SNA REVIEWSNA REVIEWGeneral government General government

accountsaccountsTax revenue, accrual recording of tax, Tax revenue, accrual recording of tax,

Tax credits (J-P Dupuis)Tax credits (J-P Dupuis)

OECD Working Party on National OECD Working Party on National Accounts (Paris, 13 October 2004)Accounts (Paris, 13 October 2004)

Definition of tax revenueDefinition of tax revenue

Reminder:Reminder: SNA93 (§7.48 and 8.43): compulsory, SNA93 (§7.48 and 8.43): compulsory,

unrequited payments to government unrequited payments to government (“nothing in return”)(“nothing in return”)

GFSM 2001 (§4.21): compulsory transfers GFSM 2001 (§4.21): compulsory transfers received by the government sectorreceived by the government sector

IFAC – PSC: (§2.8) non- exchange IFAC – PSC: (§2.8) non- exchange transaction and (§3.1) same def. as GFStransaction and (§3.1) same def. as GFS(government exercises sovereign powers)(government exercises sovereign powers)

Proposal for the new SNA:Proposal for the new SNA:core definition of tax revenuecore definition of tax revenue

““Taxes are compulsory, unrequited payments, Taxes are compulsory, unrequited payments, in cash or in kind, made by institutional units to in cash or in kind, made by institutional units to government units. They are described as government units. They are described as unrequited because the government provides unrequited because the government provides nothing directly in exchangenothing directly in exchange to the individual to the individual unit making the payment, although unit making the payment, although governments may use the funds raised in taxes governments may use the funds raised in taxes to provide goods and services to other units, to provide goods and services to other units, either individually or collectively, or to the either individually or collectively, or to the community as a whole “community as a whole “

This should be followed by the presentation of This should be followed by the presentation of the 3 categories of taxes (D.2, D.5, D.91).the 3 categories of taxes (D.2, D.5, D.91).

Further guidance/borderline Further guidance/borderline issuesissues

Tax versus FeesTax versus Fees (SNA, (SNA, §7.55)§7.55)

- If a licence/certificate If a licence/certificate is automatically is automatically granted on payment: granted on payment: TaxTax

- If the licence implies If the licence implies a regulatory function a regulatory function of government: of government: purchase of a servicepurchase of a service

Tax revenue vs sale of Tax revenue vs sale of assetassetA licence as asset: A licence as asset: tradability, market tradability, market valuevalue

Some “taxes”/revenue Some “taxes”/revenue may be part of sale of may be part of sale of assets (financial or non-assets (financial or non-financial); see cases of financial); see cases of indirect privatisation or indirect privatisation or sale of licencessale of licences

Accrual recording of taxesAccrual recording of taxes

Does the implementation of the Does the implementation of the accrual principle for tax raise only accrual principle for tax raise only the issue of time?the issue of time?

Or is there also an issue with the Or is there also an issue with the amounts of tax to be recorded? (in amounts of tax to be recorded? (in parallel with accrued interest?)parallel with accrued interest?)

In practice, there is an issue!In practice, there is an issue!Need for a pragmatic approach.Need for a pragmatic approach.

Accrual recording of taxesAccrual recording of taxes

Time of recording Time of recording (present guidance)(present guidance)

SNA93, ESA95, GFSM2001 and IFAC-PSC refer to SNA93, ESA95, GFSM2001 and IFAC-PSC refer to the same general principle: “When the taxable the same general principle: “When the taxable event occurs”event occurs”

Practical flexibility (SNA, and GFS): income tax Practical flexibility (SNA, and GFS): income tax deducted at source and regular prepayments deducted at source and regular prepayments when they are assessed or paid (SNA93 is when they are assessed or paid (SNA93 is ambiguous). ESA (§4.82) and EMGDD (Eurostat) ambiguous). ESA (§4.82) and EMGDD (Eurostat) extends to income tax due when assessed with extends to income tax due when assessed with certainty by tax authorities.certainty by tax authorities.

Accrual recording of taxesAccrual recording of taxesAmounts to be recorded Amounts to be recorded (present guidance)(present guidance) General principle (SNA, ESA, GFSM2001): General principle (SNA, ESA, GFSM2001):

amounts due, but…amounts due, but…- SNA: cash is allowed in some casesSNA: cash is allowed in some cases- GFSM2001: only record amounts expected GFSM2001: only record amounts expected

to be collectedto be collected+ EMGDD (Eurostat): 3 options allowed:+ EMGDD (Eurostat): 3 options allowed:1.1. Assessed amounts adjusted by a coefficientAssessed amounts adjusted by a coefficient2.2. (Full) amounts due, but corrected by a (Full) amounts due, but corrected by a

capital transfercapital transfer3.3. (Time-adjusted) cash(Time-adjusted) cash

Accrued taxes (for the new Accrued taxes (for the new SNA)SNA)

Time of recordingTime of recording::General principle, and some flexibility is permitted General principle, and some flexibility is permitted in two cases (time of the tax assessment):in two cases (time of the tax assessment):

1. Parallel economy1. Parallel economy2. Taxes on income (when it is assessable)2. Taxes on income (when it is assessable) Amounts to be recordedAmounts to be recorded::

No inclusion of amounts unlikely to be collected. No inclusion of amounts unlikely to be collected. Possible options:Possible options:

1. Amounts assessed as due adjusted by a coefficient1. Amounts assessed as due adjusted by a coefficient2. (Full) due amounts but capital transfer2. (Full) due amounts but capital transfer3. Time-adjusted cash.3. Time-adjusted cash.

Accrued taxes: proposal for Accrued taxes: proposal for new SNAnew SNA

General principleGeneral principle : “Like most transactions in : “Like most transactions in the SNA, taxes and social contributions are to be the SNA, taxes and social contributions are to be recorded on an accrual basis. Accrual recording recorded on an accrual basis. Accrual recording means basically that flows are not recorded when means basically that flows are not recorded when cash payments are made, but when economic cash payments are made, but when economic value is created, transformed, exchanged or value is created, transformed, exchanged or extinguished”.extinguished”.

Controversial issue:Controversial issue:““When economic value is created” implies – like When economic value is created” implies – like for accrued interest – that the flows recorded at for accrued interest – that the flows recorded at this time are amounts due as the consequence of this time are amounts due as the consequence of the underlying economic event, under the tax law.the underlying economic event, under the tax law.

Accrued taxes: proposal for Accrued taxes: proposal for SNASNA

Time of recordingTime of recording

« This is when the activities, transactions or « This is when the activities, transactions or other events occur which create the liability other events occur which create the liability to pay taxes – in other words, when the to pay taxes – in other words, when the taxable event occur – and not when the taxable event occur – and not when the payments are made. In the case of taxes, payments are made. In the case of taxes, this usually means when income is paid or this usually means when income is paid or when a transaction (purchase of goods and when a transaction (purchase of goods and services etc.) generating the liability is services etc.) generating the liability is made »made »

Accrued taxes: proposal for Accrued taxes: proposal for SNA (Time of recording, SNA (Time of recording,

continued)continued)«  Some flexibility is permitted in «  Some flexibility is permitted in two casestwo cases::

1. Parallel economy1. Parallel economy: some activities, : some activities, transactions or events escape the transactions or events escape the attention of the tax authorities. attention of the tax authorities. Notwithstanding the fact that the amounts Notwithstanding the fact that the amounts to be recorded can be determined only to be recorded can be determined only when the tax assessment is made, some when the tax assessment is made, some flexibility should be accepted concerning flexibility should be accepted concerning the time of recording in the system. » the time of recording in the system. »

Accrued taxes: proposal for Accrued taxes: proposal for SNA (Time of recording, SNA (Time of recording,

continued)continued)« 2. « 2. Taxes on incomeTaxes on income: in some cases, : in some cases,

depending on the tax system, the liability depending on the tax system, the liability to pay taxes can only be determined in a to pay taxes can only be determined in a later accounting period than that in later accounting period than that in which the income accrues and becomes which the income accrues and becomes taxable. This is the case when amounts taxable. This is the case when amounts due are evidenced and known with due are evidenced and known with sufficient certainty only through tax sufficient certainty only through tax assessments, declarations etc. »assessments, declarations etc. »

Accrued taxes: proposal for Accrued taxes: proposal for SNA (Time of recording, SNA (Time of recording,

continued)continued)« Therefore, in these two cases, an « Therefore, in these two cases, an acceptable time of recording taxes may acceptable time of recording taxes may not be the time when they accrued (when not be the time when they accrued (when the economic event generated the the economic event generated the obligation to pay taxes), but obligation to pay taxes), but the time the time when they were assessablewhen they were assessable, known as , known as due to be paid with sufficient certainty. due to be paid with sufficient certainty. This is not necessarily similar to the This is not necessarily similar to the accounting period of the payment. »accounting period of the payment. »

Accrued taxes: proposal for Accrued taxes: proposal for SNASNA

« Amounts to be recorded« Amounts to be recordedLike other transactions, accrued taxes are Like other transactions, accrued taxes are often understood as due amounts of taxes, often understood as due amounts of taxes, as generated by the economic event. as generated by the economic event. However, recording accrued amounts of However, recording accrued amounts of taxes and social contributions – at the time taxes and social contributions – at the time they are due or generated – should not lead they are due or generated – should not lead to record amounts known to be to record amounts known to be uncollectible , or unlikely to be collected. uncollectible , or unlikely to be collected. The revenue and net borrowing / net lending The revenue and net borrowing / net lending of the GG sector should not be artificially of the GG sector should not be artificially improved by the recording of amounts improved by the recording of amounts unlikely to be collected. »unlikely to be collected. »

Accrued taxes: proposal for Accrued taxes: proposal for SNA (Amounts to be recorded, SNA (Amounts to be recorded,

cont.)cont.) « The amounts of taxes to be recorded are:« The amounts of taxes to be recorded are:- Either, Either, amounts assessed as dueamounts assessed as due

.adjusted by a coefficient reflecting the .adjusted by a coefficient reflecting the assessments never collected in the recent past.assessments never collected in the recent past.

.adjusted by a capital transfer.adjusted by a capital transfer

Is an adjustment on the revenue side preferable to Is an adjustment on the revenue side preferable to an adjustment on the expenditure side?an adjustment on the expenditure side?

- - OrOr amounts actually paidamounts actually paid (time-adjusted cash) » (time-adjusted cash) »

Tax creditsTax credits SNA93 and ESA95: no provision ar presentSNA93 and ESA95: no provision ar present GFSM2001 (chap 5 and 6):GFSM2001 (chap 5 and 6):- Amounts deductible from tax due are negative Amounts deductible from tax due are negative

taxestaxes- Net payments by GG are expensesNet payments by GG are expenses OECD Revenue statistics: any amount exceeding OECD Revenue statistics: any amount exceeding

tax liability and paid by GG is expendituretax liability and paid by GG is expenditure IFAC-PSC: distinguish “tax expenditure” and IFAC-PSC: distinguish “tax expenditure” and

“expenses paid through the tax system”.“expenses paid through the tax system”.

The latter should be expensed (majority view).The latter should be expensed (majority view).

Tax credits: proposal for new Tax credits: proposal for new SNASNA

DefinitionDefinition: “a tax credit is a reduction of tax – : “a tax credit is a reduction of tax – usually of tax on income - offered to households usually of tax on income - offered to households or other entities which is embedded in the tax or other entities which is embedded in the tax system.system.

It is common that tax systems comprise elements It is common that tax systems comprise elements of social redistribution (tax scales, marginal tax, of social redistribution (tax scales, marginal tax, impact of the size of the household, of the impact of the size of the household, of the number of children…). This does not influence number of children…). This does not influence the recording of taxes in national accounts. Tax the recording of taxes in national accounts. Tax credits may be one element of such credits may be one element of such redistribution.”redistribution.”

Tax credits: proposal for new Tax credits: proposal for new SNASNA

Non-payable tax creditsNon-payable tax credits: “(usually a strong : “(usually a strong indication of tax-reducing operation) they indication of tax-reducing operation) they are to be recorded in deduction of due are to be recorded in deduction of due taxes”taxes”

Payable tax creditsPayable tax credits: more questionable. : more questionable. “When a tax credit is embedded in the tax “When a tax credit is embedded in the tax system, the element exceeding the tax system, the element exceeding the tax liability and paid out by the government is liability and paid out by the government is to be recorded as an expenditure (most of to be recorded as an expenditure (most of the time, a social benefit)”the time, a social benefit)”