OECD Tax Classification and S-H-S Income Concepts

Tax Burden, Ratio, and Tax Structure

The OECD Classification of Taxes

• 1000: Taxes on income, profits, and capital gains
  • 1100: Taxes on income, profits, and capital gains of individuals
  • 1200: Corporate taxes on income, profits, and capital gains
• 2000: Social security contributions
  • 2100: Employees
  • 2200: Employers
  • 2300: Self-employed or non-employed
• 3000: Taxes on payroll and workforce
• 4000: Taxes on property
  • 4100: Recurrent taxes on immovable property
  • 4200: Recurrent taxes on net wealth
  • 4300: Estate, inheritance, and gift taxes
  • 4400: Taxes on financial and capital transactions
  • 4500: Other non-recurrent taxes on property
  • 4500: Other non-recurrent taxes on property
  • 4600: Other recurrent taxes on property
• 5000: Taxes on goods and services
• 6000: Other taxes

Tax Base of Direct Taxation: Income or Consumption

The Schanz-Haig-Simons (S-H-S) Concept

The S-H-S concept is the basis of all contemporary tax systems of personal (and corporate) income taxation. It represents the broadest income concept:

• Schanz: Wealth accumulation in a specific time period, including the value of services that we get from others = consumption + saving.
• Haig: “The money value of the net accretion to one's economic power between two points of time,” a formulation that was intended to include the taxpayer's consumption.
• Simons: “The algebraic sum of (1) the market value of rights exercised in consumption and (2) the change in the value of the store of property rights between the beginning and the end of the period in question.”

S-H-S income – theoretical ideal – “comprehensive income” as an ability to pay indicator:

• From the point of view of using the ability to pay (economic power): Sum of current (real) consumption and saving.
• From the point of view of formation: Sum of all possible forms of accruals (incomes in the broader sense): all money incomes (wages, salaries, interests, dividends, etc.).

Market Income – Money Income Concept

The theoretical ideal of comprehensive (sveobuhvatan) income is in practice reduced to the “market income concept,” which refers to the taxation of only cash-basis market transactions.

Corporate and Personal Income Tax Models

Corporate Income Tax (CIT)

Corporate (company) income tax is an additional tax on income from (equity) capital. This often leads to economic double taxation of dividends and capital gains.

Personal Income Tax (PIT) Rates

Hall-Rabuska (H-R) Flat Tax

Interest-adjusted income tax (consumption-based model):

• Entails labour/employment income (wages and salaries).
• Entails social contributions of employees.
• Does not entail social contributions of employers.
• PIT rate = CIT rate.
• Personal exemption: Tax allowance (augmented for family members).

Flat Tax Definition

Flat tax → Porez na dohodak koji ima samo jednu poreznu stopu bez obzira na veličinu dohotka, pri čemu je moguće odrediti dio dohotka koji se ne oporezuje.