1.
Income tax
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An income tax is a tax imposed on individuals or entities that varies with the income or profits of the taxpayer. Many jurisdictions refer to income tax on business entities as companies tax or corporate tax, partnerships generally are not taxed, rather, the partners are taxed on their share of partnership items. Tax may be imposed by both a country and subdivisions, most jurisdictions exempt locally organized charitable organizations from tax. Income tax generally is computed as the product of a tax rate times taxable income, the tax rate may increase as taxable income increases. Taxation rates may vary by type or characteristics of the taxpayer, capital gains may be taxed at different rates than other income. Credits of various sorts may be allowed that reduce tax, some jurisdictions impose the higher of an income tax or a tax on an alternative base or measure of income. Taxable income of resident in the jurisdiction is generally total income less income producing expenses. Generally, only net gain from sale of property, including goods held for sale, is included in income, Income of a corporations shareholders usually includes distributions of profits from the corporation. Deductions typically include all income producing or business expenses including an allowance for recovery of costs of business assets, many jurisdictions allow notional deductions for individuals, and may allow deduction of some personal expenses. Most jurisdictions either do not tax income earned outside the jurisdiction or allow a credit for taxes paid to other jurisdictions on such income, nonresidents are taxed only on certain types of income from sources within the jurisdictions, with few exceptions. Most jurisdictions require self-assessment of the tax and require payers of some types of income to withhold tax from those payments, advance payments of tax by taxpayers may be required. Taxpayers not timely paying tax owed are generally subject to significant penalties, for most of the history of civilization, these preconditions did not exist, and taxes were based on other factors. Taxes on wealth, social position, and ownership of the means of production were all common, the first income tax is generally attributed to Egypt. In the early days of the Roman Republic, public taxes consisted of modest assessments on owned wealth, the tax rate under normal circumstances was 1% and sometimes would climb as high as 3% in situations such as war. These modest taxes were levied against land, homes and other estate, slaves, animals, personal items. The more a person had in property, the tax they paid. In the year 10 AD, Emperor Wang Mang of the Xin Dynasty instituted an unprecedented income tax, at the rate of 10 percent of profits, for professionals and skilled labor. He was overthrown 13 years later in 23 AD and earlier policies were restored during the reestablished Han Dynasty which followed, one of the first recorded taxes on income was the Saladin tithe introduced by Henry II in 1188 to raise money for the Third Crusade
Income tax
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William Pitt the Younger introduced a progressive income tax in 1798.
Income tax
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Punch cartoon (1907); illustrates the unpopularity amongst Punch readers of a proposed 1907 income tax by the Labour Party in the United Kingdom.
2.
Tax
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A tax is a financial charge or other levy imposed upon a taxpayer 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 punishable by law. Taxes consist of direct or indirect taxes and may be paid in money or as its labour equivalent, the legal definition and the economic definition of taxes differ in that economists do not regard many transfers to governments as taxes. For example, some transfers to the sector are comparable to prices. Examples include tuition at public universities and fees for utilities provided by local governments, governments also obtain resources by creating money and coins, through voluntary gifts, by imposing penalties, by borrowing, and by confiscating wealth. In modern taxation systems, governments levy taxes in money, but in-kind and corvée taxation are characteristic of traditional or pre-capitalist states, the method of taxation and the government expenditure of taxes raised is often highly debated in politics and economics. Tax collection is performed by a government agency such as the Canada Revenue Agency, when taxes are not fully 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 and/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. A governments 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 also use taxes to fund welfare and public services. These services can include education systems, pensions for the elderly, unemployment benefits, energy, water and waste management systems are also common public utilities. A tax effectively changes relative prices of products and they have therefore sought to identify the kind of tax system that would minimize this distortion. Governments use different kinds of taxes and vary the tax rates, 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. A states tax system often reflects its communal values and the values of those in current political power. To create a system of taxation, a state must make choices regarding the distribution of the tax burden—who will pay taxes and how much they will pay—and how the taxes collected will be spent. In democratic nations where the public elects those in charge of establishing or administering the tax system, in countries where the public does not have a significant amount of influence over the system of taxation, that system may reflect more closely the values of those in power. All large businesses incur administrative costs in the process of delivering revenue collected from customers to the suppliers of the goods or services being purchased. Taxation is no different, the resource collected from the public through taxation is always greater than the amount which can be used by the government, the difference is called the compliance cost and includes the labour cost and other expenses incurred in complying with tax laws and rules
Tax
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Pieter Brueghel the Younger, The tax collector's office, 1640
Tax
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Egyptian
peasants seized for
non-payment of taxes. (
Pyramid Age)
3.
Tax exemption
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Tax exemption refers to a monetary exemption which reduces taxable income. Tax exempt status can provide relief from taxes, reduced rates. Examples include exemption of charitable organizations from property taxes and income taxes, veterans, tax exemption generally refers to a statutory exception to a general rule rather than the mere absence of taxation in particular circumstances, otherwise known as an exclusion. Tax exemption also refers to removal from taxation of an item rather than a deduction. International duty free shopping may be termed tax-free shopping, in tax-free shopping, the goods are permanently taken outside the jurisdiction, thus paying taxes is not necessary. Tax-free shopping is also found in ships, airplanes and other vessels traveling between countries, tax-free shopping is usually available in dedicated duty-free shops. However, any transaction may be duty-free, given that the goods are presented to the customs when exiting the country, in such a scenario, a sum equivalent to the tax is paid, but reimbursed on exit. More common in Europe, tax-free is less frequent in the United States, however, current European Union rules prohibit most intra-EU tax-free trade, with the exception of certain special territories outside the tax area. Some jurisdictions allow for a specific monetary reduction of the tax base, for example, the U. S. Federal and many state tax systems allow a deduction of a specified dollar amount for each of several categories of personal exemptions. Similar amounts may be called personal allowances, some systems may provide thresholds at which such exemptions or allowances are phased out or removed. Some governments grant broad exclusions from all taxation for certain types of organization, the exclusions may be restricted to entities having various characteristics. The exclusions may be inherent in definitions or restrictions outside the tax law itself, there are several different approaches used in granting exemption to organizations. Different approaches may be used within a jurisdiction or especially within sub-jurisdictions, some jurisdictions grant an overall exemption from taxation to organizations meeting certain definitions. The United Kingdom, for example, provides an exemption from rates and this overall exemption may be somewhat limited by limited scope for taxation by the jurisdiction. Some jurisdictions may levy only a type of tax, exemption from only a particular tax. Some jurisdictions provide for exemption only from certain taxes, the United States exempts certain organizations from Federal income taxes, but not from various excise or most employment taxes. Many tax systems provide complete exemption from tax for recognized charitable organizations, such organizations may include religious organizations, fraternal organizations, public charities, or any of a broad variety of organizations considered to serve public purposes. The U. S. system exempts from Federal and many state income taxes the income of organizations that have qualified for such exemption, the UK generally exempts public charities from business rates, corporation tax, income tax, and certain other taxes
Tax exemption
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Taxation
4.
Progressive tax
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A progressive tax is a tax in which the tax rate increases as the taxable amount increases. The term progressive refers to the way the tax rate progresses from low to high, the term can be applied to individual taxes or to a tax system as a whole, a year, multi-year, or lifetime. Progressive taxes are imposed in an attempt to reduce the tax incidence of people with an ability to pay. The opposite of a tax is a regressive tax, where the relative tax rate or burden decreases as an individuals ability to pay increases. The term is applied in reference to personal income taxes. It can also apply to adjustments of the tax base by using tax exemptions, tax credits, Progressive taxation has also been 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, the tax rate under normal circumstances was 1% of property value, and could sometimes climb as high as 3% in situations such as war. These taxes were levied against land, homes and other estate, slaves, animals, personal items. 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. 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. Pitts new graduated income tax began at a levy of 2 old pence in the pound on incomes over £60, Pitt hoped that the new income tax would raise £10 million, but actual receipts for 1799 totalled just over £6 million. Pitts 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 Pitts resignation over Catholic Emancipation. The income tax was reintroduced by Addington in 1803 when hostilities recommenced, 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, the new income tax, based on Addingtons 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, despite the vociferous objection, William Gladstone, Chancellor of the Exchequer from 1852, kept the progressive income tax, and extended it to cover the costs of the Crimean War. By the 1860s, the 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 and this was signed into law by President Abraham Lincoln and repealed the flat tax, which had been brought in under the Revenue Act of 1861
Progressive tax
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A caricature of
William Pitt the Younger collecting the newly introduced income tax.
Progressive tax
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"Tax The Rich" banner at an
IUSY campaign for a
financial transaction tax.
5.
Cost of goods sold
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Cost of goods sold refers to the carrying value of goods sold during a particular period. Costs are associated with particular goods using one of several formulas, including identification, first-in first-out. Costs include all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition, costs of goods made by the business include material, labor, and allocated overhead. The costs of goods not yet sold are deferred as costs of inventory until the inventory is sold or written down in value. Many businesses sell goods that they have bought or produced, when the goods are bought or produced, the costs associated with such goods are capitalized as part of inventory of goods. These costs are treated as an expense in the period the business income from sale of the goods. Determining costs requires keeping records of goods or materials purchased and any discounts on such purchase, in addition, if the goods are modified, the business must determine the costs incurred in modifying the goods. Such modification costs include labor, supplies or additional material, supervision, quality control, Principles for determining costs may be easily stated, but application in practice is often difficult due to a variety of considerations in the allocation of costs. Cost of goods sold may also reflect adjustments, among the potential adjustments are decline in value of the goods, obsolescence, damage, etc. When multiple goods are bought or made, it may be necessary to identify which costs relate to particular goods sold. This may be using an identification convention, such as specific identification of the goods, first-in-first-out. Alternative systems may be used in countries, such as last-in-first-out, gross profit method, retail method. Cost of goods sold may be the same or different for accounting and tax purposes, certain expenses are included in COGS. Expenses that are included in COGS cannot be deducted again as a business expense, depreciation Inventories have a significant effect on profits. A business that makes or buys goods to sell must keep track of inventories of goods under all accounting, Fred buys auto parts and resells them. In 2008, Fred buys $100 worth of parts and he sells parts for $80 that he bought for $30, and has $70 worth of parts left. In 2009, he sells the remainder of the parts for $180, if he keeps track of inventory, his profit in 2008 is $50, and his profit in 2009 is $110, or $160 in total. If he deducted all the costs in 2008, he would have a loss of $20 in 2008, the total is the same, but the timing is much different
Cost of goods sold
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Accounting
6.
Home mortgage interest deduction
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A home mortgage interest deduction allows taxpayers who own their homes to reduce their taxable income by the amount of interest paid on the loan which is secured by their principal residence. Most developed countries do not allow a deduction for interest on personal loans, the Netherlands, Switzerland, and the United States each allow the deduction. In Belgium, Ireland and Sweden, only a part of mortgage interest is deductible. The difference being the deduction is allowed only when the property is not used for the personal use but is used as in any other type of business. However, there may be additional exclusions for passive activity losses, the home ownership rate in Canada was about the same as in the United States in 2008 despite the difference in tax policy. France does not allow a home mortgage interest deduction, in 2007, newly elected President Nicolas Sarkozy proposed creating the deduction as part of his legislative plan for sparking the French economy. The Court noted that the deduction would apply to people who own homes. Home loan interest portion is deductible up to 150000 rupees in a tax year for acquiring or constructing a property, the deduction is available only when the construction is complete or you have possession of the property. Interest of pre-construction period is deductible in five equal instalments, the first instalment is deductible in the year in which construction of property is completed or property acquired. The principal is deductible under section 80C, which has a limit of 150000 rupees, in the Netherlands, all interest payments can be deducted completely for a maximum period of 30 years. However, before deduction the taxable income is increased by a percentage of the property value, still in place currently, the mortgage interest tax deduction is subject to fierce debate, and a political issue during most recent elections. Many reasons for abolishment have been identified, often fuelled by a political ideology, only 18% of the Dutch public support eliminating the mortgage interest deduction entirely. Norway considers any interest paid, whether it is for a mortgage or other debt. The result is a reduction of the tax bill of 25% of all interest paid, the Center Party has proposed reducing the deduction. A deduction of 30 % of interest up until 100000 SEK, the amount was about 10000 SEK per taxpaying person with debts. Under 26 U. S. C. §163 of the Internal Revenue Code, first, the taxpayer must elect to itemize deductions, and the total itemized deductions must exceed the standard deduction. Second, the deduction is limited to interest on debts secured by a residence or a second home. Prior to the Tax Reform Act of 1986, the interest on all loans was deductible
Home mortgage interest deduction
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Taxation
7.
Income tax threshold
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The income tax threshold is the income level at which a person begins paying income taxes. The income tax threshold equates to the, Personal allowance in the UK, which was £9,440 in 2013-14 and £10,000 in 2014-15, basic allowance in Germany, which was €8,004 in 2012. Income tax threshold in France, which was €6,088 in 2012, sum of the standard deduction and personal exemption in the US, which was $9,750 in 2012 for a single person. Basic personal amount in Canada, which was C$10,822 in 2012, tax-free threshold in Australia, which was A$18,200 in 2012-13. Tax-free threshold in Greece, which was €9,545 in 2016, tax-free threshold in Poland, which was €736 in 2013. Minimum wage in Israel, which is ₪4, 825/month, basic income guarantee Tax bracket Taxable income
Income tax threshold
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Taxation
8.
Income tax in Canada
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Income taxes in Canada constitute the majority of the annual revenues of the Government of Canada, and of the governments of the Provinces of Canada. In the fiscal year ending 31 March 2015, the government collected nearly three and a half times more revenue from personal income taxes than it did from corporate income taxes. Tax collection agreements enable different governments to levy taxes through an administration and collection agency. Canadas federal income tax system is administered by the Canada Revenue Agency, Canadian federal income taxes, both personal and corporate are levied under the provisions of the Income Tax Act. Provincial and territorial income taxes are levied under various provincial statutes, the Canadian income tax system is a self-assessment regime. Taxpayers assess their tax liability by filing a return with the CRA by the filing deadline. CRA will then assess the return based on the return filed and on information it has obtained from employers and financial companies, a taxpayer who disagrees with CRAs assessment of a particular return may appeal the assessment. The appeal process starts when a taxpayer formally objects to the CRA assessment, the objection must explain, in writing, the reasons for the appeal along with all the related facts. The objection is then reviewed by the branch of CRA. An appealed assessment may either be confirmed, vacated or varied by the CRA, if the assessment is confirmed or varied, the taxpayer may appeal the decision to the Tax Court of Canada and then to the Federal Court of Appeal. Unlike the United Kingdom and the United States, Canada avoided charging an income tax prior to the First World War. The lack of tax was seen as a key component in Canadas efforts to attract immigrants as Canada offered a lower tax regime compared to almost every other country. The Conservatives opposed income tax as they wanted to attract immigrants primarily from the United Kingdom and the United States, wartime expenses forced the Tories to re-consider their options and in 1918, the wartime government under Sir Robert Borden, imposed a temporary income tax to cover expenses. Despite the new tax the Canadian government ran up considerable debts during the war and were unable to forego income tax revenue after the war ended. With the election of the Liberal government of Prime Minister William Lyon Mackenzie King, much of the National Policy was dismantled, the courts have held that an income tax is the most typical form of direct taxation. Canada levies personal income tax on the income of individuals resident in Canada. After the calendar year, Canadian residents file a T1 Tax and it is due April 30, or June 15 for self-employed individuals and their spouses, or common-law partners. It is important to note, however, that any balance owing is due on or before April 30, outstanding balances remitted after April 30 may be subject to interest charges, regardless of whether the taxpayers filing due date is April 30 or June 15
Income tax in Canada
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Taxation
9.
Salaries tax
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Salaries tax is a type of income tax that is levied in Hong Kong, chargeable on income from any office, employment and pension for a year of assessment arising in or derived from the territory. For purposes of calculating liability, the period of assessment is from April 1 to March 31 of the following year, Salaries tax is also charged on the unrealized capital gain of shares or options granted as part of an employee share scheme that are subject to a vesting period. Events that trigger tax are when the period ends or when the employee leaves Hong Kong. Salaries tax is imposed on any office, employment and pension sourced in Hong Kong, office basically refers to the holding of office as a director of the company resident in Hong Kong. Directors fee is fully taxable in Hong Kong irrespective where the director rendered services in Hong Kong or not, income derived from employment sourced in Hong Kong are taxable in Hong Kong. The source of employment is laid down in the Goepfert Rules and Departmental Interpretation, however, those individuals who visit Hong Kong for not exceeding 60 days will be exempt from paying Salaries Tax. This provision is known as sixty-day rule, employment of a government civil servant is considered sourced in Hong Kong and therefore its income is always fully taxable in Hong Kong. The above-mentioned sixty-day rule shall not be applied to seamen and aircrew, instead, they are bound by stricter conditions for exemption. Pension will be considered to be sourced in Hong Kong if it is managed and controlled in Hong Kong, if the employee does not receive a return, he is required to send the Department a notification of chargeability by 31 July following the year of assessment. The tax is payable directly by the taxpayer, who is obliged to remit provisional salaries tax by instalments based on the previous years liability. Allowances are available for married persons, single parents and various dependents, for the taxation year 2013/14, the rates are, The tax payable is reduced by 75%. Personal assessment is available where a taxpayer is also subject to property tax and/or profit tax. Married couples may opt for joint assessment of their liability, inland Revenue Department Tax treaty Share options Rental value Profit tax Salaries Tax - What you need to know as an employee. Departmental Interpretation and Practice Notes No,10, The Charge to Salaries Tax
Salaries tax
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Salaries tax
10.
Income tax in the United Kingdom
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Taxation in the United Kingdom may involve payments to a minimum of three different levels of government, the central government, devolved national governments and local government. Central government revenues come primarily from income tax, National Insurance contributions, value added tax, corporation tax and fuel duty. In the fiscal year 2014–15, total government revenue was forecast to be £648 billion, or 37.7 per cent of GDP, with net taxes and National Insurance contributions standing at £606 billion. A uniform Land tax, originally was introduced in England during the late 17th century, formed the source of government revenue throughout the 18th century. Income tax was announced in Britain by William Pitt the Younger in his budget of December 1798 and introduced in 1799, to pay for weapons and equipment in preparation for the Napoleonic Wars. Pitts new graduated income tax began at a levy of 2 old pence in the pound on incomes over £60, Pitt hoped that the new income tax would raise £10 million but receipts for 1799 totalled just over £6 million. Income tax was levied under five schedules, Income not falling within those schedules was not taxed. The schedules were, Schedule A Schedule B Schedule C Schedule D Schedule E Later, pitts 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 minister in 1801. The income tax was reintroduced by Addington in 1803 when hostilities recommenced but it was abolished in 1816. Considerable controversy was aroused by the malt, house and windows, the malt tax was easy to collect from brewers, even after it was reduced in 1822, it produced over 10 percent of governments annual revenues through the 1840s. The house tax mostly hit London town houses, the windows tax mostly hit country manors, the 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, the new income tax of 7d in the pound, based on Addingtons model, was imposed on incomes above £150. The war was financed by borrowing large sums at home and abroad, by new taxes and it was implicitly financed by postponing maintenance and repair, and canceling unneeded projects. The government avoided indirect taxes because they raised the cost of living, there was a strong emphasis on being “fair” and being “scientific. ”The public generally supported the heavy new taxes, with minimal complaints. The Treasury rejected proposals for a capital levy, which the Labour Party wanted to use to weaken the capitalists. Instead, there was an excess profits tax, of 50 percent of profits above the prewar level. Excise taxes were added on luxury imports such as automobiles, clocks, there was no sales tax or value added tax
Income tax in the United Kingdom
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Tax revenues as a percentage of GDP for the UK in comparison to the
OECD and the
EU 15.
Income tax in the United Kingdom
–
Taxation in the United Kingdom
Income tax in the United Kingdom
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UK corporate tax revenue as a percentage of GDP compared to the
OECD and the
EU 15.
11.
Income tax in the United States
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In the United States, a tax is imposed on income by the federal government, most state governments, and many local governments. The income tax is determined by applying a tax rate, which may increase as income increases, Individuals and corporations are directly taxable, and estates and trusts may be taxable on undistributed income. In the United States, the payroll tax usually refers to FICA taxes that pay into Social Security and Medicare, while income tax refers to taxes that pay into state. Partnerships are not taxed, but their partners are taxed on their shares of partnership income, residents and citizens are taxed on worldwide income, while nonresidents are taxed only on income within the jurisdiction. Several types of credits reduce tax, and some types of credits may exceed tax before credits, an alternative tax applies at the federal and some state levels. Taxable income is total income less allowable deductions, Individuals may also deduct a personal allowance and certain personal expenses, including home mortgage interest, state taxes, contributions to charity, and some other items. Some deductions are subject to limits, Capital gains are taxable, and capital losses reduce taxable income to the extent of gains. Individuals currently pay a rate of tax on capital gains. Taxpayers generally must self assess income tax by filing tax returns, advance payments of tax are required in the form of withholding tax or estimated tax payments. Taxes are determined separately by each jurisdiction imposing tax, due dates and other administrative procedures vary by jurisdiction. April 15 following the tax year is the last day for individuals to file tax returns for federal and many state, Tax as determined by the taxpayer may be adjusted by the taxing jurisdiction. A tax is imposed on net income in the United States by the federal, most state. Income tax is imposed on individuals, corporations, estates, the definition of net taxable income for most sub-federal jurisdictions mostly follows the federal definition. The rate of tax at the level is graduated, that is. Some states and localities impose a tax at a graduated rate. Federal tax rates in 2013 varied from 10% to 39. 6%, Individuals are eligible for a reduced rate of federal income tax on capital gains and qualifying dividends. The tax rate and some deductions are different for individuals depending on filing status, married individuals may compute tax as a couple or separately. Single individuals may be eligible for reduced tax rates if they are head of a household in which live with a dependent
Income tax in the United States
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Federal government receipts by source, 2010.
Income tax in the United States
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Total U.S. Tax Revenue as a % of GDP and Income Tax Revenue as a % of GDP, 1945-2011, from Office of Management and Budget Historicals
Income tax in the United States
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The U.S. federal
effective corporate tax rate has become much lower than the nominal rate because of
tax shelters such as
tax havens.
Income tax in the United States
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Total tax revenue as share of GDP for OECD countries in 2009. The tax burden in the US (black) is relatively small in comparison to other industrialised countries.
