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Introduction to Taxation

It is a sad fact that almost any countryu00b4s taxation system is so complex that very few people will understand it completely and yet the average citizen and business are expected to comply in full with the tax requirements that are applicable to them. For more info about Taxation visit: https://www.expertsminds.com/assignment-help/taxation-4.html

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Introduction to Taxation

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  1. INTRODUCTIONTOTAXATION TAXTERMINOLOGY,TAXSYSTEM Ing.ŠárkaSobotovičová,Ph.D. INTERNATIONALTAXATIONANDTAXSYSTEMS/NPMZD

  2. INTRODUCTIONTOTAXATION OUTLINEOFTHELECTURE TAXESANDTHEIRFUNCTIONS TAXCLASSIFICATION BASICELEMENTSOFTAXTECHNIQUE TAXSYSTEM TAXPRINCIPLES FACTORSINFLUENCINGTAXSYSTEMS

  3. INTRODUCTIONTOTAXATION TAX • AlbertEinsteinsaid: • „Thehardestthingtounderstandintheworldistheincometax.“ • Itisasadfactthatalmostanycountry´staxationsystemisso complexthatveryfewpeoplewillunderstanditcompletelyand yettheaveragecitizenandbusinessareexpectedtocomplyin fullwiththetaxrequirementsthatareapplicabletothem.

  4. INTRODUCTIONTOTAXATION THENEEDOFTAXATION • Theeconomicresourcesavailabletosocietyarelimited, andsoanincreaseingovernmentexpenditurenormally meansareductioninprivatespending. • Taxationisonemethodoftransferringresourcesfromthe privatetothepublicsector. • Governmentsoftenusealsoothermethodsofrising resources,taxationisusuallythemostimportantsourceof governmentrevenue. • Mostcountrieshaveataxsystemthatdiffersfromthatof othercountries.

  5. INTRODUCTIONTOTAXATION • TAX • Characteristicsoftax: • monetary, • mandatory, • non-equivalent, • nonspecificchargeorotherlevyimposedonataxpayerbya • state. • Taxisimplementedbylawandfailingtopaytaxesispunishable • bylaw. • Taxescanbepaidregularlyoroccasionallybasedoncertain conditionsstipulatedbythetaxlegislation. • Customsdutiesarealsoclassifiedastaxesastheyarepaidon importsofgoodsbasedoncustomsregulation.Theyareenforceable bylawandareincludedintherevenuesofnationalbudget.

  6. INTRODUCTIONTOTAXATION THESYSTEMOFPUBLICINCOMESOFTHECR Taxesarethe basicand the mostsignificant sourceofpublic incomes; however, obviouslytheyare notthe only source. Public incomes Credit -state loans -securitiesissued by state Non-credit Non-tax -compulsorycontributions tostatefunds -charges -otherincomes Tax

  7. INTRODUCTIONTOTAXATION THEFUNCTIONOFTAXES Fiscal • Inthesocietytaxesfulfill thewholerangeof importantfunctionsand theirroleimpliesfrom maineconomic functionsofthepublic sector. • Thefiscalfunction is historicallyoldestone andisincludedinall threeabovementioned functions. Allocation Redistribution Stabilizing

  8. INTRODUCTIONTOTAXATION ALLOCATIONFUNCTION • Thisfunctionisassertedatsymptomsofineffectivenessofthe • marketinallocationofsources. • Taxescanhavetheinfluenceonplacingthemeansintothe spheresorbranchesinwhichthestatewillbeinterested(e.g.by meansoftaxallowances,ortaxholidaysatfulfillingcertain conditionsrelatedtothevolumeofinvestments,new technologies,andcreatingnewjobs). • Incasewhentaxesfulfillthisfunctionwespeakaboutsocalled indirectfinancingorthetaxsupport.

  9. INTRODUCTIONTOTAXATION REDISTRIBUTIONFUNCTION • Theredistributionfunctionrelatestoredistributingincomesin • thesociety. • Taxesallowtomoderatedifferencesinincomesamongpeople. Thisfunctionallowstotransferincomesfromindividualswith higherincomestothegroupsofpopulationwithlowerincomes.

  10. INTRODUCTIONTOTAXATION STABILIZINGFUNCTION • Thestabilizingfunctionoftaxesisanintegralpartofthe economicpolicyofthestateandbymeansofthattaxescan contributetocyclicswingsineconomy. • Intheperiodofprosperity,whenincomesandconsumptionas wellgrowfast,taxestakeawayahigherpartintopublicbudgets. Ithelpsprecedeoverheatingofeconomy. • Onthecontraryintheperiodofstagnationlowertaxeshelpto startuptheeconomy.

  11. INTRODUCTIONTOTAXATION FISCALFUNCTION • Itistheprimaryfunctionwhichensuresmoneyforthepublic • budget. • Attheallocationfunctionitgainsfinancialmeansforfinancing theareasunderestimatedbythemarket, • attheredistributionfunctionitisredistributingmoneywiththeaimtoreduceasleastpartlytheincomeandthesocialinequality inthesociety • andatthestabilizingfunctionincomesareregulatedin • accordancewiththeeconomiccycle.

  12. INTRODUCTIONTOTAXATION CLASSIFICATIONOFTAXES • bytiestotheincomeoftaxpayer • Direct • Indirect • bytax base • Capitaltaxes • Currenttaxes • bytaxentity • Individual • Household • Bothspouses • Allmembersofhousehold • Corporation • bydeterminingthevalueoftaxesduetotaxbase • Specific • Advalorem

  13. INTRODUCTIONTOTAXATION CLASSIFICATIONOFTAXESbytiestotheincomeof taxpayer • Direct • Taxispaiddirectlyfromthe • taxpayer´sincome. • Itissupposedthatdirect taxesshouldn´tbegenerally shiftedtoothertaxpayers. • Forexampleincometaxes ortaxesimposedonthe ownershipofpropertyor transfersofproperty. • Indirect • Indirecttaxesaresupposed tobepaidfromtheprice chargedbythetaxpayerto thecustomer. • Thetaxburdeniseffectively bornbythecustomerand notbythetaxpayerwhoonly collectsthetaxforthe government. • ForexampleVATorexcise • duties.

  14. INTRODUCTIONTOTAXATION CLASSIFICATIONOFTAXESbytaxbase CapitalCurrent • Taxesbasedonastockof • something. • Forexamplewealth taxes,inheritancetax. • Taxesbasedonaflowof • something. • Currenttaxesonincomeare • incometax,corporation tax. • Currenttaxonexpenditure are • VATandexciseduties.

  15. INTRODUCTIONTOTAXATION CLASSIFICATIONOFTAXESbydeterminingthevalueof taxesduetotaxbase • Advalorem • Taxeswhicharebasedon • values. • (x%fromtaxbase) • VATandalldirecttaxes. • Specific(unit) • Taxeswhicharebasedon theweightorsizeofthe tax base. • (xEURfrom • liter,kilogram,…) • Forexampleexciseduties.

  16. INTRODUCTIONTOTAXATION TheOECDclassification

  17. INTRODUCTIONTOTAXATION BASICELEMENTSOFTAXTECHNIQUE TAXABLESUBJECT persontowhomthetaxliabilityapplies(taxpayer) TAXOBJECT legalfactthatcausesthetaxliabilitytoarise(onincome,on existence–thepooltax) TAXBASE Thetaxobjectspecified,quantifiedinmoneyorinotherexactunits TAXRATE Themeasureappliedtotaxbase,quantifyingtaxliability

  18. INTRODUCTIONTOTAXATION TAXABLESUBJECT • Thetaxpayeristheperson,whocarriesthetaxburden,canbe atthesametimethepayerofthetax.Thatmeanstheperson levieshimselfthetaxtothepublicbudget.Thenaturalperson whorunsbusinessontheTradeLicenceCertificatecarriesthe taxburdenfromincomesfrombusinessactivity,thatmeans he/sheisataxpayer,butatthesametimealsoapayeras he/sheisobligedtocalculatethetaxbyhimself/herselfandto levyittothepublicbudget. • Thepayeroftaxesisapayerwhoisobligedtolevythetax fromthelaw.Insomeexamplesitoccursthatheleviesthetax foranothertaxpayer,thatmeanshisdisposableincomewillnot reduce.Inpracticethispossibilityoccursattaxationof employment(thatmeansemployees),whentheemployer(the payerofthetax)isobligedtolevythetaxforthe employee(that meansthetaxpayer)tothepublicbudget.

  19. INTRODUCTIONTOTAXATION TAXOBJECTANDTAXBASE • Thetaxobjectisamagnitudefromwhichthetaxiscollected.It isasubject-matterfortaxation.Abriefdefinitionoftheobjectof taxesisgenerallythepartofthenameofthetaxact(e.g.the IncomeTaxAct,theActonInheritanceTax,etc.). • Itdoesnothavetobealwaysexpressedinvalue;itcanappear alsointhematerialform–properties,buildingsandland,orat theexcisedutyhlofbeer,etc.Consequentlyaftertransferring thematerialformulationoftheobjectoftaxationintoitsvalue formulation,aftertaxreliefs,taxallowancesandtaxexemptions thetaxobjectismadeconcreteinthedefinedtaxbase.

  20. INTRODUCTIONTOTAXATION TAXBASE • Thetaxbaseisnecessarytobedefinednotonlyfactually(i.e. fromwhatthetaxwillbelevied),butalsoasfortime.The taxableperiodisatimeintervalforwhichthebase,theamount oftaxes,issetandthetaxislevied. • Thebasictaxableperiodisgenerallyonecalendaryear.Itis usedatalldirecttaxes.Atexcisedutiesthisintervalisshortened andonemonthoronecalendarquarteristhetaxableperiod. • Taxesinrelationtothetaxableperiodcanbedividedinto: • taxeswhichareexemptedfromthetaxableperiod,i.e.thatthey arecollectedinconnectionwiththeoccurrenceofacertain event(e.g.inheritancetax,gifttax), • Taxesthataresubjecttotheregularcollecting(theincome tax,propertytaxes,etc.).

  21. INTRODUCTIONTOTAXATION TAXRATE Single Differentiated Taxrate Fixed Linear Relative Progressive Thetaxrateisanalgorithmbymeansofwhichfromthetaxbasetheamountof taxesisset.Mostlyeverynationalsystemusesseveraltypesoftaxrateswithinthe tax set. Taxratesaredividedaccordingto: thetypeoftaxsubjectortaxobject therelationtothetaxbase

  22. INTRODUCTIONTOTAXATION TAXRATE • Thesinglerateexistsforexampleattherealestatetransfertax (itmakesx%fromthetaxbase). • ThedifferentiatedrateisusedbytheVATtax(x%,y%)andit canbedifferentiatednotonlyasfortheobjectoftaxes,butalso asforthetaxpayer(e.g.attheinheritancetaxandthegifttax whenthetaxrateislowerforpersonsnextofkinandhighestfor nonrelatives). • Thefixedrateissetbytheabsoluteamountandwefinditat theexciseduties(thetaxrateon1hlofbeer,onecigarette)or atrealestatetaxes(taxationon1m2ofthebuild-uparea).

  23. INTRODUCTIONTOTAXATION TAXRATE • Therelativerateisusedwherethetaxbasehasavalue character.Therateissetasacertainshare(percentage)from thetaxbase.Itisusedatcommontaxes(especiallyatincome taxes). • Thelineartaxrateisconstructedinthewaythatthetaxrises withtheriseofthebaseinthesameratio.Itissetbyacertain percentagefromthetaxbasewhichwillnotchangewith thesize ofthetaxbase.Theadvantageofthelinearrateisasimplicityof thecalculationoftaxes(itmakesx%fromthetaxbase).

  24. INTRODUCTIONTOTAXATION TAXRATE • Theprogressivetaxrateismoredifficultbyitsconstruction. Withthegrowthofthetaxbasethetaxgrowsrelativelyfaster thanthetaxbase.Itcanhavetheformofvariouscalculation algorithms.Themostfrequentlythetaxbracketrateisusedand itisinthewaythatthetaxbaseisdividedintoseveralbrackets asitssizeandforeachbracketanotherlevelofrate(thehigher thebracketthehigherthetax)isset. • Alsoherewefindtwovariants,thatis: • avariantoftheprogressivegraduaterate • avariantoftheprogressivesliding rate

  25. INTRODUCTIONTOTAXATION TAXSYSTEM • Taxesaretheessentialsourceoffinancingofthepublicsector. • Theadvancedtaxsystemischaracteristicbytheeffortto • influence,tostimulateandtorespectthe • social,economic,environmental,external,politicalandother activitiesofthegovernment. • Fromthispointofviewitisobviousthatmanychangesoftaxes correspondtothestrategyofgovernmentprioritiesinanother sphere. • Taxesshouldbeneutralasmostaspossibleandtheirselection • thecheapestforthestateandthetaxpayeraswell.

  26. Table1:Total taxes(includingcompulsoryactualsocialcontributions)as%ofGDPin2018 50,0 46,5 45,1 44,8 43,8 45,0 42,3 42,2 41,8 39,240,240,6 40,1 40,0 39,3 38,9 38,7 38,6 40,0 37,6 37,6 36,9 36,1 35,234,9 34,7 34,1 33,8 33,8 35,0 32,8 31,8 31,030,2 29,9 30,0 26,3 25,0 22,6 20,0 15,0 10,0 5,0 0,0 EU-28 EU-27 EA-19 Belgium Bulgaria Czechia Denmark Germany Estonia Ireland Greece Spain France Croatia Italy Cyprus Latvia Lithuania Luxembourg Hungary Malta Netherlands Austria Poland Portugal Romania Slovenia Slovakia Finland Sweden UnitedKingdom Iceland Norway Source:https://ec.europa.eu/taxation_customs/business/economic-analysis-taxation/data-taxation_en

  27. INTRODUCTIONTOTAXATION TAXSYSTEM–TAXPRINCIPLES • Inconditionsofthemarketeconomytherationaltaxsystemis basedoncertaintaxprinciples: • theprincipleoftaxjustice, • theprincipleoftaxefficiency, • theprincipleoflegalperfection, • theprincipleofsimplicityandcomprehensibility, • theprincipleofcorrectinfluencingoftheconductofeconomic entities. • Fortheconditionsofthemarketeconomyitwasnecessaryto ensurealsoprincipleof: • neutralityand • taxuniversality.

  28. INTRODUCTIONTOTAXATION TAXJUSTICE • Everytaxpayercontributestothepublicbudgetbymeansof taxesandhisparticipationshouldcorrespondtohisabilitytopay andalsotothebenefitwhichhehasfromtheconsumptionof servicesprovidedbythestate.Thisprincipleoftaxjusticeis understoodintwopositions: • Theprincipleoftheabilitytopayconsistsinasimplysaidwayin the factthatthetaxpayersapproximatelywith thesameincomespaythe sametaxestothepublicbudgets. Itisalsointhefactthattheypayas fortheirownpossibilities,thatmeanswhohasmoreshould also contributemoretothebudget(fromthattheprogressivetaxscale at incomesofnaturalpersonsappliedinnearlyallcountries).Fulfillingthis principleis,however,verycomplicated. • Theprincipleofthebenefitisconnected tothefactthatwhouses publicservicesshouldalsopaythetaxesfromwhichtheseservicesare financed(e.g.attheroadtax–thetaxrevenuesareusedforthe maintenanceandbuildingofroads).

  29. INTRODUCTIONTOTAXATION TAXEFFICIENCY • Taxefficiencyisconnectedaboveallwithadministrativecostsof thetaxoption(thedirectonesarecarriedbythestateandthe indirectadministrativecosts(compliancecosts)thatarecarried bytaxpayers). • Theclaimofefficiencyisconnectedwiththeclaimforthe respectivetaxesnottocausedistortioninpricesandbenefitsfor variouskindsofactivities.Distortionleadsthetaxpayerto substitutionoftaxedgoodsorotherservicesthatarenottaxed. Thiswaytheefficiencyinallocationofsourcesineconomyis disrupted.Unproportionaltaxburdenshouldalsorestrictwork effortofpeople,willingnesstosaveandtoacceptbusinessrisks;itshouldcreatebarriersoftheentrytotheproductive foreigncapital.

  30. INTRODUCTIONTOTAXATION TAXPERFECTION • Taxperfectionistheessentialrequirementforcreatingaquality taxsystem. • Intheoppositecasetheeffectivenessofthetaxlawdeclines • andthisobviouslyleadstothetaxevasion. • Thetaskofthetaxadministrationandtaxlegislationisto minimizetaxevasionswhichdecreaseincomesfrompublic budgetsandlimitthetaxjustice. • Thisprinciplerelatesdirectlytosimplicityanddefinitenessof legislation. • Thecollectionoftaxesshouldbesimple,undemandingon administrationandundemandingoncostsforthestateandthe ratepayeraswell.

  31. INTRODUCTIONTOTAXATION SIMPLICITYANDCOMPREHENSIBILITYOFTAX LEGISLATION • Simplicityandcomprehensibilityoftaxlegislationlaysthusin • definitenessandtransparency. • Everytaxpayershouldknowtheextentofhistaxliabilities. • Non-transparencyofthetaxsystemisoneofcauseswhich • discouragetheforeigncapital. • Modern,effectivetaxandcustomsadministration contributesto • thisprinciple.

  32. INTRODUCTIONTOTAXATION THEPRINCIPLEOFCORRECTINFLUENCINGOFTHE CONDUCTOFECONOMICENTITIES • Theprincipleofcorrectinfluencingoftheconductofeconomic • entitiesisnolessimportant. • Thetaxpolicyisasignificantpartofthemacroeconomicpolicy anditshouldsupportthebusinessactivity. • Itshouldmakeinvestmentsadvantageousbefore consumption,economicactivitiesfriendlytoenvironmentand shouldattracttheforeigncapital.

  33. INTRODUCTIONTOTAXATION PRINCIPLEOFNEUTRALITYAND UNIVERSALITY • Bytheprincipleofneutralitytaxesmustnotinfluencetheactual runningreproductiveprocessofbusinessentities. • Taxesrepresenttheexternalfactorwhichdeterminesthe decisionofeverybusinessentityandwhicheverybusinessentitymusttakeintoaccountatpreparationofthebusinessplan. • Taxesplayroleastheconstantparameter inbusinessplans,the • formofownership,kindsofactivitiesorkindsofproducts. • Theydonotmakedifferencesbetweenthedomesticandforeign capital. • Theprincipleoftaxuniversalityisconnectedcloselytothe • principleoftaxneutrality. • Taxesshouldbeneutral,sotheymustbeconstructedas universal,withtheminimalnumberofexceptions.Taxesshould havethebroadesttaxbase(universalityisthesecondfeatureof neutrality).

  34. INTRODUCTIONTOTAXATION FACTORSINFLUENCINGTAXSYSTEMS • Taxsystemsdependonthewholerangeoffactorswhich influenceinmutualcontexturefulfillingofbasicprinciplesand functionsoftaxes. • Thereare: • economicfactors • politicalfactors • cultural-historicfactors • administratively-institutionalfactors • technicalprogress • globalization

  35. INTRODUCTIONTOTAXATION ECONOMICSFACTORS • Thestructureandthesizeoftaxincomesaswelldependmainly oneconomicfactors,suchasthebranchandgeographic structure,thestructureoflabourforce,theeconomicgrowth,the rateofinflationandtherateofeconomyintegrationintothe internationaltrade.Thebranchstructureinfluencestheshareof taxespaidbyindividualpersonsandbycompanies. • Instates,wheretheshareofcompaniesishigher,thereitisalso ashareofemployeeshigherthantheshareofself-employed ones.Employeesaretaxedinaneasierwaythanself-employed persons,asthetaxisdeductedfromtheirwagesatthesource andtheycannotinfluencethetaxbasebydecreasingtheir incomesbytaxexpenses. • Thecountrywithahigherproportionofsmallentrepreneurs shouldinclinetocreatingthetaxsystemwithahighershareof indirecttaxes.

  36. INTRODUCTIONTOTAXATION POLITICALFACTORS • Politicalfactorsplayasignificantroleatdecidingonthetax legislatureinthecountryandtheycan(especiallyintheshort term)overweightheeconomicargumentsaswell. • Anychangeofthetaxsystemisaresultofthepoliticaldecision ofthepartyinpower(aleftwingoneorarightwingone)which implementitspoliticalprogram. • Atpresentissuesinthetaxspherearebecomingasignificant partoftheprogrammeofeverypoliticalparty.

  37. INTRODUCTIONTOTAXATION CULTURAL-HISTORICFACTORS • Culturalandhistoricalfactorsareimportantaswell.The presentinterestoftheEuropeanUnioninharmonizationoftax systemsisofteninthecontrastofnationaltraditions. • Especiallyinthesphereofpersonalincometaxesthiseffort conflictwiththeindividualpolicyofcountrywhichhas establishedwaysoftaxation,taxmoralandthetraditionof functioningofthestateofficescollectingtaxes. • Inthecountries,e.g.ofSouthernEurope,withahighershareof greyeconomyitisrecommendedtoincreasetheshareof indirecttaxesatwhichthetaxevasionsaremoredifficult.

  38. INTRODUCTIONTOTAXATION ADMINISTRATIVELY-INSTITUTIONAL FACTORSAND TECHNICALPROGRESS • Thedisharmonyofthetaxlegislationandthetaxadministration donotcorrespondwithneedsofthecurrentdevelopment. • Theynegativelyinfluencethebusinessenvironmentandthe complexity.Nontransparencyofthetaxlegislationdiscourage domesticandforeigninvestorsfrombusinessactivities. • Technicalprogressaswellisnotlessimportant.Thisprogress influencesalleconomicactivitiesanditisreflectedinthesphere oftaxesaswell.Moreperfectformsoftradeastheinternet shoppingandtradewithsophisticatedfinancialderivatesare alsotheappealforimprovingtaxation. • Ontheotherhandthetechnicaldevelopmentprovidesmore effectiveinstrumentsforcollectingtaxesandforthefightagainst taxevasions.

  39. INTRODUCTIONTOTAXATION FACTORSOFGLOBALIZATION • Thefactorofglobalization whichpartiallyorcompletely annualsalsotaxbordersmanifestsitselfintaxsystemsina moreandmoreintensiveway. • Reformsoftaxsystemsdonotproceedindividually,butthey reactontheinternationaldevelopment.Adaptationtothe legislationoftheEUalsobelongsintothiscategoryoftax adjustment. • Itisnecessarytotakeintoaccountthatthetaxsystemisnota singlephenomenonanditisinfluencedbythewholerangeof factors.Theaimofthestateinthetaxsphereismainlytocreate conditionsfortheeconomicstabilityofthecountry,topromote theeconomicdevelopmentandcompetitivenessandto suppresssocialtensionandtodevelopsocialactivities.

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