Study on Special Taxation Assessment Methods
November 21, 2016
Revenue Estimates Division II of the Economic Analysis Office
This report has been developed to offer methodologies for assessing special taxation, which aims to prevent abuse of the tax expenditure scheme and promote its effective management, to secure assessment expertise, consistency and reliability in results, as well as related cases. It also intends to identify possible issues that can arise during the evaluation process and suggest alternatives.
Special taxation assessment begins with selection of subjects, and planning for evaluation follows in the preliminary preparation phase. The process moves on to specific assessment by dimension based on the design and final aggregation of the findings. Pursuant to the National Assembly Act(Article 79-3), special taxation items that incur at least a specific annual amount are subject to assessment. Planning in the preliminary phase involves identifying contending issues, collecting data essential for analysis, and screening applicable evaluation methods. Given the intent of assessment is to promote effective and performance-based management of national finances, evaluation draws on the three dimensions of finance, policy and the economy. In the aggregation phase, evaluation results are judged in the most objective, impartial way possible through resorting to the Analytic Hierarchy Process(AHP) or through a council created for the purpose. As different approaches are used in qualitative assessment of the policy dimension and quantitative assessments of the financial and economic dimensions, they can arrive at contradicting conclusions on whether to retain or abolish some special taxation items.
Special taxation items vary in terms of the purpose of introduction, features and deduction type, and restrictions exist regarding the collection of taxes and deduction data. Therefore, assessment design by issue matters more than general evaluation guidelines or manuals. There is a broad range of special taxation items, and they encompass both economic activities, such as investment and employment, as well as merit goods and non-economic activities like education, culture and tourism, and social welfare. Related national tax items differ in features, and types of tax expenditure are also diverse, including tax exemption, credit and deferral.
Finally, a research institute embarking on special taxation assessment needs to have the professional capabilities required for evaluation to be effective and accountability. At the same time, it is worth considering creating a consultative and decision-making council (tentative name: ‘Advisory Council for Special Taxation Evaluation’) and running the entire assessment process.