Australian Government CrestInternational Comparison of Taxes

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13.3 International comparisons

The limitations outlined above do not mean international comparisons should not be made. The primary use of international comparisons of compliance cost has been to establish the reliability of internal assessments rather than to identify differences across countries. Evansá(2003) provided a summary of administration and compliance costs studies undertaken over the past 20 years.

13.3.1 Compliance costs

One of the main findings by Evans (2003) was that compliance costs are significant for the main central government taxes such as personal income tax, corporate income tax and value added taxes (GST). Compliance costs for such taxes are generally found to be between 2átoá10áperácent of the revenue yield and in total are generally up to 2.5 per cent of GDP.

Box 13.1: Compliance costs faced by small and medium sized business — OECD study

In 1998-99, the OECD undertook a study on the administrative and regulatory burdens faced by small and medium enterprises (SMEs) (OECD, 2001). The study covered 11 countries, Australia, Austria, Belgium, Finland, Iceland, Mexico, New Zealand, Norway, Portugal, Spain and Sweden.2 The OECD study was able to overcome some of the limitations identified in section 13.2: it used a standardised methodology across all countries. Despite this, limitations still exist and the results should be treated with care, in particular, the study is based on 1998-99 data and does not reflect any possible significant changes in tax systems across OECD countries since that time.

The OECD study was not limited to tax compliance costs. Rather, it included three areas of regulation: tax, employment and environmental regulation.

As shown in Chart 13.2, tax compliance costs per SME varied significantly across the countries surveyed. The highest was Portugal which had an average compliance cost per SME of US$25,545, the lowest was New Zealand which had an average of US$3,706áperáSME. Australia’s average tax compliance costs per SME at the time of the survey were estimated to be around US$8,922.

Chart 13.2: Tax compliance costs — average per SME

Selected OECD countries, 1998-99 (US dollars)

Chart 13.2: Tax compliance costs Ś average per SME, Selected OECD countries, 1998-99 (US dollars)

Source: Australian Treasury estimates based on OECD unpublished data.

Chart 13.3, illustrates tax compliance as a percentage of GDP. It shows that all countries commit a significant proportion of their economic resources to tax compliance. Based on the OECD data, it is estimated that tax compliance costs incurred by SMEs in Australia was around 1áper cent of GDP, slightly below the average of 1.3 per cent in 1998-99.

Chart 13.3: Tax compliance costs as percentage of GDP

Selected OECD countries, 1998-99

Chart 13.3: Tax compliance costs as percentage of GDP, Selected OECD countries, 1998-99

Source: Australian Treasury estimates based on OECD unpublished data.

Measuring tax compliance costs as a percentage of annual turnover, Australia’s rate of 0.4áperácent was the second lowest and around one percentage point lower than the average of the surveyed countries (1.7 per cent).

13.3.2 Administration costs

As noted previously the usefulness of an examination of compliance costs on its own is limited. Given the scope to transfer costs between the private and public sectors, compliance costs could be reduced at the expense of administration costs by expanding the role of the tax office. This section examines tax administration costs.

Administration costs are usually measured as part of the costs of the public sector. Even though this should provide a basis for making comparisons, the standard and comprehensiveness of measures varies over time and across governments (Evans 2003, ppá64-65). Revenue authorities around the world face differing environments in which they operate. Countries differ greatly in respect of their policy and legislative environment and their administrative practices and culture (OECD 2004, p 4). These are in addition to the limitations outlined in section 13.2.

There have been few studies into tax administration costs. Evans (2003), who provided a summary of over 60 major administration and compliance costs studies since 1980, identified only one solely concerned administration costs, while only around a quarter considered both administration and compliance costs.

Of the studies that included administration costs, Evans (2003) found that they rarely exceed 1áper cent of the revenue yield and were usually well below 1áper cent. Evans concluded that ‘administrative costs are absolutely and relatively less burdensome than compliance costs’ Evans (2003, p 72).

Box 13.2: Comparison of administration costs — OECD study

The OECD (2004) information series paper provides internationally comparative data on many aspects of tax systems and their administration throughout the OECD. The report provides a limited number of operation performance information that is often used in international comparisons of tax administration systems, including:

  • the ‘cost of collection’ ratio, which is computed by comparing annual administration costs with revenue collected; and
  • relative staffing levels.

The OECD study highlights the limitations with making international comparisons of tax administration costs using these approaches (OECD 2004, pp 24-26). Many of these qualifications were outlined in section 13.2. In particular, the OECD notes the data presented ‘should be interpreted with considerable care and take account of the abnormal factors highlighted, as well as other differences in approach to revenue administration’ (OECD 2004, pá26).

The following section is based on the 2004 OECD study, focusing on the cost of collection ratio for the OECD-10 (excluding Switzerland).

Table 13.1: Cost of collection ratio — OECD-10, 2000 to 2002

Table 13.1: Cost of collection ratio — OECD-10, 2000 to 2002

  1. Data as reported in 2002 annual report.
  2. Ratios indicated vary from IRS-published ratios of 0.39 (2000), 0.41 (2001), and 0.45 (2002) owing to use of ‘net’ and not ‘gross’ collections.

Source: OECD (2004).

Table 13.1, presents estimates of the cost of collection ratios from 2000 to 2002 for the OECD-10 (excluding Switzerland). It highlights the variation in the ratio across the nine countries. The Netherlands consistently had the highest ratio across the OECD-10 (1.7áperácent and above), while the United States had the lowest ratio over the period (from 0.43áto 0.52áperácent). Australia lies in between (from 1.11áto 1.27áperácent) although the estimates include the once-off start-up and implementation costs associated with the introduction of the GST.

 


2 Data for Mexico was not reported.

 

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