Iceland: Technical Assistance Report-Optimal Reform and Distributional Analysis of the Personal Income Tax
IMF Staff Country Reports, November 17, 2015
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- Iceland: Technical Assistance Report-Optimal Reform and Distributional Analysis of the Personal Income Tax
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Bibliographic details
- Published: November 17, 2015
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9781513524047.002
Summary of main findings
- Recommends increasing the basic credit and making it fully refundable to all taxpayers age 18 and older.
- To avoid paying this benefit to young singles, such as students, the credit could be conditioned on a certain level of labor earnings.
- The basic credit should be rapidly phased out as labor income rises.
- The initial PIT rate should be significantly reduced.
- The current top PIT rate does not need reform, although the threshold for that rate should ideally be raised.
Policy recommendations
- Increase the basic credit and make it fully refundable to taxpayers age 18 and older.
- Condition refundable credit eligibility on a minimum level of labor earnings to exclude young singles with other means of support.
- Implement a rapid phase-out of the credit as labor income increases.
- Significantly reduce the initial PIT rate.
- Consider raising the threshold for the current top PIT rate; do not reform the top rate itself.
Analytical focus and scope
- Topic areas: Income distribution, Income tax systems, Marginal effective tax rate, National accounts, Personal income, Personal income tax, Tax policy, Taxes.
- Keywords emphasized: central government, CR, government reform, gross income, guaranteed annual income, household income, Income distribution, income tax, Income tax systems, ISCR, Marginal effective tax rate, per capita income, Personal income, Personal income tax, phase-out rate, reform proposal, tax burden, taxable income.