Mismatch of Local Income Tax Revenue and Recommendations for Improvement
Asian Tax Journal Vol. 18 No. 2 (2017), pp. 103-128
Abstract
The fact that the local income tax is converted into the independent taxation system is meaningful to the possibility of expanding the taxation rights of the local government in the future. This study examines the mismatch of local income tax revenue in terms of tax revenue among the local government’s authorities of taxation. The main reason for the mismatch of local income tax income is that a high progressive tax rate is applied to areas where high income earners live, and the amount of the source income is increased by adding the source income other than the residence by residence. Local income tax imbalance is a problem in that it deepens the difference in financial independence rate between regions and causes mismatch in income earning and public cost sharing. We provide the following recommendations to improve mismatch problem of local income tax revenue. First, in order to solve the problem of income inequality caused by high income earners, the local income tax rate may be changed to the flat tax rate or collectively collected at the current progressive tax rate and distributed to local governments in proportion to the GRDP. However, in order not to affect the current taxpayer tax burden, the method of distribution according to the GRDP after the collective collection is first implemented and gradually converted to the flat tax rate. Second, there are three ways to improve the residence taxation problem；the method of collecting local income tax collectively and distributing it according to the GRDP of each local government, the method of converting from current residence taxation to the source taxation, the adjustment of double taxation using both residence taxation and source taxation. However, it is expected that the conversion to source taxation or the combination of source taxation and residence taxation will increase tax compliance and tax administration costs. Therefore, it is a realistic alternative to collect collectively and distribute.
Keywords
- local income tax
- mismatch of tax revenue
- independent tax
- shared－tax
- residence taxation