A tax is a payment of money legally demanded by a
government authority to meet public expenses.
Everyone knows that taxation
is necessary in ? modern state: without it, it would not be possible to
pay the soldiers and policemen who protect us; nor the workers in
government offices who look after our health, our food, our water, and
all the other things that we cannot do for ourselves, nor also the
ministers and members of parliament who govern the country for us. By
means of taxation we pay for things that we need just as much as we
need somewhere to live and something to eat.
But though everyone knows that taxation
is necessary, different people have different ideas about how taxation
should be arranged. There are two main ways, by which taxes may be paid:
1) each person have to ??? ? certain amount of
money to the government each year;
2) there is ? tax on things that people buy and
sell.
In most countries, ? direct tax on persons, which
is called income tax exists. It is arranged in such ? way, that the
poorest people ??? nothing, and the percentage of tax grows greater as
the taxpayer's income grows.
But countries with direct taxation
nearly always have indirect taxation, too. Many things imported into
the country have to pay taxes or "duties". Of course, it is the men and
women who buy these imported things in the shops who really have to pay
the duties, in the form of higher prices. In some countries, too, there
is ? tax on things sold in the shops. If the most necessary things are
taxed, ? lot of money is collected, but the poor people suffer most. If
unnecessary things like jewels and fur coats are taxed less money is
obtained, but the tax is fairer, as the rich pay it.
Probably, this last kind of indirect tax together
with a direct tax on income which is low for the poor and high for the
rich is the best arrangement.
The primary function of taxation is, of course, to
raise revenue to finance government expenditure, but taxes can also
have other purposes. Indirect excise duties, for example, can be
designed to dissuade people from smoking, drinking alcohol, and so on.
Governments can also encourage capital investment by permitting various
methods of accelerated depreciation accounting that allow companies to
deduct more of the cost of investments from their profits, and
consequently reduce their tax bills.
There is always ? lot of debate as to the fairness
of tax systems. Business profits, for example, are generally taxed
twice: companies pay tax on their profits (corporation tax in Britain,
income tax in the USA), and shareholders pay income tax on dividends.
Income taxes in most countries are progressive, and are one of the ways
in which governments can redistribute wealth. The problem with
progressive taxes is that the marginal rate - the tax people pay on any
additional income - is always high, which is generally ? disincentive
to both working and investing. On the other hand, most sales taxes are
slightly regressive, because poorer people need to spend ? larger
proportion of their income on consumption than the rich.
In many countries taxes are quite fair and do not
harm interests of the citizens. It may exist in countries, where the
expenditures of the government are not very high and consequently it
need not to collect high taxes or the government has other sources of
income, such as profitable business activities. Or the police of the
state is to give more freedom to business to make the economic
situation better. But some governmnents have insufficient money to
finance it’s expenditures and they increase tax rates as an alternative
of borrowing money. Or they may limit unnecessary business activities.
This of course decreases incentive to work, because profits become very
small.amd many businessmen try to hide their incomes. There are lots of
methods, both legal and illegal, to hide profits from taxation. For
example, tax avoidance (reducing the amount of tax you pay to a legal
minimum) or tax evasion (making false declaration to tax authorities).
The higher the tax rates, the more people are
tempted to cheat, but there is ? substantial «black» or «underground»
economy nearly everywhere. In Italy, for example, self-employed people
- whose income is more difficult to control than that of company
employees - account for more than half of
national income. Lots of people also have undeclared, part-time evening
jobs (some people call this «moonlighting») with small and medium-sized
family firms, on which no one pays any tax or national insurance. At
the end of 1986, the Director of the Italian National Institute of
Statistics calculated the size of the underground economy, and added
16.7% to Italy's gross national product (GNP) figure, and then claimed
that Italy had overtaken Britain to become the world’s fifth largest
economy.
To reduce income tax liability, some employers
give highly-paid employees lots of «perks» (short for perquisites)
instead of taxable money, such as company cars, free health insurance,
and subsidized lunches. Legal ways of avoiding tax, such as these, are
known as loopholes in tax laws. Life insurance policies, pension plans
and other investments by which individuals can postpone the payment of
tax, are known as tax shelters. Donations to charities can be
subtracted from the income on which tax is calculated.
Companies have ? variety of ways of avoiding tax
on profits. They can bring forward capital expenditure (on new
factories, machines, and so on) so that at the end of the year all the
profits have been used up; this is known as making ? tax loss.
Multinational companies often set up their head offices in countries
such as Liechtenstein, Monaco, the Cayman Islands, and the Bahamas,
where taxes are low; such countries are known as tax havens. Criminal
organizations, meanwhile, tend to pass money through ? series of
companies in very complicated transactions in order to disguise its
origin from tax inspectors - and the ??li??; this is known as
laundering money.
Article Source: http://www.articlesbase.com/taxes-articles/taxation-1290586.html
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