Taxation Problems and Policies of Underdeveloped Countries
Author:
U Tun Wai
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Publication Date:
01 Jan 1962
eISBN:
9781451968873
Language:
English
Keywords:
SP; mixed-citation publication-type; interest rate; dollar; income; economic development; capital gain; exchange tax; tax administration; tax measure; Income and capital gains taxes; Income tax systems; National income
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IN UNDERDEVELOPED COUNTRIES the government sector is usually more important than other sectors, not only in those countries where governments have taken upon themselves the task of increasing productive capacity, but also in those where the private sector is relied upon to ensure economic growth.1 In practically all underdeveloped countries it is now customary to have a development program, and fiscal policy is the kingpin in determining the total level of investment. Within fiscal policy, expenditure policies are important; but if tax receipts are not sufficient, governments cannot invest directly or lend to the private sector without resort to deficit financing.

Abstract

IN UNDERDEVELOPED COUNTRIES the government sector is usually more important than other sectors, not only in those countries where governments have taken upon themselves the task of increasing productive capacity, but also in those where the private sector is relied upon to ensure economic growth.1 In practically all underdeveloped countries it is now customary to have a development program, and fiscal policy is the kingpin in determining the total level of investment. Within fiscal policy, expenditure policies are important; but if tax receipts are not sufficient, governments cannot invest directly or lend to the private sector without resort to deficit financing.

IN UNDERDEVELOPED COUNTRIES the government sector is usually more important than other sectors, not only in those countries where governments have taken upon themselves the task of increasing productive capacity, but also in those where the private sector is relied upon to ensure economic growth.1 In practically all underdeveloped countries it is now customary to have a development program, and fiscal policy is the kingpin in determining the total level of investment. Within fiscal policy, expenditure policies are important; but if tax receipts are not sufficient, governments cannot invest directly or lend to the private sector without resort to deficit financing.

Economic problems in underdeveloped countries are similar to those in developed countries, but there are differences in emphasis and in importance. This is also true of taxation policies, which have slightly different objectives and relatively greater importance in underdeveloped countries. Generally speaking, in developed countries taxation policies, and tax revenues, are geared to cover the amount of socially desired expenditures. Government expenditures are not determined by the amount of revenue. On the other hand, the underdeveloped countries find it difficult to increase the level of taxation and the amount of revenues collected. Therefore, governments desiring to promote economic growth and simultaneously to maintain financial stability have been forced to limit much-needed development expenditures.

The function of tax revenue in relation to the business cycle differs between developed and underdeveloped countries. In both types of economies, tax revenue is dependent on the level of business activity and fluctuates with the business cycle. But only in the developed countries is the amplitude of business fluctuations dampened through changes in government revenues resulting from built-in stabilizers, such as the income tax. Developed countries also use tax measures, such as depreciation allowances, tax holidays, etc., to influence the business cycle. But this is not possible in underdeveloped countries, because changes in final demand originate from the industrial countries and rarely from domestic sources.

Existing Tax System in Underdeveloped Countries

Tax revenue

A major characteristic of the tax system in underdeveloped countries is that it does not provide governments with much revenue; this is true not only of actual amounts but also of tax revenue in relation to national income. As shown by Table 1, which presents countries by groups according to per capita incomes—high, medium, and low—central government revenue as a percentage of national income varies greatly even between countries in the same range of per capita income. However, the figures in the table provide only orders of magnitude, especially since local governments, which are not included in the table, may be an important part of the government sector in some countries and not in others. Thus, if local governments were included, the revenue collected by the government sector in Belgium, Canada, and the United States would be in the range of one fourth to one third of their national income instead of between 17 per cent and 18 per cent; in India, it would be double the percentage shown in Table 1. However, it is clear that the median percentage is highest for the high income countries and lowest for the low income countries. This suggests some relationship between levels of national income and taxes collected. The reason is that most governments are of the opinion that when per capita income is low, and especially when it is near starvation level, it is not desirable to tax the masses. This has led to extensive exemptions from payment of income tax.

Table 1.

High, Medium, and Low Income Countries: Central Government Revenue1 as Percentage of National Income, 1959

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Sources: Based on data from United Nations, Statistical Yearbook and Monthly Bulletin of Statistics.

Government revenue is defined as in the United Nations, Statistical Yearbook, and includes all taxes, current transfers, sales and charges, surplus of government trading enterprises, interest and dividends received, sales of assets, repayments of loans granted, and capital transfers.

The classification of countries into high income, medium income, and low income groups is based on the 1957 per capita income groupings as computed by Mikoto Usui and E. E. Hagen in World Income, 1967 (Center for International Studies, Massachusetts Institute of Technology, Cambridge, Massachusetts).

1956 data.

1957 data.

1958 data.

1955 data.

Another important factor that causes low tax yields in underdeveloped countries is that the size of the money (or market) sector is much smaller than in developed economies. It is easier to levy taxes in an economy with monetary or market transactions than in a barter economy, because of difficulties of assessing real income in the latter. As Mr. Richard Goode has said: “Even highly skilled administrators have made little progress toward including the value of home-produced and consumed foods in the taxable income of farmers. In many underdeveloped countries these products and others obtained by barter make up a major fraction of the total real income of large segments of the population.”2 There are a number of other reasons, such as illiteracy, lack of systematic accounting, inefficient tax administration, tax evasion and avoidance,3 social codes of behavior not requiring voluntary compliance, political influence, etc.

The relation of government revenue to national income often depends on the economic philosophy of the country and upon its type of economy. Thus Mexico, with a higher per capita income than either Burma or Ceylon, collects taxes equivalent only to 8.1 per cent of income, in contrast to 20.6 per cent for Burma and 22.4 per cent for Ceylon, because Mexico is basically a free enterprise economy relying on the private sector for investment and economic growth. But if the government in a private enterprise economy wishes to use fiscal policy to promote economic development, it must be able to obtain its revenues—even though the amount need not be as large as in a socialist economy. In an underdeveloped country, a budget surplus for this purpose is the more necessary because savings and investment in such a country are much smaller than in a developed economy.

Proportion of revenue from direct taxes

A second characteristic of the tax system in underdeveloped countries is the small proportion of total revenue raised by direct taxation.4 This is clearly indicated by the data in Table 2, which show that the median for direct tax revenue as a percentage of total revenue in the high per capita income countries is 43, while that in the low per capita income countries is 20. There are a number of reasons for this. In particular, underdeveloped countries have found that it is easier to collect indirect taxes (e.g., customs duties) than direct taxes, especially when proper records are not kept by small businessmen and professional people. Also, the rate of total taxation has been lower in the underdeveloped than in the developed countries, both in relation to absolute incomes and in relation to per capita income.

Table 2.

High, Medium, and Low Income Countries: Direct Tax Revenue1 as Percentage of Total Central Government Revenue, 1959

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Sources: See Table 1.

Direct tax revenue comprises taxes on income and wealth, i.e., income taxes on individuals, corporate income taxes, capital gains taxes, property taxes, death and gift duties, etc. Oil royalties (Venezuela) and profits from state-managed boards (Burma) are also included.

As shown in Table 3, the rate of personal income taxes on incomes up to £5,000 ($14,000) a year (which is a significant sum in underdeveloped countries) for a married man with two children is somewhat lower in the underdeveloped than in the developed countries. But comparisons of rates on absolute incomes, though meaningful, are not as significant as the rate of taxation in relation to per capita income, shown in Table 4. The first point indicated by Table 4 is that the tax base is much smaller in underdeveloped than in developed countries because, relative to per capita income, the income which is exempt from tax is much higher in the underdeveloped countries. For example, in the Philippines a married couple with three children is not subject to any income tax unless their income is about 16 times the average per capita income, while in Canada, the United Kingdom, France, and Germany, a married couple is subject to income tax if their income is no more than about twice the average per capita income.

Table 3.

Selected Underdeveloped and Developed Countries: Central Government Personal Income Tax, 1958, for Married Man with Two Children

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Source: J. Harvey Perry, Taxation and Economic Development of Ghana (prepared for the Government of Ghana, United Nations Report No. TAO/GHA/4, Rev. 1, July 1, 1959.
Table 4.

Selected Underdeveloped and Developed Countries: Burden of Income Taxes Paid by a Married Couple with Three Children in Relation to National Per Capita Income, 1958–60 1

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Source: United Nations, Economic Survey of Asia and the Far East, 1960, p. 94.

Reference years: for per capita national income—fiscal year 1956 for Burma, 1957 for Federation of Malaya, 1958 for Argentina, Canada, France, Mexico, and the Philippines, 1959 for Ceylon, the Federal Republic of Germany, Japan, India, and the United Kingdom, and 1960 for Australia and the United States; for tax laws—fiscal year 1956 for Burma, 1959 for France, Japan, Federation of Malaya, Mexico, and the Philippines, and 1960 for Argentina, Australia, Canada, Ceylon, the Federal Republic of Germany, India, the United Kingdom, and the United States.

Table 3 shows that at high absolute incomes, say £10,000 ($28,000), the rate of taxation is about the same in developed and in underdeveloped countries; but Table 4 shows that when expressed as multiples of per capita income the rates of taxation are definitely lower in underdeveloped economies. For the seven underdeveloped countries included in Table 4, the tax on incomes equal to 50 times per capita national income averaged only 12 per cent in 1958–60, while for the seven developed countries included in the table, it averaged 47 per cent.

A tax system based on direct taxes which are graduated in a progressive manner is important both for financing economic development and for controlling inflation. Economic development raises per capita income and money income (as well as real income), and the whole population moves up in the income scale. Those who were paying taxes earlier will pay larger taxes, and some of those who were below the exemption limit will start to pay taxes. The direct tax system thus has a built-in structure for giving governments larger revenues from growth without changing the level of taxation.

The progressive direct tax system also provides governments with built-in protection against inflation. When prices rise, money incomes increase, and the tax system causes government revenues to increase at least pari passu with national income, and very rapidly if the system is sufficiently progressive. On the other hand, if indirect taxes are a large component of revenue, government revenues will lag behind the increases in money income and prices. And if, as in most underdeveloped countries, expenditures increase with rising prices, the budget deficit grows rapidly, adding to the total excess demand and inflationary pressures.

Dependence on taxes on foreign trade

Thirdly, the tax structure in most underdeveloped countries relies heavily on taxes on foreign trade (import duties, export duties, and exchange taxes); in many countries this category accounts for a quarter to a half of the total revenues. A comparison of tax revenues from foreign trade with total revenue (Table 5) shows a rough relationship between low per capita incomes and dependence on taxes on foreign trade. The reason for this relationship is not obvious until one equates the level of per capita income with an ability to devise alternative forms of taxation. It is easy to understand why, in the absence of knowledge and willingness to rely on other tax measures, most underdeveloped countries have used taxes on foreign trade as an important source of revenue.

Table 5.

High, Medium, and Low Income Countries: Central Government Taxes on Foreign Trade as Percentage of Total Government Revenue, 1959

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Sources: See Table 1.

Excise duties included.

Import duties only.

Exchange taxes included.

Large and important exchange taxes included.

In the majority of these countries, international trade is large in relation to national income and therefore constitutes a substantial proportion of total transactions in the market. On the other hand, foreign trade is conducted only through a few seaports or points of entry. Therefore, the imposition of taxes on foreign trade enables governments to collect revenues efficiently and cheaply. And, except in the island countries, such as Indonesia and the Philippines, it is not easy to smuggle goods and thus to evade the payment of customs duties. The policy implications and other consequences of relying on taxes on foreign trade are considered below, in the discussion of individual taxes.

Direct Taxes

Taxation of personal income

There are two basic methods of levying the personal income tax. One is the schedular method, which is used in a number of Latin American countries, such as Argentina, Brazil, Chile, Peru, and Venezuela; in Asia it is used in Viet-Nam. The second is the unitary system, which is used in most countries in Asia, in Colombia, and in the Central American countries.

Under the unitary system, the tax is levied on the total income from all sources, at a progressive rate related to the size of income. Under the schedular system, income is differentiated between sources, and the rate levied varies according to the source of the income, without reference to the size of total income. For example, in Venezuela in 1956, income from personal property was taxed at 5 per cent, profits from industrial, commercial, mining, and petroleum enterprises at 2½ per cent, profits from agriculture at 2 per cent, income from professional work at 2 per cent (for nonresidents 7 per cent), wages and pensions at 1 per cent, capital gains on real property at 3 per cent, and unauthorized earnings, e.g., from lotteries, horse racing, etc., at 10 per cent. Income from real property was taxed at 2½ per cent, but deductions were allowed for (a) interest on mortgages, (b) taxes levied on the property, (c) administrative expenses, and (d) actual maintenance up to 15 per cent of gross income.

The main argument for the unitary system is that it levies taxes according to ability to pay. The main argument for the schedular system is that it is an administratively easier method of collecting taxes. The correct amount of taxes can be withheld in each business without reference to the total income of the person assessed, and the government officials allocated to each type of business are better qualified, because of specialization, to assess and levy taxes on incomes earned. A second argument is that different rates can be levied according to the source and nature of the income. The reasons for wishing to make this distinction are many and include the view that wages are “earned” while profits are “unearned,” and that windfall profits should be taxed at a higher rate than wages; that government servants receive lower remuneration than workers in private enterprise and therefore should be taxed at a lower rate; and that a distinction is needed between nonresidents (or foreigners) and citizens.

On the other hand, the millionaire (or, for that matter, the civil servant) with incomes from many different sources is taxed very lightly. Furthermore, since underdeveloped countries need to increase savings and investment, it is inappropriate to penalize profits as is done under the schedular system; if part of the profits are windfalls arising from increases in prices, the solution should be to levy taxes on capital gains.

In actual practice, the two systems have moved toward one another. The unitary system, which provides allowances for certain business expenses, makes business income taxable at a different rate from wages and salaries. Furthermore, self-employed wage earners are not effectively assessed, so that this sector as a whole is taxed at a different rate from others. The schedular system generally incorporates an additional levy on over-all income, which tends to make it approach the unitary system. Thus the Venezuelan system of 1956 included a supplementary tax levy, which on incomes up to 10,000 bolívares ($3,000) was 1½ per cent; on incomes of 64,000 bolívares, 3 per cent; and on incomes of 1 million bolívares, 9 per cent.

Taxation on incomes of corporations and other businesses

Basic pattern

The method of taxing the incomes of corporations and other businesses is basically the same in the underdeveloped countries as in the developed countries. But naturally there are differences between countries, depending in part on whether the tax laws have been modeled after the U.K., French, or U.S. system of taxation. These differences concern, in particular, technical details, such as the carry-over of losses from earlier years, depreciation allowances, and the double taxation of profits.

Companies with limited liability are usually taxed more heavily than unincorporated enterprises or private partnerships. This may seem justifiable on the grounds that the larger the business, the easier it is to earn income. But in order to promote investment and to create capital markets, it is desirable that preference be given to the corporate form of enterprise. One of the difficulties in raising the level of private investment in underdeveloped countries is that even the rich do not have sufficient funds to establish industries using modern methods of production. This difficulty can be overcome only by encouraging large numbers of investors to pool their financial resources.

The basic level of taxation on companies in underdeveloped countries is generally lower than in the developed countries (Table 6). Among the underdeveloped countries, it is lowest in South America and highest in the Middle and Far East, except in a few countries, such as Thailand, where it is low. Generally speaking, at least in the former colonies of the British Empire, companies have to pay an excess profits tax, defined in varying ways, in addition to the basic rate.

Table 6.

Underdeveloped and Developed Countries: Basic Rates of Taxes on Profits of Corporations, 19581

(As percentage of taxable income)

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Source: J. Harvey Perry, Taxation and Economic Development of Ghana (prepared for the Government of Ghana, United Nations Report No. TAO/GHA/4, Rev. 1, July 1, 1959).

A number of countries have excess profits tax as well.

Approximate.

Encouragement of investment

One tax feature widely used by underdeveloped countries is a direct tax concession given for about 5 years to pioneer industries. (In some countries it is given for as few as 3 years, and in others for as many as 25 years.) In Africa, concessions are in force in Gambia, Ghana, Nigeria, and the former French West African countries; in the Middle East—in Iraq, Israel, Jordan, Lebanon, the Sudan, and the United Arab Republic; in Asia—in Burma, Ceylon, India, Pakistan, and the Philippines; and in Latin America—in Bolivia, Chile, Colombia, Cuba, the Dominican Republic, El Salvador, Guatemala, Panama, and Puerto Rico.

The concessions take the form of exempting companies operating in designated industries from paying part or all of their income tax. In some countries—for example, El Salvador—there is an additional stipulation that at least one half the capital must be domestically owned; in others—for example, Colombia and Guatemala—there is a condition that local raw materials and other natural resources must be used.

In addition to concessions on direct taxes, most of the countries mentioned above give indirect tax concessions; the one most widely used is exemption for 5 to 10 years from customs duties on the import of capital goods and raw materials. Occasionally, there are other concessions, such as exemptions from real estate and turnover taxes (as in the former French West African countries), from property tax (in Israel), and from business and other internal indirect taxes (in Thailand). Governments which give such exemptions are eager to extend industrialization in order to raise the standard of living. But some of their good intentions are vitiated by the stipulation of elaborate procedures, which have to be observed before a company can benefit from them.

Exemption from taxation, however, is only one factor in promoting industrialization. For example, even in Puerto Rico, which is often cited as an example of rapid industrialization owing to tax concessions, the really important factors have been exemption from U.S. federal income tax (rather than concessions given in Puerto Rico), cheap labor, and the protected market in the United States.5

Taxes on capital gains and net worth

Generally speaking, taxes on capital gains and on net worth are not used widely in the developed countries. They are, however, beginning to be used in underdeveloped countries, for example, in Brazil, Colombia, Guatemala, Honduras, and India. These taxes are justified as a means of transferring windfall profits from private individuals and businesses to the government. They are also justified on grounds of equity when the capital gains arise from communal investment or a general increase in prices rather than from direct investment by the owner of the property.

The principal argument against levying taxes on capital gains and on net worth is that it might discourage saving and encourage spending. Secondly, capital gains are not always the result of communal action; they may stem from the effort of the individual concerned. Furthermore, insofar as a capital gain reflects the expectation of future income, it will be reached by the regular income tax at a later date. Finally, these taxes are most difficult to administer. For a long time to come, they will not be an important source of revenue in underdeveloped countries.

Land Tax6

The land tax has been used in most underdeveloped countries, but not as widely as might have been expected in economies where there is little wealth other than land and where the major part of national income originates from agriculture. For example, Ceylon and Malaya do not have land taxes, but they levy export duties on the principal export crops.

Land taxes are, on the whole, levied in cash rather than in kind. In some countries (Burma, Cuba, India, Indonesia, Iran, Lebanon, Pakistan, the Syrian Arab Republic, and the United Arab Republic) they are based on the value of the annual yield of the crops, and in others (Bolivia, Chile, Costa Rica, El Salvador, Guatemala, Israel, Mexico, and Nicaragua) on the capital value of the land. In Argentina and Brazil they are based on both criteria.

Before World War II, land taxes were relatively more important than they are at present. In some countries—for example, Burma, Egypt, India, Pakistan, and Syria—they constituted between one fifth and one fourth of total central government revenues. In postwar years, land taxes have declined greatly in importance, and in many countries they now represent about 5 per cent of total revenues. In a few countries, such as India and the Syrian Arab Republic, they constitute about 10 per cent.

There are three main reasons for the decline in importance of the land tax. Firstly, the amount of the tax was fixed originally in relation to the yield per acre when the surveys were made, and this yield may have increased later. Secondly, while the general price level, including that of agricultural products, has risen, the rate of tax charged has increased to a smaller extent. Thirdly, increases in the value of land have been limited because land reforms have decreased the attractiveness of land as a means of investment.

To remedy such defects, and also to reduce the regressive nature of the land tax, many writers have suggested the introduction of a separate income tax on agriculture. This has, in fact, been tried in a number of provinces in India and Pakistan, with limited success. Many Latin American countries (Argentina, Brazil, Chile, and Mexico) include such a tax as part of their schedular system of taxing income. Important drawbacks to obtaining large revenues by taxing agricultural income have been the difficulty of computing income and the fact that the exemption levels have been higher than the income of the average farmer.

Indirect Taxes

Sales tax or turnover tax

The sales tax or turnover tax is used in a number of countries, for example, Argentina, Brazil, India, and Pakistan. Although it is generally very regressive, it has many attractive features for underdeveloped countries, where lack of proper accounting records makes it difficult to determine an individual’s income.

However, the sales tax has not been an important source of revenue because, in order to reduce its regressiveness and to prevent a wage-price spiral, most governments have exempted food and other essential items from the tax. Moreover, governments have found it difficult to levy sales taxes in rural areas and have generally confined them to a few major cities.

Excise taxes

Excise taxes are widely used in underdeveloped countries. They yield large revenues because they are levied on such commodities as tobacco, cigarettes, alcoholic beverages, matches, and petroleum and its derivatives, for which the demand is generally inelastic. They are also easy to administer, as the commodities are channeled through a few points. If the goods are domestically manufactured, the tax is levied at the manufacturing stage; if they are imported (as, for example, gasoline), the tax may be levied at the time of distribution.

Export and import duties

Of all the indirect taxes, those on foreign trade are the most widely used; they yield even larger revenues than excise taxes. While it is usual to think only of customs duties as taxes on foreign trade, there are also exchange taxes in countries with multiple exchange rates. Many governments have, at one time or another, made large profits from exchange taxes; in Latin America, this has been true in Argentina, Brazil, Chile, and Uruguay; and in Asia, in Indonesia, the Philippines, Thailand, and Viet-Nam. These profits are not always channeled through government budget accounts; quite often they accrue to the central bank, which subsequently transfers them to the government. Basically, exchange profits are made by the government or the central bank buying foreign exchange from exporters at a low rate and selling it to importers and those needing to make foreign payments at a higher rate. Sometimes the profit is made by selling or auctioning permits to buy foreign exchange from sellers in the market.

Although both export duties and import duties are generally regarded as regressive, the latter are probably less regressive than the former in most underdeveloped countries. The reason is that import duties on luxuries, such as automobiles and cosmetics, are higher than those on foodgrains and cheap textiles. Export duties are regressive because they are levied on the commodity (e.g., coffee and rubber), are usually specific, and are borne by the grower. Therefore, the burden for the small grower is the same as that for big plantations.

Export duties, especially when they are ad valorem, are useful as a contracyclical fiscal device in underdeveloped economies. During the Korean war boom, beginning in 1950, a number of countries in Asia (Ceylon, Indonesia, Malaya, and Thailand) raised export duties on rubber and tin so that part of the windfall profits from higher export prices accrued to the government. In some instances, the higher the price of the commodity, the higher was the duty, and the lower the price, the lower the duty.7

During that boom period, many of these governments had involuntary budget surpluses to which the export duty contributed; these surpluses were effective in preventing domestic money incomes from rising as fast as export prices. The foreign exchange accumulated during the boom was used to finance imports when the boom collapsed and the governments began to have budget deficits. Thus, in the recession, domestic money incomes did not fall as much as they otherwise would have done. Deficit financing during a recession following a boom period, when foreign exchange has been accumulated through budget surpluses, is a mechanism that enables governments in underdeveloped countries to follow a contracyclical fiscal policy, such as that recommended by the Ceylon Taxation Commission.8

Marketing boards

A device which has effects (including possibilities for contracyclical policies) similar to those of export duties is the marketing board. This device has been used in Burma and Thailand for rice, in Ghana and Nigeria for cocoa, and in Indonesia for copra. It has been most effective in Burma and Thailand.

The basis of the system is that the government makes large profits out of its monopoly of the export of the commodity under control. The domestic purchasing price paid by the marketing board is kept more or less unchanged, and well below the minimum international price. The government then obtains the full windfall profits arising from a rise in the latter; similarly, when international prices fall, government profits, rather than the domestic money incomes of exporters and growers, decline.

The use of marketing boards makes it possible for governments to mobilize easily resources to finance economic development. In Burma and Thailand, resources thus obtained have ranged from one fourth to about two fifths of government revenues. Domestic prices have remained unchanged in Burma since 1948, but in Thailand they have been raised several times.

Adoption of the marketing board device may not be feasible for some countries because of political and economic difficulties. The failure of the Indonesian Copra Fund to provide profits for the government illustrates this point. When the international price of copra was much above the domestically fixed price, the Copra Fund had difficulty in procuring supplies because of smuggling; therefore, its profits were low in boom years. On the other hand, when the international price was below the domestic price the Copra Fund experienced large losses. If a marketing board system is to be successful, it must be started when international prices are low, and the political and social control of private business must be effective enough to prevent smuggling.

Price policy for government enterprises

A correct price policy for government enterprises in underdeveloped countries is absolutely essential; otherwise the resources of the government will be frittered away and there will not be sufficient funds for investment. An ideal course for setting a price policy would be to classify the enterprises into three types: (1) subsidized enterprises, whose prices would not cover fixed costs and perhaps not even operating costs; (2) normal business enterprises, whose prices would cover all costs, including amortization of fixed costs at replacement values; and (3) monopolies, which would provide large profits for the government to finance development projects.

In practice, governments of the underdeveloped countries have, without any proper analysis, usually allowed utilities and transport facilities to fall into the subsidized category. It is true that cheap fuel, power, and transportation are necessary to promote economic development, and it is therefore possible to make a case for subsidies to such industries. However, it is preferable to grant subsidies in such forms as tax concessions rather than through a price policy. The latter is apt to conceal the inefficient operations of industries owned and managed by the government.

The case for full cost pricing is very strong. If prices (e.g., passenger fares, utility rates, etc.) of government-owned enterprises are barely sufficient to cover variable costs, the government budget, rather than the enterprises’ own funds, has to bear the cost of replacing worn-out equipment. This has caused considerable financial difficulty at one time or another in a number of countries, including Argentina and Turkey. In Bolivia and Ceylon, uneconomic enterprises were closed down as part of the remedy to decrease the strain on the government budget.

The case for monopoly pricing rests on the need for financing economic development, as this technique (like the institution of marketing boards for external trade) enables governments to derive revenue quite easily. A drawback is that there is no market test of whether the enterprise is being run efficiently and, therefore, other criteria have to be established for judging efficiency.

Conclusions

That government revenues in underdeveloped economies are woefully inadequate is clear, but the method by which they can be increased rapidly is not so obvious. Particular tax devices which work successfully in one country (e.g., a marketing board in Burma) may not be appropriate in another. However, there are three fronts along which governments could advance, namely, tax principles, tax administration, and the social and political will to succeed.

It is true that refined knowledge is often lacking about the kinds of taxes which will yield most revenues with the least amount of economic, and perhaps political, disturbance. But when one looks at the impressive array of tax studies undertaken in many countries by government inquiry commissions, private individuals, and the United Nations,9 one is forced to conclude that knowledge, though useful, is only a small part of the basic problem.

Better tax administration and improved collection methods within the existing structure will produce results, and they are certainly important as a means of increasing government revenues. In most countries, the staff of the tax collecting departments is inadequate. For example, in Japan, where the size of the staff is more adequate than in other Asian countries, there were 65,000 tax collecting employees in 1958 for a population of about 90 million, while Viet-Nam with a population of 12-13 million people had only 1,150 tax collecting employees. If Viet-Nam had the same ratio of tax collecting staff to population as in Japan, the number of collectors would be about 8,500. Other factors for improving the work of tax administrators include higher wages, security of tenure, and better training in accounting and in methods of making assessments.

It has been shown again and again that political indecision has prevented good tax measures from being adopted. Although the Ceylon Taxation Commission in 1955 made 56 recommendations, only a few were adopted by the Government. The same holds true for the recommendations of various Tax Commissions in India and of reports by the United Nations. On the other hand, it has been shown (for example, in Bolivia and El Salvador in recent years) that, when a government makes a determined effort to improve collections, government revenues increase markedly.

Tax reforms, as mentioned above, can be made only slowly; they depend not only on good laws but also on how the laws are implemented. If tax systems are judged by the amount of revenue collected in relation to the gross national product, some improvement has occurred in postwar years in a number of countries: those in Asia include Burma, India, Korea, and the Philippines, and those in Latin America include Chile, Costa Rica, Ecuador, Honduras, and Venezuela. In the majority of underdeveloped countries, however, there has been very little or no change in the ratio. When tax systems are judged by the proportion of direct taxes to total tax revenue, improvement since the war is indicated for only a few countries: Burma, Ceylon, Costa Rica, El Salvador, Guatemala, Honduras, India, and Mexico.

Problèmes et politiques d’imposition fiscale dans les pays sous-développés

Résumé

Le système fiscal des pays sous-développés est caractérisé principalement par le fait qu’il ne fournit pas de recettes élevées au Gouvernement, non seulement en valeur absolue mais également en valeur relative par rapport au revenu national. Pour les pays à revenu peu élevé (revenu annuel par habitant inférieur à $200) le pourcentage médian des recettes du Gouvernement central par rapport au revenu national en 1959 était de 13,7 alors que pour les pays à revenu élevé (revenu annuel par habitant supérieur à $500) il était de 25.

Le montant peu élevé des recettes fiscales des pays sous-développés s’explique par les faibles taux d’imposition et par les difficultés que présente la perception d’impôts à cause du faible développement du secteur monétaire (ou du marché), de l’analphabétisme, de l’absence de comptabilité systématique, de l’insuffisance de l’organisation fiscale, des fraudes et détournements fiscaux, de l’existence de règles de conduite sociale n’exigeant pas la soumission volontaire, et des influences politiques.

L’expérience a démontré qu’il était plus facile aux pays sousdéveloppés de percevoir des impôts indirects (tels que les droits de douane) que les impôts directs. Cependant, la mise en œuvre d’un système d’imposition directe progressive est nécessaire au financement de l’expansion économique et au contrôle de l’inflation. La proportion de recettes totales résultant des impôts directs est faible. En 1959, le pourcentage médian d’impôts directs par rapport aux recettes fiscales totales pour les pays à faible revenu national était de 20; pour les pays à revenu élevé, il était de 43.

Les systèmes d’imposition directe en vigueur dans les pays sous-développés sont semblables à ceux des pays développés. Pour l’imposition du revenu des particuliers, la méthode cédulaire et le système unitaire d’imposition sont tous deux appliqués—le premier principalement en Amérique du Sud et le second en Asie et en Amérique centrale. En pratique, la différence entre les deux systèmes s’est atténuée. Les impôts sur les plus-values en capital commencent à être appliqués dans de nombreux pays mais l’impôt foncier diminue d’importance.

Dans la plupart des pays sous-développés les impôts sur le commerce extérieur (droits d’importation, droits d’exportation et taxes de change) jouent un rôle important; dans de nombreux pays cette catégorie représente entre 25 et 50 pour cent des recettes totales. En outre, les taxes ont un rendement important; elles frappent des produits tels que le tabac, les boissons alcooliques, les allumettes, le pétrole et ses dérivés. Les Gouvernements ont eu recours aux droits à l’exportation et aux fonds de stabilisation des marchés (“marketing boards”) comme mesures fiscales anticycliques, pour amortir les effets des fluctuations des exportations sur l’économie intérieure.

La nécessité d’accroître les recettes du Gouvernement dans les économies des pays sous-développés se fait vivement sentir mais la méthode qui permettrait de le faire rapidement n’est pas évidente. Les systèmes fiscaux qui donnent satisfaction dans un pays (par exemple, le fonds de stabilisation des marchés—“marketing boards”—en Birmanie) peuvent ne pas convenir dans un autre. Cependant, il existe trois voies dans lesquelles les Gouvernements pourraient progresser, à savoir, les bases du système d’imposition, l’administration fiscale et la volonté sociale et politique de réussir.

Los problemas y la política de tributación de los países subdesarrollados

Resumen

Una característica importante del sistema tributario de los países subdesarrollados consiste en que no proporciona a los gobiernos sino exiguos ingresos. Esto pasa ciertamente no sólo en lo que se refiere al monto absoluto de esos ingresos sino también a la proporción entre los ingresos tributarios y el ingreso nacional. En 1959, la media porcentual entre los ingresos gubernamentales y el ingreso nacional fue de 13,7 por ciento en los países de bajos ingresos (menos de 200 dólares per capita al año) y de 25 por ciento en los países de altos ingresos (más de 500 dólares per capita al año).

El escaso rendimiento que los países subdesarrollados obtienen de sus impuestos se debe a las bajas tarifas tributarias, a las dificultades que presenta su recaudación debido a factores tales como el poco desarrollo de los sectores (o mercados) monetarios, analfabetismo, falta de sistematización de la contabilidad nacional, administración ineficiente de los impuestos, el evadir y el rehuir el pago de los mismos, conducta social carente de civismo espontáneo, y las influencias políticas.

Los países subdesarrollados encuentran más fácil recaudar impuestos indirectos (tales como derechos de aduana) que impuestos directos. Debieran, empero, depender de las contribuciones directas escalonadas en forma progresiva para financiar su desarrollo económico y controlar la inflación. El monto total de los ingresos obtenidos mediante impuestos directos es escaso. En 1959, la media porcentual entre los impuestos directos y el total de ingresos tributarios fue de 20 por ciento en los países de bajos ingresos, y de 43 por ciento en los de altos ingresos.

Los impuestos directos en países subdesarrollados son análogos a los de los países desarrollados. En el gravamen de los ingresos personales se usa tanto el método cedular como el sistema unitario de impuestos—el primero de estos métodos es más común en la América del Sur, y el segundo en Asia y América Central. En la práctica ha habido una tendencia de ambos sistemas a acercarse el uno al otro. En muchos países ha comenzado a usarse el impuesto sobre las utilidades de capital, y en cambio se ha atribuido menor importancia al impuesto sobre la propiedad raíz.

La mayoría de los países subdesarrollados dependen en alto grado de los gravámenes al comercio exterior (derechos de importación y de exportación, e impuestos sobre las transacciones cambiarías); en muchos de ellos los impuestos de esta clase cubren la cuarta parte y hasta la mitad del total de los ingresos. Además, los impuestos sobre el consumo producen relativamente considerables ingresos: se aplican a mercancías tales como tabaco, bebidas alcohólicas, fósforos, y petróleo y sus derivados. Los derechos de exportación y las juntas de comercialización han sido utilizados por los gobiernos como instrumentos de política fiscal contracíclica para impedir que el auge o disminución de las exportaciones ejerza un fuerte impacto sobre la economía interna.

Grande es la necesidad de aumentar los ingresos del gobierno en las economías subdesarrolladas, pero la forma mediante la cual podría lograrse esto rápidamente no se desprende con facilidad. Ciertas medidas tributarias particulares que en un país dado surten buenos resultados (como la junta de comercialización en Birmania) pudieran ser inadecuadas en otro país. Existen, sin embargo, tres campos en que los gobiernos podrían lograr adelantos: los principios de tributación, la administración de los impuestos, y el esfuerzo de voluntad social y política de alcanzar un verdadero progreso.

*

Mr. U Tun Wai, Advisor in the African Department, was educated at the University of Rangoon, the University of Bombay, and the Yale Graduate School. Formerly lecturer in economics at the University of Rangoon and economist in the secretariat of the Economic Commission for Asia and the Far East, he is the author of Burma’s Currency and Credit, Economic Development of Burma, and several articles in economic journals.

1

This paper was presented on April 9, 1962 at the Institute for International Development, School of Advanced International Studies, the Johns Hopkins University.

2

From an address by Mr. Goode on “Reconstruction of Foreign Tax Systems” before the Fourty-Fourth Annual Conference of the National Tax Association, 1951, published in the Proceedings of that Conference, pp. 213, 214.

3

An estimate made in 1956 by Mr. Nicholas Kaldor indicates that in India in the assessment year 1953–54 evasion and avoidance of income tax caused a loss of Rs 2,000–3,000 million in revenues from that source. (See Report of the Direct Taxes Administration Enquiry Committee, 1958–59, New Delhi, p. 148.) This may be compared with actual tax receipts of Rs 1,300 million in that year.

4

Direct taxes are those borne by the person or institution responsible for paying the tax—for example, income tax, property tax, capital gains tax, etc. Indirect taxes, on the other hand, are taxes which are shiftable, either forward or backward, in the process of production.

5

For a detailed analysis, see Milton C. Taylor, Industrial Tax Exemption in Puerto Rico (Madison, Wisconsin, 1956).

6

For a most interesting and useful collection of papers on this subject, see Papers and Proceedings of the Conference on Agricultural Taxation and Economic Development, Haskell P. Wald, ed. (Cambridge, Massachusetts, 1954). See also Haskell P. Wald, Taxation of Agricultural Land in Underdeveloped Economies: A Survey and Guide to Policy (Cambridge, Massachusetts, 1959).

7

In Malaya, the export duty on rubber is levied in four parts, two of which are on the basis of a sliding scale. The sliding scale which yields most of the duties collected on rubber is based on the formula 1.55P−63cents10 Where P is the price in cents notified weekly by the government for duty purposes. The formula comes into operation when the price of rubber exceeds M$0.60 a pound, and it then replaces the ad valorem duty of 5 per cent. See United Nations, Economic Survey of Asia and the Far East, 1957, p. 157.

8

See U Tun Wai, “Report of the Ceylon Taxation Commission,” Public Finance (Haarlem, Netherlands), Vol. XII, No. 2 (1957), pp. 122–44.

9

In the decade from 1945 to 1954 there were 43 official (including UN) and private technical assistance missions in the field of public finance to 27 underdeveloped countries: Afghanistan, Bolivia, Burma, Ceylon, Chile, Colombia, Cuba, Ecuador, El Salvador, Guatemala, Haiti, Honduras, Indonesia, Iran, Iraq, Israel, Japan, Korea, Libya, Mexico, Nicaragua, Panama, the Philippines, Puerto Rico, Thailand, Turkey, and the United Arab Republic. See United Nations, Taxes and Fiscal Policy in Underdeveloped Countries (New York, 1954), pp. 111–18, for details. Since then, there have been many more missions, including a number of inquiry commissions, as in Ceylon and India.

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Cover IMF Staff Papers
IMF Staff papers: Volume 9 No. 3
Author:
International Monetary Fund. Research Dept.
Volume/Issue:
Volume 1962: Issue 003
Publisher:
International Monetary Fund
ISBN:
9781451968873
ISSN:
1020-7635
Pages:
200
DOI:
https://doi.org/10.5089/9781451968873.024