Journal Issue
Working Paper Summaries (WP/92/1 - WP/92/47)

“A Tax on Gross Assets of Enterprises as a Form of Presumptive Taxation”

International Monetary Fund
Published Date:
August 1992
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Taxes on enterprises cannot generally be relied upon during periods of high inflation, when otherwise viable enterprises often declare losses to the tax authorities, thereby reducing the contribution of the corporate sector to total revenue. Recently, Argentina and Mexico introduced taxes on gross assets, partly to ensure that enterprises contribute to the Treasury and partly to enhance the efficiency of these enterprises. Several other Latin American countries are considering introducing a similar tax.

This paper analyzes the tax on gross assets and relates it to more traditional forms of presumptive taxation, going back as far as the seventeenth century, when a version of this tax, as applied to agricultural activities, was introduced in the principality of Milan. Some Italian economists credit the tax with stimulating the prosperity that followed its introduction in that region. A version of the tax on gross assets was also advocated by two important European economists, Luigi Einaudi and Maurice Allais, whose work unfortunately remains unknown in the Anglo-Saxon world.

The historical introduction is followed by an evaluation of the incentive effects of a tax on gross assets, which, it is argued, would spur economic agents on to greater efforts since the implicit marginal tax rate on additional income would be zero. The paper also discusses how the taxable base and the tax rate might be determined. On administrative grounds, it is argued that the tax should focus on measurable assets and should tax gross rather than net assets. In determining the tax rate, the paper assumes that all assets are financed by debt. The proposed rate would depend on the existing statutory corporate tax rate, on the expected (average) real return on capital, and on some measure of the long-run real rate of interest. For practical reasons of international tax policy, the paper suggests that the tax base be a minimum tax against the tax on the income of enterprises, although this would reduce its efficiency.

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