1.
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)
2.
Fiscal policy
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In economics and political science, fiscal policy is the use of government revenue collection and expenditure to influence the economy. According to Keynesian economics, when the government changes the levels of taxation and government spending, it influences aggregate demand, Fiscal policy often attempts to stabilize the economy over the course of the business cycle. Government spending is fully funded by tax revenue and overall the budget outcome has an effect on the level of economic activity. Expansionary fiscal policy involves government spending exceeding tax revenue, and is undertaken during recessions. It is also known as fiscal policy. Contractionary fiscal policy occurs when government spending is lower than tax revenue, therefore, for purposes of the above definitions, government spending and tax revenue are normally replaced by cyclically adjusted government spending and cyclically adjusted tax revenue. Thus, for example, a government budget that is balanced over the course of the cycle is considered to represent a neutral fiscal policy stance. Governments spend money on a variety of things, from the military and police to services like education and healthcare. These pay interest, either for a period or indefinitely. If the interest and capital requirements are too large, a nation may default on its debts, public debt or borrowing refers to the government borrowing from the public. For this to happen, the propensity to save needs to be strictly positive. Another possibility is that the government might decide to increase its own spending – say, the idea is that the additional government spending creates jobs and lowers the unemployment rate. Governments use fiscal policy to influence the level of demand in the economy, in an effort to achieve economic objectives of price stability, full employment. Keynesians argue this method be used in times of recession or low economic activity as an tool for building the framework for strong economic growth. In theory, the deficits would be paid for by an expanded economy during the boom that would follow. Governments can use a surplus to do two things, to slow the pace of strong economic growth, and to stabilize prices when inflation is too high. Keynesian theory posits that removing spending from the economy will reduce levels of demand and contract the economy. But economists still debate the effectiveness of fiscal stimulus, the argument mostly centers on crowding out, whether government borrowing leads to higher interest rates that may offset the stimulative impact of spending
Fiscal policy
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Public finance
3.
Tax policy
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Tax policy is the choice by a government as to what taxes to levy, in what amounts, and on whom. It has both microeconomic and macroeconomic aspects, the macroeconomic aspects concern the overall quantity of taxes to collect, which can inversely affect the level of economic activity, this is one component of fiscal policy. The microeconomic aspects concern issues of fairness and allocative efficiency, policymakers debate the nature of the tax structure they plan to implement and how they might affect individuals and businesses. The reason for such focus is economic efficiency as advisor to the Stuart King of England Richard Petty had noted that the government does not want to kill the goose that lays the golden egg, paradigmatic efficient taxes are those that are either nondistortionary or lump sum. However, economists define distortion only according to the substitution effect, one must also consider the income effect, which for tax policy purposes often needs to be assumed to cancel out in the aggregate. The efficiency loss is depicted on the curve and supply curve diagrams as the area inside Harbergers Triangle. The implementation of tax policy has always been a tricky business, a more recent American example is President George H. W. Bushs famous tax policy quote, Read my lips, no new taxes. Tax incidence Tax law Mirrlees, James, Adam, Stuart, Besley, Tim, et al
Tax policy
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Taxation
4.
Government revenue
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Government revenue is money received by a government. It is an important tool of the policy of the government and is the opposite factor of government spending
Government revenue
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Public finance
5.
Tax revenue
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Tax revenue is the income that is gained by governments through taxation. For example, in the UK, the Driver and Vehicle Licensing Agency collects vehicle excise duty, tax revenues on purchases come in two forms, tax itself is a percentage of the price added to the purchase, while duties are a fixed amount added to the purchase price. In order to calculate the tax raised from these sales. The effect of a change in taxation level on total tax revenue depends on the good being investigated, and in particular on its price elasticity of demand. Where goods have a low elasticity of demand, an increase in tax or duty will lead to a decrease in demand—not enough to offset the higher tax raised from each unit. Overall tax revenue will therefore rise, conversely, for price-elastic goods, an increase in tax rate or duty would lead to a fall in tax revenue. The Laffer curve theorises that, even for goods, there will be a tax revenue maximising point. A limiting factor in determining the government budget is the capacity to tax, per capita income is the most often used measure of relative fiscal capacity. But this measure fails to base tax capacity computation on other important tax bases like the sales and property tax, a representative tax system should assess the level of personal income, the value of retail sales and the value of property to compute fiscal capacity. To do so the tax rate for each base is computed by dividing the total revenue derived by the total value of the base. Thus, as an example, income taxes collected would be divided by total income to yield a rate of taxation, a state or communitys standing on these various bases may affect its ability to attract new industry. The resulting rates, high or low in comparison, can become targets for change, the mission of revenue administration is to provide prudent and innovative revenue, investment and risk management and to regulate the use of government capital. It is not always the case, however, that new developments, especially if not properly planned, economic development traditionally focuses on such things as job generation, the provision of affordable housing, and the creation of retail centers. Tax base expansion focuses primarily on maintaining and enhancing real estate values within the municipality, municipalities tend to pursue economic development with religious fervor and often do not think strategically about the overall real estate impacts of their economic development initiatives. Yet the existing tax base in almost every municipality throughout the United States is an important source of revenue for funding municipal, in addition to being responsible for managing the tax base, a community should also be responsible for helping to ensure economic prosperity for its citizens. Good tax base management may lead to better economic development, because investors. Instead of offering incentives to attract business, they may be willing to pay to come to a community because it’s a good place to live, work, shop, list of countries by tax revenue as percentage of GDP
Tax revenue
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Taxation
6.
Non-tax revenue
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Non-tax revenue or non-tax receipts are government revenue not generated from taxes. The war reparations paid by the defeated Central Powers after the First World War offer a well-known example, an example are contracts for resource extraction collected privately under license from state-owned lands Fines collected and assets forfeitured as a penalty. Examples include parking fines, court costs levied on criminal offenders Fees for the granting or issuance of permits or licenses, user fees collected in exchange for the use of many public services and facilities. Tolls charged for the use of roads are an example Donations
Non-tax revenue
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Public finance
7.
Tax law
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Tax law is an area of legal study dealing with the constitutional, common-law, statutory, tax treaty, and regulatory rules that constitute the law applicable to taxation. Primary taxation issues facing the world over include, Taxes on income. Taxation of capital gains versus labor income, ecotax refers to taxes intended to promote environmentally friendly activities via economic incentives. Tax evasion and avoidance leading to reduced government revenue, due to an Inefficient tax system in many underdeveloped countries, the majority of small businesses are not taxed. In law schools, tax law is a sub-discipline and area of specialist study, U. S. law schools require 30 semester credit hours of required courses,60 hours or more of electives and a combined total of at least 90 credit hours completed. Law students must choose available courses on which to focus before graduation with the J. D. degree in the United States. S, Master of Laws programs are offered in Canada, United States, United Kingdom, Australia, Netherlands and an increasing number of countries. Many of these focus on domestic and international taxation. In the United States, most LL. M, programs require that the candidate be a graduate of an American Bar Association-accredited law school. In other countries a graduate law degree is sufficient for admission to LL. M. in Taxation law programs, the Master of Laws program is an advanced legal study. General Requirements J. D. or First degree in law, an English proficiency test score for students with a native language besides English. The Juris Doctor program is offered by only a number of countries and these include, United States, Australia, Canada, Hong Kong, Japan, Philippines, Singapore and the United Kingdom. The courses vary in duration of years, curriculum and whether or not further training is required, law School Admission Test - Required for law school admission in United States, Canada and a growing number of countries. A list of tax faculty ranked by publication downloads is maintained by Paul Caron at TaxProf Blog
Tax law
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The
Internal Revenue Code is the primary statutory basis of federal tax law in the United States. The Code of Federal Regulations is the Treasury Department's regulatory interpretation of the federal tax laws passed by Congress, which carry the weight of law if the interpretation is reasonable. Tax treaties and case law in U.S. Tax Court and other federal courts constitute the remainder of tax law in the United States.
8.
Tax bracket
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Tax brackets are the divisions at which tax rates change in a progressive tax system. Essentially, they are the values for taxable income — income past a certain point will be taxed at a higher rate. Imagine that there are three tax brackets, 10%, 20%, and 30%. The 10% rate applies to income from $1 to $10,000, the 20% rate applies to income from $10,001 to $20,000, and the 30% rate applies to all income above $20,000. Under this system, someone earning $10,000 would be taxed at a rate of 10%, someone earning $5,000 would pay $500, and so on. Meanwhile, someone earning $25,000 would face a more complicated calculation, the rate on the first $10,000 would be 10%, the rate from $10,001 to $20,000 would be 20%, and the rate above that would be 30%. $25,000 ×30 % − $3,000 = $7,500 − $3,000 = $4,500, financial years 2010-11, 2011-12 The above rates do not include the Medicare levy of 1. 5%. Financial year 2012-13 The above rates do not include the Medicare levy of 1. 5% Canadas federal government has the tax brackets for the 2012 tax year. Note that the basic amount of $15,527 effectively means that income up to this amount is not subject to tax. Each province except Québec adds their own tax on top of the federal tax, Québec has a completely separate income tax. All values in New Zealand dollars, with the ACC Earners levy not included, there will be a personal tax rebate of 20% granted for 2008, up to a maximum of $2,000. All figures are in Singapore dollars, the Minister of Finance announced new tax rates for the 2012–2013 tax year. They are as follows, Personal income tax is progressive in nature, the total rate does not usually exceed 40%. The Swiss Federal Tax Administration website provides an outline of the Swiss tax system. Financial year 2013 As of January 1,2013, the tax brackets have been updated, in 2013, Congress allowed the tax cut that was enacted during the Bush administration to expire for taxpayers making over $400K /$450K in taxable income. This results in changes to the personal income tax brackets even when the Federal income tax rates remain unchanged. For 2011, the deduction is $5,800 for single individuals and married individuals filing separately, $8,500 for heads of household. The dollar amount of personal and dependency exemption is $3,700
Tax bracket
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Taxation
9.
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
10.
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
11.
Tax credit
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A tax credit is a tax incentive which allows certain taxpayers to subtract the amount of the credit they have accrued from the total they owe the state. It may also be a credit granted in recognition of taxes already paid or, as in the United Kingdom, incentive tax credits may be used to encourage behaviors like investment or parenting. A credit directly reduces tax bills, unlike tax deductions and tax exemptions, most tax credits are nonrefundable tax credits and so do not apply if no taxes are owed. However, some tax credits are refundable tax credits so if the credit exceeds the amount of taxes owed, many systems refer to taxes paid indirectly, such as taxes withheld by payers of income, as credits rather than prepayments. In such cases, the tax credit is invariably refundable, the most common forms of such amounts are payroll withholding of income tax or PAYE, withholding of tax at source on payments to nonresidents, and input credits for value added tax. Income tax systems often grant a variety of credits to individuals and these typically include credits available to all taxpayers as well as tax credits unique to individuals. Some credits may be offered for a year only. Several income tax systems provide income subsidies to lower income individuals by way of credit and these credits may be based on income, family status, work status, or other factors. Often such credits are refundable when total credits exceed tax liability, in the United Kingdom, the Child Tax Credit and Working Tax Credit are paid directly into the claimants bank account or Post Office Card Account. In exceptional circumstances, these can be paid by cashcheque however payments may stop if account details are not provided, a minimum level of Child Tax Credits is payable to all individuals or couples with children, up to a certain income limit. If the claimant has children they may claim Working Tax Credit from age 16 upward provided that they are working at least sixteen hours per week, Tax Credits are capped which many sources claim affects the poorest families disproportionately. A survey by End Child Poverty estimated that roughly 1.5 million parents have reduced spending on basics like food, according to Gavin Kelly of the Resolution Foundation, tax credits help raise living standards of low paid workers. He wrote in the New Statesman, Perhaps the biggest misconception is the notion that if tax credits are cut. This is saloon-bar economics espoused by some on both left and right, on 15 September 2015, the House of Commons voted to decrease Tax Credit thresholds, a law that came into effect on 6 April 2016. Opponents claimed that it would harm those on low incomes, simon Hopkins, Chief Executive of charity Turn2us commented Todays vote in the House of Commons will mean one thing for many of the poorest working families in the UK, they are going to get poorer. Tax credits are a source of income for those on a low wage. On 26 October 2015 the House of Lords supported a motion from Baroness Meacher delaying the imposition of the cuts until a new consideration of the effects could be made by the House of Commons. The U. S. system grants the following low income tax credits, Earned income credit, the credit is calculated and capped based on the number of qualifying children, if any
Tax credit
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Taxation
12.
Tax cut
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A tax cut is a reduction in taxes. The immediate effects of a tax cut are a decrease in the income of the government. Due to the benefit in growing real incomes among tax payers. In the longer term, however, the loss of government income may be mitigated, depending on the original tax rate, tax cuts may provide individuals and corporations with an incentive investments which stimulate economic activity. In Keynesian economics, a tax cut has the effect of increasing GDP via the fiscal multiplier, theories which incorporate Ricardian equivalence such as the real business cycle theory however have tax cuts producing no or little change in national income. In these models, agents anticipate future tax rises to pay for government spending, in New Keynesian economics, tax cuts give a greater stimulus to the economy than that of increases in government spending. In recent decades, most supply-siders in the United States have been Republicans with the belief that cutting the tax rate would stimulate investment and spending, with overall beneficial effects. President Ronald Reagan signed tax cuts into law, which some believe stimulated a doubling in total tax revenues during the period from 1980 to 1990, however, during this period the deficit and national debt more than tripled because government spending rose even faster than increases in tax revenue. Some supply-siders like Don Lambro of the Washington Times credit the Reagan tax cuts with the surpluses of the late 1990s. President George W. Bush signed two major tax cuts into law, one in 2001 and one in 2003 and these are often collectively referred to as the Bush Tax Cuts. Bush is criticized for giving tax cuts to the rich and capital gains tax breaks, Bush has claimed that the tax cuts have paid for themselves but the Center on Budget and Policy Priorities argues that this is false. At the state level, former Democratic Governor Bill Richardson in recent years has supported tax cuts to spur economic growth,242, The ABCs of the Capital Gains Tax Larry Kudlow on the Bush 2003 Tax Cuts and the U. S
Tax cut
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Taxation
13.
Tax holiday
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A tax holiday is a temporary reduction or elimination of a tax. It is synonymous with tax abatement, tax subsidy or tax reduction, governments usually create tax holidays as incentives for business investment. Tax holidays have been granted by governments at national, sub-national, and local levels, and have included income, property, sales, VAT, some tax holidays are extra-statutory concessions, where governing bodies grant a reduction in tax that is not necessarily authorized within the law. In developing countries, governments sometimes reduce or eliminate corporate taxes for the purpose of attracting foreign investment or stimulating growth in selected industries. A tax holiday may be granted to particular activities, in particular to develop an area of business. Researchers found that on sales tax holidays, households increase the quantities of clothing and shoes bought by over 49% and 45%, respectively, relative to what they buy on average. In New York, a sales tax holiday was first enacted by the New York legislature in 1996. Local governments in New York were given the option of whether or not to participate, since then, the initiative has been adopted by thirteen states. It commonly takes the form of tax-free weekend lasting Friday through Sunday, usually during a shopping period for necessities. During that period, sales tax is not collected on selected items, such as clothing, the items subject to the sales tax exemption may also be restricted by price, but consumers are free to buy unlimited quantities of the included items. As with other taxes, visiting residents of non-participating states who purchase tax-free goods may still have to pay use tax on the goods they take home. Five US states do not impose general sales taxes at all but may have excise taxes on specific categories of such as gasoline, E911, cigarettes, alcohol. See Sales taxes in the United States for details, some governments create tax-free weekends as incentives for business investment. 2008 State Sales Tax Holidays - Federation of Tax Administrators http, //www. window. state. tx. us/taxinfo/taxpubs/tx98_490/tx98_490. html Sales Tax Holiday Tax Free Weekend
Tax holiday
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Taxation
14.
Tax advantage
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Tax advantage refers to the economic bonus which applies to certain accounts or investments that are, by statute, tax-reduced, tax-deferred, or tax-free. Governments establish the tax advantages to encourage individuals to contribute money when it is considered to be in the public interest. An example is retirement plans, which often offer tax advantages to incentivize savings for retirement, in the United States, many government bonds may also be exempt from certain taxes. In countries in which the age of the population is increasing. For example, where benefits are funded on a pay-as-you-go basis, if the proportion of pensioners to working-age people rises, the contributions needed from working people will also rise proportionately. In the United States, the onset of Baby Boomer retirement is currently causing such a problem. In order to reduce the burden on such schemes, many governments give privately funded retirement plans a tax advantaged status in order to more people to contribute to such arrangements. Governments often exclude such contributions from an employees income, while allowing employers to receive tax deductions for contributions to plan funds. Investment earnings in pension funds are almost universally excluded from tax while accumulating. Payments to retirees and their beneficiaries also sometimes receive favorable tax treatment, in return for a pension schemes tax advantaged status, governments typically enact restrictions to discourage access to a pension funds assets before retirement. Asset location Tax avoidance and tax evasion
Tax advantage
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Taxation
15.
Tax incentive
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A tax incentive is an aspect of a countrys tax code designed to incentivize, or encourage a particular economic activity. Many tax incentives simply remove part or all the burden of the tax from whatever market transaction is taking place and this is because almost all taxes impose what economists call an excess burden or a deadweight loss. Deadweight loss is the difference between the amount of productivity that would occur absent the tax and that which occurs with the tax imposed This is illustrated by the following examples. If savings are taxed, people save less than they otherwise would, Tax non-essential goods and people buy less. Tax wages and people work less, and taxing activities like entertainment and travel reduces their consumption as well. Sometimes the goal is to reduce such market activity as in the case of taxing cigarettes, but reducing activity is most often not a goal because greater market activity is considered desirable. When a tax incentive is spoken of, it means removing the tax. Regardless of the fact that an incentive spurs economic activity, again, many use the term to refer to any relative change in taxation that changes economic behavior. Such pseudo-incentives include tax holidays, tax deductions, or tax abatement and these Tax incentives are targeted at both individuals and corporations. Individual tax incentives are a prominent form of incentive, and include deductions, exemptions, specific examples include the mortgage interest deduction, individual retirement account, and hybrid tax credit. Corporate tax incentives can be raised at federal, state, for example, in the United States, the federal tax code provides a wide range of incentives for corporations, totaling $109 billion in 2011 according to a Tax Foundation Study. Tax Foundation categorizes US federal tax incentives into four categories, listed below. Preferences aimed at advancing social policy, valued at $9 billion, preferences that directly benefit specific industries, valued at $17.4 billion. Preferences broadly available to most corporate taxpayers, valued at $68.7 billion, site selection consultants negotiate these incentives, which are typically specific to the corporate project the state is recruiting, rather than applicable to a broader industry
Tax incentive
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Taxation
16.
Tax reform
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Tax reform is the process of changing the way taxes are collected or managed by the government and is usually undertaken to improve tax administration or to provide economic or social benefits. Numerous organizations have set up to reform tax systems worldwide. Other reforms propose tax systems that attempt to deal with externalities, such reforms are sometimes proposed to be revenue-neutral, for example in revenue neutrality of the FairTax, meaning they ought not result in more tax or less being collected. Georgism claims that various forms of tax can both deal with externalities and improve productivity. Tax reform is a significant issue on the Australian political agenda. Combined annual deficits of the Commonwealth and State and territory governments will rise from 1. 9% of gross domestic product in 2011–12 to 5. 9% of GDP by 2049–50. Widespread, wholesale tax reform in Australia has not occurred since the introduction of the Goods, the Henry Tax Review identified 138 areas for significant reform to Australias tax system over the next 10 to 20 years. In July 2013, PricewaterhouseCoopers proposed significant tax reform in the context of an ageing population, for example, over 115 other taxes raise less revenue than one tax, the Goods and Services Tax. This Report received widespread coverage in the Australian press, there have been many movements in the United States to reform the collection and management of taxes. During the late 19th century, American economist Henry George started a movement for tax reform. The aim of the movement was the abolition of all forms of other than the Single Tax on land value. The effects of the movement on taxation policy, although diminished, can be seen in parts of the world including Australia, New Zealand, Hong Kong, Taiwan. Efforts to promote this form of tax reform in the United States continue under the aegis of such as The Henry George Foundation of America. In 1986, landmark tax reform was passed in the Tax Reform Act of 1986, in the 1990s, reform proposals arose over the double-taxation of corporate income, with a large report in 1992 by the Internal Revenue Service. During the Bush administration, the Presidents Advisory Panel for Federal Tax Reform recommended the removal of the Alternative Minimum Tax. Several organizations are working for tax reform in the United States including Americans for Tax Reform, Americans For Fair Taxation, various proposals have been put forth for tax simplification in the United States, including the FairTax and various flat tax plans and bipartisan tax reform proposals. Representative Chaka Fattah of Pennsylvania introduced a bill, H. R.4646, called the Debt Free America Act that would introduce a 1% financial transaction tax and eliminate federal income tax. He has introduced bills calling for tax reform since 2004
Tax reform
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"'Revenue Reform' Train Stopped by 'Vested Interests,' 'Local Issues,' 'Trusts,' and other poles" —
Political cartoon from 1880–1900 commenting on tax reform.
17.
Tax competition
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Some observers suggest that tax competition is generally a central part of a government policy for improving the lot of labour by creating well-paid jobs. Others suggest that it is mainly for investors, as workers could have been better paid if it was not for tax competition lowering effective tax rates on corporations. Some economists argue that tax competition is beneficial in raising total tax intake due to low tax rates stimulating economic growth. It also tends to increase complexity in national and international tax systems and it has also been argued that just as competition is good for businesses, competition is good for governments as it drives efficiencies and good governance of the public budget. From the mid 1900s governments had more freedom in setting their taxes, as the barriers to movement of capital. The gradual process of globalization is lowering these barriers and results in rising capital flows, with tax competition in the era of globalization politicians have to keep tax rates “reasonable” to dissuade workers and investors from moving to a lower tax environment. Most countries started to reform their tax policies to improve their competitiveness, however, the tax burden is just one minor part of a complex formula describing national competitiveness. The other criteria like total manpower cost, labor market flexibility, education levels, political stability, legal system stability, in general tax competition results in benefits to taxpayers and the global economy. As an example, Florida once taxed all boat sales at 6% with no maximum, as a result, Florida residents did not buy large boats in the state and no sales taxes were collected. In 2010 Florida implemented a maximum $18,000 tax on boat sales, floridas Revenue Estimating Committee predicted the state would loose $1. 6M in tax revenue the first year. A survey was conducted of boat sales for 2011 and found Florida collected $13,486,000 in sales tax revenues, European Union The European Union also illustrates the role of tax competition. The barriers to movement of capital and people were reduced close to nonexistence. Some countries utilized their low levels of tax to attract large amounts of foreign investment while paying for the necessary infrastructure from EU funds. The net contributors strongly oppose the idea of infrastructure transfers to low tax countries, net contributors have not complained, however, about recipient nations such as Greece and Portugal, which have kept taxes high and not prospered. EU integration brings continuing pressure for tax harmonization as well. EU member nations must have a tax of at least 15 percent and limits the set of products. Still this policy does not stop people utilizing the difference in VAT levels when purchasing certain goods, the contributing factor are the single currency, growth of e-commerce and geographical proximity. The political pressure for tax harmonization extends beyond EU borders, some neighbouring countries with special tax regimes were already forced to some concessions in this area
Tax competition
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Taxation
18.
Double taxation
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Double taxation is the levying of tax by two or more jurisdictions on the same declared income, asset, or financial transaction. Another approach is for the jurisdictions affected to enter into a tax treaty which sets out rules to double taxation. The term double taxation can also refer to the taxation of some income or activity. The term is not usually used to refer to the taxation of the income by different levels of government, such as by federal, state. It is not unusual for a business or individual who is resident in one country to make a gain in another. This person may find that he is obliged by domestic laws to pay tax on that gain locally, since this is inequitable, many nations make bilateral double taxation agreements with each other. In some cases, this requires that tax be paid in the country of residence, to do this, the taxpayer must declare himself to be non-resident there. So the second aspect of the agreement is that the two taxation authorities exchange information about such declarations, and so may investigate any anomalies that might indicate tax evasion. While individuals, or natural persons can have only one residence at a time, corporate persons, owning foreign subsidiaries, in the European Union, member states have concluded a multilateral agreement on information exchange. This means that they will report a list of those savers who have claimed exemption from local taxation on grounds of not being a resident of the state where the income arises. These savers should have declared that foreign income in their own country of residence, a recent study by BusinessEurope confirms that double taxation remains a problem for European MNEs and an obstacle for cross border trade and investments. In particular, the areas are limitation in interest deductibility, foreign tax credits, permanent establishment issues. Germany and Italy have been identified as the Member States in which most double taxation cases have occurred, cyprus has completed over 45 Double Taxation Treaties up to today and is also in negotiations with many countries for signing Treaties with them. The main purpose of these treaties is the avoidance of taxation on income earned in any of these countries. If a foreign citizen is in Germany for less than a relevant 183-day period and is tax resident elsewhere, the relevant 183 day period is either 183 days in a calendar year or in any period of 12 months, depending upon the particular treaty involved. India has comprehensive DTAAs with 88 countries, out of which 85 have entered into force and this means that there are agreed rates of tax and jurisdiction on specified types of income arising in a country to a tax resident of another country. Under the Income Tax Act 1961 of India, there are two provisions, Section 90 and Section 91, which provide specific relief to taxpayers to save them from double taxation, thus, India gives relief to both kinds of taxpayers. A large number of institutional investors who trade on the Indian stock markets operate from Singapore
Double taxation
–
Taxation
19.
No taxation without representation
–
Jonathan Mayhew, Old West Church’s second Congregational pastor, used the phrase, No Taxation Without Representation in a sermon in 1750. The phrase revives a sentiment central to the cause of the English Civil War following the refusal of parliamentarian John Hampden to pay ship money tax, the English Parliament had controlled colonial trade and taxed imports and exports since 1660. By the 1760s, the Americans were being deprived of a historic right, the English Bill of Rights 1689 had forbidden the imposition of taxes without the consent of Parliament. Since the colonists had no representation in Parliament, the taxes violated the guaranteed Rights of Englishmen, Parliament initially contended that the colonists had virtual representation, but the idea found little support on either side of the Atlantic. John Dunmore Lang wrote in 1852, The person who first suggested the idea appears to have been Oldmixon, an American annalist of the era of Queen Anne or George I. It was afterwards put forward with approbation by the celebrated Dr. Adam Smith, and advocated for a time, the phrase had been used for more than a generation in Ireland. By 1765, the term was in use in Boston, and local politician James Otis was most famously associated with the phrase, in the course of the Revolutionary era, many arguments were pursued that sought to resolve the dispute surrounding Parliamentary sovereignty, taxation, self-governance and representation. Benjamin Franklin, John Adams, the London Quaker Thomas Crowley, supported Barre and other pro-American M. P. s by producing before the House copies of earlier Acts of Parliament that had admitted Durham and Chester seats upon their petitions for representation. The argument was put forward in Parliament that America ought to have representatives on these grounds too, richard Jackson supposed that Parliament had a right to tax America, but he much doubted the expediency of the Stamp act. He was shortly afterwards appointed agent for Georgia and East Florida, I am glad to find the author has at length discovered that we have not given a sufficient attention to their concerns, or a proper redress to their grievances. His great friend would once have been displeased with any person, who should tell him. He thought he did so, when he regulated the colonies over and over again, he thought he did so and these systems supposed, or ought to suppose, the greatest attention to, and the most detailed information of, all their affairs. Perhaps it may be some time before this scheme can be brought to perfect maturity. Burke supported the doctrine of virtual representation in Britain, yet in his Parliamentary speech of 1774, entitled On American Taxation, Burke responded to the suggestion that America was virtually represented in Parliament by remarking, What. Does the electric force of virtual representation more easily pass over the Atlantic than pervade Wales, or than Chester and Durham, surrounded by abundance of representation that is actual and palpable. How, then, can I think it sufficient for those which are infinitely greater and you will now, Sir, perhaps imagine that I am on the point of proposing to you a scheme for a representation of the colonies in Parliament. Perhaps I might be inclined to some such thought, but a great flood stops me in my course. I cannot remove the barriers of the creation
No taxation without representation
–
Bronze sculpture of James Otis, Jr stands in front of the
Barnstable County Courthouse.
No taxation without representation
–
Taxation
No taxation without representation
–
Shimer College student holds "No tuition without representation" sign during protest over school governance in 2010.
No taxation without representation
–
The standard-issue District of Columbia license plate bears the phrase, "Taxation Without Representation".
20.
Medical savings account
–
A medical savings account is an account into which tax-deferred amounts from income can be deposited. The amounts are often called contributions and may be made by a worker, the money in such accounts is to be used to pay for medical expenses. Withdrawals from the account often called distributions, if made for that reason, withdrawals without adequate documentation of use for medical expenses are subject to penalties. In December 1994, the China began a study of medical savings accounts in the cities of Zhenjiang and Jiujiang. China has planned to expand the program, Medisave was introduced in April 1984 as a national medical savings system in Singapore. It allows Singaporeans to put part of their income into a Medisave account to meet future personal or immediate familys hospitalization, day surgery. Under this system, Singaporean employees contributes 6-8% of their salaries to a personal Medisave account. The savings can be withdrawn to pay the bills of the account holder. The United States has two medical savings account programs, Medical savings account Health savings account Health care system Health Savings Plans, Protecting Your Savings
Medical savings account
–
Taxation
21.
Tax, tariff and trade
–
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, tariff and trade
–
Pieter Brueghel the Younger, The tax collector's office, 1640
Tax, tariff and trade
–
Taxation
Tax, tariff and trade
–
Egyptian
peasants seized for
non-payment of taxes. (
Pyramid Age)
22.
Effect of taxes and subsidies on price
–
Taxes and subsidies change the price of goods and, as a result, the quantity consumed. However, in case, the new market price will be the price received by producers. The end result is that the price that consumers pay. Depending on the price elasticities of demand and supply, who bears more of the tax or who receives more of the subsidy may differ, the effect of this type of tax can be illustrated on a standard supply and demand diagram. Without a tax, the price will be at Pe. After a tax is imposed, the consumers pay will shift to Pc. The consumers price will be equal to the producers price plus the cost of the tax, since consumers will buy less at the higher consumer price and producers will sell less at a lower producer price, the quantity sold will fall from Qe to Qt. Excess burden of taxation Tax incidence
Effect of taxes and subsidies on price
–
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verification. Please help improve this article by
adding citations to reliable sources. Unsourced material may be challenged and removed. (July 2008)
23.
Excess burden of taxation
–
In economics, the excess burden of taxation, also known as the deadweight cost or deadweight loss of taxation, is one of the economic losses that society suffers as the result of taxes or subsidies. Economic theory posits that change the amount and type of economic behavior from that which would occur in a free market without the tax. Excess burdens can be measured using the average cost of funds or the marginal cost of funds, excess burdens were first discussed by Adam Smith. An equivalent kind of inefficiency can also be caused by subsidies, economic losses due to taxes were evaluated to be as low as 2.5 cents per dollar of revenue, and as high as 30 cents per dollar of revenue, and even much higher at the margins. The cost of a distortion is usually measured as the amount that would have to be paid to the affected by its supply. The second is the tax rate, as a general rule, the average cost of funds is the total cost of distortions divided by the total revenue collected by a government. In contrast, the marginal cost of funds is the size of the distortion that accompanied the last unit of revenue raised, in most cases, the MCF increases as the amount of tax collected increases. In fact almost any tax measure will distort the economy from the path or process that would have prevailed in its absence, some people may move out of the work force, some may move into the cash or black economies. For example, in Western nations the incomes of the relatively affluent are taxed partly to provide the money used to assist the relatively poor, as a result of the taxes, incentives are changed for both groups. At the same time the poor have an incentive to conceal their own income so as to increase the likelihood of their receiving state assistance. It can be argued that the distortion of incentives does more harm than good and this is known as the welfare trap. There was an example of distortion of the economy by tax policy some years ago in the UK when cars supplied by employers to their employees were taxed at advantageous rates. Not all distortions are bad, Pigovian taxes create distortions that correct for externalities, here, the fiscal distortion is deliberate, so as to compensate for externalities. Sin taxes are levied on products that incur costs to society, such as alcohol, tobacco. Ideally, these raise the price to the exact level that the market would bear if the negative externalities were included in the price. Pigovian taxes are preferable to outright prohibition, since prohibition incites trafficking, often resulting in crime and other social costs. Effect of taxes and subsidies on price Laffer curve Land value tax Lump-sum tax Optimal tax Tax incidence Bayer, the excess burden of tax evasion—An experimental detection–concealment contest. Distortions, The New Palgrave, A Dictionary of Economics, v.1, Optimal taxation, The New Palgrave, A Dictionary of Economics, v.1, pp. 865–67
Excess burden of taxation
–
Taxation
24.
Tax incidence
–
In economics, tax incidence or tax burden is the analysis of the effect of a particular tax on the distribution of economic welfare. Tax incidence is said to fall upon the group that bears the burden of, or ultimately has to pay. The key concept is that the tax incidence or tax burden does not depend on where the revenue is collected, the theory of tax incidence has a number of practical results. For example, United States Social Security payroll taxes are paid half by the employee, however, some economists think that the worker bears almost the entire burden of the tax because the employer passes the tax on in the form of lower wages. The tax incidence is said to fall on the employee. However, it could well be argued that in some cases the incidence of the tax falls on the employer. This is because both the elasticity of demand and price elasticity of supply effect on whom the incidence of the tax falls. Price controls such as the minimum wage which sets a price floor, imagine a $1 tax on every barrel of apples an apple farmer produces. If the product is price inelastic to the consumer the farmer is able to pass the tax on to consumers of apples by raising the price by $1. In this example, consumers bear the burden of the tax. If the apple farmer can raise prices by an amount less than $1, then consumers, when the tax incidence falls on the farmer, this burden will typically flow back to owners of the relevant factors of production, including agricultural land and employee wages. Where the tax incidence falls depends on the elasticity of demand. Tax incidence falls mostly upon the group that responds least to price, if the demand curve is inelastic relative to the supply curve the tax will be disproportionately borne by the buyer rather than the seller. If the demand curve is elastic relative to the supply curve, if PED = PES the tax burden is split equally between buyer and seller. Tax incidence can be calculated using the pass-through fraction, the pass-through fraction for buyers is PES/. So if PED for apples is -0.4 and PES is 0.5 then the fraction to buyer would be calculated as follows. 56% of any tax increase would be paid by the buyer, from the perspective of the seller, the formula is -PED/ = -/ =0. 4∕.9 = 44% Because the producer is perfectly inelastic, they will produce the same quantity no matter the price. Because the consumer is elastic, the consumer is very sensitive to price, a small increase in price leads to a large drop in the quantity demanded
Tax incidence
–
Taxation
Tax incidence
–
U.S. federal effective tax rates by income percentile and component as projected for 2014 by the
Tax Policy Center.
25.
Laffer curve
–
In economics, the Laffer curve is a representation of the relationship between rates of taxation and the resulting levels of government revenue. Proponents of the Laffer curve claim that it illustrates the concept of taxable income elasticity—i. e, taxable income will change in response to changes in the rate of taxation. The Laffer curve postulates that no tax revenue will be raised at the tax rates of 0% and 100%. The shape of the curve is uncertain and disputed, one implication of the Laffer curve is that increasing tax rates beyond a certain point will be counter-productive for raising further tax revenue. A hypothetical Laffer curve for any given economy can only be estimated, the New Palgrave Dictionary of Economics reports that estimates of revenue-maximizing tax rates have varied widely, with a mid-range of around 70%. The term Laffer curve was coined by Jude Wanniski, who was present at the meeting. The basic concept was not new, Laffer himself notes antecedents in the writings of the 14th-century social philosopher Ibn Khaldun, Laffer explains the model in terms of two interacting effects of taxation, an arithmetic effect and an economic effect. The arithmetic effect assumes that tax revenue raised is the tax rate multiplied by the revenue available for taxation, thus revenue R is equal to t×B where t is the tax rate and B is the taxable base. At a 0% tax rate, the model assumes that no tax revenue is raised, the economic effect assumes that the tax rate will affect the tax base itself. Thus, the effect of a 100% tax rate is to decrease the tax base to zero. If this is the case, then somewhere between 0% and 100% lies a tax rate that will maximize revenue, similarly, the curve is often presented as a parabolic shape, but there is no reason that this is necessarily the case. The effect of changes in tax can be cased in terms of elasticities, thus as elasticity surpasses one absolute value, revenues begin to fall. The problem is similar to that of the monopolist who must never increase prices beyond the point at which the elasticity of demand exceeds one in absolute value. Wanniski noted that all activity would be unlikely to cease at 100% taxation. He also noted that there can be special circumstances in which economic activity can continue for a period at a near 100% taxation rate, various efforts have been made to quantify the relationship between tax revenue and tax rates. While the interaction between tax rates and tax revenue is generally accepted, the nature of this interaction is debated. In practice, the shape of a hypothetical Laffer curve for an economy can only be estimated. The relationship between tax rate and tax revenue is likely to vary from one economy to another and depends on the elasticity of supply for labor, even in the same economy, the characteristics of the curve could vary over time
Laffer curve
–
Change in real GDP per capita annual growth rate from 1975-9 to 2004-8 against the change in top marginal tax rate for 18 OECD countries. The lack of significant correlation contradicts supply-side theories and suggests that cuts in top tax rates might not lead to higher economic growth.
Laffer curve
–
Laffer curve: t* represents the rate of taxation at which maximal revenue is generated. This is the curve as drawn by Laffer, however, the curve might not have only a single peak or be symmetrical at 50%.
26.
Optimal tax
–
Optimal tax theory or the theory of optimal taxation is the study of designing and implementing a tax that reduces inefficiency and distortion in the market under given economic constraints. Generally, this consists of individuals utility and the optimization problem involves minimizing the distortions caused by taxation. A neutral tax is a tax which avoids distortion and inefficiency completely. Thus economists argue that taxes generally distort behavior, in the Wealth of Nations, Adam Smith observed that “…the economic incomes of private people are of three main types, rent, profit and wages. Ordinary taxpayers will pay their taxes from at least one of these revenue sources. The government may intend that a tax should fall exclusively on rent, profit, or wages –. However, many taxes will inevitably fall on resources and persons very different from those intended … Good taxes meet four major criteria. They are proportionate to incomes or abilities to pay certain rather than arbitrary payable at times and in ways convenient to the taxpayers and cheap to administer and collect. ”Generating a sufficient amount of revenue to finance government is arguably the most important purpose of the tax system. Though inequality will always exist within even the most efficient markets, with any tax, there will be an excess burden, or additional cost, to the consumer and the producer. Whenever the consumer purchases the taxed good or service, and the elasticity, or responsiveness, of the demanded product. Those individuals or corporations who have the most inelastic demand curve pay the brunt of the excess burden curve, however, the tradeoff of placing larger taxes on inelastic goods is that the higher tax will lead to lower quantity exchanged and thus a smaller deadweight loss of reduced revenue. When discussing what a fair and optimal tax level would be, equity is determined by first assessing an individual’s ability-to-pay. The idea of the ability-to-pay principle considers whether or not it is fair to tax someone higher just because that person has the ability, if it is decided that they should be required to pay more, the question of how much more arises. These questions can be analyzed through horizontal and vertical equity which are subsets of the ability-to-pay principle, horizontal equity suggests it is fair if people who have equal ability-to-pay actually do pay the same amount in taxes. Problems with horizontal equity consist of the idea that individuals with the same ability to pay implies that two individuals earning the same income should be taxed equally. Conversely, this situation can also support the opposite argument, in this same example, if one individual chooses to spend his income to support his family, and another to travel, each individual now has less money to pay taxes with. However, this raises the question on how the government should treat these choices differently if at all for taxation purposes, so it is up to individual societies to determine what tax structure to implement. Vertical equity states that the government should implement higher taxes on those who have abilities to pay than those who have a lower ability to pay
Optimal tax
–
Taxation
27.
Theory of taxation
–
Several theories of taxation exist in public economics. Governments at all levels need to raise revenue from a variety of sources to finance public-sector expenditures, adam Smith in The Wealth of Nations wrote, Such things as defending the country and maintaining the institutions of good government are of general benefit to the public. Thus, it is reasonable that the population as a whole should contribute to the tax costs and they are proportionate to incomes or abilities to pay certain rather than arbitrary payable at times and in ways convenient to the taxpayers and cheap to administer and collect. In modern public-finance literature, there have two main issues, who can pay and who can benefit. Influential theories have been the ability theory presented by Arthur Cecil Pigou, there is a later version of the benefit theory known as the voluntary exchange theory. Under the benefit theory, tax levels are determined, because taxpayers pay proportionately for the government benefits they receive. In other words, the individuals who benefit the most from public services pay the most taxes, here, two models adopting the benefit approach are discussed, the Lindahl model and the Bowen model. DDa is the curve of taxpayer A, and DDb is the demand curve of taxpayer B. The vertical summation of the two demand curves results in the total demand schedule for state services. A and B pay different proportions of the cost of the services, when ON is the amount of state services produced, A contributes NE and B contributes NF, the cost of supply is NG. Since the state is non-profit, it increases its supply to OM, at this level, A contributes MJ and B contributes MR. Equilibrium is reached at point P on a voluntary-exchange basis, bowen’s model has more operational significance, since it demonstrates that when social goods are produced under conditions of increasing costs, the opportunity cost of private goods is foregone. For example, if there is one good and two taxpayers, their demand for social goods is represented by a and b, therefore. The supply curve is shown by a+b, indicating that goods are produced under conditions of increasing cost, the production cost of social goods is the value of foregone private goods, this means that a+b is also the demand curve of private goods. Simultaneously, the tax shares of A and B are determined by their individual demand schedules, the total tax requirement is the area out of which A is willing to pay GCEO and B is willing to pay FDEO. The advantage of the theory is the direct correlation between revenue and expenditure in a budget. It approximates market behaviour in the procedures of the public sector. Taxes are based on ability to pay, there is no quid pro quo
Theory of taxation
–
Lindahl's model
Theory of taxation
–
Bowen's model
28.
Optimal capital income taxation
–
Optimal capital income taxation is a subarea of optimal tax theory which refers to the study of designing a tax on capital income such that a given economic criterion like utility is optimized. Starting from the conceptualization of capital income as future consumption, the taxation of capital income corresponds to a consumption tax on present. Due to these distortions, zero taxation of capital income might be optimal, a result postulated by the Atkinson-Stiglitz theorem, while Mankiw, Weinzierl and Yagan invoke the Diamond-Mirrlees production efficiency theorem as third intuition for no capital income taxation, their arguments are refuted by Diamond and Saez. Furthermore, consumers need to have homogeneous subutility functions of consumption, thus, capital income taxation, i. e. differentiated consumption taxation, is more costly than pure non-linear labor income taxation. The result is based upon the intuition that the growth of the tax wedge between current and future consumption is related to the growth of the time horizon, so as to avoid unlimited growth in tax compounding as the horizon extends, the optimal average capital tax rate approximates zero. This argumentation can be found in the composition of taxation in overlapping generation models, e. g. Auerbach, Kotlikoff, while criticisms of the Chamley-Judd model vary, a central theme attacks its critical assumption regarding infinite lives, which can also be interpreted as dynastic linkages. For a government, distinguishing between capital and labor incomes can be difficult, the difficulty in distinguishing labor and capital income might be the most important reason for governments reluctance to engage in the full tax exemption of capital income. Both the Atkinson-Stiglitz theorem and the Ramsay model used to derive the Chamley-Judd zero capital income tax result assume perfect capital markets, in practice, however, individuals are often borrowing-constrained, i. e. they cannot save. By taxing capital income and transferring it to the borrowing-constrained individuals, equivalently, taxing saving may reduce the implicit subsidy on saving created by the borrowing constraints and thus restore efficiency in saving. Then, the reduction of income tax distortions on investments in human capital provides a motive for capital income taxation being optimal. The zero optimal capital tax relies on the assumption of preference homogeneity, both Mirrlees and Saez argue that high-ability might have higher saving rates due to different preferences. This argument is empirically borne out by research on the correlation between individuals willingness and earnings ability
Optimal capital income taxation
–
Taxation
29.
Tax collection
–
A tax collector or a taxman is a person who collects unpaid taxes from other people or corporations. Tax collectors are often portrayed in fiction as being evil, Tax collectors, also known as publicans, are mentioned many times in the Bible. They were reviled by the Jews of Jesus day because of their perceived greed, Tax collectors amassed personal wealth by demanding tax payments in excess of what Rome levied and keeping the difference. Saint Matthew in the New Testament was a tax collector, district collector Tax farming Tax noncompliance Taxman Withholding tax
Tax collection
–
A tax collector at work – from an illustration by Henry Holiday in
Lewis Carroll's The Hunting of the Snark (1876).
30.
Revenue stamp
–
Typically businesses purchase the stamps from the government, and 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 often look similar to postage stamps, and in some countries. Revenue stamps are used to collect taxes and fees. They are issued by governments, national and local, and by bodies of various kinds. They take many forms and may be gummed and ungummed, perforated or imperforate, printed or embossed, in many countries, they are as detailed in their design as much as banknotes, they are often made from the same type of paper. The high value of revenue stamps means that they may contain security devices to prevent counterfeiting. The Revenue Society has defined revenue stamps as, in the Ottoman empire, Damga resmi was already in use by the sixteenth century. Records of tax revenue from stamps for silk provide evidence of changes in production over time. The use of revenue stamps goes back further than that of postage stamps, Revenue stamps have become less commonly 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, both national and local entities have issued them. Governments have sometimes combined the functions of postage and revenue stamps, in the former British Empire, such stamps were often inscribed Postage and Revenue to reflect their dual function. Other countries have simply 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 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 often resemble postage stamps, they are not normally intended for use on mail and therefore do not receive a postal cancellation. Some countries such as Great Britain have issued stamps valid for postage and revenue, but this practice is now rare. Many different methods have used to cancel revenue stamps, including pen cancels, inked handstamps, perforating, embossing. From around 1900, United States revenue stamps were required to be mutilated by cutting, after being affixed to documents, a class of office equipment was created to achieve this which became known as stamp mutilators. Revenue stamps were widely collected by philatelists and given the same status as postage stamps in stamp catalogues
Revenue stamp
–
An 1898 £1 revenue stamp of
Western Australia
Revenue stamp
–
An 1899 passport tax stamp from Cundinamarca in Colombia
Revenue stamp
–
An American revenue stamp for the tax on playing cards
Revenue stamp
–
1871 U.S. Revenue stamp for 1/6 Barrel of beer
31.
Tax refund
–
A tax refund or tax rebate is a refund on taxes when the tax liability is less than the taxes paid. According to the Internal Revenue Service, 77% of tax returns filed in 2004 received a refund check, in 2011, the average tax refund was $2,913. Taxpayers may choose to have their refund directly deposited into their account, have a check mailed to them. As of 2006, tax filers may now split their tax refund with direct deposit in up to three separate accounts with three different financial institutions and this has given taxpayers an opportunity to save and spend some of their refund. Every year, a number of U. S. taxpayers around the country get tax refunds even if they owe zero income tax and this is due to withholding calculations and the earned income tax credit. Because withholding is calculated on a basis, an individual just entering the work force or unemployed for a long period of time will have more tax than is owed withheld. Refund anticipation loans are a means to receive a tax refund early. Another argument is that it is better to get a rather than to owe money. When properly filled out, the Form W-4 will withhold approximately the amount of tax to eliminate a refund or amount owed. A U. S. federal law signed in 1996 contained a provision that required the government to make electronic payments by 1999. In 2008, the U. S. Treasury Department paired with Comerica Bank to offer the Direct Express Debit MasterCard prepaid debit card, the card is used to make payments to federal benefit recipients who do not have a bank account. Tax refunds, however, are exempt from the electronic payments requirement, however, many U. S. states send tax refunds in the form of prepaid debit cards to people who do not have bank accounts. In New Zealand, income tax is deducted by the employer under the PAYE tax system and this information is collected and held by the Inland Revenue Department and is not automatically processed. However individual earners can request a summary of earnings to see if they have overpaid or underpaid their tax for each financial year. To claim a tax refund, a personal tax summary must be filed, in India, there is a provision of refund of excess tax along with interest. For claiming a refund one has to file the income tax return within a specified period, however, under Sections 237 and 119 of the Income Tax Act, the Chief Commissioner or Commissioner of Income Tax are empowered to condone a delay in the claim of a refund. Provisions of refund of duty exists in indirect taxation, in Section 11 B of the Central Excises Act,1944 which is also applicable in the cases of Service Tax. In the Republic of Ireland, income tax is deducted by the employer under the PAYE tax system, if incorrect tax credits are applied by the employer, then a refund of tax is due
Tax refund
–
Taxation
32.
Tax shield
–
A tax shield is the reduction in income taxes that results from taking an allowable deduction from taxable income. For example, because interest on debt is a tax-deductible expense, since a tax shield is a way to save cash flows, it increases the value of the business, and it is an important aspect of business valuation. Consider one unit of investment that costs $1,000 and returns $1,100 at the end of year 1, i. e. a 10% return on investment before taxes, now assume tax rate of 20%. If an investor pays $1,000 of capital, at the end of the year and he earned net income of $80, or 8% return on capital. The concept was added to the methodology proposed by Franco Modigliani. Consider the investor now has an option to borrow $4,000 at 8% interest rate. If the investor still pays $1,000 of his initial equity capital, in addition to borrowing $4,000 at the terms above, at the end of the year, he will have. Therefore, he is left with $1,144 and he earned net income of $144, or 14. 4% return on his $1000 initial equity capital. The reason that he was able to earn additional income is because the cost of debt is less than the return earned on the investment, the 2% difference makes income of $80 and another $100 is made by the return on equity capital. Total income becomes $180 which becomes taxable at 20%, leading to the net income of $144, in most business valuation scenarios, it is assumed that the business will continue forever. Under this assumption, the value of the tax shield is, using the above examples, Assume Case A brings after-tax income of $80 per year, forever. Assume Case B brings after-tax income of $144 per year, forever, Value of firm = after-tax income /, therefore Value of firm in Case A, $80/0.08 = $1,000 Value of firm in Case B, $144/0. com
Tax shield
–
Capital structure
Tax shield
–
Taxation
33.
Tax shelter
–
Tax shelters are any method of reducing taxable income resulting in a reduction of the payments to tax collecting entities, including state and federal governments. The methodology can vary depending on local and international tax laws, in North America, a tax shelter is generally defined as any method that recovers more than $1 in tax for every $1 spent, within 4 years. Some tax shelters are questionable or even illegal, Offshore companies, due to differing tax rates and legislation in each country, tax benefits can be exploited. Example, If Import Co. buys $1 of goods from India and sells for $3 and this allows Import Co. to report taxable income of $0, thus paying no tax. While the subsidiary will have to pay tax on $2, the tax is payable to the tax authority of British Virgin Islands, since the British Virgin Islands has a corporate tax rate of 0%, no taxes are payable. By paying unreasonably high interest rates to a party, one may severely reduce the income of an investment. The tax benefit derives from the fact that capital gains are taxed at a lower rate than the investment income such as interest or dividend. The flaws of these tax shelters are usually that transactions were not reported at fair market value or the interest rate was too high or too low. The agency may re-evaluate the price, and will quickly neutralize any over tax benefits, however, such cases are difficult to prove. A soft drink from a machine can cost $1.75. To prove that the price is in fact unreasonable may turn out to be reasonably difficult itself, other tax shelters can be legal and legitimate, Flow-through shares/limited partnerships. Certain companies, such as mining or oil drilling often take years before they can generate positive income. This normally deters common investors who demand quick, or at least safe, to encourage the investment, the US government allows the exploration costs of the company to be distributed to shareholders as tax deductions. Investors are rewarded by 1) the near instant tax savings 2) the potential massive gains if the company discovers gold or oil. In US terminology, these entities are given the title of limited partnership and in the past they may have simply been called a tax shelter. However the IRS limited the popularity of these plans by allowing the losses to only offset passive income as opposed to earned income, in order to reduce burden of the government-funded pension systems, governments may allow individuals to invest in their own pension. In the USA these sanctioned programs include Individual Retirement Accounts and 401s, the contributed income will not be taxable today, but will be taxable when the individual retires. The advantage to these plans is that money that would have taken out as taxes is now compounded in the account until the funds are withdrawn
Tax shelter
–
Taxation
34.
Tax noncompliance
–
Tax noncompliance is a range of activities that are unfavorable to a states tax system. This may include tax avoidance, which is tax reduction by legal means, 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, in the United States the use of the term noncompliance often refers only to illegal misreporting. In addition, judicial doctrines have accomplished the purpose, notably in the United States through the business purpose. Though the specifics may vary according to jurisdiction, these rules invalidate tax avoidance which is technically legal, related terms for tax avoidance include tax planning and tax sheltering. Individuals that do not comply with tax payment include tax protesters, 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, because taxation is often perceived as onerous, governments have struggled with tax noncompliance since the earliest of times. The use of the tax avoidance and tax evasion can vary depending on the jurisdiction. In general, the term applies to illegal actions and avoidance to actions within the law. An avoidance/evasion distinction along the lines of the present distinction has long been recognised, 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 USA where it was well established by the 1920s. It can be traced to Oliver Wendell Holmes in Bullen v. Wisconsin and 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 regularly used in the sense of avoidance, in law reports and elsewhere, now that the terminology has received official approval in the UK this usage should be regarded as erroneous. But even now it is helpful to use the expressions “legal avoidance” and “illegal evasion”. In the United States tax evasion is evading the assessment or payment of a tax that is legally owed at the time of the criminal conduct. Tax evasion is criminal, and has no effect on the amount of tax actually owed, by contrast, the term tax avoidance describes lawful conduct, the purpose of which is to avoid the creation of a tax liability in the first place
Tax noncompliance
–
Ten countries with the largest absolute levels of tax evasion. It is estimated that global tax evasion amounts to 5 percent of the global economy.
35.
Tax avoidance
–
Tax avoidance is the legal usage of the tax regime in a single territory to ones own advantage to reduce the amount of tax that is payable by means that are within the law. Tax sheltering is very similar, although unlike tax avoidance tax sheltering is not necessarily legal, Tax havens are jurisdictions which facilitate reduced taxes. While forms of tax avoidance which use tax laws in ways not intended by governments may be considered legal, many corporations and businesses which take part in the practice experience a backlash, either from their active customers or online. Since 1995, trillions of dollars have been transferred from OECD, though the specifics may vary according to jurisdiction, these rules invalidate tax avoidance which is 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 planning and tax sheltering, Tax evasion, on the other hand, is the general term for efforts by individuals, corporations, trusts 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, a company may choose to avoid taxes by establishing their company or subsidiaries in an offshore jurisdiction. Individuals may also avoid tax by moving their tax residence to a tax haven, such as Monaco and they may also reduce their tax by moving to a country with lower tax rates. However, a 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, France, Hungary, Italy, in cases such as the US, taxation cannot be avoided by simply transferring assets or moving abroad. U. S. citizens therefore cannot avoid U. S. taxes simply by emigrating from the U. S, the 2012 limit on the amount that can be excluded is US$95,100. Most countries impose taxes on income earned or gains realized within that country regardless of the country of residence of the person or firm, to avoid tax, it is usually not enough to simply move ones assets to a tax haven. One must also move to a tax haven to avoid tax. Without changing country of residence, personal taxation may be avoided by the creation of a separate legal entity to which ones property is donated. The separate legal entity is often a company, trust, or foundation and these may also be located offshore, such as in the case of many private foundations. Assets are transferred to the new company or trust so that gains may be realized, or income earned, if assets are later transferred back to an individual, then capital gains taxes would apply on all profits. Also income tax would still be due on any salary or dividend drawn from the legal entity, for a settlor to avoid tax there may be restrictions on the type, purpose and beneficiaries of the trust. For example, the settlor of the trust may not be allowed to be a trustee or even a beneficiary, Tax results depend on definitions of legal terms which are usually vague. For example, vagueness of the distinction between business expenses and personal expenses is of concern for taxpayers and tax authorities
Tax avoidance
–
Avoiding the
window tax in England
36.
Tax evasion
–
Tax evasion is the illegal evasion of taxes by individuals, corporations, and trusts. Tax evasion is an activity associated with the informal economy. In contrast, tax avoidance is the use of tax laws to reduce ones tax burden. In 1968, Nobel laureate economist Gary Becker first theorized the economics of crime, allingham and A. Sandmo produced, in 1972, an economic model of tax evasion. This model deals with the evasion of 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, the literatures theoretical models are elegant in their effort to identify the variables likely to affect non-compliance. Alternative specifications, however, 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 influenced by the tax rate, the unemployment rate. The U. S. Tax Reform Act of 1986 appears to have reduced tax evasion in the United States, customs duties are an important source of revenue in developing countries. Importers purport to evade customs duty by under-invoicing and misdeclaration of quantity, 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 importation or exportation of products by illegal means. Smuggling is resorted to for total evasion of customs duties, as well as for the importation of contraband, 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, and no state currently collects VAT, the overwhelming majority of states instead collect sales taxes. Canada uses both a VAT at the level and sales taxes at the provincial level, some provinces have a single tax combining both forms. In addition, most jurisdictions which levy a VAT or sales tax also legally require their residents to report and this is especially prevalent in federal countries like Nigeria, US and Canada where sub-national jurisdictions charge varying rates of VAT or sales tax. In Nigeria, for example, some federated states enforce VAT on each item of goods sold by traders, the price must be clearly stated and the VAT shown separately from the basic price. If the trader does not comply this is punishable as an attempt to siphon the VAT, therefore, it is not generally cost-effective to enforce tax collection on low-value goods carried in private vehicles from one jurisdiction to another with a different tax rate
Tax evasion
–
The ten countries with the largest absolute levels of tax evasion per year. A 2011 estimate was that tax evasion amounts to 5 percent of the global economy.
Tax evasion
–
The size of the shadow economy in Europe, 2011.
Tax evasion
–
A "Lion's Mouth" postbox for anonymous denunciations at the
Doge's Palace in Venice, Italy. Text translation: "Secret denunciations against anyone who will conceal favors and services or will collude to hide the true revenue from them."
37.
Tax resistance
–
Tax resistance is the refusal to pay tax because of opposition to the government that is imposing the tax, or to government policy, or as opposition to taxation in itself. Tax resistance is a form of action and, if in violation of the tax regulations. Examples of tax resistance campaigns include those advocating home rule, such as the Salt March led by Mahatma Gandhi, and those promoting womens suffrage, such as the Womens Tax Resistance League. War tax resistance is the refusal to pay some or all taxes that pay for 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, 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, because taxation is oppressive, governments have always struggled with tax noncompliance and resistance. Indeed, it has suggested that tax resistance played a significant role in the collapse of several empires, including the Egyptian, Roman, Spanish. Reports of collective tax refusal include Zealots resisting the Roman poll tax during the 1st century AD, other historic events that originated as tax revolts include the Magna Carta, the American Revolution and the French Revolution. War tax resisters often highlight the relationship between tax and war. Tax resisters come from a range of backgrounds with diverse ideologies. For example, Henry David Thoreau and William Lloyd Garrison drew inspiration from the American Revolution, 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. Some taxpayers pay their taxes, but 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, other tax resisters change their lifestyles so that they owe less tax. For example, UK citizens pay no income tax if their income is below the personal allowance. Opposition to war has led some, such as Ammon Hennacy and Ellen Thomas and these individuals believe that their government is engaged in immoral, unethical or destructive activities such as war, and paying taxes inevitably funds these activities. A resister may decide to reduce their tax paid through tax evasion. For instance, one way to evade tax is to only work for cash-in-hand. Some tax resisters refuse to pay all or a portion of the taxes due, in this way, they demonstrate that the intent of their resistance is not selfish and that they want to use a portion of their earnings to contribute to the common good
Tax resistance
–
Gandhi making salt and disobeying the British
salt production and tax laws.
Tax resistance
–
Egyptian peasants seized for non-payment of taxes during the
Pyramid Age.
Tax resistance
–
Boston Tea Party, 16 December 1773.
Tax resistance
–
Henry David Thoreau, author of
Civil Disobedience.
38.
Tax haven
–
A tax haven is a jurisdiction that offers favorable tax or other conditions to its taxpayers as relative to other jurisdictions. There is no accepted definition of what renders a country or jurisdiction a tax haven. The term most commonly refers to countries or jurisdictions that have a low-tax or no-tax regime or which offer generous tax incentives. Some refer to secrecy jurisdictions as an alternative to tax havens to emphasise the element. Earnings from income generated from real estate can also be eliminated in this way, if taxes are paid in the tax haven jurisdiction, companies can avoid taxes in their home jurisdiction because the tax had already been paid in the lower tax rate jurisdiction. The only thing that can be done is picking a country that has the smallest rates on these taxes before buying any real estate, individuals or corporate entities may establish shell subsidiaries or move themselves to areas with reduced or no taxation levels relative to typical international taxation. This creates a situation of tax competition among jurisdictions, different jurisdictions may be havens for different types of taxes, and for different categories of people or companies. Sovereign jurisdictions or self-governing territories under international law have the power to tax laws affecting their territories. A2012 report by the British Tax Justice Network estimated that between US$21 trillion and $32 trillion is sheltered from taxes in unreported tax havens worldwide. If such wealth earns 3% annually and such capital gains were taxed at 30%, if such hidden offshore assets are considered, many countries with governments nominally in debt are shown to be net creditor nations. Another recent study estimated the amount of global offshore wealth at the smaller—but still sizable—figure of US$7.6 trillion and this estimate included financial assets only, My method probably delivers a lower bound, in part because it only captures financial wealth and disregards real assets. After all, high-net-worth individuals can stash works of art, jewelry, and gold in freeports, warehouses that serve as repositories for valuables—Geneva, Luxembourg, high-net-worth individuals also own real estate in foreign countries. A study of 60 large US companies found that they deposited $166 billion in offshore accounts during 2012, there are several definitions of tax havens. In 2002 The Economist adopted the description by Geoffrey Colin Powell, the Economist points out that this definition would still exclude a number of jurisdictions traditionally thought of as tax havens. Similarly, an Australian journalist suggested that any country which modifies its tax laws to attract foreign capital could be considered a tax haven. According to other definitions, the feature of a haven is that its laws. This prevents the transmittance of information about taxpayers who are benefiting from the low tax jurisdiction, lack of transparency – A lack of transparency in the operation of the legislative, legal or administrative provisions is another factor used to identify tax havens. The OECD is concerned that laws should be applied openly and consistently, lack of transparency in one country can make it difficult, if not impossible, for other tax authorities to apply their laws effectively
Tax haven
–
A global map of tax havens, using the list in the proposed 2007 "
Stop Tax Haven Abuse Act ", US Congress.
39.
Smuggling
–
There are various motivations to smuggle. Examples of non-financial motivations include bringing banned items past a security checkpoint or the removal of classified documents from a government or corporate office, Smuggling is a common theme in literature, from Bizets opera Carmen to the James Bond spy books Diamonds are Forever and Goldfinger. The verb smuggle, from Low German schmuggeln or Dutch smokkelen, apparently a frequentative formation of a meaning to sneak. Smuggling has a long and controversial history, probably dating back to the first time at which duties were imposed in any form, in England smuggling first became a recognised problem in the 13th century, following the creation of a national customs collection system by Edward I in 1275. Medieval smuggling tended to focus on the export of highly taxed export goods — notably wool, merchants also, however, sometimes smuggled other goods to circumvent prohibitions or embargoes on particular trades. Most studies of historical smuggling have been based on official sources — such as court records, according to Dr Evan Jones, the trouble with these is that they only detail the activities of those dumb enough to get caught. This has led him and others, such as Prof Huw Bowen to use records to reconstruct smuggling businesses. Grain smuggling by members of the elite, often working closely with corrupt customs officers, has also been shown to have been prevalent in East Anglia during the later 16th century. In England wool was smuggled to the continent in the 17th century, the principal reason for the high duty was the need for the government to finance a number of extremely expensive wars with France and the United States. The thievery was boasted about and romanticized until it seemed a kind of heroism and it did not have any taint of criminality and the whole of the south coast had pockets vying with one another over whose smugglers were the darkest or most daring. The Smugglers Inn was one of the commonest names for a bar on the coast, in Henley Road, smuggling in colonial times was a reaction to the heavy taxes and regulations imposed by mercantilist trade policies. After American independence in 1783, smuggling developed at the edges of the United States at places like Passamaquoddy Bay, St. Marys in Georgia, Lake Champlain, and Louisiana. During Thomas Jeffersons embargo of 1807-1809, these places became the primary places where goods were smuggled out of the nation in defiance of the law. Like Britain, a gradual liberalization of laws as part of the free trade movement meant less smuggling. In 1907 President Theodore Roosevelt tried to cut down on smuggling by establishing the Roosevelt Reservation along the United States-Mexico Border, Smuggling revived in the 1920s during Prohibition, and drug smuggling became a major problem after 1970. In the 1990s, when sanctions were imposed on Serbia. The state unofficially allowed this to continue or otherwise the entire economy would have collapsed, much smuggling occurs when enterprising merchants attempt to supply demand for a good or service that is illegal or heavily taxed. As a result, illegal trafficking, and the smuggling of weapons, as well as the historical staples of smuggling, alcohol
Smuggling
–
A skirmish with smugglers from
Finland at the
Russian border, 1853. A painting by Vasily Hudiakov.
Smuggling
–
The International Anti-Opium Association, Peking "The War Against Opium
Smuggling
–
A poster warning the German women and girls about the danger of human traffic in the USA (ca 1900)
Smuggling
–
Actress and
UNICEF Ambassador Lucy Liu spoke out against human trafficking and lauded USAID efforts to increase awareness
40.
Black market
–
Parties engaging in the production or distribution of prohibited goods and services are members of the illegal economy. Examples include the trade, prostitution, illegal currency transactions. Violations of the tax code involving income tax evasion constitutes membership in the unreported economy, because tax evasion or participation in a black market activity is illegal, participants will attempt to hide their behavior from the government or regulatory authority. Cash usage is the medium of exchange in illegal transactions since cash usage does not leave a footprint. Common motives for operating in markets are to trade contraband, avoid taxes and regulations. Typically the totality of such activity is referred to with the article as a complement to the official economies, by market for such goods and services. Black money is the proceeds of a transaction, on which income and other taxes have not been paid. Because of the nature of the black economy it is not possible to determine its size. There is no single underground economy, there are many and these underground economies are omnipresent, existing in market oriented as well as in centrally planned nations, be they developed or developing. Different types of activities are distinguished according to the particular institutional rules that they violate. Illegal economy participants engage in the production and distribution of prohibited goods and services, such as trafficking, arms trafficking. The unreported economy consists of economic activities that circumvent or evade the institutionally established fiscal rules as codified in the tax code. A summary measure of the economy is the amount of income that should be reported to the tax authority but is not so reported. A complementary measure of the economy is the tax gap. In the U. S. unreported income is estimated to be $2 trillion resulting in a tax gap of $450–$500 billion, the unrecorded economy consists of those economic activities that circumvent the institutional rules that define the reporting requirements of government statistical agencies. A summary measure of the economy is the amount of unrecorded income. Unrecorded income is a problem in transition countries that switched from a socialist accounting system to UN standard national accounting. New methods have been proposed for estimating the size of the unrecorded economy, but there is still little consensus concerning the size of the unreported economies of transition countries
Black market
–
Grey market
Black market
–
A black market in
Shinbashi in 1946.
Black market
–
A black market salesman depicted in
graffiti in
Kharkov, Ukraine (2008)
Black market
–
Barcelona 2015
41.
Tax rate
–
In a tax system, the tax rate is the ratio at which a business or person is taxed. There are several methods used to present a tax rate, statutory, average, marginal and these rates can also be presented using different definitions applied to a tax base, inclusive and exclusive. A statutory tax rate is the legally imposed rate, an income tax could have multiple statutory rates for different income levels, where a sales tax may have a flat statutory rate. The statutory tax rate is expressed as a percentage and will always be higher than the tax rate. An average tax rate is the ratio of the amount of taxes paid to the total tax base. Let t be the tax liability. Let i be the tax base. In a proportional tax, the tax rate is fixed and the tax rate equals this tax rate. In case of tax brackets, commonly used for progressive taxes, the average tax rate increases as taxable income increases through tax brackets, asymptoting to the top tax rate. Under this system, someone earning $25,000 would pay $1,000 for the first $10,000 of income, $2,000 for the second $10,000 of income, in total, they would pay $4,500, or an 18% average tax rate. A marginal tax rate is the tax rate an individual would pay on one additional dollar of income, thus, the marginal tax rate is the tax percentage on the last dollar earned. In the United States in 2013, for example, the highest marginal income tax rate was 39. 6%. Earnings under $400,000 that year had a tax rate of 33% or less. The marginal tax rate on income can be expressed mathematically as follows, Δ t Δ i where t is the tax liability and i is total income. In accounting practice, the tax numerator in the above equation usually includes taxes at federal, state, provincial, marginal tax rates are applied to income in countries with progressive taxation schemes, with incremental increases in income taxed in progressively higher tax brackets. In economics, one theory is that tax rates will impact the incentive of increased income. With a flat tax, by comparison, all income is taxed at the same percentage, an example is a sales tax where all purchases are taxed equally. A poll tax is a tax of a set dollar amount per person
Tax rate
–
Mathematically, 25% income tax out of $100 income yields the same as 33% sales tax on a $75 purchase.
42.
Progressive tax
–
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
–
A caricature of
William Pitt the Younger collecting the newly introduced income tax.
Progressive tax
–
"Tax The Rich" banner at an
IUSY campaign for a
financial transaction tax.
43.
Regressive tax
–
A regressive tax is a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases. Regressive describes an effect on income or expenditure, referring to the way the rate progresses from high to low. These taxes tend to reduce the tax burden of the people with an ability to pay. The regressivity of a tax can also factor the propensity of the taxpayers to engage in the taxed activity relative to their resources. In other words, if the activity being taxed is more likely to be carried out by the poor and less likely to be carried out by the rich, the tax may be considered regressive. To measure the effect, the elasticity of the good being taxed as well as the income substitution effect must be considered. The measure can be applied to taxes or to a tax system as a whole. The opposite of a tax is a progressive tax, in which the average tax rate increases as the amount subject to taxation increases. In between is a flat or proportional tax, where the tax rate is fixed as the amount subject to taxation increases, poll taxes A tax with a cap, above which no taxes are paid. So-called sin taxes have also criticized for being regressive, as they are often consumed more by the lower classes. For example, people in the bottom income quintile spend a 78% larger share of their income on alcohol taxes than people in the top quintile. Tobacco in particular is highly regressive, with the bottom quintile of income paying an effective rate 583% higher than that of the top quintile. An allowance reduction in a tax system allows for an individuals personal allowance to be withdrawn. In the UK there is an effective 60% band at £100,000 that returns to 40% at £120,000, non-uniform excise taxation based on everyday essentials like food, transport, energy and housing is frequently regressive on income. The income elasticity of demand of food, for example, is less than 1 and therefore as a households income rises. Therefore, as a proportion of expenditure, the relative tax burden falls more heavily on households with lower incomes. Low rates of tax and capital gains tax, which increase the value of inherited wealth. Such tax policies benefit wealthy individuals or those in wealthy families disproportionately, in that sense, Social Security benefits are progressive
Regressive tax
–
Taxation
44.
Proportional tax
–
A proportional tax is a tax imposed so that the tax rate is fixed, with no change as the taxable base amount increases or decreases. The amount of the tax is in proportion to the amount subject to taxation, proportional describes a distribution effect on income or expenditure, referring to the way the rate remains consistent, where the marginal tax rate is equal to the average tax rate. It can be applied to taxes or to a tax system as a whole. Proportional taxes maintain equal tax incidence regardless of the ability-to-pay and do not shift the incidence disproportionately to those with a higher or lower economic well-being. Flat taxes, implemented as well as proposed, usually exempt from taxation household income below a statutorily determined level that is a function of the type, as a result, such a flat marginal rate is consistent with a progressive average tax rate. A progressive tax is a tax imposed so that the tax increases as the amount subject to taxation increases. The opposite of a tax is a regressive tax, where the tax rate decreases as the amount subject to taxation increases. The French Declaration of the Rights of Man and of the Citizen of 1789 proclaims, A common contribution is essential for the maintenance of the public forces and this should be equitably distributed among all the citizens in proportion to their means. Proportional taxes on consumption are considered by some to be regressive, a regressive tax is when the average tax rate is lower, with higher income. So income and average tax rate have an inverse relationship, however, this calculation is derived when the tax paid is divided not by the tax base but by income, which is argued to create an arbitrary relationship. The tax rate itself is proportional, with people with higher incomes paying more tax, if a consumption tax is to be related to income, the unspent income can be treated as tax-deferred, at which time it is taxed creating a proportional rate using an income base. However, consumption taxes such as a tax can often exclude items or provide rebates in an effort to create social justice. In many locations, necessary items such as non-prepared food, clothing, a poll tax is a fixed tax for each person. Since each person pays the amount of money, it is proportional to the taxed service. Television licences that are implemented in many countries, especially in Europe, are proportional taxes when they consist of an annual payment for the use of a television. A tithe where 10% of something, often income, is paid as a contribution to an organization or charity. Several US States impose a proportional income tax for individuals. These states are Colorado, Indiana, Illinois, Massachusetts, Michigan, Pennsylvania and Utah
Proportional tax
–
Taxation
45.
List of taxes
–
This page, a companion page to tax, lists different taxes by economic design. For different taxes by country, see Tax rates around the world, corporate tax is levied on the earnings or profits of a corporation. Dividend tax is a tax on dividends paid to shareholders of a company, excess profits tax is a tax on unusually high profits levied on a corporation. This was largely levied in the United States in times of war to prevent war profiteering, flat tax, an income tax where everyone pays the same tax rate. Gift tax, a tax on gifts received, gross receipts tax, a tax on revenues received by a corporation, even if they dont profit. Hall–Rabushka flat tax, a tax on income that excludes investments. Inheritance tax, a tax paid on money gained through inheritance Negative income tax, windfall profits tax is a tax on profits gained by a company that has some kind of large unexpected profit. FICA tax is a tax levied in the United States to fund Social Security, pay-as-you-earn tax is a tax paid on each paycheck to pay towards income tax. It is commonly refunded when taxpayers file income tax returns, withholding tax is money withheld from a paycheck, often to contribute to income tax liability. Most property taxes charge for both the value of the land and the value of any buildings or other improvements on the land, carucage was a tax on land levied in Medieval England. The tax was collected when the government required extra revenue and was never levied regularly. Council Tax is a tax in the United Kingdom on houses, danegeld was a tax paid to the Vikings to ensure the Vikings would not raid a persons land. Kharaj is an Islamic tax on agricultural land, land value tax is a tax on the value of land that does not tax the value of the improvements on the land. Tallage, a tax on land levied in Medieval Europe, window tax was a tax levied in England based on the number of windows on a building. A general tax refers to a tax that applies to all or most goods and services, an excise tax refers to a tax on a single item, which may be different than the tax levied on other items. Sales tax is a tax on retail sales, value added tax is a tax on manufacturing that taxes the difference between the cost of raw materials and the cost of the final product. FairTax is a proposal to every tax in a particular country with a single retail sales tax. To avoid having the tax being regressive, the tax system would provide a rebate to every citizen subject to the tax
List of taxes
–
Taxation
46.
Direct tax
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The term may be used in economic and political analyses, but does not itself have any legal implications. However, in the United States, the term has special significance because of a provision in the U. S. Constitution that direct taxes imposed by the government be apportioned among the states on the basis of population. In the European Union direct taxation remains the responsibility of member states. In general, a tax is one imposed upon an individual person or property as distinct from a tax imposed upon a transaction. In this sense, indirect taxes such as a tax or a value added tax are imposed only if. Some commentators have argued that a tax is one that cannot be shifted by the taxpayer to someone else. The unconditional, inexorable aspect of the tax was a paramount concern of people in the 18th century seeking to escape tyrannical forms of government. Income taxes on income from services such as wages are indirect taxes in this sense. The Court reasoned that the tax is not a capitation because not everyone will be required to pay it, rather it is triggered by specific circumstances. In the United States, Article I, Section 9, Clause 4 of the Constitution requires that direct taxes imposed by the government be apportioned among the states on the basis of population. After the 1895 Pollock ruling, this made it difficult for Congress to impose a national income tax that applied to all forms of income until the 16th Amendment was ratified in 1913. After the Sixteenth Amendment, no Federal income taxes are required to be apportioned, with regard to European Union direct taxes, Member States have taken measures to prevent tax avoidance and double taxation. Indirect tax United Kingdom Corporation Tax Income tax in the United States Foster, commentaries on the Constitution of the United States, Historical and Judicial. Boston, The Boston Book Co. pp. 415–423
Direct tax
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Taxation
