Who would pay the taxes, Nilekani decides!
Government plans to use big data, analytics for taxation!On the other hand, decontrol process for LPG is complete as now, Moily has permitted the sale of these smaller cylinders at all petrol pumps across the country.
Reliance Industries refuses to sign Oil Ministry resolution
PlanComm convenes meeting to discuss mining issues
Palash Biswas
Who would pay the taxes, Nilekani decides!
This is the master plan.
Biometric digital technology to help overloading taxes against those who are ousted from the economy.
This is the motto of unconstitutional illegal UIP NATO Plan of surveillance adopted by the corporate raj.
Government plans to use big data, analytics for taxation!On the other hand, decontrol process for LPG is complete as now, Moily has permitted the sale of these smaller cylinders at all petrol pumps across the country.Investors poured some USD 54.2 billion into all equity mutual funds and exchange-traded funds in October, the third-largest inflow on record, data from TrimTabs Investment Research showed on Sunday.All three of the largest monthly inflows into all equity funds have occurred this year, and this year`s inflow of USD 286 billion into all equity funds is the biggest since 2000, TrimTabs added.
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*As government looks at ways to analyse huge amounts of data available on corporate as well as individual level to increase tax collections by studying various parameters like spending patterns, IT companies expect strong growth in the big data and analytics business in the coming years.
Taxation laws can play a significant role in the country's economic growth and its integration with the world,Union Minister Sudarsana Natchiappan has said.
"The core principle and ideas of taxation still remained as they were envisaged in the time before us, as a means of giving back to the society and the world we live in," he said at a conference.
Danny Alexander, UK's chief secretary to the treasury, said that the Vodafone tax dispute has not deterred British investments into India.
Recent legislative and case-law developments have clarified India's position on a number of tax and transfer pricing issues.
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Indiataxes.com – Online Taxation Help India | Income Tax Calculator ...
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After the success of pilot programmes in five metro cities, Oil Minister M Veerappa Moily Monday allowed the sale of 5-kg cooking gas (LPG) cylinders at petrol pumps across the country.
The scheme, launched on October 5, allowed petrol pumps owned and operated by oil companies in Delhi, Mumbai, Kolkata, Chennai and Bengaluru to sell the 5-kg cylinders. Company owned and operated outlets make up for 3 percent of the 47,000 petrol pumps in the country.
Now, Moily has permitted the sale of these smaller cylinders at all petrol pumps across the country, official sources said.
The smaller cylinders will be sold at market rates, which are more than double the subsidised price of Rs 410 per 14.2-kg cylinder in Delhi.
However, the scheme will be deferred in Delhi, Rajasthan, Madhya Pradesh and Chhattisgarh, where assembly elections are being held in November and December.
The Oil Ministry today issued orders extending the scheme to other parts of the country.
Retail outlets not owned and operated by the oil companies may be included in the scheme, subject to statutory clearances, it said. Such petrol pumps have to fulfil the safety norms and conditions provided in the scheme.
Indian Oil, Bharat Petroleum and Hindustan Petroleum own and operate a combined 1,440 outlets across the country. For the launch of the scheme, a few dozen pumps in the five cities were initially chosen.
The scheme will be a boon for the migratory population such as students, IT professionals and BPO employees, as well as people with odd work hours. It offers them the flexibility to pick up cylinders and obtain refills at the time of their choice because petrol stations are open for longer hours than LPG dealers, sources said.
Meanwhile,helped by rally in the market value of Coal India Ltd and Bharti Airtel, top-eight Sensex companies saw their total market valuation climb by a cumulative Rs 47,381 crore last week.
While TCS, RIL, ONGC, CIL, HDFC Bank, Bharti, HDFC and HUL saw rise in their market capitalisation (m-cap), ITC and Infosys suffered losses.
The m-cap of Bharti spurted by Rs 8,675 crore to Rs 1,46,045 crore, making the telecom major the biggest gainer among the top-10 firms.
After Bharti, state-run CIL was the star performer as its valuation surged Rs 8,274 crore to Rs 1,84,532 crore.
RIL's market cap jumped Rs 7,318 crore to Rs 2,93,534 crore, while mortgage lender HDFC added Rs 6,680 crore to its value reaching Rs 1,32,867 crore mark and TCS saw its valuation zoom by Rs 6,312 crore to Rs 4,11,234 crore.
The market value of ONGC rose by Rs 5,091 crore to Rs 2,47,938 crore, while HUL saw its m-cap climb Rs 3,058 crore to Rs 1,31,559 crore and HDFC Bank's valuation soared by Rs 1,973 crore to Rs 1,62,810 crore.
On the other hand, ITC lost Rs 7,453 crore to Rs 2,62,048 crore from its m-cap, while Infosys' value dipped by Rs 2,959 crore to Rs 1,88,320 crore.
In the list of top-10 companies, TCS continued to rule the chart, followed by RIL, ITC, ONGC, Infosys, CIL, HDFC Bank, Bharti, HDFC and HUL.
For the week October 25-November 3, the BSE benchmark Sensex rose by 2.68 percent or 555.84 points.
"Government is planning to use analytics to increase its revenue base," Raghu Cavale, vice president and head of India business at Infosys, India's second largest software services exporter, told PTI.
He said the country's tax-payer base is just about 3 crore and the number has been inching its way slowly for the last 5-10 years, which the government would like to see growing at a faster pace.
"The economy has been expanding, which essentially means that the number of people coming in the tax rate should be more. But it is not so," Mr Cavale added.
Big data and analytics businesses of IT firms aim at storing, sorting and analysing vast amounts of data across various fields - finance, marketing, healthcare, utilities, climate and transaction records.
According to government data, the total tax payers in the country stood at about 3.24 crore during fiscal year 2011-12 (FY12).
"As a nation, we can put together all the data. If you travel abroad, buy expensive jewellery, we can check your digital footprints on online shopping and piece together a person's lifestyle and through that create a taxable database," Mr Cavale said.
Citing an example, he said the government in Italy follows people's lifestyle, travel and spending pattern so as to track those who could be evading taxes.
"So can we use this data analytics to expand out taxable database. Our total direct taxes are only 9 per cent of our GDP, whereas it should be about 18 per cent, and you cannot raise it by taxing people who you have already taxed. You are going to use analytics," he added.
On government's use of IT for collecting and utilizing income tax information, Mr Cavale said, "We are discussing with the government many projects. Some have already been tendered, which we have won. Some other people are doing it. Government is very well aware of data warehousing and analytics. It is talking to us as well as other firms."
The Finance Ministry had collected Rs. 4.73 lakh crore in indirect taxes during 2012-13. For the current fiscal, it has fixed the target of collecting Rs. 5.65 lakh crore in indirect taxes, comprising customs, excise and service tax.
Total collection of indirect taxes stood at about Rs. 2,28,550 crore during the first six months of 2013-14.
Direct tax collection from corporate and income tax payers, which was at Rs. 14,530 crore till August, surged to Rs. 18,077 crore till September 15, 2013.
Mr Cavale said Infosys is competing seriously for government deals in this area and has won some like the income tax department's online filing of returns as well as managing banking and insurance operations for India Post.
"The challenge right now is to scale this and create more efficiency, both in terms of the solutions we bring to the market, our own efficiency and, of course, how all this finally boils down to revenue stream."
Information technology can be harnessed to clearly see the position at any given point of time and help make sound financial decisions, he said, adding that it can help computerise of all government records at the central as well as state levels.
"Ideally at the end of the day our Finance Minister, like a good businessman, should be able to say what is my current account deficit for the day," Mr Cavale added.
He said the basic aim on which Infosys has been speaking to various wings of the government is to create a medium at state government's level, so that the state treasury is computerised, state taxes are computerised and these are linked with the centre.
For the quarter ended September 30, 2013, Infosys clocked revenues of Rs. 317 crore from India and a segment profit of Rs. 121 crore.
Foreign Portfolio Investors (FPIs) will get all the tax benefits available to foreign institutional investors (FIIs). They will also not have to fulfil the Know Your Customer norms separately for opening bank accounts, the Finance Ministry said.
On October 5, the Securities and Exchange Board of India had announced a new category of investors, called the FPI, by merging the existing FIIs, sub-accounts and qualified foreign investors. The decision was taken on the basis of recommendations by the K.M. Chandrasekhar Committee, which suggested that the Government could consider bringing more clarity and certainty while prescribing tax provisions for FPIs.
"Taxation benefits available to FIIs would be transferred to FPIs," a senior Finance Ministry official told Business Line, outlining the Ministry's effort to bring clarity in the new tax regime.
WITHHOLDING TAX
Earlier on May 21, the Finance Ministry had said that foreign investors would have to pay only 5 per cent withholding tax (against 20 per cent earlier) on interest earned through investment made in rupee-denominated long-term infrastructure bonds issued by Indian companies and Government securities.
Withholding tax is similar to tax deducted at source, but is meant for non-resident investors.
Foreign investors are also not required to have permanent account numbers to claim lower withholding tax.
Similarly, foreigners investing in the equity market get tax benefits on long-term (investments of more than a year) profit earned, as prescribed by the Double Taxation Avoidance Agreements with various countries.
For example, like India, Mauritius, too, prescribes zero duty on profit earned on selling equities after one year. FIIs using the Mauritius route will not have to pay any tax on long-term profits here.
Vasudha Sundararaman, MD and CEO of SBISG Custodial Services, feel that the Revenue Department needs to give a go-ahead to legislative changes proposed by the Chandrasekhar Committee to give FPIs at par treatment with FIIs. She said, for the successful execution of the regime, it would be vital that KYC requirements of SEBI and the RBI to be on the same page.
According to the Finance Ministry official, RBI's KYC norms were for opening bank accounts and were, therefore, simpler. "If the two are aligned, it would cause inconvenience to millions of new bank account holders, but not vice versa. In other words, KYC done by SEBI should be adequate for opening bank accounts," he added.
On the overall structure of FPIs, Sundararaman said, the guidelines by SEBI were clear and had covered all the aspects of FII entry into India. "Approval in flat 10 days is a remarkable step for the success of the FPI regime," she said. The SBI SG was a member of the committee.
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Mind you, nearly three-quarters of Indian business leaders believe the government has mismanaged the economy and want Bharatiya Janata Party (BJP) leader Narendra Modi to lead the country after an election due by May next year, according to an opinion poll published.
With India's 80-year-old Prime Minister Manmohan Singh expected to step aside, only 7 percent of 100 chief executive officers surveyed for the Economic Times/Nielsen poll backed the ruling Congress party's Rahul Gandhi for the premiership.
Rahul represents the fourth generation of the Nehru-Gandhi dynasty that has led Congress, and India, for much of the time since independence from Britain in 1947. His late father, grandmother and great-grandfather were all prime ministers.
But after a decade in power, Congress is widely expected to struggle at the polls, as the economy is growing at its slowest rate in a decade, and the rupee's plunge to record lows has evoked bad memories of an economic crisis in 1991.
"After a long policy drought, CEOs are impatient for strong leadership, intent, decisions and action. Modi they seem to think has more to show than Gandhi on all these counts," the Economic Times said in its comments on the results of the poll.
The survey was conducted by Nielsen between August 1 and the beginning of September and covered the chief executive officers of companies worth more than 5 billion rupees across different industries.
Neither Modi nor Gandhi have been formally named as candidates and neither has publicly said they want the job, but the coming election has often been framed as a presidential-style race between the two men.
Indian business has in the past applauded Modi as an investor-friendly chief minister who has led Gujarat to double-digit economic growth.
And the results of the poll represent the strongest recorded vote of confidence yet from industry for Modi, who is otherwise often seen as a polarising figure, due to his Hindu nationalist ideology and the deadly riots in Gujarat in 2002, when according to rights groups at least 2,000 Muslims were killed.
Gandhi, 43, has focused more on reviving the Congress party's political fortunes and, along with his mother Sonia, he been a vocal supporter of welfare programmes for the millions of poor. Otherwise, he rarely speaks in public and has said little about how to boost India's economic growth.
His solitary appearance before captains of industry in January failed to ignite enthusiasm and his speech was criticised for being vague and rambling.
Regardless of who wins, an overwhelming majority of business leaders said they wanted a stable government after the election, though neither the BJP or the Congress is expected to win a clear majority.
The worry among investors is that a "third front" made up of regional parties with competing agendas may end up forming a fragile government that may not survive long.
Business leaders surveyed in the poll, however, thought that the economy has bottomed out with 42 percent forecasting a slight uptick in growth from the 4.4 percent reported in the last quarter to over 5 percent this year and the next. That is still far below the level policy makers say is needed to create jobs for the millions of youth joining the workforce.
PlanComm convenes meeting to discuss mining issues
Planning Commission has convened a high level meeting of concerned ministries on Thursday to discuss issues related to mining, including the ban on such activities in some states, to boost output.
A high-level meeting of the ministries concerned is scheduled on November 7, for discussing the issues related to mining sector, a source said.
Planning Minister Rajeev Shukla had earlier said a meeting of secretaries of concerned ministries has been called to deliberate the issues related to mining sector particularly the ban on such activities in some states.
According to the minister, representatives from the Department of Land Resources under the Ministry of Rural Development, and those from ministries of environment & forest, and mines will participate in the meeting.
According to government's latest industrial production data, mining output contracted by 3.4 percent in April-August period compared to a dip of 1.8 percent in the same period in 2012-13.
In August, the mining production contracted by 0.2 percent compared to a decline of 0.3 percent in the same month of last year.
The decline in production is mainly attributed to the ban on mining in the mineral-rich states of Karnataka and Goa.
The ban in Karnataka was partially lifted in April this year, while Goa miners hope the ban to be lifted soon.
According to national accounts data, the mining and quarrying output is projected to come down to Rs 25,568 crore at factor cost (2004-05 prices) in value terms this fiscal from Rs 26,302 crore in 2012-13.
The government's provisional data reveals that the mining and quarrying output contracted by 2.8 percent for first quarter (April-June) this year compared to a growth in production by 0.4 in the same period last year.
Following the ban in iron ore mining in Karnataka in July 2011 and in Goa in September last year, India has gradually lost its place in the exports market.
Reliance Industries refuses to sign Oil Ministry resolution
Reliance Industries has refused to sign an Oil Ministry-sponsored resolution rejecting a revised investment plan for the main gas fields in the KG-D6 block, saying it does not reflect deliberations on the issue.
The KG-D6 block oversight panel headed by the Directorate General of Hydrocarbons (DGH) had on October 1 considered the reasons stated by RIL for lowering reserves in the producing Dhirubhai-1 and 3 gas fields in KG-D6 to 3.4 trillion cubic feet from 10.03 tcf approved in 2006.
Sources said the DGH and the Oil Ministry nominee on the panel, called the Management Committee (MC), disagreed with the geological reasons put forth by RIL for cutting the reserves and the drop in production to 10 million standard cubic meters per day from 54 mmscmd achieved in March 2010.
There was no agreement on appointing an independent international expert to go into the decline and to verify if gas is being hoarded, as has been alleged.
However, a resolution -- which means a decision taken at the MC meeting -- was sent to RIL and its partners, saying the panel had rejected the revised field development plan. RIL too circulated its version of detailed record notes or minutes of the meeting, sources said.
The DGH rejected the minutes, saying they did not "reflect the true proceedings of the meeting" but did not provide instances where they varied with the proceedings.
Sources said the DGH summoned an MC meeting last week to sign the resolution, but RIL refused to attend or sign it.
The Production Sharing Contract (PSC) states that MC meetings are convened by operators, not DGH or Oil Ministry.
The MC, which has the DGH as chairman and includes representatives of the Oil Ministry and the contractors, is supposed to work as a board of directors and take decisions together. The PSC provides for the MC to remove ambiguity in decision making and to ensure that decisions are not taken by either the operator or the regulatory authority in isolation.
The revised field development plan is critical in the Oil Ministry scheme of things to deny RIL the benefit of revised gas prices from April 1, 2014.
It is proposing to the Cabinet that the current rate of USD 4.2 per million British thermal units should be paid for gas from the D1 and D3 fields until it is proved that RIL did not deliberately suppress output. If the revised plan was to be accepted, it would have meant the ministry agrees with the reasons for the drop in output.
A revised investment plan for the MA field in the KG-D6 block, where output has dropped by 60 per cent, has been accepted and it will get the benefit of the new gas price of USD 8.4 per million Btu, sources added.
Govt discusses possibility of having more FTAs
The meeting of the Trade and Economic Relations Committee, attended among others by Commerce and Industry Minister Anand Sharma, held discussions with the aim of giving a boost to the economy, sources said.
The meeting also reviewed progress of various free trade agreements (FTAs) under negotiations, they added.
The discussions included the possibility of having more commerce-opening FTAs with various countries in Europe and Pacific, sources said.
India is negotiating several FTAs with various countries, including Australia, Canada, and New Zealand besides the European Union.
The economy in the first three months of 2013-14 grew at rate of 4.4 percent, the lowest rate in four years.
Recently, various external agencies had lowered their India growth projections for this financial year. The World Bank had slashed its India growth projection to 4.7 percent, while IMG lowered its India growth estimate to 3.75 percent for 2013-14.
Last year (2012-13), India economy grew at decade's low of 5 percent.
JUNE 24, 2013 BY OXFORDINDIASOCIETY
Revenue Foregone statement: Reading between the lines
Rohit Sinha
Tax expenditures or revenue foregone gives us a glimpse of the tax policy stance of the incumbent government. It gives us an idea of how tax concessions/relaxations/exemptions are conferred upon by the government on 'preferred' tax payers. Even though the absolute levels of taxation vary from year to year, depending on the political inclination of the government, these 'tax expenditures' are in one way or the other, hidden subsidies.
These hidden subsidies could be in the form of exemptions, special rates of tax, deductions on taxable income, rebates, tax deferment or tax credits. It is often argued that such implicit payments should appear as expenditure items in the Budget, and not on the receipt side as submitted currently. Some critics dispute that as long as tax expenditures are shown implicitly on the receipt side, their cost-benefit implications for the economy remain non-transparent. The impact of these outlays (tax expenditures) to the economy would be reflected more clearly if the same are categorized on the expenditure side.
| Table 1: Overview of Revenue Foregone 2011-12 (in Rs. Crore) | | ||
| Tax Type | Revenue Foregone | Aggregate Tax Collection | Revenue Foregone as a %age of Aggregate Tax Collection |
Corporation Tax | 61765 | 322816 | 19.1% |
Personal Income Tax | 39375 | 170342 | 21.3% |
Excise Duty | 195590 | 145607 | 134.3% |
Customs Duty | 236852 | 149327 | 158.63% |
TOTAL | 533582 | 788092 | 67.7% |
Source: Extracted from the Statement of Revenue Foregone and Annual Financial Statement, Union Budget 2013-14.
Compiling Table 1 from the latest budget figures released, one would find a very high percentage of 'give-aways' in proportion to the aggregate tax collection for the year 2011-12. Revenue foregone at 67.7% of the aggregate tax collection for the year 2011-12 is certainly a hefty number. Considering the fact that the government has largely failed to expand the tax base even after successive popular budgets, the Rs. 5.3 trillion of revenue foregone is not a comforting statistic. The provisional fiscal deficit for 2011-12 is Rs. 5.09 trillion.
A break-up of revenues foregone shows that the impression of over-generous allocation for deductions is not justified in all cases. Taking a look at each of the entries in Table 1, the smallest one, Personal Income Tax, would seem justified to most. The components under this entry include exemptions given on account of investments made by tax-payers in infrastructure bonds, donations made to charitable trusts and institutions, contributions to political parties, revenue foregone on account of higher exemption limit for women and senior citizens etc. This bracket would also include a tax credit of Rs. 2000, to every person who has a total income up to Rs. 5 lakh, proposed in the latest budget.
Analysing revenue foregone when it comes to Corporate Tax, it would be prudent to direct outlays towards firms that are smaller in size, so as to make them competitive against larger firms. However, latest released figures show that the effective tax rate (tax rate after the deductions/exemptions) decreased in reverse proportion to the total profits. The smallest companies (Rs. 0-1 Crore) had an effective tax rate of 26.26%, while the largest companies (greater than Rs. 500 Crore) enjoyed an effective tax rate of 21.67%. Evidently the incidence of tax among companies is highly asymmetric.
The real misgivings about these tax expenditures arise when analysing the indirect taxes, comprising of excise and custom duty. It is a well established fact, both in theory and practice, that indirect tax cuts are mostly cornered by the producers and only a small share is reflected in the consumer price. Thus the question is whether these outlays are actually reflected in reduced consumer prices through enhanced competitiveness or are being hoarded as profits by the producers? Evidently revenue foregone under excise duty is greater than the actual collections (see Table 1) and therefore this matter should be investigated thoroughly by tax authorities.
The largest component under the statement of revenue foregone is undoubtedly custom duty exemptions, i.e. exemptions on duty that is charged on imports. The largest share of customs duty foregone (Rs 65,975 Crore or 23%) is the commodity group of diamonds and gold. This is surprising, especially in the case of gold. The government has left no table unturned to limit gold imports in order to control the current account deficit (CAD), yet this commodity group occupies the largest share in terms of exemption given. In 2012-13 the estimated amount of custom duty foregone for diamond and gold would be Rs. 61,035 Crore or 20.5% of the total custom duty foregone.
| Table 2: Contribution of Top 5 Commodity Groups contributing to Custom Duty Foregone 2011-12 (in Rs. Crore) | ||
Sector | Revenue Foregone | % Share in Total Custom Duty Foregone |
Diamond & Gold | 65975 | 23% |
Crude Oil and Mineral Oils | 55576 | 19.5% |
Vegetables Oils | 32407 | 11.5% |
Machinery | 32386 | 11.5% |
Chemicals & Plastics | 20758 | 7% |
TOTAL | 207102 | 72.5% |
Source: Statement of Revenue Foregone, Union Budget 2013-14.
Table 2 clearly shows a picture that would displease many. The top two commodity groups that account for 42.5% share in the total duty foregone are clearly concessions on products that are consumed by the affluent sections of the Indian demographic. Indeed social activists have raised voices against these tax give-aways. Although these give-aways are provided to stimulate the economy, the direction of these tax expenditures needs to be debated comprehensively in the public domain. Tax Reforms Committees, from Chelliah to Kelkar, worked on removing tax breaks or at least reducing the extent. Nevertheless the situation has remained the same – the ratio of revenue foregone as a percent of aggregate tax collection was 68.95% in 2008-09, is 67.7% in 2011-12. This brings us to the pertinent question of whether numerous tax reforms in India have been able to progressively rationalise the tax system to cut down foregone revenues?
One would hope that the statement of revenue foregone presented along with the budget would play a significant role in enhancing the debate on tax administration reforms within the Parliament and outside. However it is almost always reduced to a political argument about the class divide present in the Indian society.
Rohit Sinha is a research scholar at the Centre for Economy & Development at the Observer Research Foundation, New Delhi.
Prime Minister Manmohan Singh to convene meeting of heads of over 20 CPSEs soon
Prime Minister Manmohan Singh is likely to convene soon a meeting of heads of CPSEs, mainly Maharatnas and Navratnas, to discuss issues such as investment plans, capital expenditure and autonomy and empowerment of government-run companies.
"The Prime Minister is likely to convene soon a meeting of chiefs of more than 20 central public sector enterprises (CPSEs), including Maharatnas and Navratnas, to discuss key issues and suggest ways to address them," an official source told PTI.
Besides, representations would be given by other PSUs, including sick ones, to the Prime Minister for consideration, the source added.
Minister for Heavy Industries and Public Enterprises Praful Patel would also attend the meeting.
India has around 260 CPSEs, including 60 sick units. With a total income of Rs 18.2 lakh crore, CPSEs accounted for 34.8 per cent of country's GDP in 2011-12.
"The meeting would give an opportunity to heads of PSEs like ONGC, NTPCBSE 0.24 % andBHELBSE 0.84 % to convey their views to the Prime Minister on several issues like autonomy and empowerment of CPSEs," the source said.
Issues like disinvestment plans, future investment plans and capital expenditure, professionalism in boards as well as their plan to go global would be discussed.
In October last year, for the first time the Prime Minister had convened a meeting of the captains of public sector undertakings (PSUs).
As on March 2012, CPSEs had a whopping cash and bank balance of Rs 2.8 lakh crore.
Industry sources said that enhanced investment by PSUs would provide the required push to slowing industrial and economic growth.
After recording modest growth of 2.8 per cent in July, India's industrial output slowed down sharply to 0.6 per cent in August mainly on account of a contraction in manufacturing and mining.
The Reserve Bank has scaled down India's growth projection to 4.8 per cent for the 2013-14 fiscal from 5.7 per cent estimated earlier.
Taxation in India
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An aspect of fiscal policy |
Distribution[show] |
Types[show] |
Taxes in India are levied by the Central Government and the state governments. Some minor taxes are also levied by the local authorities such as the Municipality.
The authority to levy a tax is derived from the Constitution of India which allocates the power to levy various taxes between the Centre and the State. An important restriction on this power is Article 265 of the Constitution which states that "No tax shall be levied or collected except by the authority of law."[1] Therefore each tax levied or collected has to be backed by an accompanying law, passed either by the Parliament or the State Legislature. In 2010-11, the gross tax collection amounted to 
Contents
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Constitutionally established scheme of taxation[edit]
Article 246[3] of the Indian Constitution, distributes legislative powers including taxation, between the Parliament of India and the State Legislature. Schedule VII[4] enumerates these subject matters with the use of three lists;
List - I entailing the areas on which only the parliament is competent to make laws,
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List - II entailing the areas on which only the state legislature can make laws, and
List - III listing the areas on which both the Parliament and the State Legislature can make laws upon concurrently.
Separate heads of taxation are no head of taxation in the Concurrent List (Union and the States have no concurrent power of taxation).[5] The list of thirteen Union heads of taxation and the list of nineteen State heads are given below:[5]
Central government[edit]
| S. No. | |
1 | Taxes on income other than agricultural income (List I, Entry 82) |
2 | Duties of customs including export duties (List I, Entry 83) |
3 | Duties of excise on tobacco and other goods manufactured or produced in India except (i) alcoholic liquor for human consumption, and (ii) opium, Indian hemp and other narcotic drugs and narcotics, but including medicinal and toilet preparations containing alcohol or any substance included in (ii). (List I, Entry 84) |
4 | Corporation Tax (List I, Entry 85) |
5 | Taxes on capital value of assets, exclusive of agricultural land, of individuals and companies, taxes on capital of companies (List I, Entry 86) |
6 | Estate duty in respect of property other than agricultural land (List I, Entry 87) |
7 | Duties in respect of succession to property other than agricultural land (List I, Entry 88) |
8 | Terminal taxes on goods or passengers, carried by railway, sea or air; taxes on railway fares and freight (List I, Entry 89) |
9 | Taxes other than stamp duties on transactions in stock exchanges and futures markets (List I, Entry 90) |
10 | Taxes on the sale or purchase of newspapers and on advertisements published therein (List I, Entry 92) |
11 | Taxes on sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce (List I, Entry 92A) |
12 | Taxes on the consignment of goods in the course of inter-State trade or commerce (List I, Entry 93A) |
13 | All residuary types of taxes not listed in any of the three lists (List I, Entry 97) |
14
State governments[edit]
| S. No. | |
1 | Land revenue, including the assessment and collection of revenue, the maintenance of land records, survey for revenue purposes and records of rights, and alienation of revenues (List II, Entry 45) |
2 | Taxes on agricultural income (List II, Entry 46) |
3 | Duties in respect of succession to agricultural income (List II, Entry 47) |
4 | Estate Duty in respect of agricultural income (List II, Entry 48) |
5 | Taxes on lands and buildings (List II, Entry 49) |
6 | Taxes on mineral rights (List II, Entry 50) |
7 | Duties of excise for following goods manufactured or produced within the State (i) alcoholic liquors for human consumption, and (ii) opium, Indian hemp and other narcotic drugs and narcotics (List II, Entry 51) |
8 | Taxes on entry of goods into a local area for consumption, use or sale therein (see Value added tax) (List II, Entry 52) |
9 | Taxes on the consumption or sale of electricity (List II, Entry 53) |
10 | Taxes on the sale or purchase of goods other than newspapers (List II, Entry 54) |
11 | Taxes on advertisements other than advertisements published in newspapers and advertisements broadcast by radio or television (List II, Entry 55) |
12 | Taxes on goods and passengers carried by roads or on inland waterways (List II, Entry 56) |
13 | Taxes on vehicles suitable for use on roads (List II, Entry 57) |
14 | Taxes on animals and boats (List II, Entry 58) |
15 | Tolls (List II, Entry 59) |
16 | Taxes on profession, trades, callings and employments (List II, Entry 60) |
17 | Capitation taxes (List II, Entry 61) |
18 | Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling (List II, Entry 62) |
19 | Stamp duty (List II, Entry 63) |
Any tax levied by the government which is not backed by law or is beyond the powers of the legislating authority may be struck down as unconstitutional.
Please show the list of central government tax and state government tax
Income Tax Department[edit]
Main article: Income Tax Department
Further information: Income tax in India
Income Tax Department functions under the Department of Revenue in Ministry of Finance. It is responsible for administering following direct taxation acts passed by Parliament of India.[6]
Income Tax Act
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Wealth Tax Act
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Gift Tax Act
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Expenditure Tax Act
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Interest Tax Act
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Various Finance Acts (Passed Every Year in Budget Session)
Income Tax Department is also responsible for enforcing Double Taxation Avoidance Agreements and deals with various aspects of international taxation such as Transfer Pricing. Finance Bill 2012 seeks to grant Income Tax Department powers to combat aggressive Tax avoidance by enforcing General Anti Avoidance Rules.[7]
Central Board of Direct Taxes[edit]
The Central Board of Direct Taxes (CBDT) is a part of the Department of Revenue in the Ministry of Finance, Government of India.[8] The CBDT provides essential inputs for policy and planning of direct taxes in India and is also responsible for administration of the direct tax laws through Income Tax Department. The CBDT is a statutory authority functioning under the Central Board of Revenue Act, 1963.It is India's official FATF unit.The Central Board of Revenue as the Department apex body charged with the administration of taxes came into existence as a result of the Central Board of Revenue Act, 1924. Initially the Board was in charge of both direct and indirect taxes. However, when the administration of taxes became too unwieldy for one Board to handle, the Board was split up into two, namely the Central Board of Direct Taxes and Central Board of Excise and Customs with effect from 1.1.1964. This bifurcation was brought about by constitution of the two Boards u/s 3 of the Central Boards of Revenue Act, 1963.
Organisational Structure of the Central Board of Direct Taxes : The CBDT is headed by CBDT Chairman and also comprises six members, all of whom are Special Secretary to Government of India.
Member (Income Tax)
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Member (Legislation and Computerisation)
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Member (Revenue)
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Member (Personnel & Vigilance)
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Member (Investigation)
Member (Audit & Judicial)
The CBDT Chairman and Members of CBDT are selected from Indian Revenue Service (IRS), a premier civil service of India, whose members constitute the top management of Income Tax Department.
Income Tax Act of 1961[edit]
The major tax enactment in India is the Income Tax Act of 1961 passed by the Parliament, which imposes a tax on income of individuals and corporations.[9] This Act imposes a tax on income under the following five heads:[10]
Income from house and property,
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Income from business and profession,
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Income from salaries,
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Income in the form of Capital gains, and
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Income from other sources
However, this Act is about to be repealed and be replaced with a new Act which consolidates the law relating to Income Tax and Wealth Tax, the new proposed legislation is called the Direct Taxes Code (to become the Direct Taxes Code, Act 2010). Act was referred to Parliamentary standing committee which has submitted its recommendations. Act is expected to be implemented with changes from the Financial Year 2013-14.[11]
Income tax rates[edit]
In terms of the Income Tax Act, 1961, a tax on income is levied on individuals,Firms, corporations and body of persons, Local authorities,Artificial Juridical persons. The rate of taxes are prescribed every year by the Parliament in the Finance Act, popularly called the Budget. In terms of the Finance Act, 2009, the rate of tax for individuals, HUF, Association of Persons (AOP) and Body of individuals (BOI) is as under;
A surcharge of 2.50% of the total tax liability is applicable in case the Payee is a Non-Resident or a Foreign Company; where the total income exceeds Rs 10,000,000.
Note : -
Education cess is applicable @ 3 per cent on income tax, inclusive of surcharge if there is any. A marginal rel↔ief may be provided to ensure that the additional IT payable, including surcharge, on excess of income over 
Service tax[edit]
Service tax is a part of Central Excise in India.[12] It is a tax levied on services provided in India, except the State of Jammu and Kashmir. The responsibility of collecting the tax lies with the Central Board of Excise and Customs(CBEC).
The ex-Finance Minister of India, Pranab Mukherjee in his Budget speech has indicated the government's intent of merging all taxes like Service Tax, Excise and VAT into a common Goods and Service Tax by the year 2011. To achieve this objective, the rate of Central Excise and Service Tax will be progressively altered and brought to a common rate.[citation needed] In budget presented for 2008-2009 It was announced that all Small service providers whose turnover does not exceed 
Wealth Tax Act, which has a regular history of being passed and repealed;
Service Tax, imposed under Finance Act, 1994, which taxes the provision of services provided by service providers within India or services imported by Indian from outside India;
Central Excise Act, 1944, which imposes a duty of excise on goods manufactured or produced in India;
Customs Act, 1962, which imposes duties of customs, counterveiling duties and anti-dumping duties on goods imported in India;
Central Sales Tax, 1956, which imposes sales tax on goods sold in inter-state trade or commerce in Indisale of property situated within the State;
Entertainment taxes
Now, Service Tax and Excise will be inclusive part of GST in due course of time.
See also[edit]
References[edit]
Jump up^ Article 265 of the Indian Constitution, retrieved 2009-04-18
Jump up^ "Economic growth boosts India's tax collection". Deccan Herald. Retrieved 2012-02-09.
Jump up^ Article 246 of the India Constitution, retrieved 2009-04-18
Jump up^ Seventh Schedule of the Indian Constitution, retrieved 2009-04-18
^ Jump up to:a b Distribution of Powers between Centre, States and Local Governments, retrieved 2009-04-18
Jump up^ "Union Budget 2012: GAAR empowers I-T department to deny tax benefits to 'companies'". The Times Of India. 2012-03-16.
Jump up^ Income Tax India. Income Tax India. Retrieved on 2013-07-19.
Jump up^ Indian Income Tax Act, 1961, retrieved 2009-04-18
Jump up^ Section 14 of Income Tax Act, retrieved 2009-04-18
Jump up^ "Direct Taxes Code Bill: Government keen on early enactment". The Times Of India. 2012-03-16.
Tax
| Taxation |
|---|
| An aspect of fiscal policy |
A tax (from the Latin taxo; "rate") is a financial charge or other levy imposed upon a taxpayer (an individual or legal entity) by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many administrative divisions. Taxes consist of direct or indirect taxes and may be paid in money or as its labour equivalent.
According to Black's Law Dictionary, a tax is a "pecuniary burden laid upon individuals or property owners to support the government [...] a payment exacted by legislative authority." It "is not a voluntary payment or donation, but an enforced contribution, exacted pursuant to legislative authority" and is "any contribution imposed by government [...] whether under the name of toll, tribute, tallage, gabel, impost, duty, custom, excise, subsidy, aid, supply, or other name."[1]
Contents
[hide]- 1 Overview
- 2 Purposes and effects
- 3 Kinds of taxes
- 4 History
- 5 Economic effects
- 6 Taxation in developing countries
- 7 Views on taxation
- 8 Theories on taxation
- 9 See also
- 10 Notes
- 11 Further reading
- 12 External links
Overview[edit]
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The legal definition and the economic definition of taxes differ in that economists do not consider many transfers to governments to be taxes. For example, some transfers to the public 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 (e.g., printing bills and minting coins), through voluntary gifts (e.g., contributions to public universities and museums), by imposing penalties (e.g., traffic fines), by borrowing, and by confiscating wealth. From the view of economists, a tax is a non-penal, yet compulsory transfer of resources from the private to the public sector levied on a basis of predetermined criteria and without reference to specific benefit received.
In modern taxation systems, taxes are levied in money; but, in-kind and corvée taxation are characteristic of traditional or pre-capitalist states and their functional equivalents. 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, the Internal Revenue Service (IRS) in the United States, orHer Majesty's Revenue and Customs (HMRC) in the United Kingdom. When taxes are not fully paid, civil penalties (such as fines orforfeiture) or criminal penalties (such as incarceration)[2] may be imposed on the non-paying entity or individual.
Purposes and effects[edit]
Money provided by taxation has been used by states and their functional equivalents throughout history to carry out many functions. Some of these include expenditures on war, the enforcement of law and public order, protection of property, economic infrastructure (roads, legal tender, enforcement of contracts, etc.), public works, social engineering, subsidies, and the operation of government itself. Governments also use taxes to fund welfare and public services. A portion of taxes also go to pay off the state's debt and the interest this debt accumulates. These services can include education systems, health care systems, pensions for the elderly, unemployment benefits, and public transportation. Energy, water and waste management systems are also common public utilities. Colonial and modernizing states have also used cash taxes to draw or force reluctant subsistence producers into cash economies.
Governments use different kinds of taxes and vary the tax rates. This is done to distribute the tax burden among individuals or classes of the population involved in taxable activities, such as business, or to redistribute resources between individuals or classes in the population. Historically, the nobility were supported by taxes on the poor; modern social security systems are intended to support the poor, the disabled, or the retired by taxes on those who are still working. In addition, taxes are applied to fund foreign aid and military ventures, to influence the macroeconomic performance of the economy (the government's strategy for doing this is called its fiscal policy; see also tax exemption), or to modify patterns of consumption or employment within an economy, by making some classes of transaction more or less attractive.
A nation's tax system is often a reflection of its communal values and/or the values of those in power. To create a system of taxation, a nation 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 the tax system, these choices reflect the type of community that the public wishes to create. In countries where the public does not have a significant amount of influence over the system of taxation, that system may be more of a reflection on 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 for example the labour cost and other expenses incurred in complying with tax laws and rules. The collection of a tax in order to spend it on a specified purpose, for example collecting a tax on alcohol to pay directly for alcoholism rehabilitation centres, is called hypothecation. This practice is often disliked by finance ministers, since it reduces their freedom of action. Some economic theorists consider the concept to be intellectually dishonest since, in reality, money is fungible. Furthermore, it often happens that taxes or excises initially levied to fund some specific government programs are then later diverted to the government general fund. In some cases, such taxes are collected in fundamentally inefficient ways, for example highway tolls.
Some economists, especially neo-classical economists, argue that all taxation creates market distortion and results in economic inefficiency. They have therefore sought to identify the kind of tax system that would minimize this distortion.
Since governments also resolve commercial disputes, especially in countries with common law, similar arguments are sometimes used to justify a sales tax or value added tax. Others (e.g., libertarians) argue that most or all forms of taxes are immoral due to their involuntary (and therefore eventually coercive/violent) nature. The most extreme anti-tax view is anarcho-capitalism, in which the provision of all social services should be voluntarily bought by the person(s) using them.
Kinds of taxes[edit]
The Organisation for Economic Co-operation and Development (OECD) publishes an analysis of tax systems of member countries. As part of such analysis, OECD developed a definition and system of classification of internal taxes,[3] generally followed below. In addition, many countries impose taxes (tariffs) on the import of goods.
Taxes on income[edit]
Income tax[edit]
Many jurisdictions tax the income of individuals and business entities, including corporations. Generally the tax is imposed on net profits from business, net gains, and other income. Computation of income subject to tax may be determined under accounting principles used in the jurisdiction, which may be modified or replaced by tax law principles in the jurisdiction. The incidence of taxationvaries by system, and some systems may be viewed as progressive or regressive. Rates of tax may vary or be constant (flat) by income level. Many systems allow individuals certain personal allowances and other nonbusiness reductions to taxable income.
Personal income tax is often collected on a pay-as-you-earn basis, with small corrections made soon after the end of the tax year. These corrections take one of two forms: payments to the government, for taxpayers who have not paid enough during the tax year; andtax refunds from the government for those who have overpaid. Income tax systems will often have deductions available that lessen the total tax liability by reducing total taxable income. They may allow losses from one type of income to be counted against another. For example, a loss on the stock market may be deducted against taxes paid on wages. Other tax systems may isolate the loss, such that business losses can only be deducted against business tax by carrying forward the loss to later tax years.
Negative income tax[edit]
In economics, a negative income tax (abbreviated NIT) is a progressive income tax system where people earning below a certain amount receive supplemental pay from the government instead of paying taxes to the government.
Capital gains tax[edit]
Most jurisdictions imposing an income tax treat capital gains as part of income subject to tax. Capital gain is generally a gain on sale of capital assets that is those assets not held for sale in the ordinary course of business. Capital assets include personal assets in many jurisdictions. Some jurisdictions provide preferential rates of tax or only partial taxation for capital gains. Some jurisdictions impose different rates or levels of capital gains taxation based on the length of time the asset was held.
Corporate tax[edit]
Corporate tax refers to income, capital, net worth, or other taxes imposed on corporations. Rates of tax and the taxable base for corporations may differ from those for individuals or other taxable persons.
Social security contributions[edit]
Many countries provide publicly funded retirement or health care systems.[4] In connection with these systems, the country typically requires employers and/or employees to make compulsory payments.[5] These payments are often computed by reference to wages or earnings from self-employment. Tax rates are generally fixed, but a different rate may be imposed on employers than on employees.[6]Some systems provide an upper limit on earnings subject to the tax. A few systems provide that the tax is payable only on wages above a particular amount. Such upper or lower limits may apply for retirement but not health care components of the tax.
Taxes on payroll or workforce[edit]
Unemployment and similar taxes are often imposed on employers based on total payroll. These taxes may be imposed in both the country and sub-country levels.[7]
Taxes on property[edit]
Recurrent property taxes may be imposed on immovable property (real property) and some classes of movable property. In addition, recurrent taxes may be imposed on net wealth of individuals or corporations.[8] Many jurisdictions impose estate tax, gift tax or otherinheritance taxes on property at death or gift transfer. Some jurisdictions impose taxes on financial or capital transactions.
Property tax[edit]
A property tax (or millage tax) is an ad valorem tax levy on the value of property that the owner of the property is required to pay to a government in which the property is situated. Multiple jurisdictions may tax the same property. There are three general varieties of property: land, improvements to land (immovable man-made things, e.g. buildings) and personal property (movable things). Real estate or realty is the combination of land and improvements to land.
Property taxes are usually charged on a recurrent basis (e.g., yearly). A common type of property tax is an annual charge on the ownership of real estate, where the tax base is the estimated value of the property. For a period of over 150 years from 1695 a window tax was levied in England, with the result that one can still see listed buildings with windows bricked up in order to save their owners money. A similar tax on hearths existed in France and elsewhere, with similar results. The two most common type of event driven property taxes are stamp duty, charged upon change of ownership, and inheritance tax, which is imposed in many countries on the estates of the deceased.
In contrast with a tax on real estate (land and buildings), a Land Value Tax (or LVT) is levied only on the unimproved value of the land ("land" in this instance may mean either the economic term, i.e., all natural resources, or the natural resources associated with specific areas of the Earth's surface: "lots" or "land parcels"). Proponents of land value tax argue that it is economically justified, as it will not deter production, distort market mechanisms or otherwise create deadweight losses the way other taxes do.[9]
When real estate is held by a higher government unit or some other entity not subject to taxation by the local government, the taxing authority may receive a payment in lieu of taxes to compensate it for some or all of the foregone tax revenues.
In many jurisdictions (including many American states), there is a general tax levied periodically on residents who own personal property (personalty) within the jurisdiction. Vehicle and boat registration fees are subsets of this kind of tax. The tax is often designed with blanket coverage and large exceptions for things like food and clothing. Household goods are often exempt when kept or used within the household.[10] Any otherwise non-exempt object can lose its exemption if regularly kept outside the household.[10] Thus, tax collectors often monitor newspaper articles for stories about wealthy people who have lent art to museums for public display, because the artworks have then become subject to personal property tax.[10] If an artwork had to be sent to another state for some touch-ups, it may have become subject to personal property tax in that state as well.[10]
Inheritance tax[edit]
Inheritance tax, estate tax, and death tax or duty are the names given to various taxes which arise on the death of an individual. In United States tax law, there is a distinction between an estate tax and an inheritance tax: the former taxes the personal representatives of the deceased, while the latter taxes the beneficiaries of the estate. However, this distinction does not apply in other jurisdictions; for example, if using this terminology UK inheritance tax would be an estate tax.
Expatriation tax[edit]
An Expatriation Tax is a tax on individuals who renounce their citizenship or residence. The tax is often imposed based on a deemed disposition of all the individual's property. One example is the United States under the American Jobs Creation Act, where any individual who has a net worth of $2 million or an average income-tax liability of $127,000 who renounces his or her citizenship and leaves the country is automatically assumed to have done so for tax avoidance reasons and is subject to a higher tax rate.[11]
Transfer tax[edit]
Historically, in many, countries, a contract needed to have a stamp affixed to make it valid. The charge for the stamp was either a fixed amount or a percentage of the value of the transaction. In most countries the stamp has been abolished but stamp duty remains. Stamp duty is levied in the UK on the purchase of shares and securities, the issue of bearer instruments, and certain partnership transactions. Its modern derivatives, stamp duty reserve tax and stamp duty land tax, are respectively charged on transactions involving securities and land. Stamp duty has the effect of discouraging speculative purchases of assets by decreasing liquidity. In the United States, transfer tax is often charged by the state or local government and (in the case of real property transfers) can be tied to the recording of the deed or other transfer documents.
Wealth (net worth) tax[edit]
Some countries' governments will require declaration of the tax payers' balance sheet (assets and liabilities), and from that exact a tax on net worth (assets minus liabilities), as a percentage of the net worth, or a percentage of the net worth exceeding a certain level. The tax may be levied on "natural" or legal "persons". An example is France's ISF.
Taxes on goods and services[edit]
Value added tax (Goods and Services Tax)[edit]
A value added tax (VAT), also known as Goods and Services Tax (G.S.T), Single Business Tax, or Turnover Tax in some countries, applies the equivalent of a sales tax to every operation that creates value. To give an example, sheet steel is imported by a machine manufacturer. That manufacturer will pay the VAT on the purchase price, remitting that amount to the government. The manufacturer will then transform the steel into a machine, selling the machine for a higher price to a wholesale distributor. The manufacturer will collect the VAT on the higher price, but will remit to the government only the excess related to the "value added" (the price over the cost of the sheet steel). The wholesale distributor will then continue the process, charging the retail distributor the VAT on the entire price to the retailer, but remitting only the amount related to the distribution mark-up to the government. The last VAT amount is paid by the eventual retail customer who cannot recover any of the previously paid VAT. For a VAT and sales tax of identical rates, the total tax paid is the same, but it is paid at differing points in the process.
VAT is usually administrated by requiring the company to complete a VAT return, giving details of VAT it has been charged (referred to as input tax) and VAT it has charged to others (referred to as output tax). The difference between output tax and input tax is payable to the Local Tax Authority. If input tax is greater than output tax the company can claim back money from the Local Tax Authority.
Sales taxes[edit]
Sales taxes are levied when a commodity is sold to its final consumer. Retail organizations contend that such taxes discourage retail sales. The question of whether they are generally progressive or regressive is a subject of much current debate. People with higher incomes spend a lower proportion of them, so a flat-rate sales tax will tend to be regressive. It is therefore common to exempt food, utilities and other necessities from sales taxes, since poor people spend a higher proportion of their incomes on these commodities, so such exemptions make the tax more progressive. This is the classic "You pay for what you spend" tax, as only those who spend money on non-exempt (i.e. luxury) items pay the tax.
A small number of U.S. states rely entirely on sales taxes for state revenue, as those states do not levy a state income tax. Such states tend to have a moderate to large amount of tourism or inter-state travel that occurs within their borders, allowing the state to benefit from taxes from people the state would otherwise not tax. In this way, the state is able to reduce the tax burden on its citizens. The U.S. states that do not levy a state income tax are Alaska, Tennessee, Florida, Nevada, South Dakota, Texas,[12] Washington state, and Wyoming. Additionally, New Hampshire and Tennessee levy state income taxes only on dividends and interest income. Of the above states, only Alaska and New Hampshire do not levy a state sales tax. Additional information can be obtained at theFederation of Tax Administrators website.
In the United States, there is a growing movement[13] for the replacement of all federal payroll and income taxes (both corporate and personal) with a national retail sales tax and monthly tax rebate to households of citizens and legal resident aliens. The tax proposal is named FairTax. In Canada, the federal sales tax is called the Goods and Services tax (GST) and now stands at 5%. The provinces of British Columbia, Saskatchewan, Manitoba, and Prince Edward Island also have a provincial sales tax [PST]. The provinces of Nova Scotia, New Brunswick, Newfoundland & Labrador, and Ontario have harmonized their provincial sales taxes with the GST—Harmonized Sales Tax [HST], and thus is a full VAT. The province of Quebec collects the Quebec Sales Tax [QST] which is based on the GST with certain differences. Most businesses can claim back the GST, HST and QST they pay, and so effectively it is the final consumer who pays the tax.
Excises[edit]
Unlike an ad valorem, an excise is not a function of the value of the product being taxed. Excise taxes are based on the quantity, not the value, of product purchased. For example, in the United States, the Federal government imposes an excise tax of 18.4 cents per U.S. gallon (4.86¢/L) of gasoline, while state governments levy an additional 8 to 28 cents per U.S. gallon. Excises on particular commodities are frequently hypothecated. For example, a fuel excise (use tax) is often used to pay for public transportation, especiallyroads and bridges and for the protection of the environment. A special form of hypothecation arises where an excise is used to compensate a party to a transaction for alleged uncontrollable abuse; for example, a blank media tax is a tax on recordable media such as CD-Rs, whose proceeds are typically allocated to copyright holders. Critics charge that such taxes blindly tax those who make legitimate and illegitimate usages of the products; for instance, a person or corporation using CD-R's for data archival should not have to subsidize the producers of popular music.
Excises (or exemptions from them) are also used to modify consumption patterns (social engineering). For example, a high excise is used to discourage alcohol consumption, relative to other goods. This may be combined with hypothecation if the proceeds are then used to pay for the costs of treating illness caused by alcohol abuse. Similar taxes may exist on tobacco, pornography, etc., and they may be collectively referred to as "sin taxes". A carbon tax is a tax on the consumption of carbon-based non-renewable fuels, such as petrol, diesel-fuel, jet fuels, and natural gas. The object is to reduce the release of carbon into the atmosphere. In the United Kingdom,vehicle excise duty is an annual tax on vehicle ownership.
Pigovian taxes[edit]
Tariff[edit]
An import or export tariff (also called customs duty or impost) is a charge for the movement of goods through a political border. Tariffs discourage trade, and they may be used by governments to protect domestic industries. A proportion of tariff revenues is often hypothecated to pay government to maintain a navy or border police. The classic ways of cheating a tariff are smuggling or declaring a false value of goods. Tax, tariff and trade rules in modern times are usually set together because of their common impact on industrial policy, investment policy, and agricultural policy. A trade bloc is a group of allied countries agreeing to minimize or eliminate tariffs against trade with each other, and possibly to impose protective tariffs on imports from outside the bloc. A customs union has acommon external tariff, and the participating countries share the revenues from tariffs on goods entering the customs union.
Other taxes[edit]
License fees[edit]
Occupational taxes or license fees may be imposed on businesses or individuals engaged in certain businesses. Many jurisdictions impose a tax on vehicles.
Poll tax[edit]
A poll tax, also called a per capita tax, or capitation tax, is a tax that levies a set amount per individual. It is an example of the concept of fixed tax. One of the earliest taxes mentioned in the Bible of a half-shekel per annum from each adult Jew (Ex. 30:11-16) was a form of poll tax. Poll taxes are administratively cheap because they are easy to compute and collect and difficult to cheat. Economists have considered poll taxes economically efficient because people are presumed to be in fixed supply. However, poll taxes are very unpopular because poorer people pay a higher proportion of their income than richer people. In addition, the supply of people is in fact not fixed over time: on average, couples will choose to have fewer children if a poll tax is imposed.[14][not in citation given] The introduction of a poll tax in medieval England was the primary cause of the 1381 Peasants' Revolt. Scotland was the first to be used to test the new poll tax in 1989 with England and Wales in 1990. The change from a progressive local taxation based on property values to a single-rate form of taxation regardless of ability to pay (the Community Charge, but more popularly referred to as the Poll Tax), led to widespread refusal to pay and to incidents of civil unrest, known colloquially as the 'Poll Tax Riots'.
Other[edit]
Some types of taxes have been proposed but not actually adopted in any major jurisdiction. These include:
- Bank tax
- Financial transaction taxes including currency transaction taxes
Descriptive labels given some taxes[edit]
Ad valorem[edit]
An ad valorem tax is one where the tax base is the value of a good, service, or property. Sales taxes, tariffs, property taxes, inheritance taxes, and value added taxes are different types of ad valorem tax. An ad valorem tax is typically imposed at the time of a transaction (sales tax or value added tax (VAT)) but it may be imposed on an annual basis (property tax) or in connection with another significant event (inheritance tax or tariffs). An alternative to ad valorem taxation is an excise tax, where the tax base is the quantity of something, regardless of its price.
Consumption tax[edit]
Consumption tax refers to any tax on non-investment spending, and can be implemented by means of a sales tax, consumer value added tax, or by modifying an income tax to allow for unlimited deductions for investment or savings.
Environmental tax[edit]
This includes natural resources consumption tax, greenhouse gas tax (Carbon tax), "sulfuric tax", and others. The stated purpose is to reduce the environmental impact by repricing.
Proportional, progressive, regressive, and lump-sum[edit]
An important feature of tax systems is the percentage of the tax burden as it relates to income or consumption. The terms progressive, regressive, and proportional are used to describe the way the rate progresses from low to high, from high to low, or proportionally. The terms describe a distribution effect, which can be applied to any type of tax system (income or consumption) that meets the definition.
- A progressive tax is a tax imposed so that the effective tax rate increases as the amount to which the rate is applied increases.
- The opposite of a progressive tax is a regressive tax, where the effective tax rate decreases as the amount to which the rate is applied increases. This effect is commonly produced where means testing is used to withdraw tax allowances or state benefits.
- In between is a proportional tax, where the effective tax rate is fixed, while the amount to which the rate is applied increases.
- A lump-sum tax is a tax that is a fixed amount, no matter the change in circumstance of the taxed entity. This in actuality is a regressive tax as those with lower income must use higher percentage of their income than those with higher income and therefore the effect of the tax reduces as a function of income.
The terms can also be used to apply meaning to the taxation of select consumption, such as a tax on luxury goods and the exemption of basic necessities may be described as having progressive effects as it increases a tax burden on high end consumption and decreases a tax burden on low end consumption.[15][16][17]
Direct and indirect[edit]
Taxes are sometimes referred to as "direct taxes" or "indirect taxes". The meaning of these terms can vary in different contexts, which can sometimes lead to confusion. An economic definition, by Atkinson, states that "...direct taxes may be adjusted to the individual characteristics of the taxpayer, whereas indirect taxes are levied on transactions irrespective of the circumstances of buyer or seller."[18] According to this definition, for example, income tax is "direct", and sales tax is "indirect". In law, the terms may have different meanings. In U.S. constitutional law, for instance, direct taxes refer to poll taxes and property taxes, which are based on simple existence or ownership. Indirect taxes are imposed on events, rights, privileges, and activities.[19] Thus, a tax on the sale of property would be considered an indirect tax, whereas the tax on simply owning the property itself would be a direct tax.
Fees and effective taxes[edit]
Governments may charge user fees, tolls, or other types of assessments in exchange of particular goods, services, or use of property. These are generally not considered taxes, as long as they are levied as payment for a direct benefit to the individual paying.[20] Such fees include:
- Tolls: a fee charged to travel via a road, bridge, tunnel, canal, waterway or other transportation facilities. Historically tolls have been used to pay for public bridge, road and tunnel projects. They have also been used in privately constructed transport links. The toll is likely to be a fixed charge, possibly graduated for vehicle type, or for distance on long routes.
- User fees, such as those charged for use of parks or other government owned facilities.
- Ruling fees charged by governmental agencies to make determinations in particular situations.
Some scholars refer to certain economic effects as taxes, though they are not levies imposed by governments. These include:
- Inflation tax: the economic disadvantage suffered by holders of cash and cash equivalents in one denomination of currency due to the effects of expansionary monetary policy[21]
- Financial repression: Government policies such as interest rate caps on government debt, financial regulations such as reserve requirements and capital controls, and barriers to entry in markets where the government owns or controls businesses.[22]
History[edit]
The first known system of taxation was in Ancient Egypt around 3000–2800 BC in the first dynasty of the Old Kingdom.[23] The earliest and most widespread form of taxation was thecorvée and tithe. The corvée was forced labour provided to the state by peasants too poor to pay other forms of taxation (labour in ancient Egyptian is a synonym for taxes).[24] Records from the time document that the pharaoh would conduct a biennial tour of the kingdom, collecting tithes from the people. Other records are granary receipts on limestone flakes and papyrus.[25] Early taxation is also described in the Bible. In Genesis (chapter 47, verse 24 – the New International Version), it states "But when the crop comes in, give a fifth of it toPharaoh. The other four-fifths you may keep as seed for the fields and as food for yourselves and your households and your children".Joseph was telling the people of Egypt how to divide their crop, providing a portion to the Pharaoh. A share (20%) of the crop was the tax.
In the Persian Empire, a regulated and sustainable tax system was introduced by Darius I the Great in 500 BC;[26] the Persian system of taxation was tailored to each Satrapy (the area ruled by a Satrap or provincial governor). At differing times, there were between 20 and 30 Satrapies in the Empire and each was assessed according to its supposed productivity. It was the responsibility of the Satrap to collect the due amount and to send it to the emperor, after deducting his expenses (the expenses and the power of deciding precisely how and from whom to raise the money in the province, offer maximum opportunity for rich pickings). The quantities demanded from the various provinces gave a vivid picture of their economic potential. For instance, Babylon was assessed for the highest amount and for a startling mixture of commodities; 1,000 silver talents and four months supply of food for the army. India, a province fabled for its gold, was to supply gold dust equal in value to the very large amount of 4,680 silver talents. Egypt was known for the wealth of its crops; it was to be the granary of the Persian Empire (and, later, of the Roman Empire) and was required to provide 120,000 measures of grain in addition to 700 talents of silver.[27] This tax was exclusively levied on Satrapies based on their lands, productive capacity and tribute levels.[28]
The Rosetta Stone, a tax concession issued by Ptolemy V in 196 BC and written in three languages "led to the most famous decipherment in history—the cracking of hieroglyphics".[29]
In India, Islamic rulers imposed jizya (a poll tax on non-Muslims) starting in the 11th century. It was abolished by Akbar.
Taxation levels[edit]
Numerous records of government tax collection in Europe since at least the 17th century are still available today. But taxation levels are hard to compare to the size and flow of the economy since production numbers are not as readily available. Government expenditures and revenue in France during the 17th century went from about 24.30 million livres in 1600–10 to about 126.86 million livres in 1650–59 to about 117.99 million livres in 1700–10 when government debt had reached 1.6 billion livres. In 1780–89, it reached 421.50 millionlivres.[30] Taxation as a percentage of production of final goods may have reached 15%–20% during the 17th century in places such asFrance, the Netherlands, and Scandinavia. During the war-filled years of the eighteenth and early nineteenth century, tax rates in Europe increased dramatically as war became more expensive and governments became more centralized and adept at gathering taxes. This increase was greatest in England, Peter Mathias and Patrick O'Brien found that the tax burden increased by 85% over this period. Another study confirmed this number, finding that per capita tax revenues had grown almost sixfold over the eighteenth century, but that steady economic growth had made the real burden on each individual only double over this period before the industrial revolution. Average tax rates were higher in Britain than France the years before the French Revolution, twice in per capita income comparison, but they were mostly placed on international trade. In France, taxes were lower but the burden was mainly on landowners, individuals, and internal trade and thus created far more resentment.[31]
Taxation as a percentage of GDP in 2003 was 56.1% in Denmark, 54.5% in France, 49.0% in the Euro area, 42.6% in the United Kingdom, 35.7% in the United States, 35.2% in Ireland, and among all OECD members an average of 40.7%.[32][33]
Forms of taxation[edit]
In monetary economies prior to fiat banking, a critical form of taxation was seigniorage, the tax on the creation of money.
Other obsolete forms of taxation include:
- Scutage, which is paid in lieu of military service; strictly speaking, it is a commutation of a non-tax obligation rather than a tax as such but functioning as a tax in practice.
- Tallage, a tax on feudal dependents.
- Tithe, a tax-like payment (one tenth of one's earnings or agricultural produce), paid to the Church (and thus too specific to be a tax in strict technical terms). This should not be confused with the modern practice of the same name which is normally voluntary.
- (Feudal) aids, a type of tax or due that was paid by a vassal to his lord during feudal times.
- Danegeld, a medieval land tax originally raised to pay off raiding Danes and later used to fund military expenditures.
- Carucage, a tax which replaced the danegeld in England.
- Tax farming, the principle of assigning the responsibility for tax revenue collection to private citizens or groups.
- Socage, a feudal tax system based on land rent.
- Burgage, a feudal tax system based on land rent.
Some principalities taxed windows, doors, or cabinets to reduce consumption of imported glass and hardware. Armoires, hutches, and wardrobes were employed to evade taxes on doors and cabinets. In some circumstances, taxes are also used to enforce public policy like congestion charge (to cut road traffic and encourage public transport) in London. In Tsarist Russia, taxes were clamped on beards. Today, one of the most-complicated taxation systems worldwide is in Germany. Three quarters of the world's taxation literature refers to the German system.[citation needed] Under the German system, there are 118 laws, 185 forms, and 96,000 regulations, spending €3.7 billion to collect the income tax.[citation needed] In the United States, the IRS has about 1,177 forms and instructions,[34] 28.4111 megabytes of Internal Revenue Code[35] which contained 3.8 million words as of 1 February 2010,[36] numerous tax regulations in theCode of Federal Regulations,[37] and suppmentary material in the Internal Revenue Bulletin.[38] Today, governments in more advanced economies (i.e. Europe and North America) tend to rely more on direct taxes, while developing economies (i.e. India and several African countries) rely more on indirect taxes.
Economic effects[edit]
In economic terms, taxation transfers wealth from households or businesses to the government of a nation. The side-effects of taxation and theories about how best to tax are an important subject in microeconomics. Taxation is almost never a simple transfer of wealth. Economic theories of taxation approach the question of how to maximize economic welfare through taxation.
Tax incidence[edit]
Law establishes from whom a tax is collected. In many countries, taxes are imposed on business (such as corporate taxes or portions of payroll taxes). However, who ultimately pays the tax (the tax "burden") is determined by the marketplace as taxes becomeembedded into production costs. Economic theory suggests that the economic effect of tax does not necessarily fall at the point where it is legally levied. For instance, a tax on employment paid by employers will impact on the employee, at least in the long run. The greatest share of the tax burden tends to fall on the most inelastic factor involved—the part of the transaction which is affected least by a change in price. So, for instance, a tax on wages in a town will (at least in the long run) affect property-owners in that area.
Depending on how quantities supplied and demanded vary with price (the "elasticities" of supply and demand), a tax can be absorbed by the seller (in the form of lower pre-tax prices), or by the buyer (in the form of higher post-tax prices). If the elasticity of supply is low, more of the tax will be paid by the supplier. If the elasticity of demand is low, more will be paid by the customer; and, contrariwise for the cases where those elasticities are high. If the seller is a competitive firm, the tax burden is distributed over the factors of productiondepending on the elasticities thereof; this includes workers (in the form of lower wages), capital investors (in the form of loss to shareholders), landowners (in the form of lower rents), entrepreneurs (in the form of lower wages of superintendence) and customers (in the form of higher prices).
To show this relationship, suppose that the market price of a product is $1.00, and that a $0.50 tax is imposed on the product that, by law, is to be collected from the seller. If the product has an elastic demand, a greater portion of the tax will be absorbed by the seller. This is because goods with elastic demand cause a large decline in quantity demanded for a small increase in price. Therefore in order to stabilize sales, the seller absorbs more of the additional tax burden. For example, the seller might drop the price of the product to $0.70 so that, after adding in the tax, the buyer pays a total of $1.20, or $0.20 more than he did before the $0.50 tax was imposed. In this example, the buyer has paid $0.20 of the $0.50 tax (in the form of a post-tax price) and the seller has paid the remaining $0.30 (in the form of a lower pre-tax price).[39]
Increased economic welfare[edit]
Government spending[edit]
The purpose of taxation is to provide for government spending without inflation. The provision of public goods such as roads and other infrastructure, schools, a social safety net, health care for the indigent, national defense, law enforcement, and a courts system increases the economic welfare of society.
Pigovian taxes[edit]
The existence of a tax can increase economic efficiency in some cases. If there is a negative externality associated with a good, meaning that it has negative effects not felt by the consumer, then a free market will trade too much of that good. By taxing the good, the government can increase overall welfare as well as raising revenue. This type of tax is called a Pigovian tax, after economist Arthur Pigou.
Possible Pigovian taxes include those on polluting fuels (like petrol), taxes on goods which incur public healthcare costs (such asalcohol or tobacco), and charges for existing 'free' public goods (like congestion charging) are another possibility.
Reduced inequality[edit]
Progressive taxation may reduce economic inequality. This effect occurs even when the tax revenue isn't redistributed.
Reduced economic welfare[edit]
Most taxes have side effects that reduce economic welfare, either by mandating unproductive labor (compliance costs) or by creating distortions to economic incentives (deadweight loss and perverse incentives).[citation needed]
Cost of compliance[edit]
Although governments must spend money on tax collection activities, some of the costs, particularly for keeping records and filling out forms, are borne by businesses and by private individuals. These are collectively called costs of compliance. More complex tax systems tend to have higher compliance costs. This fact can be used as the basis for practical or moral arguments in favor of tax simplification (such as the FairTax or OneTax, and some flat tax proposals).
Deadweight costs of taxation[edit]
In the absence of negative externalities, the introduction of taxes into a market reduces economic efficiency by causing deadweight loss. In a competitive market the price of a particular economic good adjusts to ensure that all trades which benefit both the buyer and the seller of a good occur. The introduction of a tax causes the price received by the seller to be less than the cost to the buyer by the amount of the tax. This causes fewer transactions to occur, which reduces economic welfare; the individuals or businesses involved are less well off than before the tax. The tax burden and the amount of deadweight cost is dependent on the elasticity of supply and demand for the good taxed.
Most taxes—including income tax and sales tax—can have significant deadweight costs. The only way to avoid deadweight costs in an economy that is generally competitive is to refrain from taxes that change economic incentives. Such taxes include the land value tax,[40] where the tax is on a good in completely inelastic supply, a lump sum tax such as a poll tax (head tax) which is paid by all adults regardless of their choices. Arguably a windfall profits tax which is entirely unanticipated can also fall into this category.
Deadweight loss does not account for the effect taxes have in leveling the business playing field. Business that have more money are better suited to fend off competition. It is common that an industry having a few but very large corporations have a very high barrier of entry of new entrants in the marketplace. This is due to the fact that the larger the corporation the better the position of it to negotiate with suppliers. Also the financial position can provide the means for the company to be able to operate for extended periods of time with very low or negative profits, in order to push the competition out of business. The taxation of profits in a progressive manner would reduce the barriers for entry in a specific market for new entrants thereby increasing competition. This would ultimately benefit the consumers since increased competition benefits consumers.[41]
Perverse incentives[edit]
Complexity of the tax code in developed economies offer perverse tax incentives. The more details of tax policy there are, the more opportunities for legal tax avoidance and illegal tax evasion. These not only result in lost revenue, but involve additional costs: for instance, payments made for tax advice are essentially deadweight costs because they add no wealth to the economy. Perverse incentives also occur because of non-taxable 'hidden' transactions; for instance, a sale from one company to another might be liable forsales tax, but if the same goods were shipped from one branch of a corporation to another, no tax would be payable.
To address these issues, economists often suggest simple and transparent tax structures which avoid providing loopholes. Sales tax, for instance, can be replaced with a value added tax which disregards intermediate transactions.
Reduced production[edit]
If a tax is paid on outsourced services that is not also charged on services performed for oneself, then it may be cheaper to perform the services oneself than to pay someone else—even considering losses in economic efficiency.[42][43]
For example, suppose jobs A and B are both valued at $1 on the market. And suppose that because of your unique abilities, you can do job A twice over (100% extra output) in the same effort as it would take you to do job B. But job B is the one that you need done right now. Under perfect division of labor, you would do job A and somebody else would do job B. Your unique abilities would always be rewarded.
Income taxation has the worst effect on division of labor in the form of barter. Suppose that the person doing job B is actually interested in having job A done for him. Now suppose you could amazingly do job A four times over, selling half your work on the market for cash just to pay your tax bill. The other half of the work you do for somebody who does job B twice over but he has to sell off half to pay his tax bill. You're left with one unit of job B, but only if you were 400% as productive doing job A! In this case of 50% tax on barter income, anything less than 400% productivity will cause the division of labor to fail.
In summary, depending on the situation a 50% tax rate can cause the division of labor to fail even where productivity gains of up to 300% would have resulted. Even a mere 30% tax rate can negate the advantage of a 100% productivity gain.[44]
Taxation in developing countries[edit]
Researchers for EPS PEAKS [45] stated that the core purpose of taxation is revenue mobilisation, providing resources for National Budgets, and forming an important part of macroeconomic management. They said economic theory has focused on the need to 'optimise' the system through balancing efficiency and equity, understanding the impacts on production, and consumption as well as distribution, redistribution, and welfare.
They state that taxes and tax reliefs have also been used as a tool for behavioural change, to influence investment decisions, labour supply, consumption patterns, and positive and negative economic spill-overs (externalities), and ultimately, the promotion of economic growth and development. The tax system and its administration also play an important role in state-building and governance, as a principle form of 'social contract' between the state and citizens who can, as taxpayers, exert accountability on the state as a consequence.
The researchers wrote that domestic revenue forms an important part of a developing country's public financing as it is more stable and predictable than Overseas Development Assistance and necessary for a country to be self-sufficient. They found that domestic revenue flows are, on average, already much larger than ODA, with aid worth less than 10% of collected taxes in Africa as a whole.
However, in a quarter of African countries Overseas Development Assistance does exceed tax collection,[46] with these more likely to be non-resource-rich countries. This suggests countries making most progress replacing aid with tax revenue tend to be those benefiting disproportionately from rising prices of energy and commodities.
The author [45] found tax revenue as a percentage of GDP varying greatly around a global average of 19%.[47] This data also indicates countries with higher GDP tend to have higher tax to GDP ratios, demonstrating that higher income is associated with more than proportionately higher tax revenue. On average, high-income countries have tax revenue as a percentage of GDP of around 22%, compared to 18% in middle-income countries and 14% in low-income countries.
In high-income countries, the highest tax-to-GDP ratio is in Denmark at 47% and the lowest is in Kuwait at 0.8%, reflecting low taxes from strong oil revenues. Long-term average performance of tax revenue as a share of GDP in low-income countries has been largely stagnant, although most have shown some improvement in more recent years. On average, resource-rich countries have made the most progress, rising from 10% in the mid 90s to around 17% in 2008. Non resource rich countries made some progress, with average tax revenues increasing from 10% to 15% over the same period.[48]
Many low-income countries have a tax-to-GDP ratio of less than 15% which could be due to low tax potential, such as a limited taxable economic activity, or low tax effort due to policy choice, non-compliance, or administrative constraints.
Some low-income countries have relatively high tax-to- GDP ratios due to resource tax revenues (e.g. Angola) or relatively efficient tax administration (e.g. Kenya, Brazil) whereas some middle-income countries have lower tax-to-GDP ratios (e.g. Malaysia) which reflect a more tax-friendly policy choice.
While overall tax revenues have remained broadly constant, the global trend shows trade taxes have been declining as a proportion of total revenues(IMF, 2011), with the share of revenue shifting away from border trade taxes towards domestically levied sales taxes on goods and services. Low-income countries tend to have a higher dependence on trade taxes, and a smaller proportion of from income and consumption taxes, when compared to high income countries.[49]
One indicator of the taxpaying experience was captured in the 'Doing Business' survey,[50] which compares the total tax rate, time spent complying with tax procedures and the number of payments required through the year, across 176 countries. The 'easiest' countries in which to pay taxes are located in the Middle East with the UAE ranking first, followed by Qatar and Saudi Arabia, most likely reflecting low tax regimes in those countries. Countries in Sub-Saharan Africa are among the 'hardest' to pay with the Central African Republic, Republic of Congo, Guinea and Chad in the bottom 5, reflecting higher total tax rates and a greater administrative burden to comply.
Key facts[edit]
The below facts were compiled by EPS PEAKS researchers [45]
- Trade liberalisation has led to a decline in trade taxes as a share of total revenues and GDP.[45][51]
- Resource-rich countries tend to collect more revenue as a share of GDP, but this is more volatile. Sub-Saharan African countries that are resource rich have performed better tax collecting than non-resource-rich countries, but revenues are more volatile from year to year.[52] By strengthening revenue management, there are huge opportunities for investment for development and growth [45][53]
- Developing countries have an informal sector representing an average of around 40%, perhaps up to 60% in some.[54] Informal sectors feature many small informal traders that may not be efficient to bring into the tax net (since the cost of collection is high and revenue potential limited (although there are broader governance benefits). There is also an issue of non-compliant companies who are 'hard to tax', evading taxes and should be brought into the tax net.[45][55]
- In many low-income countries, the majority of revenue is collected from a narrow tax base, sometimes because of a limited range of taxable economic activities. There is therefore dependence on few taxpayers, often multinationals, that can exacerbate the revenue challenge by minimising their tax liability, in some cases abusing a lack of capacity in revenue authorities, sometimes through transfer pricing abuse [45][55]
- Developing and developed countries face huge challenges in taxing multinationals and international citizens. Estimates of tax revenue losses from evasion and avoidance in developing countries are limited by a lack of data and methodological shortcomings, but some estimates are significant [45][56]
- Countries use incentives to attract investment but doing this may be unnecessarily giving up revenue as evidence suggests that investors are influenced more by economic fundamentals like market size, infrastructure, and skills, and only marginally by tax incentives (IFC investor surveys) [45]
- In low-income countries, compliance costs are high, they are lengthy processes, frequent tax payments, bribes and corruption[45][55][57]
- Administrations are often under-resourced, resources aren't effectively targeted on areas of greatest impact, and mid-level management is weak. Coordination between domestic and customs is weak, which is especially important for VAT. Weak administration, governance and corruption tend to be associated with low revenue collections (IMF, 2011)[45]
- Evidence on the effect of aid on tax revenues is inconclusive. Tax revenue is more stable and sustainable than aid. While a disincentive effect of aid on revenue may be expected and was supported by some early studies, recent evidence does not support that conclusion, and in some cases, points towards higher tax revenue following support for revenue mobilisation.[45]
- Of all regions, Africa has the highest total tax rates borne by business at 57.4% of profit on average, but has reduced the most since 2004, from 70%, partly due to introducing VAT and this is likely to have a beneficial effect on attracting investment.[45][58]
- Fragile states are less able to expand tax revenue as a percentage of GDP and any gains are more difficult to sustain.[59] Tax administration tends to collapse if conflict reduces state controlled territory or reduces productivity.[60] As economies are rebuilt after conflicts, there can be good progress in developing effective tax systems. Liberia expanded from 10.6% of GDP in 2003 to 21.3% in 2011. Mozambique increased from 10.5% of GDP in 1994 to around 17.7% in 2011.[45][61]
Summary[edit]
Aid interventions in revenue can support revenue mobilisation for growth, improve tax system design and administrative effectiveness, and strengthen governance and compliance.[45] The author of the Economics Topic Guide found that the best aid modalities for revenue depend on country circumstances, but should aim to align with government interests and facilitate effective planning and implementation of activities under an evidence-based tax reform. Lastly, she found that identifying areas for further reform requires country-specific diagnostic assessment: broad areas for developing countries identified internationally (e.g. IMF) include, for example property taxation for local revenues, strengthening expenditure management, and effective taxation of extractive industries and multinationals.[45]
Views on taxation[edit]
Support for taxation[edit]
Every tax, however, is, to the person who pays it, a badge, not of slavery, but of liberty.
– Adam Smith (1776), Wealth of Nations[62]
According to most political philosophies, taxes are justified as they fund activities that are necessary and beneficial to society. Additionally, progressive taxation can be used to reduceeconomic inequality in a society. According to this view, taxation in modern nation-states benefit the majority of the population and social development.[63] A common presentation of this view, paraphrasing various statements by Oliver Wendell Holmes, Jr. is "Taxes are the price of civilization".[64]
It can also be argued that in a democracy, because the government is the party performing the act of imposing taxes, society as a whole decides how the tax system should be organized.[65] The American Revolution's "No taxation without representation" slogan implied this view. For traditional conservatives, the payment of taxation is justified as part of the general obligations of citizens to obey the law and support established institutions. The conservative position is encapsulated in perhaps the most famous adage of public finance, "An old tax is a good tax".[66] Conservatives advocate the "fundamental conservative premise that no one should be excused from paying for government, lest they come to believe that government is costless to them with the certain consequence that they will demand more government 'services'."[67] Social democrats generally favor higher levels of taxation to fund public provision of a wide range of services such as universal health care and education, as well as the provision of a range of welfare benefits.[68] As argued by Tony Crosland and others, the capacity to tax income from capital is a central element of the social democratic case for a mixed economy as against Marxist arguments for comprehensive public ownership of capital.[citation needed] Manylibertarians recommend a minimal level of taxation in order to maximize the protection of liberty.[citation needed]
Compulsory taxation of individuals, such as income tax, is often justified on grounds including territorial sovereignty, and the social contract. Defenders of business taxation argue that it is an efficient method of taxing income that ultimately flows to individuals, or that separate taxation of business is justified on the grounds that commercial activity necessarily involves use of publicly established and maintained economic infrastructure, and that businesses are in effect charged for this use.[69] Georgist economists argue that all of theeconomic rent collected from natural resources (land, mineral extraction, fishing quotas, etc.) is unearned income, and belongs to the community rather than any individual. They advocate a high tax (the "Single Tax") on land and other natural resources to return this unearned income to the state, but no other taxes.
Opposition to taxation[edit]
Because payment of tax is compulsory and enforced by the legal system, some political philosophies view taxation as theft, extortion, (or as slavery, or as a violation of property rights), or tyranny, accusing the government of levying taxes via force and coercivemeans.[70] Voluntaryists, individualist anarchists, Objectivists, anarcho-capitalists, and libertarians see taxation as government aggression (see zero aggression principle). The view that democracy legitimizes taxation is rejected by those who argue that all forms of government, including laws chosen by democratic means, are fundamentally oppressive. According to Ludwig von Mises, "society as a whole" should not make such decisions, due to methodological individualism.[71] Libertarian opponents of taxation claim that governmental protection, such as police and defense forces might be replaced by market alternatives such as private defense agencies,arbitration agencies or voluntary contributions.[72] Walter E. Williams, professor of economics at George Mason University, stated "Government income redistribution programs produce the same result as theft. In fact, that's what a thief does; he redistributes income. The difference between government and thievery is mostly a matter of legality."[73]
Taxation has also been opposed by communists and socialists. Karl Marx assumed that taxation would be unnecessary after the advent of communism and looked forward to the "withering away of the state". In socialist economies such as that of China, taxation played a minor role, since most government income was derived from the ownership of enterprises, and it was argued by some that monetary taxation was not necessary.[74] While the morality of taxation is sometimes questioned, most arguments about taxation revolve around the degree and method of taxation and associated government spending, not taxation itself.
Tax choice[edit]
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Tax choice is the theory that taxpayers should have more control with how their individual taxes are allocated. If taxpayers could choose which government organizations received their taxes, opportunity cost decisions would integrate their partial knowledge.[75] For example, a taxpayer who allocated more of his taxes on public education would have less to allocate on public healthcare. Supporters argue that allowing taxpayers to demonstrate their preferences would help ensure that the government succeeds at efficiently producing the public goods that taxpayers truly value.[76]
Theories on taxation[edit]
Laffer curve[edit]
In economics, the Laffer curve is a theoretical representation of the relationship between government revenue raised by taxation and all possible rates of taxation. It is used to illustrate the concept of taxable income elasticity (that taxable income will change in response to changes in the rate of taxation). The curve is constructed by thought experiment. First, the amount of tax revenue raised at the extreme tax rates of 0% and 100% is considered. It is clear that a 0% tax rate raises no revenue, but the Laffer curve hypothesis is that a 100% tax rate will also generate no revenue because at such a rate there is no longer any incentive for a rational taxpayer to earn any income, thus the revenue raised will be 100% of nothing. If both a 0% rate and 100% rate of taxation generate no revenue, it follows from the extreme value theorem that there must exist at least one rate in between where tax revenue would be a maximum. The Laffer curve is typically represented as a graph which starts at 0% tax, zero revenue, rises to a maximum rate of revenue raised at an intermediate rate of taxation and then falls again to zero revenue at a 100% tax rate.
One potential result of the Laffer curve is that increasing tax rates beyond a certain point will become counterproductive for raising further tax revenue. A hypothetical Laffer curve for any given economy can only be estimated and such estimates are sometimes controversial. The New Palgrave Dictionary of Economics reports that estimates of revenue-maximizing tax rates have varied widely, with a mid-range of around 70%.[77]
Optimal tax[edit]
Most governments take revenue which exceeds that which can be provided by non-distortionary taxes or through taxes which give a double dividend. Optimal taxation theory is the branch of economics that considers how taxes can be structured to give the least deadweight costs, or to give the best outcomes in terms of social welfare. The Ramsey problem deals with minimizing deadweight costs. Because deadweight costs are related to the elasticity of supply and demand for a good, it follows that putting the highest tax rates on the goods for which there is most inelastic supply and demand will result in the least overall deadweight costs. Some economists sought to integrate optimal tax theory with the social welfare function, which is the economic expression of the idea that equality is valuable to a greater or lesser extent. If individuals experience diminishing returns from income, then the optimum distribution of income for society involves a progressive income tax. Mirrlees optimal income tax is a detailed theoretical model of the optimum progressive income tax along these lines. Over the last years the validity of the theory of optimal taxation was discussed by many political economists.[78]
Tax rates[edit]
Taxes are most often levied as a percentage, called the tax rate. An important distinction when talking about tax rates is to distinguish between the marginal rate and the effective (average) rate. The effective rate is the total tax paid divided by the total amount the tax is paid on, while the marginal rate is the rate paid on the next dollar of income earned. For example, if income is taxed on a formula of 5% from $0 up to $50,000, 10% from $50,000 to $100,000, and 15% over $100,000, a taxpayer with income of $175,000 would pay a total of $18,750 in taxes.
- Tax calculation
- (0.05*50,000) + (0.10*50,000) + (0.15*75,000) = 18,750
- The "effective rate" would be 10.7%:
- 18,750/175,000 = 0.107
- The "marginal rate" would be 15%.
See also[edit]
By country or region[edit]
Notes[edit]
- ^ Black's Law Dictionary, p. 1307 (5th ed. 1979).
- ^ See, e.g., 26 U.S.C. § 7203 in the case of U.S. Federal taxes.
- ^ "Definition of Taxes (Note by the Chairman), 1996" (PDF). Retrieved 2013-01-22.
- ^ "Social Security Programs Throughout the World on the U.S. Social Security website for links to individual country program descriptions". Ssa.gov. Retrieved 2013-01-22.
- ^ By contrast, some countries, such as New Zealand, finance the programs through other taxes.
- ^ See, e.g., India Social Security overview
- ^ See, e.g., United States Federal Unemployment Tax Act.
- ^ Taxes on the net wealth of corporations are often referred to as corporate tax.
- ^ McCluskey, William J.; Franzsen, Riël C. D. (2005). Land Value Taxation: An Applied Analysis. Ashgate Publishing, Ltd. p. 4. ISBN 0-7546-1490-5.
- ^ a b c d "TPC Tax Topics | Federal Budget". Taxpolicycenter.org. Retrieved 2009-03-27.
- ^ "26 USC 877". Law.cornell.edu. Retrieved 2013-01-22.
- ^ Although Texas has no individual income tax, the state does impose a franchise tax—soon to be replaced by a margin tax—on business activity that, while not denominated as an income tax, is in substance a kind of income tax.
- ^ "Economist.com". Economist.com. 2009-02-12. Retrieved 2009-03-27.
- ^ "Tax Facts | Tax Facts Listing". Taxpolicycenter.org. Retrieved 2009-03-27.
- ^ "Internal Revenue Service". webcache.googleusercontent.com. Retrieved 2009-03-27.
- ^ "luxury tax — Britannica Online Encyclopedia". Concise.britannica.com. Retrieved 2009-03-27.
- ^ http://links.jstor.org/sici?sici=0002-8282(196909)59%3A4%3C596%3ACEASTR%3E2.0.CO%3B2-3
- ^ A. B. Atkinson, Optimal Taxation and the Direct Versus Indirect Tax Controversy, 10 Can. J. Econ. 590, 592 (1977)
- ^ "What is Difference Between Direct and Indirect Tax?". Investor Guide. Retrieved 2011-10-28.
- ^ "Taxes versus fees". Ncsu.edu. 2007-05-02. Retrieved 2013-01-22.
- ^ Some economists[who?] hold that the inflation tax affects the lower and middle classes more than the rich, as they hold a larger fraction of their income in cash, they are much less likely to receive the newly created monies before the market has adjusted with inflated prices, and more often have fixed incomes, wages or pensions. Some argue that inflation is aregressive consumption tax. Also see Andrés Erosa and Gustavo Ventura, "On inflation as a regressive consumption tax". Some[who?] claim there are systemic effects of an expansionary monetary policy, which are also definitively taxing, imposing a financial charge on some as a result of the policy. Because the effects of monetary expansion or counterfeiting are never uniform over an entire economy, the policy influences capital transfers in the market, creating economic bubbleswhere the new monies are first introduced. Economic bubbles increase market instability, and therefore increase investment risk, creating the conditions common to a recession. This particular tax can be understood to be levied on future generations that would have benefited from economic growth, and it has a 100% transfer cost (so long as people are not acting against their interests, increased uncertainty benefits no-one). One example of a strong supporter of this tax was the former Federal Reserve chair Beardsley Ruml.
- ^ See, e.g., Reinhart, Carmen M. and Rogoff, Kenneth S., This Time is Different. Princeton and Oxford: Princeton University Press, 2008 (p. 143), The Liquidation of Government Debt, Reinhart, Carmen M. & Sbrancia, M. Belen, p. 19, Giovannini, Alberto and de Melo, Martha, Government Revenue from Financial Repression. The American Economic Review, Vol. 83, No. 4 Sep. 1993 (pp. 953–963).
- ^ Taxes in the Ancient World, University of Pennsylvania Almanac, Vol. 48, No. 28, April 2, 2002
- ^ David F. Burg (2004). A World History of Tax Rebellions. pp. vi–viii. ISBN 9780415924986.
- ^ Olmert, Michael (1996). Milton's Teeth and Ovid's Umbrella: Curiouser & Curiouser Adventures in History, p.41. Simon & Schuster, New York. ISBN 0-684-80164-7.
- ^ "Darius I (Darius the Great), King of Persia (from 521 BC)". 1902encyclopedia.com. Retrieved 2013-01-22.
- ^ "History Of Iran (Persia)". Historyworld.net. Retrieved 2013-01-22.
- ^ The Theocratic Ideology of the Chronicler – by Jonathan E. Dyck – p. 96 – BRILL, 1998
- ^ British Museum. "History of the World in 100 Objects:Rosetta Stone". BBC.
- ^ Hoffman, Phillipe and Kathryn Norberg (1994), Fiscal Crises, Liberty, and Representative Government, 1450–1789, p. 238.
- ^ Hoffman, Phillipe and Kathryn Norberg (1994), Fiscal Crises, Liberty, and Representative Government, 1450–1789, p. 300 .
- ^ "OECD national accounts". Retrieved 2007-03-01.
- ^ Tax/Spending Burden, Forbes magazine, 05-24-04
- ^ "IRS pick list". IRS. Retrieved 21 January 2013.
- ^ "title 26 US Code". US House of Reperesentitives. Retrieved 21 January 2013.
- ^ Caron, Paul L. (October 28, 2011). "Who many words in the US tax code". Retrieved 21 January 2013.
- ^ "26 CFR - Table Of Contents". Gpo.gov. 2012-04-01. Retrieved 2013-01-22.
- ^ "Internal Revenue Bulletin: 2012-23". Internal Revenue Service. 4 June 2012. Retrieved 7 June 2012.
- ^ Parkin, Michael (2006), Principles of Microeconomics, p. 134.
- ^ McCluskey, William J; Franzsen, Riël C. D (2005). Land Value Taxation: An Applied Analysis, William J. McCluskey, Riël C. D. Franzsen. Books.google.com. ISBN 978-0-7546-1490-6. Retrieved 2009-03-27.
- ^ Avi-Yonah, Reuven S.; Slemrod, Joel B. (April 2002). "Why Tax the Rich? Efficiency, Equity, and Progressive Taxation". The Yale Law Journal 111 (6): 1391–1416. doi:10.2307/797614.JSTOR 797614.
- ^ Johnsson, Richard. "Taxation and Domestic Free Trade". Ideas.repec.org. Retrieved 2009-03-27.
- ^ Corsi, Jerome, 2007. "The VAT: Menace to Free Trade", WorldNetDaily Exclusive Commentary, WorldNetDaily, February 3, 2007
- ^ Johnsson, Richard, 2004. "Taxation and Domestic Free Trade," Ratio Working Papers 40, The Ratio Institute, revised June 7, 2004.
- ^ a b c d e f g h i j k l m n o p Hazel Granger (2013). "Economics Topic Guide Taxation and Revenue". EPS PEAKS.
- ^ Africa Economic Outlook 2010, Part 2: Public Resource Mobilisation and Aid in Africa, AfDB/OECD (2010)
- ^ According to IMF data for 2010, from Revenue Data for IMF Member Countries, as of 2011, (unpublished)
- ^ IMF FAD (2011), Revenue Mobilization in Developing Countries
- ^ IMF WP/05/112, Tax Revenue and (or?) Trade Liberalization, Thomas Baunsgaard and Michael Keen
- ^ 'Doing Business 2013', World Bank/IFC (2013)
- ^ Keen & Mansour, 2010-09-01, Development Policy Review, Vol. 28 No.5, pp.553-555
- ^ Keen & Mansour 2010, Revenue Mobilisation in Sub-Saharan Africa: Challenges from Globalisation I – Trade Reform, Development Policy Review, Vol. 28, No. 5, pp. 553–571, September 2010
- ^ See for example Paul Collier (2010), The Political Economy of Natural Resources, social research Vol 77 : No 4 : Winter 2010.
- ^ Schneider, Buehn, and Montenegro (2010), Shadow Economies all over the World: New Estimates for 162 Countries from 1999 to 2007.
- ^ a b c IMF, 2011, Revenue Mobilization in Developing Countries, Fiscal Affairs Department
- ^ See Section 3 'International Taxation' e.g. Torvik, 2009 in Commission on Capital Flight from Developing Countries, 2009: Tax Havens and Development
- ^ 'Doing Business 2013', World Bank/IFC 2013
- ^ Paying Taxes 2013: Total tax rate is a composite measure including corporate income tax, employment taxes, social contributions, indirect taxes, property taxes and smaller taxes e.g. environmental tax.
- ^ IMF Working Paper 108/12 (2012), Mobilizing Revenue in Sub-Saharan Africa: Empirical Norms and Key Determinants
- ^ African Economic Outlook (2010)
- ^ IMF Revenue Data,2011: Total Tax Revenue as a percentage of GDP
- ^ Smith, Adam (1776), Wealth of Nations, Penn State Electronic Classics edition, republished 2005, p.704
- ^ Population and Social Integration Section (PSIS), United Nations Social and Economic Commission for Asia and the Pacific
- ^ Gerhart, Eugene C (1998-09). Quote it Completely!. Books.google.com.au. ISBN 978-1-57588-400-4. Retrieved 2009-03-27.
- ^ Logue, Danielle. 2009. "Moving policy forward: 'brain drain' as a wicked problem." Globalisation, Societies & Education 7, no. 1: 41-50. Academic Search Premier, EBSCOhost. Retrieved February 18, 2009.
- ^ "Tax History Project: The Depression and Reform: FDR's Search for Tax Revision in N.Y. (Copyright, 2003, Tax Analysts)".
- ^ "Do Conservatives Have a Conservative Tax Agenda?". Heritage.org. Retrieved 2013-01-22.
- ^ Ruiz del Portal, X. 2009. "A general principal–agent setting with non-differentiable mechanisms: Some examples." Mathematical Social Sciences 57, no. 2: 262–278. Academic Search Premier, EBSCOhost.
- ^ Van Der Graaf, Rieke, and Johannes J. M. Van Delden. 2009.Clarifying appeals to dignity in medical ethics from an historical perspective. Bioethics 23, no. 3: 151–160. Academic Search Premier, EBSCOhost.
- ^ For an overview of the classical liberal perspective on taxation see www.irefeurope.org
- ^ Human Action Chapter II. Sec. 4. The Principle of Methodological Individualism by Ludwig von Mises
- ^ Spencer Heath MacCallum (2007-09-12). "The Rule of Law Without the State,". Ludwig Von Mises Institute. Retrieved 2008-08-16.
- ^ Williams, Walter E. (2008-08-06). "Government theft, American-style". WorldNetDaily. Retrieved 2008-09-11.
- ^ Li, Jinyan (1991). Taxation in the People's Republic of China. New York: Praeger. ISBN 0-275-93688-0.
- ^ "Tax morale and conditional cooperation". ScienceDirect.com. Retrieved 3 January 2013.
- ^ "Do Earmarks Increase Giving to Government?". Cbees.utdallas.edu. Retrieved 3 January 2013.
- ^ Fullerton, Don (2008). "Laffer curve". The New Palgrave Dictionary of Economics, Second Edition (Palgrave Macmillan). Retrieved 5 July 2011. "The mid-range for this elasticity is around 0.4, with a revenue peak around 70 per cent."
- ^ "Libertarian & Conservative News". Words Of Liberty. Retrieved 2013-01-22.
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