Taxes
Taxes are among the most important public revenues of states; It is characterized by their important role in contributing to the achievement of the general directions of the state and the objectives of the fiscal policy; Therefore, many concepts and definitions related to taxes have emerged. They are known as mandatory obligations determined by countries, and individuals are obligated to pay their value without compensation; In order to help them achieve societal goals.
Technical elements of tax
Tax base: It is the taxable income whose components are determined and assessed, and the legal exemptions that are deducted from the base are excluded.
Tax rate: the percentage deducted from the tax base after determining legal exemptions. The amount to be paid to the tax administration is determined by applying the rate established by legal text.
tax types
Relative tax: It is a specific percentage deducted from the value of the base. The tax rate is fixed, but the value of the tax changes according to the base change.
Progressive tax: its rate increases with the increase in the tax base, with a maximum limit so as not to cause social problems and the incentive for individuals to achieve profits.
Regressive tax: It is the tax whose rate decreases with the increase in the value of the base and is usually used to direct the economic resources of a particular sector.
Flat tax: a fixed amount that is deducted from the tax base, whatever its amount, and is usually applied to small commercial activities.
Basic rules for taxation
The rule of fairness in the imposition of tax
Related to the way the tax is distributed to those charged with paying it, as there are several theories about this concept, including the theory of absolute justice, meaning that the burden of the tax is distributed equally to all members of society, but in and of itself it does not achieve justice. According to this rule, there are two concepts of justice:
Horizontal justice: It requires that individuals with equal ability to pay be treated equal tax treatment (the practical form of it is imposing the same tax rate on this ability)
Vertical justice: It requires achieving justice when treating individuals with consideration for taxpayers who have the unequal ability (the practical form of it is the imposition of progressive taxes on this ability)
public utility theory
The size of the tax is linked to the public benefit and not to the private benefit, which is difficult to apply because:
Government services are public or semi-public services, so it is not possible to determine the benefit for each individual.
• That each individual will link his payment of tax to a personal consideration of public services.
The difficulty of defining a single tax structure for all individuals is due to the different needs of individuals.
The poor are the most benefiting groups from public services, and it is impossible, according to this theory, to pay the tax.
Payability Theory
Justice is achieved when determining the tax on the basis of the ability to pay. Several measures have been developed to know it, the most important of which are income, wealth, and consumer spending, and income is one of the most widely used measures.
This theory is in line with the modern concept of taxes, as it is a contribution from members of society without obtaining a special consideration or benefit, but it is subject to an objective measure, which is according to the financial ability and ability to pay.
Efficiency rule for taxation
Efficient collection of the tax imposed means achieving the highest possible outcome with the lowest costs, that is, when the tax is not complicated and does not require high costs.
The efficiency of the tax and the extent to which it is related to economic activity when it does not reduce the existing economic activity when it is imposed. The tax is effective if it maintains the efficiency of this activity. If the tax is efficient and maintains the status quo without prejudice to it, then it is called the neutral tax
Tax Flexibility Rule
Flexibility in taxes means that there is a high degree of responsiveness to taxes when economic changes or emergency matters and includes two concepts:
Automatic response without the state having to change the structure of the tax system
• The rapid ability of the state to review the existing tax structure to achieve new or changing policy and financial goals.
Tax simplicity rule
It requires that tax procedures and legislation be clear, leaving no room for differences in their interpretation.
And the understanding of the taxpayer does not tolerate more than one interpretation of the tax, which reduces tax evasion.
Tax types:
Taxes have two basic types:
direct taxes
tax on personal income
It is one of the fiscal policy tools to achieve economic and social balance...
Tax revenues are high as a result of the renewal, diversification, and development of their sources.
• Income is the best measure of the ability to pay taxes and cannot be transferred to another person.
Income is defined as the portion spent on consumption plus the financial increase in an individual's wealth.
The tax affects consumption and savings, and thus the level of the economy and the country's gross product.
tax base base
Earned income, which is generated from work.
Unearned income is the income generated by an individual's ownership of capital.
The increase in the value of the assets owned by the individual.
Income from a permanent source or exceptional income.
Where the tax is imposed on the real value of the income after excluding the costs that are deducted before imposing the tax, which are the costs incurred by the individual to obtain that income and includes:
direct taxes
1.1 Tax on personal income
1.1.1 General tax on income from all sources
• It takes into account all the incomes of the taxpayer and thus accurately identifies the financial status of the taxpayer.
Tax exemptions differ from one person to another according to the personal and social circumstances of the taxpayer.
Features:
It helps to apply progressive tax rates, which achieves justice among the groups of society
Reducing collection costs and expenses.
Its disadvantages: the psychological tax impact on the taxpayer, which leads to tax evasion.
Miscellaneous tax for each type of income by source:
profit tax
The tax base consists of corporate and corporate profits.
An annual tax levied at the end of each year
why.
It is one of the most important tools of financial power to control inflation or depression.
Lead to the redistribution of resources between sectors and economic activities.
Disadvantages: The amount of savings and investment may be negatively affected as a result of the tax on profits.
Determining the value of the tax base on profits:
Tax credits:
Investment Permits: Excluding a percentage of profits from taxation to encourage investment.
Depreciation of capital: The value of capital consumption is deducted from the profits according to the time period required to depreciate the capital assets owned by the taxpayer.
Capital Gain: It is achieved from the sale of capital assets at a price higher than the purchase price.
Bad debt
Carrying forward the losses realized during the previous years, where the value of the annual installment of the losses carried forward is deducted from the tax base.
Including travel costs, parties, and banquets related to business.
Inflation and measuring the real value of profits must evaluate expenditures and revenues in real terms.
flat-rate tax
The researchers (Robert Hall and Elvin Rabochka) made it clear that imposing a tax at a uniform rate on all personal income and corporate profits will achieve revenues for the budget and keep it away from complications and negative effects.
The simplicity of the tax as it is applied to individuals and is subject to exemptions such as family exemptions, and is also applied to corporate profits and investment costs are exempted from it.
Efficiency in the tax makes it a neutral tax, as it helps investment as it directs it towards the most productive sectors.
indirect taxes
Imposing the tax at one stage (before retail or at retail)
Taxation in multiple stages (Value Added Tax)
Optional sales tax
import tax
Taxation before retail
Requires few efforts and costs due to the small number of taxpayers.
The imposition of tax on the wholesaler leads to the abolition of his role and encourages selling from the factory directly.
Its disadvantages:
The consumer bears a tax burden higher than the tax rate collected by the state.
• In countries where there is no organized retail trade, the tax does not reach all goods and their proceeds do not increase.
Taxation at retail
Avoid burdening the taxpayer with a large tax burden.
Disadvantages: It is not possible to count the retailers or their number, as well as many traders, do not have accounting books in an accurate manner, which makes imposing the tax on them very difficult and leads to an increase in the costs of the tax proceeds.
This tax is imposed on all stages of production and distribution through:
Accounting method: imposing value-added tax at each stage by deducting the value of the commodity when purchased from its selling price at each stage.
Invoice method: imposing the tax on the entire value of the commodity when it is sold, then subtracting the value of the tax paid in the previous stage from its value in the current stage.
The tax is distributed in multiple stages to the taxpayers instead of paying the tax once.
Capital goods can be excluded from the tax to be called the consumer value-added tax.
Its disadvantages:
You need accounting books at every stage of production, which is not available in most companies
Difficulty applying different ratios for essential and luxury goods due to the high number of taxpayers.
Optional sales tax
It is also called the selective tax, as it is imposed on certain goods without others
It depends on the state's ability to generate revenues and its economic policy.
Sales tax can be levied in the form of a fixed percentage of total sales.
It can also be charged in the form of a fixed amount regardless of the value of the pot.
Progressive and regressive taxes is not widely applied.
import tax
The import tax is collected upon entry of goods across the borders, which puts obstacles in the way of freedom of international trade, and it is imposed at different rates according to the type of goods, and it may be exempted from the necessary or capital goods.
It seeks to reduce the consumption of luxury goods and some harmful goods, reduce the leakage of national income abroad, and protect the emerging national industries.
Import tax characteristics:
Imposing a low rate on essential consumer goods
Imposing a low rate on capital goods
Imposing a high rate on luxury consumer goods.
Imposing a high rate on harmful goods
Problems with tax collection.
Distinguish between direct and indirect taxes
The distinction between direct and indirect taxes depends on the extent to which the taxpayer bears the tax burden.
Tax base standard:
The nature of the base: If the tax is imposed on the base in terms of its ownership, it is a direct tax. But if the tax base is used or spent, and the tax is imposed on that use, it is indirect.
The extent of the stability of the tax base: If it is imposed on a stable and continuous base in terms of its impact, it is direct taxes, but if taxes are imposed on irregular occurrences for the taxpayer, they are indirect.
Administrative criterion: It relates to how taxes are organized. If the tax is collected through lists and names of taxpayers, it is direct. If the tax is not collected through lists and names, it is an indirect tax.