This paper analyses and compares two different groups of tools, the first to encourage the use of invoices (or payment systems) and the second to refund the VAT to low-income individuals. The analysis contributes to the existing literature by providing a clear characterization between these two groups of tools that are too often misunderstood and offers clear guidance to policymakers on the benefits and pitfalls of them based on available empirical studies and novel data analysis. Briefly, the first group includes a set of regressive and distortive tools (such as, allowing deducting the VAT paid on personal consumption from the PIT and reducing the VAT rate for using electronic means of payments or registration), while the second group includes tools that are less distortionary and improve income distribution (tax credits and VAT rate reduction targeted only at low-income individuals). This paper also finds that allowing the deduction of personal consumption against the PIT’s taxable base (i) did not impact positively the VAT revenue in Guatemala and (ii) worsens the income distribution in Ecuador.
International Monetary Fund. Middle East and Central Asia Dept.
be affected by the PIT rate reduction to 1 percent 7 As a result, the share of the PITliability of the bottom 70 percent of employees in 2019 decreased from 32 percent to 27 percent.
Table 2. Kazakhstan: Share of Labor Taxes by Income Brackets
Monthly Income Bracket (K ZT)
Percent of Employees in Bracket
Effective Tax Rate
Share of Total Tax Liability
0 – 75,000
75,001 – 105,000
1. PIT Tax Expenditures in the European Union
1. Incidence of the PIT and Largest Tax Expenditures
2. Incidence of the VAT, Reduced Rates and Exemptions
3. Incidence of the Immovable Property Tax and Exemptions
4. Average Property Market Value, Assessment Ratio, and Household Income
5. Impact of PIT Reform Options
6. PITLiability Before and After Reform
7. Impact of a Base-broadening Revenue Neutral VAT Reform
8. Impact of a Base-broadening VAT Reform for Higher Revenue
9. VAT Liability
is creditable against the PITliability (the PIT is a VAT complementary regime, VCR). The personal allowance for employees is equivalent to two minimum salaries and the VCR rate is 13 percent. Employees may claim the VAT paid on any kind of personal consumption against their VCR liability. As some of the purchases are made from small taxpayers who, under special regimes, cannot issue VAT invoices , an amount equivalent to 13 percent of two minimum wages can additionally be creditable against their VCR liability.
Table 1. Countries with VAT as a Credit or
This paper evaluates elements of a comprehensive reform of the Italian tax system. Reform options are guided by the principles of reducing complexity, broadening the tax base, and lowering marginal tax rates, especially the tax burden on labor income. The revenue and distributional implications of personal income and property tax reforms are assessed with EUROMOD, while a microsimulation model is developed to evaluate VAT reform options. Simulations suggest that a substantial reduction in the tax burden on labor income can be obtained with a revenue-neutral base-broadening reform that streamlines tax expenditures and updates the property valuation system. In addition, a comprehensive reform would benefit low- and middle-income households the most, by lowering significantly their overall current tax liability, which results in increased progressivity of the tax system.
International Monetary Fund. Western Hemisphere Dept.
in excess of the imputation credits, eliminating double taxation of business profits. However, imputation credits cannot be claimed as a tax refund. 13
Instead, Chile’s income tax system—conceptually at least—does not have a CIT per se; most countries do. This means that in most countries with an imputation system CIT may be credited against shareholder’s PIT up to the amount of PITliability, but not further, so that individuals cannot obtain refunds for the tax paid by the company on its accrued profits. Thus, PIT on distributed dividends may be zero if the CIT
. Current and Optimal Marginal Tax Schedules
10. Optimal Marginal Tax Rate Schedule with Different Elasticities
9. Gross and Net Income under Baseline and Optimal PITs
11. Division of PIT revenues between Central and Local Government
12. Composition of Local Government Revenues (2014)
13. IMF reform with Unconditional Refundable Credit
14. IMF Reform with Conditional Refundable Credit
15. After-Tax Income, IMF Reform
17. Distribution of PITLiabilities by Income Deciles
16. Net Income and Tax Burden by Income Deciles
18. Distribution of Child Benefit
4. PIT on Wages and Salaries, 2016
5. Social Security Contribution Rates for Urban Workers
6. Earmarked Taxes Levied on Enterprises
1. Labor Supply Responses to Changes in the Net (After-Tax) Wage
2. Optimal Marginal Tax Rates by Wage Income
3. The US Earned Income Tax Credit (EITC): 2017 Rates and Thresholds
4. PITLiabilities and SSC Contributions in Urban China: by Gross Earned Income
5. Differences Between Tax Deductions and Tax Credits: by Gross Earned Income
6. Indicative Impact of a Revenue-Neutral Reduction of
wealthiest households ( Figure 5 ). While all households along the income distribution would pay lower taxes, middle-income groups get the highest reduction in PITliability ( Figure 6 ). In addition, households with incomes below 20,000 virtually pay no income tax due to the lower tax rate and the interaction of tax credits and deductions. In absolute (euro) terms, however, the proposed reform still benefits wealthier families more, as they pay a lower tax rate on the first part of their income. While annual disposable income increases by about €820 for the lowest five
Ms. Dora Benedek, Juan Carlos Benitez, and Charles Vellutini
Personal Income Tax (PIT) is one of the key sources of revenues in Advanced Economies (AEs) but plays a much more limited role in Low-Income Developing Countries (LIDCs) and Emerging Market Economies (EMEs), both in terms of revenue and redistributive impact. Notwithstanding, this paper shows that LIDCs and EMEs increased their PIT-to-GDP revenue by 110 and 48 percent, respectively, during the 1990-2019 period, a marked improvement in the PIT revenue performance. We find that this rise was driven primarily by economic developments and to a lesser extent by changes in the design of PIT systems. We also find that LIDCs that improved their tax-to-GDP ratios relied on a broader set of tax instruments and not exclusively on the PIT, suggesting that a successful revenue mobilization strategy of developing countries requires a comprehensive approach covering a wider range of taxes. Finally, using a newly assembled dataset of PIT characteristics of 157 countries over the 2006-2018 period, we estimate a novel redistribution index of the PIT in LIDCs. We show that the contribution of the PIT to inequality reductions has been significant.