Cash flow or income? : the choice of base for company taxation

Jack MINTZ, Jesús SEADE

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

10 Citations (Scopus)

Abstract

Considerable interest has been expressed in recent years by tax theorists as well as practitioners, for the taxation of companies based on their cash flow. Unlike the equity-income tax base, which requires the deductibility of economic depreciation and debt financing costs, the cash-flow base expenses capital at the point of purchase, eliminating the need for the subsequent costing of this capital. This paper raises some of the issues that would arise in trying to implement a company tax either in the form of an indexed equity-income or a cash-flow tax. Issues raised include: (i) administrative complexity; (ii) international tax coordination and competition; and (iii) transition problems. In a closed economy the cash-flow tax seems a simple, efficient form of company taxation, administratively straightforward and neutral with regard to investment decisions. The more complicated equity-income tax is harder to defend in a closed economy.
Original languageEnglish
Pages (from-to)177-190
Number of pages14
JournalThe World Bank research observer
Volume6
Issue number2
DOIs
Publication statusPublished - 1 Jul 1991
Externally publishedYes

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Tax
Cash flow
Income
Taxation
Equity
Income tax
Tax competition
Costing
Depreciation
Debt financing
Investment decision
Costs
Expenses
Economics
Tax coordination
Tax base
Purchase

Cite this

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Cash flow or income? : the choice of base for company taxation. / MINTZ, Jack; SEADE, Jesús.

In: The World Bank research observer, Vol. 6, No. 2, 01.07.1991, p. 177-190.

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

TY - JOUR

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AU - MINTZ, Jack

AU - SEADE, Jesús

PY - 1991/7/1

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AB - Considerable interest has been expressed in recent years by tax theorists as well as practitioners, for the taxation of companies based on their cash flow. Unlike the equity-income tax base, which requires the deductibility of economic depreciation and debt financing costs, the cash-flow base expenses capital at the point of purchase, eliminating the need for the subsequent costing of this capital. This paper raises some of the issues that would arise in trying to implement a company tax either in the form of an indexed equity-income or a cash-flow tax. Issues raised include: (i) administrative complexity; (ii) international tax coordination and competition; and (iii) transition problems. In a closed economy the cash-flow tax seems a simple, efficient form of company taxation, administratively straightforward and neutral with regard to investment decisions. The more complicated equity-income tax is harder to defend in a closed economy.

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