A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer by a governmental organization in order to collectively fund government spending, public expenditures, or as a way to regulate and reduce negative externalities. Tax compliance refers to policy actions and individual behaviour aimed at ensuring that taxpayers are paying the right amount of tax at the right time and securing the correct tax allowances and tax relief. The first known taxation took place in Ancient Egypt around 3000–2800 BC. Taxes consist of direct or indirect taxes and may be paid in money or as its labor equivalent.
Pollock v. Farmers' Loan & Trust Company, 157 U.S. 429 (1895), affirmed on rehearing, 158 U.S. 601 (1895), was a landmark case of the Supreme Court of the United States. In a 5-4 decision, the Supreme Court struck down the income tax imposed by the Wilson–Gorman Tariff Act for being an unapportioned direct tax. The decision was superseded in 1913 by the Sixteenth Amendment to the United States Constitution, which allows Congress to levy income taxes without apportioning them among the states.
Public finance is the study of the role of the government in the economy. It is the branch of economics that assesses the government revenue and government expenditure of the public authorities and the adjustment of one or the other to achieve desirable effects and avoid undesirable ones. The purview of public finance is considered to be threefold, consisting of governmental effects on:
- The efficient allocation of available resources;
- The distribution of income among citizens; and
- The stability of the economy.
Tax noncompliance is a range of activities that are unfavorable to a government's tax system. This may include tax avoidance, which is tax reduction by legal means, and tax evasion which is the illegal non-payment of tax liabilities. The use of the term "noncompliance" is used differently by different authors. Its most general use describes non-compliant behaviors with respect to different institutional rules resulting in what Edgar L. Feige calls unobserved economies. Non-compliance with fiscal rules of taxation gives rise to unreported income and a tax gap that Feige estimates to be in the neighborhood of $500 billion annually for the United States.
In Canada, taxation is a prerogative shared between the federal government and the various provincial and territorial legislatures.
In the United Kingdom, taxation may involve payments to at least three different levels of government: central government, devolved governments and local government. Central government revenues come primarily from income tax, National Insurance contributions, value added tax, corporation tax and fuel duty. Local government revenues come primarily from grants from central government funds, business rates in England, Council Tax and increasingly from fees and charges such as those for on-street parking. In the fiscal year 2014–15, total government revenue was forecast to be £648 billion, or 37.7 per cent of GDP, with net taxes and National Insurance contributions standing at £606 billion.
Although the actual definitions vary between jurisdictions, in general, a direct tax or income tax is a tax imposed upon a person or property as distinct from a tax imposed upon a transaction, which is described as an indirect tax. There is a distinction between direct and indirect tax depending on whether the tax payer is the actual taxpayer or if the amount of tax is supported by a third party, usually a client. The term may be used in economic and political analyses, but does not itself have any legal implications. However, in the United States, the term has special constitutional significance because of a provision in the U.S. Constitution that any direct taxes imposed by the national government be apportioned among the states on the basis of population. In the European Union direct taxation remains the sole responsibility of member states.
An indirect tax is a tax that is levied upon goods and services before they reach the customer who ultimately pays the indirect tax as a part of market price of the good or service purchased. Alternatively, if the entity who pays taxes to the tax collecting authority does not suffer a corresponding reduction in income, i.e., impact and tax incidence are not on the same entity meaning that tax can be shifted or passed on, then the tax is indirect.
In France, taxation is determined by the yearly budget vote by the French Parliament, which determines which kinds of taxes can be levied and which rates can be applied.
Taxes in New Zealand are collected at a national level by the Inland Revenue Department (IRD) on behalf of the Government of New Zealand. National taxes are levied on personal and business income, and on the supply of goods and services. Capital gains tax applies in limited situations, such as the sale of some rental properties within 10 years of purchase. Some "gains" such as profits on the sale of patent rights are deemed to be income – income tax does apply to property transactions in certain circumstances, particularly speculation. There are currently no land taxes, but local property taxes (rates) are managed and collected by local authorities. Some goods and services carry a specific tax, referred to as an excise or a duty, such as alcohol excise or gaming duty. These are collected by a range of government agencies such as the New Zealand Customs Service. There is no social security (payroll) tax.
In economics, the excess burden of taxation is one of the economic losses that society suffers as the result of taxes or subsidies. Economic theory posits that distortions change the amount and type of economic behavior from that which would occur in a free market without the tax. Excess burdens can be measured using the average cost of funds or the marginal cost of funds (MCF). Excess burdens were first discussed by Adam Smith.
Tax shift or tax swap is a change in taxation that eliminates or reduces one or several taxes and establishes or increases others while keeping the overall revenue the same. The term can refer to desired shifts, such as towards Pigovian taxes as well as undesired shifts, such as a shift from multi-state corporations to small businesses and families.
Optimal tax theory or the theory of optimal taxation is the study of designing and implementing a tax that maximises a social welfare function subject to economic constraints. The social welfare function used is typically a function of individuals' utilities, most commonly some form of utilitarian function, so the tax system is chosen to maximise the aggregate of individual utilities. Tax revenue is required to fund the provision of public goods and other government services, as well as for redistribution from rich to poor individuals. However, most taxes distort individual behavior, because the activity that is taxed becomes relatively less desirable; for instance, taxes on labour income reduce the incentive to work. The optimization problem involves minimizing the distortions caused by taxation, while achieving desired levels of redistribution and revenue. Some taxes are thought to be less distorting, such as lump-sum taxes and Pigouvian taxes, where the market consumption of a good is inefficient, and a tax brings consumption closer to the efficient level.
The Tanzania Revenue Authority (TRA) is the government agency of Tanzania, charged with the responsibility of managing the assessment, collection and accounting of all central government revenue in Tanzania.
Taxes provide the most important revenue source for the Government of the People's Republic of China. Tax is a key component of macro-economic policy, and greatly affects China's economic and social development. With the changes made since the 1994 tax reform, China has sought to set up a streamlined tax system geared to a socialist market economy.
Taxation in Denmark consists of a comprehensive system of direct and indirect taxes. Ever since the income tax was introduced in Denmark via a fundamental tax reform in 1903, it has been a fundamental pillar in the Danish tax system. Today various personal and corporate income taxes yield around two thirds of the total Danish tax revenues, indirect taxes being responsible for the last third. The state personal income tax is a progressive tax while the municipal income tax is a proportional tax above a certain income level.
Taxation in Norway is levied by the central government, the county municipality and the municipality. In 2012 the total tax revenue was 42.2% of the gross domestic product (GDP). Many direct and indirect taxes exist. The most important taxes – in terms of revenue – are VAT, income tax in the petroleum sector, employers' social security contributions and tax on "ordinary income" for persons. Most direct taxes are collected by the Norwegian Tax Administration and most indirect taxes are collected by the Norwegian Customs and Excise Authorities.
Taxes in Bulgaria are collected on both state and local levels. The most important taxes are collected on state level, these taxes include income tax, social security, corporate taxes and value added tax. On the local level, property taxes as well as various fees are collected. All income earned in Bulgaria is taxed on a flat rate of 10%. Employment income earned in Bulgaria is also subject to various social security insurance contributions. In total the employee pays 12.9% and the employer contributes what corresponds to 17.9%. Corporate income tax is also a flat 10%. Value-Added Tax applies at a flat rate of 20% on virtually all goods and services. A lower rate of 9% applies on only hotel services.
Czech Republic's current tax system was put into administration on 1 January 1993. Since then, an updated VAT act was introduced on 1 May 2004 when Czech Republic joined the EU and the act had to correspond to EU law. In 2008, the administration also introduced Energy Taxation. Changes to tax laws are quite frequent and common in the Czech Republic due to a dynamic economy. The highest levels of revenue are generated from income tax, social security contributions, value-added tax and corporate tax. In 2015, total revenue stood at CZK 670.216 billion which was 36.3% of GDP. The tax quota of the Czech Republic is lower than the EU average. Compared to the averages of the OECD countries, revenues generated from taxes on social security contributions, corporate income and gains and value added taxes account for higher proportions of total taxation revenue. Personal income tax lies on the other end of the spectrum where the revenue is proportionally much lower than the OECD average. Taxes on property also account for lower levels of revenue.
A value-added tax (VAT), known in some countries as a goods and services tax (GST), is a type of tax that is assessed incrementally. It is levied on the price of a product or service at each stage of production, distribution, or sale to the end consumer. If the ultimate consumer is a business that collects and pays to the government VAT on its products or services, it can reclaim the tax paid. It is similar to, and is often compared with, a sales tax. VAT is an indirect tax because the person who ultimately bears the burden of the tax is not necessarily the same person as the one who pays the tax to the tax authorities.
