Modern Principles of Taxation

The analysis of classical theories allows the formulation of principles that represent the qualities and tendencies of the modern taxation system.

The modern principles of taxation are:

  1. The rational combination of direct and indirect taxes, which implies the utilization of various types of taxes, taking into consideration both the wealth and the income of the taxpayer. In periods of economic crisis it is better to have many sources of budget revenue with a relatively low rate and a large taxation basis then to have 1-2 types of income with high deduction rates.
  2. The universalization of taxation which implies equivalent efficiency requirements to all payers and an equivalent approach to the deduction of the tax amount irrespective of the income source, type of activity, or economic sector. It is not acceptable to introduce additional taxes, increased and differentiated rates, or tax allowances for different types of ownership, organizational or juridical structure of the entity, citizenship of natural persons or other factors. In addition, taxes should not be established or applied on basis of political, economic, and ethnic factors, or other criteria of this type.
  3. One-time taxation implies that one object can only be taxed once through one tax type for a specific period of time indicated in the law.
  4. The scientific approach for the determination of the exact tax rate, which implies setting the deduction rate at a level that would allow the subject to have an income necessary for normal development. The magnitude of the tax burden should allow the normal functioning of the taxpayer after paying the tax amount. It is not acceptable to set the tax rates on basis of short-term interests of insuring state revenues and to the detriment of economic development or to the interests of the taxpayer.
  5. Stability, or the endurance of taxation for a long period of time and the simplicity of deducting the payment. Tax rates should be determined by law and should not be revised frequently.
  6. Differentiation of tax rates in accordance to the level of income, which should not develop into an inhibitive progression (i.e. a significant increase in tax rates), nor should it be transformed into an individualization of rates, which contradicts the basic principles of the market.
  7. The application of a tax allowances system, which would lead to an actual stimulation of investments into entrepreneurship activities and would, at the same time, comply with the principle of social justice, including the insurance of a minimum living standard of the citizens. Allowances should not be established for certain payers only—they should be the same for everybody.

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