Cash-Flow Tax

IMF Working Papers, January 1, 1993

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The cash-flow tax has been proposed as an alternative to corporate income tax on grounds of clarity and simplicity in defining the tax base in the face of widespread departures from the comprehensive income tax in actual practice.
Variants of the tax, with their advantages and disadvantages, demonstrate that it would require careful design.
The tax remains theoretically attractive but difficult to implement by a single--especially developing--country.

The cash-flow tax offers potential clarity and simplicity in defining the tax base compared with the comprehensive income tax as actually practiced.
Variants of the cash-flow tax exhibit differing advantages and disadvantages, implying the need for careful design.

Simplicity is not an obvious property because of expectable administration problems related to:
- tax avoidance and evasion through transfer pricing;
- inflation adjustments;
- incompatibility with existing international tax regimes.
These administration and international-compatibility problems make implementation difficult, particularly for a single country and especially for developing countries.

Subject: Cash-flow tax, Corporate income tax, Income and capital gains taxes, Income tax systems, Tax allowances, Taxes
Keywords: cash flow, Cash-flow tax, CCFT country, CCFT host country, corporate cash-flow tax, Corporate income tax, firm, foreign tax credit, Global, host-country tax competition, Income and capital gains taxes, Income tax systems, rate of return, repatriation tax, revenue, shareholder--base CCFT, tax, Tax allowances, tax authorities, tax competition, tax deductibility, tax profile, WP

Source: IMF Working Paper No. 1993/002, "Cash-Flow Tax" by Christian Schutte and Parthasarathi Shome.