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Return-Free Filing: What other countries use it?

Return-free systems are clearly feasible: thirty-six countries-including Germany, Japan, the United Kingdom, and several other industrialized nations-use some form of return-free system for at least some of their taxpayers.

  • Nearly all countries that offer return-free systems have exact withholding systems, of which there are two types: cumulative systems (used in the United Kingdom and the Russian Federation) and final withholding systems (used in Germany and Japan). Some countries combine one of these approaches with other requirements; in Chile, for example, taxpayers may not file for refunds of overwithheld amounts.
  • Only Denmark and Sweden, both relatively small countries, operate tax agency reconciliation systems. About 85 percent of Denmark's taxpayers and 74 percent of Sweden's had their returns filled out by the tax authorities in 1994.
  • The British system, which has incorporated exact withholding since the 1940s, has several features that facilitate return-free filing. One is that it treats the individual as the unit of taxation. Another is that a large proportion of taxpayers are taxed at the same marginal rate (about 64 percent of taxpayers are in the "basic" rate bracket), which makes the return-free system easier to administer.
  • The proportion of taxpayers who still have to file returns varies by country. About 90 percent of taxpayers eligible for final withholding in the United Kingdom did not have to file in 1991. In Germany in 1986 and in Japan in 1988-90, the corresponding figures were 46 percent and 63 percent, respectively.
  • Many countries maintain a filing requirement for taxpayers with more than one job. At least one country, Kenya, requires taxpayers to file a tax return if their personal circumstances change during the year.
 
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