Definition of tax
A tax is a financial charge or other
levy imposed upon a taxpayer (an individual or legal entity) by a state or the functional equivalent of a state to fund
various public expenditures. A failure to pay, or evasion of or resistance to
taxation, is usually punishable by law. Taxes are also imposed by many administrative
divisions.
Taxes consist of direct or indirect taxes and may be paid in money or as its labour
equivalent.
levy imposed upon a taxpayer (an individual or legal entity) by a state or the functional equivalent of a state to fund
various public expenditures. A failure to pay, or evasion of or resistance to
taxation, is usually punishable by law. Taxes are also imposed by many administrative
divisions.
Taxes consist of direct or indirect taxes and may be paid in money or as its labour
equivalent.
Governments
use different kinds of taxes and vary the tax rates. This is done to distribute
the tax burden among individuals or classes of the population involved in
taxable activities, such as business, or to redistribute resources between individuals
or classes in the population. Historically, the nobility were supported by taxes on the poor; modern social security systems are intended to support the poor, the
disabled, or the retired by taxes on those who are still working. In addition,
taxes are applied to fund foreign aid and military ventures, to influence the macroeconomic performance of the economy (the government’s
strategy for doing this is called its fiscal policy; see also tax exemption), or to modify patterns of consumption or
employment within an economy, by making some classes of transaction more or
less attractive.
use different kinds of taxes and vary the tax rates. This is done to distribute
the tax burden among individuals or classes of the population involved in
taxable activities, such as business, or to redistribute resources between individuals
or classes in the population. Historically, the nobility were supported by taxes on the poor; modern social security systems are intended to support the poor, the
disabled, or the retired by taxes on those who are still working. In addition,
taxes are applied to fund foreign aid and military ventures, to influence the macroeconomic performance of the economy (the government’s
strategy for doing this is called its fiscal policy; see also tax exemption), or to modify patterns of consumption or
employment within an economy, by making some classes of transaction more or
less attractive.
Money
provided by taxation has been used by states and their functional equivalents
throughout history to carry out many functions. Some of these include
expenditures on war, the enforcement of law and public order, protection of property, economic infrastructure (roads, legal tender, enforcement of contracts, etc.), public works, social engineering, subsidies, and the operation of government itself. A portion of taxes
also go to pay off the state’s debt and the interest this debt accumulates.
Governments also use taxes to fund welfare and public services. These services can include education systems, health care
systems, pensions for the elderly, unemployment
benefits,
and public
transportation. Energy, water and waste management systems are also common public utilities. Colonial and modernizing states have also used
cash taxes to draw or force reluctant subsistence producers into cash
economies.
provided by taxation has been used by states and their functional equivalents
throughout history to carry out many functions. Some of these include
expenditures on war, the enforcement of law and public order, protection of property, economic infrastructure (roads, legal tender, enforcement of contracts, etc.), public works, social engineering, subsidies, and the operation of government itself. A portion of taxes
also go to pay off the state’s debt and the interest this debt accumulates.
Governments also use taxes to fund welfare and public services. These services can include education systems, health care
systems, pensions for the elderly, unemployment
benefits,
and public
transportation. Energy, water and waste management systems are also common public utilities. Colonial and modernizing states have also used
cash taxes to draw or force reluctant subsistence producers into cash
economies.
Types of taxes
1.
Taxes on income
·
Income
tax: Generally
the tax is imposed on net profits from business, net gains, and other income.
The incidence
of taxation
varies by system, and some systems may be viewed as progressive or regressive. Rates of tax may vary or
be constant (flat) by income level. Income tax systems will often have
deductions available that lessen the total tax liability by reducing total
taxable income.
·
Capital
gains tax: Capital
gain is generally a gain on sale of capital assets — that is, those assets not
held for sale in the ordinary course of business. Capital assets include
personal assets.
·
Corporate
tax: Corporate tax refers to
income, capital, net worth, or other taxes imposed on corporations. Rates of
tax and the taxable base for corporations may differ from those for individuals
or other taxable persons.
2.
Taxes on property
Recurrent property taxes may be imposed on immovable property (real
property) and some classes of movable property. In addition, recurrent taxes
may be imposed on net wealth of individuals or corporations. Many jurisdictions
impose estate tax, gift tax
or other inheritance taxes on property at death or gift transfer.
property) and some classes of movable property. In addition, recurrent taxes
may be imposed on net wealth of individuals or corporations. Many jurisdictions
impose estate tax, gift tax
or other inheritance taxes on property at death or gift transfer.
A property tax (or millage tax) is an ad valorem tax levy on the value of property that the owner of the property is
required to pay to a government in which the property is situated. Property
taxes are usually charged on a recurrent basis (e.g., yearly).
required to pay to a government in which the property is situated. Property
taxes are usually charged on a recurrent basis (e.g., yearly).
3. Expatriation tax
An expatriation tax is a tax on individuals who renounce their citizenship or residence. The tax is often imposed based on a deemed disposition of
all the individual’s property.
all the individual’s property.
4. Wealth (net worth) tax
Some countries’ governments will require declaration of the tax payers’ balance sheet (assets and liabilities), and from that exact a tax on net worth
(assets minus liabilities), as a percentage of the net worth, or a percentage
of the net worth exceeding a certain level. The tax may be levied on “natural”
or legal “persons”.
(assets minus liabilities), as a percentage of the net worth, or a percentage
of the net worth exceeding a certain level. The tax may be levied on “natural”
or legal “persons”.
5.
Taxes on goods and services
·
Value
added tax: A
value added tax (VAT), also known as Goods and Services Tax (G.S.T), Single
Business Tax, or Turnover Tax in some countries, applies the equivalent of a
sales tax to every operation that creates value. VAT is usually administrated
by requiring the company to complete a VAT return, giving details of VAT it has
been charged (referred to as input tax) and VAT it has charged to others
(referred to as output tax).
·
Sales
taxes: Sales
taxes are levied when a commodity is sold to its final consumer. Retail
organizations contend that such taxes discourage retail sales. The question of
whether they are generally progressive or regressive is a subject of much
current debate. People with higher incomes spend a lower proportion of them, so
a flat-rate sales tax will tend to be regressive. It is therefore common
to exempt food, utilities and other necessities from sales taxes, since poor
people spend a higher proportion of their incomes on these commodities, so such
exemptions make the tax more progressive.
·
Excises: An excise duty is an indirect
tax
imposed upon goods during the process of their manufacture, production or
distribution, and is usually proportionate to their quantity or value. These
duties consisted of charges on beer, ale, cider, cherry wine and tobacco, to
which list were afterwards added paper, soap, candles, malt, hops, and sweets.
The basic principle of excise duties was that they were taxes on the
production, manufacture or distribution of articles which could not be taxed
through the customs
house, and
revenue derived from that source is called excise revenue proper. The
fundamental conception of the term is that of a tax on articles produced or
manufactured in a country. In the taxation of such articles of luxury as
spirits, beer, tobacco, and cigars, it has been the practice to place a certain
duty on the importation of these articles (a customs
duty).
·
Tariff: An import or export tariff (also
called customs duty or impost) is a charge for the movement of goods through a
political border. Tariffs discourage trade, and they may be used by
governments to protect domestic industries. A proportion of tariff revenues is
often hypothecated to pay government to maintain a navy or border police. The
classic ways of cheating a tariff are smuggling or declaring a false value of
goods. Tax,
tariff and trade rules in modern times are usually set together because of
their common impact on industrial
policy, investment
policy, and agricultural policy.
Other
taxes
1. License fees: Occupational taxes or license
fees may be imposed on businesses or individuals engaged in certain businesses.
Many jurisdictions impose a tax on vehicles.
2. Poll tax: A poll tax, also called a per capita tax, or capitation tax, is a tax that levies
a set amount per individual.
3. Ad valorem
and per unit: An ad valorem tax is one where the tax
base is the value of a good, service, or property. Sales taxes, tariffs,
property taxes, inheritance taxes, and value added taxes are different types of
ad valorem tax. An ad valorem tax is typically imposed at the time of a
transaction (sales tax or value added tax (VAT)) but it may be imposed on an
annual basis (property tax) or in connection with another significant event
(inheritance tax or tariffs).
4. Consumption tax: Consumption tax refers to
any tax on non-investment spending, and can be implemented by means of a sales
tax, consumer value added tax, or by modifying an income tax to allow for
unlimited deductions for investment or savings.
Justification for the imposition of tax on
individual/household and corporate entities
Taxes imposed on individual/household and corporate entities are
justified the following purposes serves by the revenue generated from the taxes
imposed by government:
justified the following purposes serves by the revenue generated from the taxes
imposed by government:
1.
Finance Government
Taxes pay the salary of every government employee, from the President of
the United States to the janitor of the local city hall. Taxes also pay for the
cost of running the government, including things such as buildings, utilities,
research, equipment and supplies. The collection of taxes provides funding to
support the infrastructure of government, which allows for the delivery of
public services to individual states and the nation as a whole.
the United States to the janitor of the local city hall. Taxes also pay for the
cost of running the government, including things such as buildings, utilities,
research, equipment and supplies. The collection of taxes provides funding to
support the infrastructure of government, which allows for the delivery of
public services to individual states and the nation as a whole.
·
Local: Local governmental units deliver services to
its residents from its collection of local property, income and sales taxes.
Much of the revenue derived from these taxes are used for police and fire
protection, building schools, maintaining local roads, and protecting citizens
against local health emergencies and neighbourhood crime.
Local: Local governmental units deliver services to
its residents from its collection of local property, income and sales taxes.
Much of the revenue derived from these taxes are used for police and fire
protection, building schools, maintaining local roads, and protecting citizens
against local health emergencies and neighbourhood crime.
·
State: State
governments use taxes to deliver public services such as maintaining a state
militia or National Guard unit, assisting farmers with agricultural issues and
managing a uniform state court system to coordinate local court systems. Tax
collection also gives states the ability to provide social services to
economically distressed and mentally disabled citizens and their families.
·
Federal: Taxes are
essential to the operation and function of the federal government, which
provides constitutional functions such as maintaining a standing military.
Congressionally mandated programs, which allow for the provision of disaster
relief, general health and national human service, education and health
programs are accomplished mainly due to federal tax collection.
2.
Finance Government Projects
Whether it is a temporary project, such as a new Interstate, or a
long-term program, like food stamps, the taxes collected each year are the
primary funding source.
long-term program, like food stamps, the taxes collected each year are the
primary funding source.
3.
Distribute Income
Some of the taxes that are collected are immediately distributed among
lower-income groups through refundable tax credits such as the Earned Income
Tax Credit.
lower-income groups through refundable tax credits such as the Earned Income
Tax Credit.
4.
Influence Buying Habits
Some taxes serve a second purpose of encouraging or discouraging the
purchase of certain items for a variety of reasons.
purchase of certain items for a variety of reasons.
5.
Influence Saving Habits
Some tax rules are set up to benefit those who invest in certain ways,
thus encouraging saving methods that are considered better for the country.
thus encouraging saving methods that are considered better for the country.
References
Atkinson, N (1997). Optimal Taxation and the Direct Versus Indirect Tax
Controversy, 10 Can. J. Econ. 590, 592
Controversy, 10 Can. J. Econ. 590, 592
David F. B. (2004). A World History of Tax Rebellions. London: Sage Publication.
McCluskey, W. J., & Franzsen, D. (2005). Land Value Taxation: An Applied Analysis. Ashgate
Publishing, Ltd.
Publishing, Ltd.
Olmert, M. (1996). Milton’s Teeth and Ovid’s Umbrella: Curiouser
& Curiouser Adventures in History, New York: Simon & Schuster.
& Curiouser Adventures in History, New York: Simon & Schuster.
Reinhart, M. & Rogoff, S. (2008). This Time is Different.
Princeton and Oxford: Princeton University Press.
Princeton and Oxford: Princeton University Press.
Simkovic, M. (2000). “Distortionary
Taxation of Human Capital Acquisition Costs”. Social
Science Research Network.
Taxation of Human Capital Acquisition Costs”. Social
Science Research Network.