Is Windfall Tax an Effective Measure to Broaden Tax Base in Hk?
Is Windfall Profits Tax an effective measure to broaden the tax base in Hong Kong?
Introduction
Statement of the problem(s)
Comparing HK tax base with the international level
Stating the influence of narrow tax base
Specifying the need to broaden tax base
Literature review
Rationale behind broadening the tax base should be in line with taxation principles. To look at the effectiveness of the windfall profits tax, we should first look at the taxation principles. The principles of taxation have long been mentioned in hopes of creating an excellent system of taxation. Firstly, fairness is an important principle. Adam Smith (1776) who was a pioneer of political economy claims that the subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state. The British House of Commons further supported his claim. “The two basic principles raised by almost all of our witnesses were the fairness of taxation …” mentioned in the eighth report of session 2010-2011. In 2004, European Commission defined fairness. According to the Common Consolidated Corporate Tax Base (CCCTB), tax base should be vertically and horizontally equity. Vertical equity means that the burden of taxation should be shared in accordance with taxpayers' respective ability to pay, sometimes referred to as 'the ability to pay' principle. While horizontally equity means that taxpayers in the same economic circumstances should receive equivalent treatment. Secondly, generating positive effects on economic performance would be another principle of taxation. “Responsible tax policy means paying attention to incentive effects and maintaining low marginal tax rates (Diamond and Mirrlees 1971; Bankman and Griffith 1987). Organisation for Economic Co-operation and Development (OECD)
Introduction
Statement of the problem(s)
Comparing HK tax base with the international level
Stating the influence of narrow tax base
Specifying the need to broaden tax base
Literature review
Rationale behind broadening the tax base should be in line with taxation principles. To look at the effectiveness of the windfall profits tax, we should first look at the taxation principles. The principles of taxation have long been mentioned in hopes of creating an excellent system of taxation. Firstly, fairness is an important principle. Adam Smith (1776) who was a pioneer of political economy claims that the subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state. The British House of Commons further supported his claim. “The two basic principles raised by almost all of our witnesses were the fairness of taxation …” mentioned in the eighth report of session 2010-2011. In 2004, European Commission defined fairness. According to the Common Consolidated Corporate Tax Base (CCCTB), tax base should be vertically and horizontally equity. Vertical equity means that the burden of taxation should be shared in accordance with taxpayers' respective ability to pay, sometimes referred to as 'the ability to pay' principle. While horizontally equity means that taxpayers in the same economic circumstances should receive equivalent treatment. Secondly, generating positive effects on economic performance would be another principle of taxation. “Responsible tax policy means paying attention to incentive effects and maintaining low marginal tax rates (Diamond and Mirrlees 1971; Bankman and Griffith 1987). Organisation for Economic Co-operation and Development (OECD)