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Broadening the tax base of neutral business taxes

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Abstract

The Samuelson tax is a neutral business income tax on the normal return on capital only. I discuss two modifications of the Samuelson tax in order to include pure profits in its tax base, but still achieve neutral business taxation.

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... The crediting tax effect only happens when AP is negative (AP< 0), generating DTP inventory that is only recognized in a firm's balance sheet when the theoretical requirement for an asset's recognition is met. The required payment value of DTP and the crediting tax effect, calculated according to AP, are influenced by the algebraic sign of NFA, which may not convey the sense of neutrality and pure profit as discussed by Edgeworth (1897) and RUF (2012). Such non-neutrality is a consequence of the permanent adjustment which excludes from the AP process tax credit of non-deductible expenses and the tax debit of non-taxable revenue. ...
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This article addresses the direct taxation on banks’ profits in Brazil and tests the influence of net fiscal adjustment (NFA) on direct tax on profit (DTP) by introducing the marginal effect of direct taxation (MgET). Measuring DTP is a complex process that involves adjustments in fiscal accounting procedures to recognize economic transactions by using specific standards. Besides fulfilling the objectives of identifying recognized direct tax (RT) and calculating NFA, MgET is identified by the algebraic sign of NFA, which is the sufficient, necessary and only condition to evaluate the existence of cash synergy/entropy in firms, with the reduction/increase of DTP. By using a sample containing data from the 40 biggest banks in Brazil, from 2010 to 2017, under the positivist methodology, the research results are strongly robust in indicating that NFA has a significant impact on DTP and on MgET, producing cash synergy.
... The crediting tax effect only happens when AP is negative (AP< 0), generating DTP inventory that is only recognized in a firm's balance sheet when the theoretical requirement for an asset's recognition is met. The required payment value of DTP and the crediting tax effect, calculated according to AP, are influenced by the algebraic sign of NFA, which may not convey the sense of neutrality and pure profit as discussed by Edgeworth (1897) and RUF (2012). Such non-neutrality is a consequence of the permanent adjustment which excludes from the AP process tax credit of non-deductible expenses and the tax debit of non-taxable revenue. ...
Article
Full-text available
This article addresses the direct taxation on banks’ profits in Brazil and tests the influence of net fiscal adjustment (NFA) on direct tax on profit (DTP) by introducing the marginal effect of direct taxation (MgET). Measuring DTP is a complex process that involves adjustments in fiscal accounting procedures to recognize economic transactions by using specific standards. Besides fulfilling the objectives of identifying recognized direct tax (RT) and calculating NFA, MgET is identified by the algebraic sign of NFA, which is the sufficient, necessary and only condition to evaluate the existence of cash synergy/entropy in firms, with the reduction/increase of DTP. By using a sample containing data from the 40 biggest banks in Brazil, from 2010 to 2017, under the positivist methodology, the research results are strongly robust in indicating that NFA has a significant impact on DTP and on MgET, producing cash synergy.
... Instead, most tax codes allow for an assortment of capital deductions, but in a way that is far distant from the above methods. 4 Also, Ruf (2012) shows that the taxable base attained from Samuelson`s method can be enhanced by forcing all pure profits to be part of the tax base. 5 More recently, have shown that allowing for the true capital depreciation is not necessary for neutrality as long as the allowed depreciation rates mimic the true ones in terms of present value. ...
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All rights reserved. doi:10.1016/j.econlet.2012.04.093 References Becker, J., Fuest, C., 2010. Taxing foreign profits with international mergers and acquisitions
  • Elsevier
$ – see front matter © 2012 Elsevier B.V. All rights reserved. doi:10.1016/j.econlet.2012.04.093 References Becker, J., Fuest, C., 2010. Taxing foreign profits with international mergers and acquisitions. International Economic Review 51 (1), 171–186.
Capital Income Taxation and Resource Allocation
  • H.-W Sinn
Sinn, H.-W., 1987. Capital Income Taxation and Resource Allocation. North, New-York.