Tax Comparisons

Joe Biden's tax plans made the news this week. One of the first and most important acts of Trump administration was to decrease corporate tax levels. Tax rates have differrent implications on wealth distirbution, business enviornment, social justice etc. A balance is needed, and the balance would be different for each country due to different dynamics and demographics.

To discuss the optimum tax rate, even books and academic papers wouldn't be sufficient let a Linkedin article. I just wanted to remind how it is in the world with corporate tax rates, dividend tax rates and the share of corporate taxes in total GDP. This will be a hot topic in coming years since the stimulus packages require (and related debt) funding and tax is the most fundamental source. At the same time, tax incentives are also part of these stimulus packages.

Since countries have different tax regimes, it is not possible to compare all of them on the same basis. Some of them has dual corporate rates, or a scale of rates according to income levels, or as incentives for less developed geographical areas or sectors. In some, there are indirect taxes additional to corporate income tax, which increase the tax burden/income at various levels.

We see that countries with higher corporate and income tax rates reach higher tax revenues proportionally. My country, Turkey, similar to US, is well below the OECD average. It is remarkable that tax revenues of some countries with lower effective tax rates are actually higher then some of with higher tax rates, again proportionally to GDP. (e.g. Latvia vs. Mexico and Chile, 20% vs. 42% and 35% respectively)

It is understandable, that developing countries apply lower rates to attract foreign investments. A tax war among developed countries would pressure these countries in terms of social expenditures vs. business attraction dilemma.

There are also the so called "tax havens" with zero corporate tax rates. Besides the channel islands and some Caribbean/Atlantic islands, Bahrain, Belize, UAE, Estonia, Latvia, Kuwait and Georgia seem to have 0 corporate tax rate to attract entrepreneurs.

Here is the highlights brochure of the detailed periodic OECD report on the matter.