Despite falling rates worldwide, corporate tax remains a key source of income especially for governments in developing countries.
Corporate Tax Statistics, a report from the Organisation for Economic Co-operation and Development (OECD), revealed in Egypt, Kazakhstan, Malaysia, Papua New Guinea and the Philippines, Corporate Income Tax (CIT) revenue accounted for than 25% of total tax revenue.
In contrast some jurisdictions such as the Bahamas, Tokelau, France, Iceland and Slovenia, raised less than 5% of total tax revenue in the form of corporate income tax.
The variation in the share of CIT in total tax revenues results from differences in statutory corporate tax rates which also vary considerably across jurisdictions, according to the OECD this is down to certain factors which include:
- The degree to which firms in a jurisdiction are incorporated;
- The breadth of the corporate income tax base;
- The current stage of the economic cycle and the degree of cyclicality of the corporate tax system;
- The extent of reliance on other types of taxation, such as taxes on personal income and on consumption;
- The extent of reliance on tax revenues from the exploitation of natural resources;
- Other instruments to postpone the taxation of earned profits.
The report also highlighted that in 2016, corporate tax revenues accounted for 13.3% of total tax revenues on average across the 88 jurisdictions for which data is available. This figure increased from 12% in 2000.
This key source of revenue is maintained despite a clear trend of falling statutory corporate tax rates. OECD’s database showed that the average combined statutory tax rate fell from 28.6% in 2000 to 21.4% in 2018.
More than 60% of the 94 jurisdictions whose tax rates were made available in the database had statutory rates greater than or equal to 30% in 2000, this is compared to less than 20% of jurisdictions in 2018.
Furthermore the OECD database and report revealed that when measured both as a percentage of total tax revenues and as a percentage of GDP, corporate tax revenues reached their peak in 2007 and then dipped in 2009 and 2010.
This dip in corporate revenues reflected the impact of the global financial and economic crisis. Corporate Income Tax (CIT) was seen to recover after 2010, according to the OECD report.
The database is intended to assist in the study of corporate tax policy. It will be updated annually and also aims to improve the measurement and monitoring of BEPS.
By Mishelle Thurai