Development of Excises and Other Product Specific Taxes

Transcription

1 Development of Excises and Other Product Specific Taxes 13 th Asia Pacific Tax Forum Jakarta 24 May 2016 Michael Evans CA FCPA FTIA Taxsifu Liability is limited by a scheme approved under Professional Standards Legislation.

2 Framing the discussion Policy considerations for VAT and excise Identifying and defining the tax base options Identifying and defining the products and product categories Setting rates Efficient and effective tax bases Message and summary 2

3 Framing the discussion Policy considerations for VAT and excise Identifying and defining the tax base options Identifying and defining the products and product categories Setting rates Efficient and effective tax bases Message and summary 3

4 Policy considerations for GST/VAT GST/VAT neutrality and stability Uniform rate and broad base ètax does not change relative prices èconsumers and firms indifferent to tax effect Multi-stage, many taxpayers: ècompliance and administration accounting based Exemptions and zero-rates alter relative prices and demand and distort decisions Preferred revenue source Broad base Neutrality and stability Lends itself to increase in rate/revenue uniform, relative prices

5 Policy considerations for excise Selective taxes discriminatory taxation Features of excisable products èharmful to consumer/community èlow elasticity of demand èfew producers Excise alters relative prices èdemand elasticity? èsubstitution effect? Similar goods? èdecrease consumption? Contribute to costs of negative externality èdecrease harmful use ènot stable revenue source èbecause it is selective, prone to behavioral change

6 Identifying products Negative externalities Health Environment Social harm Degradation/exploitation of national/natural resources Progressivity luxury items (easy targets?) Selective tax on products/services Designed to tax (price) negative externality of relevant product Effective tax favours volumetric if harm proportional to amount consumed

7 Negative externalities Excisable products in all ASEAN Motor vehicles Alcohol - beer; wine, distilled spirits Packaged tobacco - cigarettes Relevant externality Health Alcohol, Tobacco, Petroleum products Environment petroleum products, motor vehicles Social harm Alcohol, tobacco, motor vehicles

8 Negative externalities Other excise-type taxes in ASEAN Gambling and related goods èsocial harm, Luxuries Entertainment, hotels and restaurants èsocial harm, luxuries Luxuries jewellery, cameras, watches, perfumes èluxuries Soft drinks èsocial harm Environmental protection (CFC s) èenvironmental Natural or national resources

9 Framing the discussion Policy considerations for VAT and excise Identifying and defining the tax base options Identifying and defining the products and product categories Setting rates Efficient and effective tax bases Message and summary 9

10 Identifying / defining Product list AHTN nomenclature Individual products NOT mischief (externality) èdetailed vs broad Issues Certainty Remaining relevant ènew developments (disrupters) / Older products Substitutions èneutrality within the taxable character Number of products, taxpayers and premises

11 Framing the discussion Policy considerations for VAT and excise Identifying and defining the tax base options Identifying and defining the products and product categories Setting rates Efficient and effective tax bases Message and summary 11

12 Setting rates Nature of externality èhealth specific (volume/weight) èenvironment - specific (volume/weight) èsocial harm - specific (volume/weight) èdegradation/exploitation of national/natural resources - specific (volume/weight) èprogressivity luxury items èad valorem Match the tax to the tax purpose èaverage community cost? Equal rate for substitutes per equal weight Neighbours Promote illicit trade/production

13 Setting rates Ad valorem to specific Avoid large price movements èhigh value decreases èlow value increases Discourages lower quality production Myanmar èct - Cigarettes 120% èsgt Cigarettes per stick è5 Tiers for different RSP rate per stick = MPB CT è120%ad valorem for high RSP and imported ètiers to merge over time to manage movement in RSP Improvement in administration and control over time Self declaration returns to inventory control

14 Framing the discussion Policy considerations for VAT and excise Identifying and defining the tax base options Identifying and defining the products and product categories Setting rates Efficient and effective tax bases Message and summary 14

15 Efficient and effective tax bases Traditional bases Alcohol, tobacco, petroleum, motor vehicle Gambling, hotels, entertainment Luxuries Effectiveness as taxes Selective taxes should be focused on negative externalities èsmall number of products and taxpayers èspecific taxation at optimal rate Luxury items/services are ineffective èdamaging to economic activity èmore taxpayers less effective collection Establish efficient administration and compliance Before expanding products Before increasing rates

16 Framing the discussion Policy considerations for VAT and excise Identifying and defining the tax base options Identifying and defining the products and product categories Setting rates Efficient and effective tax bases Message and summary 16

17 Summary Best practices specific Improve tax administration and efficiency of the system before broadening Correction of negative externalities not revenue GST is main revenue earner Transition from ad valorem via multi tier specific

18 The 8 messages 1. Selective taxes need to be established to address negative externalities not as revenue measures. 2. Rates should be large and sustained enough to reduce consumption. 3. A unitary specific rate (over time) is best for tax administration, for revenues, and for community. An ad valorem tax structure should be avoided. 4. Use Tiers temporarily for transition to avoid price shocks

19 The 8 messages 5. Specific rates should be automatically adjusted for inflation to avoid erosion of real revenues. 6. Implementation of taxes needs to be accompanied by revenue protection and anti-smuggling measures, including tax stamps, unique identifiers, and law enforcement.

20 The 8 messages 7. To optimize tax design and health and revenue impacts undertake good market analysis. 8. Post-reform, continuous monitoring of market prices and tax stamp roll-out will help to validate whether taxes are being paid and passed on to consumers in the form of price increases.

21 Summary GST/VAT is the revenue earner èefficient and neutral Correction of negative externalities not revenue èavoid the what else trap Best practice is specific (volume, weight etc) Transition from ad valorem via multi tier specific èaddresses problem of large variations in RSP Improve tax administration and efficiency of the system before broadening

22 Michael Evans CTA, CA, FCPA PO Box 467 GLENELG SA 5045 Phone: Mobile: michael@taxsifu.com Liability is limited by a scheme approved under Professional Standards Legislation. 22