Journal of Public Finance Studies
The Expectations and Effects of Tax Cuts: Scenario ExamplesFunda Karakoyun
Various incentives are organized in different types of taxes to support the financial structures of enterprises. These incentives impact decisions for taxpayers planning taxes. The regulations that are included in legislation as tax deductions are seen as the perception and expectation of a decrease in taxpayers’ tax burden. The literature has discussed the positive impact of tax incentives on production, employment, and investment decisions and emphasized the importance of supporting taxpayers, especially in times of crisis. In terms of regulations with the purpose of providing incentives in legislation containing issues that are open to interpretation and discussion regarding the implementation results, this study takes tax deductions as the subject of examination. This study presents scenarios on how tax deductions reflect onto taxpayers in practice using two examples and calculates the change in tax liability caused by a reduction in the withholding tax rates for rental income and profit distribution. Accordingly, the study evaluates the difference between taxpayers’ expectations and the actual tax payment. Tax liability for property owners is seen to increase because of reducing the rent withholding tax rate. The tax burden is seen to not get reduced as a result of the dividend withholding tax deduction; however, an effect is seen to occur mainly related to tax deferral. Although the implementation results vary according to the taxable income brackets, to interpret the uniform tax burden as increasing or decreasing when rates change would be an incomplete assessment.
Beklenti ve Etkileri ile Vergi İndirimleri: Senaryo ÖrnekleriFunda Karakoyun
İşletmelerin finansal yapılarını desteklemek için vergi türlerinde çeşitli teşvikler düzenlenmektedir. Vergi planlaması yapan mükellefler için bu teşvikler karar etkisi oluşturur. Mevzuatta vergi indirimi olarak yer alan düzenleme mükellefte vergi yükünün azalması algısı ve beklentisi olarak görülmektedir. Literatürde vergi indiriminin üretim, istihdam, yatırım kararları üzerinde olumlu etkisi ele alınarak mükelleflerin özellikle kriz dönemlerinde desteklenmesinin önemine dikkat çekilmiştir. Mevzuatta amacı teşvik olan düzenlemelerin uygulama sonuçlarında yoruma ve tartışmaya açık hususlar içermesi bakımından vergi indirimi müessesesi inceleme konusu olarak ele alınmıştır. Bu çalışmada vergi indiriminin uygulamada mükellefe yansımaları iki örnek ile senaryo edilmiştir. Kira gelirleri ve kar dağım stopaj oranlarında yapılan indirimin vergi borcunda meydana getirdiği değişim hesaplanmıştır. Buna göre, mükellefin beklentisi ile gerçekleşen vergi ödemesi karşılaştırmasında farklılık değerlendirilmektedir. Kira stopaj oranı indiriminde mülk sahibinin vergi borcu yükselmiştir. Kar payı stopaj indirimi neticesinde ise vergi yükünü azaltmak değil ancak, esasen vergi ertelemeye ilişkin bir etki doğmaktadır. Uygulama sonuçları vergiye tabi gelir dilimlerine göre değişiklik göstermekle birlikte oranlar değiştiğinde yeknesak vergi yükünün artması ya da azalması şeklinde yorumlamanın eksik bir değerlendirme olacağı düşünülmektedir.
As units that exist to maximize their profits, enterprises want to make the most optimal use of the support offered to them. The desire to reduce the tax burden within the framework of legal regulations is part of the nature of commercial life. When viewed based on the state’s macro-plan, the economic function of taxes and the encouragement of employment, investment, and production areas coincide with this desire. This article evaluates the extent to which the discounts provided within the framework of tax support meet taxpayer expectations when implementing these plans, as well as the success of the tax system and taxpayer law. In practice, how tax reductions reflect onto taxpayers will impact perceptions and decisions. The positive effect of a change in the tax burden serves the functional objectives of the tax while meeting taxpayers’ expectations. This study analyzes and evaluates the reflections of a change in tax deduction rates on the final tax burden using practical examples. The study uses two examples to calculate the change in tax liability caused by a reduction in the withholding tax rates for rental income and profit distribution. The tax liability for property owners increased as a result of a reduction in the withholding tax rate for rents. As a result of a dividend withholding tax deduction, the tax burden was not reduced, but an effect was found mainly related to tax deferral. Although the application results vary according to the taxable income brackets, to simply interpret the uniform tax burden as increasing or decreasing when rates change is thought to be an incomplete evaluation. The study takes the regulations regarding protection for certain income groups in the fight against the COVID pandemic, economic crisis, and inflation as its subject using two scenarios. Here, these scenario examples are used to explain how legal regulations that are seen as a loss of the treasury to the detriment of the fiscal administration do not actually result in a loss in terms of either the tax base or the amount of taxes collected. For example, the real person (A) obtained a monthly net rent of 15,000 TL on 1/1/2020. (A) has no income apart from the other six income items subject to income tax. (A) prefers the lump sum expense method. Accordingly, the path followed for the tax base and calculated tax for the March 2021 annual income tax return is as follows: Gross rental income is 15,000 / 0.90 = 16,660.67 TL. 5 months (August 1-December 31) of gross rental income is 16,660.67 x 5 = 83,333.35 TL. Tax base is 83,333.35 - 12,500.00 (15% lump sum expense) = 70,833.35 TL (the 27% tax bracket). Calculated tax is (70,833.35 – 49,000) x 0.27 = 14,595.00 TL. Provision of the transaction is 1,660.67 x 5 months = 8,333.35 TL. 83,333.35 x 0.10 = 8,333.35 TL. The taxpayer’s tax liability with the reduction of income tax withholding to 10% is 14,595.00 TL for the amount transferred to the Treasury, 8,333.35 TL for the amount transferred early with the legal arrangement, and 6,261.65 TL is then subsequently paid in 2 installments. The calculation regarding the tax liability of the taxpayer is as follows if the 20% application continued before the legal regulation regarding the 10% withholding tax deduction. The calculation regarding the taxpayer’s tax liability is as follows if the 20% application continued before the legal regulation regarding the 10% withholding tax deduction. Gross rental income is 15,000 / 80 = 18,750.00 TL. The 5 months (August 1-December 31) of gross rental income is 18,750 x 5 = 93,750.00 TL. A 15% lump sum expense is 93,750.00 x 0.15 = 14,062.50 TL. The tax base is 93,750.00 - 14,062.50% (15% lump sum expense) = 79,687.50 TL (This corresponds to the 27% tax bracket.) The calculated tax is (79,687.50 – 49,000) x 0.27 = 16,985.63 TL. The 20% withholding tax on 5 months of gross rental income is 93.750 x 0.20 = 18.750,00TL. The taxpayer has a receivable from the state of 16,985.63 TL of calculated tax, The taxpayer’s receivable tax refund is 1,764.37 TL. For the period of 2020, the enterprise does not benefit from the exemption due to being a workplace subject to declaration, as its rent exceeds 49,000 TL. Provided that the net rent remains constant, and the net rent amount is written in the lease contract, the tax withholding rate reduced as a result of a reduction in the withholding rate arising from rental income is indirectly imposed on the property owner. As seen in the example above, when a 10% withholding tax is applied, the property owner taxpayer must pay 6,261.65 TL in taxes, while when applying the 20% withholding tax, a receivable tax refund of 1,764.37 TL is generated. By reducing the withholding tax rate, the property owner does not receive a refund, a total tax cost of 8,026.02 TL is incurred as a tax payment, which is greater than the 6,261.65 TL in taxes. The other scenario example the study has prepared occurs under the title of discount on income tax dividend withholding tax. Using the regulations that occurred in the legislation, a dividend withholding tax reduction from 15% to 10% is seen as a tax reduction advantage for businesses; however, this also brings up the comparison of the dividend/attendance fee payment. In the calculation-based assessment, the remuneration received by the business partner as an attendance fee is seen to provide a greater tax advantage compared to dividends. This other scenario example also explains how the business data changes when the taxpayer’s withholding tax rate is reduced from 15% to 10% (discounted). As a result of the study’s calculations, the dividend to be set aside is seen to increase while the withholding tax rate decreases. As to how this reflects, the company provides financial support to its shareholders. However, compared to the 15% withholding tax rate, the tax refund is credited in cash or held on account in the following year’s declaration period. The amount generated by the tax deduction results in a lower tax burden in a period earlier than the profit distribution stage, thus preserving money’s purchasing power against inflation. In this case, the effect is not to reduce the tax burden but to simply defer it.