Issues of distributing tax powers between the government and administration levels (ABSTRACT)
Levan Jgarkava
The article deals with possible variants for distributing tax powers from the viewpoint of interrelation practice between the government and budget levels.
Three variants for devolving tax powers to sub-national government bodies are known.
Sub-national bodies can be given all powers for regulating levied taxes in territories under their jurisdiction. At the same time, the national government should devolve a part of taxes to the higher level of budget system in order to meet expenditure commitments.
As this option might reduce the efficiency of revenues distribution among territories as well as hamper fiscal sustainability, it is deemed as a more or less efficient method for mobilizing state resources, since it might create inadequate stimuli for local authorities from the viewpoint of funding national expenditure commitments.
The second option of tax revenues distribution stands in opposition to the first one and implies delegation of all tax powers to the central government and further transmission of funds to subordinate government bodies in the form of grants and transfers as well as establishment of standards for all or separate tax transfers from budgets of subordinate government bodies. The principal drawback of such system is complete lack of connection between the level of authorities and the level of decision-making with regards to expenditures in certain territories where this or that tax is levied, which is an important pre-condition for creating an efficient system of inter-relations between budgets.
The third middle variant for distributing revenue powers implies delegation of a part of tax powers to local and regional government bodies, and only in case of need, insufficient funds of local budget will be compensated by transmittance of a certain share of regulatory and attached taxes or by transfers. The key question for implementing the similar scheme of revenues distribution is to choose the taxes that are handed over to local and regional bodies (local and regional taxes) as well as to choose national taxes whose certain share of inpayments is in local and regional budgets in the form of regulatory taxes. If tax powers are delegated to subordinate authorities with the chance to link the amount of tax burden to adopted expenditure decision, actions of local authorities proceed from the position “costs and effect”, which leads to the increase of economic efficiency.
For certain levels of the government sudden assignment of rights for regulating rules of tax levy creates the problem of optimal distribution of powers between the given levels.