The reality of a cash flow based corporate tax system

Abstract

Capital income, cash flow, or a mixture of the two may serve as the corporate tax base. In the case of companies, fundamentally, corporate income serves as the tax base; however, in recent years, there has been a growing interest in cash flowbased taxation both in the research of taxation theory and in practice. The present study outlines the advantages and disadvantages of a possible cash flow tax (CFT) in comparison with those of the traditional corporate income tax (CIT), attempting to find out whether a cash flow-type tax may become a realistic alternative to the currently used corporate income tax, and whether the traditional due date based income tax may be replaced by a cash flow-based consumption tax? The main aspects of the analysis are: the neutrality and efficiency of the cash flow tax, the complexity of the tax, and its performance costs. Also, we wish to find out how a CFT would affect tax revenues (provided that tax rates remained unchanged), and whether it can be applied in a global environment (regarding international transactions)?