In addition, the supply of people is in fact not fixed over time: on average, couples will choose to have fewer children if a poll tax is imposed. Tax revenue is more stable and sustainable than aid. Economic theories of taxation approach the question of how to maximize economic welfare through taxation. The Income Tax Department has issued a detailed step by step reckoner for filing tax returns to be submitted under different heads. These include: The first known system of taxation was in Ancient Egypt around 3000–2800 BC, in the First Dynasty of the Old Kingdom of Egypt. In some circumstances, taxes are also used to enforce public policy like congestion charge (to cut road traffic and encourage public transport) in London. Because tax rates are often much lower for capital gains than for ordinary income, there is widespread controversy and dispute about the proper definition of capital. Of all regions, Africa has the highest total tax rates borne by the business at 57.4% of the profit on average but has reduced the most since 2004, from 70%, partly due to introducing VAT and this is likely to have a beneficial effect on attracting investment. By taxing the good, the government can increase overall welfare as well as raising revenue. Reporting requirements for other payments vary, with some jurisdictions requiring annual reporting and others requiring reporting within a specified period after the withholding occurs. In contrast to ad valorem taxation is a per unit tax, where the tax base is the quantity of something, regardless of its price. War is an incentive for states to raise taxes and strengthen states' capacity. The amount withheld and paid by the employer to the government is applied as a prepayment of income taxes and is refundable if it exceeds the income tax liability determined on filing the tax return. The manufacturer will collect the VAT on the higher price but will remit to the government only the excess related to the "value-added" (the price over the cost of the sheet steel). Other records are granary receipts on limestone flakes and papyrus. Generally, the tax authorities publish guidelines for employers to use in determining the amount of income tax to withhold from wages. That manufacturer will pay the VAT on the purchase price, remitting that amount to the government. In United States tax law, there is a distinction between an estate tax and an inheritance tax: the former taxes the personal representatives of the deceased, while the latter taxes the beneficiaries of the estate. Spanish/UK/US etc. There is therefore dependence on few taxpayers, often multinationals, that can exacerbate the revenue challenge by minimizing their tax liability, in some cases abusing a lack of capacity in revenue authorities, sometimes through. ", Taxes on the net wealth of corporations are often referred to as, Although Texas has no individual income tax, the state does impose a. Many tax authorities have introduced automated VAT which has increased accountability and auditability, by utilizing computer-systems, thereby also enabling anti-cybercrime offices as well. Multiple jurisdictions may tax the same property. Penalties of up to 100% may be assessed against a withholding agent under. When real estate is held by a higher government unit or some other entity not subject to taxation by the local government, the taxing authority may receive a payment in lieu of taxes to compensate it for some or all of the foregone tax revenues.  In the United States, the IRS has about 1,177 forms and instructions, 28.4111 megabytes of Internal Revenue Code which contained 3.8 million words as of 1 February 2010, numerous tax regulations in the Code of Federal Regulations, and supplementary material in the Internal Revenue Bulletin.  The U.S. requires payers of dividends, interest, and other "reportable payments" to individuals to withhold tax on such payments in certain circumstances.  Some systems provide an upper limit on earnings subject to the tax. As part of such analysis, OECD has developed a definition and system of classification of internal taxes, generally followed below. Other tax systems may isolate the loss, such that business losses can only be deducted against business income tax by carrying forward the loss to later tax years. Adam Smith writes in The Wealth of Nations that. The more details of tax policy there are, the more opportunities for legal tax avoidance and illegal tax evasion. Joseph Stiglitz's Henry George Theorem predicts its sufficiency because—as George also noted—public spending raises land value. ", "Tax Cuts for Whom? User fees, such as those charged for use of parks or other government-owned facilities. Additional information can be obtained at the Federation of Tax Administrators website. First, the amount of tax revenue raised at the extreme tax rates of 0% and 100% is considered. Torvik, 2009 in Commission on Capital Flight from Developing Countries, 2009: Tax Havens and Development, 'Doing Business 2013', World Bank/IFC 2013. For a VAT and sales tax of identical rates, the total tax paid is the same, but it is paid at differing points in the process.  Thus, a tax on the sale of the property would be considered an indirect tax, whereas the tax on simply owning the property itself would be a direct tax. Examples include tuition at public universities and fees for utilities provided by local governments. The object is to reduce the release of carbon into the atmosphere. Sales taxes are levied when a commodity is sold to its final consumer. This type of tax is called a Pigovian tax, after economist Arthur Pigou.  Demand for specific land is dependent on nature, but even more so on the presence of communities, trade, and government infrastructure, particularly in urban environments. Historically, taxes on the poor supported the nobility; modern social-security systems aim to support the poor, the disabled, or the retired by taxes on those who are still working. The classic ways of cheating a tariff are smuggling or declaring a false value of goods. The question of whether they are generally progressive or regressive is a subject of much current debate. The author found tax revenue as a percentage of GDP varying greatly around a global average of 19%. Classes of Income-tax authorities: The following are the classes of income-tax authorities . Compulsory taxation of individuals, such as income tax, is often justified on grounds including territorial sovereignty, and the social contract. The purpose of taxation is to provide for government spending without inflation. In the case of employment income the amount of withholding tax is often based on an estimate of the employee's final tax liability, determined either by the employee or by the government. Therefore, most economists, especially neoclassical economists, argue that taxation creates market distortion and results in economic inefficiency unless there are (positive or negative) externalities associated with the activities that are taxed that need to be internalized to reach an efficient market outcome. India, a province fabled for its gold, was to supply gold dust equal in value to the very large amount of 4,680 silver talents. The difference between output tax and input tax is payable to the Local Tax Authority. "A general principal–agent setting with non-differentiable mechanisms: Some examples." A notable example is the likin, which became an important revenue source for local governments in the late Qing China.  Under the German system, there are 118 laws, 185 forms, and 96,000 regulations, spending €3.7 billion to collect the income tax. The curve is constructed by thought experiment. For a period of over 150 years from 1695, the government of England levied a window tax, with the result that one can still see listed buildings with windows bricked up in order to save their owner's money. The tax is often imposed based on a deemed disposition of all the individual's property.  The American Revolution's "No taxation without representation" slogan implied this view. The other four-fifths you may keep as seed for the fields and as food for yourselves and your households and your children". Most developed countries operate a wage withholding tax system. In economic terms, taxation transfers wealth from households or businesses to the government. In the United States, there is a growing movement for the replacement of all federal payroll and income taxes (both corporate and personal) with a national retail sales tax and monthly tax rebate to households of citizens and legal resident aliens. The body responsible for administering the tax laws of a particular country or regional or local aut ... Is the income tax act applicable only to residents? Sales taxes, tariffs, property taxes, inheritance taxes, and value-added taxes are different types of ad valorem tax. Malaysia) which reflect a more tax-friendly policy choice. The use of the term 'noncompliance' is used differently by different authors. How countries spend your money, The rise of modern taxation: A new comprehensive dataset of tax introductions worldwide. The manufacturer will then transform the steel into a machine, selling the machine for a higher price to a wholesale distributor. Withholding tax, or a retention tax, is income tax paid to the government by the payer of the income rather than by the recipient of the income. Historically, many taxation breakthroughs took place during wartime. Many systems allow individuals certain personal allowances and other non-business reductions to taxable income, although business deductions tend to be favored over personal deductions. . The terms progressive, regressive, and proportional are used to describe the way the rate progresses from low to high, from high to low, or proportionally. Some levy a flat percentage rate of taxation on personal annual income, but most scale taxes based on annual income amounts.  Some systems also require that employees pay such taxes. On average, high-income countries have tax revenue as a percentage of GDP of around 22%, compared to 18% in middle-income countries and 14% in low-income countries. Energy, water and waste management systems are also common public utilities. the higher an individual's income, the higher the tax paid. See, for example, IRS Form W-2 and CRA Form T4 with respect to employees, and IRS Form 1042 and CRA Form NR4 with respect to payments to foreign persons.  Its morality is based on the Geoist premise that private property is justified for products of labour but not for land and natural resources. Remittance by electronic funds transfer may be required or preferred. Retail organizations contend that such taxes discourage retail sales. If taxpayers could choose which government organizations received their taxes, opportunity cost decisions would integrate their partial knowledge.  Payments of rent may also be subject to withholding tax or may be taxed as business income. The stated purpose is to reduce the environmental impact by repricing. 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. Income tax for the individual for the year is generally determined upon filing a tax return after the end of the year. Defenders of business taxation argue that it is an efficient method of taxing income that ultimately flows to individuals, or that separate taxation of business is justified on the grounds that commercial activity necessarily involves the use of publicly established and maintained economic infrastructure, and that businesses are in effect charged for this use. In addition, taxes are applied to fund foreign aid and military ventures, to influence the macroeconomic performance of the economy (a government's strategy for doing this is called it's fiscal policy; see also tax exemption), or to modify patterns of consumption or employment within an economy, by making some classes of the transaction more or less attractive. is unearned income, and belongs to the community rather than any individual. Consumers have a given number of hours (H) that is divided between work (L) and free time (F = H - L). Authority or agency in a country responsible for collecting tariffs and for controlling the flow of goods, including animals, transports, personal, and hazardous items, into and out of a country. States and their functional equivalents throughout history have used the money provided by taxation to carry out many functions. , The Rosetta Stone, a tax concession issued by Ptolemy V in 196 BC and written in three languages "led to the most famous decipherment in history—the cracking of hieroglyphics".. This increase was greatest in England, Peter Mathias and Patrick O'Brien found that the tax burden increased by 85% over this period. Armoires, hutches, and wardrobes were employed to evade taxes on doors and cabinets. In some, recovery is made by filing a tax return for the year in which the income was received. 10 of 2007, 9 of 2008, 19 of 2009, 22 of 2011, 8 of 2012, 18 of 2013 and 08 of 2014. Van Der Graaf, Rieke, and Johannes J. M. Van Delden. Such states tend to have a moderate to a large amount of tourism or inter-state travel that occurs within their borders, allowing the state to benefit from taxes from people the state would otherwise not tax. 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