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A Superior Hybrid Cash-Flow Taxon Corporations

Howell Zee

No 2006/117, IMF Working Papers from International Monetary Fund

Abstract: This paper proposes a new hybrid cash-flow tax on corporations that, on one hand, taxes only excess corporate profits as they accrue, and, on the other hand, treats real and financial transactions neutrally. It is, therefore, a superior tax compared to the cash-flow tax on real transactions that seems to have gained common acceptance. The hybrid tax is a modified version of the cash-flow tax on real and financial transactions combined. The modification involves replacing expensing of fixed assets with normal depreciation allowances, but the undepreciated value of fixed assets is carried forward with interest at the opportunity cost of equity capital.

Keywords: WP; cash flow; tax burden; proceeds; Corporate income tax; cash-flow tax; tax reform; modified S-CFT; cash inflow; tax liability; tax calculation; tax depreciation; tax implication; equity capital; tax payment; tax deferral; Currencies; Tax allowances; Anti-money laundering and combating the financing of terrorism (AML/CFT); Depreciation (search for similar items in EconPapers)
Pages: 25
Date: 2006-05-01
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Handle: RePEc:imf:imfwpa:2006/117