Abstract

Recent controversy between the Ministry of Strategy and Finance (“MOSF” hereafter) and the National Assembly Budget Office on how to quantify the magnitude of tax credits in the government’s 2008 tax reform plan eloquently shows how the plan’s deteriorating effect on the government’s finance could be understated to taxpayers via inconsistent and incorrect measurements. This study suggests practical plans to relieve such problem to help clearly disclose the magnitude of tax credits as follows. First, besides estimated total amount of tax credits, estimated tax credits ratio, the ratio of reduced tax revenues via planned tax credits to utmost future tax revenues in case of no tax credit, should also be presented by the government when announcing the tax reform plan. Second, realized tax credits ratio of corporate income tax in the “Annual Tax Expenditure Budget Report” by MOSF should clearly divide tax credits applied before tax base from those applied after tax base for correct calculation. Last, estimated and realized tax credits ratio of corporate income tax should be decomposed into assumed utmost tax credits ratio under the alternative minimum tax and degree of tax credits to analyze how it is affected by annual changes in corporate income tax law and firms’ tendency to apply tax credits, and to become basis for the government’s fiscal policy to reorganize tax credits.

Keywords

• tax credits
• tax credits ratio
• government’s finance
• alternative minimum tax

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