occurs to which tax relates occurs. ” n n For example, tax on income is recorded/assessed when income is received, not when tax is paid. Amounts to be recorded: Only record amounts “realistically expected to be collected”.

Method for tax assement n Three methods are proposed: n “time –adjusted cash basis”: Amounts are initially recorded when paid and then adjusted to the time the liability to pay tax was incurred. n Methods based on assessment of due taxes: there are two statistical methods which may eliminate the effect of taxes unlikely to be collected on these assessments: v Net recording of taxes: amounts assessed as due are to be adjusted by a coefficient reflecting the assessments in the recent periods that were never collected. Thus, the amounts of accrued tax are written down according to this adjustment (…) v Gross recording of taxes: amounts assessed as due – based on realistic assessments - are entirely recorded as tax. But the discrepancy between this due amount of tax and the actual cash receipts shall be treated as a capital transfer (in favour of defaulting payers).

Tax credits/ Tax reliefs n n n Some subsidies or social benefits are made available via the tax system in the form of tax credits. Tax relief aimed at redistribution may be designed to reduce the amount of tax that households pay according to certain characteristics, such as the number of children. Moreover, tax relief may also be designed to encourage certain activities, such as participation in the labour force or investment in R & D. ” Tax credits represent tax relief and so reduce tax liability of the beneficiary. If the relief is greater than the liability, then the beneficiary actually receives the excess, described as payable tax credits. Current 1993 SNA has no guideline.

Tax credits: Illustration n n n n + Gross income - Tax exemptions = Net income tax base - Tax allowances = Taxable income * tax rate = Tax claim / liability (otherwise due) - Tax credits = Tax revenue n Tax relief refers to all forms of exemptions, allowances and credits

Tax relief: AEG recommendation n A tax relief that is embedded in the tax system should be recorded as reducing tax revenue. This is the case of tax allowances, exemptions and deductions, as they enter directly into the calculation of the tax liability. This also the case for non-payable tax credits, as their value to the taxpayer is limited to the size of their tax liability.

The special case of payable tax credits n n Payable tax credits occur in cases where the total amount of the credit exceeds the amount of tax liability (otherwise due) and so the element of the credit in excess is paid by the government to the taxpayer. The amount actually paid by the government is to be recorded as government expenditure (subsidy or social benefit) while the rest is reducing the tax liability. Actual government payments will not in any case be deducted from the reporting of global tax revenue.

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