FACTA UNIVERSITATIS Series: Economics and Organization Vol. 13, No 4, 2016, pp. 439 - 455 DOI: 10.22190/FUEO1604439R PERSONAL INCOME TAXES - DUAL TAXATION1 UDC 336.215 1* 2* 2* Miloš Ranđelović , Dragana R. Petković , Ljiljana Prole 1University of John Nesbit, Faculty of Management, Belgrade, Serbia 2University of Niš, Faculty of Economics, Niš, Serbia Abstract. Personal income tax is one of the most important tax forms in the tax systems of modern countries, very generous and flexible. Personal income taxation can be organized as regular, synthetic or mixed taxing. In modern tax legislation there are alternative ways of personal income taxing, such as the double taxation system, proportional tax on income and negative income tax. Fiscal reforms performed in Serbia were often delayed due to numerous, sometimes non-economic reasons. The seriousness and necessity of a dynamic approach to the process of the tax system reforms in our country is still topical. In this respect, the aim of this paper is to highlight the advantages and disadvantages of the double tax system, as well as to point out the need to reform the personal income taxation in Serbia. Key words: double taxation, income tax, tax elements, fiscal reforms, standard and non-standard gains, horizontal and vertical taxing equity. INTRODUCTION Historically, the introduction of personal income tax (PIT) was preceded by specific tax forms, in which the human personality alone was the basis for the introduction of tax obligation. The transition from personal taxes, through individual income taxing, to a synthetic income tax, as its most perfect form, was long and not easy at all. Namely, the tax system in one country does not occur as a result of a predefined plan, based on scientific principles. It is the result of a compromise of different political forces, conditioned by the socio- economic system, the level of economic development, the degree of openness of the economy, historical development and tradition, the need to find new sources for financing public expenditure, tax administration performance, the level of tax ethics and so on. Research on the practices of many countries showed that in taxing personal incomes in the world there is a great diversity of solutions which has significantly increased in recent years, and 1Received July 31, 2016 / Revised September 13, 2016 / Accepted October 8, 2016 * PhD Student Corresponding author: Dragana R. Petković University of Niš, Faculty of Economics, Trg Kralja Aleksandra 11, 18000 Niš, Serbia E-mail: [email protected] 440 M. RANĐELOVIĆ, D. R. PETKOVIĆ, LJ. PROLE that the real economic and social effects of the application of certain forms of taxation differ significantly from the predictions offered by economic theory. It is therefore necessary, before making decisions on the choice of a particular form of personal income taxation, to analyze in detail the advantages and disadvantages of each of them and to take into consideration not only theoretically expected implications of applying a specific tax form, but also the practical experience of countries that have implemented that model of taxation. The effects of income taxation are numerous and have to be observed in the light of defined objectives of fiscal policy. Specifically, the following results of introducing the personal income tax are mentioned: the income effect, the substitution effect, the effects of stimulation, stabilization and redistribution. However, the introduction of personal income tax provokes many reactions of the taxpayer as, for example, the effort to avoid or reduce the imposed tax burden. Bearing these facts in mind, it stands to reason that the pronounced trade-off relationship between generosity and efficiency is particularly emphasized in personal income taxation. The objective of this paper is to give a reasoned estimate of economic effects of the application of the dual model of income taxing in Serbia. In this regard, the study will start with the theoretical approaches to the institute of income taxation arrangements, then the comparative analysis of the effects of using alternative models of personal income taxing will be made, the economic implications of their application will be determined, the existing personal income tax system in Serbia will be analyzed and, finally, some recommendations will be suggested. Pursuant to the objective, the structure of the paper was set. 1. THE POSITION OF PERSONAL INCOME TAX IN THE TAX SYSTEMS OF MODERN STATES AND THE ASSESSMENT CRITERIA OF EFFICIENCY Personal income tax occupies a significant place in the structure of modern tax systems, given that it collects more than 25% of public revenue on the average. In specific terms, this tax has gained in importance with the tax reforms of the 1960s. Its share in the total revenues ranged slightly above 30% in many countries during the 80s of the XX century, but ten years later its participation percentage was again reduced to 25% to 27%. Observed by individual countries, the share of this tax in total tax revenues exceeds 20% in countries such as Italy, Germany and Norway, it is over 30% in Australia, Belgium, Canada and Iceland, while the absolute record holders are New Zealand with 42% and Denmark with almost 53% (Howell, 2005, p.43). Some countries, like Canada and New Zealand, had significant fluctuations during the year regarding the share of personal income tax in public revenues. This share changed from 22.6% in 1965 to 40.8% in 1990, or 34.6% in 2003 in Canada, while the amplitudes were even more pronounced in New Zealand, ranging from 39.4% in 1965 to 61.6% in 1980. The growth of the importance of personal income tax is the result of: changes in attitude toward indirect taxes, reduction of tax rates on personal income tax which caused positive reactions from the public, widening of the tax base, reducing the number of tax tranches and the abolition of many tax exemptions. At the beginning of the XXI century, the practice of developed market economies has still contained tax pluralism, which involves the use of a large number of tax forms as a rational combination of various taxes and other public revenues suitable for the achievement of fiscal and extra-fiscal targets (Raičević, 2004, p.164). In this connection, it is easy to understand that the place and role of individual tax forms in an industrially developed country differ from the Personal Income Taxes - Dual Taxation 441 taxation systems in developing countries. Thus, when we observe the share of taxes on personal income, corporate profits and capital gains in total tax revenues of Austria, Denmark, France and Germany in the period 2005-2012, we may note that it oscillated between 39% to 50% of total tax revenues, while in Belgium, Norway, Spain and England it ranged from 50% to 60% of total tax revenues (Table 1 and Chart 1). In Moldova, the participation of these taxes in total tax revenue was symbolic and ranged from 1.65% in 2010 to 5.87% of total tax revenue in 2007. In some countries in the Balkans (Bosnia and Herzegovina, Serbia) it was within the interval from 3.6% to 17%. Even in Croatia, as the last country that joined the European Union, the percentage share of these taxes is not much higher as it amounted to 12.10% in 2010 and 17.6% of total tax revenues in 2008. Table 1 The share of income taxes in the total tax revenues (%) in some countries Country code 2005 2006 2007 2008 2009 2010 2011 2012 Austria AUT 46.12 47.22 48.16 49.00 44.63 45.12 45.99 46.64 Belgium BEL 59.11 58.88 59.32 60.38 57.75 57.86 59.06 58.59 Czech Republic CZE 42.01 39.61 40.40 40.61 34.65 34.07 32.94 33.40 Denmark DNK 40.23 42.98 51.39 51.44 51.95 47.04 46.68 46.85 Finland FIN 36.40 36.09 38.03 37.00 29 .46 28.50 29.33 28.12 France FRA 46.40 47.91 47.90 48.78 44.61 44.31 47.55 48.83 Germany DEU 39.84 41.74 41.58 41.80 38.82 38.03 38.62 40.11 Italy ITA 54.62 55.52 56.93 58.27 54.88 55.08 54.19 54.57 Luxembourg LUX 45.18 45.70 45.74 47.78 47.66 48.97 47.81 47.73 Norway NOR 56.22 57.65 55.65 60.09 53.69 55.07 57.77 57.50 Poland POL 24.61 26.00 27.99 28.30 27.26 24.53 24.44 26.24 Slovak Republic SVK 20.87 23.09 25.82 27.19 21.92 24.21 22.45 24.54 Spain ESP 61.18 63.22 68.68 66.25 64.37 52.48 58.50 67.57 Sweden SWE 25.59 27.12 25.17 17.74 14.75 17.07 15.82 14.64 Switzerland CHE 34.23 35.82 36.95 40.70 40.62 38.41 39.70 .. Great Britain GBR 50.48 51.85 51.49 49.91 51.00 48.97 47.88 46.63 Moldova MDA 4.34 4.83 5.87 2.36 1.71 1.65 1.72 4.68 Bosnia and Herz. BIH 3.61 3.86 5.99 4.98 10.50 12.52 12.73 13.01 Croatia HRV 13.20 14.56 16.48 17.61 17.02 12.10 13.99 13.86 Macedonia MKD 19.22 21.67 20.75 22.86 18.89 13.05 17.87 18.54 Serbia SRB .. .. 16.74 17.83 16.51 15.98 15.18 13.47 Slovenia SVN 28.36 33.13 29.95 33.82 27.96 22.26 24.79 23.81 Source: http://data.worldbank.org/indicator/all in some European countries in Balkan countries (ex-YU republics) Chart 1 The share of (incomes taxes) in the total tax revenues in the period of 2005-2012 442 M.