The Political Economy of the Taxation of Individuals in North Cyprus

Amin Sokhanvar (), Hasan Ulas Altiok () and Glenn Jenkins ()
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Amin Sokhanvar: Department of Economics, Eastern Mediterranean University, North Cyprus
Hasan Ulas Altiok: Department of Banking and Finance,Eastern Mediterranean University, North Cyprus

No 2019-01, Development Discussion Papers from JDI Executive Programs

Abstract: The objective of this study is to undertake a diagnostic of the system of personal direct taxation and charges levied to fund social security and the provident fund in Northern Cyprus, using a database of all individual taxpayers. Particular attention was given to the assessment of marginal tax rates on labor income and their possible effect on fiscal compliance. It was found that the tax system itself, and its interaction with the social security and provident fund systems, has created a powerful set of incentives for non-compliance. Top-income earning private-sector employees face a very high combined marginal fiscal burden. This has resulted in massive tax avoidance, such that most private employees pay no marginal income tax or social security/provident fund contributions on income above the minimum wage. In addition, the private self-employed allocate their wage incomes so as to minimize the total burden of social security payments and provident fund contributions, and individual and corporate income tax dues. Very high marginal tax rates at low (by developed-country standards) levels of income have created informal administrative measures to alleviate the fiscal burden on individuals. The end result however, is neither equitable nor economically neutral.

Keywords: Pensions funds; personal income tax; tax incidence; tax compliance; fiscal equity (search for similar items in EconPapers)
JEL-codes: H24 H26 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2019-01
New Economics Papers: this item is included in nep-pbe
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Related works:
Working Paper: The Political Economy of the Taxation of Individuals in North Cyprus (2019)
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