1

I understand that Norway publishes the tax returns of all citizens, but this might be seen as unfair by some as it reveals individual's income.

I'm wondering if any country has tried publishing the percentage rate of tax that each citizen paid?

i.e. taking the gross income before deductions and the tax paid and turning that into a percentage.

It strikes me that this approach would help to highlight tax avoidance without giving away too much personal information.

CoedRhyfelwr
  • 5,826
  • 2
  • 25
  • 46
Barnaby Golden
  • 345
  • 4
  • 9
  • 5
    Is it seen as unfair in Norway? – Jontia May 27 '19 at 16:25
  • I must admit I don't know, which is why I heavily qualified my statement. – Barnaby Golden May 27 '19 at 16:30
  • I wonder if most of the countries are currently able to reliably compute the effective tax rate. – Alexei May 27 '19 at 16:34
  • @Alexei: the tax agency could compute that quite readily. At the end of the day it's a simple division applied to a dataset, which you can then slice and dice as you see fit. – Denis de Bernardy May 27 '19 at 16:35
  • 3
    @Alexei if they can't tell you the effective rate after the fact, then they can't work out your actual tax in the first place. I realise this may be the point you are making. – Jontia May 27 '19 at 16:38
  • 1
    @Jontia - if there are multiple levels of collection, someone must unify them all to compute this effective tax rate. E.g. where I live, my employer pays several taxes related to the salary (one institution) + I pay taxes related to the car and apartment (local authorities) + VAT + some green tax embedded in all electronics and other products price. And this is related to private individual only. If you own a company, there will be dozens of taxes to pay around. – Alexei May 28 '19 at 05:06
  • @Jontia: even within income-type taxes there can be situations where each tax office is perfectly able to tell you how much you have to pay them, but not your total income-type taxes. 2 examples: I'm business owner. In my country, there are different ways how a business can be set up legally (treated as separate entity from its owner or not), and the tax laws work in a way that for the total income-type taxes this setup hardly matters. For a business that's not separate from owner, everything is easy and straightforward. But a separate business pays something like income tax ("entity tax") – cbeleites unhappy with SX May 28 '19 at 13:29
  • first, and possibly to a different tax office than where the owner belongs. Now, as some income tax has already been paid, the tax rate the owner pays on payed out profits from such an entity is lower than the tax rate payed on profits of a business that is not separate from the owner (as that latter one did not yet pay any income-type tax). The owner's tax office may only get a notification that proper entity tax has been payed. So the owner's effective income tax rate seems to be lower, because part of the total income tax paid came from a separate entity (even if that is owned by Owner). – cbeleites unhappy with SX May 28 '19 at 13:37
  • 2nd example: Owner of foreign shares, where dividend is subject to capital gains tax in the foreign county. It is also subject to income tax in the owner's country. In order to avoid taxes being payed twice (and thus severely restricting ownership of foreign shares) there's a tax treaty specifying total capital gains tax and how they are to be split between the two countries. For some tax treaties the procedure is that the foreign county first collects full capital gains taxes, then home country collects their due and issues a "home tax paid" statement to the owner - with which owner can get – cbeleites unhappy with SX May 28 '19 at 13:42
  • the proper refund from the foreign country. Now the home country tax office knows how much tax they collected. But they don't know how much the foreign tax office collected (and are not particularly interested in this as their business are their taxes) and they cannot know how much the foreign tax office will refund as that is going to happen in the future and subject to owner asking for the refund and not making formal mistakes in the process. – cbeleites unhappy with SX May 28 '19 at 13:48
  • @cbeleites none of which should make providing a percentage figure more difficult, even using multiple tax offices just means sharing data appropriately. And if business owners show apparently lower tax rates, that is something the public should know either to understand or object to, much like personal service companies and loan remuneration tax scandals in the UK in the last couple of years. – Jontia May 28 '19 at 15:17
  • @Alexei you forgot rebates and benefits / government support. Since those don't necessarily come from the tax agency, it may make the whole thing even more complicated. – JJJ Jun 27 '19 at 02:06
  • @cbeleitessupportsMonica That must commentary seems like it could be/should be an answer to a question which could be referenced? – CGCampbell Nov 26 '19 at 16:53

3 Answers3

1

Summary:

  • I don't see how it's more private than publishing income?
  • I don't see how knowledge of gross and taxable income or tax rate allow to deduce tax avoidance?
  • I'm afraid publishing this information may hurt general society "climate" more than it helps.

Privacy compared to publishing income

published the percentage rate of tax that each citizen paid?

 i.e. taking the gross income before deductions and the tax paid and turning that in to a percentage.

I don't really see where the big difference between publishing taxable income vs. publishing effective tax rate is in terms of privacy?

Here in Germany, the effective tax rate is a strictly monotonous function of taxable income (https://de.wikipedia.org/wiki/Einkommensteuer_(Deutschland)#/media/File:ESt_D_Splitting_2018_zvE_bis_120000.svg), with 2 exceptions:

  • taxable income so small that it is in the 0 tax zone and
  • capital gains are mostly handled separately from other types of income, and with a constant tax rate, so for that part, you cannot conclude much from the tax rate.
    (There are again exceptions from the exception ... here it's getting quite complicated, because also the company where the capital is invested pays something like income tax before dividends are paid out...)

So, publishing effective tax rate (as in taxes : taxable income) leaves the reader to guess a bit about the size of capital gains vs. other sources of income, but is almost as good as publishing taxable income in terms of information content.

Personally, I'm very much in favor of privacy rights (along the line that I behave well and in concequence expect privacy), and in my culture personal income and/or wealth are considered private. From that perspective, I do see a huge difference between a (or few) tax officer(s) who took an oath that they will obey all laws and will be scrupulously correct in administering their duties knowing details of my financial situation in order to calculate my taxes and random persons getting this knowledge. (more below in section "Does it help").
But that's certainly a political opinion and as such open to discussion.

Does tax rate or tax payed to gross before deductions help detecting tax avoidance/loopholes?

It strikes me that this approach would help to highlight tax avoidance without giving away too much personal information.

I don't see how?

As for not giving away too much personal information, see above.

As I understand tax avoidance, it happens via deductions that are legal but reduce the taxable income in a way that was not envisioned when the respective tax law was made (loophole). So all that distinguishes them from normal deductions is that they were not intended for the situation where they are employed.
Which means in turn that detecting a loophole needs sufficient information to distinguish whether a deduction is used as intended or not. This is impossible without knowing what exactly is deducted. In other words, far more detailed information than tax ratio or taxes paid to income before deductions is needed.

Even the tax office may not be able to detect this loophone immediately but they look for unusual patterns and routinely request further documentation (or discard deductions) - which would allow them to detect the loophole.

The ratio of tax to income before deductions proposed in the question is not very informative without additional information. Consider the following situations without tax avoidance:

  • a) a web developer employed somewhere around the corner: hardly any deductions but mostly mandatory social insurance: high tax to income before deduction ratio (and that is ≈ tax rate)
  • b) a self-employed web developer working from home: hardly any deductions but social insurance which is more variable and higher than in case a): somewhat lower tax to income before deduction ratio
  • c) a farmer, tradesman or shop owner: far higher income before deductions (sales), but also high deductions buying material/wares and writing off machinery
    As a rule of thumb, IIRC, local shops often have a margin in the lower single-digit percentages of sales. This would put the tax to income before deduction ratio close to zero.
  • d) in my region, part-time farmers are quite common. Or think what happens if the web-designer a) or b) starts a small online shop from home (using the services of a logistic company like amazon: that would not even require a garage for storage). We get a tax to income before deduction ratio anywhere between a) and 0, all is as intended and (in contrast to the CEO in the comment the difference between web-developers a) or b) vs. d) is hardly visible to the public.

In the end, even with publishing income before deductions and tax rate, the legal and plausible range will be so wide that I don't see how good conclusions can be drawn.

Moreover, I don't see how any conclusions would be possible for this tax to income before deduction rate (or effective tax rate) that the tax office couldn't draw far more easily as they have far more information at hand and the right (and duty) to ask for more documentation in case anything is not clear.

cbeleites unhappy with SX
  • 1,365
  • 7
  • 13
  • In my question I said 'tax avoidance' and not 'tax fraud'. Tax avoidance is the legal practice of avoiding paying tax by exploiting loopholes in tax law. I don't think you are answering the question I asked. – Barnaby Golden May 27 '19 at 22:00
  • @BarnabyGolden: Sorry, then I misunderstood your question (I thought tax avoidance is a euphemism for tax fraud - thanks for improving my English). On the other hand, 1. privacy concerns stay the same and 2. And I still think that the possibility to detect that someone found a loophole is minute from such aggregated data compared to the data & internal stastistics the tax office/finance ministry has access to (nowadays, they use pattern recognition to detect unusual = suspicious declarations, I expect that they also look for "zero-day exploits" - but I don't know that). 3. collateral damage – cbeleites unhappy with SX May 27 '19 at 22:09
  • is of somewhat less concern as the publication of those numbers would not actively be advertised to be in order to reduce tax fraud, but the issue "I want to hurt you, and now I've numbers to do this" part would stay. – cbeleites unhappy with SX May 27 '19 at 22:11
  • An example: A CEO of a large multinational is seen over a number of years to pay an effective tax rate (i.e. tax paid as a percentage of gross income) of 10-15%. If the tax band for a high earner was 40% then that would suggest this person has found a way to avoid paying a lot of tax. The press might then get interested and start asking questions about how they are exploiting the tax rules to manage to pay so little. – Barnaby Golden May 27 '19 at 22:23
  • @BarnabyGolden: I edited the anser to actually cover avoidance. As for your CEO example, I'd think that the interest is primarily triggered by the CEO income. Which at least if the multinational is a public company is publicly known without any publications by the tax office. I'm not a tax advisor, so I can not really comment on those 10 - 15 %. I can comment on 40 %, though: 40 % of income before deduction must be a very special situation here in Germany, because that's 90 % of the maximum marginal tax rate. Must be high income, low deductions and low capital gains of the flat tax type. – cbeleites unhappy with SX May 28 '19 at 01:29
  • Taxes paid in country A : income before deductions could become low in many cases where multiple countries with tax treaties are involved. Both for employment and captial gains. This would happen if large parts of the income are taxable in other countries, but country A bases (progressive) tax rate on total worldwide income and thus reports worldwide income before deductions but only taxes paid in country A (they could know the amount of taxes paid worldwide, but sorting out what is an income-tax type tax in some other country and what are fees or mandatory social insurance contributions... – cbeleites unhappy with SX May 28 '19 at 12:48
  • ... would be a serious mess, and as taxpayer I think the tax officers should concentrate on finding out which taxes are due in their country and thus only check whether the foreign taxes have indeed be payed - this is much easier, e.g. by a form where the foreign tax office says that they got their taxes according to the tax treaty on this and that income). I've been in such a situation as employee of an Italian university for 3 years covering 4 tax years: the German tax office decided that according to German tax law having a few fixed-term postdoc-type contracts didn't move my tax residency – cbeleites unhappy with SX May 28 '19 at 12:56
  • out of Germany. Taxes due in Germany were then German tax rate accoding to worldwide income on worldwide income - Italian income (as that was subject to Italian wage tax) = German income. Meaning that tax payed in Germany : income in Germany was unusually high considering the German income and at the same time tax payed in Germany : worldwide income before deducting Italian income was unusually low. Now whether having tax residency in another country from the employment contract is fair application of tax treaties or tax avoidance will entirely depend on intention and is thus easy to suspect – cbeleites unhappy with SX May 28 '19 at 13:04
  • but difficult to determine in a legal rule-of-law way. That is, with freedom of movement rights. Assume your CEO moves their tax residency to Switzerland. If done to avoid taxes it is obviously tax avoidance. If they move because they like hiking in the Alps and Swiss politics and ultimately wish to become Swiss cititzen it's as intended. But: Swiss citizenship application can be started only after 10 years, and until then hard facts may look exactly the same for avoidance vs. fair moving. Plus, 10 years are sufficiently long to have a bona fide change of mind... – cbeleites unhappy with SX May 28 '19 at 13:19
  • Conclusion: There are inherently political tradeoffs between hurting bona fide tax payers vs. closing loopholes for tax avoidance – cbeleites unhappy with SX May 28 '19 at 13:21
  • @cbeleites The definition of the words: If it is legal, then it is tax avoidance. If it is illegal, then it is tax evasion. Of course after tax avoidance, it is possible that the tax office corrects the tax calculations and makes you pay more. – gnasher729 May 30 '19 at 18:09
  • The question isn't whether this should be done, but whether any country has done it. – F1Krazy Nov 26 '19 at 10:56
0

If a country supports all its citizens and supports poor with the taxpayer's money, in the form of minimum wage/others, for one's survival, there is no necessity for the poor (temporarily) to involve in crimes (If the received funds are sufficient to lead a good life). Publishing such information encourages others to work hard to move up the ladder.

In other words, schools reveal the student's grades openly, without any concern. The results are only applicable to those, who are in a specific group (who are equal in age/capability without any distinction and discrimination) and it cannot cause any harm. if a student wants to do better down the line, the path is clear. All he needs to do is to open the books and read them, to score better grades.

In countries, where the gap between the rich and poor is high, where the law implementation is weak, there are many anti-social groups (like Mafia) and others. If any people's wealth information is revealed, they will use it to mint money from them (Kidnapping, Blackmailing, etc)

Essentially, it boils down to the following.

  • Can the Government/police ensure no mishap happens to any of its citizens? Are they proactive enough to protect its citizens from crooks and punish the crooks to ensure no one else ever dares to commit a crime?
  • Can the administration protect its citizens from any side effects of revealing such information?

If the answer is YES, there is no problem in revealing such information.

In developing countries, there exists an anti-social faction for each Area/Colony. of a town/City. Revealing such information is going to destroy those people's lives. The law is poorly managed and their ability to get things done right is highly questionable. In addition, consider the additional privileges provided to some as a part of the constitution.

0

In Canada this is provided by a non-governmental body, since 2007.

The Fraser Institute calculates Tax Freedom Day:

Tax Freedom Day measures the total yearly tax burden imposed on Canadian families by all levels of government: If you had to pay all your taxes up front, you’d give government every dollar you earned before June 14. This year, the average Canadian family (with two or more people) will pay $52,675 in total taxes, or 44.7 per cent of its annual income.

There are occasionally some differences of opinion as to exactly how accurate their calculations may be.

Roger
  • 4,356
  • 18
  • 31