Posts Selected From the Category "Business Taxation"

There are three tax collection methods: cadastral, at the source (before the receipt of the income) and through self-assessment (at the declaration of the income).

The cadastre method implies the use of the cadastre. The cadastre is a register of all the typical objects (land, real estate) classified according to physical features and where the average profitability of the object is determined. Physical features include: for the land tax—the size of the land area, the distance from transportation ways and markets; for the house tax—the number of windows, pipes, doors, the type of the building; for industry tax—the number of employees and machines. The average profitability of the object, which is based on physical features, may differ significantly from actual profitability; this constitutes the main disadvantage of this method.

Taxation at the source is calculated and deducted at the accounting unit of the company, which pays the income of the taxation subject. In this way is deducted the tax from wages and salaries. The tax is subtracted by an intermediary—the collector (tax agent) before the receipt of the tax by the subject, which excludes the possibility of tax evasion. Collection at the source is done for taxing income of employed personnel and for other relatively fixed incomes.…

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

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A number of principles that characterize taxation in general and the taxation system more specifically were set forth by Adam Smith. These are:

1. The principle of justice, which promotes the universality of taxation and the evenness of tax distribution among citizens in correspondence with their revenues (“the subjects of the state must participate in the maintenance of the government in correspondence with the income that they make use of under the protection and with the help of the state”). This principle means that taxes must be deducted in conformity with the capacity of the payer, who is obligated to take part in financing a corresponding share of the state’s expenditures. In the international practice, there are two methods of implementing the justice and equality principle. The first method entails insuring the benefit of the taxpayer. According to this approach, taxes paid must correspond to the benefits received by the taxpayer from the services of the state, i.e. the taxpayer receives back a part of the tax paid through various transfers from the state budget covering compensations, the financing of education, health protection, etc. Hence, in this case the approach is connected to the structure of budget expenditures. The second approach depends on the capacity of the taxpayer to pay taxes.

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Attempts to provide a theoretical grounding to the practice of taxation are reflected in taxation theories, the evolution of which took place together with the development of various directions in economic thought.

For a long time, the classical taxation theory was of most importance. As a result, taxation was only granted the fiscal role of providing state revenues. A. Smith is considered to be the father of the scientific taxation theory. In his monograph “An Inquiry into the Nature and Causes of the Wealth of Nations” A. Smith gave a definition of the taxation system, indicating the main conditions for its formation and putting forward four main taxation principles: equity, determination, convenience and thrift of taxation administration. Smith’s work was developed later on by D. Ricardo, J. Mills, and W. Petty. All the theoretical deliberation and scientific debates of those years were focused on one singular aspect: that the execution of the taxation’s function—the provision of state revenues—is achieved on basis of the principles of equity and justice. Naturally, this theoretical approach to the nature and role of taxation changed in the course of many decades and centuries, when economic relations became more complex and the need for the intensification of the state’s regulatory role became more stringent.…

Taxes are a defined as mandatory payments of the contributors to the budget and to the extra-budgetary funds in the amount determined by law and within the stipulated deadlines.

The functions of taxes are a manifestation of their essence; they are a means to represent the characteristics of taxes. The functions of taxation illustrate its social purpose of the value-based distribution and redistribution of income. Each of the functions fulfilled by the taxation instrument is a manifestation of an internal feature, an indicator or trait or this economic category.

There are five main functions of taxes: fiscal, redistributory, regulating, controlling, and promoting.

1) The main function of taxation is the fiscal one. It is through fiscality that taxes play their role in the formation of the state budget necessary for the realization of national and holistic state programmes. The fiscal function provides for the achievement of the main social goal of taxation—the formation of the state’s financial resources necessary for executing the role of the latter (defense, social, environmental protection, etc.)

2) The allocation function of taxation expresses their essence as a special centralized instrument of allocation relations and consists of the social income redistribution among various groups of citizens: from wealthy to deprived ones, which ultimately provides for the assurance of the social stability of the population.…