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Cash flow or income? : the choice of base for company taxation


  • Mintz, Jack M.
  • Seade, Jesus


Considerable interest has been expressed in recent years by tax theorists as well as practitioners, for the taxation of companies based on their cash flow. Unlike the equity-income tax base, which requires the deductibility of economic depreciation and debt financing costs, the cash-flow base expenses capital at the point of purchase, eliminating the need for the subsequent costing of this capital. This paper raises some of the issues that would arise in trying to implement a company tax either in the form of an indexed equity-income or a cash-flow tax. Issues raised include: (i) administrative complexity; (ii) international tax coordination and competition; and (iii) transition problems. In a closed economy the cash-flow tax seems a simple, efficient form of company taxation, administratively straightforward and neutral with regard to investment decisions. The more complicated equity-income tax is harder to defend in a closed economy.

Suggested Citation

  • Mintz, Jack M. & Seade, Jesus, 1989. "Cash flow or income? : the choice of base for company taxation," Policy Research Working Paper Series 177, The World Bank.
  • Handle: RePEc:wbk:wbrwps:177

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    References listed on IDEAS

    1. Boadway, Robin & Bruce, Neil, 1984. "A general proposition on the design of a neutral business tax," Journal of Public Economics, Elsevier, vol. 24(2), pages 231-239, July.
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    Cited by:

    1. Mintz, Jack M & Tsiopoulos, Thomas, 1996. "Latin American taxation of foreign direct investment in a global economy," Sede de la CEPAL en Santiago (Estudios e Investigaciones) 34291, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    2. Pablo Serra, 1998. "Evaluación del Sistema Tributario Chileno y Propuesta de Reforma," Working Papers Central Bank of Chile 40, Central Bank of Chile.


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