TAXATION

2. To regulate and control business activities (e.g. to encourage capital investment).TAXATION

Governments provide certain public goods that generally are not provided by the market, such as street lighting, highways, law enforcement, and the court system. The most important source of getting money is collecting taxes. A tax is a mandatory payment to a local, state, or national government. Taxation – the process of collecting taxes. Revenue is government income from taxes and non-tax sources. Non-tax sources include borrowing and lotteries.
The functions and purposes of taxation:
1. The primary function of taxation – to raise revenue to finance government and be a source of a state budget.
2. To regulate and control business activities (e.g. to encourage capital investment).
3. To encourage and discourage consumption and spending (e.g. smoking, drinking alcohol)
4. To reallocate financial resources and redistribute wealth.
There are two principles and three criteria of taxation.
1) Benefits-received principle The benefits-received principle of taxation holds that
people who benefit directly from public goods should pay for them in proportion
to the amount of benefits received. However, it is difficult for governments to assess exactly how much different taxpayers benefit from services like national defence, national parks, local police and fire protection, and public education.
2)Ability-to-pay principle The ability-to-pay principle of taxation holds that people should be taxed on their ability to pay, no matter the level of benefits they receive.
Criteria for taxation Tax systems attempt to meet three criteria: equity, simplicity, and efficiency.
• Equity requires that people in similar situations pay a similar amount of taxes.
• The simplicity of a tax is determined by how easy it is for the taxpayer to understand and how easy it is for government to collect.
• The efficiency of a tax can be judged by how well the tax achieves the goal of raising revenue for government with the least cost in terms of administration.
Government imposes taxes on various forms of income and wealth in order to raise the revenue to provide public goods and various other services. Each type of wealth subject to taxes is called a tax base. The four most common tax bases are individual income, corporate income, sales, and property.
1. Individual income tax - is based on an individual’s income from all sources.
2. Corporate income tax - is based on a corporation’s profits.
3. Sales tax - is based on the value of goods or services at the time of sale.
4. Property tax - is based on the value of an individual’s or a business’s assets.
The way in which taxes are imposed on the different tax bases gives rise to three different tax structures.
• A proportional tax takes the same percentage of income from all taxpayers regardless of income level.
• A progressive tax places a higher percentage rate of taxation on high-income earners than on low-income earners. It is most closely linked to the ability-to-pay principle.
• A regressive tax takes a larger percentage of income from people with low incomes than from people with high incomes. Some taxes are regressive because they are applied to sales, not income. Low-income earners tend to spend a higher proportion of income than do high-income earners.
The impact of a tax can be measured by who actually pays it. In other words, it is the impact of the tax on a taxpayer. Taxes have an economic impact on resource allocation, productivity and growth, and the economic behavior of individuals and businesses.
Impact 1. Resource allocation A tax placed on a good or service will increase the costs of production. If the demand remains the same, the price of the good or service will go up.
Impact 2. Productivity and growth When taxes on interest and dividends are high, people tend to save less than when taxes on this source of income are low. Therefore, taxes also have an impact on the amount of money available to producers to invest in their businesses. Some economists also believe that high taxes reduce incentives to work. They suggest that people may spend more time on activities other than work if a large percentage of their income goes to taxes. Other economists suggest that the underground economy is a result of high taxes.
Impact 3. Economic behaviour A tax incentive is the use of taxes to encourage or discourage certain economic behaviours. For example, it may give tax rebates to businesses for opening new factories, offices, and stores in economically depressed areas. Alternatively, government may give tax credits to consumers for activities such as recycling or using energy more efficiently.
In most developed countries most of taxes are common. But of course there are some differences, especially in names. Let’s take the UK and the US.
In general, all governments revenues comes from several sources, including individual income tax, social insurance taxes, corporate income taxes, estate taxes, gift taxes, excise taxes, and customs taxes. The largest source of taxes for government is the individual income tax. (in the UK- income tax, in Russia- Personal income tax). To make it easier for taxpayers and government, a payroll tax – a tax that is taken from a worker’s paycheck – is collected. The payroll tax is deducted from a paycheck as withholding, or money taken from a worker’s pay before the worker receives it. Income tax is a progressive tax based on the ability-to-pay principle of taxation.
Corporate income tax (in the UK-corporation tax, in Russia- Corporate profit tax) is a tax on corporate profits. This tax is one of the largest sources of tax revenue for government. Like individuals, organisations can deduct certain expenses from their profits to reduce their tax. A common criticism of the corporate income tax is that corporate profits are subject to double taxation. Profits are taxed at the corporate level and again at the individual level, since shareholders pay taxes on the income they receive in the form of dividends or capital gains.
Other taxes Several miscellaneous taxes provide a small part of total government revenue. Estate tax (in the UK- inheritance tax) - is a tax on property transferred to others on the death of the owner. The gift tax is a tax on money or property given by one living person to another. The excise (the same in Russia) is a tax on the production or sale of a specific product, such as gasoline or telephone service. In general, government places excise taxes on goods or services for which there is relatively inelastic demand in order to maintain a steady stream of revenue. The customs duty is a tax on imported goods. The user fee is money charged for the use of a good or service.

I would like to mention more over taxes in the UK.
• capital gains tax - a tax on profits made by selling assets such as businesses, rented houses, and shares
• value added tax (VAT) (the same in Russia)- a tax on goods and services. In the UK it is charged at 17.5%
• stamp duty - a tax on specific transactions. For example, in the UK, it is payable by a buyer of a house
• wealth tax (in Russia-vehicle tax)- a tax on assets (such as houses) payable in some countries, but not in the UK

And of course I can’t leave the taxation in our country without attention.
As far as Russia is concerned, the primary tax law for the Russian Federation is he Russian Tax Code. The Code is subject to regular changes which are effected through federal laws. It is designed as a complete national system for federal, regional and local taxes but excludes customs tariffs. Distinction between federal, regional and local taxes depends on the lowest level of legislature that is entitled to establish tax rates. Russian tax system tends to use moderate, flat or regressive tax rates. Rates of federal taxes, by definition, are explicitly set by the Tax Code; rates of regional taxes are limited by the Code but set by regional laws.
Value added tax (VAT) is the largest source of federal revenue. VAT on imports is paid at 18% (10% on selected foodstuffs) prior to releasing cargoes from the bonded customs warehouse. VAT exemption extends to socially-targeted companies in medicine, pharmaceutical industry, education, public housing and transportation.
Tax on mineral resource extraction (MRET) is the second largest source of federal revenue regulated by the Code; most of it is paid by oil companies. The tax is accrued and paid monthly based on physically extracted tonnage. A related but separate Water tax is paid by organizations physically extracting surface or subterranean fresh water.
Corporate profit tax (CPT) is the largest source of regional revenues. Tax rate for 2009 is set at 20% on pre-tax profits.
Excise tax is levied on manufacturers of raw and refined alcohol, alcoholic drinks; gasoline and diesel fuel, motor oils; tobacco products. The Code also regulates strict licensing rules for oil refineries and alcohol distillers.
Personal income tax (PIT) is levied strictly individually, normally at 13%. Tax on wages and salaries is withheld by employer, thus the taxpayers whose only taxable income was paid by employer do not need to file tax return. Most important deductions are allowed for home purchase (once a life), education and medical expenses.
Land tax is the only local tax in Russia: its rates are set by lowest level municipal authorities (excluding federal cities of Moscow and Saint Petersburg, where the rates are set by city legislators).
Regional and local taxes in Russia are asset-related: property tax, vehicle tax, land tax and tax on gambling businesses. These taxes are assessed and paid in re and exact tax rates are set by regional (property, vehicles, gambling) or municipal (land) legislators within the Code's framework.
Many people think that it is unfair to give so much money to the government and try to avoid paying taxes. There are two types of it: tax avoidance (is thus entirely legal) and tax evasion (is thus illegal).
Tax avoidance is generally the legal exploitation of the tax regime to one's own advantage, to attempt to reduce the amount of tax that is payable by means that are within the law whilst making a full disclosure of the material information to the tax authority. Examples of tax avoidance involve using tax deuctions, changing one's business structure through incorporation or establishing an offshore company in a tax haven.
By contrast is the general term for efforts by individuals, firms, trusts and other entities to evade the payment of taxes by illegal means. Tax evasion usually entails taxpayers deliberately misrepresenting or concealing the true state of their affairs to the tax authorities to reduce their tax liability, and includes, in particular, dishonest tax reporting (such as underdeclaring income, profits or gains; or overstating deductions).
Tax avoidance may be considered as either the amoral dodging of one's duties to society, part of a strategy of not supporting violent government activities or just the right of every citizen to find all the legal ways to avoid paying too much tax. Tax evasion, on the other hand, is a crime in almost all countries and subjects the guilty party to fines or even imprisonment.
The underground economy or shadow economy consists of all commerce that is not taxed. This market includes not only legally-prohibited commerce but trade in legal goods and services because some income is not reported and consequently taxation is avoided.
Methods of avoiding taxes:
Tax avoidance – arranging one’s affairs so that tax is not legally payable and reducing the amount of tax you pay to a legal minimum. Tax avoidance is thus entirely legal.
1. Avoiding tax on salaries
- Loopholes. To reduce income tax liability, some employers give highly-paid employees lots of perks or benefits instead of taxable money, such as company cars, free health insurance, ets. Legal ways of avoiding tax, such as these, are known as loopholes.
- Tax shelters – life insurance policies, pension plans and other investments by which individuals can postpone the payment of tax.
- Tax-deductible donations – donations to charities that can be subtracted from the income on which tax is calculated.
- “Moonlighting”- when people work in the evening (extra job), combining with official main job. (people which is self-employed)
2. Avoiding tax on profits
- Methods of accelerated depreciation accounting (allow companies to deduct more of the cost of investments from they profit, and consequently reduce their tax bills).
- Making a tax loss – company 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.
- Tax havens – multinational companies often set up their head offices in countries such as Liechtenstein, Monaco, the Cayman Island, where taxes are low.
- Money laundering – criminal organization tend to pass money through a series of companies in very complicated transactions in order to disguise its origin from tax inspectors.




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Цирк уехал. Кто остался?


Alexander Hamilton and Thomas Jefferson.
As Revolutionary America had produced two commanding figures who became world-wide known, Washington and Franklin, so the youthful republic raised into fame two brilliantly able men whose reputations spread beyond the seas - Alexander Hamilton and Thomas Jefferson. They represented two powerful though different tendencies in American life, Hamilton the tendency toward closer union and a stronger national government, Jefferson the tendency toward a broader, freer democracy.


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