Designing Interest and Tax Penalty Regimes

Tax Law Technical Note, March 18, 2019

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Designing Interest and Tax Penalty Regimes

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Bibliographic details

• Authors: Christophe J Waerzeggers, Cory Hillier, Irving Aw
• Published: March 18, 2019
• Series: Tax Law Technical Note
• DOI: https://doi.org/10.5089/9781498302012.008

Summary

• Nearly all tax systems have some form of interest and tax penalty regimes.
• This Tax Law IMF Technical Note focuses on the key issues that should be taken into consideration in designing interest and penalty regimes in tax legislations.

Objectives of interest vs. penalties

• Interest payable on any late or underpayment of tax seeks to protect the present value of the tax amount to the government budget.
• Penalties are intended to deter taxpayers from defaulting on their tax obligations—and to punish them if they do—to achieve horizontal equity vis-à-vis compliant taxpayers.
• As interest and penalties serve very different objectives, they should not be applied in a mutually exclusive manner.

Key design considerations (implications emphasized in the note)

• Distinguish clearly between the compensatory role of interest and the deterrent/punitive role of penalties.
• Ensure regimes preserve the present value of tax revenues through appropriate interest rules.
• Design penalty rules to promote deterrence and horizontal equity while calibrating punishment to taxpayer conduct.
• Integrate interest and penalty rules so they operate complementarily rather than as substitutes.

Themes and topical coverage

• Subject areas highlighted: External debt; Interest payments; Interest tax; Legal support in revenue administration; Revenue administration; Tax administration core functions; Tax law; Tax policy; Taxes.
• Keywords and focal points include: ability to pay; Africa; incentive regime; Interest payments; Interest tax; law framework; Legal support in revenue administration; penalty regime; RegimesDesigning interest; tax administration; Tax administration core functions; tax authorities; tax authority; tax authority exercise; Tax law; tax official; taxpayer compliance; TLT.

Designing Interest and Tax Penalty Regimes, Tax Law Technical Note (IMF), Christophe J Waerzeggers, Cory Hillier, Irving Aw, March 18, 2019.

Content in this bundle

• Tax Law IMF Technical Note, Vol 1: Designing Interest and Tax Penalty Regimes
  • Tax Law IMF Technical Note, Vol 1: Designing Interest and Tax Penalty Regimes (Markdown version)
  • Tax Law IMF Technical Note, Vol 1: Designing Interest and Tax Penalty Regimes (PDF)