Table 3 Tax concessions for widely-offered schemes – Neutrality Equity Minimises compliance Minimises Integrity Assessment against Fiscal impact costs administrative costs main objective Option A ESS benefits are exempt from ESS benefits are Significant transaction Administrative costs Some avoidance Not applicable Does not meet the – status quo tax, whereas comparable salary is tax advantaged. and compliance costs associated with opportunities. Does main objective not. Deemed 10% interest associated with setting up uncertainty of the law. not fit with BBLR deduction and deduction for schemes. There is also system. contribution to trust also different uncertainty in the law to treatment of standard salary which results in high and other types of ESS. compliance costs. Borne by employers. Broadly fiscally Option B than the status quo than than the status than the Meets the main – Better Better Worse Worse Significantly quo status quo repeal tax ESS benefits taxed the same as the status quo better than the neutral objective Significant transaction Reduced concessions for cash salary and wages for both ESS benefits status quo and compliance costs administrative costs widely-offered employer and employee, and taxed the same as Removes associated with bringing because law is more schemes taxed consistently between cash salary and opportunities for tax tax-exempt schemes into certain. However, themselves. However, ESS incurs wages. However avoidance and the tax system. In many potentially more significantly more compliance disadvantaged as evasion. Coherent and cases these costs likely to resources needed to costs for low level of benefit. compared to clear law relating to outweigh the benefits monitor previously salary and wages employment income offered under the scheme. tax-exempt schemes. that do not incur compliance costs. Option C worse than the status quo worse than better than the Broadly fiscally Meets the main – No No Significantly Significantly Better retain and ESS benefits are exempt from tax, the status quo than the status quo better than the status quo neutral objective modernise whereas comparable salary is not. ESS benefits are Significantly reduces status quo Loopholes removed, widely-offered Denial of deduction also different tax advantaged. compliance costs. Reduces but differential Preferred option – scheme to treatment of standard salary However, administrative treatment does not fit on balance and other types of ESS however compliance cost with BBLR compliance costs – this is a necessary corollary of the barrier is framework. are a major tax-exemption. removed. consideration
Table 3 – Tax concessions for widely-offered schemes Neutrality Equity Minimises compliance costs Minimises administrative costs Integrity Assessment against main objective Fiscal impact Option A – status quo ESS benefits are exempt from tax, whereas comparable salary is not. Deemed 10% interest deduction and deduction for contribution to trust also different to treatment of standard salary and other types of ESS. ESS benefits are tax advantaged. Significant transaction and compliance costs associated with setting up schemes. There is also uncertainty in the law which results in high compliance costs. Borne by employers. Administrative costs associated with uncertainty of the law. Some avoidance opportunities. Does not fit with BBLR system. Does not meet the main objective Not applicable Option B – repeal tax concessions for widely-offered schemes Better than the status quo ESS benefits taxed the same as cash salary and wages for both employer and employee, and taxed consistently between themselves. However, ESS incurs significantly more compliance costs for low level of benefit. Better than the status quo ESS benefits taxed the same as cash salary and wages. However disadvantaged as compared to salary and wages that do not incur compliance costs. Worse than the status quo Significant transaction and compliance costs associated with bringing tax-exempt schemes into the tax system. In many cases these costs likely to outweigh the benefits offered under the scheme. Worse than the status quo Reduced administrative costs because law is more certain. However, potentially more resources needed to monitor previously tax-exempt schemes. Significantly better than the status quo Removes opportunities for tax avoidance and evasion. Coherent and clear law relating to employment income Meets the main objective Broadly fiscally neutral Option C – retain and modernise widely-offered scheme No worse than the status quo ESS benefits are exempt from tax, whereas comparable salary is not. Denial of deduction also different to treatment of standard salary and other types of ESS – however this is a necessary corollary of the tax-exemption. No worse than the status quo ESS benefits are tax advantaged. However, compliance cost barrier is removed. Significantly better than the status quo Significantly reduces compliance costs. Significantly better than the status quo Reduces administrative Better than the status quo Loopholes removed, but differential treatment does not fit with BBLR framework. Meets the main objective Preferred option – on balance compliance costs are a major consideration Broadly fiscally neutral