Taxation and Economic Development among Pacific Asian Countries

By Richard A. Musgrave; Ching-Huei Chang et al. | Go to book overview

There are several policy implications. First, it is necessary to determine asset lives carefully. In particular, the 30 percent annual allowance is applicable to a wide range of assets with different durability. For a five- year asset, this allowance plus the 60 percent initial allowance is not sufficient under current inflation expectations. Also, it makes some difference whether a nonindustrial building lasts for 50 years or indefinitely. Second, for inventory valuation, the last-in-first-out method should be adopted to avoid the excess tax due to price changes. However, the elimination of distortions due to interest deductibility involves changes to the tax system that may not be readily acceptable by the tax authorities. 31

Though the calculation of effective tax rates involves simplifying assumptions and complicated theoretical issues, it is useful in summarizing the various provisions of the profits tax. Such calculations have gone beyond academic interest, and estimates have appeared in such publications as the Economic Report of the President in the United States and OECD Economic Surveys. Apart from their analytical value, they are useful in comparing the profits tax in different countries.

Finally, it may be noted that because apart from the profits tax, there are no other charges on corporate income from plant and machinery and inventories in Hong Kong, the estimates of effective corporate tax rates presented in this chapter are also effective total tax rates. However, for buildings there is an additional tax, called rates, which is a form of property tax in Hong Kong, and this has to be taken into consideration in calculating effective total tax rates. It may be of interest to compare the estimates for Hong Kong with the following effective total tax rates for other countries for 1980 based on actual rates of inflation and depreciation and sources of finance: 32

U.K. Sweden W. Germany U.S.
Machinery -57.5% -0.7% 63.4% 26.4%
Inventories 45.9% 72.5% 70.4% 54.5%

Notes

After this chapter was written, the 1990-1991 budget increased the annual rebuilding allowance for nonindustrial buildings to 2 percent, effective from April 1, 1990. Also, the salaries tax rate would start at 2 percent.

1.
See A. J. Youngson, Hong Kong Economic Growth and Policy, Oxford University Press, Hong Kong, 1982, p. 119.
3.
In the Inland Revenue Ordinance, these include buildings and structures used in manufacturing, transport, storage, farming, some public utilities, and scientific research in relation to any trade or business.

-153-

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Taxation and Economic Development among Pacific Asian Countries
Table of contents

Table of contents

  • Title Page iii
  • Contents v
  • 1 - Introduction 1
  • Notes 10
  • 2 - Indonesian Tax Reform, 1985-1990 11
  • Notes 41
  • References 42
  • 3 - The Tax System and Economic Development in Japan 44
  • Notes 61
  • References 62
  • 4 - Tax Reform in the Philippines 64
  • Notes 80
  • 5 - Tax Reform in Malaysia: Trends and Options 82
  • Notes 100
  • References 101
  • 6 - Property Taxation as a National Policy Tool in Taiwan 104
  • Notes 116
  • References 116
  • Notes 137
  • References 138
  • 8 - Effective Corporate Tax Rates on Capital Income in Hong Kong 140
  • Notes 153
  • 9 - Tax Policy and Business Investment: Taiwan's Manufacturing Industry 156
  • Notes 165
  • References 167
  • 10 - The International Dimension of Korean Tax Policy 168
  • Notes 191
  • References 192
  • 11 - Tax Incentives for Export Promotion in Japan, 1953-1964 194
  • Notes 207
  • References 208
  • 12 - International Aspects of Income Taxation in Taiwan 210
  • Notes 221
  • References 223
  • 13 - Financing Social Security in Singapore Through the Central Provident Fund 225
  • Notes 255
  • References 255
  • 14 - A New Role for Fiscal Policy and Tax Finance in Korea 259
  • Notes 275
  • References 276
  • About the Book 280
  • About the Editors and Contributors 281
  • Index 283
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