Cannons of Taxation

7/30/2019 Cannons of Taxation

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11/22/2012 (C) Muhammad Abdul Mazid 2010


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Defining Tax

To tax (from the Latin taxo; "I estimate", which in turn is fromtang; "I touch").

Taxes consist ofdirect tax orindirect tax, and may be paid inmoney or as its labour equivalent .

A tax may be defined as a "pecuniary burden laid uponindividuals or property owners to support the government, apayment exacted by legislative authority."

A tax "is not a voluntary payment or donation, but anenforced contribution, exacted pursuant to legislative

authority" and is "any contribution imposed by government ,whether under the name of toll, tribute, tallage, duty, custom,excise, vat, income tax ,subsidy, aid, supply, or other name.
http://en.wiktionary.org/wiki/en:taxohttp://en.wiktionary.org/wiki/en:tangohttp://en.wikipedia.org/wiki/Direct_taxhttp://en.wikipedia.org/wiki/Indirect_taxhttp://en.wikipedia.org/wiki/Moneyhttp://en.wikipedia.org/wiki/Moneyhttp://en.wikipedia.org/wiki/Indirect_taxhttp://en.wikipedia.org/wiki/Direct_taxhttp://en.wiktionary.org/wiki/en:tangohttp://en.wiktionary.org/wiki/en:taxo


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The Four "R"s

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

The main purpose is revenue: taxes raise money to spend on 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 repricing. Taxes are levied to addressexternalities: tobacco is taxed, for example, to discourage smoking, andmany people 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 studies. have shown that direct taxation (such as income taxes)generates the greatest degree ofaccountability and better governance,whileindirect taxation tends to have smaller effects.
http://en.wikipedia.org/wiki/Revenuehttp://en.wikipedia.org/wiki/Redistribution_(economics)http://en.wikipedia.org/wiki/Repricinghttp://en.wikipedia.org/wiki/Tobaccohttp://en.wikipedia.org/wiki/Carbon_taxhttp://en.wikipedia.org/wiki/Representation_(politics)http://en.wikipedia.org/wiki/Direct_taxationhttp://en.wikipedia.org/wiki/Accountabilityhttp://en.wikipedia.org/wiki/Indirect_taxationhttp://en.wikipedia.org/wiki/Indirect_taxationhttp://en.wikipedia.org/wiki/Accountabilityhttp://en.wikipedia.org/wiki/Direct_taxationhttp://en.wikipedia.org/wiki/Representation_(politics)http://en.wikipedia.org/wiki/Carbon_taxhttp://en.wikipedia.org/wiki/Tobaccohttp://en.wikipedia.org/wiki/Repricinghttp://en.wikipedia.org/wiki/Redistribution_(economics)http://en.wikipedia.org/wiki/Revenue


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Types of Taxes

Ad valorem

An ad valoremtax is one where the tax base is the valueof 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 valorem taxis typically imposed at the time of a transaction (sales taxor value added tax (VAT)) but it may be imposed on anannual basis (property tax) or in connection with anothersignificant event (inheritance tax or tariffs). An alternative

to ad valorem taxation is an excise tax, where the taxbase is the quantity of something, regardless of its price


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Sales tax, Value Added Tax

Goods and Services Tax Sales taxes are levied when a commodity is sold to its final consumer.

Retail organizations contend that such taxes discourage retail sales.

A value added tax (VAT), also known as 'Goods and Services Tax' (G.S.T),Single Business Tax, or Turnover Tax in some countries, applies theequivalent of a sales tax to every operation that creates value. To give an

example, sheet steel is imported by a machine manufacturer. Thatmanufacturer will pay the VAT on the purchase price, remitting that amountto the government. The manufacturer will then transform the steel into amachine, selling the machine for a higher price to a wholesale distributor.The manufacturer will collect the VAT on the higher price, but will remit tothe government only the excess related to the "value added" (the price overthe cost of the sheet steel). The wholesale distributor will then continue the

process, charging the retail distributor the VAT on the entire price to theretailer, but remitting only the amount related to the distribution mark-up tothe government. The last VAT amount is paid by the eventual retailcustomer who cannot recover any of the previously paid VAT. For a VATand sales tax of identical rates, the total tax paid is the same, but it is paidat differing points in the process.


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Excise Duty

an excise is used to compensate a party to atransaction for alleged uncontrollable abuse;

Excises (or exemptions from them) are alsoused to modify consumption patterns (social

engineering). For example, a high excise is usedto discourage alcohol consumption, relative toother goods. This may be combined withhypothecation if the proceeds are then used topay for the costs of treating illness caused byalcohol abuse. Similar taxes may exist ontobacco, pornography, etc., and they may becollectively referred to as "sin taxes".
http://en.wikipedia.org/wiki/Social_engineering_(political_science)http://en.wikipedia.org/wiki/Social_engineering_(political_science)http://en.wikipedia.org/wiki/Alcoholic_beveragehttp://en.wikipedia.org/wiki/Tobaccohttp://en.wikipedia.org/wiki/Pornographyhttp://en.wikipedia.org/wiki/Sin_taxhttp://en.wikipedia.org/wiki/Sin_taxhttp://en.wikipedia.org/wiki/Pornographyhttp://en.wikipedia.org/wiki/Tobaccohttp://en.wikipedia.org/wiki/Alcoholic_beveragehttp://en.wikipedia.org/wiki/Social_engineering_(political_science)http://en.wikipedia.org/wiki/Social_engineering_(political_science)


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Tariffs

Customs Duty/Import Duty/Export Duty tariff (also called customs duty or impost) is a charge for the

movement of goods through a political border. Tariffs discouragetrade, and they may be used by governments to protect domesticindustries. A proportion of tariff revenues is often hypothecated topay government to maintain a navy or border police. The classicways 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, investmentpolicy, and agricultural policy.

A trade bloc is a group of allied countries agreeing to minimize oreliminate tariffs against trade with each other, and possibly to

impose protective tariffs on imports from outside the bloc. A customs union has a common external tariff, and, according to

an agreed formula, the participating countries share the revenuesfrom tariffs on goods entering the customs union.
http://en.wikipedia.org/wiki/Tradehttp://en.wikipedia.org/wiki/Smugglinghttp://en.wikipedia.org/wiki/Tax,_tariff_and_tradehttp://en.wikipedia.org/wiki/Industrial_policyhttp://en.wikipedia.org/wiki/Investment_policyhttp://en.wikipedia.org/wiki/Investment_policyhttp://en.wikipedia.org/wiki/Agricultural_policyhttp://en.wikipedia.org/wiki/Trade_blochttp://en.wikipedia.org/wiki/Customs_unionhttp://en.wikipedia.org/wiki/Customs_unionhttp://en.wikipedia.org/wiki/Trade_blochttp://en.wikipedia.org/wiki/Agricultural_policyhttp://en.wikipedia.org/wiki/Investment_policyhttp://en.wikipedia.org/wiki/Investment_policyhttp://en.wikipedia.org/wiki/Industrial_policyhttp://en.wikipedia.org/wiki/Tax,_tariff_and_tradehttp://en.wikipedia.org/wiki/Smugglinghttp://en.wikipedia.org/wiki/Trade


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Income Tax An income tax is a tax levied on the income of individuals or business

(corporations or other legal entities). Various income tax systems exist, with

varying degrees oftax incidence. Income taxation can be progressive,proportional, orregressive. When the tax is levied on the income ofcompanies, it is often called a corporate tax, corporate income tax, or profittax. Individual income taxes often tax the total income of the individual (withsome deductions permitted), while corporate income taxes often tax netincome (the difference between gross receipts, expenses, and additional

write-offs). Principles of Income Tax The "tax net" refers to the types of payment that are taxed, which included

personal earnings (wages), capital gains, and business income. The ratesfor different types of income may vary and some may not be taxed at all.Capital gains may be taxed when realized (e.g. when shares are sold) orwhen incurred (e.g. when shares appreciate in value). Business income mayonly be taxed if it is significant or based on the manner in which it is paid.Some types of income, such as interest on bank savings, may be consideredas personal earnings (similar to wages) or as a realized property gain(similar to selling shares).
http://en.wikipedia.org/wiki/Taxhttp://en.wikipedia.org/wiki/Incomehttp://en.wikipedia.org/wiki/Tax_incidencehttp://en.wikipedia.org/wiki/Progressive_taxhttp://en.wikipedia.org/wiki/Flat_taxhttp://en.wikipedia.org/wiki/Regressive_taxhttp://en.wikipedia.org/wiki/Corporate_taxhttp://en.wikipedia.org/wiki/Wageshttp://en.wikipedia.org/wiki/Capital_gainhttp://en.wikipedia.org/wiki/Capital_gainhttp://en.wikipedia.org/wiki/Wageshttp://en.wikipedia.org/wiki/Corporate_taxhttp://en.wikipedia.org/wiki/Regressive_taxhttp://en.wikipedia.org/wiki/Flat_taxhttp://en.wikipedia.org/wiki/Progressive_taxhttp://en.wikipedia.org/wiki/Tax_incidencehttp://en.wikipedia.org/wiki/Incomehttp://en.wikipedia.org/wiki/Tax


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Types of Income Tax Personal A personal or individual income tax is levied on the total income of the individual (with some

deductions permitted). It is often collected on a pay-as-you-earn basis, with smallcorrections made soon after the end of the tax year.

Corporate Corporate tax refers to a direct tax levied by various jurisdictions on the profits made by

companies or associations and often includes capital gains of a company. Earnings aregenerally considered gross revenue minus expenses. Corporate expenses that relate tocapital expenditures are usually deducted in full.

Payroll A payroll tax generally refers to two kinds oftaxes. Taxes which employers are required towithhold from employees' pay, also known as withholding, pay-as-you-earn (PAYE) orpay-as-you-go (PAYG) tax..

Inheritance The inheritance tax, estate tax and death duty are the names given to various taxes which

arise on the death of an individual. In international tax law, there is a distinction between anestate tax and an inheritance tax: the former taxes the personal representatives of the

deceased, while the latter taxes the beneficiaries of the estate. However this distinction isnot always respected.

Capital gains tax A capital gains tax is the tax levied on the profit released upon the sale of a capital asset. In

many cases, the amount of a capital gain is treated as income and subject to the marginalrate of income tax.
http://en.wikipedia.org/wiki/PAYEhttp://en.wikipedia.org/wiki/Tax_yearhttp://en.wikipedia.org/wiki/Company_(law)http://en.wikipedia.org/wiki/Taxhttp://en.wikipedia.org/wiki/Employerhttp://en.wikipedia.org/wiki/Employeehttp://en.wikipedia.org/wiki/Wagehttp://en.wikipedia.org/wiki/Withholding_taxhttp://en.wikipedia.org/wiki/PAYEhttp://en.wikipedia.org/wiki/PAYGhttp://en.wikipedia.org/wiki/PAYGhttp://en.wikipedia.org/wiki/Capital_gainhttp://en.wikipedia.org/wiki/Capital_gainhttp://en.wikipedia.org/wiki/PAYGhttp://en.wikipedia.org/wiki/PAYGhttp://en.wikipedia.org/wiki/PAYGhttp://en.wikipedia.org/wiki/PAYGhttp://en.wikipedia.org/wiki/PAYGhttp://en.wikipedia.org/wiki/PAYGhttp://en.wikipedia.org/wiki/PAYGhttp://en.wikipedia.org/wiki/PAYEhttp://en.wikipedia.org/wiki/PAYEhttp://en.wikipedia.org/wiki/PAYEhttp://en.wikipedia.org/wiki/PAYEhttp://en.wikipedia.org/wiki/PAYEhttp://en.wikipedia.org/wiki/PAYEhttp://en.wikipedia.org/wiki/PAYEhttp://en.wikipedia.org/wiki/Withholding_taxhttp://en.wikipedia.org/wiki/Wagehttp://en.wikipedia.org/wiki/Employeehttp://en.wikipedia.org/wiki/Employerhttp://en.wikipedia.org/wiki/Taxhttp://en.wikipedia.org/wiki/Company_(law)http://en.wikipedia.org/wiki/Tax_yearhttp://en.wikipedia.org/wiki/PAYEhttp://en.wikipedia.org/wiki/PAYEhttp://en.wikipedia.org/wiki/PAYEhttp://en.wikipedia.org/wiki/PAYEhttp://en.wikipedia.org/wiki/PAYEhttp://en.wikipedia.org/wiki/PAYEhttp://en.wikipedia.org/wiki/PAYE


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The Genesis of Tax System in

Bangladesh

Pre historic days- The revenue law laiddown by Manu- agricultural cess, mine tax,king was entitled to 20% on the profit of all

sales etc. Kautillya s theory of nationalrevenue. Muslim law-the Mughals- zizia

Modern Tax system was brought in by theBritish in India in 1860.

The environment was created by EastIndia Company


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The Genesis.

1757-EIC captured Bengal Bihar and Revenue collection on company law basis through Shetab

Roy types of collectors until 1793

1765-trading of commercial goods from Bengal allowed-

1773- Regulating Act was passed 1793 Permanent Settlement by Lord Cornwallis

1813-free trade introduced, textile export stopped again itwas declared as import item in 1820

1830- Calcutta Docking Company established

1835- English was declared as official language

1838- Bengal Bonded ware house established

1840- tea plantation in the private sector


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The Genesis

Under the British Rule, which took over Indian Administrationafter 1857 mutinies, the first regular Finance Minister Mr Wilsonlevied the Income Tax in 1860, on English model, incomeabove 200 per anum at the rate of 2% ( 200-500) 3% ( above500). Abandoned in 1872-73

Re introduced in 1877 First Income Tax Act was Act II of 1886

Then of 1918 and then finally of 1922

Government of India amended it in 1961

Bangladeshs first adoption was in 1984 as Ordinance Other Tax laws ( Customs Excise etc) were from India via

Pakistan and Vat Law was first introduced in Bangladesh in1991 replacing Sales Tax


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The Genesis Tax Laws are framed by Parliament/ Lawmaker to be imposed on the

citizens who have elected them to do so. It is enforced /implementedby an executive agency

Tax payers are in between law makers and tax collectors Tax laws are old if not archaic, complex, and hazardous to enforce Laws framed in a different context ,faces difficult to enforce in

changed circumstances. Should be appropriately reformed suiting the norms nature and culture

of the people , re-phrased, should follow a pro tax payers philosophy ,pragmatic tax collection procedures should be in place to narrowdown the distances between collector and the taxpayers

The culture of tax evasion should be reviewed in the context ofemerging business, trade and investment in a free and fair playscenario

Tax law enforcing agency NBRs capability. Its structure, Manpower,logistics, training and motivation needed to be streamlined.


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Transparency and simplicity

Another concern is that the complicated tax codes of developedeconomies offer perverse economic incentives. The more details oftax policy there are, the more opportunities for legal tax avoidanceand illegal tax evasion; these not only result in lost revenue, butinvolve additional deadweight costs: for instance, payments madefor tax advice are essentially deadweight costs because they add

no wealth to the economy. Perverse incentives also occur becauseof non-taxable 'hidden' transactions; for instance, a sale from onecompany to another might be liable for sales tax, but if the samegoods were shipped from one branch of a corporation to another,no tax would be payable.

To address these issues, economists often suggest simple and

transparent tax structures which avoid providing loopholes. Salestax, for instance, has been replaced with a value added tax whichdisregards intermediate transactions.
http://en.wikipedia.org/wiki/Economic_incentivehttp://en.wikipedia.org/wiki/Tax_avoidancehttp://en.wikipedia.org/wiki/Tax_evasionhttp://en.wikipedia.org/wiki/Sales_taxhttp://en.wikipedia.org/wiki/Value_added_taxhttp://en.wikipedia.org/wiki/Value_added_taxhttp://en.wikipedia.org/wiki/Sales_taxhttp://en.wikipedia.org/wiki/Tax_evasionhttp://en.wikipedia.org/wiki/Tax_avoidancehttp://en.wikipedia.org/wiki/Economic_incentive


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Costs of compliance

Although governments must spend moneyon tax collection activities, some of the costs,particularly for keeping records and filling outforms, are borne by businesses and by

private individuals. These are collectivelycalled costs of compliance. More complextax systems tend to have higher costs of

compliance. This fact can be used as thebasis for practical or moral arguments infavor of tax simplification , or tax elimination.


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Thank you

Documents

Cannons of Taxation