A revenue stamp, tax stamp, duty stamp or fiscal stamp is a adhesive label used to collect taxes or fees on documents, alcoholic drinks and medicines, playing cards, hunting licenses, firearm registration, many other things. Businesses purchase the stamps from the government, attach them to taxed items as part of putting the items on sale, or in the case of documents, as part of filling out the form. Revenue stamps look similar to postage stamps, in some countries and time periods it has been possible to use postage stamps for revenue purposes. Revenue stamps are stamps used to collect fees, they are issued by governments and local, by official bodies of various kinds. They take many forms and may be gummed and ungummed, perforated or imperforate, printed or embossed, of any size. In many countries, they are as detailed in their design as banknotes; the high value of many revenue stamps means that they may contain security devices to prevent counterfeiting. The Revenue Society has defined revenue stamps as "...stamps, whether impressed, adhesive or otherwise, issued by or on behalf of International, National or Local Governments, their Licensees or Agents, indicate that a tax, duty or fee has been paid or prepaid or that permission has been granted."
In the Ottoman empire, Damga resmi was in use by the sixteenth century. Records of tax revenue from stamps for silk provide evidence of changes in silk production over time; the use of revenue stamps goes back further than that of postage stamps. Their use became widespread in the 19th century inspired by the success of the postage stamp, motivated by the desire to streamline government operations, the presence of a revenue stamp being an indication that the item in question had paid the necessary fees. Revenue stamps have become less seen in the 21st century, with the rise of computerization and the ability to use numbers to track payments accurately. There are a great many kinds of revenue stamps in the world, it is that many remain unrecorded. Both national and local entities have issued them. Governments have sometimes combined the functions of revenue stamps. In the former British Empire, such stamps were inscribed "Postage and Revenue" to reflect their dual function. Other countries have allowed revenue stamps to be used for postage or vice versa.
A revenue stamp authorized subsequently for postal use is known as a postal fiscal. Bhutan, for instance, authorized the use of revenue stamps for postal purposes from 1955 until the first proper postage stamps of the country were issued in 1962. In the Stanley Gibbons catalog, this type of stamp has an F prefix. While revenue stamps resemble postage stamps, they are not intended for use on mail and therefore do not receive a postal cancellation; some countries such as Great Britain have issued stamps valid for both postage and revenue, but this practice is now rare. Many different methods have been used to cancel revenue stamps, including pen cancels, inked handstamps, embossing, hole punching or tearing. From around 1900, United States revenue stamps were required to be mutilated by cutting, after being affixed to documents, in addition to being cancelled in ink. A class of office equipment was created to achieve this which became known as "stamp mutilators". Revenue stamps were once collected by philatelists and given the same status as postage stamps in stamp catalogues and at exhibitions.
After World War One, they declined in popularity due to being excluded from catalogues as the number of postage stamps issued rose and crowded revenues out. The lowest point in revenue philately was during the middle years of the twentieth century. A Stanley Gibbons children's stamp album from the 1950s warned in its introduction: "Since Philately is the collecting of stamps that are employed in connection with the Posts, do not put in your album fiscals, telegraph stamps, tobacco-tax labels and other such strange things as are found in some collections." This is not a definition of philately. More revenue philately has become popular again and now has its own FIP Commission and is an approved category in FIP endorsed stamp exhibitions. Many catalogues have been issued by specialist publishers and dealers but revenue stamps still do not feature in some of the most popular catalogues, for instance by Stanley Gibbons and Michel, unless they are revenue and postage stamps. However, both the standard Scott and the Scott Specialised United States catalogue feature US revenue stamps.
The leading catalogue for revenue stamps of the United Kingdom, the British Commonwealth and several European countries is the Barefoot Catalogue. One of the earliest uses of revenue stamps was to pay Court Fees. Stamps were used in the Indian feudal states as early as 1797 50 years before the first postal stamps. Although India is only one of several countries that have used tax stamps on legal documents, it was one of the most prolific users; the practice is entirely stopped now due to the prevalence of forgeries which cost the issuing government revenue. The tax on documents commonly known as stamp duty, is one of the oldest uses of revenue stamps being invented in Spain, introduced in the Netherlands in the 1620s reaching France in 1651 and England in 1694. Governments enforce the payment of the tax by making unstamped documents unenforcable in court; the tax has been applied to contracts, tenancy agree
Tax noncompliance is a range of activities that are unfavorable to a government's tax system. This may include tax avoidance, tax reduction by legal means, tax evasion, the criminal non-payment of tax liabilities; the use of the term'noncompliance' is used differently by different authors. Its most general use describes non-compliant behaviors with respect to different institutional rules resulting in what Edgar L. Feige calls unobserved economies. Non-compliance with fiscal rules of taxation gives rise to unreported income and a tax gap that Feige estimates to be in the neighborhood of $500 billion annually for the United States. In the United States, the use of the term'noncompliance' refers only to illegal misreporting. Laws known as a General Anti-Avoidance Rule statutes which prohibit "tax aggressive" avoidance have been passed in several developed countries including the United States, Australia, New Zealand, South Africa and Hong Kong. In addition, judicial doctrines have accomplished the similar purpose, notably in the United States through the "business purpose" and "economic substance" doctrines established in Gregory v. Helvering.
Though the specifics may vary according to jurisdiction, these rules invalidate tax avoidance, technically legal but not for a business purpose or in violation of the spirit of the tax code. Related terms for tax avoidance include tax sheltering. Individuals that do not comply with tax payment include tax protesters and tax resisters. Tax protesters attempt to evade the payment of taxes using alternative interpretations of the tax law, while tax resisters refuse to pay a tax for conscientious reasons. Tax protesters believe that taxation under the Federal Reserve is unconstitutional, while tax resisters are more concerned with not paying for particular government policies that they oppose; because taxation is perceived as onerous, governments have struggled with tax noncompliance since the earliest of times. The use of the terms tax avoidance and tax evasion can vary depending on the jurisdiction. In general, the term "evasion" applies to "avoidance" to actions within the law; the term "mitigation" is used in some jurisdictions to further distinguish actions within the original purpose of the relevant provision from those actions that are within the letter of the law, but do not achieve its purpose.
As the difference between the two concepts is becoming less clear, law professor Allison Christians deplores the condition that morality is being cited as a criterion instead of the rule of law. An avoidance/evasion distinction along the lines of the present distinction has long been recognised but at first there was no terminology to express it. In 1860 Turner LJ suggested evasion/contravention: Fisher v Brierly. In 1900 the distinction was noted as two meanings of the word "evade": Bullivant v AG; the technical use of the words avoidance/evasion in the modern sense originated in the US where it was well established by the 1920s. It can be traced to Oliver Wendell Holmes in Wisconsin, it was slow to be accepted in the United Kingdom. By the 1950s, knowledgeable and careful writers in the UK had come to distinguish the term "tax evasion" from "avoidance". However, in the UK at least, "evasion" was used in the sense of avoidance, in law reports and elsewhere, at least up to the 1970s. Now that the terminology has received official approval in the UK this usage should be regarded as erroneous.
But now it is helpful to use the expressions "legal avoidance" and "illegal evasion", to make the meaning clearer. In the United States "tax evasion" is evading the assessment or payment of a tax, legally owed at the time of the criminal conduct. Tax evasion is criminal, has no effect on the amount of tax owed, although it may give rise to substantial monetary penalties. By contrast, the term "tax avoidance" describes lawful conduct, the purpose of, to avoid the creation of a tax liability in the first place. Whereas an evaded tax remains a tax owed, an avoided tax is a tax liability that has never existed. For example, consider two businesses, each of which have a particular asset, worth far more than its purchase price. Business One underreports its gain. In this instance, tax is due. Business One has engaged in tax evasion, criminal. Business Two consults with a tax advisor and discovers that the business can structure a sale as a "like-kind exchange" for other real estate that the business can use.
In this instance, no tax is due of the provisions of section 1031 of the Internal Revenue Code. Business Two has engaged in tax avoidance, within the law. In the above example, tax may or may not be due when the second property is sold. Whether and how much tax will be due will depend on circumstances and the state of the law at the time; the United Kingdom and jurisdictions following the UK approach have adopted the evasion/avoidance terminology as used in the United States: evasion is a criminal attempt to avoid paying tax owed while avoidance is an attempt to use the law to reduce taxes owed. There is, however, a further distinction drawn between tax mitigation. Tax avoidance is a course of action designed to conflict with or defeat the evident intention of Parliament: IRC v Willoughby. Tax mitigation is conduct which reduces tax liabilities without "tax avoidance" (not contrary
Tax avoidance is the legal usage of the tax regime in a single territory to one's own advantage to reduce the amount of tax, payable by means that are within the law. Tax sheltering is similar, although unlike tax avoidance tax sheltering is not legal. Tax havens are jurisdictions. While forms of tax avoidance which use tax laws in ways not intended by governments may be considered legal, it is never considered moral in the court of public opinion and in journalism. Many corporations and businesses which take part in the practice experience a backlash, either from their active customers or online. Conversely, benefiting from tax laws in ways which were intended by governments is sometimes referred to as "tax planning"; the World Bank's World Development Report 2019 on the future of work supports increased government efforts to curb tax avoidance as part of a new social contract focused on human capital investments and expanded social protection. Tax mitigation, "tax aggressive", "aggressive tax avoidance" or "tax neutral" schemes refer to multi-territory schemes that fall into the grey area between commonplace and well-accepted tax avoidance and evasion, but are viewed as unethical if they are involved in profit-shifting from high-tax to low-tax territories and territories recognised as tax havens.
Since 1995, trillions of dollars have been transferred from OECD and developing countries into tax havens using these schemes. Laws known as a General Anti-Avoidance Rule statutes which prohibit "tax aggressive" avoidance have been passed in several developed countries including Canada, New Zealand, South Africa, Hong Kong and the United Kingdom. In addition, judicial doctrines have accomplished the similar purpose, notably in the United States through the "business purpose" and "economic substance" doctrines established in Gregory v. Helvering and in the UK through the Ramsay case. Though the specifics may vary according to jurisdiction, these rules invalidate tax avoidance, technically legal but not for a business purpose or in violation of the spirit of the tax code. Related terms for tax avoidance include tax sheltering; the term avoidance has been used in the tax regulations of some jurisdictions to distinguish tax avoidance foreseen by the legislators from tax avoidance which exploits loopholes in the law such as like-kind exchanges.
The United States Supreme Court has stated that "The legal right of an individual to decrease the amount of what would otherwise be his taxes or altogether avoid them, by means which the law permits, cannot be doubted." Tax evasion, on the other hand, is the general term for efforts by individuals, corporations and other entities to evade taxes by illegal means. Both tax evasion and some forms of tax avoidance can be viewed as forms of tax noncompliance, as they describe a range of activities that are unfavorable to a state's tax system. An anti-avoidance measure is a rule that prevents the reduction of tax by legal arrangements, where those arrangements are put in place purely to reduce tax, would not otherwise be regarded as a reasonable course of action. A company may choose to avoid taxes by establishing their company or subsidiaries in an offshore jurisdiction. Individuals may avoid tax by moving their tax residence to a tax haven, such as Monaco, or by becoming a perpetual traveler, they may reduce their tax by moving to a country with lower tax rates.
However, a small number of countries tax their citizens on their worldwide income regardless of where they reside. As of 2012, only the United States and Eritrea have such a practice, whilst Finland, Hungary and Spain apply it in limited circumstances. In cases such as the US, taxation cannot be avoided by transferring assets or moving abroad; the United States is unlike all other countries in that its citizens and permanent residents are subject to U. S. federal income tax on their worldwide income if they reside temporarily or permanently outside the United States. U. S. citizens therefore cannot avoid U. S. taxes by emigrating from the U. S. According to Forbes magazine some citizens choose to give up their United States citizenship rather than be subject to the U. S. tax system. S. citizens who reside outside the U. S. may be able to exclude some salaried income earned overseas from income in computing the U. S. federal income tax. The 2015 limit on the amount that can be excluded is US$100,800.
In addition, taxpayers can deduct certain foreign housing amounts. They may be entitled to exclude from income the value of meals and lodging provided by their employer; some American parents don’t register their children’s birth abroad with American authorities, because they do not want their children to be required to report all earnings to the IRS and pay American taxes for their entire lives if they never visit the United States. Most countries impose taxes on income earned or gains realized within that country regardless of the country of residence of the person or firm. Most countries have entered into bilateral double taxation treaties with many other countries to avoid taxing nonresidents twice—once where the income is earned and again in the country of residence —however, there are few double-taxation treaties with countries regarded as tax havens. To avoid tax, it is not enough to move one's assets to a
Tax resistance is the refusal to pay tax because of opposition to the government, imposing the tax, or to government policy, or as opposition to taxation in itself. Tax resistance is a form of direct action and, if in violation of the tax regulations a form of civil disobedience. Examples of tax resistance campaigns include those advocating home rule, such as the Salt March led by Mahatma Gandhi, those promoting women's suffrage, such as the Women's Tax Resistance League. War tax resistance is the refusal to pay some or all taxes that pay for war, may be practiced by conscientious objectors, pacifists, or those protesting against a particular war. Tax resisters are distinct from "tax protesters," who deny that the legal obligation to pay taxes exists or applies to them. Tax resisters may accept that some law commands them to pay taxes but they still choose to resist taxation; the earliest and most widespread forms of taxation were the corvée and tithe, both of which can be traced back to the beginning of civilization.
The corvée was state-imposed forced labour on peasants too poor to pay other forms of taxation. Low taxes helped the Roman aristocracy increase their wealth, which equalled or exceeded the revenues of the central government. An emperor sometimes replenished his treasury by confiscating the estates of the "super-rich", but in the period, the resistance of the wealthy to paying taxes was one of the factors contributing to the collapse of the Empire; because some believe taxation is oppressive, governments have always struggled with tax noncompliance and resistance. Indeed, it has been suggested that tax resistance played a significant role in the collapse of several empires, including the Egyptian, Roman and Aztec. Reports of collective tax refusal include Zealots resisting the Roman poll tax during the 1st century AD, culminating in the First Jewish–Roman War. Other historic events that originated as tax revolts include the Magna Carta, the American Revolution and the French Revolution. War tax resisters highlight the relationship between income tax and war.
In Britain income tax was introduced in 1799, to pay for weapons and equipment in preparation for the Napoleonic wars, whilst the US federal government imposed their first income tax in the Revenue Act of 1861 to help pay for the American Civil War. Tax resisters aims. For example, Henry David Thoreau and William Lloyd Garrison drew inspiration from the American Revolution and the stubborn pacifism of the Quakers; some tax resisters refuse to pay tax because their conscience will not allow them to fund war, whilst others resist tax as part of a campaign to overthrow the government. Tax resisters have been violent revolutionaries like John Adams and pacifist nonresistants like John Woolman. Leo Tolstoy, a Christian anarchist, urged government leaders to change their attitude to war and citizens to taxes: If only each King and President understood that his work of directing armies is not an honourable and important duty, as his flatterers persuade him it is, but a bad and shameful act of preparation for murder — and if each private individual understood that the payment of taxes wherewith to hire and equip soldiers, above all, army-service itself, are not matters of indifference, but are bad and shameful actions by which he not only permits but participates in murder — this power of Emperors and Presidents, which now arouses our indignation, which causes them to be murdered, would disappear of itself.
As an example of the numerous tax resistance methods, below are some of the legal and illegal techniques used by war tax resisters: A resister may lower their tax payments by using legal tax avoidance techniques. Some taxpayers include protest letters along with their tax forms. Others pay in a protesting form — for instance, by writing their cheque on a toilet seat or a mock-up of a missile. Others pay in a way that creates inconvenience for the collector — for instance, by paying the entire amount in low-denomination coins; this last method is less effective in countries where small coins are legal tender only in limited amounts, allowing the tax authority to reject such payments. Other tax resisters change their lifestyles. For instance. For example, UK citizens pay no income tax. In the US the equivalent tax-free annual income is the sum of the standard deduction and personal exemption, though many deductions and credits allow people to earn much more than this and still avoid income tax. Opposition to war has led some, such as Ammon Hennacy and Ellen Thomas, to a form of tax resistance in which they reduce their income below the tax threshold by taking up a simple living lifestyle.
These individuals believe that their government is engaged in immoral, unethical or destructive activities such as war, paying taxes funds these activities. These methods differ from tax evasion in that they stay within the tax laws, they differ from tax avoidance in that the goal is to pay as little tax as possible rather than to keep as much post-tax income as possible. A resister may decide to reduce their tax paid thro
A progressive tax is a tax in which the average tax rate increases as the taxable amount increases. The term "progressive" refers to the way the tax rate progresses from low to high, with the result that a taxpayer's average tax rate is less than the person's marginal tax rate; the term can be applied to a tax system as a whole. Progressive taxes are imposed in an attempt to reduce the tax incidence of people with a lower ability to pay, as such taxes shift the incidence to those with a higher ability-to-pay; the opposite of a progressive tax is a regressive tax, where the average tax rate or burden decreases as an individual's ability to pay increases. The term is applied in reference to personal income taxes, in which people with lower income pay a lower percentage of that income in tax than do those with higher income, it can apply to adjustments of the tax base by using tax exemptions, tax credits, or selective taxation that creates progressive distribution effects. For example, a wealth or property tax, a sales tax on luxury goods, or the exemption of sales taxes on basic necessities, may be described as having progressive effects as it increases the tax burden of higher income families and reduces it on lower income families.
Progressive taxation is suggested as a way to mitigate the societal ills associated with higher income inequality, as the tax structure reduces inequality, but economists disagree on the tax policy's economic and long-term effects. One study suggests progressive taxation can be positively associated with happiness, the subjective well-being of nations and citizen satisfaction with public goods, such as education and transportation. In the early days of the Roman Republic, public taxes consisted of assessments on owned wealth and property; the tax rate under normal circumstances was 1% of property value, could sometimes climb as high as 3% in situations such as war. These taxes were levied against land and other real estate, animals, personal items and monetary wealth. By 167 BC, Rome no longer needed to levy a tax against its citizens in the Italian peninsula, due to the riches acquired from conquered provinces. After considerable Roman expansion in the 1st century, Augustus Caesar introduced a wealth tax of about 1% and a flat poll tax on each adult, this made the tax system less progressive.
The first modern income tax was introduced in Britain by Prime Minister William Pitt the Younger in his budget of December 1798, to pay for weapons and equipment for the French Revolutionary War. Pitt's new graduated income tax began at a levy of 2 old pence in the pound on incomes over £60 and increased up to a maximum of 2 shillings on incomes of over £200. Pitt hoped that the new income tax would raise £10 million, but actual receipts for 1799 totalled just over £6 million. Pitt's progressive income tax was levied from 1799 to 1802, when it was abolished by Henry Addington during the Peace of Amiens. Addington had taken over as prime minister in 1801, after Pitt's resignation over Catholic Emancipation; the income tax was reintroduced by Addington in 1803 when hostilities recommenced, but it was again abolished in 1816, one year after the Battle of Waterloo. The United Kingdom income tax was reintroduced by Sir Robert Peel in the Income Tax Act 1842. Peel, as a Conservative, had opposed income tax in the 1841 general election, but a growing budget deficit required a new source of funds.
The new income tax, based on Addington's model, was imposed on incomes above £150. Although this measure was intended to be temporary, it soon became a fixture of the British taxation system. A committee was formed in 1851 under Joseph Hume to investigate the matter, but failed to reach a clear recommendation. Despite the vociferous objection, William Gladstone, Chancellor of the Exchequer from 1852, kept the progressive income tax, extended it to cover the costs of the Crimean War. By the 1860s, the progressive tax had become a grudgingly accepted element of the English fiscal system. In the United States, the first progressive income tax was established by the Revenue Act of 1862; the act was signed into law by President Abraham Lincoln, replaced the Revenue Act of 1861, which had imposed a flat income tax of 3% on incomes above $800. The Sixteenth Amendment to the United States Constitution, adopted in 1913, permitted Congress to levy all income taxes without any apportionment requirement.
By the mid-20th century, most countries had implemented some form of progressive income tax. Indices such as the Suits index, Gini coefficient, Kakwani index, Theil index, Atkinson index, Hoover index have been created to measure the progressivity of taxation, using measures derived from income distribution and wealth distribution; the rate of tax can be expressed in two different ways. In most progressive tax systems, both rates will rise as the amount subject to taxation rises, though there may be ranges where the marginal rate will be constant; the average tax rate of a tax payer will be lower than the marginal tax rate. In a system with refundable tax credits, or income-tested welfare benefits, it is possible for marginal rates to fall as income rises, at lower levels of income. Tax laws might not be indexed to inflation. For example, some tax laws may ignore inflation completely. In a progressive tax system, failure to index the brackets to inflation will result in effective tax increases, as inflation
Tax evasion is the illegal evasion of taxes by individuals and trusts. Tax evasion entails taxpayers deliberately misrepresenting the true state of their affairs to the tax authorities to reduce their tax liability and includes dishonest tax reporting, such as declaring less income, profits or gains than the amounts earned, or overstating deductions. Tax evasion is an activity associated with the informal economy. One measure of the extent of tax evasion is the amount of unreported income, the difference between the amount of income that should be reported to the tax authorities and the actual amount reported. In contrast, tax avoidance is the legal use of tax laws to reduce one's tax burden. Both tax evasion and avoidance can be viewed as forms of tax noncompliance, as they describe a range of activities that intend to subvert a state's tax system, although such classification of tax avoidance is not indisputable, given that avoidance is lawful, within self-creating systems. In 1968, Nobel laureate economist Gary Becker first theorized the economics of crime, on the basis of which authors M.
G. Allingham and A. Sandmo produced, in 1972, an economic model of tax evasion; this model deals with the evasion of income tax, the main source of tax revenue in developed countries. According to the authors, the level of evasion of income tax depends on the detection probability and the level of punishment provided by law; the literature's theoretical models are elegant in their effort to identify the variables to affect non-compliance. Alternative specifications, yield conflicting results concerning both the signs and magnitudes of variables believed to affect tax evasion. Empirical work is required to resolve the theoretical ambiguities. Income tax evasion appears to be positively influenced by the tax rate, the unemployment rate, the level of income and dissatisfaction with government; the U. S. Tax Reform Act of 1986 appears to have reduced tax evasion in the United States. In a 2017 study Alstadsæter et al. concluded based on random stratified audits and leaked data that occurrence of tax evasion rises as amount of wealth rises and that the richest are about 10 times more than average people to engage in tax avoidance.
Customs duties are an important source of revenue in developing countries. Importers purport to evade customs duty by under-invoicing and misdeclaration of quantity and product-description; when there is ad valorem import duty, the tax base can be reduced through underinvoicing. Misdeclaration of quantity is more relevant for products with specific duty. Production description is changed to match a H. S. Code commensurate with a lower rate of duty. Smuggling is exportation of foreign products by illegal means. Smuggling is resorted to for total evasion of customs duties, as well as for the importation of contraband. A smuggler does not have to pay any customs duty since smuggled products are not routed through customs-tax compliant customs ports, are therefore not subjected to declaration and, by extension, to the payment of duties and taxes. During the second half of the 20th century, value-added tax emerged as a modern form of consumption tax throughout the world, with the notable exception of the United States.
Producers who collect VAT from consumers may evade tax by under-reporting the amount of sales. The US has no broad-based consumption tax at the federal level, no state collects VAT. Canada uses both a VAT at sales taxes at the provincial level. In addition, most jurisdictions which levy a VAT or sales tax legally require their residents to report and pay the tax on items purchased in another jurisdiction; this means that consumers who purchase something in a lower-taxed or untaxed jurisdiction with the intention of avoiding VAT or sales tax in their home jurisdiction are technically breaking the law in most cases. This is prevalent in federal countries like the US and Canada where sub-national jurisdictions charge varying rates of VAT or sales tax. In liberal democracies, a fundamental problem with inhibiting evasion of local sales taxes is that liberal democracies, by their nature, have few border controls between their internal jurisdictions. Therefore, it is not cost-effective to enforce tax collection on low-value goods carried in private vehicles from one jurisdiction to another with a different tax rate.
However, sub-national governments will seek to collect sales tax on high-value items such as cars. Dennis Kozlowski is a notable figure for his alleged evasion of sales tax. What started as an investigation into Kozlowski's failure to declare art purchases for the purpose of evading New York state sales taxes led to Kozlowski's conviction and incarceration on more serious charges related to the misappropriation of funds during his tenure as CEO of Tyco International; the level of evasion depends on a number of factors, including the amount of money a person or a corporation possesses. Efforts to evade income tax decline when the amounts involved are lower; the level of evasion depends on the efficiency of the tax administration. Corruption by tax officials make it difficult to control evasion. Tax administrations use various means to reduce evasion and increase the level of enforcement: for example, privatization of tax enforcement or tax farming. In 2011 HMRC, the UK tax collection agency, stated that it would continue to crack down on tax evasion, with the goal of collecting £18 billion in revenue before 2015.
In 2010, HMRC began a voluntary amnesty program that targeted middle-
A tax is a mandatory financial charge or some other type of levy imposed upon a taxpayer by a governmental organization in order to fund various public expenditures. A failure to pay, along with resistance to taxation, is punishable by law. Taxes may be paid in money or as its labour equivalent. Most countries have a tax system in place to pay for public, common or agreed national needs and government functions; some levy a flat percentage rate of taxation on personal annual income, but most scale taxes based on annual income amounts. Most countries charge a tax both on corporate income and dividends. Countries or subunits also impose wealth taxes, property taxes, sales taxes, value-added taxes, payroll taxes or tarrifs; the legal definition, the economic definition of taxes differ in some ways such as economists do not regard many transfers to governments as taxes. For example, some transfers to the public sector are comparable to prices. Examples include, tuition at public universities, fees for utilities provided by local governments.
Governments obtain resources by "creating" money and coins, through voluntary gifts, by imposing penalties, by borrowing, by confiscating wealth. From the view of economists, a tax is a non-penal, yet compulsory transfer of resources from the private to the public sector, levied on a basis of predetermined criteria and without reference to specific benefit received. In modern taxation systems, governments levy taxes in money; the method of taxation and the government expenditure of taxes raised is highly debated in politics and economics. Tax collection is performed by a government agency such as the Ghana Revenue Authority, Canada Revenue Agency, the Internal Revenue Service in the United States, Her Majesty's Revenue and Customs in the United Kingdom or Federal Tax Service in Russia; when taxes are not paid, the state may impose civil penalties or criminal penalties on the non-paying entity or individual. The levying of taxes aims to raise revenue to fund governing or to alter prices in order to affect demand.
States and their functional equivalents throughout history have used money provided by taxation to carry out many functions. Some of these include expenditures on economic infrastructure, scientific research and the arts, public works, data collection and dissemination, public insurance, the operation of government itself. A government's ability to raise taxes is called its fiscal capacity; when expenditures exceed tax revenue, a government accumulates debt. A portion of taxes may be used to service past debts. Governments use taxes to fund welfare and public services; these services can include education systems, pensions for the elderly, unemployment benefits, public transportation. Energy and waste management systems are common public utilities. According to the proponents of the chartalist theory of money creation, taxes are not needed for government revenue, as long as the government in question is able to issue fiat money. According to this view, the purpose of taxation is to maintain the stability of the currency, express public policy regarding the distribution of wealth, subsidizing certain industries or population groups or isolating the costs of certain benefits, such as highways or social security.
Effects can be divided in two fundamental categories: Taxes cause an income effect because they reduce purchasing power to taxpayers. Taxes cause a substitution effect when taxation causes a substitution between taxed goods and untaxed goods. If we consider, for instance, two normal goods, x and y, whose prices are px and py and an individual budget constraint given by the equation xpx + ypy = Y, where Y is the income, the slope of the budget constraint, in a graph where is represented good x on the vertical axis and good y on the horizontal axes, is equal to -py/px; the initial equilibrium is in the point, in which budget constraint and indifference curve are tangent, introducing an ad valorem tax on the y good, the budget constraint's slope becomes equal to -py/px. The new equilibrium is now in the tangent point with a lower indifferent curve; as can be noticed the tax's introduction causes two consequences: It changes the consumers' real income It raises the relative price of y good. The income effect shows the variation of y good quantity given by the change of real income.
The substitution effect shows the variation of y good determined by relative prices' variation. This kind of taxation can be considered distortionary. Another example can be the Introduction of an income lump-sum tax, with a parallel shift downward of the budget constraint, can be produced a higher revenue with the same loss of consumers' utility compared with the property tax case, from another point of view, the same revenue can be produced with a lower utility sacrifice; the lower utility or the lower revenue given by a distortionary tax are called excess pressure. The same result, reached with an income lump-sum tax, can be obtained with these following types of taxes (all of them cause only a budget constraint's shift without causi