VIII. THE SECONDARY DISTRIBUTION OF INCOME ACCOUNT
C. Current taxes on income, wealth, etc. (D.5)
1. Introduction
| 8.43. | Taxes are compulsory, unrequited payments, in cash or in kind, made by institutional units to government units. They are transfers because the government provides nothing in return to the individual unit paying the tax, although governments do provide goods or services to the community as a whole or to other individual units, or groups of units, depending on their general economic and social policy. Current taxes on income, wealth, etc., consist mainly of taxes levied on the incomes of households and corporations. They constitute charges against income and are recorded under uses for the households and corporate sectors in the secondary distribution of income account. The taxes may also be payable by non-residents or possibly by government units or non-profit institutions. Current taxes on income, wealth, etc., would have been described as "direct taxes" in the past, but the terms "direct" and "indirect" are no longer used in the System, as explained in chapter VII. The taxes cannot be described simply as "current taxes on income and wealth" because they include some periodic taxes on households which are assessed neither on the income nor the wealth of the household or its members, for example, poll taxes. | | | Text refers to: table 8.1.  |
| 8.44. | The general nature of taxes and the accounting rules governing their recording in the System were described in paragraphs 7.55 to 7.61 of chapter VII. For convenience, these paragraphs are repeated below. |
Taxes versus fees
| 8.45. | One of the regulatory functions of governments is to forbid the ownership or use of certain goods or the pursuit of certain activities, unless specific permission is granted by issuing a licence or other certificate for which a fee is demanded. If the issue of such licences involves little or no work on the part of government, the licences being granted automatically on payment of the amounts due, it is likely that they are simply a device to raise taxes, even though the government may provide some kind of certificate, or authorization, in return. However, if the government uses the issue of licences to exercise some proper regulatory function - for example, checking the competence, or qualifications, of the person concerned, checking the efficient and safe functioning of the equipment in question, or carrying out some other form of control which it would otherwise not be obliged to do - the payments made should be treated as purchases of services from government rather than payments of taxes, unless the payments are clearly out of all proportion to the costs of providing the services. The borderline between taxes and payments of fees for services rendered is not always clear-cut in practice (see paragraph 8.54 (c) below for a further explanation of this matter in the case of households). |
Links with the IMF and OECD tax classifications
| 8.46. | The coverage of taxes in the SNA coincides with that of "tax revenue" as defined in the Manual on Government Finance Statistics, 1986, or GFS, of the International Monetary Fund (IMF), and also with "taxes" as defined in the Organisation for Economic Co-operation and Development's (OECD) annual publication Revenue Statistics of OECD Member Countries, except that the SNA includes imputed taxes or subsidies resulting from the operation of official multiple exchange rates and does not classify social security contributions under the heading of taxes. Chapter IV of the GFS contains a detailed listing and classification of taxes according to the nature of the tax. This classification is also reprinted as annex IV in the Handbook of National Accounting: Public Sector Accounts (United Nations, 1988). Part II of Revenue Statistics contains an almost identical classification. |
| 8.47. | The categories of tax distinguished in the System depend on the interaction of the following three factors, of which the nature of tax is only one:
(a) The nature of the tax, as specified in the GFS/OECD classification;
(b) The type of institutional unit paying the tax;
(c) The circumstances in which the tax is payable. |
| 8.48. | Thus, payments of exactly the same tax may be recorded under two different headings in the SNA. For example, payment of an excise duty may appear under "taxes on imports, except value added taxes (VAT) and duties" or under "taxes on products, except VAT, import and export taxes" depending upon whether the excise duty is paid on an imported or domestically produced good. Similarly, payments of an annual tax on automobiles may be recorded under "taxes on production" or under "current taxes on income, wealth, etc." depending upon whether the tax is paid by an enterprise or by a household. For this reason, it is not possible to arrive at the SNA categories simply by regrouping the IMF/OECD classifications. However, in order to take advantage of the existence of these detailed classifications, each category of tax listed below contains a cross-reference to the corresponding IMF and OECD classifications. |
The accrual basis of recording
| 8.49. | In contrast to the GFS and similar systems that require taxes to be recorded when they are actually paid, all taxes should be recorded on an accrual basis in the SNA, i.e., when the activities, transactions or other events occur which create the liabilities to pay taxes. However, some economic activities, transactions or events, which under tax legislation ought to impose on the units concerned the obligation to pay taxes, permanently escape the attention of the tax authorities. It would be unrealistic to assume that such activities, transactions or events give rise to financial assets or liabilities in the form of payables and receivables. For this reason the amounts of taxes to be recorded in the System are determined by the amounts due for payment only when evidenced by tax assessments, declarations or other instruments, such as sales invoices or customs declarations, which create liabilities in the form of clear obligations to pay on the part of taxpayers. Nevertheless, in accordance with the accrual principle, the times at which the taxes should be recorded are the times at which the tax liabilities arise. For example, a tax on the sale, transfer or use of output should be recorded when that sale, transfer or use took place, which is not necessarily the same time as that at which the tax authorities were notified, at which a tax demand was issued, at which the tax was due to be paid or the payment was actually made. Some flexibility is permitted, however, as regards the time of recording of income taxes deducted at source (see paragraph 8.52 below). |
| 8.50. | In some countries, and for some taxes, the amounts of taxes eventually paid may diverge substantially and systematically from the amounts due to be paid to the extent that not all of the latter can be effectively construed as constituting financial liabilities as these are understood within the System. In such cases, it may be preferable for analytic and policy purposes to ignore unpaid tax liabilities and confine the measurement of taxes within the System to those actually paid. Nevertheless, the taxes actually paid should still be recorded on an accrual basis at the times at which the events took place that gave rise to the liabilities. |
Interest, fines or other penalties
| 8.51. | In principle, interest charged on overdue taxes or fines, or penalties imposed for the attempted evasion of taxes, should be recorded separately and not as taxes. However, it may not be possible to separate payments of interest, fines or other penalties from the taxes to which they relate, so that they are usually grouped with taxes in practice. |
2. Taxes on income (D.51)
| 8.52. | These consist of taxes on incomes, profits and capital gains. They are assessed on the actual or presumed incomes of individuals, households, NPIs or corporations. They include taxes assessed on holdings of property, land or real estate when these holdings are used as a basis for estimating the income of their owners. In some cases the liability to pay income taxes can only be determined in a later accounting period than that in which the income accrues. Some flexibility is therefore needed in the time at which such taxes are recorded. Income taxes deducted at source, such as pay-as-you-earn taxes, and regular prepayments of income taxes, may be recorded in the periods in which they are paid and any final tax liability on income can be recorded in the period in which the liability is determined. Taxes on income include the following types of taxes:
(a) Taxes on individual or household income: These consist of personal income taxes, including those deducted by employers (pay-as-you-earn taxes), and surtaxes. Such taxes are usually levied on the total declared or presumed income from all sources of the person concerned: compensation of employees, property income, pensions, etc. - after deducting certain agreed allowances. Taxes on the income of owners of unincorporated enterprises are included here (GFS, 1.1; OECD, 1110);
(b) Taxes on the income of corporations: These consist of corporate income taxes, corporate profits taxes, corporate surtaxes, etc. Such taxes are usually assessed on the total incomes of corporations from all sources and not simply profits generated by production (GFS, 1.2; OECD, 1210);
(c) Taxes on capital gains: These consist of taxes on the capital gains (described as holding gains in the System's terminology) of persons or corporations which become due for payment during the current accounting period, irrespective of the periods over which the gains have accrued. They are usually payable on nominal, rather than real, capital gains and on realized, rather than unrealized, capital gains (GFS, 1.1, 1.2; OECD, 1120, 1220);
(d) Taxes on winnings from lotteries or gambling: These are taxes payable on the amounts received by winners as distinct from taxes on the turnover of producers that organize gambling or lotteries which are treated as taxes on products (GFS, 1.3; OECD, 1130). |
3. Other current taxes (D.59)
Current taxes on capital
| 8.53. | Current taxes on capital consist of taxes that are payable periodically, usually annually, on the property or net wealth of institutional units, excluding taxes on land or other assets owned or rented by enterprises and used by them for production, such taxes being treated as other taxes on production. They also exclude taxes on property or wealth levied infrequently and at irregular intervals, or in exceptional circumstances (e.g., death duties), such taxes being treated as capital taxes. They also exclude income taxes assessed on the basis of the value of the property owned by institutional units when their incomes cannot be estimated satisfactorily, such taxes being recorded under the previous heading, taxes on income. Current taxes on capital include the following:
(a) Current taxes on land and buildings: These consist of taxes payable periodically, in most cases annually, on the use or ownership of land or buildings by owners (including owner-occupiers of dwellings), tenants or both, excluding taxes on land or buildings rented or owned by enterprises and used by them in production (GFS, 4.1; OECD, 4100);
(b) Current taxes on net wealth: These consist of taxes payable periodically, in most cases annually, on the value of land or fixed assets less any debt incurred on those assets, excluding taxes on assets owned by enterprises and used by them in production (GFS, 4.2; OECD, 4200);
(c) Current taxes on other assets: These include taxes payable periodically, usually annually, on assets such as jewellery or other external signs of wealth (GFS, 4.6; OECD, 4600). |
Miscellaneous current taxes
| 8.54. | These consist of various different kinds of taxes payable periodically, usually annually, of which the most common are the following:
(a) Poll taxes: These are taxes levied as specific amounts of money per adult person, or per household, independently of actual or presumed income or wealth. The amounts levied may vary, however, according to the circumstances of the person or household (GFS, 7.1; OECD, 6000);
(b) Expenditure taxes: These are taxes payable on the total expenditures of persons or households instead of on their incomes. Expenditure taxes are alternatives to income taxes and may be levied at progressively higher rates in the same way as personal income taxes, depending upon the total level of expenditure. They are uncommon in practice (GFS, 7.3; OECD, 6000);
(c) Payments by households to obtain certain licences: Payments by persons or households for licences to own or use vehicles, boats or aircraft and for licences to hunt, shoot or fish are treated as current taxes. Payments for all other kinds of licences (e.g., driving or pilot's licences, television or radio licences, firearm licences, etc.) or fees to government (e.g., payments for passports, airport fees, court fees, etc.) are treated as purchases of services rendered by governments. The boundary between taxes and purchases of services is based on the practices actually followed in the majority of countries in their own accounts (GFS, 5.5.2 and 5.5.3; OECD, 5200);
(d) Taxes on international transactions: These consist of taxes on travel abroad, foreign remittances, foreign investments, etc., except those payable by producers (GFS, 6.5 and 6.6; OECD, 5127). |
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