TREATMENT OF TAX REFUNDS, ALLOWANCES, REBATES AND CREDITS IN GOVERNMENT FINANCE STATISTICS
A4.1 This Guidance Note provides statistical guidelines for the classification of tax related transactions in government finance statistics (GFS). Tax schemes vary considerably. These guidelines are not intended to be prescriptive, but are intended to be an aid to the classification of tax related transactions by elaborating a set of broad principles. Each scheme will need to be examined on a case-by-case basis in finalising the classification.
These guidelines are based on international statistical standards: the International Monetary Fund's Government Finance Statistics Manual (2001 edition) and the System of National Accounts, 1993 (SNA93).
A4.2 Flows are recorded on an accrual basis, which means that flows are recorded at the time the economic value is created, transformed, exchanged, transferred, or extinguished. Flows are classified as transactions and other economic flows. Transactions can be classified as revenue or expense or as transactions in assets and liabilities. Revenue is defined to be an increase in net worth resulting from a transaction and for many government units tax revenue forms the dominant share of revenue. Expense is defined as a decrease in net worth resulting from a transaction and includes grants and social benefits associated with the redistribution of income and wealth.
A4.3 Taxes are compulsory, unrequited, non-repayable payments made by institutional units to general government. Taxes are unrequited because the government gives nothing of economic value directly in return to the individual unit making the tax payment. Tax revenues are made up of these compulsory transfers from other sectors to the general government sector. Some compulsory transfers (such as fines and penalties) are excluded from tax revenue and certain regulatory fees may also be excluded. Refunds, i.e. corrections of erroneously collected tax revenue, may be treated as negative tax revenue.
A4.4 Stocks and flows are recorded on a gross basis in the GFS system. Paragraph 3.84 of the IMF GFS Manual states that ‘revenue categories are presented gross of expense categories for the same or related category and likewise for expense categories’. Recording on a gross basis provides the greatest detail, transparency and flexibility in data elements and has a high analytical utility. This does not mean that there is no netting in GFS. Some GFS data categories are net (explicitly or implicitly) by their nature or because they are subject to correction for errors, refunds and unauthorised transactions.
GUIDELINES FOR THE CLASSIFICATION OF TAX REFUNDS, ALLOWANCES, REBATES AND CREDITS
A4.5 Tax refunds are repayments by government to a taxpayer of overpayments of tax made by a taxpayer. Tax overpayments include erroneously overpaid taxes and taxes assessed at a level greater than that which they should have been. Refunds are the return of incorrect tax payments up to the amount of the tax liability, i.e. they are corrective transactions.
A4.6 Tax refunds:
- are only available to the taxpayer who paid the tax;
- are the return of incorrect (overpaid) tax payments;
- may not be greater than the amount of tax paid in the tax assessment period;
- belong to the period in which the event that generated the tax overpayment occurred.
A4.7 Tax refunds are treated as offsets to tax revenues in GFS. Amounts of tax returned to taxpayers which are greater than tax payments made are not considered tax refunds in GFS and are classified as government expenses.
A4.8 However, refunds of value-added taxes and taxes on goods and services are treated differently. Under such tax schemes, only taxpayers other than final consumers are normally entitled to a refund of taxes they have paid on purchases of goods and services. In this case, if the net refund exceeds the tax paid by the taxpayer in the period then it is treated as a negative tax in GFS.
TAX REBATES, ALLOWANCES AND CREDITS
A4.9 No distinction between tax rebates, allowances and credits is made in GFS. All of these items are regarded as the same thing: amounts deductible from tax that otherwise would be payable by taxpayers.
A4.10 Tax rebates, etc. can be planned allowances resulting from government economic policy. The term 'government economic policy' is a broad one which includes things such as general fiscal and monetary policies, savings incentives, income redistribution goals, corrections of market failure, etc.
A4.11 Amounts described as tax allowances, rebates or credits may only be treated as offsets to taxes in the same way as tax refunds if they are judged to be integral to the taxation system. Generally, a rebate would have to be part of the normal process for calculating tax liabilities to be considered an integral part of the tax system.
A4.12 Deciding whether a rebate is integral to the taxation system can be difficult because schemes can be devised which make a rebate seem to be so. For instance, an allowance or rebate can be administered as part of tax system. Some would argue that such allowances are integral to the system. However, such a judgement should depend upon the substance of the case and not its appearance. Being administered within a tax system is not the same thing as being integral to the tax system. Assessments have to be made on a case-by-case basis.
A4.13 The following list provides examples of indicators that can be used as an aid to deciding whether an allowance or rebate is integral to the tax system or not. As a general rule, a tax rebate, etc. should not be considered integral to the tax system if one or more of the following conditions hold;
- it is available to taxpayers and non-taxpayers alike;
- it provides the same benefit to taxpayers by way of a tax 'rebate' and to non-taxpayers by way of a cash benefit;
- it is assessed over a different period to that of the tax assessment period (unless this is part of the normal procedure for determining tax liability) ;
- it is calculated independently of the normal procedure for determining tax liability;
- it is payable to an entity other than the taxpayer holding the tax liability (unless this is part of the normal procedure for determining tax liability); or
- it could lead to a situation where the amount payable to the taxpayer is greater than the tax originally paid for the period.
A4.14 It follows that where the above conditions apply, treating a rebate as an offset against tax revenue would not be appropriate. It would be appropriate to treat these payments as an expense.
A4.15 'Mixed' schemes under which taxpayers may either claim rebates through the tax system or receive equivalent benefits through another mechanism are an example of situations where the rebate should be treated as an expense and not as a 'negative tax'.
A4.16 In borderline cases where it may be difficult to determine the status of an allowance or rebate, it would be preferable to classify the rebate as an expense. Taking this approach has advantages: it is consistent with the philosophy underlying GFS that transactions should be recorded on a gross basis; it allows the rebate to be easily identified in the event of a different GFS treatment being decided on; and it provides a more complete picture of the flows.
A4.17 It should be noted that the treatment of rebates as expenses, and not as negative taxes, does not affect key GFS balances such as the GFS Net Operating Balance.
HIGHER EDUCATION CONTRIBUTION SCHEME (HECS)
A4.18 The Higher Education Administration Charge was introduced in 1987 and applied again in 1988. From January 1989 this charge was replaced by the Higher Education Contribution Scheme (HECS).
A4.19 HECS is shown in GFS as payments for a service provided by higher education institutions i.e. classified as ETF 1120, sales of goods and services.
A4.20 The legislation establishing HECS requires students to pay a 'contribution' towards the cost of their higher education. Payments may be made direct to the institution attended at the time the education course is undertaken, or students may enter into a loan agreement with the Commonwealth Government to discharge their obligation on their behalf. Students then repay the loan at a later date through the taxation system. These loans are paid out of a trust fund to institutions and are not paid to students directly.
A4.21 In GFS, the HECS loans are recorded as advances from the Commonwealth government to the students, and the payment of contributions out of the trust fund are treated as payments for a service by students to higher education institutions.
A4.22 Below is a summary of how HECS transactions are recorded in GFS:
SUMMARY OF HECS TRANSACTION RECORDING IN GFS
|HECS payment by students direct to higher education institutions||1120 sales of goods and services – payments received directly by higher education institutions from the household sector|
|Commonwealth loan to students to allow them to discharge the HECS liability||2311 advances paid by the Commonwealth government to the private sector |
|Indexation of loans to students to the Consumer Price Index (CPI)||1131 interest revenue - all changes in the volume of a security arising from indexation are treated as interest.|
|Repayments of loans by students via the taxation system||2312 repayments of advances from the private sector to the Commonwealth government |
|Payment of HECS contributions to higher education institutions on behalf of students|
from the HECS Trust Fund
|1120 sales of goods and services – payments received by higher education institutions from the private sector (via HECS Trust Funds) |
|Balance of fees (25%) in respect of discounted payments for up-front payments|
by students to institutions
|1241 Commonwealth current grant expenses to institutions |