Taxing Issues with Privatization : A Checklist

Taxing Issues with Privatization : A Checklist

Privatization has been a popular strategy for improving efficiency in both market and transition economies. The literature on privatization includes broad discussions of pricing techniques but overlooks tax issues. In reality, a state-owned company...

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Bibliographic Details
Main Authors: Mintz, Jack M., Chen, Duanjie, Zorotheos, Evangelia
Format: Policy Research Working Paper
Language:English
en_US
Published: World Bank, Washington, DC 2014
Subjects:
ACCUMULATED INCOME
BAD DEBT
BANK OF CANADA
BANKS
BONDS
BOOK VALUE
BORROWING
CAPITAL COSTS
CAPITAL GAIN
CAPITAL GAINS
CAPITAL TAXES
COMPETITIVE ADVANTAGE
CONSUMERS
CORPORATE INCOME TAX
CORPORATE INCOME TAXES
CORPORATE TAXES
COST OF CAPITAL
DEBT
DEBT FINANCING
DEBT INSTRUMENTS
DEPRECIABLE ASSETS
DEPRECIATION
DEPRECIATION OF ASSETS
DISCOUNT RATE
DIVIDENDS
ECONOMIC EFFICIENCY
ECONOMIC PERFORMANCE
ELECTRICITY
ELECTRICITY GENERATION
EXPENDITURES
GROSS REVENUES
INEFFICIENCY
INSURANCE
INSURANCE PREMIUMS
INTANGIBLE ASSETS
INTEREST EXPENSE
INTEREST RATES
INVENTORY
LAWS
LEVIES
MARKET COMPETITION
MARKET VALUE
MUNICIPAL FINANCE
MUNICIPAL GOVERNMENTS
MUNICIPALITIES
OPERATING LOSSES
PAYROLL TAXES
PENSIONS
POLICY MAKERS
POWER PLANTS
PRESENT VALUE
PRIVATE SECTOR
PRIVATIZATION
PRODUCERS
PROFITABILITY
PROPERTY TAXES
PROVINCIAL GOVERNMENTS
PROVISIONS
PUBLIC DEBT
PUBLIC POLICY
RETIREMENT
SAVINGS
SUBSIDIARIES
TAX
TAX CREDITS
TAX INCENTIVES
TAX LAW
TAX RATES
TAX REVENUE
TAXATION
TRANSITION ECONOMIES
UTILITIES
VALUATION
WAGES
WRITEOFFS
Online Access:http://documents.worldbank.org/curated/en/2000/05/437633/taxing-issues-privatization-checklist
http://hdl.handle.net/10986/18850
Description
Summary:Privatization has been a popular strategy for improving efficiency in both market and transition economies. The literature on privatization includes broad discussions of pricing techniques but overlooks tax issues. In reality, a state-owned company loses its privilege of paying no taxes once it is privatized. This change in tax status would certainly complicate the financial transaction of a newly privatized company, affect industry-wide economic efficiency, and change the revenue pattern of governments. Using Ontario Hydro and the Canadian tax regime as examples, the authors provide policymakers with a checklist on tax issues under privatization. Their main observations: 1) The tax status of the company to be privatized must be considered in analyzing the firm's financial transition. 2) The economic efficiency targeted by privatization may depend partly on the tax regime for a particular industry. 3) Privatization affects government revenue through the revenue-sharing structure determined by intergovernmental fiscal relationships and cross-border tax arrangements. Time is a factor in tax and transition issues. At the time of privatization, for example, how are assets to be valued for calculating capital gains and cost deductions, for tax purposes? Are the assets transferred to the new owners at fair market value, book value, or at cost, for tax purposes? How should heavy debt loads be treated? Ontario Hydro will not be privatized but it will become taxable. How the taxes will be paid will depend on how the transition is treated. Tax policy will be a key determinant of the industry's future development.

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