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The Political Economy of the Taxation of Individuals in North Cyprus

Author

Listed:
  • Amin Sokhanvar

    (Department of Economics, Eastern Mediterranean University, North Cyprus)

  • Hasan Ulas Altiok

    (Department of Banking and Finance,Eastern Mediterranean University, North Cyprus)

  • Glenn P. Jenkins

    (Department of Economics, Queen's University, Kingston, Canada and Eastern Mediterranean University, North Cyprus)

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.

Suggested Citation

  • Amin Sokhanvar & Hasan Ulas Altiok & Glenn P. Jenkins, 2019. "The Political Economy of the Taxation of Individuals in North Cyprus," Development Discussion Papers 2019-01, JDI Executive Programs.
    • Handle: RePEc:qed:dpaper:4410
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    References listed on IDEAS

    as
    1. Hasan Altiok & Glenn Jenkins, 2013. "Social security generosity, budgetary deficits and reforms in North Cyprus," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 16(2), pages 218-235.
    2. Altiok, Hasan U. & Jenkins, Glenn P., 2013. "The fiscal burden of the legacy of the civil service pension systems in northern Cyprus," Journal of Pension Economics and Finance, Cambridge University Press, vol. 12(1), pages 92-110, January.
    3. Glenn Jenkins & George Poufos, 2002. "Economic Integration And The Transformation Of The Tax Mix: Cyprus 1990-2001," Development Discussion Papers 2002-03, JDI Executive Programs.
    4. Hasan U. Altiok & Glenn Jenkins, "undated". "The Pension Traps of Northern Cyprus," Development Discussion Papers 2012-03, JDI Executive Programs.
    5. Mustafa BESIM & Tufan EKICI & Glenn P. JENKINS, 2015. "Informality in a micro economy: Measurement, composition and consequences," International Labour Review, International Labour Organization, vol. 154(3), pages 353-371, September.
    6. Mustafa Besim & Glenn Jenkins, 2005. "Tax compliance: when do employees behave like the self-employed?," Applied Economics, Taylor & Francis Journals, vol. 37(10), pages 1201-1208.
    7. Hasan U. Altiok & Glenn P. Jenkins, 2013. "Social security generosity, budgetary deficits and reforms in North Cyprus," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 16(2), pages 218-235, June.
    8. Hasan Ulaş ALTIOK & Glenn Paul JENKINS, 2015. "Innovation, Fiscal Prudence and Social Equity in the Social Security Reforms of Northern Cyprus," Iktisat Isletme ve Finans, Bilgesel Yayincilik, vol. 30(349), pages 77-98.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Pensions funds; personal income tax; tax incidence; tax compliance; fiscal equity;
    All these keywords.

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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