The Ministry of Finance is preparing a reduction in the cost of living for cars in the next period. Final decisions are awaited…
The reduction of subsistence allowances by the Ministry of Finance is not a new case, as this matter has been “running” since 2019, after it has been proposed to gradually reduce them until their final abolition in the coming years (based on the current ones, the more old is a car, the more the presumption is reduced). The Ministry of Finance has decided to make a percentage reduction, a 30% has been said. If this is the final rate, see what the new scale of presumptions for cars will be.
In any case, it is the most anachronistic of the methods of determining taxable income, creating inconvenience without substantial government benefit.
The tax authorities resort to the attempt to capture taxable material through the proof of living, when for various reasons they do not consider it possible to determine it directly. It is characteristic that, among high-income countries, only Greece and Italy use proof of living, while the method is more common in developing countries, such as Kenya. From 2010 onwards, under the pressure to collect tax revenue and as a means of capturing undeclared taxable material, the use of proof of living was extended to almost all taxpayers. Annual objective cost of living was set for all primary and secondary residences from the first square meter scaled based on their area, for all cars based on their cubic centimeters, for all boats based on their overall length scaled.
This system was retained with very minor changes. These changes are reflected in the steep rise in total income, which is derived from cost-of-living estimates and is added to taxpayers’ self-reported income. While in 2008 the difference between taxable and declared income was less than 500 million euros, in 2014 it shot up to more than 7 billion euros and remains close to 6.5 billion euros. The researchers’ interesting finding is the distribution of additional income resulting from the cost-of-living assumptions. According to the report, in 2014 86% of the approximately €7 billion of additional income from living allowances estimated by the tax authorities went to the poorest 40% of taxpayers, with the figure rising to over 88% in 2019 .The share of imputed income found in taxpayers with an annual declared income of less than 5,000 euros increases from 65% in 2008 to 83% in 2014 and further to 85% in 2019.
As the study shows, the poorest 40% of taxpayers pay a very small amount in personal income tax. In 2008, this amount was 19 million euros. After the presumptions were extended to all taxpayers, in 2014 the amount of personal income tax borne by the poorest 40% rose to €270 million (or 3.3% of total personal income tax revenue). . Finally, in 2019 the corresponding amount was 211 million euros or 2.4% of total revenue. This record shows that the amount collected by the state from the presumptions is extremely small, as it is mainly found among taxpayers with low incomes. However, the presumption system adds complexity to the tax system, creates high compliance costs for taxpayers and administrative costs for tax authorities, while its contribution to tax revenue appears to be limited. So, only on the face of it, it probably contributes to the indirect limitation of tax evasion. Source: Daily