Can Developing Countries Impose an Individual Income Tax?
at the Andrew Young School of Policy Studies

"Can Developing Countries Impose an Individual Income Tax?" (pdf)

by James Alm and Sally Wallace
August 2004

Keywords: individual income tax, developing countries, taxation policy

The individual income tax (IIT) is widely used in most all countries around the world, and is often a significant source of revenues for the government. So the short answer to the title question is "of course". However, the more fundamental issue is the type of IIT that developing countries are in practice able to impose. In particular, will the IIT that emerges in developing countries meet the usual canons of a "good" tax – equity, efficiency, and adequacy? We argue in this paper that it is unlikely that a developing country can actually administer a broad-based, "global" individual income tax, in which income from all sources is aggregated and is subject to a single rate structure after adjustments for personal exemptions and deductions. Instead, the most suitable form of the IIT is probably one characterized by a "schedular" approach to income taxation.

Comments and questions regarding this paper may be directed to James Alm at jalm@gsu.edu.