Government Revenues

8/8/2019 Government Revenues

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GOVERNMENT REVENUES

(TAXATION and NON TAX REVENUES)

The primary goal of a national tax system is to generate revenues to paythe expenditures of government at all levels. Because public expenditures tend togrow at least as fast as the national product, taxes, as the main vehicle of governmentfinance, should produce revenues that grow correspondingly. Income, sales, and value-added taxes generally meet this criterion; property taxes and taxes on nonessentialarticles of mass consumption such as tobacco products and alcoholic beverages do not.

Some economists propose tax policies to promote economic growth. Theyeschew measures hindering growth and emphasize measures stimulating it. Thisapproach may imply a qualitative restructuring of the tax system (for example, thesubstitution of indirect taxes for direct taxes to some extent) or special tax advantagesto stimulate saving, labor mobility, research and development, etc.

Government revenue is revenue received by a government. Its opposite isgovernment spending. Government revenue is an important part of fiscal policy.

Government revenue includes all amounts of money received from sourcesoutside the government entity. Large governments usually have an agency or department responsible for collecting government revenue from companies andindividuals.

Government revenue may also include reserve bank currency which is printed.This is recorded as an advance to the retail bank together with a correspondingcurrency in circulation expense entry. The income derives from the Official Cash ratepayable by the retail banks for instruments such as 90 day bills. There is a question asto whether using generic business based accounting standards can give a fair andaccurate picture of government accounts in that with a monetary policy statement to thereserve bank directing a positive inflation rate the expense provision for the return of currency to the reserve bank is largely symbolic in that to totally cancel the currency incirculation provision all currency would have to be returned to the reserve bank andcancelled.

Non-tax revenue or non-tax receipts are government revenue is not generatedfrom taxes. Examples include:


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y Aid from another level of government (intragovernmental aid) - for example, inthe United States, federal grants may be considered non-tax revenue to thereceiving states

y Aid from abroad (foreign aid)y Tribute or indemnities paid by a weaker state to a stronger one, often as a

condition of peace after suffering military defeat. The war reparations paid by thedefeated Central Powers after the First World War offer a well-known example.

y Revenue from state-owned enterprises (for example, revenue from state-ownedliquor stores)

y Revenue (including interest or profit) from investment funds (collectiveinvestment schemes), sovereign wealth funds, or endowments

y Revenues from sales of state assetsy Rents, concessions, and royalties collected by the state when it contracts out the

right to profit from some good or service to a private corporation. An example are

contracts for resource extraction (for such natural resources as minerals, timber,petroleum and natural gas, or marine resources) collected privately under licensefrom state-owned lands

y Fines collected and assets forfeiture as a penalty. Examples include parkingfines, court costs levied on criminal offenders

y Fees for the granting or issuance of permits or licenses. Examples includevehicle registration plate permits, vehicle registration fees, watercraft registrationfees, building fees, driver's licenses, hunting and fishing licenses, fees for professional licensing, fees for visas or passports, fees for demolition, rezoning,and land grading (which causes silt), and sometimes for increasing stormwater

runoff, destroying native vegetation, and cutting-down healthy trees.y User fees collected in exchange for the use of many public services and facilities.

Tolls charged for the use of toll roads are an exampley Donations and voluntary contributions to the state

1 . TAXATION its concept, scope, nature, basis and theory

To tax (from the Latin taxo ; "I estimate", which in turn is from tang ; "Itouch") is to impose a financial charge or other levy upon a taxpayer (anindividual or legal entity) by a state or the functional equivalent of a state suchthat failure to pay is punishable by law.

A tax may be defined as a "pecuniary burden laid upon individuals or property owners to support the government [] a payment exacted by legislativeauthority." [1] A tax "is not a voluntary payment or donation, but an enforcedcontribution, exacted pursuant to legislative authority" and is "any contribution


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imposed by government [] whether under the name of toll, tribute, tillage,gabel, impost, duty, custom, excise, subsidy, aid, supply, or other name."

The legal definition and the economic definition of taxes differ in thateconomists do not consider many transfers to governments to be taxes. For example, some transfers to the public sector are comparable to prices. Examplesinclude tuition at public universities and fees for utilities provided by localgovernments. Governments also obtain resources by creating money (e.g.,printing bills and minting coins), through voluntary gifts (e.g., contributions topublic universities and museums), by imposing penalties (e.g., traffic fines), byborrowing, and by confiscating wealth. From the view of economists, a tax is anon-penal, yet compulsory transfer of resources from the private to the publicsector levied on a basis of predetermined criteria and without reference tospecific benefit received.

TAXATION

The act of laying a tax, or of imposing taxes, as on the subjects of astate, by government, or on the members of a corporation or company, bythe proper authority; the raising of revenue; also, a system of raisingrevenue.

The first known system of taxation was in Ancient Egypt around 3000 BC -2800 BC in the first dynasty of the Old Kingdom. [11] Records from the time

document that the pharaoh would conduct a biennial tour of the kingdom,collecting tax revenues from the people. Other records are granary receipts onlimestone flakes and papyrus. [12] Early taxation is also described in the Bible. InGenesis (chapter 47, verse 24 - the New International Version), it states "Butwhen the crop comes in, give a fifth of it to Pharaoh. The other four-fifths youmay keep as seed for the fields and as food for yourselves and your householdsand 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.

Later, in the Persian Empire, a regulated and sustainable tax system was

introduced by Darius I the Great in 500 BC[13]

; the Persian system of taxation wastailored to each Satrapy (the area ruled by a Satrap or provincial governor). Atdiffering times there were between 20 and 30 Satrapies in the Empire and eachwas 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 howand from whom to raise the money in the province, offer maximum opportunity


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for rich pickings.) The quantities demanded from the various provinces gave avivid picture of their economic potential. For instance, Babylon was assessed for the highest amount and for a startling mixture of commodities - 1000 silver talents, four months supply of food for the army. India clearly, was already fabledfor its gold; the province was to supply gold dust equal in value to the very largeamount of 4680 silver talents. Egypt was known for the wealth of its crops; it wasto be the granary of the Persian Empire (as later of Rome's) and was required toprovide 120,000 measures of grain in addition to 700 talents of silver. This wasexclusively a tax levied on subject peoples. Persians and Medes paid no tax, but,they were liable at any time to serve in the army.

Taxation has four main purposes or effects: Revenue, Redistribution,Reprising, and Representation.

The main purpose is revenue: taxes raise money to spend on armies,roads, schools and hospitals, and on more indirect government functions likemarket regulation or legal systems. This is the most widely known function.

A second is redistribution. Normally, this means transferring wealth fromthe richer sections of society to poorer sections.

A third purpose of taxation is reprising. Taxes are levied to addressexternalities: tobacco is taxed, for example, to discourage smoking and manypeople ] advocate policies such as implementing a carbon tax.

A fourth, consequential effect of taxation in its historical setting has beenrepresentation. The American revolutionary slogan "no taxation withoutrepresentation" implied this: rulers tax citizens and citizens demandaccountability from their rulers as the other part of this bargain. Several studieshave shown that direct taxation (such as income taxes) generates the greatestdegree of accountability and better governance, while indirect taxation tends tohave smaller effects.

Nature of taxation

1. Inherent power of sovereignty2. Legislative in nature3. Public purpose4. Territorial in operation5. Exemption of the government6. Strongest among the inherent power of the state7. Subject of constitutional and inherent


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2 . Importance, concept and kinds of taxes

An important feature of tax systems is the percentage of the tax burden asit relates to income or consumption. The terms progressive, regressive, andproportional 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, whichcan be applied to any type of tax system (income or consumption) that meets thedefinition. A progressive tax is a tax imposed so that the effective tax rateincreases 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 asthe amount to which the rate is applied increases. In between is a proportionaltax, where the effective tax rate is fixed, while the amount to which the rate isapplied increases. The terms can also be used to apply meaning to the taxationof select consumption, such as a tax on luxury goods and the exemption of basicnecessities may be described as having progressive effects as it increases a taxburden on high end consumption and decreases a tax burden on low endconsumption.

Taxes are sometimes referred to as direct taxes or indirect taxes . Themeaning of these terms can vary in different contexts, which can sometimes leadto confusion. An economic definition, by Atkinson, states that "...direct taxes maybe adjusted to the individual characteristics of the taxpayer, whereas indirecttaxes are levied on transactions irrespective of the circumstances of buyer or seller." (A. B. Atkinson, Optimal Taxation and the Direct Versus Indirect TaxControversy, 10 Can. J. Econ. 590, 592 (1977)). According to this definition, for example, income tax is "direct", and sales tax is "indirect". In law, the terms mayhave 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.Thus, a tax on the sale of property would be considered an indirect tax, whereasthe tax on simply owning the property itself would be a direct tax. The distinctionbetween direct and indirect taxation can be subtle, but can be important under the law.

Kinds of taxes

Ad valorem

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


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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 (inheritancetax or tariffs). An alternative to ad valorem taxation is an excise tax, wherethe tax base is the quantity of something, regardless of its price. For example, in the United Kingdom, a tax is collected on the sale of alcoholicdrinks that is calculated by volume and beverage type, rather than theprice of the drink.

B ank tax

A bank tax ("bank levy") is a proposed tax on banks. One of theearliest modern uses of the term "bank tax" occurred in the context of theFinancial crisis of 20072010.

C apital gains tax

A capital gains tax is the tax levied on the profit released upon thesale of a capital asset. In many cases, the amount of a capital gain istreated as income and subject to the marginal rate of income tax.However, in an inflationary environment, capital gains may be to someextent illusory: if prices in general have doubled in five years, then sellingan asset for twice the price it was purchased for five years earlier represents no gain at all. Partly to compensate for such changes in the

value of money over time, some jurisdictions, such as the United States,give a favorable capital gains tax rate based on the length of holding.

C onsumption tax

A consumption tax is a tax on non-investment spending, and canbe implemented by means of a sales tax or by modifying an income tax toallow for unlimited deductions for investment or savings.

C orporation tax

Corporate tax refers to a direct tax levied by various jurisdictions onthe profits made by companies or associations and often includes capitalgains of a company. Earnings are generally considered gross revenueless expenses. Corporate expenses that relate to capital expenditures areusually deducted in full (for example, trucks are fully deductible in theCanadian tax system, while a corporate sports car is only partly


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deductible). They are often deducted over the useful life of the assetpurchase. Notably, accounting rules about deductible expenses and taxrules about deductible expense will differ at times, giving rise to book-taxdifferences. If the book-tax difference is carried over more than a year, it isreferred to as a temporary difference, which then creates deferred taxassets and liabilities for the corporation, which are carried on the balancesheet.

C urrency transaction tax

A currency transaction tax is a tax placed on a specific type of currency transaction for a specific purpose. This term has been mostcommonly associated with the financial sector, as opposed toconsumption taxes paid by consumers. There are several types of currency transaction taxes that have been proposed, the most prominentbeing the Tobin tax and the Spahn tax. Most remain unimplementedconcepts.

Environment Affecting Tax

This includes natural resources consumption tax, Greenhouse gastax (Carbon tax), "sulfuric tax", and others. The stated purpose is toreduce the environmental impact by reprising.

Excises

Unlike an ad valorem , an excise is not a function of the value of theproduct being taxed. Excise taxes are based on the quantity, not thevalue, of product purchased. For example, in the United States, theFederal 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 28cents per U.S. gallon. Excises on particular commodities are frequentlyhypothecated. For example, a fuel excise (use tax) is often used to pay for public transportation, especially roads and bridges and for the protection

of the environment. A special form of hypothecation arises where anexcise is used to compensate a party to a transaction for allegeduncontrollable abuse; for example, a blank media tax is a tax onrecordable media such as CD-Rs, whose proceeds are typically allocatedto copyright holders. Critics charge that such taxes blindly tax those whomake legitimate and illegitimate usages of the products; for instance, a


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person or corporation using CD-R's for data archival should not have tosubsidize the producers of popular music.

Excises (or exemptions from them) are also used to modifyconsumption patterns (social engineering). For example, a high excise isused to discourage alcohol consumption, relative to other goods. This maybe combined with hypothecation if the proceeds are then used to pay for the costs of treating illness caused by alcohol abuse. Similar taxes mayexist on tobacco, pornography, etc., and they may be collectively referredto 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, andnatural gas. The object is to reduce the release of carbon into theatmosphere. In the United Kingdom, vehicle excise duty is an annual taxon vehicle ownership.

Expatriation Tax

An Expatriation Tax is a tax on some who renounce their citizenship of some governments. The most significant Expatriation Tax isone found in the USA.

The American Jobs Creation act of 2004, passed by theRepublican-controlled government, amended section 877 of the InternalRevenue Code of the USA. Under the new law, any individual who has a

net worth of $2 million or an average income-tax liability of $127,000 whorenounces his or her citizenship and leaves the country is automaticallyassumed to have done so for tax avoidance reasons and is victim tosevere tax laws.

F inancial activities tax

As a regulatory response and proposal to the financial crisis of 2007-2010, on April 16, 2010, the IMF proposed three types of globaltaxes on banks: First, the "Financial Stability Contribution" is a straight tax

on a bank's gross profitsbefore deducting compensation. It wouldinitially be at a flat rate, this would eventually be refined so that riskier businesses paid more. [ Second, the "Financial Activities Tax" aims directlyat excess bank profit and pay. The third, which was not endorsed by theIMF, but not ruled out as administratively difficult, is a financial transactiontax.


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Transaction tax

A financial transaction tax is a tax placed on a specific type (or types) of financial transaction for a specific purpose (or purposes). Thisterm has been most commonly associated with the financial sector, asopposed to consumption taxes paid by consumers.

There are several types of financial transaction taxes. Each has itsown purpose. Some have already been implemented, and some remainunimplemented concepts. Concepts are found in various organizationsand regions around the world. Some are domestic and meant to be usedwithin one nation; whereas some are multinational.

Income tax

An income tax is a tax levied on the financial income of persons,corporations, or other legal entities. Various income tax systems exist,with varying degrees of tax incidence. Income taxation can beprogressive, proportional, or regressive. When the tax is levied on theincome of companies, it is often called a corporate tax, corporate incometax, or corporation tax. Individual income taxes often tax the total incomeof the individual (with some deductions permitted), while corporate incometaxes often tax net income (the difference between gross receipts,expenses, and additional write-offs).

The "tax net" refers to the types of payment that are taxed, whichincluded personal earnings (wages), capital gains, and business income.The rates for different types of income may vary and some may not betaxed at all. Capital gains may be taxed when realized (e.g. when sharesare sold) or when incurred (e.g. when shares appreciate in value).Business income may only be taxed if it is significant or based on themanner in which it is paid. Some types of income, such as interest onbank savings, may be considered as personal earnings (similar to wages)or as a realized property gain (similar to selling shares). In some tax

systems, personal earnings may be strictly defined where labor, skill, or investment is required (e.g. wages); in others, they may be definedbroadly to include windfalls (e.g. gambling wins).

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. Thesecorrections take one of two forms: payments to the government, for


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taxpayers who have not paid enough during the tax year; and tax refundsfrom the government for those who have overpaid. Income tax systemswill often have deductions available that lessen the total tax liability byreducing total taxable income. They may allow losses from one type of income to be counted against another. For example, a loss on the stockmarket may be deducted against taxes paid on wages. Other tax systemsmay isolate the loss, such that business losses can only be deductedagainst business tax by carrying forward the loss to later tax years.

Inflation tax

An inflation tax is the economic disadvantage suffered by holdersof cash and cash equivalents in one denomination of currency due to theeffects of Expansionary monetary policy, which acts as a hidden tax thatsubtracts value from those assets. Many economists hold that the inflationtax affects the lower and middle classes more than the rich, as they hold alarger fraction of their income in cash; they are much less likely to receivethe newly created monies before the market has adjusted with inflatedprices, and more often have fixed incomes, wages or pensions. Someargue that inflation is a regressive consumption tax.

Inheritance tax

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 UnitedStates tax law, there is a distinction between an estate tax and aninheritance tax: the former taxes the personal representatives of thedeceased, while the latter taxes the beneficiaries of the estate. However,this distinction does not apply in other jurisdictions; for example, if usingthis terminology UK inheritance tax would be an estate tax.

P oll tax

A poll tax, also called a per ca pi ta tax , or ca pi tat i on tax , is a tax that

levies a set amount per individual. It is an example of the concept of fixedtax. 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. Polltaxes are administratively cheap because they are easy to compute andcollect and difficult to cheat. Economists have considered poll taxeseconomically efficient because people are presumed to be in fixed supply.However, poll taxes are very unpopular because poorer people pay a


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higher proportion of their income than richer people. In addition, the supplyof people is in fact not fixed over time: on average, couples will choose tohave fewer children if a poll tax is imposed. [25] The introduction of a polltax 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 1989with England and Wales in 1990. The change from a progressive localtaxation based on property values to a single-rate form of taxationregardless of ability to pay (the Community Charge, but more popularlyreferred to as the Poll Tax), led to widespread refusal to pay and toincidents of civil unrest, known colloquially as the 'Poll Tax riots'.

P roperty tax

A property tax is a tax put on property by reason of its ownership.Property tax can be defined as "generally, tax imposed by municipalitiesupon owners of property within their jurisdiction based on the value of such property." There are three species of property: land, improvementsto land (immovable man-made things, e.g. buildings) and personalproperty (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 theownership 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 waslevied in England, with the result that one can still see listed buildings withwindows bricked up in order to save their owners money. A similar tax onhearths existed in France and elsewhere, with similar results. The twomost common types of event driven property taxes are stamp duty,charged upon change of ownership, and inheritance tax, which is imposedin many countries on the estates of the deceased.

In contrast with a tax on real estate (land and buildings), a landvalue tax 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 iseconomically justified, as it will not deter production, distort marketmechanisms or otherwise create deadweight losses the way other taxesdo.


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When real estate is held by a higher government unit or some other entity not subject to taxation by the local government, the taxing authoritymay receive a payment in lieu of taxes to compensate it for some or all of the foregone tax revenue.

Retirement tax

Some countries with social security systems, which provide incometo retired workers, fund those systems with specific dedicated taxes.These often differ from comprehensive income taxes in that they arelevied only on specific sources of income, generally wages and salary (inwhich case they are called payroll taxes). A further difference is that thetotal amount of the taxes paid by or on behalf of a worker is typicallyconsidered in the calculation of the retirement benefits to which thatworker is entitled. Examples of retirement taxes include the FICA tax, apayroll tax that is collected from employers and employees in the UnitedStates to fund the country's Social Security system; and the NationalInsurance Contributions (NICs) collected from employers and employeesin the United Kingdom to fund the country's national insurance system.

Sales tax

Sales taxes are levied when a commodity is sold to its finalconsumer. 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 tendto be regressive. It is therefore common to exempt food, utilities and other necessities from sales taxes, since poor people spend a higher proportionof their incomes on these commodities, so such exemptions would makethe 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 paythe tax.

Tariffs

An import or export tariff (also called customs duty or impost) is acharge for the movement of goods through a political border. Tariffsdiscourage trade, and they may be used by governments to protectdomestic industries. A proportion of tariff revenues is often hypothecatedto pay government to maintain a navy or border police. The classic ways


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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, andagricultural policy. A trade bloc is a group of allied countries agreeing tominimize or eliminate tariffs against trade with each other, and possibly toimpose protective tariffs on imports from outside the bloc. A customsunion has a common external tariff, and, according to an agreed formula,the participating countries share the revenues from tariffs on goodsentering the customs union.

Toll

A toll is a tax or fee charged to travel via a road, bridge, tunnel,canal, waterway or other transportation facilities. Historically tolls havebeen used to pay for public bridge, road and tunnel projects. They havealso been used in privately constructed transport links. The toll is likely tobe a fixed charge, possibly graduated for vehicle type, or for distance onlong routes.

Shunpiking is the practice of finding another route to avoid paymentof tolls. In some situations where tolls were increased or felt to beunreasonably high, informal shunpiking by individuals escalated into aform of boycott by regular users, with the goal of applying the financialstress of lost toll revenue to the authority determining the levy.

Transfer tax

Historically, in many countries, a contract needed to have a stampaffixed to make it valid. The charge for the stamp was either a fixedamount or a percentage of the value of the transaction. In most countriesthe stamp has been abolished but stamp duty remains. Stamp duty islevied in the UK on the purchase of shares and securities, the issue of bearer instruments, and certain partnership transactions. Its modernderivatives, stamp duty reserve tax and stamp duty land tax, are

respectively charged on transactions involving securities and land. Stampduty has the effect of discouraging speculative purchases of assets bydecreasing liquidity. In the United States transfer tax is often charged bythe 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.


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Value Added Tax / Goods and Services Tax

A value added tax (VAT), also known as 'Goods and Services Tax'(G.S.T), Single Business Tax, or Turnover Tax in some countries, appliesthe equivalent of a sales tax to every operation that creates value. To givean example, sheet steel is imported by a machine manufacturer. Thatmanufacturer will pay the VAT on the purchase price, remitting thatamount to the government. The manufacturer will then transform the steelinto a machine, selling the machine for a higher price to a wholesaledistributor. The manufacturer will collect the VAT on the higher price, butwill remit to the government only the excess related to the "value added"(the price over the cost of the sheet steel). The wholesale distributor willthen continue the process, charging the retail distributor the VAT on theentire price to the retailer, but remitting only the amount related to the

distribution mark-up to the government. The last VAT amount is paid bythe eventual retail customer who cannot recover any of the previously paidVAT. For a VAT and sales tax of identical rates, the total tax paid is thesame, but it is paid at differing points in the process.

W ealth (net worth) tax

Some countries' governments will require declaration of the taxpayers' balance sheet (assets and liabilities), and from that exact a tax onnet worth (assets minus liabilities), as a percentage of the net worth, or a

percentage of the net worth exceeding a certain level. The tax is in placefor both "natural" and in some cases legal "persons".

3. Limitation on the power of taxation

Aside from the general limitations resulting from the requirements of due processof law and equal protection of the laws, the federal constitution contains some specificlimitations on the state taxing power. The laying and collection of duties, imposts, andexcises is a legitimate method of exercising the power of taxation; but by the federalconstitution authority to raise taxes by this method is specifically conferred on the

federal government and while this does not in itself exclude the exercise of like power by the states, nevertheless it is specifically provided that "No state shall without theconsent of the Congress lay any imposts or duties on imports or exports, except whatmay be absolutely necessary for executing its inspection laws" and that "No state shallwithout the consent of Congress lay any duty of tonnage" These restrictions, while theyrelate specifically to the state power to tax, seem to be intended to prevent interferenceby the states with freedom of commercial intercourse.


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The provision that Congress shall have power " To regulate commerce withforeign nations and among the several states and with the Indian tribes" has beeninterpreted also as restricting the levying of state taxes on foreign or interstatecommerce. The extent to which this clause restricts state taxation will be considered inthe chapter relating to the regulation of commerce. The validity of state inspection laws,and of state taxes on boats and vessels, has been the subject of some discussion, butthe matter is not of sufficient general importance to justify further elaboration. It issufficient to say that few attempts have been made by the states to impose taxes for theenforcement of state inspection; and that taxes on boats and vessels have beensustained where they are reasonably calculated to reach the value of the property itself,so far as it is within the jurisdiction of the states, the tonnage tax prohibited beingconsidered to be a tax on boats and vessels based upon their capacity rather than their value.

The1987

P

hilippineC

onstitution sets limitations on the exercise of the power totax.

The rule of taxation shall be uniform and equitable. The Congress shall evolve aprogressive system of taxation.

The 1987 Philippine Constitution sets limitations on the exercise of the power totax.

The rule of taxation shall be uniform and equitable. The Congress shall evolve a

progressive system of taxation. All money collected on any tax levied for a special purpose shall be treated as a

special fund and paid out for such purpose only. If the purpose for which a special fundwas created has been fulfilled or abandoned, the balance, if any, shall be transferred tothe general funds of the Government.

4. Legal P rocess of Taxation

The requirement of due process of law does not necessitate judicial proceedings

to determine the amount of tax to be paid by each person and to enforce the tax asagainst his property. The usual method of assessment and levy for the purpose of determining the amount of tax to be paid, and of seizure and sale to enforce suchpayment, if the tax becomes delinquent, are themselves due process of law. But theremust be a procedure of some kind to fix the valuation of the property for the purposes of taxation, and some apportionment of taxes on the basis of such valuation, and the


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taxpayer must have some kind of notice to enable him to pay before his property isseized.

The ordinary public taxes which are based on property owned are usuallyapportioned by means of an assessment of the value of the property, made by proper officers, for determining the amount belonging to each taxpayer; and following theassessment there is usually a levy made by some proper board or tribunal whichdetermines the amount which each property owner must pay in order that the desiredaggregate sum of public money shall be raised. As to the general public taxes which arelevied in accordance with law on assessments regularly provided for, the law itself constitutes sufficient notice, and the taxpayer is bound to ascertain the sum required of him and pay it within the time required by the general statutes; but as to special taxesfor public improvements and the like, the taxpayer is entitled to some specific notice of the proceeding in which it is to be determined whether he or his property is within the

class subject to the tax, and of the amount which he is required to pay, so that he shallhave opportunity to make payment. On failure to pay either a general or a special tax,the property of the taxpayer may be seized and sold; but he may by judicial proceedingsquestion the validity of the tax sought to be exacted.

D ue P rocess of Law As To Taxation; Rule Of Uniformity

The very nature of the power to raise money by means of taxation involves theidea of an apportionment of the burden in accordance with some principle of uniformity.

Absolute uniformity is impracticable and it would be equally inexpedient. The legislativepower may, in its discretion, adjust the burdens of government so as to make them fallin some measure in accordance with the benefits resulting and the protection afforded.Different classes of property may be taxed in different methods, and different classes of persons may be required to contribute to the maintenance of government in differentways; and as long as the classifications made are reasonable and general, they will notbe objectionable, though they may result in some measure of inequality. But if the landsof non-residents are taxed on a higher valuation, or at a higher rate than the lands of residents; or if some persons are required to pay a higher charge for the privilege of pursuing a particular occupation than other persons, the uniform operation of the law

required by the Fourteenth Amendment is denied, and the distinctions thus attemptedwould be invalid.

The principle of uniformity requires some correspondence between burdens andbenefits. The general advantages of government as to the protection of persons andproperty constitute all the benefits necessary to sustain a general tax applicable topersons and property within the jurisdiction of the state; but as to municipal taxes and


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special taxes for improvements, the question may sometimes be raised whether theperson or property taxed is within the benefit of the tax in such sense as to authorize itsimposition. Thus general municipal taxes may properly be laid on all property within themunicipal limits; but if it is attempted to bring within the municipal limits agricultural land,which is not in any way benefited by the municipal government, it may well be said thatthe owner of such property does not belong to the class of persons, and his propertydoes not belong to the class of property, which can properly be subjected to such taxes;and that the tax is not therefore levied according to the principle of uniformity. (See Kellyv. Pittsburgh)

5 . Smiths P rinciples of Ideal Tax System

Adam Smith is generally considered (certainly in the English speaking world) tobe the father of modern political economy. In "The Wealth of Nations" he set forth four maxims, or canons, of taxation, saying that "the evident justice and utility of (these)maxims have recommended them more or less to the attention of all nations. Themaxims were as follows:-

I. The subjects of every state ought to contribute towards the support of thegovernment, as nearly as possible, in proportion to their respective abilities; thatis, in proportion to the revenue which they respectively enjoy under the protectionof the state.

II. The tax which each individual is bound to pay ought to be certain, and notarbitrary. The time of payment, the manner of payment, the quantity to be paid,ought all to be clear and plain to the contributor, and to every other person.

III. Every tax ought to be levied at the time, or in the manner, in which it is mostlikely to be convenient for the contributor to pay it.

IV. Every tax ought to be contrived as both to take out and to keep out of thepockets of the people as little as possible over and above what it brings into thepublic treasury of the state.

These four maxims have been summarized in four words: Equity, Certainty,Convenience and Efficiency. If we measure our existing tax systems against these four maxims arid according to these criteria, we can see just how far they fall short of theideal.

Maxim IV provides grounds alone for condemning our tax systems on the grounds of efficiency. Not only does the government have to employ armies of inspectors and


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assessors, investigators, prosecutors and other officials (including judges), the poor taxpayer is forced by economic circumstances -- to stay competitive he must take fulladvantage of the tax system -- to engage teams of tax managers, advisors, accountantsand lawyers at his own expense. The costs of all these people mean that there is alarge difference between the revenue to the government (net of administrationexpenses) and the total outlay by the taxpayer.

Maxim III is self-explanatory, but universally ignored. It is somehow presumed thatinconvenience in payment is legitimized by the fact that the government isdemocratically accountable - as if this gives the government carte blanche to do what itlikes.

Maxim II makes it clear that the requirement of certainty means certain to the man in thestreet -- to all of us, not just to the "tax profession". If any society is to cohere, its

members must know and be capable of understanding their basic rights under thesociety's constitution. Likewise, a society's tax system must be known and understoodby all its adult members; otherwise, they cannot play their part to the full, and we are allthe worse for it.

Maxim I, I have deliberately left to the last. It is the most controversial. It appears to be justifying the "ability to pay" principle; but whoever heard of taxing people according toi nab i l i ty to pay? In fact the ability to pay principle gets us no further forward. Does it, for example, require a proportional income tax or a progressive income tax?

Levying a tax on existing riches according to their amount is not taxing someoneaccording to his ability; it is merely expropriating existing wealth. To look at tax in theseterms is, as Henry George pointed out, to fail to see that production and distribution areinseparable; they are two sides of the same coin. Taxation falls on and necessarilyaffects, future production and distribution, and distorts it. Taxing someone trulyaccording to their "ability" requires taxing them according not to the income or wealthwhich they do in fact enjoy but according to the income or wealth which they have thecapability of enjoying.

There is a danger in interpreting Smith outside the context of the society in which helived and about which he wrote. Upon a more detailed consideration of Smith's maxims,in the context of their time, it is clear that he considered that under Maxim I taxationshould be levied mainly on economic rent (the rental value of land in its unimprovedstate -- ground rent). In Smith's day, "Rent" and "Revenue" were virtually synonymous.Certainly, the term "Revenue" only covered income from an investment and did notinclude wages and salaries; and in eighteenth century Britain most investment was in


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landed property. So when Smith proposed in Maxim I a tax on the subjects of a state "inproportion to the revenue which they respectively enjoy under the protection of thestale", he was not advocating the modern proportional or progressive income tax, butreally a tax on economic rent. This would be tax on private property in land according toits annual value, being the creation of and protected by the state. Most stateexpenditure at that time was on civil and national defense, which largely meant securinglandowners in their privileged position. (A tax on economic rent is something to which Ishall return later.)

6 . D evelopment Requirements ( C apital F ormation and Allocation, D istributionof Income and W ealth and Economic Stability)

Most generally, the accumulation of capital refers simply to the gathering or

amassment of objects of value; the increase in wealth; or the creation of wealth. Capitalcan be generally defined as assets invested with the expectation that their value willincrease, usually because there is the expectation of profit, rent, interest, royalties,capital gain or some other kind of return.

The definition of capital accumulation is subject to controversy and ambiguities,because it could refer to a net add i t i on to existing wealth, or to a red is tr i but i on of wealth.If more wealth is produced than there was before, a society becomes richer; the totalstock of wealth increases. But if some accumulate capital only at the expense of others,wealth is merely shifted from A to B. In principle, it is possible that a few people or

organizations accumulate capital and grow richer, although the total stock of wealth of society decreases. Most often, capital accumulation involves both a net addition and aredistribution of wealth, which may raise the question of who really benefits from it most

Capital accumulation can refer variously to

y real investment in tangible means of production.y financial investment in assets represented on paper, yielding profit, interest, rent,

royalties, fees or capital gains.y investment in non- product i ve physical assets such as residential real estate or

works of art that appreciate in value.y "human capital accumulation," i.e., new education and training increasing the

skills of the (potential) labour force which can increase earnings from work.

Non-financial and financial capital accumulation is usually needed for economicgrowth, since additional production usually requires additional funds to enlarge the scaleof production. Smarter and more productive organization of production can also


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increase production without increased capital. Capital can be created without increasedinvestment by inventions or improved organization that increase productivity,discoveries of new assets (oil, gold, minerals, etc.), the sale of property, etc.

In modern macroeconomics and econometrics the term ca pi tal format i on is oftenused in preference to "accumulation".

Economic stability refers to an absence of excessive fluctuations in the macroeconomy. An economy with fairly constant output growth and low and stable inflationwould be considered economically stable. An economy with frequent large recessions, apronounced business cycle, very high or variable inflation, or frequent financial criseswould be considered economically unstable.

Income distribution is how a nations total economy is distributed amongst itspopulation. Income distribution has always been a central concern of economic theoryand economic policy. Classical economists such as Adam Smith, Thomas Malthus andDavid Ricardo were mainly concerned with factor income distribution, that is, thedistribution of income between the main factors of production, land, labor and capital.

Modern economists have also addressed this issue, but have been moreconcerned with the distribution of income across individuals and households. Importanttheoretical and policy concerns include the relationship between income inequality andeconomic growth.

7. Issues and

Problems

According to most political philosophies, taxes are justified as they fundactivities that are necessary and beneficial to society. Additionally, progressivetaxation can be used to reduce economic inequality in a society. According to thisview, taxation in modern nation-states benefits the majority of the population andsocial development. [31] A common presentation of this view, paraphrasing variousstatements by Oliver Wendell Holmes, Jr. is "Taxes are the price of civilization". [32]

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 taxsystem should be organized. The American Revolution's "No taxation withoutrepresentation" slogan implied this view. For traditional conservatives, the paymentof taxation is justified as part of the general obligations of citizens to obey the lawand support established institutions. The conservative position is encapsulated inperhaps the most famous adage of public finance, "An old tax is a good tax". [34] Conservatives advocate the "fundamental conservative premise that no one should


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be excused from paying for government, lest they come to believe that governmentis costless to them with the certain consequence that they will demand moregovernment 'services'.". Social democrats generally favor higher levels of taxation tofund public provision of a wide range of services such as universal health care andeducation, as well as the provision of a range of welfare benefits. [35] As argued byTony Crosland and others, the capacity to tax income from capital is a centralelement of the social democratic case for a mixed economy as against Marxistarguments for comprehensive public ownership of capital. Many libertariansrecommend a minimal level of taxation in order to maximize the protection of liberty.

Compulsory taxation of individuals, such as income tax, is often justified ongrounds including territorial sovereignty, and the social contract. Defenders of business taxation argue that it is an efficient method of taxing income that ultimatelyflows to individuals, or that separate taxation of business is justified on the grounds

that commercial activity necessarily involves use of publicly established andmaintained economic infrastructure, and that businesses are in effect charged for this use. Georgist economists argue that all of the economic rent collected fromnatural 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

8 . Other sources of Government Revenue

Government revenue includes all amounts of money received from sourcesoutside the government entity. Large governments usually have an agency or department responsible for collecting government revenue from companies andindividuals

Other sources of government revenue (a.k.a. non-operating revenue) isrevenue from peripheral (non-core) operations. For example, a company thatmanufactures and sells automobiles would record the revenue from the sale of anautomobile as "regular" revenue. If that same company also rented a portion of oneof its buildings, it would record that revenue as other revenue and disclose it

separately on its income statement to show that it is from something other than itscore operations.


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RE F EREN C ES

http://en.wikipedia.org/wiki/Tax

http://www.brainyquote.com/words/ta/taxation228398.html

http://en.wikipedia.org/wiki/Non-tax_revenue

http://en.wikipedia.org/wiki/Government_revenue

Taxation - Kinds Of Taxes http://law.jrank.org/pages/10695/Taxation-Kinds-Taxes.html#ixzz0sIFsxk5c

Michel Aglietta, A Theory of Capitalist Regulation.

Joan Robinson, Essays in the Theory of Economic Growth.

Manual Velzquez, Business Ethics: Concepts and Cases.

'How the IMF Promotes Global Economic Stability'

^ Sullivan, arthur; Steven M. Sheffrin (2003). E conom i c s: Pr i nc iples i n act i on . Upper SaddleRiver, New Jersey 07458: Pearson Prentice Hall. pp. 348. ISBN 0-13-063085-3.http://www.pearsonschool.com/index.cfm?locator=PSZ3R9&PMDbSiteId=2781&PMDbSolutionId=6724&PMDbCategoryId=&PMDbProgramId=12881&level=4.

http://www.businessdictionary.com/definition/taxation-principles.html

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